The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Cost of Production

  • John Eatwell
Reference work entry


Adam Smith argued that competition would tend to establish the ‘natural prices’ of commodities produced, i.e. the prices at which ‘the price of any commodity is neither more nor less than what is sufficient to pay the rent of land, the wages of labour, and the profit of stock employed…according to their natural rates’ (Smith 1776, p. 65). In other words, the price of any produced commodity will, under the pressure of competition, be equal to its cost of production.

This is a preview of subscription content, log in to check access.


  1. Garegnani, P. 1984. Value and distribution in the classical economists and Marx. Oxford Economic Papers 36(2): 291–325.CrossRefGoogle Scholar
  2. Marshall, A. 1890. Principles of Economics. London: Macmillan.Google Scholar
  3. Ricardo, D. 1817. In Principles of Political Economy and Taxation, ed. P. Sraffa. Cambridge: Cambridge University Press , 1951.Google Scholar
  4. Smith, A. 1776. An inquiry into the nature and causes of the wealth of nations. London: Methuen , 1961.CrossRefGoogle Scholar
  5. Sraffa, P. 1960. Production of Commodities by Means of Commodities. Cambridge: Cambridge University Press.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • John Eatwell
    • 1
  1. 1.