would as soon as possible procure similar machines; the supply of chairs, tables, etc. would be very largely increased. Each carpenter, in order to find purchasers, would try to undersell the others, and finally they might be induced to part with the whole of the advantage of the invention to their customers; the wages and profits of the carpenters would return to their former level, and prices would be reduced 50 per cent. This example shews:1st, That when the efficiency of labour and capital are increased, wages and profits rise, and the cost of production is diminished.

2nd, That when this increased efficiency takes place wages and profits may rise, simultaneously with a decrease in prices.

3rd, That where free competition exists between capitalists on the one hand, and labourers on the other, the whole benefit arising from the increased efficiency of capital and labour is generally gained by the consumer. That is to say, that increased efficiency decreases prices, and does not permanently raise the wages of labour or the profits of capital.

It should be here pointed out that although increased efficiency generally operates in reducing the price of the particular article in question, and does not raise the money wages of labour or the profits of capital, yet if the article cheapened by the invention be one which enters into the consumption of labourers and capitalists, the real reward of labour and capital is increased; that is to say, the money distributed in wages and in profits has a greater purchasing power. If the article cheapened be boots, the wages of labour, though remaining at the same sum, would in reality be increased, because the same amount of money would exchange for an increased number of commodities. In the manner just indicated capitalists and labourers have benefited by the application

of steam to industry. The advantage of the immense addition which was thus made to the efficiency of capital and labour could not be permanently retained by the labourers and capitalists in the form of a universal increase in wages or a higher general rate of profit. Competition of other labourers and capitalists prevented that. The ultimate benefit which they derived from the increased efficiency of labour and capital was in the consequent reduction in price of nearly all manufactured commodities. This point will be hereafter further explained.

A summary of the effect of Demand and Supply on Prices. The following is a brief summary of the manner in which the prices of the three classes of commodities above enumerated are acted upon by demand and supply. It must be borne in mind that the price in the case of all these commodities is adjusted in such a way as to equalise the demand with the supply.

In the case of the first class of commodities, those whose supply is absolutely limited, the supply is made equal to the demand by raising the price to such a point that the demand exceeding the supply is withdrawn.

In the case of the second class of commodities, whose supply cannot be increased without increasing cost of production, the demand (owing to the great proportion of this class being composed of the necessaries of life) cannot be greatly reduced: when therefore the demand is in excess of the supply, the supply must be increased. This cannot be done without increasing the cost of production, and in order to recompense this increased exertion of labour and capital, prices rise.

In the case of the third class of commodities, whose supply can be indefinitely increased without increasing their cost of production, when the demand is in excess of the supply, prices rise, and a portion of the demand is withdrawn ; but this manner of equalising the demand to

the supply is only temporary; when the price of a commodity rises above what is necessary to provide the current rate of wages and profits to its producers, production is greatly stimulated. This increased production increases the supply, and prices fall; the adjustment of the supply to the demand ultimately taking place by means of an increased supply.

Having now investigated the causes which regulate the prices of the three classes into which commodities are divided, the next chapter will be devoted to an explanation of the value of money.

QUESTIONS ON CHAPTER III. The Value of Commodities.

I. Into what classes are commodities divided in relation to their value?

2.

What is "cost of production"?

3. What are the principal elements of cost of production as stated by Mr Mill ?

4. What other definition has been given by Prof. Cairnes of cost of production?

5. What is the accurate explanation of the expression "that prices depend upon demand and supply"?

6. Give an illustration of the manner in which the adjustment of prices equalises demand and supply.

7. Explain the manner in which the tendency is exerted to make the market price of a commodity approximate to a sum just sufficient to yield the current rate of wages and profits to the labourer and capitalist who produce it.

8. This approximation takes place only when the supply of the commodity can be increased. In what manner is the price of those commodities adjusted, the supply of which is absolutely limited?

9. What is "effectual demand"?

10. By what two qualities is every article characterised which has an exchange value?

II. Are these qualities always present in the same degree?

12. Give illustrations.

13. Which quality is the more active in determining the price of such a commodity as one of Raphael's pictures? 14. What are the principal of the commodities which become more expensive as their supply is increased?

15. Shew, by an illustration, the operation of the causes by which an additional supply of food must be produced at a greater proportionate expenditure of capital and labour.

16. What causes a demand for an additional supply of food?

17. What circumstance therefore has a stronger tendency than any other to increase the price of food?

18. How is this tendency sometimes counteracted? 19. Mention some other commodities which are subject to the same laws as those which regulate the price of agricultural produce.

20. Name the last of the three classes into which commodities are divided in respect to their value.

21. Are the laws which govern the price of manufactured commodities the same as those which regulate the price of agricultural produce?

22. Explain the reason of the difference existing between them.

23. Illustrate the manner in which the price of manufactured commodities is sometimes decreased when the supply is augmented.

24. In what manner does efficiency of labour act upon cost of production?

25. What is the connection existing between wages, profits, cost of production, and prices?

26. Shew by an illustration that, under certain circumstances, profits and wages can both be raised without increasing prices.

27. What practical conclusion can therefore be drawn respecting the connection of prices with the rate of profit and the wages of labour?

28. When there is a general increase of efficiency of labour and capital, in what way do labourers, capitalists and consumers benefit?

29. Give a summary of the laws which regulate the price of articles of vertu, agricultural produce, and manufactured commodities.

I. If the poor people took to eating grass, could the baker increase the size of his penny loaf?

2. What view of cost of production is taken by Hood in the lines:

"Oh men with sisters dear, men with mothers and wives!

It isn't linen you're wearing out, it's human creature's lives." 3. If the cost of producing food remains the same, what will be the effect if the population of England goes on doubling itself every 60 years?

4. If a machine is invented that greatly facilitates the production of a particular commodity, do you think the inventor should take out a patent for it, and thus secure the advantages to himself instead of allowing, by the effect of competition, the consumers of the commodity to obtain all the benefit of the invention?

5. It has been said that the demand for a thing influences the price of it. Does the desire of a pauper to have a carriage influence the price of carriages? And if not, why not?

6. If some inexpensive means could be invented for