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 lik wise 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 no 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.