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SOCB42 Lecture 3
Midterm: Saturday November 6, 2010 @ 9-11 am Rooms. BV340, 355 and 363
1) Money and markets
2) Distribution of wealth
- original state
3) Historical causes of wealth
Money and Markets
Why does money exist?
- Smith- it facilitates exchange; makes trade work better
- Select a single commodity
- Money = whatever anyone will accept in a trade
- Bartering is not efficient (limited use) because what you have the other
person may not want/need
- Abstract quality that allows to meet a function
- Salt, cigarettes, gold, livestock were used as currency
What qualities make money work well?
- It lasts (salt dissolves in rain, cows dies, etc)
- Divisible (can only trade a whole cow. This is why metal is best for money)
- Metal serves the function of money very well (functionalist theory – must
work, serve purpose)
- Paper money is also useful
Consequences of the introduction of money:
Two ways of value (smith pg 41):
- Use value: value you get out of using something (walk with cows, milk cows,
- Exchange value: value you get from trading, selling an object. The use value
has no purpose
-School: Use good education: learn skills Exchange will I get a good job?
- Use and exchange will diverge. Use can be higher/lower
- When the two diverge, they control the market and economy (supply and
Smith: How is it that products get distributed to people? How do people make
more/less of these things? How does it get coordinated (especially in a market
- Natural price – however much it costs to actually bring it to the market to sell
(wages, rent, normal profits) (Smith thinks this is determined by labour)
- Market price – how much it actually sells for
- Market price varies a lot from natural price. When that difference happens,
people tend to adjust behaviour, which bring the two prices together. This
provides order, regulation to exchange.
- Effective demand – things we can actually buy/afford
- Law of Supply – there is a direct relationship between the price of a good and
the amount of it that a supplier will offer for sale. Ex. High price, more willing
to sell that item to consumers.
- Law of Demand – there is an inverse relationship between price of a good and
the amount of it that buyers are willing to purchase at. Ex. Higher price, less
willingness to buy.
- Prices send signals to producers and consumers. Simple laws that control
behaviours without people really knowing it.
Things don’t always follow these laws: Conditions of a liberty that makes market
- Liberty of motion - need to be able to move in to industries, locations to sell
products (why social society is related to liberalism)
- Freedom to change jobs – ability to get into business
- Good information – people need to know about pricing, location. Good solid
information is needed.
What makes these things not happen?:
- Conceal profits – no one can get into business, no one knows, market will stay
higher than natural price