happiness, must be allowed to be valuable in one sense or another.

Thus, then, there is, in the first place, the capacity of happiness, which is valuable, and is an attribute of all animals probably in a greater or less degree, and more particularly of man; and, secondly, there is the capacity of ministering or contributing to happiness, which is an attribute of every thing which is useful or necessary, or which contributes in any manner of way to animal existence or wellbeing, including perhaps the whole circle of nature or of

existencies.

But of those objects, which are necessary or conducive to man's existence and happiness, there are some which he enjoys in unlimited abundance without any trouble or exertion on his part to procure them; whilst there are others which he must exert his industry and toil his body to acquire. Both these are valuable in the relations already explained; but the latter are further valuable in another sense, namely, in relation to the labour or privations necessary to produce or acquire them. They thus acquire a double relation to mankind, as well as a relation of number and quantity between themselves; the intensity of which is regulated and measured in general, that is to say, upon the average of trials or comparisons where things are left at liberty to find their proper level by cost of production; cost of production consisting of either labour simply, or expenditure of capital simply, (which latter is a privation of one sort of goods in order to acquire another,) or both.

CHAPTER IV.

OF THE CAUSES WHICH REGULATE THE PRICE OF COMMO

DITIES; WHAT CONSTITUTES COST OF PRODUCTION, AND WHAT THE CONSTITUENT PARTS OF PRICE REALLY

ARE.

SECTION I.

OF NATURAL AND MARKET PRICE.-PRICE DEFINED.

THE price of an article is whatever is given or received for it in exchange by treaty and agreement in the open market; that is, wherever commodities are bought and sold, and where no constraint or violence is imposed on the free will and judgment of the buyers or sellers. This is the actual or market-price, which is governed immediately by the supply and demand, or relative proportion of the different sorts of commodities on sale at any particular time ready to be exchanged for one another, the supply of one article constituting the demand for another; for as buying and selling consists simply in the exchange of different sorts of wealth or vendible commodities for one another, through the instrumentality and intervention of money, and as those alone which are in the market can be actually exchanged, they must necessarily limit and determine the price of one another at the particular juncture.

But the supply and demand, or relative proportion of the different commodities on sale, and consequently the marketprice, are ultimately regulated and controlled by the natural price or cost of production, from which the market-price cannot in general deviate in a great degree, or for any long period of time.

There are indeed a few vendible commodities, as ancient

2

coins, statues, and paintings, and a few other things, which cannot be increased by human industry, the price of which is totally disconnected with cost of production, and is essentially and exclusively a market-price, depending upon supply and demand alone, and being determined always by the wealth and particular taste of the persons who are desirous to purchase them. These peculiar articles, however, form but a very slender and inconsiderable portion of wealth when compared with the whole, or with the great mass of commodities whose market-prices are, under all ordinary circumstances, ultimately regulated by their natural prices or costs of production, including in those costs, rent, profit or interest, and wages; of one or more of which three parts or charges, the price of every commodity, as Dr Smith has demonstrated, is necessarily made up.

There is in every community or neighbourhood an ordinary or average rate of wages in every different employment of labour, depending partly upon the particular nature of each employment, and partly upon the general condition and habits of the people engaged in each :—

There is also an ordinary and average rate of profit of stock, or interest, in every community depending upon the abundance or scarcity of capital :

And there is an ordinary or average rate of rent which must be paid for land, depending partly upon the populousness of the neighbourhood or place where it is situated, and partly upon the fertility or barrenness of the land itself.

"These ordinary and average rates," says Dr Smith, "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 may be 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