In addition, the laws of the market not only insure that prices are competitive, but they also determine the quantities of goods produced. As Smith explains, when the public demands more gloves than shoes, there will be a brisk business in gloves, but little demand for shoes. Consequently, the price of gloves will rise as demand exceeds supply and pushes prices up. The price of shoes will go down because the supply exceeds the demand.
At this point, self-interest becomes a factor. Since there are higher profits in the glove business and a greater need for gloves, new producers begin manufacturing gloves. Workers move from shoe factories to glove factories. The result is that glove production rises and shoe production falls. Before long, the market achieves a balance. As the supply of gloves grows to meet demand, glove prices decrease. As the supply of shoes falls below demand, shoe prices rise. This price increase stimulates shoe production. Therefore, the opposing forces of self-interest and competition balance the market.
Finally, the laws of the market also regulate incomes of producers. When profits in one type of business become unusually large, new producers are attracted to the business — until competition reduces the surplus of profit. In the same way, labor's wages are regulated — workers are attracted to higher paying industry until the labor supply lowers the pay scale to that of comparable jobs. By the same token, the reverse is true — when profits or wages are too low, producers or workers will leave that field for more lucrative areas.
But the key to the operation of the laws of the market is that the market is "its own guardian." It is self-regulating if left alone (laissez faire) so that competition can operate freely without government control and without monopolies.
