HISTORY OF ECONOMIC THOUGHT

A. SMITH
QUESTIONS

Chapter III
Of the accumulation of capital
1. A.Smith like F. Quesnay thought that the labor differs in the contribution it makes to the
accumulation of national wealth, but applied another criteria. How according to A. Smith
we can distinguish productive from unproductive labor? How those who belong to
unproductive labor get income? Why does the proportion between them matter?
2. Find the passage starting with “The proportion between capital and revenue…”. What
relationships A. Smith discusses in this and subsequent passages?
3. In what passage A.Smith discusses the sources of economic growth? Do you agree with
him?

Chapter V
Of the real and nominal price of commodities

1. Read the first two passages attentively. What according to A. Smith determines the true
value of all commodities? How could you explain the sentence starting with words “What
everything is really worth to the man…”? Find the passage where A. Smith discusses
how the proportion between two quantities of labor in exchange should be determined.
Why according to him it is difficult to do? What we could tell him today?
2. Find the passage with discussion of money value of commodities. How the value of
goods is actually measured? Can we measure the value of money as well (gold and
silver)? How can we according to A. Smith distinguish real and nominal prices of
commodities? Does nominal price always coincide with real price? How real price
relates to costs of production? Why markets would tend towards the natural price?
3. Can we apply the concepts of real and nominal prices to labor market? What according to
A. Smith constitutes the real wage, and what determines the nominal wage? Find the
corresponding passage. In what countries or societies, the real wage will be greater?
Why A. Smith thought the nominal wage to be stable, not fluctuating from year to year?

Chapter VIII
Of the wages of labor
1. Three theories regarding wages can be found in Smith. What are they? Find in the text.
2. How does the number of children in household correlate with the poverty? Find the
passage starting with the words “The liberal reward…”. What relationships does he
describe and explain? What is the main idea of subsistence theory of wage?
3. A. Smith later in text discusses the determinants of nominal wage. Please find it and read.
How the discrepancies in the dynamics of corn price and nominal wage can be explained?
4. Read attentively the last passage. How changes in nominal wage will influence price of
commodities and aggregate demand? As you remember A. Smith belongs to the pre-
industrial age, and all he could see were the sketches of those huge changes in production
organization that would happen later. But even though A. Smith discusses the advantages
 of new inventions that would increase productivity. How that industrial revolution will
affect labor market? Find the corresponding sentence.
5. How do you think why A.Smith talks about the liberal rewards? Find the passage in
which the wage regulation was heavily attacked by A. Smith.

Chapter VI
Of the component parts of the price of commodities

1. According to A.Smith the price of any commodity consists of three main components?
What are they?
2. Why did A.Smith consider the interest rate to be derivative income? Why does the lender
have to pay interest rate?
3. Smith's conception of profit was far from well defined. He had several reasons for it.
What are they?
4. What according to A.Smith determines the real value of rent and profit?