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There is a lot of confusion in Adam Smith's use of the term wealth (or at least in my understanding of it, not to speak of my understanding of economics, let alone 2 years ago).

Basically, wealth is the total value of assets. It is not GDP, which he calls revenue. But the critical quantity in this analysis is that part of the wealth which is allocated as productive capital (maybe that's why we should pay attention not to stock market capitalization) and, more importantly for the purposes of living standards, that part of capital which is "destined for the maintenance of labour".

It is the ratio of that quantity to the productivity of labour that gives a measure of the wages of labour.

Smith assumes constant, incremental productivity growth, implying wages will fall unless the "funds destined for the maintenance of labour" increase apace with the productivity.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Jun 29th, 2006 at 06:43:08 AM EST
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