22
Large excess of supply over demand; desperate competition among the sellers; dearth of purchasers; forced sale of goods dirt cheap.
But what is the meaning of the rise and fall in prices? What is the meaning of higher price or lower price? A grain of sand is high when compared with a mountain. And if price is determined by the relation between supply and demand, how is the relation between supply and demand itself determined?
Let us turn to the first worthy citizen we meet. He will not take an instant to consider, but like a second Alexander the Great will cut the metaphysical knot by the help of his multiplication table. “If the production of the goods which I sell,” he will tell us, “has cost me £100, and I get £110 by their sale—within the year, you understand—that’s what I call a sound, honest, reasonable profit. But if I make £120 or £130 by the sale, that is a higher profit; and if I were to get a good £200, that would be an exceptional, an enormous profit.” What is it then that serves our citizen as the measure of his profit? The cost of production of his goods. If he receives in exchange for them an amount of other goods whose production has cost less, he has lost by his bargain. If he receives an amount whose production has cost more, he has gained. And he reckons the rise and fall of his profit by the number of degrees at which it stands with reference to his zero—the cost of production.
