Comments on: TWoN Book 2 Chapter 3

By: DaveT

DaveT — Mon, 06 Jul 2009 20:46:21 +0000

I’m also struggling a bit with Smith’s denigration of services — especially when he explicitly noted the importance of (say) having circulating capital to pay for shipment of your goods to where the buyers are. Surely that transportation is both a service and a contributor to the value of the good. Does it count as “rearranging matter” then?

I can sort of see that, in a time when many people are cold, hungry, and homeless, any labor that is neither contributing to the production or distribution of food, clothing, or shelter, NOR contributing to making such production and distribution more efficient, is “wasted”. Is *that* what Smith is getting at? It seems like his boundary is not purely between goods and services, but rather between things that leave an improvement behind that can be exploited, and things that don’t.

By: Scott

Scott — Mon, 06 Jul 2009 14:40:15 +0000

What he’s really talking about here is the question of what drives economic growth, formulated as why some countries are rich and others poor. Smith’s answer is that you drive economic growth by not throwing your money away on luxuries (such as hiring an army of servants or throwing lavish parties at the opera or eating all the food you grow). Instead, you should save (not consume) your earnings, and then plow the saved earnings back into making more things. This is foundational “Protestant Work Ethic” stuff.

There may also be, laid underneath this, the production version of the gold standard. That is, the idea that real wealth rests on matter and the transformation of matter. Under such a worldview, products provide real economic value, while services are ephemeral. All the real money is in rearranging atoms, rather than performing actions for people or rearranging bits of information. Practical Marxism makes this same critical error when it assigns the value of the building to the masons who lay the bricks more than the architect who drew the plans.

Over the course of the 20th century, we moved away from this idea. The largest component of economic value in the developed nations now consists of services. Lots of people spend their worklives as drivers, teachers, massage therapists or writers and are considered fully productive members of society–even though, in Smith’s terms, they aren’t producing anything.

The question of saving vs. consumption is still a primary macroeconomic issue, not to mention an important issue at the microeconomic level of the household or firm, because it’s one of the drivers of economic growth.

By: Litch

Litch — Mon, 06 Jul 2009 00:01:48 +0000

The value service provider contribute is diffuse diffuse than a manufacturer but still exist because of the creation of “place”. My house here in Austin (which touts itself as the live music capital of the world) has greater value because of it’s proximity to a community of artists, lawyers, tech support people and assorted other service providers. People expend large chunks of their resources to attend events of that community. Look at the people who can rent out their down town condo for exorbinant amounts during the week of SXSW.

By: Miramon

Miramon — Sun, 05 Jul 2009 19:09:09 +0000

Well of course the opera house itself and its appurtenances are either fixed or depreciating capital, but sadly for economic common sense, people are willing to pay capital-equivalent tokens for the evanescent, intangible, and vanishing entertainment experience of opera, so capital value seems to manifest out of thin air, to which it may return if there is a fashion trend away from opera towards musicals or rap music….

If capital cannot be destroyed by transferring it or its tokens (cash) around, then surely there is no great harm in purchasing service with capital tokens; there is after all nothing else to purchase services *with*, and you can’t just do without services.

From your quotes, Smith seems to think that service-providers are mere drones. But it is obvious to me at least that services make society possible in the first place. Mere barter of goods is completely unsatisfactory to maintain even a primitive human society, much less a civilization. So if Smith derides service as valueless, he seems to be missing a major point.