1 Different potential consumers are willing to pay a range of different maximum prices for a product therefore as the price rises demand falls. The demand curve slopes downwards.

2 Different potential producers have different costs therefore as the price rises supply increases. The supply curve slopes upwards.

Therefore the supply curve and the demand curve cross. At this price point supply and demand are equal, this is the marginal price.

The $15 is the difference between that manufacturer’s costs and the marginal price. This gives an explanation of price setting without getting into the complicated logical knots that the labour theory of value produces and explains why marginal pricing has almost entirely replaced labour theory of value.

By ordinary profits of stock Smith simply means typical or average. He is arguing that the return on different investments will tend to equalise, if the return is exceptionally poor few will invest and as supply falls the return will increase and if the returns are exceptionally good more will invest and the returns will fall as supply increases.

The issue of being in a position to borrow money (not sure where that came from; I never mentioned borrowing the money) and of selling it points to the useful role of the capitalist in the process of production: bringing means of production together with labor-power; it tells us nothing about how value is produced.

It is the combination of factors that produces more value than it costs. Else, why doesn’t the laborer buy the materials for $50, do some work, and make $40 instead of $25? First, he doesn’t have the $50, he has to borrow it; and the rate is likely high, because so is the risk. Then, having produced the item “worth” $90, he still needs to sell it; that’s time he could use making more stuff instead.

If there are barriers to entry (e.g. you need a license or guild membership), then part of the gain is payment for that (monopoly rent).

Never mind, I’m afraid I’ve long since strayed into spam-canning territory, and that is no place I ever want to be visiting again on a pursuit as trivial as this. Much better that Fred and I just go play at being nonexistent together, so you can enjoy the rest of the read-along on your own terms. Cheers.

You said “Where did the additional $15 come from? This was, in fact, answered by later economists”

Out of curiosity, what did those later econmoists say?

Regards,

Ethan

Yes, indeed, profit exists. But where does it come from? Wages of $25 to pay for labor on material worth $50 produces a commodity that sells for $90. Where did the additional $15 come from? This was, in fact, answered by later economists; but for Smith, the answer is “ordinary profits of stock,” which he then fails to define. However luminous his mind, and however brilliant his pioneering work, we do him no service by failing to point out the holes that were later filled by others.

You both agree, for example, that the “real” value of commodities lies in labor. You both agree that jiggering the money price (ie “exchange” value) doesn’t do a bloody thing for real value. The problem comes in because you, skzb, somehow aren’t getting how–or maybe why–Smith shifts back and forth between those two aspects of value, and the disconnect is making a lot of your reading harder than it has to be.

As for ordinary profits of stock–that’s just a label for what even you accept above as a component of money price. A handy nametag to slap on for discussion purposes; we could call it Fred and it would work the same way, without the obfuscating and value-laden baggage of terms like “natural” or “ordinary.”

Right or wrong, profit exists. It forms a part of the exchange value for most commodities. In fact, it’s one of Smith’s three fundamental categories of income (and he says it, too, is tied to labor). Modern economics recognizes those same three, and adds investments as a fourth.

Do you sell Taltos gift items for exactly what you’ve already paid out in production costs? Well, maybe you do….

Re “cost,” “money price,” “value,” &c. That’s part of my problem in trying to understand your problem here: too many terms floating around, and not enough definitions to go with them. I know what Smith means when he says money price; I’m not so sure what you mean when you say cost. And when Smith discusses value, he sometimes means value in labor (ie “real” price), and sometimes value in money (ie nominal or “money” price).

The passage of yours I referred to is: “Raising the value of basic necessities effectively lowers wages, but this does not change the value of those commodities.” I couldn’t understand this quote as written, so I took “cost,” which you had used earlier, and inserted it where it made the most sense. If I still don’t have it right, I apologize.

Smith, however, makes the case that discussing value in terms of money price is sometimes the only reasonable way to address the subject with any consistency, despite the fact that, yes, the real value of a commodity is tied to labor. And his point in the passage of his that you cited is that bounties in fact cause more harm than good because they DON’T do anything for the real value of the affected commodities–they alter only the money value, which then has a ripple effect through whatever chunk of the local economy relies to any extent on that commodity.

And I don’t ever want to give the impression that I have issues over your taking issue with Smith. It’s just that I sometimes find I get what he’s saying better than your critique of it. After all, he runs on a lot longer than you do. So then I need to test my understanding of your conceptions.

But if this really is Book III in your copy of Smith, where do I have to go to find your notes on his chapters about the history of opulence?

“Also, I assume you mean to say that the *cost* of necessities doesn’t change their value…” I wasn’t able to figure out which passage of mine this referred to. But, whatever passage it is, I’m not sure what you, or I, or Smith, or anyone else would consider the difference between “cost” and “money price.”

I’m trying to understand Smith, which means testing his conceptions against my own understanding. Sometimes this results in a belief on my part that he is incorrect.