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

with bankrupts, or people of

doubtful credit, in better regulated countries. The uncertainty of

recovering his money makes the lender exact the same usurious interest which

is usually required from bankrupts. Among the barbarous nations who overran

the western provinces of the Roman empire, the performance of contracts was

left for many ages to the faith of the contracting parties. The courts of

justice of their kings seldom intermeddled in it. The high rate of interest

which took place in those ancient times, may, perhaps, be partly accounted

for from this cause.

 

When the law prohibits interest altogether, it does not prevent it. Many

people must borrow, and nobody will lend without such a consideration for

the use of their money as is suitable, not only to what can be made by the

use of it, but to the difficulty and danger of evading the law. The high

rate of interest among all Mahometan nations is accounted for by M.

Montesquieu, not from their poverty, but partly from this, and partly from

the difficulty of recovering the money.

 

The lowest ordinary rate of profit must always be something more than what

is sufficient to compensate the occasional losses to which every employment

of stock is exposed. It is this surplus only which is neat or clear profit.

What is called gross profit, comprehends frequently not only this surplus,

but what is retained for compensating such extraordinary losses. The

interest which the borrower can afford to pay is in proportion to the clear

profit only. The lowest ordinary rate of interest must, in the same manner,

be something more than sufficient to compensate the occasional losses to

which lending, even with tolerable prudence, is exposed. Were it not, mere

charity or friendship could be the only motives for lending.

 

In a country which had acquired its full complement of riches, where, in

every particular branch of business, there was the greatest quantity of

stock that could be employed in it, as the ordinary rate of clear profit

would be very small, so the usual market rate of interest which could be

afforded out of it would be so low as to render it impossible for any but

the very wealthiest people to live upon the interest of their money. All

people of small or middling fortunes would be obliged to superintend

themselves the employment of their own stocks. It would be necessary that

almost every man should be a man of business, or engage in some sort of

trade. The province of Holland seems to be approaching near to this state.

It is there unfashionable not to be a man of business. Necessity makes it

usual for almost every man to be so, and custom everywhere regulates

fashion. As it is ridiculous not to dress, so is it, in some measure, not to

be employed like other people. As a man of a civil profession seems awkward

in a camp or a garrison, and is even in some danger of being despised there,

so does an idle man among men of business.

 

The highest ordinary rate of profit may be such as, in the price of the

greater part of commodities, eats up the whole of what should go to the rent

of the land, and leaves only what is sufficient to pay the labour of

preparing and bringing them to market, according to the lowest rate at which

labour can anywhere be paid, the bare subsistence of the labourer. The

workman must always have been fed in some way or other while he was about

the work, but the landlord may not always have been paid. The profits of the

trade which the servants of the East India Company carry on in Bengal may

not, perhaps, be very far from this rate.

 

The proportion which the usual market rate of interest ought to bear to the

ordinary rate of clear profit, necessarily varies as profit rises or falls.

Double interest is in Great Britain reckoned what the merchants call a good,

moderate, reasonable profit; terms which, I apprehend, mean no more than a

common and usual profit. In a country where the ordinary rate of clear profit

is eight or ten per cent. it may be reasonable that one half of it should go

to interest, wherever business is carried on with borrowed money. The stock

is at the risk of the borrower, who, as it were, insures it to the lender ;

and four or five per cent. may, in the greater part of trades, be both a

sufficient profit upon the risk of this insurance, and a sufficient

recompence for the trouble of employing the stock. But the proportion

between interest and clear profit might not be the same in countries where

the ordinary rate of profit was either a good deal lower, or a good deal

higher. If it were a good deal lower, one half of it, perhaps, could not be

afforded for interest ; and more might be afforded if it were a good deal

higher.

 

In countries which are fast advancing to riches, the low rate of profit may,

in the price of many commodities, compensate the high wages of labour, and

enable those countries to sell as cheap as their less thriving neighbours,

among whom the wages of labour may be lower.

 

In reality, high profits tend much more to raise the price of work than high

wages. If, in the linen manufacture, for example, the wages of the different

working people, the flaxdressers, the spinners, the weavers, etc. should all

of them be advanced twopence a-day, it would be necessary to heighten the

price of a piece of linen only by a number of twopences equal to the number

of people that had been employed about it, multiplied by the number of days

during which they had been so employed. That part of the price of the

commodity which resolved itself into the wages, would, through all the

different stages of the manufacture, rise only in arithmetical proportion to

this rise of wages. But if the profits of all the different employers of

those working people should be raised five per cent. that part of the price

of the commodity which resolved itself into profit would, through all the

different stages of the manufacture, rise in geometrical proportion to this

rise of profit. The employer of the flax dressers would, in selling his

flax, require an additional five per cent. upon the whole value of the

materials and wages which he advanced to his workmen. The employer of the

spinners would require an additional five per cent. both upon the advanced

price of the flax, and upon the wages of the spinners. And the employer of

the weavers would require alike five per cent. both upon the advanced price

of the linen-yarn, and upon the wages of the weavers. In raising the price of

commodities, the rise of wages operates in the same manner as simple

interest does in the accumulation of debt. The rise of profit operates like

compound interest. Our merchants and master manufacturers complain much of

the bad effects of high wages in raising the price, and thereby lessening

the sale of their goods, both at home and abroad. They say nothing

concerning the bad effects of high profits ; they are silent with regard to

the pernicious effects of their own gains; they complain only of those of

other people.

 

CHAPTER X.

 

OF WAGES AND PROFIT IN THE DIFFERENT EMPLOYMENTS OF LABOUR AND

STOCK.

 

The whole of the advantages and disadvantages of the different employments of labour and

stock, must, in the same neighbourhood, be either perfectly equal, or continually tending to

equality. If, in the same neighbourhood, there was any employment evidently either more or

less advantageous than the rest, so many people would crowd into it in the one case, and so

many would desert it in the other, that its advantages would soon return to the level of other

employments. This, at least, would be the case in a society where things were left to follow

their natural course, where there was perfect liberty, and where every man was perfectly free

both to choose what occupation he thought proper, and to change it as often as he thought

proper. Every man’s interest would prompt him to seek the advantageous, and to shun the

disadvantageous employment.

 

Pecuniary wages and profit, indeed, are everywhere in Europe extremely different, according

to the different employments of labour and stock. But this difference arises, partly from

certain circumstances in the employments themselves, which, either really, or at least in the

imagination of men, make up for a small pecuniary gain in some, and counterbalance a great

one in others, and partly from the policy of Europe, which nowhere leaves things at perfect

liberty.

 

The particular consideration of those circumstances, and of that policy, will divide this

Chapter into two parts.

 

PART I. Inequalities arising from the nature of the employments themselves.

 

The five following are the principal circumstances which, so far as I have been able to

observe, make up for a small pecuniary gain in some employments, and counterbalance a

great one in others. First, the agreeableness or disagreeableness of the employments

themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning

them ; thirdly, the constancy or inconstancy of employment in them ; fourthly, the small or

great trust which must be reposed in those who exercise them; and, fifthly, the probability or

improbability of success in them.

 

First, the wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the

honourableness or dishonourableness, of the employment. Thus in most places, take the year

round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A

journeyman weaver earns less than a journeyman smith. His work is not always easier, but it

is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in

twelve hours, as a collier, who is only a labourer, does in eight. His work is not quite so dirty,

is less dangerous, and is carried on in day-light, and above ground. Honour makes a great part

of the reward of all honourable professions. In point of pecuniary gain, all things considered,

they are generally under-recompensed, as I shall endeavour to shew by and by. Disgrace has

the contrary effect. The trade of a butcher is a brutal and an odious business ; but it is in most

places more profitable than the greater part of common trades. The most detestable of all

employments, that of public executioner, is, in proportion to the quantity of work done, better

paid than any common trade whatever.

 

Hunting and fishing, the most important employments of mankind in the rude state of society,

become, in its advanced state, their most agreeable amusements, and they pursue for pleasure

what they once followed from necessity. In the advanced state of society, therefore, they are

all very poor people who follow as a trade, what other people pursue as a pastime. Fishermen

have been so since the time of Theocritus. {See Idyllium xxi.}. A poacher is everywhere a

very poor man in Great Britain. In countries where the rigour of the law suffers no poachers,

the licensed hunter is not in a much better condition. The natural taste for those employments

makes more people follow them, than can live comfortably by them; and the produce of their

labour, in proportion to its quantity, comes always too cheap to market, to afford any thing but

the most scanty subsistence to the labourers.

 

Disagreeableness and disgrace affect the profits of stock in the same manner as the wages of

labour. The keeper of an inn or tavern, who is never master of his own house, and who is

exposed to the brutality of