THE PRICE OF WHEAT 141 



crops or the breakdown of transportation facilities. The 

 influence emanates from the supply side but operates 

 through the demand side. 



4. Reaction of Price. Normal Price. 



The transition from the market price to the normal 

 price of wheat is essentially the result of forces operating 

 on the supply. In the determination of normal price 

 supply is the predominating factor. The essence of the 

 idea of normal price is that it is an approximation to 

 the cost of production. If wheat prices fall so low 

 that its production becomes unprofitable, there will be 

 a tendency to withdraw capital from the production of 

 this cereal. The same capital and labour which before 

 were engaged in producing wheat will ultimately be 

 devoted to the production of other crops which yield 

 a larger return. In the event of a rise in the price of 

 wheat, capital and labour are attracted to the industry, 

 and further supplies are put on the market until demand 

 and supply reach a new equilibrium, at which the price 

 is a fair remuneration for cost of production. 



To go back again to market price we found that 

 market values were governed by the relation of demand 

 to stocks actually in the market, with more or less 

 reference to future supplies, and not without some in- 

 fluence of trade combinations. Any increase in demand 

 causes a temporary increase in price, the degree of the 

 intensity of the demand and the probability of meeting 

 the demand with existing appliances, settling the magni- 

 tude of the rise. In short periods the stock of appliances 

 for production is practically fixed. Then, if demand 

 changes, the supply of specialised skill and ability, of 

 suitable machinery and other material capital, and of 

 the appropriate industrial organisation has not time to 

 be fully adapted to demand. The producers have to 



