Economic equilibrium

“ We can consider what distribution of resources between different uses will be consistent with equilibrium under the influence of normal economic motives in a world in which our views concerning the future are fixed and reliable in all respects;3⁄4with a further division, perhaps, between an economy which is unchanging and one subject to change, but where all things are foreseen from the beginning. ”

“ While thus ruling the oscillations of value, they themselves obey a superior force, which makes value gravitate towards Cost of Production, and which would settle it and keep it there, if fresh disturbing influences were not continually arising to make it again deviate. To pursue the same strain of metaphor, demand and supply always rush to an equilibrium, but the condition of stable equilibrium is when things exchange for each other according to their cost of production, or, in the expression we have used, when things are at their Natural Value. ”

“ A kind of equilibrium establishes itself between the value of all the productions of the land, the consumption of the different kinds of commodities, the different sorts of works, the number of men employed at them, and the price of their wages.
Wages can be fixed and remain constantly at a definite point only in virtue of this equilibrium, and of the influence which all the parts of the society, all the branches of production and commerce, exercise upon one another. ”

“ He never thinks of restoring the equilibrium between the general prices, when the price of the product A has fallen, and when a continued advance on the product B invites him to multiply the latter, by transferring to its cultivation, a more considerable share of his labour and of his capital. ”

“ But whatever may be the source of the difference in price levels, equilibrium will eventually be restored through an international or interlocal redistribution of money and goods brought about by international and interlocal trade. Other elements in the equation of exchange than money and commodities cannot be transported from one place to another. ”

“ When the work is proportioned to the demand, the balance vibrates under the influence of double competition; trade and industry flourish: but as the operation of natural causes must destroy this equilibrium, the hand of a statesman becomes constantly necessary to preserve it. ”

“ Normal equilibrium, however, depends on the slow working of changes in the rates of production and consumption, and would be measured in years. The normal equilibrium, if once established, is permanent so long as the conditions of production and consumption do not change. Slight alterations of these conditions—the exhaustion of mines, the discovery of new leads, etc.—will cause slight variations in the proportions of gold and silver money, that is, in the position of the film f. ”

“ Similiarly if we wish to represent a change in the conditions of supply, such as might result, in the case of a commodity, from a tax imposed on its production, we must draw a new supply curve, ss', which in the case supposed, must lie everywhere above the old supply curve. On the other hand, the decrease or increase in demand or supply, resulting from a change in price, is represented simply by a shifting of the equilibrium from one point to another on the same curve. ”

“ As neither of these scales are sufficient for ascertaining a balance of trade; as such a balance, if obtained in money, could not be lasting, on account of the acuteness of money in search of its equilibrium; as a balance in commodities must be consumed or re-exported to procure other articles of consumption; and as even corn is subject to these laws, it follows that a balance of trade, estimated by either of these scales, is either an idea wholly chimerical, or exposed to perpetual fluctuations. ”

“ The causes which bring money into or carry it out of a country through the exchanges, to restore the equilibrium of trade, and which thereby raise its value in some countries and lower it in others, are the very same causes on which the local value of money would depend, if it were never imported except as a merchandize, and never except directly from the mines. ”

“ When the production of commodities has reached the limits of the world market it is by a cataclysm of this market, by a commercial crisis, that equilibrium is established between the isolated producers, producing each according to his individual calculation, and the market for which they produce, and of the demand of which, both as to quantity and quality, they are ignorant. If competition is to be prevented from making known to the isolated producers the state of the market by the rise or fall of prices, they would be blinded indeed. ”

“ But if, on the other hand, growth in the supply of money does not keep pace with the economy's current production, then prices will fall, the nations's labor force, factories, and other production facilities will not be fully employed, or both. ”

“ But just as certainly as a pendulum, after swinging from one side to the other, tends to rest in a position of equilibrium, so such trade agreements tend to relieve the trade to which they apply of the extreme swing from conditions favoring capital to conditions favoring labor, and vice versa, which so often spells disaster to capital and labor alike. ”

“ Some say: we have produced too much, and others: we have not produced enough. “There will be no equilibrium,” say the former, “no peace and no prosperity until we consume the entire commodity surplus which remains unsold on the market, until we organise production for the future in accordance with the buyers’ demand.”—“There will be a new equilibrium,” say the latter, “if only we double our efforts to accumulate as well as to produce. It is a mistake to believe that there is a glut on the market; no more than half our warehouses are full ”

“ It follows that the basis upon which money should be uttered is this annual capacity of labor, and there should be sufficient uttered to completely measure this capacity, between which two, when once established, there would be an equilibrium produced, which would only require to be permanently regulated and maintained to insure a perfect harmony in the material interests of society. ”

“ The flow of money out of a country causes money to tighten, interest rates on short loans in the large cities to stiffen, and prices slightly to fall. When prices fall, imports decline, as the country is not so good a place to sell in; when prices rise, imports increase, as it is a better place to sell in. As the opposite effect is produced on exports, there occurs immediately a change in the quantity of money which continues until the national credits and debits balance and for a brief time remain in equilibrium. ”

“ Beside the improvements in arts and machinery, there are various other causes which are constantly operating on the natural course of trade, and which interfere with the equilibrium, and the relative value of money.171 Bounties on exportation or importation, new taxes on commodities, sometimes by their direct, and at other times by their indirect operation, disturb the natural trade of barter, and produce a consequent necessity of importing or exporting money, in order that prices may be accommodated to the natural course of commerce ”

“ His employer, on the other hand, does more toward keeping up wages by seeking dear markets for his goods than his conscious efforts amount to in pulling them down. As the heaviest strain on the produce of the workman is the downward one, since all consumers take part in it, wages must fall. All the world clamors for cheap goods. Eventually a point of stable equilibrium must be reached, where very low wages precede very cheap goods. ”

“ Moreover, it is observable that advance in organization, as well as advance in growth, is conducive to a better equilibrium of industrial functions. While the diffusion of mercantile information is slow, and the means of transport deficient, the adjustment of supply to demand is extremely imperfect: great over-production of each commodity followed by great under-production, constitute a rhythm having extremes that depart very widely from the mean state in which demand and supply are equilibrated. ”

“ The natural effect is, that more commodities are exported than before, and fewer imported, and that, on the score of commerce alone, a balance of money will be constantly due from the receiving to the paying country. When the debt thus annually due to the tributary country becomes equal to the annual tribute or other regular payment due from it, no further transmission of money takes place; the equilibrium of exports and imports will no longer exist, but that of payments will ”

“ But if demand and supply are left free, these fluctuations, except the last, are encouragers of commerce, and money is a medium by which they are moderated, and reduced to an equilibrium, if not with exactness, at least with the fidelity of competition. In cases, however, of a legal enhancement of price, money is deprived of its equalizing utility, and is prohibited from diffusing this equilibrium of values, so evidently just, and so highly beneficial to mankind, both by invigorating their exertions, and extending their comforts. ”

“ Thus any tendency on the part of interest to rise above the equilibrium with wages must immediately beget not only a tendency to direct labor to the production of capital, but also the application of wealth to the uses of capital; while any tendency of wages to rise above the equilibrium with interest must in like manner beget not only a tendency to turn labor from the production of capital, but also to lessen the proportion of capital by diverting from a productive to a non-productive use some of the articles of wealth of which capital is composed. ”

“ Where there are a large number of competitors the prices of the commodities supplied by them are leveled down until they reach a point where they will afford only a reasonable margin of profit, and beyond which they will cease to be profitable, and will therefore cease to be supplied until the equilibrium is again established. ”

“ Each must compete with his fellows in the sale of his wares and the purchase of his articles of livelihood. Because of the competition of sellers the wages of labour, the profits of capital, and the prices of goods cannot be forced to untoward heights. Because of the competition of buyers they cannot be driven too low. The equilibrium of this double competitive process assures to each a return which represents the just value of the service, the property right, or the good. Prices, by moving up and down in response to changing conditions, stimulate and retard consumption and production. ”

“ No country can be subjected to such stress as to consent to part with its entire monetary circulation, or even the half of it. On the contrary, every influence which tends to contract the circulation tends to create a condition which makes further contraction more difficult. Rates for the loan of money are affected, prices of imported goods are influenced, imports fall off and exports increase, and inevitably in the modern money market local equilibrium is restored, often with considerable strain, but none the less without pulling down the pillars of the financial temple. ”

“ Generally speaking, it may be said that while the artificial restriction of the supply of workmen in a trade may raise wages for a time, it calls into play forces tending to restore the equilibrium of demand and supply by diminishing demand, and that these forces grow progressively stronger as time goes on, while the restrictive capacity of the combination usually tends to diminish. ”

“ They reveal that the equilibrium is established and maintained by the agency of changes in price, and they enable us to lay it down as perhaps the most important thing that can be said about the price of anything that it will tend to be such as will equate demand and supply. ”

“ In the terms employed by the economist, the ideal point of equilibrium is where the descending curve of the social value of the products due to additional subdivision is met by the ascending curve of disutility due to long-continued and narrow specialization on the part of the individual members of society. ”

“ Many diverse tendencies, some of long standing, some of newer birth, act to produce future results different from those of the present or past. The concept of normal equilibrium is inadequate to account for the distributive situation at any given time; it is misleading with regard to prospective policy.
9.—The preceding sections were devoted to an explanation of the manner in which the relative plenty or scarcity of the various groups or agents of production influenced the sharing out of the product of industry, and of the interactions to which this factor was subject. ”

“ The chief work of money and credit is done in, and because of, "transition periods." Assume a normal equilibrium accomplished, and you have little trading left to do. It will still be necessary, if you have the division of labor, and private enterprise, for goods to pass through as many different hands as there are different independent enterprisers in the stages of production, and on, through merchants, to the consumer. It will still be necessary to pay wages, rents, dividends and interest. ”

“ Thirdly, If that sudden advance in the price of provisions, ended only in an increase almost equally sudden in the price of the products of industry, there could not be then any inconvenience, either to industry or agriculture, in a sudden and proportionate rise which preserved the former equilibrium, and presented the same correspondence between the two revenues; (the [275] only thing that can materially affect the two capitalists, though neither of them think about it.) ”