* Recently, M. Duchâtel, who had formerly advocated free
trade, with a view to low prices, said to the Chamber: It
would not be difficult for me to prove that protection leads
to cheapness.
**The expression, prix absolus (absolute prices), which
the author employs here and in chap. xi. of the First Series
(ante), is not, I think, used by English economists, and
from the context in both instances I take it to mean actual
money prices; or what Adam Smith terms nominal prices,—
Translator.
For, observe this, that products being exchanged for each other, a relative scarcity of all, and a relative abundance of all, leave the nominal prices of commodities in general at the same point; but this cannot be affirmed of the relative condition of the inhabitants of the two countries.
Let us dip a little deeper still into this subject.
When we see an increase and a reduction of duties produce effects so different from what we had expected, depreciation often following taxation, and enhancement following free trade, it becomes the imperative duty of political economy to seek an explanation of phenomena so much opposed to received ideas; for it is needless to say that a science, if it is worthy of the name, is nothing else than a faithful statement and a sound explanation of facts.
Now the phenomenon we are here examining is explained very satisfactorily by a circumstance of which we must never lose sight.
Dearness is due to two causes, and not to one only.
The same thing holds of cheapness.
It is one of the least disputed points in political economy that price is determined by the relative state of supply and demand.
There are then two terms which affect price—supply and demand. These terms are essentially variable. They may be combined in the same direction, in contrary directions, and in infinitely varied proportions. Hence the combinations of which price is the result are inexhaustible.
High price may be the result, either of diminished supply, or of increased demand.