any branch of natural phenomena is but the prelude to the formulation
of a set of laws, the simpler as the order is more universal, which
describe, and as we say, explain it. Thus the perception of the even,
elliptical courses of the heavenly bodies led to the statement of the
law of gravitation and the laws of motion.

In economics, similar laws have long since been enunciated, and have
proved themselves such valuable instruments for the understanding of
the daily problems of the workaday world, that they have been woven
into the texture of our ordinary speech and thought. I have already
touched upon them in the preceding chapter. But it is now desirable to
set them out in order, in the most concise and formal manner possible.

LAW I. When, at the price ruling, demand exceeds supply, the price
tends to rise. Conversely when supply exceeds demand the price
tends to fall.

LAW II. A rise in price tends, sooner or later, to decrease demand and
to increase supply. Conversely a fall in price tends, sooner or
later, to increase demand and to decrease supply.

LAW III. Price tends to the level at which demand is equal to supply.

These three laws are the cornerstone of economic theory. They are the
framework into which all analysis of special, detailed problems must
be fitted. Their scope is very wide. I have purposely refrained from
introducing into my statement of them any reference to commodities;
for they extend far beyond commodities. Subject to an important
qualification, they apply to capital, the price paid for the use of
capital being what we call the rate of interest. They apply hardly