EQUILIBRIUM OF NORMAL DEMAND AND SUPPLY, CONTINUED, WITH REFERENCE TO LONG AND SHORT PERIODS.
V.V.1
§ 1. The variations in the scope of the term Normal, according as the periods of time under discussion are long or short, were indicated in Chapter III. We are now ready to study them more closely.
V.V.2
In this case, as in others, the economist merely brings to light difficulties that are latent in the common discourse of life, so that by being frankly faced they may be thoroughly overcome. For in ordinary life it is customary to use the word Normal in different senses, with reference to different periods of time; and to leave the context to explain the transition from one to another. The economist follows this practice of every-day life: but, by taking pains to indicate the transition, he sometimes seems to have created a complication which in fact he has only revealed.
V.V.3
Thus, when it is said that the price of wool on a certain day was abnormally high though the average price for the year was abnormally low, that the wages of coal-miners were abnormally high in 1872 and abnormally low in 1879, that the (real) wages of labour were abnormally high at the end of the fourteenth century and abnormally low in the middle of the sixteenth; everyone understands that the scope of the term normal is not the same in these various cases.
V.V.4
The best illustrations of this come from manufactures where the plant is long-lived, and the product is short-lived. When a new textile fabric is first introduced into favour, and there is very little plant suitable for making it, its normal price for some months may be twice as high as those of other fabrics which are not less difficult to make, but for making which there is an abundant stock of suitable plant and skill. Looking at long periods we may say that its normal price is on a par with that of the others: but if during the first few months a good deal of it were offered for sale in a bankrupt's stock we might say that its price was abnormally low even when it was selling for half as much again as the others. Everyone takes the context as indicating the special use of the term in each several case; and a formal interpretation clause is seldom necessary, because in ordinary conversation misunderstandings can be nipped in the bud by question and answer. But let us look at this matter more closely.
V.V.5
We have noticed*33 how a cloth manufacturer would need to calculate the expenses of producing all the different things required for making cloth with reference to the amounts of each of them that would be wanted; and on the supposition in the first instance that the conditions of supply would be normal. But we have yet to take account of the fact that he must give to this term a wider or narrower range, according as he was looking more or less far ahead.
V.V.6
Thus in estimating the wages required to call forth an adequate supply of labour to work a certain class of looms, he might take the current wages of similar work in the neighbourhood: or he might argue that there was a scarcity of that particular class of labour in the neighbourhood, that its current wages there were higher than in other parts of England, and that looking forward over several years so as to allow for immigration, he might take the normal rate of wages at a rather lower rate than that prevailing there at the time. Or lastly, he might think that the wages of weavers all over the country were abnormally low relatively to others of the same grade, in consequence of a too sanguine view having been taken of the prospects of the trade half a generation ago. He might argue that this branch of work was overcrowded, that parents had already begun to choose other trades for their children which offered greater net advantages and yet were not more difficult; that in consequence a few years would see a falling-off in the supply of labour suited for his purpose; so that looking forward a long time he must take normal wages at a rate rather higher than the present average*34.
V.V.7
Again, in estimating the normal supply price of wool, he would take the average of several past years. He would make allowance for any change that would be likely to affect the supply in the immediate future; and he would reckon for the effect of such droughts as from time to time occur in Australia and elsewhere; since their occurrence is too common to be regarded as abnormal. But he would not allow here for the chance of our being involved in a great war, by which the Australian supplies might be cut off; he would consider that any allowance for this should come under the head of extraordinary trade risks, and not enter into his estimate of the normal supply price of wool.
V.V.8
He would deal in the same way with the risk of civil tumult or any violent and long-continued disturbance of the labour market of an unusual character; but in his estimate of the amount of work that could be got out of the machinery, etc. under normal conditions, he would probably reckon for minor interruptions from trade disputes such as are continually occurring, and are therefore to be regarded as belonging to the regular course of events, that is as not abnormal.
V.V.9
In all these calculations he would not concern himself specially to inquire how far mankind are under the exclusive influence of selfish or self-regarding motives. He might be aware that anger and vanity, jealousy and offended dignity are still almost as common causes of strikes and lockouts, as the desire for pecuniary gain: but that would not enter into his calculations. All that he would want to know about them would be whether they acted with sufficient regularity for him to be able to make a reasonably good allowance for their influence in interrupting work and raising the normal supply price of the goods*35.
V.V.10
§ 2. The element of time is a chief cause of those difficulties in economic investigations which make it necessary for man with his limited powers to go step by step; breaking up a complex question, studying one bit at a time, and at last combining his partial solutions into a more or less complete solution of the whole riddle. In breaking it up, he segregates those disturbing causes, whose wanderings happen to be inconvenient, for the time in a pound called Cœteris Paribus. The study of some group of tendencies is isolated by the assumption other things being equal: the existence of other tendencies is not denied, but their disturbing effect is neglected for a time. The more the issue is thus narrowed, the more exactly can it be handled: but also the less closely does it correspond to real life. Each exact and firm handling of a narrow issue, however, helps towards treating broader issues, in which that narrow issue is contained, more exactly than would otherwise have been possible. With each step more things can be let out of the pound; exact discussions can be made less abstract, realistic discussions can be made less inexact than was possible at an earlier stage*36.