In a society based upon division of labour, where everyone produces for a market without any previous arrangement with his fellow producers and without any external direction, the great difficulty lies in adapting the amount of goods supplied to the amount demanded. How, as a matter of fact, are these producers to know at any particular moment what they ought to produce and in what quantities? Moreover, who is to direct and who can restrain them? It is true that Smith was careful to point out that they are not concerned with the satisfaction of all needs, of whatever kind they may be. Their duty lies towards what he calls the “effectual,” not the “absolute,” demand. By effectual demand we are to understand the demand of those who are capable of offering not merely something in exchange for the products which they desire, but of offering at least enough to cover the expenses of raising those products.[169] Society founded upon division of labour and exchange implies that nothing can be gratuitous and every loss involves a sacrifice on the part of some person or other.[170] But if production is carried on in this haphazard fashion how are we to avoid an occasional over-production or an accidental under-supply? Before we can understand this we must acquaint ourselves with Adam Smith’s theory of prices. In the preceding chapter we had occasion to note how Condillac in 1776 put forward a theory of value which was altogether superior to the Physiocrats’. Smith’s book, also published in 1776, betrays not the least sign of Condillac’s influence, and the new theory never comes up for discussion. The very success of the _Wealth of Nations_ had eclipsed the fame of the French philosopher, and Smith’s theory, though quite inferior to Condillac’s, held the field for so many years simply because it won the allegiance of the English economists, whose influence was paramount throughout the first half of the nineteenth century. Its popularity only waned with the publication of the works of Walras, Jevons, and Menger. Its historic interest is further enhanced by the fact that it had the singular good fortune to win the approval both of the socialists and the Liberal economists. It is the fate of writers like Smith, remarkable for wealth of ideas rather than for logical presentation, to impel minds along different and sometimes even opposite paths. Unfortunately the theory of value is not the only one that presents a somewhat hazy outline. We cannot here enter into the details of the theory, but must content ourselves with a mere sketch of it. Even this, however, will immediately enable us to understand its insufficiency, and appreciate the twofold influence which it exercised upon subsequent doctrines.