OK! Who's ready to talk at great length and in great detail about prices? #AdamSmith, that's who! (I.v) #BuckleUp because this is the first of three chapters Smith prepped us for yesterday. (I.v) #WealthOfTweets #SmithTweets
We're about get into some #LaborTheoryOfValue. (I.v.1–18) We, the SmithTweeters, are firmly on board with the #MarginalRevolution (and we are fans of @MarginalRevolt). But Smith's theory is more complex than is often recognized. #WealthOfTweets #SmithTweets #ValueHowDoesItWork
The caricature version of the #LaborTheoryOfValue is that the longer you work on a thing, the more it must be worth. This is obviously wrong, and Smith (and Marx, btw) would agree that it's wrong. (I.v.1–18) #WealthOfTweets #SmithTweets
(We know this version of the #LaborTheoryOfValue is wrong because we once carved a giant statue of #AdamSmith out of haggis. Took us hours. No one wanted to buy it. Go know!)
Again: We think the #LaborTheoryOfValue as it's actually presented is wrong, too, but we should at least understand how it's wrong and where it's right. (I.v.1–18) #WealthOfTweets #SmithTweets
Whether you're rich or poor depends on purchasing power, which is really just the ability to command more labor. Exchange allows (and requires) us to benefit from the labor of others and not just ourselves. (I.v.1) #WealthOfTweets #SmithTweets #WeAreAllConnected
Smith defines the "real price" of a good as the toil and trouble that's put into producing it, "which it can save himself, and which it can impose on other people." (I.v.1) #WealthOfTweets #SmithTweets
For this reason, wealth is power because it gives us the power to direct the labor of others, even as it makes us dependent on them. (I.v.3) #WealthOfTweets #SmithTweets #WeAreAllConnected
Sure, says Smith, labor is where the real value in all commodities lies. But! Labor hours are not how we typically measure value. (We told you so.) This is in part because things like hardship and ingenuity matter. (I.v.4) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
We don't need to be completely accurate when measuring labor because we have "the higgling and bargaining of the market" which "though not exact, is sufficient for carrying on the business of common life." (I.v.4) #WealthOfTweets #SmithTweets
In other words: real value is a thing, but it's hard to measure. For practical purposes, we rely on exchange value. (I.v.5) #WealthOfTweets #SmithTweets
And exchange value? That's measured in terms of the goods and services being exchanged. They're the product of labor, but not measured in labor. Remember: it's hard to make change when bartering (especially cows), so we use money. (I.v.5–6) #WealthOfTweets #SmithTweets
But money is complicated! In Smith's time it was backed by gold, sliver, and copper—all of which had market values that vary with the country's supply of those metals. (I.v.7) #WealthOfTweets #SmithTweets
(And we can't blame metal-backed money for that. Modern-day currencies vary in price relative to each other and in terms of purchasing power over time.) (I.v.7) #WealthOfTweets #SmithTweets
This isn't even a problem that just affects money. All the prices are changing all the time! That's why it would be great if there were an objective measure of value to compare things to. (I.v.7) #WealthOfTweets #SmithTweets
This is why Smith wants to use labor to measure value, even if it's not how we really do things. "Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer." (I.v.7) #WealthOfTweets #SmithTweets
(Dear Readers, one of the SmithTweeters is Canadian and let her just say that putting those Us into "labour" for the purposes of a direct quote really hit the spot. #BritishEnglishFTW)
But wait! Didn't Smith say we 𝗰𝗮𝗻'𝘁 usefully compare quantities of labor? (Don't go back to check. He totally did.) (I.v.7) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
Smith was 𝙫𝙚𝙧𝙮 particular with his wording. So. Many. Revisions. He's trying to perfectly express his ideas. So what, EXACTLY, did he say? (I.v.7) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
Smith is talking about quantities of labor by a particular worker from the perspective of that worker. Not some general measurement of labor that applies to all workers. (I.v.7) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
So *to the worker*, equal quantities of work are comparable. How much time and effort did they have to put into getting what they want? That's what really matters to them. (I.v.7) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
There is an important truth here! It's just not the kind that economists can plug into equations and models. (I.v.7) #WealthOfTweets #SmithTweets #LaborTheoryOfValue
Smith reminds us of the difference between the real and nominal price of labor: The real price is how many things the laborer wants/needs and can get for labor. The nominal price is how much money he can get. (I.v.9) #WealthOfTweets #SmithTweets
A laborer is wealthy or poor based on whether they can get what they want/need, regardless of how much money it costs. Money is sort of beside the point. That's why Smith focuses on labor. #WealthOfTweets #SmithTweets #ValueHowDoesItWork
And... you know what? That's a lot for one day. We'll finish up Chapter 5 tomorrow. #SmithTweetersNeedSomeTea #WealthOfTweets #SmithTweets
(Okay, you know how one of your SmithTweeters is a lit geek and not an econ geek? That's great for producing pithy SmithTweets. Its terrible for, like, counting accurately. IOW, we forgot to tweet the second half of ch5 before we tweeted ch. 6. Here it is!!)
We're back! We're feeling refreshed! We're ready for more Book I Chapter 5! (I.v.) #WealthOfTweets #SmithTweets
Money might be beside the point when it comes to value, but now Smith talks about money for 13 pages. (Warning: This won't be the last time he gets distracted.) (I.v.10–42) #WealthOfTweets #SmithTweets #MoneyMoneyMoney
Smith returns to his observation from I.iv. that once government gets involved, the currency tends to be corrupted. (I.v.11) #WealthOfTweets #SmithTweets
The value of metal in money also depends on mines (I.v.12), rubbing and wearing of the coins (I.v.40–41), and laws about exporting bullion vs. coins (I.v.35). #WealthOfTweets #SmithTweets #MoneyMoneyMoney
Smith is going to spend some time talking about whether corn might be a good way of measuring value over time. Sure, why not. 🌽🌾 #WealthOfTweets #SmithTweets
In the late 18thC, staple crops held their value better than coined money. You need corn for the subsistence of laborers, Smith is treating it like a proxy for labor. (I.v.13–15) #WealthOfTweets #SmithTweets #GladThatWentSomewhereWeUnderstand
Poor laborers can make do with less but prefer to make do with more. As workers get richer, they consume more food to perform the same work. You can't make a...cob to cob comparison? over time unless overall wealth isn't changing. 🌽 (I.v.15) #WealthOfTweets #SmithTweets
Money and consumption vary by time and place. But labor is always the same cost to the laborer, and "the only standard by which we can compare the values of different commodities at all times and at all places." (I.v.17) #WealthOfTweets #SmithTweets
OK so this is pretty interesting because while economists don't really sign onto the labor theory of value any more there ARE non-LTV economists who measure purchasing power over time in average labor hours. (I.v.17) #WealthOfTweets #SmithTweets
In any specific time and place, though, we use money to compare value—including the value of labor—for purposes of exchange. (I.v.8–10) #WealthOfTweets #SmithTweets
Which metals are best for money? Gold, silver, copper? Smith thinks what's used is partly the result of historical accident. The answer is often whatever happened to be used first! (I.v.23–27) #WealthOfTweets #SmithTweets
The regulated price of coined money matters—so long as the coin is in reasonably good shape. The British reformation of the gold coin had shored up its value. Other countries had better or worse quality coins (I.v.28–39) #WealthOfTweets #SmithTweets
Changing metal value vs face value of money creates risk. Smith suggests regulated limits for legal tender to prevent banks from cheating their creditors by paying in the lower valued coinage and to encourage responsible bank holdings. (I.v.34–37) #WealthOfTweets #SmithTweets
Countries must also stay on top of the value of their coined money (even if coins aren't clipped, metal content is worn away by use) or coined money will lose its advantages over payment using precious metals with weights and measures. (I.v.41) #WealthOfTweets #SmithTweets
How does Smith deal with all these complications? "By the money-price of goods...I understand always the quantity of pure gold or silver for which they are sold, without any regard to the denomination of the coin." (I.v.42) #WealthOfTweets #SmithTweets
That clarification in I.v.42...doesn't really solve the problem. But hey. That's why the #MarginalRevolution was revolutionary. #WealthOfTweets #SmithTweets #AskUsAboutTheTheoryOfImputationSomeOtherTime
And...that's Chapter 5! Phew. Now we know how Smith must have felt explaining the pre-Copernican parts of the History of Astronomy. #SmithTweets #IfYouGetThisJokeYouAreOurPeople

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More from @adamsmithworks

9 Jan
Wages, profits, and rents have “natural rates” regulated by the general conditions of the society in which they exist. (I.vii.1) #WealthOfTweets #SmithTweets
When the price of any commodity = price of rent + profit + labor + price of getting it to market, the commodity is sold at its “natural price.” (I.vii.4–5) #WealthOfTweets #SmithTweets
And that all means the commodity has been sold for what it is worth—what it really costs. (I.vii.5) #WealthOfTweets #SmithTweets
Read 18 tweets
7 Jan
#DivisionOfLAbor, we love it! Except it *does* make it a lot harder to provide for our own wants directly. We live by exchanging and cooperating with others. (I.iv.1) #WealthOfTweets #SmithTweets
#AdamSmith is too smart to think all this exchanging and cooperating got worked out easily from the very beginning. There must have been bumps in the road. (I.iv.2) #WealthOfTweets #SmithTweets
Butchers could have so much meat to trade with bakers/brewers that they could end up with an unusable surplus of bread/beer. That stalls trade. Smart people would work to have a supply of an always-useful trade item on hand. (I.iv.2) #WealthOfTweets #SmithTweets
Read 15 tweets
6 Jan
Today we come to the topic @EconTalker has called one of the more underemphasized lessons from #AdamSmith: That the Division of Labor is limited by the Extent of the Market. a.k.a Book 1 Chapter 3. #WealthOfTweets #SmithTweets
We love ya, Smith, but we see why people don't dwell on this chapter. Unless they are really into the navigable waterways of the late 18th century. (I.iii.3–8) #WealthOfTweets #SmithTweets #RiverEnthusiastsRejoice
The first two paragraphs of this chapter are the meatiest. Then things get a little...#WealthOfTweets #SmithTweets
Read 15 tweets
5 Jan
#WealthOfNations I.ii is all about the secret sauce origin story: why does the division of labor happen in the first place? #AdamSmith illustrates (in part) with doggos to hold our attention. (I.ii.2,5) 🐶 #WealthOfTweets #SmithTweets #DoggosDontTrade
Divsion of labor, Smith said yesterday, is responsible for a whole heckuva lot. But who thought of it? Nobody! It's "not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion." (I.ii.1) #WealthOfTweets #SmithTweets
There's no mastermind behind economic exchange, our "propensity to truck, barter, and exchange one thing for another" (I.ii.1) arises out of our natural tendency to persuade one another and better our condition. #WealthOfTweets #SmithTweets
Read 17 tweets
4 Jan
We have to pause now, because we have to have a whole new tweet thread on #AdamSmith and “savage nations,” because he’s going to keep using this kind of phrase, so we need to talk about it. #WealthOfTweets #SmithTweets
Please know that your friendly SmithTweeters give heavy side-eye to Smith’s use of phrases like “savage nations” and “naked savages” and so on. They are obviously shocking to the modern ear, and they should be. #WealthOfTweets #SmithTweets
“Well, it’s the 18th century, what do you expect?” just isn't a sufficient explanation. #WealthOfTweets #SmithTweets
Read 10 tweets
4 Jan
Here we go! Tweeting our way through #WealthOfNations! It’s a marathon, not a sprint, so be sure to stretch, stay hydrated, and keep a steady pace. #WealthOfTweets #SmithTweets
That’s one heck of a first sentence, Dr. Smith. No dithering here. The division of labor is the secret sauce that increases productivity. (I.i.1) #WealthOfTweets #SmithTweets
We always forget the pin factory comes this early and that Smith looks at it not because pins are important (though they are!) but because it’s a small industry that you can look at all at once.(I.i.3) #WealthOfTweets #SmithTweets
Read 12 tweets

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