Bert Kelly, “The ruthless aspect of the law of supply and demand,” The Australian Financial Review, December 7, 1979, p. 11. Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 147-49.

Eccles is a sad sod who loves basking in his misery so it is not surprising that people do not find him attractive. I thought, for a while, that his unpopularity was due to his unfortunate personality, his tendency to pontificate at great length about simple things and his unfortunate habit of using three long words where one short one would do. But I now find that almost all economists are unpopular. Eccles goes further and says that, if they aren’t, they are either not good economists or they are deceiving people. He says this is because economists recognise the rule of economic laws, and that these laws will win in the end no matter how much they may be resented.

Fortunately, the economic law that Eccles put forward to illustrate his thesis was the law of supply and demand which is so well known that even Fred knows about it. If things get dearer, then the demand for them decreases. And if they get cheaper, then the demand for them increases. You don’t have to have an economics degree to understand that; even Mavis knows it. If a special is advertised cheaply at our supermarket, Mavis is out like a shot before some other smart housewife beats her to it. So you would think that everyone would recognise that the law of supply and demand will rule the roost in the end. But, though we all know how effectively the law works in the home, on the farm and in the factory, there seems to be a pathetic hope in government and political circles that the law ceases to operate if it becomes a problem in the economy as a whole, particularly if it gets in the way of politicians winning some extra votes.

When the government handed around tariff and quota restrictions for the clothing and textile industries with a long handled shovel, and so made these good far more expensive, it seemed almost startled to find that the demand for these goods had fallen so employment fell away also. So by adding to tariffs and quotas, the poor old government made imports even more difficult to get, so the supply shrank, so prices increased, so the impact on inflation became even worse. And all this without any increase in employment.

We did the same with the car industry. Our pathetic attempts to protect it at a back-breaking cost to the economy has caused the price of cars to rise alarmingly, so the demand for cars has fallen and so has employment. Yet the government goes around scratching its poor puzzled head, wondering what has gone wrong and blaming almost everyone and everything except the law of supply and demand.

The law does not only apply to goods, it also applies to services. People make eloquent speeches, they even write books, urging the government to create employment as if this was something you made in a factory or a farm smithy. Yet if people thought about the problem clearly they would recognise that Australia is bulging with work to be done and that the reason why we have an unemployment problem is that the price of labour has become so high that the demand for it has fallen. Particularly is this so in the field of employment for young people. If it were not for the activities of the unions and the activities of the wage tribunals, the wage rates for juniors would be much lower than they are now, so more juniors would be employed.

The Labor Party recognised, rather belatedly when they were in government, that one man’s wage increase threatened another man’s job. They at last realised that an increase in the price of articles or services depresses the demand for them, no matter how eloquently politicians thunder on their soap boxes or how poignant are the pleas of the philanthropists. Everyone knows, in their hearts, that this is so, that the main reason why unemployment is an endemic problem throughout the Western world is because the powerful union movement has been able to force up the price of labour so high that the demand for it has fallen.

I do not defend the law of supply and demand. Even Eccles is a bit ashamed that it is called an economic law because it certainly has its ruthless aspects. Perhaps it would be nice to have a more gentle law in its place though I admit it is hard to think how one would work. But while the law is in force, we should either recognise, and in the end, obey it, or get the wretched thing rescinded. But for goodness sake don’t let’s pretend it isn’t there and go round kidding people and even ourselves, that we can increase the price of goods and services without decreasing the demand for them. This may help get us votes, but it doesn’t help getting rid of unemployment.