But here it is necessary to be cautious.  All conclusions as to the effects of causes are necessarily based, implicitly, if not explicitly, upon the assumption “other things being equal.”  This method of reasoning, which some people appear to find so irritating in the economic sphere, and as they say so “theoretical” and “unreal,” is one which they adopt readily enough in every other department of life.  No one, for instance, objects to the statement that the sun, when it comes out, makes a room warmer, although it may very well happen, if a fire is dying at the same time, that the room grows colder in point of fact.  For in our general statement we assume implicitly that “other things” such as fires, are unchanged.  But assumptions of this kind are legitimate only when there is no reason to suppose that the cause, the effects of which are being studied, will itself produce a change in the “other things.”  If (as I have often been told; I really do not know if it is true) the rays of the sun help to put a fire out, the statement made above would be the better for some qualification.

Now we can only say that an increase in demand raises price if we assume the conditions of supply (as represented by the supply curve) to remain unchanged.  But in practice, an increase in demand may cause a change in the conditions of supply.  An increase, for instance, in the demand for a commodity may give rise to a revolution in the methods of production, to the introduction of labor-saving machinery and so forth, which will eventually result in the commodity being produced more cheaply.  It will certainly take a considerable time before reactions of this kind can exert an appreciable influence; and we can, therefore, feel reasonably sure that over a short period an increase in demand will raise the price.  But we cannot be sure what the ultimate effect will be.  A similar alteration in the condition of demand is less likely to result from an increase or decrease in supply; but it may conceivably occur.  We must, therefore, be careful to qualify any general propositions which we lay down in this connection, by explicit reference to a short period of time.  We can add the following to our body of laws:—­

LAW IV.  An increase in demand, or a decrease in supply will tend to
   raise the price for a short period at least.  Conversely a decrease
   in demand, or an increase in supply will tend to lower the price
   for a short period at least.

This law, like the others, applies to commodities, services, capital, to anything which can be said, literally, or by analogy, to have a price.  “A short period” is, however, a vague expression and, since precision is the hallmark of an important law, we must accord to this one a status inferior to that which the preceding three can rightly claim.