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the point of equilibrium is at an intersection of the collective Supply and Demand Curves1.
It may be asked, what is the good of thus deducing an obvious matter of fact, that there is one price in a market. I reply, may we not hope for the sort of advantages which explanation of empirical laws affords in Physics — always enlarged breadth of view, often increased power? We should hope humbly, indeed, mindful of the imperfections of the human, as compared with the physical, sciences.
The hope may derive some encouragement from the instance which comes nearest to our case, being the explanation of a law which applies to human affairs, in part at least, though its principal applications are physical. I refer to the Law of Error, the so-called Gaussian law, which in the present connexion at least might more properly be called Laplace’s law2; the law prevalent in Statistics which is explained by the action of numerous independent agencies supposed to underlie statistical phenomena.
It may be observed, parenthetically, that there is a resemblance not only between the subject-matter of the two laws explained — so far as both relate to human affairs — but also in the causes which form the explanation, the action of great numbers being a necessay part of each cause. But the relation of the economic to the statistical theory is rather a resemblance than an analogy. There is not one law, but two laws; the law of competition, and the law of averages. They are to be condemned who say or imply that the steadiness of normal value is altogether explained by the principle of Statistical Stability3.
- For a variant deduction of the familiar generalization see «Mathematical Physics, p. 34 et seq.
- For a summary of the present writer’s views on this law see the paper on The Application of the Calculus of Probalities to Statistics in «The Bulletin of the International Institute of Statistics» for 1909.
- Suppose a market, with ten Xs on one side, ten Ys on the other; if, as above supposed, their natures or dispositions were constant from one (market-) day to another, the price determined by the play of competition would presumably be much the same from day to day, the range of indeterminateness being very small. Suppose next that the demand and supply schedule for each individual oscillates from time to time; the steadiness of the rate of exchange (though not its determinateness) would be impaired. But suppose further that the numbers on each side are raised