Natural prices and demand

Say and Sismondi started from Smith’s analysis of gravitation. The natural value of goods - Sismondi preferred to speak of their intrinsic price - consists of profits, wages and rents, calculated at market prices (“prix courants”), which is necessary to pay for their production and to bring them to markets (Sismondi 1803, vol.

However, after having read Ricardo’s Principles of Political Economy first published in 1817 and after some discussions with the author, Say was led to believe that using the concept of natural price could be ambiguous. As a consequence he deleted every refer­ence to this concept in the Epitome sommaire appended to the fourth edition of the Traite (1819 [2006]: 1132). The idea that in equilibrium the price is equal to the cost of produc­tion does not mean that demand does not affect the price. In his Cours d’economie poli­tique pratique, Say admits that Ricardo is right when he argues that the market price of commodities is always determined by the cost of production, but that he is wrong when he asserts that the demand does not affect the price, because in fact demand affects the prices of the services used in production. When the demand for a good increases, “the product becomes more expensive, although it does not exceed the cost of production” (Say 1828 [2010]: 373).