• Andrew Elizalde

The Wealth of Nations by Adam Smith | Book I, Chapters I - IX

(1) Smith writes: "In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living 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. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them." Elsewhere, Smith also references man's self-love as a primitive motivator for action. What assumptions about the nature of man are built into Smith's economic theory?

(2) Smith writes: "For in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins. ...By means of those operations the princes and sovereign states, which performed them were enabled, in appearance, to pay their debts and to fulfill their engagements with a smaller quantity of silver than would otherwise have been requisite. It was indeed in appearance only." Is this still true today?

(3) If the real value of a coin is measured by the weight of the precious metal it is composed of, what units are used to measure the real value of labor? Is the unit a quantity of time? If the unit is a quantity of time, how does this account for the magnitude of hardship and skill the labor requires? How is the nominal value of a coin any more or less stable than the nominal value of labor?

(4) Smith writes: "But though in disputes with their workmen, masters must generally have the advantage, there is, however, a certain rate below which it seems impossible to reduce, for any considerable time, the ordinary wages, even of the lowest species of labour. A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation (pg.170)." Let us call this the minimum subsistence wage. Smith later describes laws as an ineffective means for regulating this minimum wage. So if no law determines and regulates a particular minimum wage, how is such a wage determined and regulated? Smith seems to suggest that fluctuations in wages ultimately converge upon an actual wage sufficient for subsistence (in the same way that market prices converge upon natural prices). When wages are below what is necessary for subsistence "want, famine, and mortality" prevail (pg. 175). The population of laborers diminishes. Demand for labor becomes greater than supply and wages eventually rise as manufactures bid for workers. Can we imagine this being the likely course of events in the United States if minimum wage laws were revoked tomorrow?