There is not only a difference but a contrast between the immediate and the ultimate effect of an increased demand accompanied by an increased supply .sx The obvious application , however , of the up-sloping curve of supply to the immediate effects of an increased demand has , I think , misled students into the assumption , never sufficiently examined , that there is a large and normal class of industries to which this form of curve permanently applies .sx The remark which has been made with reference to Fig. 36 is also applicable here .sx The lower curve represents a succession of facts and is not a synopsis of co-existing ones .sx Lower ordinates of the supply curve nearer the origin do not represent any actual facts which exist contemporaneously with those represented by the ordinate of the point which the production has actually reached ; whereas the higher ( objective ) significance of the units nearer the origin , as represented by the demand curve , does represent facts that co-exist with the lower objective significance of the marginal units .sx But the same form of curve has often been used for quite a different purpose to which this last objection does not apply , but which is open to other objections still more grave .sx If we select some factor , such as land , to exclude from consideration , and then draw a curve on which we arrange the individual units of the product in order of the proportion in which they depend on this factor and not on the others , we shall again obtain a curve of the form presented in Fig. 37 .sx Thus , if land were the factor excluded from representation in our supply curve , we should register at the origin that individual unit , say of wheat , which had been produced by the smallest output of labour and capital because it was raised on the most fertile land ; that is to say , the land employed in its production , having the highest marginal efficiency , would have been combined with the smallest amount of the other factors .sx In every industry the different units will be produced under very different conditions , and when they are brought to market the ratio in which wages , rent , transport , expenses of management , and so forth , enter into their costs of production will be different in each case , whether we measure some or all of these agents in their proper units , or measure all of them in the general standard ( gold) .sx And we may of course arrange them if we like in the order dictated by the proportion in which any one selected factor or factors ( or all the factors except one or more selected ones ) have entered into the process of their production .sx We should then have a curve of the form represented in Fig. 37 .sx Here the ordinate of a certain unit would not be xc because the total number of units produced is Ox , but that particular unit would be registered in that place because its ordinate is xc .sx It is as if you were to collect a number of men and arrange them in order of their heights .sx A certain man would not be , say , 5 ft .sx 11 in .sx because he was the twentieth man originally brought in , but would be put into the twentieth place because he was 5 ft .sx 11 in .sx The habit of treating land as something wholly exceptional that does not enter into production on the same footing as other factors has led to a frequent use of this form of diagram as though it represented cost of production .sx It will be worth while to dwell on this point for a moment .sx It is usual to speak of wheat which has been grown on specially fertile .sx ground as having been raised " under favourable conditions .sx " This is quite natural and intelligible in itself , but if we translate it into a statement that the cost of production of this wheat has been less than that of other wheat grown on less fertile ground , we at once land ourselves in a tangle of confusion .sx There is no presumption that the cost has been less to the man who raised it , for he has had to pay higher rent for the more fertile land .sx Nor is there any reason to suppose , from the communal point of view , that a smaller sacrifice of open alternatives has been made for this unit of wheat than for any other .sx Just as in a broad generalisation we assume that labour might be withdrawn from the margin of any one and applied at the margin of other industries , not indeed without loss , but without great and conspicuous loss if the transfer were only small , and with a loss that diminishes without limit as we suppose the transfer to be smaller , so we must also assume that if land were withdrawn in small quantities from any given use , agricultural or other , it could be applied to some other use where it would be only a little less valued .sx The cost of production of any commodity , as we have seen , is determined by the significance of the alternatives sacrificed in its production , and there seems to be no kind of justification for excluding land , and the other purposes that it might have served , from the cost of production either of wheat or of anything else .sx If we ask the origin of so strange a practice as that of excluding land ( which , moreover , we cannot separate from capital ) from consideration when estimating the cost of production , the answer seems to be as follows :sx It was taken as an axiom that cost of production determined the value of the product .sx It was then seen that wheat raised upon land for which a high rent had been paid sold for no more than wheat of the same quality that had been raised on inferior land .sx Hence the syllogism :sx " Cost of production determines exchange value ; rent does not affect the exchange value of wheat ; therefore rent is not part of its cost of production .sx " The major premise was false and the conclusion absurd , but so firmly was the premise established as an axiom that even a reductio ad absurdum did not lead to its revision .sx The argument , such as it is , would of course apply just as much to labour , raw material , or capital , as to land .sx For some wheat less has been paid in wages than for other wheat of the same quality ; it would follow that if cost of production determines exchange value , wages are not part of the cost of production .sx The general truth is , as we have seen , that the value of the factors of production is derivative from the value of the product .sx The price or hire of some land is higher than that of other land because its products or services are more valued , but the same is true of all raw material and of all kinds and grades of skill .sx Their value is derivative from the value of the commodity , or ultimately the experience , they produce .sx This derivative nature of the value of factors of production was perceived in the case of land earlier than in other cases ; and thinkers who were still under the impression that in general the product derived its value from the value of the factors of production , and who perceived that this was not true in the case of land , at once set land on a footing of its own , with the resultant confusions which we have been examining .sx A certain semblance of rationality has been given to this arrangement of the units of wheat in the order of the decreasing ratio in which the cost of land stands to the cost of the other factors in their production , by dwelling on the idea that the most fertile land is likely to be occupied first , so that every extension of agricultural industry will be from more to less suitable land ; and then the reaction of the considerations already dwelt on in relation to the immediate effect of a rise or fall of demand has enabled writers to pass from this specific conception of progressive recourse to inferior land in wheat-growing to the general conception of the necessity of progressive recourse to less and less favourable conditions as any industry expands ; and so again a rising curve has been taken , without adequate examination , as representative of a large and normal class of industries .sx But this whole conception is illusory .sx The conditions that are favourable or otherwise to any particular industry are constantly changing , and an increasing scale of production is itself a factor in the change .sx A man may be at a positive disadvantage because he set up his machinery yesterday as against the man who is to set it up to-day .sx Manitoba may offer more favourable conditions for growing wheat for the London market than Essex does .sx It is quite as likely that the established man has to work at a disadvantage because he is committed to less favourable conditions than are now open , as it is that the man who is entering upon the industry is at a disadvantage because he finds all the most favourable sites and conditions preoccupied .sx But probably the most deeply seated of all the predisposing causes which keep the up-sloping curve of cost of production in favour is one that has no connection whatever with the theory of decreasing returns .sx Neither of the intersecting curves of Fig. 20 , on page 499 , has any connection with production , or cost of production , at all .sx Yet one of them slopes up as the other slopes down .sx If we place all the holders on the up-sloping curve , so that all the " supply " is in the hands of the persons whose desires it represents , it is easy to fall into the habit of calling it the " supply " curve .sx We have seen that it is no such thing .sx It is the demand curve of a certain number of the persons in the market arbitrarily grouped together .sx The supply is not represented by a curve at all , but by a length on the abscissa .sx But once use crossing curves to illustrate the determination of the market price , and call the up-sloping one the " supply " curve , and you have at once a figure that you can transfer bodily , and without knowing that you are doing it , to the illustration of the regulation of " supply " as determined by cost of production .sx Thus crossing curves may come to be used indifferently to represent " demand and supply " or " demand and cost of production , " the term " curve of supply " may be used indifferently in either case , the up-sloping curve of the one ( which is merely a down-sloping curve of exactly the same nature as the other , reversed for convenience , and having no constitutional connection with " supply " whatever ) may be transferred to the other ; it may then be read as a curve of diminishing returns and increasing cost of production , and may create a habit of mind to which cases of " increasing return " present themselves as graphically inconvenient phenomena which must be recognised from time to time but can generally be comfortably neglected .sx A more disreputable origin for a respected figure in the economic world it would be difficult to conceive !sx It remains true , however , that there may be industries in which an increased volume of production must normally imply increased cost , and under the limitations insisted on in the parallel case of decreasing cost of production such industries might legitimately be illustrated by a diagram such as that of Fig. 37 .sx But when this very ambiguous diagram is employed without examination to represent unspecified industries that obey the " law of decreasing returns " ; when that law , as originally defined , has been the mere statement of a truism that applies to all industries ; when the unwarrantable exclusion of rent from a place amongst the costs of production , and unwarranted assumptions and delusive analogies as to increasingly unfavourable conditions and as to the nature of supposed " supply " curves , have presided over the construction and the interpretation of the curve and strengthened its hold on the imagination , and when purely geometrical deductions from it have then been applied to important practical matters , it is surely time to submit all the emergent theories to a thorough revision , based on a severely precise definition of the meaning to be assigned to the curve , and a demonstration that it actually represents an important body of industrial fact .sx