Chapter 7: The Circumstances That regulate the Price of Commodities

Every commodity has two different prices which are apparently independent, but connected:

  1. The natural price
  2. The market price
  3. These are regulated by certain circumstances.

The Natural Price

People must make as much by their employment to maintain them while they are employed.

  • In general, this is the case in all the liberal arts.
  • In the same way, the prices of gold and silver are not extravagant.

    A man then has the natural price of his labour when it is sufficient to:

    When a man has this, there is sufficient encouragement to the labourer.

    The Market Price

    The market price of goods is regulated by quite other circumstances.

  • The regulation of the market price of goods depends on three articles:
    1. The demand for the commodity.
      • There is no demand for a useless thing.
      • It is not a rational object of desire.
    2. The abundance or scarcity of the commodity relative to the need for it.
      • If the commodity is scarce, its price is raised.
      • But if the amount is more than sufficient to supply the demand, its price falls.
      • Thus, diamonds and other precious stones [177] are dear.
      • While iron, which is much more useful, is much cheaper.
        • But this depends principally on the last cause:
    3. The riches or poverty of those who demand.
      • When there is not enough produced to serve everybody, the fortune of the bidders is the only regulation of the price.
      • An evidence of this is the story of the merchant and the carrier in Arabia.
        • The merchant gave 10,000 ducats for a certain amount of water.
        • His fortune here regulated the price.
        • If he did not have his fortune, he could not have given them.
        • If his fortune had been less, the water would have been cheaper.
      • When the commodity is scarce, the seller must be content with the wealth of the buyers.
      • The case is the same in an auction.
        • If two persons have an equal fondness for a book, the richer person will have it.
        • Hence, things that are very rare always go to rich countries.
      • Only the King of France could buy that large expensive diamond.
      • Upon this principle, everything is dearer or cheaper according as it is the purchase of a higher or lower set of people.
        • Gold utensils are attainable only by persons in certain circumstances.
        • Silver utensils fall to another set of people.
          • Their prices are regulated by what the majority can give.
        • Corn and beer prices are regulated by what all the world can give.
        • The day-labourer's wages have a great influence on corn prices.
        • When corn prices rise, wages also rise, and vice versa.
        • When the amount of corn falls short, as in [178] a sea-voyage, it always creates a famine.
          • The price then becomes enormous.
          • Corn then becomes the purchase of a higher set of people.
          • The lower must live on turnips and potatoes.
  • The natural and the market price are necessarily connected, no matter how seemingly independent they appear to be

  • It is alleged that as corn prices sink, the labourer's wages should also sink since he is then better rewarded.
  • Raising The Natural Price Artificially

    Whatever police tends to raise the market price above the natural, tends to reduce public opulence.

    Goods are a convenience to society.

    Therefore, whatever keeps goods above their natural price permanently, reduces a nation’s opulence, such as:

    1. All taxes on:
      • industry, leather, and shoes.
        • People grudge these the most.
      • salt, beer, or whatever is the strong drink of the country.
        • All countries have some kind of it.

    Man is an anxious animal.

    1. Monopolies also destroy public opulence.
    1. Exclusive privileges of corporations have the same effect.
      • The butchers and bakers can raise the prices of their goods as they please, because only their [180] own corporation is allowed to sell in the market.
        • Their meat must be taken, whether good or not.
      • Because of this, a magistrate is always needed to fix the prices.
      • For any free commodity, such as broad cloth, there is no need for this.
      • But it is necessary with bakers.
        • They may agree among themselves to make whatever quantity and price.
      • Even a magistrate is not a good enough expedient for this.
        • He must always settle the price at the outside, otherwise the remedy would be worse than the disease.
        • Because nobody would apply to these businesses and a famine would ensue.
      • Thus, bakers and brewers always have profitable trades.

    Whatever raises the market price above the natural price reduces public opulence.

  • Whatever lowers the market price below the natural price raises public opulence.
  • This can usually be done by any law only on exported manufactures.

  • In the same way, by the bounty of 5 shillings on the quarter of corn when sold under 40 shillings, as the public pays 1/8 of the price.
  • It can be sold just so much cheaper at a foreign market.
  • The disposition to apply to [181] produce corn is not proportioned to the natural cause of the demand, but to both that and the annexed bounty.
  • In the ages of hunting and fishing, provisions were the immediate produce of human labour.

  • Every trade therefore, requires a stock of food, clothes, and lodging to carry it on.
  • Suppose that there is a stock of food, clothes, and lodging in store.
  • On account of the natural connection of all trades in the stock, by allowing bounties to one you take away the stock from the rest.
  • This has been the real consequence of the corn bounty.
  • The price of corn was sunk.

  • So that if the price of corn is reduced, the price of other commodities is necessarily raised.
  • On the whole, therefore, the best police by far is to:

  • Next: Section 2, Chapter 8