We read last time that when we buy something, we can think of the expense not in terms of the price tag, but in terms of our labor required to exchange (through money as an intermediary) for the good or service we desire. Here, Smith explores further what makes up the price of an item. According to Smith, there are three components of the price of something: Wages Profit Rent “In the price of corn, for example, one part pays the rent of the landlord, another pays the wages or

As Smith promised last week, here in chapter 5 we will explore “what is the real measure of this exchangeable value; or wherein consists the real price of all commodities.” In other words, what does something really cost? Let’s take Smith’s book that we’re reading now, which you can buy in paperback for $20 (or Kindle for $1, like I did). You might say it costs $20 (plus tax), and you’d be right. But for Smith, that’s not the real price. You did not dig in the ground to mine

Let’s say you worked in Smith’s pin factor, and ended each day with the credit of production for 4,800 pins. How beneficial would it be if you got to take half of those home, and stop at the butcher and baker on the way to trade your pins for their meat and bread? What if they were not in need of 1,000 pins daily? What about paying your mortgage with pins? The absurdity of trading our individual production units (pins, beef, bread, etc.) seems obvious to all of us who have li

While I was getting licensed to work in financial planning, I took a job doing assembly line work for a company that makes generators and power tools. For a time, my day was composed solely of taking folded cardboard boxes, opening them up, and putting them on the conveyor belt assembly line. From there, the next person would place a metal transfer switch box for a specific line of generator inside, and then it would go down the line for the next 10 people to each do their in

I asked last time, “Left to your own skill and only what Mother Nature provides (no tools you don’t make yourself), is there a single thing you use today that you’d be able to make on your own?” My answer is simple: No. I could not make my car, let alone the rear view mirror. I could not make my clothes, let alone the thread to stitch fabric together. I could not make my oven, let alone the cast iron used to fry my eggs this morning. Thinking of Friedman’s pencil, it’s likely

Think of a pin. Walmart sells 1,000 for $11, or 1.1¢ per pin. In your current or former line of work, how long would it take you to earn 1.1¢? At the Wisconsin minimum wage of $7.25, it would take about 6 seconds. Now imagine you had to make a pin on your own. From mining ore, to refining the metal, shaping it, cutting it, sharpening it, forming the plastic head, and combining them. Would that take you more or less than 6 seconds? (Yes, it’s a rhetorical question). This is no

My next read will be a segment of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Smith shares the following example in his introduction. Thinking chiefly of the native tribes in North America prior to the American founding, he writes that “every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tr