[Return to the Library Edition notes to “Ad Valorem”]
Without entering into any of the subtle conditions of price, I will expand and apply in a single instance the formula I gave in my last paper (if x=the quantity of labour required for production and y=force of demand, the price=xy). I will take the instance, chosen by Mr. de Quincey in his Templar‘s letters, of Hat Making, carrying it, however, a little further.
Case I. Let the population of England be supposed constant, and suppose that they positively require a certain number of hats every year, but that beavers are in plenty one year and easily caught, the next year rare. The price of hats will vary as the quantity of labour required to catch the beavers. y is invariable; xy varies as x (Ricardo‘s rule).
Case II. The demand for hats is complicated with a demand for pheasants‘ feathers in them, which demand, depending on the imaginations of young ladies and their lovers, is liable to inconstancy, and the encouragement to poaching co-relatively inconstant. x and y are both variable; xy doubly variable—greatest at the west end of the town.
Case III. The demand for pheasants‘ feathers expiring, English manufacturers invest a fixed amount of capital in hat making. But a sudden improvement taking place in the taste of the world, the Turks and Chinese resolve to wear nothing but English-made hats. The monarchs of Europe are in consequence reduced to wear hats only on state occasions, and keep their hat-boxes in their treasuries. x is invariable; xy varies as y.
Case IV. Taste retrograding more rapidly than it had advanced, the world resolves to go bareheaded. The hatters‘ stocks in trade are employed for scarecrows. y=0; xy=0.
Case V. The world having caught cold, and wanting something on its head again, impoverished by its former enthusiasm for hats, and wanting xy=0.
Case VI. Some imaginative person having demonstrated that the garlands would look better with diamonds in them, of the size of the Koh-i-Noor, the world immediately demands a supply of such; but, none being forth-coming, goes without. x=infinity, xy=infinity, and nobody can pay it. Although, however, this formula roughly expresses the radical phenomena of prices, in pursuing the practical results into detail, xyn must be used instead of xy, powers of y varying with different articles, but the factor yn being always much more influential on the price than x. Thus Iridium is as rare as gold, and x is nearly constant for it and for gold; but because the gold is beautiful, if the price of Iridium be xy, that of gold will be xy5 or xy6, or some such largely increased sum. Economists also do not notice . . .
Last modified 15 February 2019