---
id: book-1-chapter-07
title: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."
book: "1"
chapter: 7
artifact_type: content
---

CHAPTER VII.
OF THE NATURAL AND MARKET PRICE OF COMMODITIES.



      There is in every society or neighbourhood an ordinary or average rate,
      both of wages and profit, in every different employment of labour and
      stock. This rate is naturally regulated, as I shall shew hereafter, partly
      by the general circumstances of the society, their riches or poverty,
      their advancing, stationary, or declining condition, and partly by the
      particular nature of each employment.

      There is likewise in every society or neighbourhood an ordinary or average
      rate of rent, which is regulated, too, as I shall shew hereafter, partly
      by the general circumstances of the society or neighbourhood in which the
      land is situated, and partly by the natural or improved fertility of the
      land.

      These ordinary or average rates may be called the natural rates of wages,
      profit and rent, at the time and place in which they commonly prevail.

      When the price of any commodity is neither more nor less than what is
      sufficient to pay the rent of the land, the wages of the labour, and the
      profits of the stock employed in raising, preparing, and bringing it to
      market, according to their natural rates, the commodity is then sold for
      what may be called its natural price.

      The commodity is then sold precisely for what it is worth, or for what it
      really costs the person who brings it to market; for though, in common
      language, what is called the prime cost of any commodity does not
      comprehend the profit of the person who is to sell it again, yet, if he
      sells it at a price which does not allow him the ordinary rate of profit
      in his neighbourhood, he is evidently a loser by the trade; since, by
      employing his stock in some other way, he might have made that profit. His
      profit, besides, is his revenue, the proper fund of his subsistence. As,
      while he is preparing and bringing the goods to market, he advances to his
      workmen their wages, or their subsistence; so he advances to himself, in
      the same manner, his own subsistence, which is generally suitable to the
      profit which he may reasonably expect from the sale of his goods. Unless
      they yield him this profit, therefore, they do not repay him what they may
      very properly be said to have really cost him.

      Though the price, therefore, which leaves him this profit, is not always
      the lowest at which a dealer may sometimes sell his goods, it is the
      lowest at which he is likely to sell them for any considerable time; at
      least where there is perfect liberty, or where he may change his trade as
      often as he pleases.

      The actual price at which any commodity is commonly sold, is called its
      market price. It may either be above, or below, or exactly the same with
      its natural price.

      The market price of every particular commodity is regulated by the
      proportion between the quantity which is actually brought to market, and
      the demand of those who are willing to pay the natural price of the
      commodity, or the whole value of the rent, labour, and profit, which must
      be paid in order to bring it thither. Such people may be called the
      effectual demanders, and their demand the effectual demand; since it maybe
      sufficient to effectuate the bringing of the commodity to market. It is
      different from the absolute demand. A very poor man may be said, in some
      sense, to have a demand for a coach and six; he might like to have it; but
      his demand is not an effectual demand, as the commodity can never be
      brought to market in order to satisfy it.

      When the quantity of any commodity which is brought to market falls short
      of the effectual demand, all those who are willing to pay the whole value
      of the rent, wages, and profit, which must be paid in order to bring it
      thither, cannot be supplied with the quantity which they want. Rather than
      want it altogether, some of them will be willing to give more. A
      competition will immediately begin among them, and the market price will
      rise more or less above the natural price, according as either the
      greatness of the deficiency, or the wealth and wanton luxury of the
      competitors, happen to animate more or less the eagerness of the
      competition. Among competitors of equal wealth and luxury, the same
      deficiency will generally occasion a more or less eager competition,
      according as the acquisition of the commodity happens to be of more or
      less importance to them. Hence the exorbitant price of the necessaries of
      life during the blockade of a town, or in a famine.

      When the quantity brought to market exceeds the effectual demand, it
      cannot be all sold to those who are willing to pay the whole value of the
      rent, wages, and profit, which must be paid in order to bring it thither.
      Some part must be sold to those who are willing to pay less, and the low
      price which they give for it must reduce the price of the whole. The
      market price will sink more or less below the natural price, according as
      the greatness of the excess increases more or less the competition of the
      sellers, or according as it happens to be more or less important to them
      to get immediately rid of the commodity. The same excess in the
      importation of perishable, will occasion a much greater competition than
      in that of durable commodities; in the importation of oranges, for
      example, than in that of old iron.

      When the quantity brought to market is just sufficient to supply the
      effectual demand, and no more, the market price naturally comes to be
      either exactly, or as nearly as can be judged of, the same with the
      natural price. The whole quantity upon hand can be disposed of for this
      price, and can not be disposed of for more. The competition of the
      different dealers obliges them all to accept of this price, but does not
      oblige them to accept of less.

      The quantity of every commodity brought to market naturally suits itself
      to the effectual demand. It is the interest of all those who employ their
      land, labour, or stock, in bringing any commodity to market, that the
      quantity never should exceed the effectual demand; and it is the interest
      of all other people that it never should fall short of that demand.

      If at any time it exceeds the effectual demand, some of the component
      parts of its price must be paid below their natural rate. If it is rent,
      the interest of the landlords will immediately prompt them to withdraw a
      part of their land; and if it is wages or profit, the interest of the
      labourers in the one case, and of their employers in the other, will
      prompt them to withdraw a part of their labour or stock, from this
      employment. The quantity brought to market will soon be no more than
      sufficient to supply the effectual demand. All the different parts of its
      price will rise to their natural rate, and the whole price to its natural
      price.

      If, on the contrary, the quantity brought to market should at any time
      fall short of the effectual demand, some of the component parts of its
      price must rise above their natural rate. If it is rent, the interest of
      all other landlords will naturally prompt them to prepare more land for
      the raising of this commodity; if it is wages or profit, the interest of
      all other labourers and dealers will soon prompt them to employ more
      labour and stock in preparing and bringing it to market. The quantity
      brought thither will soon be sufficient to supply the effectual demand.
      All the different parts of its price will soon sink to their natural rate,
      and the whole price to its natural price.

      The natural price, therefore, is, as it were, the central price, to which
      the prices of all commodities are continually gravitating. Different
      accidents may sometimes keep them suspended a good deal above it, and
      sometimes force them down even somewhat below it. But whatever may be the
      obstacles which hinder them from settling in this centre of repose and
      continuance, they are constantly tending towards it.

      The whole quantity of industry annually employed in order to bring any
      commodity to market, naturally suits itself in this manner to the
      effectual demand. It naturally aims at bringing always that precise
      quantity thither which may be sufficient to supply, and no more than
      supply, that demand.

      But, in some employments, the same quantity of industry will, in different
      years, produce very different quantities of commodities; while, in others,
      it will produce always the same, or very nearly the same. The same number
      of labourers in husbandry will, in different years, produce very different
      quantities of corn, wine, oil, hops, etc. But the same number of spinners
      or weavers will every year produce the same, or very nearly the same,
      quantity of linen and woollen cloth. It is only the average produce of the
      one species of industry which can be suited, in any respect, to the
      effectual demand; and as its actual produce is frequently much greater,
      and frequently much less, than its average produce, the quantity of the
      commodities brought to market will sometimes exceed a good deal, and
      sometimes fall short a good deal, of the effectual demand. Even though
      that demand, therefore, should continue always the same, their market
      price will be liable to great fluctuations, will sometimes fall a good
      deal below, and sometimes rise a good deal above, their natural price. In
      the other species of industry, the produce of equal quantities of labour
      being always the same, or very nearly the same, it can be more exactly
      suited to the effectual demand. While that demand continues the same,
      therefore, the market price of the commodities is likely to do so too, and
      to be either altogether, or as nearly as can be judged of, the same with
      the natural price. That the price of linen and woollen cloth is liable
      neither to such frequent, nor to such great variations, as the price of
      corn, every man’s experience will inform him. The price of the one species
      of commodities varies only with the variations in the demand; that of the
      other varies not only with the variations in the demand, but with the much
      greater, and more frequent, variations in the quantity of what is brought
      to market, in order to supply that demand.

      The occasional and temporary fluctuations in the market price of any
      commodity fall chiefly upon those parts of its price which resolve
      themselves into wages and profit. That part which resolves itself into
      rent is less affected by them. A rent certain in money is not in the least
      affected by them, either in its rate or in its value. A rent which
      consists either in a certain proportion, or in a certain quantity, of the
      rude produce, is no doubt affected in its yearly value by all the
      occasional and temporary fluctuations in the market price of that rude
      produce; but it is seldom affected by them in its yearly rate. In settling
      the terms of the lease, the landlord and farmer endeavour, according to
      their best judgment, to adjust that rate, not to the temporary and
      occasional, but to the average and ordinary price of the produce.

      Such fluctuations affect both the value and the rate, either of wages or
      of profit, according as the market happens to be either overstocked or
      understocked with commodities or with labour, with work done, or with work
      to be done. A public mourning raises the price of black cloth (with which
      the market is almost always understocked upon such occasions), and
      augments the profits of the merchants who possess any considerable
      quantity of it. It has no effect upon the wages of the weavers. The market
      is understocked with commodities, not with labour, with work done, not
      with work to be done. It raises the wages of journeymen tailors. The
      market is here understocked with labour. There is an effectual demand for
      more labour, for more work to be done, than can be had. It sinks the price
      of coloured silks and cloths, and thereby reduces the profits of the
      merchants who have any considerable quantity of them upon hand. It sinks,
      too, the wages of the workmen employed in preparing such commodities, for
      which all demand is stopped for six months, perhaps for a twelvemonth. The
      market is here overstocked both with commodities and with labour.

      But though the market price of every particular commodity is in this
      manner continually gravitating, if one may say so, towards the natural
      price; yet sometimes particular accidents, sometimes natural causes, and
      sometimes particular regulations of policy, may, in many commodities, keep
      up the market price, for a long time together, a good deal above the
      natural price.

      When, by an increase in the effectual demand, the market price of some
      particular commodity happens to rise a good deal above the natural price,
      those who employ their stocks in supplying that market, are generally
      careful to conceal this change. If it was commonly known, their great
      profit would tempt so many new rivals to employ their stocks in the same
      way, that, the effectual demand being fully supplied, the market price
      would soon be reduced to the natural price, and, perhaps, for some time
      even below it. If the market is at a great distance from the residence of
      those who supply it, they may sometimes be able to keep the secret for
      several years together, and may so long enjoy their extraordinary profits
      without any new rivals. Secrets of this kind, however, it must be
      acknowledged, can seldom be long kept; and the extraordinary profit can
      last very little longer than they are kept.

      Secrets in manufactures are capable of being longer kept than secrets in
      trade. A dyer who has found the means of producing a particular colour
      with materials which cost only half the price of those commonly made use
      of, may, with good management, enjoy the advantage of his discovery as
      long as he lives, and even leave it as a legacy to his posterity. His
      extraordinary gains arise from the high price which is paid for his
      private labour. They properly consist in the high wages of that labour.
      But as they are repeated upon every part of his stock, and as their whole
      amount bears, upon that account, a regular proportion to it, they are
      commonly considered as extraordinary profits of stock.

      Such enhancements of the market price are evidently the effects of
      particular accidents, of which, however, the operation may sometimes last
      for many years together.

      Some natural productions require such a singularity of soil and situation,
      that all the land in a great country, which is fit for producing them, may
      not be sufficient to supply the effectual demand. The whole quantity
      brought to market, therefore, may be disposed of to those who are willing
      to give more than what is sufficient to pay the rent of the land which
      produced them, together with the wages of the labour and the profits of
      the stock which were employed in preparing and bringing them to market,
      according to their natural rates. Such commodities may continue for whole
      centuries together to be sold at this high price; and that part of it
      which resolves itself into the rent of land, is in this case the part
      which is generally paid above its natural rate. The rent of the land which
      affords such singular and esteemed productions, like the rent of some
      vineyards in France of a peculiarly happy soil and situation, bears no
      regular proportion to the rent of other equally fertile and equally well
      cultivated land in its neighbourhood. The wages of the labour, and the
      profits of the stock employed in bringing such commodities to market, on
      the contrary, are seldom out of their natural proportion to those of the
      other employments of labour and stock in their neighbourhood.

      Such enhancements of the market price are evidently the effect of natural
      causes, which may hinder the effectual demand from ever being fully
      supplied, and which may continue, therefore, to operate for ever.

      A monopoly granted either to an individual or to a trading company, has
      the same effect as a secret in trade or manufactures. The monopolists, by
      keeping the market constantly understocked by never fully supplying the
      effectual demand, sell their commodities much above the natural price, and
      raise their emoluments, whether they consist in wages or profit, greatly
      above their natural rate.

      The price of monopoly is upon every occasion the highest which can be got.
      The natural price, or the price of free competition, on the contrary, is
      the lowest which can be taken, not upon every occasion indeed, but for any
      considerable time together. The one is upon every occasion the highest
      which can be squeezed out of the buyers, or which it is supposed they will
      consent to give; the other is the lowest which the sellers can commonly
      afford to take, and at the same time continue their business.

      The exclusive privileges of corporations, statutes of apprenticeship, and
      all those laws which restrain in particular employments, the competition
      to a smaller number than might otherwise go into them, have the same
      tendency, though in a less degree. They are a sort of enlarged monopolies,
      and may frequently, for ages together, and in whole classes of
      employments, keep up the market price of particular commodities above the
      natural price, and maintain both the wages of the labour and the profits
      of the stock employed about them somewhat above their natural rate.

      Such enhancements of the market price may last as long as the regulations
      of policy which give occasion to them.

      The market price of any particular commodity, though it may continue long
      above, can seldom continue long below, its natural price. Whatever part of
      it was paid below the natural rate, the persons whose interest it affected
      would immediately feel the loss, and would immediately withdraw either so
      much land or so much labour, or so much stock, from being employed about
      it, that the quantity brought to market would soon be no more than
      sufficient to supply the effectual demand. Its market price, therefore,
      would soon rise to the natural price; this at least would be the case
      where there was perfect liberty.

      The same statutes of apprenticeship and other corporation laws, indeed,
      which, when a manufacture is in prosperity, enable the workman to raise
      his wages a good deal above their natural rate, sometimes oblige him, when
      it decays, to let them down a good deal below it. As in the one case they
      exclude many people from his employment, so in the other they exclude him
      from many employments. The effect of such regulations, however, is not
      near so durable in sinking the workman’s wages below, as in raising them
      above their natural rate. Their operation in the one way may endure for
      many centuries, but in the other it can last no longer than the lives of
      some of the workmen who were bred to the business in the time of its
      prosperity. When they are gone, the number of those who are afterwards
      educated to the trade will naturally suit itself to the effectual demand.
      The policy must be as violent as that of Indostan or ancient Egypt (where
      every man was bound by a principle of religion to follow the occupation of
      his father, and was supposed to commit the most horrid sacrilege if he
      changed it for another), which can in any particular employment, and for
      several generations together, sink either the wages of labour or the
      profits of stock below their natural rate.

      This is all that I think necessary to be observed at present concerning
      the deviations, whether occasional or permanent, of the market price of
      commodities from the natural price.

      The natural price itself varies with the natural rate of each of its
      component parts, of wages, profit, and rent; and in every society this
      rate varies according to their circumstances, according to their riches or
      poverty, their advancing, stationary, or declining condition. I shall, in
      the four following chapters, endeavour to explain, as fully and distinctly
      as I can, the causes of those different variations.

      First, I shall endeavour to explain what are the circumstances which
      naturally determine the rate of wages, and in what manner those
      circumstances are affected by the riches or poverty, by the advancing,
      stationary, or declining state of the society.

      Secondly, I shall endeavour to shew what are the circumstances which
      naturally determine the rate of profit; and in what manner, too, those
      circumstances are affected by the like variations in the state of the
      society.

      Though pecuniary wages and profit are very different in the different
      employments of labour and stock; yet a certain proportion seems commonly
      to take place between both the pecuniary wages in all the different
      employments of labour, and the pecuniary profits in all the different
      employments of stock. This proportion, it will appear hereafter, depends
      partly upon the nature of the different employments, and partly upon the
      different laws and policy of the society in which they are carried on. But
      though in many respects dependent upon the laws and policy, this
      proportion seems to be little affected by the riches or poverty of that
      society, by its advancing, stationary, or declining condition, but to
      remain the same, or very nearly the same, in all those different states. I
      shall, in the third place, endeavour to explain all the different
      circumstances which regulate this proportion.

      In the fourth and last place, I shall endeavour to shew what are the
      circumstances which regulate the rent of land, and which either raise or
      lower the real price of all the different substances which it produces.
