02 adam smith

Book 1

Establishes the idea of division of labour

Introduces prices of goods and how these are determined formed from wages, profits and rents

Book 2

Nature, accumulation and employment of stock

Book 3

Of the different progress of opulence (stages of econ development) proposes 4 stages

1st stage of human development

Humans are simply foragers or hunter/gatherers

2nd stage of human economics

By domesticating or controlling animals, humans develop a form of existence based on ‘pasturing’

3rd stage of econ development

Settled agriculture and the development of crop culture as well as rent

4th stage of econ development

‘Age of commerce’ moving to an industrial society- steel furnaces, must settle to industrialise

Book 4

Of systems of political economy- attacks mercantilists and physiocrats- if not complete ‘free trade’ then more limited internet=ventions

Book 5

Deals with taxes, the raising of state revenue and expenditure what the revenue should be sent on (defence, justice systems, infrastructure, roads, edu)

What is the division of labour

Instead of a worker producing a product from beginning to end it is broken down to separate tasks

3 reasons division of labour adds to economic productivity

1. Increased skill in every worker 2. Work-time saved since workers dont have to pass from one place to another 3. Leads to invention of new technology

Returns to scale- formula

Q= f(k,L)

Output is a function of capital and labour

Constant return to scale

Doubling input doubles output

Increasing returns to scale

Eg doubling input triples output

Decreasing returns to scale

Eg inputs double outputs halve

Adam smith and returns to scale

Thought agri was constant, mining was diminishing an manufacturing was increasing (due to increasing productivity)

productive vs unproductive labour

agriculture and manufacturing and the non productive sector

capital accumulation key idea

with the division of labour economic groth is driven by the accumulation of capital, rowth can only come from investment

two types of capital accumulation

fixed and circulating

circulating capital

the store of goods and materials from the last productive period, available at the beginning of the current productive period

fixed capital

the store of non consumable goods such as buildings and factories all of them necessary for the production and distribution of the national output

smith and circulating capital leading to higher productivity

‘the funds destined for the maintenance of productive labour’ feeds the labourers leading to higher productivity

prices and value quote and analysis

‘preceds both the accumulation of stock and the appropriation of land’- where there were no profits and no landlords so no rent

time and price

‘the toil and trouble of acquiring it’ the amount of time equates to the price it is valued at

relative price

the price in relation to another commodity

‘the time spent in two different sorts of work will not always alone determine this proportion’

by counting labour we are implicity assuming labour hours are equal- which is not realistic

issues with time equating to value

not all hours have the same difficulty, different commodities need to include labour value of capital used- have to make an allowance (depreciation)

labour embodied vs labour commanded

labour embodied- that used in production, labour commanded- how much labour a product can buy

labour embodied equation

labour embodied= labour + labour embodied in the capital = labour/ (1-capital)

linear equation for price

price= wages + capital + profit + rent

when is there a profit

when labour commanded is greater than the embodied labour- this inceases as the difference becomes greater

what is the natural price

price of a commodity that is just enough to cover the costs of production, including the rent of land, the wages of labor, and the profits of stock

natural price link to equilibrium price

actual price might deviate but market forces would bring it back

what is the invisible hand theory

how individual self interest unintentionally promotes the overall good of society

what is the wages fund

part of the circulating capital - part of the useful goods produced in a productive cycle which is used to pay the workers in the successive cycle

landowners properties

do not own productive capital are not interested in enlargement and have no inducement to save and accumulate capital- no contribution to the growth of the nation

workers properties

only possesses their labour propensity to save is 0, no contribution to the growth of national wealth although essential to production

capitalist properties

has productive capital and aims to increase it- high propensity to save so general interest of the nation coincides with the bourgeois

critisism of ‘wages, profit and rent are ther three original sources of all exchangable value’

from equation of labour commanded can see if ages and profits are predetermined there are no more variables to determine the equation becomes overdetermined.

market price vs natural price

market price is the actual price of a good at a given moment natural is what would allow the payments of workers, capitalists and landowners at normal rates of remuneration

3 condition of competitive equilibrium

1. the productive system will produce those goods the consumers demand

2. the chosen production methods are the most efficient 

3. the goods are sold at the lowest price possible