It will be noted that my illustration might be put partly in the form of the supply and demand argument. Increasing demand for cotton in the South leads to higher price of cotton; higher price of cotton makes cotton-growers richer, and enables them to increase their demand for imported goods, for land, and for labor. Supply and demand comes into conflict with the quantity theory, and does not suffer in the conflict! Supply and demand determine particular prices, and particular prices determine the price-level!
Now I wish to generalize this point. I shall show that the quantity theory conflicts with most of our doctrines of prices, as worked out in our systems of economics. I shall show that, in important cases, the quantity theory conflicts with the law of supply and demand, with the doctrine of cost of production, with the capitalization theory, and with the doctrine of imputation as worked out by the Austrians, whereby the prices of labor, land, and other agents of production rise or fall with the prices of the consumption goods which they produce. I shall show the conflict in important cases, and shall show also, in those cases, that it is not the quantity theory which can be sustained.
The general form of the conflict may be stated for all these theories. They are theories of the _relations_ of particular prices, concerned with showing that individual prices are so related that they tend to _vary together_. A rise in one price, according to these theories, tends to bring about _rises_ in others, and _vice versa_. The quantity theory, on the other hand, asserts a relation among individual prices such that a rise in one tends to bring about a _fall_ in others--it requires a _compensatory_ fall at one point, if there has been a rise somewhere else.