3 



only so, but the various classes require to be produced in quantities 

 approximating to the relative demand. Only so will the full intrinsic 

 value for any particular class be realized. The argument applies 

 equally to the lower, as to the higher, qualities ; over-production 

 within the class leads to a low, while under-production leads to a high, 

 price. The step from over- to under-production is, fortunately, 

 sufficiently large owing to the flexibility of the market, and this 

 flexibility we must now consider a little more in detail. 



The substitution of superior quality cotton to do the work of 

 inferior can naturally be more readily adopted than the reverse process. 

 The market, therefore, shows greatest flexibility in this direction. 

 But such substitution will only take place, in the absence of any large 

 shortage in total supply, when the price of the superior quality renders 

 the proposition a paying one financially. Such conditions only hold 

 good when the price of superior quality is relatively low or, in other 

 words, when the superior quality is fetching less than its intrinsic 

 value. Such a condition implies a definite loss to the producer. 

 In a country like Egypt, which possesses a monopoly in the production 

 of certain classes of cotton, this probably implies a considerable total 

 loss, since the reduction in price affects the entire out-turn of the 

 superior' quality and not merely that portion which is used as a 

 substitute. The rapidity with which Sakel has replaced other forms 

 in cultivation in Lower Egypt affords an instance of this phenomenon. 

 There is no doubt in my mind that the production of Sakel is far in 

 excess of the demand for the manufacture of those types of thread 

 for which it is peculiarly adapted. Its use has, therefore, been 

 extended to other lines, for which it is not so pre-eminently suited, 

 and such extension has been effected at the expense of the producer, 

 in as far as Sakel is worth less per unit than it would be were only 

 sufficient available to meet the needs of that market which requires 

 the qualities peculiar to Sakel. The present demand is, in fact, a 

 forced one, due to the fact that, even at the depreciated price, the 

 money return for the unit area of production is greater than that 

 given by any other form. 



That, however, is an illustration of one form of market flexibility 

 merely. There is another and more subtle one, the effects of which 

 are harder to diagnose and still more difficult to foresee. I may 

 illustrate this again by reference to Sakel. It was pointed out to 

 me that the large increase in the consumption of Sakel coincided 

 with the enormous development in the production of voiles, for the 

 manufacture of which it is pre-eminently suited. It would appear, 

 therefore, that, but for this coincident development of a demand and 

 of the means of meeting that demand, the price of Sakel would be lower 

 than it is. We must, however, be careful to distinguish between cause 

 and effect here. There appears to be little doubt that the sudden 



