f 50_l._ is saved by not
issuing it. If the manufacturer borrowed the additional capital at 5 per
cent., and charged the consumer 10 per cent., he also will have gained 5
per cent. on his advance over and above his usual profits, so that the
manufacturer and Government together gain, or save, precisely the sum
which the consumer pays.

M. Simonde, in his excellent work, _De la Richesse Commerciale_,
following the same line of argument as M. Say, has calculated that a tax
of 4000 francs, paid originally by a manufacturer, whose profits were at
the moderate rate of 10 per cent., would, if the commodity manufactured
only passed through the hands of five different persons, be raised to
the consumer to the sum of 6734 francs. This calculation proceeds on
the supposition, that he who first advanced the tax, would receive from
the next manufacturer 4400 francs, and he again from the next, 4840
francs; so that at each step 10 per cent. on its value would be added to
it. This is to suppose that the value of the tax would be accumulating
at compound interest, not at the rate of 10 per cent. per annum, but at
an absolute rate of 10 per cent., at every step of its progress. This
opinion of M. de Simonde would be correct if five years elapsed between
the first advance of the tax, and the sale of the taxed commodity to the
consumer; but if one year only elapsed, a remuneration of 400 francs,
instead of 2734, would give a profit at the rate of 10 per cent. per
annum, to all who had contributed to the advance of the tax, whether the
commodity had passed through the hands of five manufacturers or fifty.

CHAPTER XXVIII.

ON THE INFLUENCE OF DEMAND AND SUPPLY ON PRICES.

It is the cost of production which must ultimately regulate the price of
commodities, and not, as has been often said, the proportion between the
supply and demand: the proportion between supply and demand may, indeed,
for a time affect the market value of a commodity, until it is supplied
in greater or less abundance, according as the demand may have increased
or diminished; but this effect will be only of temporary duration.

Diminish the cost of production of hats, and their price will ultimately
fall to their new natural price, although the demand should be doubled,
trebled, or quadrupled. Diminish the cost of subsistence of men, by
diminishing the natural price of the food and clothing, by which life
is sustained, and wages will ultimately fall, notwiths