WEEK 3 Commercial Society
Propensity to trade MarketsDOL (division of labour)Productive LabourNational
wealth Commercial Society
Propensity to better condition- Saving Capital accumulation% productive
workersNational WealthCommercial Society
Smith is arguing for commercial society that it has its own visions of good and bad in life.
What are the conditions of exchange? Money. What makes exchange work? Market (order
Why does it exist? Smith argues with limits of barter (both sides of exchange have to have
something specific the other party wants). To solve the problem of not interest to exchange,
persuade to buy b/c other people want it and are on demand.
Money is any commodity (ex: cows) that anyone will accept for anything. Everybody accepts
Some work better as money than others.
What qualities make better or for worse money?
a. Lasts- length may be determined by other factors.
b. Divisible- it has to be divided into smaller units.
Use Value vs. Exchange Value
- Use value: you get out of consumption of using it (use value of corn would be eating it).
Exchange value- value of getting it for something you get out of the corn
Market prices will differ to the real value. That difference creates gravitational forces that
structure the market
Natural Price: however much it cost to bring product into the market which includes the
wages for employee, rent for property use, profit for self, etc. The normal rate for all of
this is a natural price. The real price is the value of labour time/effort it takes and is
Market Price: however much you sell a product for. When natural price is different from
market price people adjust their behaviour. Ex:
Effective Demand: whether or not their wants of a product is effective, meaning able to
purchase it influences the market through the law of supply (there is a direct relationship
between the price of a good and the amount of it offered for sale. High price supply
increases ex: corn- you can sell it for higher price so you stop eating and start selling) and the law of demand (there is an inverse relationship between the price of a good and the
amount of the buyers are willing to purchase. Ex: Price is high people won’t buy it as
much, price is low people will buy it more).
LimitsLiberty of motion: ppl have to be able to travel to diff places and go into a profitable
industry. It restricts the operation of market. Freedom to change jobs depending on what’s
on demand. Good information about market.
1. Concealing Profits: seek good information
2. Trade secrets (will work well as freedom to change jobs)
3. Scarcity: it will keep prices high if production is low
4. Monopolies: limits on number of companies so demand can increase
5. Certifications: gov’t certifications. You have to pass the test to get license restricts
people interested in a business.
Consequences of market price too high and market can’t adjust, you end up
rewarding people with high profits for going into endeavours that they shouldn’t go
in to (unnatural reward) because they have other better talents.
Distribution of Wealth
- It is what it would be like where rent, profit, or wages didn’t exist. Everything you produce is
yours. If you’re in the original st