Value & Capital, CHAPTER VIII, Section 6

This section examines the effects of an increase in the supply of some factor of production A. When the supply increases, without an increase in demand, the price must fall.  The techniques covered in previous sections can allow the effects on other prices to be worked out as well.

The text calls attention to one type of price effect it calls "particularly interesting."  This is the case of the effect on the price of some other factor of production that is used in the same industry or industries as factor A.  One possibility is that this factor, call it B, is complementary to factor A, and indeed, it has been pointed out previously that complementarity is the most likely relation among factors employed together in production.  The text notes that the direct effect in this case is to raise the price for B;  this makes intuitive sense, as the increased supply of A will lead to an increased quantity being used in production, which increases the demand for B.  But the text also notes that an important indirect effect will work in the opposite direction;  namely, the product produced from A and B is in a sense a substitute for them.  Hence B is a substitute for a substitute of A, which will tend to make its price fall.  Therefore

The net effect on the price of B is thus compounded out of two contrary tendencies, a direct effect tending to raise it, an indirect effect tending to reduce it;  either may be dominant.

If A and B are substitutes, then the combined effects will tend to reduce the price of B.

The section closes by noting that complementary factors are the commodities most likely to increase in price when the supply of a factor increases.  Even here, however, such a price

will only actually rise if the prices of their common products are little affected, that is to say, if the demands for the products are fairly elastic, or the products are good substitutes for other commodities. 

Value & Capital, CHAPTER VIII, Section 5

This section gives several examples of the kinds of analysis made possible by the results of preceding sections, specifically looking at what happens when there is an increased demand for a product.  (The next section will look at what happens when there is an increase in the supply of some factor of production.)

An increased demand for some product X will cause the price of X to rise and, in fact, will have a general tendency to raise prices "throughout the whole system."  Unless X is "a commodity of very great importance," however, the observed price increases may not be significant except for those commodities that are "nearly related" to the product X,   These commodities include factors employed in the production of X.

The increase in demand for X will only cause prices to decline for commodities that are "directly or indirectly complementary with X."  The author divides the complements into three groups as follows:
(1) Commodities complementary with X in consumption -- if the demand for X rises without a corresponding increase in demand for one of these complements, such a complement's price will tend to decrease, although the author notes that, in practice, there may be an increase in demand that masks the tendency toward a price decline.
(2) Products complementary with X in production -- products produced jointly with X will increase in supply as X increases in supply.  Again, absent an increase in demand for the complement, its price will fall.  (The author refers to this as "the familiar text-book case of wool and mutton.")
(3) Factors regressive against X -- As noted earlier in the book, regression is more plausible in the case of joint production than when there is a single product.  Here, the author notes that if any of the joint products are substitutes for X, their production will decrease, and hence the demand for factors needed to produce them may decrease as well.

The indirectly complementary commodities mentioned earlier are "either substitutes of the direct complements, or complements of the direct substitutes (whose prices rise)."  The latter includes such commodities as those that are "complements in consumption of other products whose prices had risen because they needed in their production some of the same factors as were needed for the manufacture of X."  The former includes factors of production for commodities complementary in consumption with X, as well as products for which "production is facilitated" by the decreased prices of these factors.

For those commodities the author calls "remoter indirect complements," the overall prevalence of substitution in a system will tend to "swamp much indirect complementarity."  Hence it is unlikely that their prices will fall.