Thread by @adamsmithworks

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