I think one of the main problems is that there is a lot of useless loot in the game that is only desirable at low levels. My original post for this idea was here > http://forums.elderscrollsonline.com/en/discussion/103987/crafting-upgrades#latest and another reviewed but failed post was here > http://forums.elderscrollsonline.com/en/discussion/comment/1805018#Comment_1805018

Idea:: Add a tab to crafting stations called "Infusion" to give crafters the ability to combine low level material into a higher grade material (consensus is a 3:1 5:1 Ratio)

You could do this with Crafting Materials - Ex:
5 Leather = 1 Thick Leather
5 Thick Leather = 1 Fel Hide

You could do this with Tempers/Resins/Tannins - Ex:
5 Honing Stone = 1 Dwarvin Oil
5 Dwarvin Oil = 1 Grain Solvent
5 Grain Solvent = 1 Tempering Alloy

You could do this with Potions/Water - Ex:
5 VR1 Health Potions = 1 VR5 Health Potions
5 Purified Water = 1 Cloud Mist

Or even combine the potions dropped from the world to make better potions - Ex:
5 VR1 Health Potions + 5 VR1 Stamina Potions = 2 VR1 Health/Stamina Potions

You could do this with Aspect Runestones for enchanting- Ex:
5 Jejota = 1 Denata
15 Denata = 1 Rekuta
15 Rekuta = 1 Kuta

You could do this with Potency Runestones for enchanting- Ex:
5 Derado(v5-v7) = 1 Rekura(v7-v9)
5 Rekura(v7-v9) = 1 Kura(v10-v14)

At these rates, the supply of legendary materials goes up, so price drops down a bit. The demand for lower grade materials go up, so price goes up a bit. Everything is then throttled by vendor price which would keep the economy stable.