That little piece of yellow metal

Written by Bryson on January 27th, 2009

Bryson White

My time and toil are really all I have to offer.  I honestly cannot afford to give anyone any money at all.  Unfortunately, I don’t seem to have much time either.  But it is easy to see how the amount of time required for a task can substitute as the price I am willing to pay.  And for most people, rich or poor, that is still the foundation upon which purchasing decision are based.  I could build my own tennis racket or I could pay you $250 to save me the 150 hours it would take me to figure it out.  This is the idea behind opportunity cost, and it is really measured as a unit of labor.


Labor is the price driver.  When less labor is required to obtain something, its price drops.  Smith gives the example of the falling price of gold after the discovery of American mines.  “The discovery of the abundant mines of America reduced, in the sixteenth century, the value of gold and silver in Europe to about a third of what it had been before.  As it cost less labor to bring those metals from the mine to the market, so when they were brought thither they could purchase or command less labor.”  When less labor is required to produce a good, less labor will be required to purchase the good.  Where more labor is exerted in production, more is required in acquisition.  Only labor can be used as the scale.  It is the only constant measurement.  The price of everything else (even gold) is dependent on the amount of labor it can command.  However, labor is always constant.  An hour today is the same as an hour 10 years from now.  There is no time-value of labor.  Mechanization drives prices down because it reduces labor inputs.  Lean-manufacturing practices reduce price because they make more efficient use of labor.


I had never thought of this principle as being the basis of a free market theory of economics.  Perhaps the answer to this question is that whenever a third party (i.e. government) attempts to control price (whether via tariff or subsidy) it indirectly attempts to dictate the value of labor by putting a dollar amount on it.  However, money cannot determine the value of labor, for it is in fact labor that determines the value of money.  The temperature of the earth does not determine the proximity of the sun, but rather the proximity of the sun determines the temperature of the earth.  Basically, it’s just backasswards to try to set the price of labor.  Whenever law gets involved in the details of commerce, particularly in the setting of wages, it simply creates inequality.  Smith observed how incoprporation, apprenticeship, minimum wage, restriction of “free circulation labor,” and even abundance of education all affected the wages to be paid for labor.  These laws and programs only created inequality among the workforce.  Because of these laws, blue-collar laborers received much less compensation for their labor while white-collar laborers received far more than they ever deserved.  Ironically, this is the very problem that government intervention is supposed to rectify.  This inequality would not have existed had man been free to exchange his labor for whatever it was worth instead of having a third party determine its value.


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