Chap. 5a: Real and Nominal Price

Book I, Chap. 5a: the Real (Labour) and Nominal (Money) Price of Commodities

Labour Is The Real Measure of Exchangeable Value

1 A person’s wealth depends on the degree he can afford to enjoy the necessaries, conveniencies, and amusements of human life.

  • These enjoyments come from the work of other people.
  • His wealth depends on the quantity of that work which he can command or purchase.
  • The value of any commodity to the person has it and wishes to exchange it, is equal to the amount of work it enables him to purchase or command.
  • “Labour, therefore, is the real measure of the exchangeable value of all commodities.”

2  The real price of everything is:

  • the toil and trouble of acquiring it, for the man who wants to get it
  • the toil and trouble saved in disposing it and imposing on others, for the man who has it and wants to dispose of it

What we buy with money or goods is purchased by our labour through our toil.

  • Money or those goods save us this toil.
    • They contain the value of a certain quantity of labour which we exchange for something of an equal quantity of labour.
  • “Labour was the first price, the original purchase-money that was paid for all things.”
    • All the wealth of the world was originally purchased with labour and not by money
      • The value of wealth, to those who possess it, is precisely equal to the amount of labour which that wealth can purchase or command.

3 Mr. Hobbes says that wealth is power.

  • Mere possession of wealth does not necessarily give civil or military power.
  • Instead, it gives immediately and directly gives him the power of purchasing a certain command over:
    • all the labour in a market
    • all the produce of the labour in a market
  • His fortune is proportional to the extent of this power to command:
    • Other men’s labour or
    • The produce of other men’s labour
  • “The exchangeable value of every thing must always be precisely equal to the extent of this power which it conveys to its owner.”

4  However, we do not estimate the exchangeable value of commodities in terms of labour because it is difficult to do so.

  • The time factor or the time spent on work will not alone determine value.
    • There is also the factor of hardship and ingenuity which is hard to measure.
    • There may be more labour in:
      • an hour’s hard work than in two hours easy business, or
      • an hour’s work that took 10 years to learn, than in a month’s work learned easily
  • In exchanging the produce of different sorts of labour, some allowance is commonly made for both hardship and ingenuity.
    • It is adjusted by the higgling and bargaining of the market, according to a rough equality sufficient for carrying on the business of common life.

5 Every commodity is frequently and more naturally exchanged for other commodities than with labour.

  • Most people understand better the quantity of a commodity than the quantity of labour.
    • A commodity is a plain palpable object
    • Labour is an abstract notion, not so natural and obvious.

Metals As A Measure Of Labour

6 When money becomes the common instrument of trade, every commodity is more frequently exchanged with it.

  • The butcher exchanges his meat for money, then exchanges that money for bread and beer
    • The quantity of money which he gets regulates the quantity of bread and beer he can buy
    • It is more natural and obvious for him to estimate their value by money
    • It is better to value his meat at 3-pence or 4-pence a pound than at three or four pounds of bread or three or four quarts of beer.

7 However, metal money also vary in their value.

  • The quantity of labour or goods which money can purchase or command depends on the fertility of the mines.
    • The discovery of the abundant American mines in the 16th century reduced the value of gold and silver in Europe to 1/3 of its former value.
    • They could purchase less labour because they themselves cost less labour
  • A commodity that always varies in value can never be an accurate measure of the value of other commodities.
    • Just as a natural foot, fathom, or handful can never be an accurate measure.
  • “Equal quantities of labour, at all times and places, may be said to be of equal value to the labourer.”
    • In his ordinary state, he must always lay down the same portion of his ease, liberty, and happiness.
    • The price which he pays must always be the same, though sometimes it purchases varying quantities of commodity.
    • But it is the value of the commodities which varies, not his labour.
  • “At all times and places that is dear which it is difficult to come at, or which it costs much labour to acquire; and that cheap which is to be had easily, or with very little labour.”
    • “Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared.”
    • “It is their real price; money is their nominal price only.”

8 Although one’s labour has always the same value to the labourer, its value may vary to his employer.

  • He purchases them with more goods when his productivity rises
  • And less goods when his productivity becomes less.
  • In reality, however, it is the goods which are cheap in the one case, and dear in the other.

9 Labour, like commodities, has a real price and a nominal price.

  • Its real price is the quantity of the necessaries and conveniencies given for it
  • Its nominal price is its quantity of money.
  • The labourer is rich or poor in proportion to the quantity of necessaries and convenience he can get, not in the amount of money he has.

10 Real price is always the same but nominal price always varies with the value of gold and silver.

  • Perpetual rents should not be reserved in metal money because money fluctuates in value through:
    • Fluctuation in the amount of metals in coins
    • Fluctuation in the price of metals themselves

11 The quantity of pure metal in the coins of all nations has been almost continually diminishing.

  • Their rulers always wanted to diminish their value in order to reduce the value of a money rent.

12 The discovery of American mines diminished, and will continue to diminish for a long time, the value of gold and silver in Europe.

  • It will diminish the value of a money rent, even though rents are paid in ounces of silver and not coin.

13 The rents reserved in corn have preserved their value much better than those reserved in money, even where the denomination of the coin has not been altered.

  • During the 18th of Elizabeth, 1/3 of all college leases were paid in its corn value, while 2/3 was paid in money
  • According to Doctor Blackstone, however, during the present time, the value of the 1/3 corn value rose to double of the 2/3 money value
  • In other words, the 2/3 money rent fell to nearly 1/4 of its original value, due to the fall of the value of silver

14 If the degradation in a metal’s value is combined with the reduction of its quantity in the same coin, the loss is still greater.

  • The coin denomination was altered more in Scotland than in England and more in France than in Scotland.
    • Some ancient valuable rents, have been reduced to almost nothing.

Next: Book 1, Chapter 5b: Corn vs Silver

Words: 1240

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