way in which an increased supply of one thing will react on the demand
for another, similar to our uncertainty as to whether an increased
demand for mutton would augment or diminish the supply of wool. It is,
for instance, of the highest importance to give a clear answer, if we
can, to the question whether an increased supply of capital will
increase the demand for labor. The chief effect of an increased
supply of capital is to facilitate the extended use of expensive
machines: to some extent these machines will increase the demand for
labor; to some extent they will be substituted for it. Which of these
two tendencies will outweigh the other we cannot be absolutely
sure. But fortunately we can be far more nearly sure than was possible
in the analogous case of wool and mutton. An increase in the supply of
capital increases the demand for the commodities, from which the
demand for labor is derived, in both the senses discussed in Chapter
II. First it makes them cheaper to buy, and thus increases the
quantity that will be bought. It is this that is parallel to the
effect of an increased demand for mutton in making it more profitable
to breed sheep. But it also serves to increase the purchasing power
with which to buy commodities, because it increases the aggregate real
wealth of the community, and it thus serves to raise the whole demand
curve. This last consideration is so important as to make it
overwhelmingly probable, apart from the evidence of history, that an
increase in the supply of capital (and the same may be said of an
increase in the supply of the other agents of production) will on
balance increase the demand for labor. The evidence of history points
to the same conclusion. The history of the last hundred years displays
an unprecedented accumulation of capital, and an unprecedented
extension of machinery, associated with an unprecedented improvement
in the standard of living throughout the whole community. This is
powerful testimony in favor of the view that an increase in the supply