A country is in the highest prosperity when there is an active and steady de mand for commodities and labour, and a sufficient supply of them. Any disturb ance of the proportion between one and the other is injurious to the community ; and the injury is greater or less according to the extent and duration of such dis turbance. When the proportion is well adjusted, the whole community derive benefit from the circumstance, both as producers and consumers; when it is dis turbed, they are injured in both capaci ties.
Having described thusgenerally the nature and causes of demand, and its in timate connexion with supply, it becomes necessary to examine the influence of de mand and supply upon one another, and upon production, consumption, prices, and profits. This influence varies according to the circumstances of the market, and the nature of the commodities to which its laws may be applied. These may be best understood by considering, 1st, the effects of a demand exceeding the supply ; and, 2ndly, of a supply exceeding the de mand 1. The first effect of a demand ex c2eding the supply of a commodity, is to raise its price. As more persons want Co buy the commodity than the producers are able or willing to supply, they can not all obtain what they desire ; but must share the supply between them in some manner. But their wants are very much regulated by the cost of gratifying them. One man would purchase an ar ticle for a shilling for which he may be un willing or unable to pay two; while others, rather than forego the purchase, will con sent to pay that amount. Those who have commodities to sell, finding that they have more customers than they can satisfy, im mediately infer that they are selling them us too cheaply, and that they could • of all their stock at a higher price.
price is accordingly raised, when the sale becomes limited to those who are not re strained from buying by the increased price. In principle, though not in out ward form, the market is in the nature of an auction. The sellers endeavour to ob. tain the highest price for their goods ; the price rises with the eagerness of those who wish to buy, and the highest bidders only secure the prizes. In the market, however, the competition of the buyers is not perceptible amongst themselves ex cept through the prices demanded. Their competition determines the prices, but the sellers judge of its extent, and regulate their demands so as to obtain the greatest possible advantage from it.
Some commodities are positively neces sary for the support of the people, of which the supply may fall very short of the demand and be incapable of increase. This is the case when there is a bad har vest in a country which is excluded from a foreign supply by war or by fiscal re strictions. Here the price rises in pro portion to the deficiency of the crops. The competition for food is universal. Some, indeed, may be driven to the con sumption of inferior articles of food, and others to a diminished consumption ; but all must eat. The number of consumers is not diminished, while the supply is re duced; and the price must, therefore, rise and continue high until a fresh supply can be obtained. In a siege the com petition is still greater. The prices of provisions become enormous : the rich alone can buy ; the poor must starve or plunder.
A similar effect is produced if the supply, without being deficient, be con fined to the possession of a small number of persons, who limit it to the consumers in order to secure higher prices. How ever abundant corn might be in a besieged town, if one man were an o riaed by law to sell it, it might rise to a famine price, unless the people broke into the granaries, or the government inter fered with the monopoly. Less in degree but similar in principle is the effect upon prices of every limitation of the market by fiscal restnctions. When any sellers are excluded, the others are enabled to raise their prices.
These are cases in which the supply cannot be increased to meet the demand, or in which the supply is monopolized. But the greater number of commodities may be increased in quantity, and the supply price them is not artificially limited. The price of these also rises when the de mand exceeds the supply : but the in creased price raises the profit of the pro ducer and attracts the competition of others in the market. Fresh capital and labour are applied to the production of the profitable article, until the supply is accommodated to the demand or exceeds it. The prices gradually fall, and at length the profits are reduced to the same level as the profits in other undertakings, or even lower. The encouragement to further production is thus withdrawn, and prices are adjusted so as to secure to the producers the ordinary rate of profits, and no more.