# natural-price

## Definition

The natural price of a commodity is the price that exactly covers the costs of production, including rent of land, wages of labour, and profits of stock, at their natural rates. It represents the central or equilibrium price toward which market prices continually gravitate, reflecting what the commodity "really costs" to bring to market. This price provides the ordinary rate of profit to the seller and is the lowest price at which they are likely to sell for any considerable time under conditions of perfect liberty.

## Source Chapter

Book 1, Chapter 7: "OF THE NATURAL AND MARKET PRICE OF COMMODITIES."

## Context

Smith introduces the concept of natural price as part of his analysis of price determination. He distinguishes it from market price and explains how it serves as the gravitational center toward which all commodity prices tend. The natural price is presented as the price that would prevail when the commodity is neither in excess nor shortage relative to effectual demand.

## Economic Domain

General Theory

## Smith's Original Wording

"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."

## Modern Interpretation

The natural price functions as Smith's equilibrium concept - the price that would prevail in a competitive market when supply equals demand. It represents the long-run cost of production plus normal profit, serving as a benchmark against which actual market prices fluctuate. This concept anticipates later economic theories of supply and demand equilibrium and long-run cost structures.