of claret, of corn, or of any other article, was not worth more when it was scarce, although the cost of its production, on the supposition of ordinary profits, had remained the same. The worth of a commodity, in the place where it is estimated, is its market price, not its natural price. It is its intrinsic value in exchange, determined by the state of the supply compared with the demand at the time, and not its ordinary cost. It need hardly be observed, that the payment of taxes of any kind, where required, is an incidental condition of the supply of commodities which contributes to increase their cost of production and limit their quantity.
But if it appear generally that the ordinary cost of production only determines the usual prices of commodities, as the payment of this cost is the necessary condition of their supply; and that the component parts of this cost are themselves determined by the same causes which determine the whole, it is obvious that we cannot get rid of the principle of demand and supply, by referring to the cost of production.[1] Natural and necessary prices appear to be regulated by this principle, as well as market prices; and the only difference is, that the former are regulated by the ordinary and average relation of the supply to the demand; and the latter, when they differ from the former, are determined by the extraordinary and accidental relations of the supply to the demand.
It has sometimes been said that there is no such thing as natural price; but explained as Adam Smith has explained it, it is not only a very intelligible, but a very useful term. If the natural price of a commodity be considered as made up of all the money wages which have been paid in the various parts of
- ↑ One of the two main elements of the cost of production, namely, the rate of profits, is peculiarly variable and pre-eminently dependent on supply and demand. Under the greatest variations in the rates of wages, we may suppose many commodities still to require in their production the same quantities of labour of the same kind; but under great variations in the rate of profits, we cannot suppose that any commodities should still require for their production the same amount of profits.
