The third category of raw produce cited by Smith is that which includes things whose supply can be increased by the use of additional capital and labour, but whose impact on supply is uncertain. So, for example, wool and hides depends upon the rearing of sheep, cattle etc. But, these animals are bred primarily for their meat. At the time Smith was writing, the market for the meat was confined to the domestic market, but wool and hides could be exported to countries across the globe, including those more developed than where the animals were reared, and so where the demand for these products was greater for industrial use, in the production of other commodities.
““In countries ill cultivated, and therefore but thinly inhabited, the price of the wool and the hide bears always a much greater proportion to that of the whole beast, than in countries where, improvement and population being further advanced, there is more demand for butcher’s meat.” The same applies to “tallow”, In the progress of industry and population, the rise in price of cattle affects the carcase more than the wool or hide. For with the increase in industry and population of a country, the market for meat expands, whereas that for the by-products already previously extended beyond the boundaries of the country. But with the development of industry in the country itself, the price for wool, etc., will nevertheless also rise somewhat. ([O.U.P., Vol. I, pp. 263-64; Garnier,] Vol. II, pp. 115-19).” (p 369)
In other words, what Smith sets out here, are three categories of commodity whose elasticity of supply varies.
Another example cited by Smith is fish. As society develops, and the demand for fish rises, it becomes necessary to extend fishing grounds to further distances. More labour is required, boats able to fish at greater distances are required, and so the labour-time required to produce a given quantity of fish rises. Again, Smith was writing prior to the development of powered ships, and the improvements in technology that were applied to fishing that acted to reduce the value of fish, as with other commodities.
Smith reverts here to a labour theory of value, determining the value of fish by the labour-time required for their production. On the same basis, he sees the value of vegetable food falling, because the rise in social productivity, arising from the development of society, reduces the labour-time required for its production.
““It lowers the price of vegetable food; because, by increasing the fertility of the land, it increases its abundance. The improvements of agriculture, too, introduce many sorts of vegetable food, which requiring less land, and not more labour than corn, come much cheaper to market. Such are potatoes and maize… Many sorts of vegetable food, besides, which in the rude state of agriculture are confined to the kitchen garden, and raised only by the spade, come, in its improved state, to be introduced into common fields, and to be raised by the plough; such as turnips, carrots, cabbages, etc.” ([O.U.P., Vol. I, pp. 278-79; Garnier,] Vol. II, pp. 145-46).” (p 370)
And, for a similar reason, the value of industrial products falls, because less labour is required for their production, as productivity rises, whilst the value of the materials used in their production may not rise, as demand for them rises, or may not rise by a sufficient amount to offset the reduction in the labour required in production. But, Smith simultaneously argues that wages have risen along with the progress in production. This poses a clear contradiction then for Smith's cost of production theory of value, compared with his labour theory of value. On the basis of the former, if the value of commodities is determined by wages, then, if wages rise, the value of commodities should rise, but he has just shown that, in fact, they tend to fall over time.
“Hence also, according to him, the prices of commodities do not necessarily rise because of a rise in wages, or the price of labour, although wages [form] “a component part of the natural price” and even of the “sufficient price” or the “lowest price at which commodities can be brought to market”.” (p 370)
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