Another hypothesis becomes necessary forthwith. This time cost of production is hit upon as the likely regulator of value. Hitherto the “real” price has signified the price that is based upon labour. Now the “natural” price is defined as the price of goods valued at their cost of production. The change of name is not of any great significance. What Smith was in search of on both occasions was that true value which always kept in hiding behind the fluctuations of market prices. It is the same problem, but with a new solution. Just now we were informed that if a commodity sold at a price representing the labour which it cost to produce, that price would also represent its real cost. With no less assurance we are now told that a commodity sold at cost of production “is then sold precisely for what it is worth, or for what it really costs the person who brings it to market.”[181] The true value of goods corresponds to their cost of production. By this we are to understand a sum sufficient to pay at normal rates the wages of labour, the interest of capital, and the rent of land, all of which have collaborated in the production of the particular commodity. Smith, having discarded labour, finds a new determinant of value in cost of production, and if socialists rallied to his first hypothesis the great majority of economists right up to Jevons have clung to his second. As for Smith himself, he never had the courage to choose between them. They remain juxtaposed in the _Wealth of Nations_ because he never made up his mind which to adopt. As a result his work is full of contradictions which it would be futile to try to reconcile. For example, land and capital in one place are regarded as sources of new values, adding to and increasing the value which labour creates, and producing normally an element of profit and rent, which, together with the wages of labour, makes up the cost of production. In another connection they are treated as deductions made by capitalists and landlords from the value created by labour alone.[182] Some writers accordingly argue that Smith must have been a socialist. On the whole the cost of production theory prevailed, and the natural price of commodities is taken to mean that price which coincides with their cost of production. As to market price, he makes the remark that it is higher or lower than the natural price according as the quantity offered diminishes or increases as compared with the quantity demanded. Such is Smith’s theory of prices. The element of truth which it contains, namely, that the prices of goods tend to coincide with their cost of production (the remark is not originally Smith’s at all), must not blind us to its many faults. It is open to at least two very serious objections.