Adam Smith: First Principles

Discussion in 'Economy' started by Sundial, Aug 27, 2011.

  1. Sundial
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    Sundial Class Warrior

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    The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life.

    The first, most basic insight of The Wealth of Nations is that it is not gold, or money, that makes nations rich, but the productivity of their workers.

    According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.

    But this proportion must in every nation be regulated by two different circumstances; first by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed.


    A nation may divided into two classes: the class of those who work, and the class of those who consume without working. The total produce of a nation is divided between those two classes.

    Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production...

    without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.


    No one exists by his own labor alone. Everyone, in a civilized society, owes his possessions not to his his own efforts, but to the efforts of thousands of others.

    Moreover, those possessions are the product of civilization itself.
     
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  2. expat_panama
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    expat_panama Silver Member

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    The entire text of Smith's The Wealth of Nations is at Bibliomania: Free Online Literature and Study Guides. Smith had a lot on the ball for the late 1700's and we've not only learned a lot since his time but our present day world is a heck of a lot different than the one he wrote about.

    Don't get me wrong, understanding Smith's thinking is all well and good, but so is understanding what happened afterwards --things like the American and French revolutions, the industrial age, several world wars (not to mention Napoleon) etc. Let's say that Smith built a pretty good framework, and facing the overwhelming gaps in his ideas began as early as the Irish potato famine.
     
  3. Baruch Menachem
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    It doesn't change the basic framework, that the division of labor is the way to prosperity. And the other basic framework is that politicians are not frugal, not honest, not really tuned into the best interest of the citizen. And that the individual person is the best judge of his own interest.

    Of course, politics has moved on. But the same rules apply.

    Of course, the best reading is in the last two books. It really is a good read, once you get past the digression on Silver. Which is best skipped, as it is overly topical to the 18th century.

    And lets not forget that Smith didn't get it all right. We still suffer because of his labor theory of value.
     
  4. Sundial
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    Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased...

    The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of the employer upon the whole stock of materials and wages which he advanced.

    People are employed only to the extent that the employer can sell their labor for more than what he's obligated to pay them. A worker, in other words, supports not only himself, but also his employer.

    No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.

    The people who do the work should be allowed to keep a reasonable share of the value of what they produce. According to Smith, this is "but equity" (justice).
     
  5. Sundial
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    The modern monetary system is fundamentally different from the days when money had something to do with gold and silver.
     
  6. expat_panama
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    expat_panama Silver Member

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    Please say what you mean. Gold standard? The UK did not base the Pound Sterling on gold. Are you thinking current dollars can't be exchanged for gold or silver? They can. You're thinking that they didn't have inflation back then? They did and it could get far worse than anything we've seen in 50 years.
     
  7. sparky
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    sparky VIP Member

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    Last edited: Aug 27, 2011
  8. sparky
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    which you'll kindly expand on....

    ~S~
     
  9. Baruch Menachem
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    See Post #4, which quotes it.

    it is the basis for Marx's theories.

    Smith was trying to explain value in terms of what people were willing to give up for something else, but folks ran off with the theory and said labor was the only real measure of value.
     
  10. sparky
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    Marx knew the power of prostituting LVT BM


    The rate of profit is positive in the system of prices of production if and only if some workers are exploited. Michio Morishima stated and proved this mathematical theorem in his interpretation of Marx's economics


    The Labor Theory of Value - A FAQ
     

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