Chap. 7c: Natural and Market Price

Book 1, Chap. 7c: Of the Natural and Market Price of Commodities

 

Monopolies Increase Prices
26 A monopoly granted to an individual or trading company has the same effect as a secret in trade or manufactures.

  • The monopolists keep the market constantly under-stocked to unnaturally raise the market prices of their commodities.

 

27 The price of monopoly is the highest, while the natural price, or the price of free competition, is the lowest which can be taken in the long term.

  • The monopoly price is the highest which can be squeezed out of the buyers, while the natural price is the lowest which the sellers can commonly afford to continue their business.

 

28 The exclusive privileges of corporations, or enlarged monopolies, and all laws which restrain the competition also increase market prices for ages, but to a lesser degree.

 

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

 

30  Though the market price may stay higher than the natural price for a long time, it cannot stay below the natural price as long

  • Because the proprietors would feel the loss and would immediately stop production
  • The price would then soon rise to meet the effectual demand if there was perfect liberty.

 

31 The statutes of apprenticeship and corporation laws raise wage rates above their natural rate during the prosperity of manufactures.

  • They lower wage rates below their natural rate during decay.
  • During the prosperity of manufacturing, it excludes others from entering his employment
  • During the decay, it excludes him from entering other employments

Statues and corporation laws are better at unnaturally lowering wages than raising them.

  • Statues and corporation laws may lower wages for many centuries
  • But they can raise wages only for the lifetime of those workers. When they are gone, other people will learn the trade and the number of workers will suit itself to the effectual demand.

Laws can also sink wages below the natural rate for several generations

  • This is seen in Ancient India and Egypt where every man was bound by religion to follow only the occupation of his father and never change it.

 

32 This are all the causes of the differences between the market price and the natural price of commodities.

 

33 Natural price itself varies with the natural rate of wages, profits, and rent.

  • Their rates vary according to the society’s:
    • Circumstances
    • Riches or poverty
    • Advancing, stationary, or declining condition
  • The causes of those variations in natural price will be explained next:

 

34-35 I shall explain the circumstances which naturally determine the rate of wages and profits.

  • How wages and profits are affected by society’s:
    • Riches or poverty
    • Advancing, stationary or declining state

 

36 Though wages and profit are very different in the different employments, wages are proportional to different employments of labour and profits are proportional to different emplyoments of stock.

  • This proportion depends on:
    • The nature of the different employments
    • The laws and policies in place
  • This proportion remains the same in the advancing, stationary, or declining condition of the society.
  • I shall explain the different circumstances which regulate this proportion.

 

37  Lastly, I shall explain the circumstances which regulate rent which affects the real price of the produce of land.

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