Value & Capital, CHAPTER IV -- THE GENERAL EQUILIBRIUM OF EXCHANGE, Section 1

With this chapter of Value and Capital, Hicks begins Part II of the book -- GENERAL EQUILIBRIUM.  Hicks begins this first section of the chapter by reviewing what was accomplished in his elaboration of the the theory of consumer's demand.  Among the accomplishments were finding "a precise meaning for the assumption that an individual's 'wants' are given:  it must mean that he has a given scale of preferences."  Then he investigated "how an individual with a given scale of preferences, and given supplies of commodities, will seek to exchange those commodities for others, when the prices of both sets (the commodities he gives up and those that he acquires) are given."  Then he explored how those decisions change as prices change.  Finally he extended these findings to groups of individuals.

Hicks next points out that his analysis applies beyond the obvious example of an "ordinary consumer spending his income on the satisfaction of his immediate personal wants."  The necessary condition for the analysis being applicable is that the objects being bought and sold are objects of desire that can be arranged in an indifference system.  Hicks emphasizes that the indifference system must itself be independent of prices, and he highlights two important cases that are excluded.

One is the demand and supply of goods from producers.  A factor of production, to a producer, is ordinarily not something for which he has a place on his own scale of preferences.  His demand for it is a derived demand, depending on the price of its product.  He intends to sell the product, and then satisfy his wants with the proceeds;  without any information about the price of the product, he cannot tell what it will be worth his while to pay for a unit of the factor.
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The other case which is excluded is the case of speculative demand. ... [A] fall in price may fail to increase demand, or may even diminish it, because it creates an expectation of the price falling farther.

Hicks highlights one important example of speculative demand:  the demand for money.  "There is no demand for money for its own sake," he writes, "but only as a meas of making purchases in the future.  It is therefore always liable to be affected by expectations of the future.  Every theory of money has always had to take account of this fact in one way or another."

Hicks also deals briefly with a further exclusion that he calls "a trifle compared with the important exclusions."  This is the "Veblenesque example beloved of the text-books:  the demand for an object of ostentatious expenditure... ."  Veblen's term conspicuous consumption refers to the buying of luxury goods or services as a public display of economic power or status.  Thus if the price of some luxury good were to fall, the demand for it could fall as well.