Cyclopædia of Political Science, Political Economy, and the Political History of the United States
DEMAND AND SUPPLY, words which express the competition and strife between the sellers and buyers of a product, the former supplying what they wish to exchange, the latter demanding what they need. The result of this competition and strife is the determination of the market price, or price current.
—To understand fully the meaning of this term, we must give to the words demand and supply a well-defined meaning. They are thus explained by Rossi: "Demand expresses not only the quantity considered by itself, but the quantity in its relations to the nature and intensity of the want which causes it to be sought after, and to the magnitude of the obstacles which this want would and is able to surmount in order to its satisfaction. Everybody may desire a carriage and a palace; and assuredly, if the purchase and keeping of them cost but a few dollars, there probably would not be one of us who would not get them. But if, instead of a small sacrifice it is necessary to spend considerable sums, those who wished to supply this demand would diminish in proportion to the greatness of the expense. Undoubtedly the carriage will still be desired, but this desire can not constitute a demand in the market, because some would be unwilling to make, and others could not make, the sacrifice required to surmount the obstacles which opposed the realization of their desire.
—It is the same in the case of supply. Supply does not mean merely the quantity offered, but this quantity combined with the difficulty or facility of production. In fact, if there are in the market to-day 10,000 pairs of stockings, or 1,000,000 needles, can it be affirmed that that is the entire supply? Everybody knows, that, if the demand be urgent, there will soon be an enormous amount of stockings and needles; for these things are easily produced. Consequently, it would not be exact to say that the price is determined solely by the quantity of these commodities found in the market; it is determined also by the facility with which the supply may be increased.
—Let us change the hypothesis. Suppose that we are considering wheat, and that the supply is equal to but two-thirds or four-fifths of the effective demand, you will at once see the aspect of the market change in an alarming manner. On the one hand, the demand is of such a nature as to justify all possible sacrifices in order to satisfy it; on the other, it matters but little that the supply is not much less than the demand; each one fears the deficiency will reach him; and panic increases these anxieties and fears. Each one feels that if he could put off till to-morrow supplying himself with stockings or needles, he can not equally well defer the purchase of food for himself; and as it is known that grain cannot be improvised, that the resource of importation is always feeble and uncertain; as it is known, consequently, that next year's crop must be waited for; the demand becomes more and more active, blind and pressing, and the exchangeable value of wheat surpasses all anticipation. Such is the influence which the scarcity of those things whose quantity can not be increased at will, their utility remaining the same, may exercise over the market.
—Again, by the term demand and supply is not to be understood only the quantity of material things in the market. In demand, we must also take into consideration extreme want and the extent of the want, as well as the means of exchange which the demander has at his command; and in supply, the greater or less facility which producers may have of modifying the condition of the market by competition, and of thus exciting the hopes and fears of buyers and actual holders of the commodity in question."
—The status of demand and supply is made up of moral data, difficult to weigh, and of arithmetical data, which are not always observed. It is impossible to determine the state of business, the number of the suppliers, and the quantity of the supply; the number of those who demand, and the quantity demanded; the reciprocal wants of buyers and sellers; for self-interest may make use of deceit in concealing merchandise, and removing it beyond the calculation of buyers. Supply often comprises absent merchandise, which is or is not yet manufactured, the future quantity of which is still uncertain; either because it depends upon the seasons for its manufacture or transportation, or because it depends upon uncertain circumstances. When the goods are in the market, the merchants, to lessen the supply, feign demand and sales; they make pretended deliveries, which impose upon the buyers, and amount to nothing more than a removal; they sometimes retire from the market a part of what they had placed in it, and hold it for a more favorable moment. The amount of demand is more easily concealed when it is not bodily in the market; as is also the case at times with the amount of the supply.
—If deception is practiced in the case of arithmetical data, it is practiced a fortiori, and by both buyers and sellers, in the case of moral data. Buyers and sellers advance as slowly and cautiously as possible: demand waits for supply, and supply for demand, to say the first word. There is an intention to buy a great deal; a demand for little is made; and this demand is made at different places and of different persons at the same time; but, the price once established, purchases double or increase ten-fold at the current rate or at a slight advance. It is the same thing with sales: sellers offer their goods in different places, to persons who do not see each other; pretense is made of favoring the buyers who are the first to make up their minds; and they increase their business by selling to all on the same terms. Neither party speaks but to ruin his opponent, and says whatever suits his interest at the moment.
—These things occur in all markets, and may easily be observed wherever there are collected together a large number of buyers and sellers, either of merchandise, services, or paper representative of value; as at fairs, in the places where workingmen meet, on the boards of trade, etc. The state of the revenues also exerts an influence on the relation of demand and supply. Those who offer anything for sale seek to ascertain the resources at the command of buyers; and buyers consider the situation of the classes for whom they intend their merchandise.
—Some products whose cost of transportation is very small, go without trouble from one place to another: others can never leave a market to which they have once been carried. Some keep a long time: others are perishable, and must be sold at once. In demand, there are, in like manner, wants which must be satisfied immediately, and others, on the contrary, the satisfaction of which may be postponed for days, months and years.
—We must also mention the influence of accidental circumstances: the fear of seeing a monopoly come to an end, or the certainty of its continuance; the fear of a bad crop, or the hope of an abundant year; the fear or hope of a public event, happy or unhappy, such as the signing of a treaty of peace in troublous times, or the declaration of war, which will throw the country into dreadful danger. We must mention, too, false reports, the circulation of fabricated news, coalition of groups of buyers or sellers, etc.
—In this struggle, those who are expert, prudent, patient, dissembling, cold, circumspect, or well informed and prompt to execute, those possessed of large credit or disposable capital, have a great advantage over those who are in opposite conditions; and it sometimes happens that this advantage gives buyers the superiority over sellers, or sellers over buyers—Lastly, demand and supply react one upon the other. When they are stronger or weaker relatively one to the other, it happens that the greater and stronger one is, the smaller and weaker the other is. In other words, the greater the supply, the more is the demand weakened; the greater the demand, the more is the supply weakened.
—These ideas are borrowed, in part, from J. A. Robert, a writer little known, but sometimes happy in his analyses and his views. These observations agree with those of Rossi, which they complement, show how complex and delicate are the phenomena of demand and supply, and account for the difficulty encountered in popularizing their true theory.
—But how can we formulate in a happier manner the phenomena of demand and supply? This problem tried the acuteness of Ricardo, who pointed out, as the regulator of the changeable value of things, the quantity of labor necessary to produce them, or, better, the cost of production.
—The formula of demand and supply has been the object of the attacks of certain writers, some of them avowed socialists, others socialists without knowing it, who represent it as an iniquitous and barbarous principle, invented by economists, and doomed to disappear in a better constituted society. But when we examine what they wished to say in speaking thus, we see that they have not even understood the object of their criticism. Demand and supply, necessary consequences of the wants of man, of the necessity under which he labors of freely exchanging the fruit of his industry, that is, his products, his labor, or his services in return for the products of the labor of another; demand and supply, evident consequences of the principle of property, are acts so inherent in the nature of man, that it is impossible to conceive of a man who would not perform them. If acts of demand and supply were not allowed, man would come singularly near to the beast. This is the objection made to the principle of competition, under the most ingenious and childish form, to which we need make no other reply than to state it. The followers of Fourier pretended that the communal associations or phalansteries would no longer be subject to the law of demand and supply; but, admitting that exchange should cease to exist between individuals, by reason of this social combination, it is found again in associations which do not suffice for themselves, like the snail in its shell, but are obliged to carry on transactions conformably to all the circumstances indicated by the formula of demand and supply. It is true the communists do not recoil from the dream of a universal association of the human race, from which the notion of mine and thine would be banished; but what can be said to men who assure you that they have discovered a ladder by which they can reach the moon?
—An author, Esmenard du Mazet, who has pretended to discover "new principles of political economy," says. "Demand and supply are good for nothing unless to cover up the ignorance of economists; for they can draw from their theory of the subject no serious consequence, and they put it forward merely for the want of something to say. It has always served as a make-shift to economists. I never think of it but I call to mind a professor of chemistry, otherwise a very able man, who, embarrassed at times in the explanation of certain phenomena, assumed the most rapt and learned air, and said, 'We think that electricity here plays a great part.'" This piece of pleasantry has not the merit of being appropriate; and what piquancy it possesses is to be found in the fact that the author, after disdainfully rejecting the formula of the cost of production of Ricardo, and that of utility, informs us himself that value is fixed by experience; a formula which implies in reality the idea of demand and supply, and whose sole merit is that it is less satisfactory and less intelligible than the others.
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