orth nothing, a larger aggregate
sum of money will be spent upon the thing when its price is high than
when it is low, while the opposite is true in the latter case. This
distinction is of considerable importance in connection with many
problems (e.g. of taxation); and the terms, elastic demand and
inelastic demand, are worth remembering. We may thus express the
above conclusions by saying that the demand for sewing-cotton is
highly inelastic, and that the demand for coal miners is more elastic
than that for steel smelters.
Sec.5. _Capital and Labor_. Cases in which it is impracticable to make
any variation in the proportions in which different things are used
together are, however, the exception rather than the rule. Where
variation is possible, we are confronted with an uncertainty as to the
way in which an increased supply of one thing will react on the demand
for another, similar to our uncertainty as to whether an increased
demand for mutton would augment or diminish the supply of wool. It is,
for instance, of the highest importance to give a clear answer, if we
can, to the question whether an increased supply of capital will
increase the demand for labor. The chief effect of an increased
supply of capital is to facilitate the extended use of expensive
machines: to some extent these machines will increase the demand for
labor; to some extent they will be substituted for it. Which of these
two tendencies will outweigh the other we cannot be absolutely
sure. But fortunately we can be far more nearly sure than was possible
in the analogous case of wool and mutton. An increase in the supply of
capital increases the demand for the commodities, from which the
demand for labor is derived, in both the senses discussed in Chapter
II. First it makes them cheaper to buy, and thus increases the
quantity that will be bought. It is this that is parallel to the
effect of an increased demand for mutton in making it more profitable
to breed sheep. But it also serves to increase the purchasing power
with which to buy commodities, because it increases the aggregate real
wealth of the community, and it thus serves to raise the whole demand
curve. This last consideration is so important as to make it
overwhelmingly probable, apart from the evidence of history, that an
increase in the supply of capital (and the same may be said of an
increase in the supply of the other agents of production) will on
balance increase the demand for la
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