Autumn Book Club Choice - Adam Smith: The Wealth of Nations

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Ard-Taoiseach wrote:

Auditor #9 wrote:: Credit markets must be different even though they share the same basic underlying mechanism; I'd argue that it's more like gambling than trading however - getting the best price money means doing less future work than getting higher priced money. It's all in the future, long finger, tomorrow. This is not real - it's projection/speculation into something that hasn't arrived yet thus there's an element of risk, hence the interest rate.

So is that correct? The banking market deals in a commodity which reflects the value of future activities ..? I suppose that reality functions so consistently over time (for most people) that's it's legitimate to make predictions about the future based on that.

It's a funny product though.

Auditor, a lot of markets operate on the basis of tomorrow, next week, month, year or decade. When we look to value even stolid manufacturing companies we look to see what they could earn over the next decade when deciding whether or not to buy into them. That is a speculative punt which may also indeed prove to be dramatically incorrect. There is risk in it, but that is an essential part of the business process as without risk there is no reward. Essentially, all markets exist somewhat in the future since current values are determined by future prospects of return.

Come to that, even the most basic of transactions involves an element of forward risk. If I buy an apple from a stall, I risk discovering that it is inedible when I finally go to eat it - while the stallholder is taking an even larger risk in bringing apples into the market in the first place.

Guest

Are you being sarcaustic Wink

Should money and credit be treated differently as a market product? It's really nothing but lubricant for the market itself where REAL products are traded ...

I'd imagine even Smith himself couldn't extend the market principle to every class and species of product in existence; is money and credit one such "product" (it isn't really a product is it - it's more a service?) Doesn't it need super control, plenty of legislation and a liberal dose of regulation?

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ibis wrote:

Ard-Taoiseach wrote:

Auditor #9 wrote:: Credit markets must be different even though they share the same basic underlying mechanism; I'd argue that it's more like gambling than trading however - getting the best price money means doing less future work than getting higher priced money. It's all in the future, long finger, tomorrow. This is not real - it's projection/speculation into something that hasn't arrived yet thus there's an element of risk, hence the interest rate.

So is that correct? The banking market deals in a commodity which reflects the value of future activities ..? I suppose that reality functions so consistently over time (for most people) that's it's legitimate to make predictions about the future based on that.

It's a funny product though.

Auditor, a lot of markets operate on the basis of tomorrow, next week, month, year or decade. When we look to value even stolid manufacturing companies we look to see what they could earn over the next decade when deciding whether or not to buy into them. That is a speculative punt which may also indeed prove to be dramatically incorrect. There is risk in it, but that is an essential part of the business process as without risk there is no reward. Essentially, all markets exist somewhat in the future since current values are determined by future prospects of return.

Come to that, even the most basic of transactions involves an element of forward risk. If I buy an apple from a stall, I risk discovering that it is inedible when I finally go to eat it - while the stallholder is taking an even larger risk in bringing apples into the market in the first place.

Or indeed the fact that lemons are the hip new thing and apples are like SO yesterday.

Guest

Ard-Taoiseach wrote:

ibis wrote:

Ard-Taoiseach wrote:

Auditor #9 wrote:: Credit markets must be different even though they share the same basic underlying mechanism; I'd argue that it's more like gambling than trading however - getting the best price money means doing less future work than getting higher priced money. It's all in the future, long finger, tomorrow. This is not real - it's projection/speculation into something that hasn't arrived yet thus there's an element of risk, hence the interest rate.

So is that correct? The banking market deals in a commodity which reflects the value of future activities ..? I suppose that reality functions so consistently over time (for most people) that's it's legitimate to make predictions about the future based on that.

It's a funny product though.

Auditor, a lot of markets operate on the basis of tomorrow, next week, month, year or decade. When we look to value even stolid manufacturing companies we look to see what they could earn over the next decade when deciding whether or not to buy into them. That is a speculative punt which may also indeed prove to be dramatically incorrect. There is risk in it, but that is an essential part of the business process as without risk there is no reward. Essentially, all markets exist somewhat in the future since current values are determined by future prospects of return.

Come to that, even the most basic of transactions involves an element of forward risk. If I buy an apple from a stall, I risk discovering that it is inedible when I finally go to eat it - while the stallholder is taking an even larger risk in bringing apples into the market in the first place.

Or indeed the fact that lemons are the hip new thing and apples are like SO yesterday.

I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

Guest

cookiemonster wrote:: I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

I'd say it is and I haven't seen it sold in the shops so it must indeed be rare.

Guest

Ard-Taoiseach wrote:

cookiemonster wrote:: I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

I'd say it is and I haven't seen it sold in the shops so it must indeed be rare.

The spar near my office sell lemonade which is fresh and while it has the bitter bite it does, sadly, fall into the first trap.

I also bought some Polish juice, which was lime, apple and Lychee. It was delicious.

Guest

cookiemonster wrote:

Ard-Taoiseach wrote:

cookiemonster wrote:: I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

I'd say it is and I haven't seen it sold in the shops so it must indeed be rare.

The spar near my office sell lemonade which is fresh and while it has the bitter bite it does, sadly, fall into the first trap.

Ah yes and Carluccio's in Town does fresh lemonade which is decent enough.

Quote :: I also bought some Polish juice, which was lime, apple and Lychee. It was delicious.

Ooh! That sounds lovely. A real tasty mix of fruit.

Guest

Ard-Taoiseach wrote:

cookiemonster wrote:

Ard-Taoiseach wrote:

cookiemonster wrote:: I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

I'd say it is and I haven't seen it sold in the shops so it must indeed be rare.

The spar near my office sell lemonade which is fresh and while it has the bitter bite it does, sadly, fall into the first trap.

Ah yes and Carluccio's in Town does fresh lemonade which is decent enough.

Tasty food too.

Guest

cookiemonster wrote:

Ard-Taoiseach wrote:

cookiemonster wrote:

Ard-Taoiseach wrote:

cookiemonster wrote:: I love lemon juice, it's so refreshing. But you can't get it here and when you do it's either terribly expensive, terribly sweet or both.

I'd say it is and I haven't seen it sold in the shops so it must indeed be rare.

The spar near my office sell lemonade which is fresh and while it has the bitter bite it does, sadly, fall into the first trap.

Ah yes and Carluccio's in Town does fresh lemonade which is decent enough.

Tasty food too.

That it is and the penne they serve up are massive!

Guest

The lack of palatable lemon juice seems to be another sad example of market failure Crying or Very sad

I'll post a good recipe for home-made stuff on the food thread.

Guest

cookiemonster wrote:: So I was looking through wealth for a place to start my summary and I can upon a section that I think should be mentioned today.

A wee snippit while discussing banking: But those exertions of the natural liberty of a few undividuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments.

He was a shockingly smart bloke, was our Adam. What he saw what the coming of big corporations, and how what he proposed would allow them to come into being but realised that it was necessary for their be some safety net to control them.

Anyway... There are more than a few well known quotes (for a collection of books that size that's not a suprise) but the one which started my love affair with Smith is also one of the most well known.

"It is not from the benevolence of the Butcher, the Brewer, or the baker, that we expect our dinner, but from their regard to their own interest"

Smith realised that self interest was not selfish, that it also served the wider public interest in a market system. A simple model being that we all work to earn money which is our self interest, but in order to achieve that in a competitive market we must offer someting which is of value to others and so society benefits from our own self interest, from our private enterprise.

He also have a very finely tuned sense of humour which passes many by, he put the above a slightly different way when discussing the need not only for benevolence but also self interest:

"Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog"

The basis for Smith writing wealth was to show legislators and law makers in the parliament that their current system of economics (basically a crushing monopoly exploiting colonies was a bit of a sham. That though it they were not fully benefiting from wealth-creation oppertunities on both sides of that divide. That protectionism (you'll gather as you read Wealth that it was Smith's bete noire) served an end (enriching the already rich) at the expense of long term growth. Smith was looking out for the little guy when he wrote wealth, It wasn't a manual for the rich to get richer.

"To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind".

Smith hated monopoly, he hated colonialism and mercantilism. The little guy, up until then had not been allowed to so the above, what Smith wanted was for the parlimentarians to adopt his ideas and believed in them doing so would create an explosion of work, production, trading and so on among the lower classes which would truly shock the elites. His approach was to work from the bottom up by allowing the working poor to improve their own living standards and skills not by means of limited and finite handouts but by giving the people the oppertunity to succeed on their own merits from their own work and to gain the self respect that goes with it.

Anyway that should be enough for the moment. I'll try and out something together on who he was and where he was coming from for tomorrow evening. This is actually great fun!

bump

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cactus flower wrote:: This is a nice edition

Link to Complete Edition

but for anyone who thinks the original is more suited for use as a door-stopper, here is Glyn Hughes very good "Squashed Version of the Wealth of Nations".

Link to Condensed Edition

bump

Guest

CHAPTER I.
OF THE DIVISlON OF LABOUR.
The greatest improvements in the productive powers of labour seem to have been the effects of the division of labour.
To take an example of the trade of pin-making: a workman not educated in it could scarce make one pin in a day. But this business is divided into a number of peculiar trades. One man draws out the wire; another straights it; a third cuts it; a fourth points it; to whiten the pins is another trade; it is even a trade to put them into the paper. I have seen a small manufactory where ten men only could make upwards of forty-eight thousand pins in a day. If they had all wrought independently, they certainly could not each of them have made the four thousand eight hundredth part of that.
This great increase in the quantity of work consequence of the division of labour, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and, lastly, to the invention of machines.
Everybody must be sensible how much labour is facilitated and abridged by the application of proper machinery. In the first fire engines [= steam engines], a boy was constantly employed to open and shut the valves as the piston ascended or descended. One of those boys observed that, by tying a string from the handle of the valve to another part of the machine, the valve would open and shut without assistance, and leave him to divert himself with his play-fellows. One of the greatest improvements was thus the discovery of a boy who wanted to save his own labour.
Consider the coarse woollen coat which covers the day-labourer, the bed which he lies on, the kitchen-grate at which he prepares his victuals, the coals he uses for that purpose, the furniture of his table, we shall be sensible that, without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided for. Compared with the extravagant luxury of the great, his accommodation is extremely simple; and yet it may be true that the accommodation of an European prince does not so much exceed that of an industrious peasant, as the accommodation of that peasant exceeds that of many an African king, the absolute masters of ten thousand naked savages.

CHAPTER II.
OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF LABOUR.

This division of labour is not originally the effect of any human wisdom. It is the necessary consequence of the propensity in human nature to truck, barter, and exchange.
Nobody ever saw a dog make a fair and deliberate exchange of a bone with another dog. In almost every other race of animals, each individual has occasion for the assistance of no other creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens, and even he purchases food in exchange for the money which one man gives him. In a tribe of hunters or shepherds, a particular person makes bows and arrows, for example, with greater dexterity than any other. He exchanges them for meat; and he finds that he can thereby get more meat than if he himself went to the field to catch it.
The difference of natural talents in different men, is, in reality, much less than we are aware of. By nature a philosopher is not in genius half so different from a street porter, as a mastiff is from a grey-hound. But the strength of the mastiff is not in the least supported by the swiftness of the greyhound. Among men, on the contrary, the most dissimilar geniuses are of use to one another; by the disposition to truck and barter, their talents are brought into a common stock, where every man may purchase part of the produce of other men's talents.

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CHAPTER III.
THAT THE DIVISION OF LABOUR IS LIMITED BY THE EXTENT OF THE MARKET.

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment.
A porter, for example, can find employment and subsistence only in a town. In the lone houses and very small villages of Scotland, every farmer must be butcher, baker, and brewer, for his own family. It is impossible there should be such a trade as even that of a nailer in the remote and inland parts of the highlands of Scotland, for in such a situation it would be impossible to dispose of one thousand, that is, of one day's work in the year.
As by means of water-carriage, a more extensive market is opened to every sort of industry, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself. Six or eight men, by the help of water-carriage, can carry and bring back, in the same time, the same quantity of goods between London and Edinburgh as fifty broad-wheeled waggons, attended by a hundred men, and four hundred horses.
The nations that, according to the best authenticated history, appear to have been first civilized, were those that dwelt round the coast of the Mediterranean sea, a sea extremely favourable to the infant navigation of the world. Egypt seems to have been the first in which either agriculture or manufactures were cultivated and improved to any considerable degree by way of the inland navigation afforded by the Nile. Improvements seem likewise to have been of very great antiquity in Bengal, and in eastern China, where the Ganges, and several other great rivers afford an inland navigation.
I shall endeavour to shew; First, what is the real measure of this exchangeable value; or wherein consists the real price of all commodities. Secondly, what are the different parts of which this real price is composed or made up. And, lastly, what are the circumstances which sometimes raise these different parts of price above, and sometimes below, their natural or ordinary rate.

Guest

For the season that's in it I think we need to find the places where he's banging on about The Bank.

Guest

The division of labour is interesting. He's not quite right that there was no division of labour in hunter gatherer society. There was division of labour between men and women, to a certain extent.

He is saying that capitalism is about having a means of exchanging the "exchangeable value" that arises from different forms of specialised labour.

Next he is going to explain "natural" price and why things are sometimes priced higher of lower.

Guest

Quote :

CHAPTER V.
OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY.[/center]

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. Labour was the first price, the original purchase money that was paid for all things. But It is often difficult to ascertain the proportion between two different quantities of labour. Every commodity, besides, Is more frequently exchanged for, and thereby compared with, other commodities, than with labour. The greater part of people, too, understand better what is meant by a quantity of a particular commodity, than by a quantity of labour.

The butcher seldom carries his beef to exchange for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread and beer. The quantity of money which he gets for them regulates, too, the quantity of bread and beer which he can afterwards purchase.
Gold and silver, however, like every other commodity, vary in their value; are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. But equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniencies of life which are given for it; its nominal price, in the quantity of money. The labourer is rich or poor in proportion to the real, not to the nominal price of his labour.
The same real price is always of the same value; but on account of the variations in the value of gold and silver, the same nominal price is sometimes of very different values. Princes and sovereign states have frequently fancied that they had an interest to diminish the quantity of pure metal in their coins; but they seldom have fancied that they had any to augment it. Likewise, the discovery of mines in America diminished the value of gold and silver in Europe. Thus diminution, it is commonly supposed, though I apprehend without any certain proof, is still going on gradually, and is likely to continue to do so for a long time.

Equal quantities of labour will, at distant times, be purchased more nearly with equal quantities of corn, the subsistence of the labourer, than with equal quantities of gold and silver. But, from year to year, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.
But half an ounce of silver at Canton in China may command a greater quantity both of labour and of the necessaries of life, than an ounce at London. Silver, too, would appear to be more invariable in its value than gold. The value of gold would seem to depend only upon the quantity of silver which it would exchange for.
The occasional fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. These metals are lost in gilding, in plating and in the wear and tear of coin. The merchant importers, like all other merchants, sometimes overdo the business, and sometimes underdo it. But the money of any particular country is, at any particular time and place, more or less an accurate measure or value, according as the current coin is more or less exactly agreeable to its standard.

By the money price of goods, it is to be observed, I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin. Six shillings and eight pence, for example, in the time of Edward I., I consider as the same money price with a pound sterling in the present times, because it contained, as nearly as we can judge, the same quantity of pure silver.
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Guest

Economic theories, like all fashions, come and go. A lot of Smith's theories were used by the Chicago School to form the base of neo-liberalism. This particular eoconomic theory is about to enter a phase of profound unpopularity the more people associate the current financial debacle with that particular theory.

The economic pendulum has swung so far to the right that an inevitable move back towards the centre where common sense rather than dogma can be found.

Guest

Slim Buddha wrote:: Economic theories, like all fashions, come and go. A lot of Smith's theories were used by the Chicago School to form the base of neo-liberalism. This particular eoconomic theory is about to enter a phase of profound unpopularity the more people associate the current financial debacle with that particular theory.

The economic pendulum has swung so far to the right that an inevitable move back towards the centre where common sense rather than dogma can be found.

I was brought up to think that Adam Smith was the Devil Incarnate to Tom Paine's God, but I'm getting great value out of Smith. In these crazy days of electronic money and electronic fortunes, I think it is timely to look at what value is - both the use value of things, and their exchance value, and where does it come from.

Quote :: equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only

I think that Smith begins to take us below the superficial appearance of trading and the market to the underlying reality. Electronic money that is detached from value is now rapidly disappearing.

Guest

cactus flower wrote:

Slim Buddha wrote:: Economic theories, like all fashions, come and go. A lot of Smith's theories were used by the Chicago School to form the base of neo-liberalism. This particular eoconomic theory is about to enter a phase of profound unpopularity the more people associate the current financial debacle with that particular theory.

The economic pendulum has swung so far to the right that an inevitable move back towards the centre where common sense rather than dogma can be found.

I was brought up to think that Adam Smith was the Devil Incarnate to Tom Paine's God, but I'm getting great value out of Smith. In these crazy days of electronic money and electronic fortunes, I think it is timely to look at what value is - both the use value of things, and their exchance value, and where does it come from.

Quote :: equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only

I think that Smith begins to take us below the superficial appearance of trading and the market to the underlying reality. Electronic money that is detached from value is now rapidly disappearing.

I agree, cactus flower. But the overall thrust of Smith's economic philosophy, laissez faire economics, is so discredited, unfairly in my view due to ham-fisted misapplication by less-than-informed politicians, that the political will to change tack will grow daily.

Guest

Slim Buddha wrote:: I agree, cactus flower. But the overall thrust of Smith's economic philosophy, laissez faire economics, is so discredited, unfairly in my view due to ham-fisted misapplication by less-than-informed politicians, that the political will to change tack will grow daily.

Exactly Slim Buddha. The problem with Smithian economics is the fact that they are vulnerable to misinterpretation by politicians and other leaders of economic decision-making. If Adam Smith's general policy outlook was correctly implemented then a lot of the difficulties with Smith would diminish. Adam Smith is best pure and unadulterated.

Guest

Ard-Taoiseach wrote:

Slim Buddha wrote:: I agree, cactus flower. But the overall thrust of Smith's economic philosophy, laissez faire economics, is so discredited, unfairly in my view due to ham-fisted misapplication by less-than-informed politicians, that the political will to change tack will grow daily.

Exactly Slim Buddha. The problem with Smithian economics is the fact that they are vulnerable to misinterpretation by politicians and other leaders of economic decision-making. If Adam Smith's general policy outlook was correctly implemented then a lot of the difficulties with Smith would diminish. Adam Smith is best pure and unadulterated.

Like a good whiskey.

Guest

cookiemonster wrote:

Ard-Taoiseach wrote:

Slim Buddha wrote:: I agree, cactus flower. But the overall thrust of Smith's economic philosophy, laissez faire economics, is so discredited, unfairly in my view due to ham-fisted misapplication by less-than-informed politicians, that the political will to change tack will grow daily.

Exactly Slim Buddha. The problem with Smithian economics is the fact that they are vulnerable to misinterpretation by politicians and other leaders of economic decision-making. If Adam Smith's general policy outlook was correctly implemented then a lot of the difficulties with Smith would diminish. Adam Smith is best pure and unadulterated.

Like a good whiskey.

An excellent analogy. Refined, mature, well-balanced and goes down easy. What else but Adam Smith?

Guest

This is a summary of Chapter 9. I am struggling with it, but I really think it is worth a read with a mind to present events.

CHAPTER IX.
OF THE PROFITS OF STOCK.

"The increase of stock, which raises wages, tends to lower profit. Profit is very fluctuating, but the progress of interest, however, may lead us to form some notion of the progress of profit.

Since the time of Henry VIII the wealth and revenue of the country have been continually advancing, the wages of labour have been continually increasing, and, in the greater part of the different branches of trade, the profits of stock have been diminishing.

In our American colonies, not only the wages of labour, but the interest of money, and consequently the profits of stock, are higher than in England. In the different colonies, the rate of interest run from six to eight percent. High wages of labour and high profits of stock, however, are things, perhaps, which scarce ever go together, except in new colonies. As the colony increases, the profits of stock gradually diminish as the best lands have been all occupied. In the greater part of our colonies, accordingly, the rate of interest has been considerably reduced during the present century.

In Bengal, money is frequently lent to the farmers at forty, fifty, and sixty per cent. Twelve per cent, is said to be the common interest of money in China, and the ordinary profits of stock must be sufficient to afford this large interest.

When the law prohibits interest altogether, it does not prevent it. The high rate of interest among all Mahometan nations is accounted for by M. Montesquieu partly from this.

In a country which had acquired its full complement of riches, where, in every particular branch of business, there was the greatest quantity of stock that could be employed in it, as the rate of profit would be very small, so the rate of interest which could be afforded out of it would be so low as to render it impossible for any but the very wealthiest to live upon the interest of their money.

In reality, high profits tend much more to raise the price of work than high wages. The rise of profit operates like compound interest. Our merchants complain much of the bad effects of high wages in raising the price, but they say nothing concerning the bad effects of high profits; they are silent with regard to the pernicious effects of their own gains; they complain only of those of other people."

Guest

cactus flower wrote:

Quote :

CHAPTER V.
OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY.[/center]

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. Labour was the first price, the original purchase money that was paid for all things. But It is often difficult to ascertain the proportion between two different quantities of labour. Every commodity, besides, Is more frequently exchanged for, and thereby compared with, other commodities, than with labour. The greater part of people, too, understand better what is meant by a quantity of a particular commodity, than by a quantity of labour.

The butcher seldom carries his beef to exchange for bread or for beer; but he carries them to the market, where he exchanges them for money, and afterwards exchanges that money for bread and beer. The quantity of money which he gets for them regulates, too, the quantity of bread and beer which he can afterwards purchase.
Gold and silver, however, like every other commodity, vary in their value; are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. But equal quantities of labour, at all times and places, may be said to be of equal value to the labourer. In his ordinary state of health, strength, and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.

Labour, like commodities, may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniencies of life which are given for it; its nominal price, in the quantity of money. The labourer is rich or poor in proportion to the real, not to the nominal price of his labour.
The same real price is always of the same value; but on account of the variations in the value of gold and silver, the same nominal price is sometimes of very different values. Princes and sovereign states have frequently fancied that they had an interest to diminish the quantity of pure metal in their coins; but they seldom have fancied that they had any to augment it. Likewise, the discovery of mines in America diminished the value of gold and silver in Europe. Thus diminution, it is commonly supposed, though I apprehend without any certain proof, is still going on gradually, and is likely to continue to do so for a long time.

Equal quantities of labour will, at distant times, be purchased more nearly with equal quantities of corn, the subsistence of the labourer, than with equal quantities of gold and silver. But, from year to year, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour.
But half an ounce of silver at Canton in China may command a greater quantity both of labour and of the necessaries of life, than an ounce at London. Silver, too, would appear to be more invariable in its value than gold. The value of gold would seem to depend only upon the quantity of silver which it would exchange for.
The occasional fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. These metals are lost in gilding, in plating and in the wear and tear of coin. The merchant importers, like all other merchants, sometimes overdo the business, and sometimes underdo it. But the money of any particular country is, at any particular time and place, more or less an accurate measure or value, according as the current coin is more or less exactly agreeable to its standard.

By the money price of goods, it is to be observed, I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin. Six shillings and eight pence, for example, in the time of Edward I., I consider as the same money price with a pound sterling in the present times, because it contained, as nearly as we can judge, the same quantity of pure silver.
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I think that Smith is right, and that underlying all the exchange mechanisms that distance / obscure the relationship between labour and value, that relationship between labour and value is always fundamental. Underneath the piles of cash and lists of Credit Default Swaps and so on, is the value created by peoples' work. When there is overproduction in relation to the ability of people to buy, the market reflex is to wipe out the excess paper down to a level at which it again matches the real, saleable value and beyond that there is a reflex of the system to wipe out the surplus population who potentially create the "excess" value, in war or genocide.

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