28: Value of Gold, Corn, and Labor in Rich and Poor Countries
All commodities "naturally seek the market where the best price is given them," and while this is generally considered for a commodity such as corn, one must also remember that gold and labor are also commodities, and consideration of any one of them in isolation is unnatural and leads to inaccurate conclusions.
As such, it would seem to make sense that all things are expensive or cheap in a given market: if more gold is exchanged for labor, more gold is exchanged for the product of labor.
However, where the equation is balanced for gold, it remains true that food is more expensive, in terms of labor, in poorer markets. This is due to its scarcity, or the underdeveloped state of land and the technology of agriculture: where fields are plowed with a stick and the harvest gathered in hand-baskets, it takes more labor to bring in a crop.
It is also not necessarily true that food is less expensive in more developed markets: as more labor is diverted to other pursuits (the production of conveniences rather than necessities), less food is produced, and food becomes more dear.
There is an assumption by Smith that the value of goods are constant: that the same amount of food can always feed the same number of people, and the same amount of wool will always make the same number of coats. However, the "value" of a thing fixes the demand of it, which is assessed against the supply of it to determine its price. In times of shortage, the price of a good will rise as buyers are desperate to have it, and in time of surplus it will fall as sellers are desperate to be rid of it. And where there are disparities in production and consumption, importation and exportation balance the two.
As markets are interconnected in this way, it is not necessarily true that a given market must satisfy its own necessities before producing luxuries: it may produce luxuries to trade to other markets for necessities. Where this occurs, the price of luxuries may decline (by virtue of greater supply) without effect on the demand for food or for gold.
As such, we cannot make a meaningful statement about the rise or fall in the value of a commodity without consideration of the medium in which their value is being estimated: their price in gold, or against another good. Where we speak of money prices, it is not otherwise evident that the price of a good is increasing due to an increase in the value of the good itself, or a decrease in the value of money. Failure to account for this may lead to an erroneous conclusion.
There is reference to Spain and Portugal, which in spite of their stranglehold on significant volumes of gold from their colonies in the Americas, remain the two most beggarly countries of Europe, aside of Poland, where the feudal system is still in effect. All their wealth in gold is traded away to other nations for necessities, and the glut of Iberian gold in other nations has decreased its value.