Adam Smith's "The Wealth of Nations" (Part 1/4)

That is the distinction between what he calls useful and unuseful labor. And what that means is that useful labor are people who produce things that can then be sold, that can enter the market, and unuseful labor is laboring that does not produce anything. So some of the examples he gives is like the army, or a physician, or a teacher, that don't produce products that can be sold per se, but are still laborers nevertheless.

Now because his concern is with labor as something that must regulate itself, he is very much interested in that natural human propensity to work for oneself, to maintain one's self-interest. And he says that in a free market, we will see that propensity fostered. That is that human propensity for self-fulfillment, we will see that fostered, and because of the dynamics of the free market, apparently, that will make it so that you cannot infringe upon another person's right to attain their own self-happiness, their own self-fulfillment.

Now there are so many problems with this book, and we're going to go through them, and Marx is going to give us a very profound critique of pretty much everything we find in here. But there are some points that are really interesting, and so for those people that might be surprised why I'm covering this text, because it certainly doesn't align with anything I believe in, it still gives us a very strong foundation from which to understand Marx's criticism of political economy that we're going to get into whenever I get there.

So after completing the introduction, he moves on to book one, in which he begins to outline the kind of efficacy or the power of the division of labor to foster improvement, economic improvement, social improvement, architectural improvement, every kind of improvement you can imagine is attributable to the division of labor for Adam Smith.

Now for those that are unfamiliar, what the division of labor essentially refers to is a situation in which one person is not producing a whole product. Instead, let's say with a shoe, whereas previously you would have a cobbler or a shoemaker making the shoe, now you'll have one person making the shoelaces, another person making the soles, another person putting them together, another person putting on the fabric around the shoe, whatever. And what this allows for is an acceleration of the production of a shoe, not only in terms of its actual production in a manufacturing zone or whatever, but even the training that is required. Whereas previously, as a shoemaker, you'd need to know how to do each of these operations. Whereas now, all you need to know how to do, let's say you're making the shoelaces, you just need to know how to make the shoelaces.

Now what that allows for is you to heighten that skill and to get it down to absolute rote memory to make more products much quicker. So this will save time on worker movement and it will also encourage the formation, the construction of various machines to help in the journey, in the task.

Now the kind of first problem that arises here is a kind of chicken and egg situation where Smith attributes to the free market the capacity to foster the division of labor. But in order to have a division of labor implies first that there has been a kind of a hoarding or a kind of supply farming of various resources to make that possible. Because if you're a laborer, let's say you made shoes, you don't have the means to hire a bunch of people to make each individual part of that shoe. So whether or not the division of labor comes first or if the acquisition of capital comes first is a problem that Smith skirts over and it's something that we're going to get to in Marx in that Marx is not scared to ask these kinds of questions. That is, what actually comes first? Does the division of labor come first and if it does, upon which is it given potential? How does it actually come into being unless there has already been capital there to motivate it?

In which case that would have already implied some kind of division of labor. So this is obviously a tricky problem and I'm not going to answer it here but just keep that on the back burner. Now beyond making labor generally quicker, Smith contends that the division of labor has allowed for more people to acquire more money and to just on average raise the standard of living. And that is because you can essentially flood the market with more products that you want people to be able to buy. So you want people to be properly compensated for the work that they do so that they can buy the products that are being made. Because if you were to make products on a mass scale but you could only sell them to royalty to the richest people, then you're going to run into a problem because you don't know how to actually meet or to maintain a certain supply is to maintain your own profits because you only have a very small pool of people to sell to.

And because it is much easier to learn a single task in the division of labor rather than say learning how to make an entire shoe, suddenly more people can actually enter into the labor force and have productive jobs that they would not otherwise have because it would have required education, it would have required like an apprenticeship, it would have required someone to mentor you, and so on and so forth.

Now it's not so simple as to say that the division of labor will just naturally almost magically enter a nation into prosperity. There are other factors that play a part. For example, access to different means of transportation will obviously play a part as well. So if a city or a town is located near a river, they're going to be able to export their commodities much easier than a nation that is maybe in a mountainous region or a city in a mountainous region that is very difficult to sell things from, to ship things from.

And as he'll go on to say throughout the course of this book, the value of a commodity and the value of things used to buy commodities like paper money or gold or silver, their value is determined on a number, or by a number of different factors. So he is in many ways, and we're going to get into this more as we go on, he's writing against some early economists before him, that is before the mid-18th century, who were saying that the value of a thing is pretty much predicated upon its, or rather the value of a thing will just naturally increase over the course of time, whereas Smith kind of agrees with that, in that prosperity is something that tends to go in a kind of teleological or positivistic direction going up. At the same time, there are a myriad of other factors, as far as like global economics goes, that will determine the value of various things. And so there's a much more dynamic relationship between commodities and between things used to buy those commodities.

Now before the introduction of a kind of universal equivalent in the form of gold or silver that, you know, you could use to exchange with, it must have been quite difficult at times to draw parallels between different bartered objects. So for example, how many pieces of, or maybe sheets of linen, does 10 apples actually buy? If we can, you know, equate that at all. It would have had to come down to the specific need of the person you're bartering with. So if I had 10 sheets of linen, and someone came to me with 10 apples, and I had, you know, a bunch of apples already, I would say, no, you have nothing to give me.

But then with the introduction of a universal equivalent in the form of gold or silver, what that allowed for is a way by which to exchange something so that the person who was receiving the money, the universal equivalent, the gold or the silver or bronze or whatever, could then use that to sell to someone else, or to buy from someone else, I guess I should say. But then we run into still yet another problem. How much gold is required to buy, let's say, 10 sheets of linen or 10 apples?

So we are here still presented with an issue of how to actually set the value of gold or of silver or whatever, and he says that its value is determined by both its value in use and its value in exchange. So what that means for him is that, for the most part, when something's use value goes up, its exchange value goes down. So for example, like water has a very high use, but it's pretty much ubiquitous, it's everywhere, well, at least in some parts of the world, you know, and he's writing about this in a European, he's Scottish, writing about it in kind of a European English setting, but water has a pretty low value in that setting, yet it still has a very high use.

So the actual value of a thing for him is determined by, and this is what is kind of colloquially called, and in economic terms called, the labor theory of value. He says that the value of a thing, as it will be determined by gold or silver, will be predicated upon the quantity of labor which it enables him to purchase or command. So the price of a thing then will be determined by the toil and trouble of acquiring it. So let's say the 10 apples cost 10 ounces of gold to buy, it would probably be much less than that, but whatever, just for the sake of argument. What that is implying is that the amount of labor or the toil and trouble that went into the apples is equal to 10 gold, where if you're someone that has 10 ounces of gold, what you are essentially saying is that I am going to buy from you 10 ounces of gold's worth of your toil and trouble in the form of these apples, which you are then going to be compensated for with this gold that you can then go and spend somewhere else for someone else's 10 ounces worth of gold, or worth of toil and trouble.

But here we arrive at another problem, in that how do we actually determine whether such and such labor, such and such toil and trouble is going to be worth 10 ounces of gold or 11 or 1 or whatever? And he says quite simply that it's going to be determined by the market. The market is going to set the prices of these things. And it's quite, he just, it's really annoying, but he just says that and he's like, that's just the way it is. And we must ask, like, okay, but there are other factors that play a part here.

And if we think about this today, for example, if one of the Kardashians, again, for example, was to advertise a product, the value of that product will go up immensely, or they were to wear that product, even though the actual labor that went into making it, the actual, its actual role in the market has not changed at all, but it has attained some new value. And value, and this is really one of the cool things that Marx looks at, is he asks, where does value actually come from? Like, how do we actually determine the value of objects? And it's a very mysterious question. But anyways, this is what Smith gives us.

So in any case, labor is what he calls the real value of a thing, whereas the money price, that is however much gold you'll buy it for, is the nominal price of a thing. So the real price refers to the actual amount of labor that is required to be repaid in how much you sell the object for. So if I'm going to sell 10 apples, I need to sell it at such a price as to cover the cost of that labor, so that I will receive the covered cost of that labor, and probably end some, because you want to make profit, I need to receive at least that much in order to then be able to buy someone else's labor for that same equivalent price.

The actual dollar value of labor is pretty arbitrary. That is, at one point, the amount of labor that it took to acquire 10 apples might have cost 10 ounces of gold, but then 20 years later, my account cost 20 ounces of gold. That doesn't actually tell us that the value of apples has increased. It might just mean there's been inflation, for example, or it might just mean that the value of gold has gone down, or whatever. There might be a scarcity of apples, who knows?

So there's a difference here between the real value, or the real price, sorry, and the nominal price of a thing, and that's an important distinction to keep in the back of your mind as we go through here. And that is because, for Smith, labor never actually varies in value. It will just vary in nominal value. So I would like to add to this as well, in addition to the real price of a thing and the nominal price of a thing, there's also what is called the natural price of a thing. So the natural price of a thing refers to the necessary price of an object or a commodity to sell, the necessary price to cover the wages, profits, and stock and rent of the landlord. That is all the amount necessary so that you break even on the expense of actually bringing that product to market.

So given all this, it's quite difficult to actually determine the value of a thing because we often just focus on the nominal price. We say like, oh, it's dollar value has gone up, or the value of gold required for it has gone up. But that doesn't really tell us anything. What Smith holds to be the kind of true determining factor of a thing's value is labor. So although the price of silver and gold might fluctuate, the actual price of labor is going to stay the same, even though its nominal value might go up or down. That is, you can't do without labor. It is something that will always be around and will always be necessary.

But labor is not the only thing that needs to be paid for when you sell a commodity. You're also going to be selling a commodity to meet the other elements of the natural price. That is, you need to cover the cost of the materials used. You need to cover the cost of the tools used. You need to cover the cost of the kind of profit you want. You might need to cover the cost of the rent you're paying to a landlord who's letting you use some plot of land or whatever. So there are all these other factors that are going to be accounted for in order to turn a profit in the market.

And when each of these things are paid for, that is, if you're paying wages to laborers, if you're paying profit to yourself, if you're paying rent to a landlord, each of these has a different name. So you pay wages, as I said, to the laborer. You pay profit to yourself, to the capitalist, to the stock owner. And then you pay interest to the landlord or the lender. If someone lent you money or they're letting you use their land or whatever, you pay interest to them. And these are the kind of three, this is the trinity of all production. That is, the capital that is required to produce.

But some people are content to only make one of these things. So you might have people that just want to be laborers, and that's fine, they'll just earn wages. You might have people who are just prepared to be landlords, in which case they're just going to make interest. And then you have those others that are just capitalists that want to turn a profit.

And like with the value of anything else, the rate of these things, wages, profit, and interest, is going to be determined by the market, including other factors. And so the price that it goes for in the market should be greater than the natural price. Because with the natural price, you're only going to be breaking even. It must make what's called the market price, and that's going to be determined largely by supply and demand. And what the market is going to try to do is make the market price as close to the natural price as possible. That is, in order to both incentivize the buying of the product and the selling of the product, to maximize, to find that sweet spot in which it is sold for the highest amount it can, while still being not too expensive to deter possible consumers.

Now he contrasts this to a monopoly, in which case you can just sell something for as much as you want, because you're the only person bringing that thing to market, which is certainly what we've seen throughout all the course of this history of capitalist production. But in any case, he's very much opposed to that, as he naturally should be. But it just seems kind of naive, in that the free market is obviously going to gravitate towards various forms of monopolies. And there should be some oversight to disband these kinds of monopolies, and these are certainly the conversations that are going on today about various tech companies, not in terms of the political messages they apparently espouse or stand for, instead about the ways that they hold a monopoly on the tech world.

Now although we are still presented with a mystery of value, he wants to break down these three forms of compensation, be it wages, interest, and profit, to figure out exactly where that value comes from. How do we determine the value of wages, profit, and interest? So he begins with wages, and he says that before the free market, anything that a person made was ostensibly their own. Of course we could think of the example of feudal lords, in which case serfs wouldn't actually make something for themselves, but they'd be making it essentially for the feudal lord. In any case, he maintains that if you were someone living on a farm alone in the country somewhere, if you made a shovel, it was your shovel. You weren't going to go and sell it somewhere else, because you just didn't have the kind of supply to make a bunch of shovels that you could sell somewhere else.

So in the case of laborers that work in the free market system, it is in their interest to maximize the amount of money that they're getting for the labor that they do, while it is in the interest of the capitalist to minimize that value, while maximizing the amount that they take out of that laborer. And as Marx will come to show, these are not equal distributions here. That is, the capitalist has a lot more sway over the laborer in these dynamics. And so the capitalist is able to continually decrease however much the laborer makes, while increasing however much they're able to extract from that laborer. And of course, that will just lead to the point where laborers are going to get fed up and usher in this new system called communism. But we're still waiting for that to happen, if it will at all.

Now Smith is clever. He recognizes this as well. So this isn't just a Marxist thing. Smith is very clear that landowners have the power here, and they can very well conspire amongst themselves to keep the value of labor low. But he says that when we have a system in which profits are possible, when you live in a system in which it is possible to expand, then it'll be in the capitalist's interest to expand their enterprise, and that will require labor. And in order for you to require labor, because the demand for labor will increase, it is going to get more expensive. Because if you have all of these capitalists trying to make more and more, to expand their enterprise more and more, more labor is going to be needed, probably more than is actually allowed for in the given pool of people. And so people are going to work for whomever is paying them the most.

And so he gives the example of a prosperous nation as being one in its infancy, when it's entering into this kind of free market system, as being one with the highest wages. Whereas a country that is stagnant, that is not growing, has lower wages, because things aren't expanding, there isn't as much of a demand for labor. But there are still so many other factors that will determine the actual value of labor. So it might just come down to the capitalist's degree of generosity, or the price of raw materials, or whatever.

But he contends that this kind of growth, this kind of prosperity, does not only benefit the capitalist, it actually will, by saturating the market with a bunch of new products, by bringing costs down for things and making them more accessible, it just makes the standard of living of everyone better, whether or not laborers are getting more for their labor or not. Now of course there are so many problems with this, especially the assumption that we live in an infinite world of infinite resources, an infinite possible growth, and that's something that's just, it's just an untenable hypothesis. Whether it's tomorrow or in a hundred years, we are certainly confronted with a finite planet and we have to reckon with that. That is, this emphasis on growth cannot hold, it is untenable and it is very volatile.

Now if you've been kind of given the sense here that Smith doesn't like poverty, then you're certainly right. Smith wants people to prosper, he wants the general population, because he recognizes that they are mostly laborers, he wants them to be prosperous. And so one of the things that he worries about is overworking people, because it's not in the interest of either the laborer or the capitalist to burn people out, to overwork them. And this will extend to forced servitude, where he doesn't like that at all either, because it doesn't make people actually like the work they're doing or to actually put any love into the work they're doing. So he believes that people should be paid a lot, but that this amount must ultimately be determined by both the price, the demand for labor and the prices of the actual necessities and conveniences of life to make sure that people are earning enough to make their keep, to be able to actually live a life that is comfortable.

Now he moves from wages into profits. So like wages, profits are determined by the increasing or declining state of the wealth of the society, but it does not do so in proportion to wages, because if you're paying people more, you might be making less profit, whereas if you're paying people less, you might be making more profit, or if you're paying people more, that might mean you're expanding a lot, that might mean you're actually making more profit, or if you're paying people less, it might mean that there's a kind of decline in the economic conditions, and that means you're making less as well. So there are all these factors to consider here. Not to mention the fact that if you're the owner of the means of production, you're also accountable for a number of other things, like accidents, cost of the materials used, you know, you're essentially subject to the market as far as actual cost of production, cost of the use of raw materials, the transportation of your product to the market, and so on. Or I would even like to add, if you're making a profit, what that probably means in a free market is that other people are making a profit as well, which means that the cost and value and price of things is probably going to go up, which means that your costs are probably going to go up. So you have to factor all of these in to determine the actual real value of profit, how much your profit is actually going to be able to buy again in terms of labor, how much your profit is actually going to be able to do in the marketplace, because $10, if we're just using Canadian or American money, $10 is going to be different depending on the year it's being used. That is because the nominal value will change across time.

Now before moving on to discussing interest or rent, he considers more closely the relationship between profit and wages. So in a perfectly free society, he speculates, and he just hypothesizes because this society doesn't actually exist, he says that the advantages and disadvantages of profits and wages would tend to equilibrium, that is, they would balance themselves out.

So for example, a job with high wages will be flooded with potential workers because everyone's going to want some of those high wages, willing to be paid less to get work, and so the wages will come back down because suddenly there will be a whole flood of people entering that workforce, trying to get into that job, bringing the supply up, meaning that they can be paid less because more people are still going to be trying to work and the capitalist has now a bigger pool to pull from. So however, we don't live in that kind of perfect world in which there's going to be this kind of natural equilibrium between the two. There are going to be a number of other factors that are going to determine wages and profits.

Now he considers here more closely wages, but he extracts from them two of the five that I will mention that will also affect profits. So he says that wages are going to be determined by all the things I've already said, but in addition, wages are going to be determined by the agreeableness of the job, the difficulty to learn the job, the consistency of the employment, how much trust is put into the workers, and the difficulty, that is the risk. And he says that profits are only going to be affected of those five by the agreeableness and the risk. So profits will obviously go up in a stable job that is agreeable, and they'll go down and be affected if there's a great deal of risk and you have to contend with all of those issues.

Now additionally, the government can have a negative effect for Smith, which is of course a little outdated, but the government can have quite a negative effect for a number of different reasons. So the government might limit the amount of competition, the government might actually increase competition, or they might inhibit the free circulation of labor. Now I'll expand on these in a little bit. So they might limit the number of possible competitors to limit competition, and this happens for example when the government puts lengthy term requirements for apprentices. So if you're learning a skill, and they make it so that, oh well, in order to be qualified to do that job, you need to be an apprentice for three years. Now what that means is that it's going to take three years before you can actually get to the market to actually put your skill to use, to make it productive.

Now he says that that's obviously a problem, because it doesn't actually mean anything in terms of your ability to do the job, which is, like, yeah we get what you're saying Smith, but at the same time it is necessary to maintain certain regulations about these jobs, otherwise people are going to do a bad job and might end up killing other people because they are untrained. But in any case, he maintains that this is something that's going to limit the pool of possible competitors.

Now I just want to say that Smith is not opposed to government full stop. He wants to foster government intervention that is meant not to restrict the system, but essentially to guide it, to be like a guiding hand in its smooth functioning. And as we'll go on more into book three and two and three, he identifies some problems that will arise within the free market, especially with predatory lending, which is something we saw culminate into the 2008 crisis that he says has to be tempered, that you can't just lend money, bad money out to people who aren't going to pay it back. And he is very clear that he sees it necessary to have some form of taxation. Just how we actually go about doing this is certainly up for debate in order to take care of people who are unable to work, like people who might be elderly, who might not be able to work, sick people who might not be able to work, poor people who might not have the opportunities afforded to everyone else, et cetera.

So I've kind of digressed. So that is what happens when there is a kind of restriction of competition.

Now there might be an abundance of competition fostered by the government, and that might come about when, well, the example that he gives at the time was there being an overproduction of teachers. So when you have an overproduction of teachers, now people can't find work because there are more teachers than are actually required. And so there were various government programs put into place to encourage people to become teachers at a time when there weren't that many, and what that did is it created too many teachers, and that was obviously an issue.

So thirdly, the third thing the government can do is restrict the free itinerancy, or the free movement, I should say, of labor. So for example, the weavers of wool could probably work with linen, but some government regulations will restrict people from moving across different jobs because they don't have the skill, apparently, to do it, even though they could technically do it. Now Smith says that in a free market, people will just be able to work wherever the capitalist has deemed them to be adequate. So they'll obviously put the person to the test and say, are you capable of doing this job? Test them. If they are, then that's great. And then they'll just send them out the door. But Smith is, his naivete is extremely, it's very apparent here, and he was writing this 300, 400 years ago almost, like, I guess we have to give him a little bit of slack, but people are quite willing to cut corners, let's say, and he has a great deal of faith in people to maintain the best quality of their products and their labor. But anyways, I wish I could live in the fantasy land that Smith was in, but in any case.

So that more closely kind of looks at the relationship between profit and wages and how it's affected by government intervention. But here now we have a rent, which is also interest. And he's describing a situation that's very much different from our own in, like, the North American context, where he's describing a situation where the rent, the landlord, I should say, only makes a certain percent of what the producer on his land makes or on their land makes. So if the person doesn't make money, then the landlord's not going to make money. So it's in the landlord's interest to rent out to people who are going to be able to turn a profit so that they themselves can make more money. That value is going to be determined by the market, because if it's set not high enough, then the landlord won't make anything, and if it's set too high, it'll take too much from the actual renter.

So whereas previously labor and however high wages were, seemed to determine the price of products, now here it seems that the price of products is going to determine how much rent the landlord actually makes. So if the renter, the person making things, makes more money, that is with a higher cost of their, or price that they can sell their commodities for, then the landlord is going to make more and rent will necessarily increase.

So now he's going to consider, in quite a bit more detail, the kinds of things that can be made on rented land. So you have, in the first part, you have produce that always garners rent, that will always make rent. Secondly, you have produce that will sometimes afford rent, and sometimes it won't. And then thirdly, he's going to look at the variations between the proportions of produce that always gives rent and that which doesn't always give rent. So to be quite simple about it at first, he says that produce that always gives rent is like food, for example, because everyone needs food. All labor needs to be sustained with food. All people need food. So that is a produce that will always afford rent. Whereas something like clothing, for example, is not necessarily something that's going to afford rent. Or something, if you make other products, that won't necessarily afford rent.

So those are the first two, and then he's going to consider the relationship between them and how produce that always affords rent operates in relationship to products that only sometimes afford rent.

Okay, so produce that always affords rent is like food. Now in order for it to actually turn a profit that can be turned into rent, more needs to be made than is necessary to cover the actual food needs of the people working on it. So the first job is to make sure that the people who are working for you have enough to eat. Now once that is covered, you can then take your surplus and take it to the market.

Now of course there are going to be variations in this. A more common type of food like corn is going to probably more likely to yield rent than something that might be more luxurious, like a certain cut of meat, for example, that would take a very specific set of skills and can only be sold to certain people who had the amount of money, the appropriate amount of money to actually buy it. And the baseline is going to be essentially set by the most common kinds of food that everyone needs. Because no matter what, everyone's got to eat. And they have to eat what the absolute bare minimum is.

So he says that in terms of the produce that will always afford rent, their value is going to be set by the baseline of the most common type of food. In this case, he's describing it in the European setting. He's talking about corn being a very prominent thing, and this obviously extends over into North America as well. But we see this, you know, different food takes on this different function in different parts of the world. Like he says in China, you know, you have more of an emphasis on rice. In Ireland, you have potatoes, you know, whatever. So common produce is going to affect other, you know, somewhat common things.

And he's clear that, you know, no matter what the price of corn, it probably won't have too much of an effect on the price of like super valuable rare wine. Because that's only going to be bought by the smallest proportion of the population in any case. And that won't, you know, won't have much of an effect how much, you know, the plebeians are paying for corn. Whereas for the most part, with other semi-common items, their value is going to be determined and kind of tethered to the price of the most common being, in this case, corn.

Now he moves on to produce that sometimes affords rent. So food always affords rent for Smith. Whereas clothing and lodging only sometimes afford rent. So people need food and they don't necessarily need, you know, clothing as it is produced in manufacturing quite as much. And when he's talking about lodging here, he's not talking about necessarily like having a place to live, but also lodging in terms of owning a plot of land that resources can be extracted from.

So for example, like you own the land or you're renting the land from a landlord that has like a mine on it, like a silver mine or copper mine or something. Now the value of that might seem to be quite good, like you're obviously going to make money from it because you don't have to grow the stuff, you just extract it from the earth.

But let's say, for example, that a new mine is discovered in a neighboring country or even a country across the world, and suddenly the supply of silver or copper or whatever it is your mine is, is now, there's now too much of it. So in that case, the value of the silver or copper or whatever is going to go down, which means that the rent is going to go down as well.

Whereas in the case of like corn, if another plot of land is discovered that has corn on it, it doesn't, won't make that much of a difference as to how much your corn is actually worth. Because corn also goes bad quite quickly, and there's always going to be that element of scarcity associated with it, or all food goes bad quite quickly.

So more frivolous objects, like gold, silver, anything like that, have their value determined by utility, beauty, and scarcity. So they have a use in that they're being used for the exchange of things as money, their beauty, which is obviously culturally determined, and he's very clear that people in the Americas were just kind of surrounded by gold at times and silver and didn't even attribute value to it, because there is no inherent value to gold nor silver. We've just attributed that value to it. And of course its value is also going to be determined by scarcity, because like I said, if a new mine is discovered, then suddenly the value of gold, for example, is going to go down, because there's more of it around, it's easier to acquire.

So now he considers the relationship between produce that always affords rent and produce that sometimes affords rent. And he says that for the most part, the value of what sometimes affords rent, of the produce that sometimes affords rent, will increase in proportion to what always affords rent, like food. So even though there doesn't seem to be any relationship to corn and silver, the price of silver is going to be widely determined by the price of corn. And I'm using the term determined here quite loosely, it's not like there's a one-to-one relationship between the two. But the value, the nominal price set for silver, is going to be determined by however much is made accessible in terms of the most common possible produce that everyone's going to need first. But like I said, other factors are going to play a part in terms of silver, like if a new silver mine is found somewhere else in the world, that will also have an effect, but in any case.

But there are other factors as well that are going to determine the price of various objects, various commodities. So he gives the example that between the 17th and 18th centuries, silver began to rise in price, and so did corn, probably because of the Civil War. And in 1688, a bounty that was placed on corn, and what he means by bounty here is that people were rewarded by shipping their corn internationally to other countries, which meant that the value or the occurrence of it, the supply of it in the home country went down, meaning that its value went up. At least, that was what was supposed to happen. But the thing is, when you ship your corn overseas or to other countries, the price of it didn't really go up, which was quite surprising, because you'd think the occurrence of it would actually go down, but it actually kept it at a pretty stagnant rate because it was still being maintained that the basic amount needed for people was being met. So there was neither prosperity of it or a decrease of the price or the value of corn.

And another factor might be what's called the clipping of silver, where silver coins are actually, there's silver extracted from them to make them less value. They lose their actual quantity of silver. And we can go on and on, like weather, climate is going to have an impact, geopolitical concerns and conflicts between nations are going to affect the prices of various things, and so on and so forth.

Now just because there is a relationship between commodities within the market doesn't mean that we can infer all that much from this relationship. So one of the examples that he gives is the relationship between gold and silver, where he says that at a time, gold was 14 times, but just for argument's sake, and to make it easier for our brains, let's say gold is 10 times more valuable than silver. That doesn't mean that there's 10 times more silver in the market that has effectively brought its price down tenfold than gold. It just means that we've kind of culturally attributed more value to gold than silver. And there might actually be way more actual value of silver within the market than gold. And the same applies to corn as well.

Gold might be more valuable than corn, but if you were to just buy all the gold out of the market, like if you were an alien and you had an infinite amount of money and you can just buy anything that you wanted, it will cost you a lot more to buy all the corn in the system than all the gold, just because of the pure abundance of it. So there's no direct relationship between, let's say, gold being 10 times more expensive than silver. That doesn't mean there's 10 times less of it. There's not that kind of relationship within the market that Smith can very easily identify. So all of his faith essentially hinges upon his faith, or his idea hinges upon his faith in the logic of supply and demand, where if there isn't a demand for something, you won't make it because you won't make any money off of it. And if there's too much supply, you are going to stop making something so that the demand can catch up, so that you can sell as much of your product as you can, and so on.

But this idea really does not hold today, where we have planned obsolescence, for example. We have car lots, as far as the eye can see, filled with cars that just never sold, that will never be sold, because they can't earn the same profit, they can't be sold for the right value. And so what we see is not an adherence to supply and demand in the strict way that Smith laid it out, but we have undeniable waste. And this waste is just so ubiquitous that it's almost strange that Smith did not see this as being a natural consequence of this system, but in any case, this is definitely a problem that we are confronted with today, because of the system that Smith is so adamantly fighting for, trying to foster here. But in any case, I digress, I digress.

So the actual value of a thing, its nominal value will probably go up or down based on inflation, or based on the quantity of silver, or whatever. But when its real value has gone up, it probably means there's been general and genuine economic improvement in that nation. So with actual economic improvement, where there's an actual increase in the real value of products, that is, if you compare it to another nation that might not be as developed, where you can buy more using the currency of a more valuable nation, or a nation that's garnered more wealth, where you'll be able to buy more with less money than someone else in another poorer country, he says that when we are presented with this kind of improvement, this kind of increase of economic wealth and prosperity, we are confronted with three possibilities in terms of the prices of products.

So products might go up in price, or sorry, there's some products that will go up in price, some that will go up but might be subject to some variations, some fluctuations, and then there are products that may actually decrease in price, following or going along with economic general and genuine economic improvement. So in terms of products that will actually go up in price, he talks about things like rare animals, which can be extended to anything rare, where because society has improved, does not mean that there's been greater supply of whatever this rare thing is. In fact, its supply has probably stayed stagnant, or actually gone down, because more people might be consuming it, with a general increase in the standard of living. And what that means, then, is that the value, both nominally and really, will have gone up.

Then there are other more common things whose value might go up or down, depending on the supply and demand of the specific area in which, you know, the people are. So this might be determined by climate, where someone in, or a country in a colder climate might have more of a demand for wool than a country in a warmer climate, and so on. So we have these other factors here playing a part.

But then wool can also fall under the category of something that will actually go down in price, because with general economic improvement on a global scale, like if all nations are increasing their wealth because they're selling more, they're trading more, and so on and so forth, then that means that different products are going to be in higher demand, there's also going to be a more abundant supply of them, and so the prices of things can actually go down. So with improvement does not necessarily mean that the prices and value of things will go up in proportion to that improvement, which was an idea that had plagued many economists before Smith, and that he's showing that there are all these other factors playing a part here.

Now in any case, and this is kind of in conclusion here, he says that every improvement in the circumstances of the society tends, either directly or indirectly, to raise the real rent of the land, there is just a general increase in profit, in revenue, that is going to make more for the landlord. And that is because, like he said at first, labor doesn't change, that is the value of labor does not change. So as products rise in value, the labor necessary to cultivate or produce them stays the same or actually goes down, because machinery might be introduced that'll make it so that less labor is necessary and so on, so there's only more profit to be made.

And he attributes the greatest significance to, if we consider the three parts of society, either you have the person making rent, the person making profit, or the person making wages, he attributes the most value to the person making profit, because as a capitalist, they are setting this whole machinery into operation, whereas the wage earner is just someone that goes with the flow, likewise with the landowner who's just taking in interest without actually producing anything, it is the capitalist that sets this entire enterprise into motion. And because of this, he attributes, because of this value he attributes to them, he almost wants to give them like a governmental role or a legislative role in society, because they have a better understanding of how that society actually works, which he opposes to like just pure merchants, or what he calls "dealers," people who try to just superficially inflate the cost and value of things, because of, you know, sophistry almost, and not to actually determine the cost or value of things in terms of the broader market in terms of production and consumption.

And so it's for that reason that he really emphasizes the role of capitalists in this system. And that more or less covers book one here, and next time we're going to look at book two and three in the same part, because they're pretty short, and then from there we're going to go to book four, and then finally book five. But yeah, if you listened this far, thanks a lot, let me know if there's anything I excluded that I should have included, or anything else I might have gotten wrong, or anything else I should have emphasized. And yeah, if you like what I did, like, share, subscribe, leave five stars if you can, and catch you next time. Take care.