Adam Smith on Wages

Adam Smith was born in 1923 in Kirkcaldy, Scotland, across the Firth of Fourth from Edinburgh. Eventually, he became the world's first political economist. Smith studied at Oxford, where his interest in the ideas of another Scot, David Hume, caused him some problems with the dons of Oxford.

Smith was a student and later a professor of moral philosophy. It was within the context of moral philosophy that he developed his ideas about political economy. His work An Inquiry into the Nature and Causes of the Wealth of Nations published in 1776 established him as the creator of modern economic thought ("Adam Smith" 3).

One of the many theories with which Smith is associated in the labor theory of value. The labor theory approach to the analysis of value postulates that value reflects the cost of production, as that cost is measured in terms of absorbed labor. The labor theory approach to the analysis of value is the approach of classical economics. Smith's ideas on wages emanated from his labor theory of value (Blaug 42).

The three key aspects of Smith's economic analysis were the division of labor, the analysis of price and allocation, and the nature of economic growth (Ekelund and Hebert 90). The interac

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can colonies. In the British colonies of the eastern hemisphere, particularly Bengal, the level of wealth was either stable or declining, and labor rates were also decaying (Smith 175). From the conditions described above, Smith (176) concluded that the "liberal reward of labor à is the necessary effect à ," and "the natural symptom of increasing national wealth." He further concluded that the "scanty maintenance of the labouring poor à is the natural symptom that things are at a stand, and their starving condition that they are going fast backwards" (Smith 176). Smith (194-195) also concluded that high labor wages, and high interest rates are things "which scarce ever go together, except in the peculiar circumstances of new colonies." This situation arose, according to Smith, because new colonies are typically understocked in both labor and money. When low labor rates and high interest rates develop in colonies (as they did in the British colonies in India), however, wealth begins to decline, and the economy stagnates (Smith 196-197). Smith (172) observed that prices in the British North American colonies were lower than prices in Britain, although wage rates were just the opposite. He attributed this apparent anomaly to
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Approximate Word count = 4223
Approximate Pages = 17 (250 words per page)