Smith asks what it really means to be rich or poor. After the division of labour, almost no one lives on what he makes himself. Wealth means how much of other people's work you can command. The true price of anything is the toil and trouble of getting it, and what you sell is worth the labour it can buy in return. Money is the name we use at the counter, but Smith treats labour as the real measure underneath. What looks costly to an employer may look cheap to a worker, because each side measures value by the labour it commands or must give up.
People still price goods in coin because it is plain and familiar. The butcher names pence per pound rather than pounds of bread. That works for daily trade, but metal itself moves. When Spanish-American mines flooded Europe with silver, buying power fell to about a third of what it had been. Princes also clipped coins while keeping old denominations, quietly shifting wealth from creditors to borrowers. An hour of ordinary work costs the labourer similar ease and freedom whether shop prices are high or low.
Smith calls that gap real price versus nominal price, and he says it is not only a classroom puzzle. A landlord who took a fixed money rent for centuries often lost ground as coins wore thin. Colleges that reserved a share of rent in corn saw that grain portion grow far larger over time because grain tracked food and labour more steadily than debased silver. Elizabeth's statute requiring a third of college leases in corn is Smith's example. Ancient money rents in Scotland and France sometimes collapsed to a fraction of their old worth.
Merchants live in nominal prices because that is how they buy and sell today. A London trader cares what silver buys in London when he resells, not how many hours of work a half ounce might command in Canton. If he buys cheap abroad and sells dear at home, he wins on the coin names people use at the counter even when the labour behind each coin differs.
Smith closes by ranking his measures over time. Labour is the steadiest standard across centuries because equal quantities of work cost the worker similar sacrifice. Corn often tracks labour better than silver over long spans, while silver tracks year-to-year shifts better than corn. For the weekly shop, money is fine. Workers judge progress by what wages buy in food, rent, and clothes, not by the headline figure alone. For judging whether a nation is truly richer across generations, or for writing a perpetual lease that must hold its value, labour and corn tell the truer story than the number stamped on the coin.
Coming Up in Chapter 6
Smith has separated real and nominal price, but merchants still argue over money figures every day. Next he breaks a commodity's price into its component parts: the wages paid to workers, the profit earned by stock, and the rent claimed by landowners...
