87 



The illustrations given are of value in giving greater pre- 

 cision to the doctrine of the Primary Law of Price, and 

 helpful in freeing the mind from misconception in the iurther 

 examination of the rival theory of the Law of Economic 

 Prices, viz., the " Ratio of Demand and Supply." This theory, 

 however fallacious, is plausible, and has the prestige of 

 having been tacitly held or expressly advocated by a very- 

 large number of Economists, whose general qualifications are 

 such as to entitle them, at least, to the most respectful con- 

 sideration, even if their conclusions caunot command assent. 



This rival theory claims that Economic Prices are mainly 

 determined and regulated by the varying liatio of the Demand 

 and Supply. 



More explicitly. This doctrine affirms 11 : — " (1). That 

 under free competition (i.e., in the absence of arbitrary 

 barriers) there cannot be two prices for the same commodity 

 in the same market" — a proposition common to both of the 

 rival theories; and the same may be affirmed of the next, viz : — 

 {2). That, when the supply and demand are equal, the price 

 is the exact equivalent of the cost of production. The real 

 and fundamental divergence between the rival theories is 

 contained in the third proposition, viz.: -(3.) That the price 

 rises as demand exceeds the supply, and falls as the supply- 

 exceeds the demand ; and " the rise or fall continues until 

 the demand and the supply are again equal to one another." 



The Ratio of Demand and Supply not the Primary Law of 

 Economic Prices. 



If the claim that the ratio or relative intensity of 

 Demand and Supply, respectively, is the major influence in 

 determining the rise or fall of Economic Prices over a long 

 course of years, it would need proof to sustain the two 

 following propositions : — 



(1) That prices in all cases rise in ratio or proportion as 

 demand exceeds supply in intensity or magnitude, 

 and that, conversely, prices in all cases fall in ratio 

 or proportion as supply exceeds demand in intensity. 



(2) That whenever the ratios or intensities over a number 



of vears touch the equilibrium point, that is, are 

 exactly equal, then the price of the particular 

 commodity or service returns to a measure of value 

 which, in itself, is constant and invariable under 

 such conditions. 



As regards the first of these postulates, it may be affirmed, 

 "with reason, that even if it seems to be true as regards short 

 periods corresponding to the perturbation or fluctuation of 



«. Gunton. 



