Wealth of nations by Adam Smith - Term Paper Example

? Wealth of Nations Chapter 5 Analysis Written by Adam Smith in 1776, readers of today find the book “Wealth of Nations” almost impenetrable since the language used is flowery and the terminologies are outmoding yet wander into digressions. In spite of that, this book is one of the world’s most important books because it did for economics what Newton and Darwin did for physic and biology. Adam took what seemed outdated in trade and commerce then used public policy and his wisdom to re-state all these facts into complete, fresh, and new principles that people use fruitfully centuries later (Smith, 2010). In his work, Adam outlined gross domestic product concept for measuring wealth of a nation through identification of huge gains of productivity facilitated by specialization. He recognized benefits of trade, automatic market mechanism as well as the collaborated wide and fertile resources that provided great efficiency. Consequently, it is these ideas that make the basic fabric economic science that we adhere to up to date. This book inquires about the nature and causes of a nation’s wealth. In book one, chapter five, Adam expounds on real and nominal price of products and their prices of labor and money. In simple terms, Adam believes that every man is wealthy or poor. This status depends on the degree in which a man can afford to enjoy the conveniences, necessities, and the amusements of life. Nevertheless, after taking thorough division of labor, this degree value these fruits as a very small part with which a man’s own labor can afford to supply him. This means that, a man must derive the greater part of these fruits from other people’s labor and he can only be rich or poor in reference to the amount or quantity of labor that he can afford to purchase or command. Therefore, a person who possess a commodity and does not mean to use it consume it by himself but plans to exchange it for another commodity, the value of his commodity equals to the quantity of labor with which his commodity enables him to purchase or command. Hence, the real measurement of exchangeable value of all commodities is labor. According to Adam, to a man, the real cost of a commodity that he wants to acquire is the turbulence and trouble involved in acquiring it. The real worth of a product that a man acquired and wants to tender or simply exchange it for another product is the burden that he can spare himself and impose it on others. Labor purchases whatever a man can buy with money or with products as much as what a man can possess through the sweating and troubling of his own body. Nonetheless, the availability of goods or money that a man can use to purchase a product indeed saves him toil and trouble as these goods contain quantity of certain value of labor that one can exchange for what is of the same amount at that time to obtain a value of an equal measure. At first, labor was the original purchase money paid for all things. Therefore, what originally purchased the world’s wealth is not gold or silver, but labor. Surprisingly, wealth is power. However, whoever acquires wealth or succeeds to great fortune, does not entitle him to any political power may it be military or civil. The power may perhaps afford the person both military and civic power but his or her mere power possession does not necessarily convey to him or herself. In this case, this person only possess the power of immediate or direct purchasing a certain command over all the available labor or over labor produce that is in the market by then. This person’s fortune is greater or lesser according to the proportion to the extent of power that enables this person to purchase or command the quantity of other people’s produce of labor. Thus, everything’s exchangeable value must be precisely same to the extent of power, which it conveys to its owner at all times. Even though labor is the real measure of value of exchange of all commodities, it is not labor which commonly estimates the value of commodities since it is not easy to ascertain the proportion between two different labor quantities. Time spent on divergent kinds of work alone cannot always determine this proportion as different degrees of hardships survived and ingenuities exercised, must likewise be accountable. There is possibility of more labor in an hour’s hard work than in two hour’s business of easy work. Indeed, exchange of different commodities with different kinds of labor always makes some allowance for both. However, it is adjustable not by any accurate measure, but by market haggling and bargaining, in reference to the sort of rough equality that, although not exact, is sufficient for doing business in common or normal life. More frequently exchanged products are often and mostly comparable to other commodities other than labor. Hence, it becomes more natural estimating the exchange value of a commodity with that of another than with the quantity of labor that commodity can purchase. This is because, the greater proportion of people understand more clearly what it means by quantity of a certain commodity than by quantity of labor of the same commodity. Adam Smith explains this behavior by saying; one is a plain palpable object while other is a notion that is sufficiently intelligible by making, but not natural and obvious all together. Chapter 5 continues further to explain that, when barter trade ceased, money commenced being the common instrument of trade. Frequently, exchange of every product involves money than commodity for another. For instance, instead of a butcher seldom carrying his beef or mutton in order to exchange it for bread at the baker’s, he carries them to the market where he trades them for money, which he uses to buy bread. This seems more natural yet obvious to the butcher thus, he is not aware that the money he gets after selling his meat is proportionally equal to the amount of money that he uses to purchase bread. It comes to attention that, people estimate the value of exchange of every commodity with the amount of money than by labor quantity or than any other commodity with equal exchange value. Adam Smith points out that, laborers consider equal quantities of labor always have equal value although sometimes seems greater or lesser in value. Practically, equal labor quantities may presume equally of the same value to the laborer at all times. In response to the laborer’s strength, spirits, and health, the portion of ease and liberty must always lay down equally and proportionally. Therefore, labor in its state is not a variant of its own value. Labor alone is the standard and ultimate estimate for and measure for value of all commodities at all times and places. Thus, labor is the commodity’s real price while money is the nominal price. However, a person who sometimes buys commodities of greater and sometimes of smaller quantity, in his case labor price seems variable just like all other things. Therefore, to him, they appear dear in one case and cheap on the other. Practically, goods are the cheap things in one case while dear on the other. In a much popular sense, people may say labor and commodities have both real and nominal price. Both of them have real price in the sense that, it consists of quantity of conveniences and necessaries of life exchangeable while on the other side nominal consists of amount of money. Hence, people may say a laborer is rich or poor with regard to proportion of the real and not the nominal price of labor that he possesses. This shows that the diversity between real and nominal price of a commodity or labor is not a thing of mere speculation as explained in this chapter. Finally, it appears that labor is the only universal and accurate as well as standard measure of value that people can compare different values of commodities at any time and in any place. Presently, although permitted, it is unfair to estimate the real value of a particular commodity with the amount of silver that equaled to the same commodity centuries ago. Therefore, chapter 5 of “Wealth of Nations”, points out that equal quantity of commodities commands same labor quantity as it is more common and ordinary in human life. References Smith, A. (2010). Wealth of Nations: An Inquiry into the Nature and Causes of The Wealth of Nations. Boston: Mobile Reference. Read More