SUPPLY AND DEMAND *
Ma. DIBBLER'S book, which he calls The Laws of Supply and Demand, professes to be, in his own words, "a direct assault on the orthodox theory of political economy as established by the early English economists." Judged from this professed standpoint the book fails of its purpose. The two points upon which Mr. Dibblee most attacks the early economists are the doctrine of the law of supply and demand and the doctrine of value, and on both these pointa it appears to us that Mr, Dibblee's criticisms add very little to the general body of economic theory. He starts his volume by referring to a con- versation which he bad two or three years ago in New York with some Americans who were trying to find a connexion between the rise in prices and the then recent Congressional elections. One of them closed the conversation by declaring that the matter was settled by the law of supply and demand. Mr. Dibblee challenged this phrase as a piece of bourgeois dogmatism, and set to work to write a book which should deal more scientifically with the law of prices. He takes for his text the statement of the law of supply and demand made by John Stuart Mill. That this statement, like many of Mill's statements, is too rigid we readily admit ; but the average man when be appeals to the law of supply and demand has not the remotest idea what John Stuart Mill's definition was. The average man approaches the question from the point of view of every-day experience, and does not attempt to indulge in those precise definitions which John Stuart Mill and other economists are always aiming at, and which, as will presently be pointed out, Mr. Dibblee himself imitates while condemning. When the ordinary man says that prices are determined by the law of supply and demand he has in his mind some such considerations as the following : Supposing demand to remain constant, prices rise when supply falls off and fall when supply is increased ; supposing supply to remain constant, prices fall when demand falls off and rise when demand increases. Finally : A rise in prices tends to check demand and to stimulate supply, while a fall in prices tends to increase demand and to check supply. We venture to assert that the law of supply and demand thus stated is eternally true, and that there is no practical advantage in attempting to give it any greater precision.
Mr. Dibblee in his earlier pages claims to have disproved the general truth of the law of supply and demand by one or two extreme illustrations. He points out that when a particular security on the Stock Exchange is rising rapidly the increase in price instead of diminishing demand, as theoretically he thinks it ought to do, actually increases demand. But surely he has here overlooked the fact that most buyers on the Stock Exchange do not buy for the sake of obtaining possession of a particular stock, but buy because they hope to make a profit on their purchase. When they observe that the price of a stock is rising rapidly they assume that the rise is going to continue, and that
• The Laws of Sandy and Demand. By George Blaney Dibbles, M.A. Cou- ntable and Co. rs. ed. net] therefore if they buy at once they may later on realize a profit on sale. Or perhaps they are driven, as Mr. Dibblee himself admits, to buy a rising stock because they are ender contract to deliver quantities of that stock at a fixed price. In the Stock Exchange phrase they are " covering " themselves because they are "short" of the stock in question. All that this means is that a particular security of which the supply is strictly limited has, in the estimation of the world, suddenly become more valuable, and therefore the demand for it has increased. There is here not the slightest contradiction to the general law. Mr. Dibblee also tries to find an exception to the law of supply and demand when a glut of any par- ticular commodity occurs. He points out that when a com- modity begins to get cheaper the fall in price will temporarily stimulate demand, but that if the cheapening process con- tinues the time will arrive when there is no demand at all. Surely this only means that the demand is satiated.
It must be added that, while Mr. Dibblee in so many words sets out to challenge the law of supply and demand, he instinctively, in page after page, implies the truth of that law. For example, he points out, on page 86, how the variations in the supply of rubber in Brazil are affecting prices ; and, again, on page 106, he shows how the rarity of the supply of men of talent explains why one man gets £100 a year and another 21,000. His own statement of what be prefers to call the "laws" of supply and demand appears to us to be unnecessarily elaborate and to add nothing whatever to the general knowledge of the subject. He devotes a whole chapter to "the laws of demand," which he divides into (i.) the law of rising demand; (ii.) the law of substituted demand; (iii.) the law of vanishing demand ; (iv.) the law of recurring demand; (v,) the law of intercepted recurrence of demand ; (vi.) the law of the stratification of demand. But when all these elaborately stated laws are analysed they express nothing more than facts with which every one is familiar, as, for example, that where a glut has temporarily occurred in a particular commodity, after a time demand for that commodity will again reappear. Or, again, that in a community composed of various classes of people one class will buy an expensive article and other classes will buy cheaper forma of the same commodity.
The same defect of over-elaboration diminishes the utility of Mr. Dibblee's discussion of the meaning of value. He seems still to hanker after some definition of value which shall be independent of the fact of exchange. No doubt in this respect he has the support of Adam Smith himself, who drew a distinction between value in use and value in exchange ; but later economists have very wisely come to the conclusion that all with which they are concerned is value in exchange, and that for practical purposes it is sufficient for them to deal with that value as expressed in coin of the realm and known as "price."
But, while we find it necessary thus to condemn that portion of Mr. Dibblee's book to which he himself apparently attaches most importance, we are very glad indeed that the book has been published, for the greater part of it is devoted to a theme which has not yet been sufficiently dealt with by other economists. In the intervals of elaborating his own laws of supply and demand, and discussing the question of value, Mr. Dibbles throws a great deal of very useful light upon the part which the seller, as distinct from the manufacturer, plays in the business of production. People who have had no practical experience of business are rather apt to assume that the work of production is finished when the goods have left the factory, and if incidentally they learn what an enormous gap exists between the manufacturer's price and the price charged by the retail shopkeeper to the final customer, they hold up their hands in holy horror at the shopkeeper's extortionate conduct. That is because they do not realize the fact, which Mr. Dibbles very well brings out, that the business of selling is ex- tremely difficult and costly, and must therefore be well paid for. That in practice it is well paid for he shows very neatly by contrasting the wealth of cities like Manchester and London, which are great emporiums, with that of purely manufacturing towns like Burnley and Oldham. It is this costliness of the business of selling which explains the whole machinery of advertising, on which so much of modern busi- ness rests. However well organized a factory may be, how- ever well finished the article produced, it cannot be sold unless the public is aware of its existence and is induced to believe in its utility. Therefore the manufacturer or his agents, the wholesale merchant and the retail dealer, must advertise in order to sell the goods. Mr. Dibblee quotes the President of the Incorporated Society of Advertising Consultants, who estimates that in this country alone £100,000,000 is annually spent upon advertising, which is more than the net output of our engineering industries, including shipbuilding and motor building. In the United States and Canada the proportional expenditure on advertising is very much greater. At a rough guess Mr. Dibblee arrives at the conclusion that, taking the whole of Western Europe and North America together, the cost of selling commodities by various forms of advertise- ment, including travellers' commission, expensive shop-fronts, &c., cannot be much less than £1,200,000,000 a year. On the surface this appears to be a wasteful expenditure, but it has to be remembered that the economies of large production are only possible where there is a large sale, and therefore the cost of advertisement is not necessarily added to the cost of the article, but may be taken off the cost which would be incurred if the article were only produced on a small scale. Moreover, as Mr. Dibblee points out, advertisement not only expands the business of the particular producer who adver- tises, but it seems "to act like yeast in enlivening the whole trade." In other words, since we are dealing with human beings who can only bo affected through their minds, adver- tisement must be looked upon as a method of quickening the activities of the world. By stimulating demand it calls forth fresh supplies and makes us all active in satisfying one another's wants instead of relatively idle, with a lower standard of living.
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