Why did Adam Smith believe that competition could lower prices?

Adam Smith, the 18th-century Scottish philosopher and economist, argued that competition serves as a vital mechanism that reconciles individual self-interest with the public good.12

Smith believed that the universal human desire to improve one's own condition drives individuals to compete against one another. In this competitive struggle, the "mutual vying" of market participants forces the prices of commodities down toward their "natural" levels, which correspond to the actual costs of production.12

This process is a key component of the invisible hand, as the competitive mechanism constantly restores prices to these natural levels by inducing labor and capital to move toward more profitable areas. Because wages, rents, and profits—the constituent parts of production costs—are themselves subject to this discipline of competition, the market maintains an underlying orderliness that prevents prices from remaining artificially high.312