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According to Smith, the value of a particular commodity is usually determined by a series of factors. In the early years, the cost of items was determined by the amount of labor required to gather these commodities. The author notes that this method was used before people started accumulating stock and valuing properties. Nevertheless, the price of a particular item is determined by three factors: labor, land, and inventory. Labor refers to the skills required in gathering commodities and the hardships encountered during this process. Stock refers to the accumulated resources that can be used to purchase labor or goods. Alternatively, supply can be turned into money. A surplus in stock could drive prices down, while the scarcity of stock pushes prices up. The land never used to be a factor in determining prices when it was abundant and free. However, when all land is privately owned, its impact on commodity prices is evidentthe cost of rent paid on land factors into a commoditys final price. Items are produced and gathered from land resources. High rent prices translate into high commodity prices.
The realistic prices of commodities are determined by several factors that vary from one place to another. The natural price is realized when an items value is just enough to cover the cost of rent, labor, and stock profits. When a commodity is sold at a realistic price, the person selling the price does not accrue any profits. The natural price is not the same as the market price. The market price is higher than the genuine price when the demand for a particular commodity is higher than its supply and vice versa. A balance of demand and supply ensures that the costs of things remain natural. Market prices are also determined by factors external such as natural calamities. For an item to stay in the market, it has to have a higher market price than its actual cost.
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