An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith [e book reader pdf TXT] 📗

together with the profits of those who advance the wages of that

labour.

 

The price of flax resolves itself into the same three parts as that of corn.

In the price of linen we must add to this price the wages of the

flaxdresser, of the spinner, of the weaver, of the bleacher, etc. together

with the profits of their respective employers.

 

As any particular commodity comes to be more manufactured, that part of the

price which resolves itself into wages and profit, comes to be greater in

proportion to that which resolves itself into rent. In the progress of the

manufacture, not only the number of profits increase, but every subsequent

profit is greater than the foregoing ; because the capital from which it is

derived must always be greater. The capital which employs the weavers, for

example, must be greater than that which employs the spinners; because it

not only replaces that capital with its profits, but pays, besides, the

wages of the weavers : and the profits must always bear some proportion to

the capital.

 

In the most improved societies, however, there are always a few commodities

of which the price resolves itself into two parts only the wages of labour,

and the profits of stock ; and a still smaller number, in which it consists

altogether in the wages of labour. In the price of sea-fish, for example,

one part pays the labour of the fisherman, and the other the profits of the

capital employed in the fishery. Rent very seldom makes any part of it,

though it does sometimes, as I shall shew hereafter. It is otherwise, at

least through the greater part of Europe, in river fisheries. A salmon

fishery pays a rent ; and rent, though it cannot well be called the rent of

land, makes a part of the price of a salmon, as well as wares and profit. In

some parts of Scotland, a few poor people make a trade of gathering, along

the sea-shore, those little variegated stones commonly known by the name of

Scotch pebbles. The price which is paid to them by the stone-cutter, is

altogether the wages of their labour ; neither rent nor profit makes an part

of it.

 

But the whole price of any commodity must still finally resolve itself into some one or other

or all of those three parts; as whatever part of it remains after paying the rent of the land, and

the price of the whole labour employed in raising, manufacturing, and bringing it to market,

must necessarily be profit to somebody.

 

As the price or exchangeable value of every particular commodity, taken

separately, resolves itself into some one or other, or all of those three

parts ; so that of all the commodities which compose the whole annual

produce of the labour of every country, taken complexly, must resolve itself

into the same three parts, and be parcelled out among different inhabitants

of the country, either as the wages of their labour, the profits of their

stock, or the rent of their land. The whole of what is annually either

collected or produced by the labour of every society, or, what comes to the

same thing, the whole price of it, is in this manner originally distributed

among some of its different members. Wages, profit, and rent, are the three

original sources of all revenue, as well as of all exchangeable value. All

other revenue is ultimately derived from some one or other of these.

 

Whoever derives his revenue from a fund which is his own, must draw it

either from his labour, from his stock, or from his land. The revenue

derived from labour is called wages; that derived from stock, by the person

who manages or employs it, is called profit; that derived from it by the

person who does not employ it himself, but lends it to another, is called

the interest or the use of money. It is the compensation which the borrower

pays to the lender, for the profit which he has an opportunity of making by

the use of the money. Part of that profit naturally belongs to the borrower,

who runs the risk and takes the trouble of employing it, and part to the

lender, who affords him the opportunity of making this profit. The interest

of money is always a derivative revenue, which, if it is not paid from the

profit which is made by the use of the money, must be paid from some other

source of revenue, unless perhaps the borrower is a spendthrift, who

contracts a second debt in order to pay the interest of the first. The

revenue which proceeds altogether from land, is called rent, and belongs to

the landlord. The revenue of the farmer is derived partly from his labour,

and partly from his stock. To him, land is only the instrument which enables

him to earn the wages of this labour, and to make the profits of this stock.

All taxes, and all the revenue which is founded upon them, all salaries,

pensions, and annuities of every kind, are ultimately derived from some one

or other of those three original sources of revenue, and are paid either

immediately or mediately from the wages of labour, the profits of stock, or

the rent of land.

 

When those three different sorts of revenue belong to different persons,

they are readily distinguished; but when they belong to the same, they are

sometimes confounded with one another, at least in common language.

 

A gentleman who farms a part of his own estate, after paying the expense of

cultivation, should gain both the rent of the landlord and the profit of the

farmer. He is apt to denominate, however, his whole gain, profit, and thus

confounds rent with profit, at least in common language. The greater part of

our North American and West Indian planters are in this situation. They

farm, the greater part of them, their own estates : and accordingly we

seldom hear of the rent of a plantation, but frequently of its profit.

 

Common farmers seldom employ any overseer to direct the general operations

of the farm. They generally, too, work a good deal with their own hands, as

ploughmen, harrowers, etc. What remains of the crop, after paying the rent,

therefore, should not only replace to them their stock employed in

cultivation, together with its ordinary profits, but pay them the wages

which are due to them, both as labourers and overseers. Whatever remains,

however, after paying the rent and keeping up the stock, is called profit.

But wages evidently make a part of it. The farmer, by saving these wages,

must necessarily gain them. Wages, therefore, are in this case confounded

with profit.

 

An independent manufacturer, who has stock enough both to purchase

materials, and to maintain himself till he can carry his work to market,

should gain both the wages of a journeyman who works under a master, and the

profit which that master makes by the sale of that journeyman’s work. His

whole gains, however, are commonly called profit, and wages are, in this

case, too, confounded with profit.

 

A gardener who cultivates his own garden with his own hands, unites in his

own person the three different characters, of landlord, farmer, and

labourer. His produce, therefore, should pay him the rent of the first, the

profit of the second, and the wages of the third. The whole, however, is

commonly considered as the earnings of his labour. Both rent and profit are,

in this case, confounded with wages.

 

As in a civilized country there are but few commodities of which the

exchangeable value arises from labour only, rent and profit contributing

largely to that of the far greater part of them, so the annual produce of

its labour will always be sufficient to purchase or command a much greater

quantity of labour than what was employed in raising, preparing, and

bringing that produce to market. If the society were annually to employ all

the labour which it can annually purchase, as the quantity of labour would

increase greatly every year, so the produce of every succeeding year would

be of vastly greater value than that of the foregoing. But there is no

country in which the whole annual produce is employed in maintaining the

industrious. The idle everywhere consume a great part of it; and, according

to the different proportions in which it is annually divided between those

two different orders of people, its ordinary or average value must either

annually increase or diminish, or continue the same from one year to

another.

 

CHAPTER VII.

 

OF THE NATURAL AND MARKET PRICE OF COMMODITIES.

 

There is in every society or neighbourhood an ordinary or average rate, both

of wages and profit, in every different employment of labour and stock. This

rate is naturally regulated, as I shall shew hereafter, partly by the

general circumstances of the society, their riches or poverty, their

advancing, stationary, or declining condition, and partly by the particular

nature of each employment.

 

There is likewise in every society or neighbourhood an ordinary or average

rate of rent, which is regulated, too, as I shall shew hereafter, partly by

the general circumstances of the society or neighbourhood in which the land

is situated, and partly by the natural or improved fertility of the land.

 

These ordinary or average rates may be called the natural rates of wages,

profit and rent, at the time and place in which they commonly prevail.

 

When the price of any commodity is neither more nor less than what is

sufficient to pay the rent of the land, the wages of the labour, and the

profits of the stock employed in raising, preparing, and bringing it to

market, according to their natural rates, the commodity is then sold for

what may be called its natural price.

 

The commodity is then sold precisely for what it is worth, or for what it

really costs the person who brings it to market; for though, in common

language, what is called the prime cost of any commodity does not comprehend

the profit of the person who is to sell it again, yet, if he sells it at a

price which does not allow him the ordinary rate of profit in his

neighbourhood, he is evidently a loser by the trade; since, by employing his

stock in some other way, he might have made that profit. His profit,

besides, is his revenue, the proper fund of his subsistence. As, while he is

preparing and bringing the goods to market, he advances to his workmen their

wages, or their subsistence ; so he advances to himself, in the same manner,

his own subsistence, which is generally suitable to the profit which he may

reasonably expect from the sale of his goods. Unless they yield him this

profit, therefore, they do not repay him what they may very properly be said

to have really cost him.

 

Though the price, therefore, which leaves him this profit, is not always the

lowest at which a dealer may sometimes sell his goods, it is the lowest at

which he is likely to sell them for any considerable time; at least where

there is perfect liberty, or where he may change his trade as often as he

pleases.

 

The actual price at which any commodity is commonly sold, is called its

market price. It may either be above, or below, or exactly the same with its

natural price.

 

The market price of every particular commodity is regulated by the

proportion between the quantity which is actually brought to market, and the

demand of those who are willing to pay the natural price of the commodity,

or the whole value of the rent, labour, and profit, which must be paid in

order to