Wealth of Nations: the Real Price of Things

In Chapter IV of Book I, Adam Smith discusses price.  In the midst of his discussion, he states that the real price of any good or service is labor.  This is an incredibly important statement and concession we must consider.

To begin, Smith equates how much a good or service really costs with how much time, energy, and work went into providing the good or service.  For example, the real cost of a house is not necessarily the market price, which fluctuates from month to month and is linked to the value of the money denomination.  Rather, the real price is the labor that went into preparing the land, obtaining and refining the supplies, manufacturing the windows, doors, etc, the designing and planning of the house, and finally the actual building of the house...including all the man-hours it took to construct it.  Unlike monetary price which shifts, the cost in labor does not.  It takes just as much labor to build a house now as it did a few years ago.

The question then arises: who cares?  Smith concedes that finding a means to quantify the real cost (in terms of labor) is nigh impossible.  That doesn't mean, though, that the notion can be discounted: just because something cannot be quantified or empirically noted does not mean it does not exist.  The notion that there exists a real cost of something that can not be quantified reflects the notion that there exist certain things that are truly real, but not quite tangible.  Such principles can include the concept of right and wrong.  Just like we can haggle over monetary price based on our own proclivities, so can we haggle over right and wrong based on our own proclivities.  However, such an analogy requires us to concede that no matter what monetary price we agree upon, there is still a real, absolute cost in terms of labor, which then means that no matter what we decided is right and wrong, there is still an absolute reality.  In this regard, one can draw another conclusion: just like monetary prices should accurately reflect the REAL cost, so too must our actions reflect what is REALLY right.  The farther our decisions are from reality, the worse the consequences.

The idea that the a good or service is really worth the labor it costs to provide also sheds light on the true nature of economic transactions.  Despite the insinuations of Marx and Engels on the one end and Ayn Rand on the other, economic transactions are not about the material gain one obtains from them, but about the humans behind them.  Like the nominal, or monetary value, economic transactions have a tangible consequence, something that people can materially relate too.  Continuing the analogy, then, like the real value of a good or service, economic transactions have a real value, one that transcends the tangible and  material.

Smith then, is proposing an economic model that, despite the discussions on money, and wealth, and material benefits, is essentially about humanity.  This is contrary to the materialist aims of Marx, Engels, and Rand.  As stated above, the farther our decisions (or attitudes) are from reality, the worse the consequences.  Considering this, it is easy to see how the materialism of capitalists like Rand and communists like Engels and Marx can lead to extensive human suffering.  Advocates of both views have trivialized the economic into simply the material.  When this happens, humanity becomes nothing more than disposable capital, or exploitable resources.