Trade is used as a means of full-filling one’s self interest in a certain commodity. Smith states that when there is nothing left that you need, trading becomes some what of a problem because you aren’t benefiting from it . Smith makes this seen when he talks about “how the butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase part of it”(WN I.ii.27), but have nothing to give the butcher in return because he doesn’t need any more beer or bread. Since “every man thus lives by exchanging, or becomes in some measure a merchant, and the society grows to be what is properly a commercial society”(WN I.iv.37) the lack in being able to trade will hurt the society. Money was developed so that the economy would prosper and competition would emerge from prices within the market. Trade of commodities among individuals is the basis of how the market in a nation works.
Adam Smith goes on and talks about prices and values of goods and how they are established separately by individuals for their own commodities without causing chaos in the economy. Prices are regulated by labor according to the Wealth of Nations. Labor “is the real measure of the exchangeable value of all commodities.”(WN I.v.47) Smith states that “the real price of everything, what everything really costs to the men who wants to acquire it, is the toil and trouble of acquiring it.”(WN I.v.47) The real price of a commodity is determined by the labor put into making it without the inflation. The nominal price is the money value which includes the real price and wages. The market price of a good is “regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity.”(WN I.vii.73) Adam Smith is able to show that the “labor belongs to the labouer; and the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which we can regulate the quantity of labour which it ought commonly to purchase, command, or exchange for.”(WN I.vi.65) Richard Cantillon, one of Smith’s precursors, also agrees that “prices are fixed by the proportion between the produce exposed for sale and the money offered for it.”(Cantillon,1892,P1) By producers regulating the value of labor the market is able to run smoothly without the regulation of the state because as Adam Smith states, “labor belongs to the laborer”(WN I.vi.65), and one cannot tell them how much their labor is worth. Smith also states that “experience seems to show that law can never regulate”, (WN I. Viii.95) because they have tried and ended up failing in the end.
The Essay on Problem in Rising Price of Commodity in World
India is faced today with one of the most critical economic situations. At no other time did Indians witness the horrible phenomenon of spiraling prices as they do today, prices are soaring like rackets and each day one finds a rise in prices of more or less all essential commodities. Inflationary pressures are doing plenty of mischief and the people of middle class families are finding it a ...
Without government regulation of prices individuals’ self interests cause competition among producers. Competition means that producers are trying to sell more than their fellow producers and trying to make a larger profit. Smith argues that in order to have a free market economy there must exist competition. Cantillon also goes on to say that ” if several persons desire it, we may be given double the intrinsic value”, (Hutchinson, 1988. 168) with the intrinsic value being ” the value of a thing in general [that] is the measure of the land and labour which enter into its production.” (Hutchinson, 1988.167) Smith and Cantillon agree that competition is based on the demand of a commodity, and if the demand is high, then prices will rise, causing profits to increase as well. Competition promotes the interest of the society as a whole, even though each individual is going for their own gain..
The Essay on Besting Market Failure With Perfect Competition
... while the maximization of profits is the goal of producers (“Perfect Competition”). These factors, in combination, may lead to productive efficiency ... a good or service, and the producer is unable to make a profit (“Perfect Competition;” “The Market Economy”). A firm ... ”). Seeing that perfect competition is meant to maximize the benefits of society as well as producers, externalities are considered a ...
