Where any fall of price thus brought about quickly stimulates a corresponding increase of demand, stability of prices follows, and there will be a full, healthy production at the lower prices.
The mere fact then that prices are generally lower than they were five or ten years ago is no evidence of depressed trade. Depressed trade signifies not merely low prices but relaxed production: more has been produced than can be sold at the lowest profitable prices, and markets are congested with stock, but less is being produced than could be produced with existing means of production. The fact which faces us in a period of depression is an apparent excess of productive power. If this excess were of labour alone it might be explained with some plausibility as due to the displacement of labour by machinery. For it has been admitted that the first and immediate effect of introducing labour-saving or labour-aiding machines may be a diminution in the demand for labour, even when the labour of making and repairing the machines and of distributing the increased product which finds a sale is taken into consideration. The simultaneous application of a number of new forms of machinery attended by other general economies in the organisation of industry might seem to explain why for a time there should be a general redundancy of labour in all or most of the chief industries of a country. Such an over-supply of labour would result from the accumulated action of "first effects." When the cheapening influences of machinery had time to exercise their full natural influence in stimulating consumption the labour temporarily displaced would be again fully utilised; for the moment, past labour saved and stored in forms of fixed capital would do a great deal of the work which would otherwise be done by present living labour. But such an explanation is wholly negatived by the fact that in a depressed condition of trade there is an excess of forms of capital as well as of labour. There exists simultaneously a redundancy of both factors in production. Labourers are out of work or are in irregular employment, mills and factories are closed or working short time, the output of coal and metals is reduced, and yet with this relaxed production the markets are glutted with unsold goods unable to find purchasers at a price which will yield a minimum profit to their owners. To this must be added, in the case of the extractive industries, agriculture, mining, etc., the exclusion from productive use of land which had formerly found a profitable employment.