bearing on them. On the contrary, Law I, which all this time
has remained serene and undisturbed by the occasional discomfitures of
Law II, is the gateway through which all questions of currency,
banking and the foreign exchanges should be approached. It is well to
note, as an inexorable corollary of Law I, that prices can rise _only_
if demand exceeds supply, and fall _only_ if supply exceeds demand;
and hence that it is only through the agency of changes in the demand
for and supply of commodities and services that an inflation or
deflation of the currency can influence the price level. Further,
since a condition of things in which supply generally exceeds demand
spells what we know and fear as a trade depression, it may be well to
note at once that falling prices and unemployment are inseparable
bedfellows. For we are far too apt to shut our eyes to these
unpleasant truths. But we cannot pursue them further here; and in the
remainder of this volume we shall not be concerned (except, perhaps,
incidentally) with questions affecting the general level of prices or
of purchasing power; but rather with the relation which the price of
one commodity bears to that of another, with the rate of interest
(which being a rate per cent is not essentially dependent on the price
level), with "real" wages (as distinct from money wages) and the like.

Sec.7. _The Trade Cycle_. But our reference to trade depressions suggests
a final comment on Law II. One small qualification was embodied in our
original statement of it, namely the words "sooner or later." A rise
in price may not check the demand immediately (even if the printing
presses are standing idle in the Treasuries); it may actually
stimulate it for a time. For people may fear that the price will rise
further still, and hasten to buy what they _must_ buy before very
long. Sellers may share the same opinion, and be reluctant on their
side to part. When prices are falling the roles are reversed, and we
are likely to see the sellers tumbling over one another in a frantic
eagerness to sell, the buyers wary and aloof. Sooner or later, indeed,
these tendencies must dissolve and disappear; but they may persist for
a longer period than might seem probable at first. For the raw
material of one trade is, as we say, the finished product of
another. The demand for one thing gives rise to a demand for other
things, for the labor with which to make them, and so on in an
expanding circle. A s