The author identifies the two primary causes for a given value as scarcity — how rare is the product within the market space — and the labor necessary to produce such commodity.
Our author disagrees, to an extent, with the writings of Mr. Malthus and Adam Smith, stating a material’s worth is based off the selected standard measure of value. According to Adam Smith and Mr. Malthus, if labor is your standard measure of value, when a man who was once paid 10 shillings a week for his labor is now being paid 8 shillings, with no variation having taken place with the value of money and the laborer can afford — probably — more goods than before, it is not due to an increase in the real value of his wages, but a diminution in the value of the commodities on which the laborer’s wages are expended.
Labor is not a standard measure to all value according to the author as it too, is stochastic with the complements, tools, and buildings needed to assist labor affecting it dramatically.
This holds true to all exchangeable goods. Their value will be determined on the total labor bestowed on the production of such a commodity and not the immediate labor necessary to produce such commodities. This includes all the implements and machinery that provide effect to the labor.
The author constantly comes back to point out — in contrast to Mr. Malthus and Adam Smith — that the value of a commodity is not invariable and is relative to the goods around it. Thus debasing the idea of a standard measure of value. An exemplification of this would consist of two products, product A worth two times that of product B. If the labor required to produce product B experiences a diminution, only the value of product B would fall when compared to other products. So, it now takes 3 of product B to obtain one of product A in exchange. Leaving product A with the same value it had prior to the change product B’s value had undergone.
The capital required to obtain a certain commodity, such as the production of a tool to hunt a beaver is in proportion to the value of the beaver. However, one class using a more difficult to achieve capital (more laborious) does not affect the value of the commodity if another class is utilizing a different and less labor extensive method of obtain such commodity.
Section III from value provided us with an example of a world with equal labor being utilized for the production of varying objects along with zero externalities thus the marginal rate of substitution is identical as the line of utility is at equilibrium.
In this we are able to see that the capital necessary to produce a product also affects the product’s value. An example would be deer and beaver meat, if they both required an equal amount of labor to hunt and obtain they would have equal value. However, if the beaver required tools that were more difficult to produce, wear down quickly, etc. the beaver would then augment its value.
Circulating capital in my school life would consist of paper and pencil lead as they rapidly perish and may be viewed as raw materials, while the desk in which I sit or the school I attend are considered fixed capital in terms of my education gained with the latter two not being consumed during productivity. However, the two become increasingly more difficult to discern as the production period for circulating capital increases (the circulating capital can now take as much time as fixed capital to perish).
Ricardo now brings up an interesting point, with capital and labor being proportional to one another. A man cannot employ a farmer and expect to make an augmented profit from that investment as the farmer is worthless without capital (Ex. shovel, hoe, seeds, land etc.) with which is necessary for production. Therefore to increase profits, the man should see each employee as an individual unit combining the labor or man and the capital necessary for that man to enter productivity.
Adam Smith makes a paradoxical statement within his Wealth of Nations book (written in 1776) that places money as the standard measure of value and then goes on to say if wages increase, so must all other goods. What effects would the increase of wages then have?
Ricardo mentions the corn laws and other such laws which artificially augment the value of certain commodities as needing to be removed as a nation with free trade and fewer barriers will decrease the cost of such commodities as they now increase in supply (scarcity).
How do corporations determine what is a necessary level of something to have? Why do businesses follow what are known as “best-practices”? Well these are just a couple of questions I will be answering within in this article.
Let us use IT as an example to better understand what I am going to be explaining. Corporations that require security, such as insurance agencies or brokerage firms, adopt security according to their budgets. Security is not important to them with it primarily being seen as a commodity. Corporations typically adopt security measures for the following three reasons: business cost, indirect cost, and/or business strategy.
Business cost refers to an actual threat that could and is likely to occur thus being detrimental to business profits. It is then adopted to protect the business and its employees from any losses and is under the umbrella of real security. Indirect costs involves the implementation of security in order to protect consumers from a viable threat — also falling under the umbrella of real security.
Now for the less charitable of the three, business strategy. This involves the implementation of security measures to take hold of and maintain a tenacious grip on customers. An example of this would be the formation of a binding contract to prevent customers from doing anything inappropriate with the corporation’s devices and transfer liability away from senior executives of the corporation while utilizing technical lock-in to keep customers. If you have ever heard of a corporation using “best-practices” or following industry guidelines, they are doing it as a part of business strategy rather than real security.
A prominent strategy known as strategic differentiation is commonplace nowadays with a corporation adding an overall impractical fix/patch to their product. Why is this done? Well, let’s say that a phone company has developed an unprecedented form of cryptography for their software in response to an alleged hacking of a couple devices. These alleged hackings pose no risk to direct business profits nor do they pose risk to any indirect losses such as reputation due to their rarity and unreliability. However, by offering advanced protection that other corporations saw no use for, customers will have a way of differentiating the products ergo augmenting the likelihood of their product being purchased over another.
In conclusion, it is always good to ask yourself why a company would perform certain decisions. There is always a purpose and rarely will industries take it upon themselves to simply protect a couple consumers out of goodwill.
Many associate money with economics, however economics is merely applied to money and is intrinsically the study of human decision making and their impacts. Economics can be divided into two primary sections: macroeconomics and microeconomics. Macroeconomics deal with change on a larger scale (national or global). Questions such as: how will an increased tariff on outside commodities affect relative prices within the United States or how will a grant of greater land for the production of agricultural commodities influence the wages of farmer? While microeconomics is more isolated to a certain corporation or a network of people. This can be witnessed with questions pertinent to the firm’s growth such as: will the implementation of ex ante safety regulations be worth the cost or how will an ex post liability approach affect the corporation’s policies?