204 Economic Theory: An Introductionbusiness of industry and commerce. Each individual seeks his
own greatest profit, but he is also a member of the community
and his gain also helps the common good. Smith illustrates this
point by his famous quote, “It is not from the benevolence of the
butcher, the brewer or the baker that we expect our dinner, but
from their regard to their own interest.” The butcher, for ex
ample, must sell good meat, at a fair price, treat his customers
courteously, and in general do all that he can to keep customers
happy and thereby coming back. To the extent that he succeeds,
he provides for his own family, thus provides for his own good
as well as the good of others. All the butchers in a community are
thereby looking to their own profit first, but the means to attain
that profit is found in their service to the community. It is in this
way that the natural economic order operates, and the natural
competition which results in the greatest good for all concerned.
Thus, the “invisible hand” guides the interaction of the market to
an end the individual cannot anticipate.
Smith also considers this free market, this laissez-faire sys
tem, as a self-adjusting market according to laws of the natural
order. The market automatically decides those important ques
tions of what, how, and for whom to produce. Competition
among the producers would naturally result in a pattern of
production according to the needs and desires of the consumers.
Every product has a real value, the combination of wages, rent,
and profit. These factors result in what is called the natural price.
Whenever the market price of a commodity differs from its
natural price, certain market forces are set into motion to bring
it closer to its natural price. It works like this. When the supply
of a commodity falls short of the demand, some people will be
willing to pay more for it. This competition among purchasers
will cause the market price to rise above the natural price. If the
supply of a commodity exceeds the demand, some people will
wait before purchasing, causing the market price to fall below
the natural price. When the supply is equal to the demand, the
natural and market price will be nearly equal. Production auto
matically shifts to meet the demands of the consumers. Compe
tition will drive the price down to the lowest possible level
consistent with balanced production and demand.
Smith’s primary considerations about labor dealt primarily
with its division. The increase in the quantity of work done by the