The Wealth of Nations

F THE COMPONENT PART OF THE PRICE OF COMMODITIES.

In that early and rude state of society which precedes both the
accumulation of stock and the appropriation of land, the proportion
between the quantities of labour necessary for acquiring different
objects, seems to be the only circumstance which can afford any rule for
exchanging them for one another. If among a nation of hunters, for
example, it usually costs twice the labour to kill a beaver which it does
to kill a deer, one beaver should naturally exchange for or be worth two
deer. It is natural that what is usually the produce of two days or two
hours labour, should be worth double of what is usually the produce of one
day’s or one hour’s labour.

If the one species of labour should be more severe than the other, some
allowance will naturally be made for this superior hardship; and the
produce of one hour’s labour in the one way may frequently exchange for
that of two hour’s labour in the other.

Or if the one species of labour requires an uncommon degree of dexterity
and ingenuity, the esteem which men have for such talents, will naturally
give a value to their produce, superior to what would be due to the time
employed about it. Such talents can seldom be acquired but in consequence
of long application, and the superior value of their produce may
frequently be no more than a reasonable compensation for the time and
labour which must be spent in acquiring them. In the advanced state of
society, allowances of this kind, for superior hardship and superior
skill, are commonly made in the wages of labour; and something of the same
kind must probably have taken place in its earliest and rudest period.

In this state of things, the whole produce of labour belongs to the
labourer; and the quantity of labour commonly employed in acquiring or
producing any commodity, is the only circumstance which can regulate the
quantity of labour which it ought commonly to purchase, command, or
exchange for.

As soon as stock has accumulated in the hands of particular persons, some
of them will naturally employ it in setting to work industrious people,
whom they will supply with materials and subsistence, in order to make a
profit by the sale of their work, or by what their labour adds to the
value of the materials. In exchanging the complete manufacture either for
money, for labour, or for other goods, over and above what may be
sufficient to pay the price of the materials, and the wages of the
workmen, something must be given for the profits of the undertaker of the
work, who hazards his stock in this adventure. The value which the workmen
add to the materials, therefore, resolves itself in this case into two
parts, of which the one pays their wages, the other the profits of their
employer upon the whole stock of materials and wages which he advanced. He
could have no interest to employ them, unless he expected from the sale of
their work something more than what was sufficient to replace his stock to
him; and he could have no interest to employ a great stock rather than a
small one, unless his profits were to bear some proportion to the extent
of his stock.

The profits of stock, it may perhaps be thought, are only a different name
for the wages of a particular sort of labour, the labour of inspection and
direction. They are, however, altogether different, are regulated by quite
different principles, and bear no proportion to the quantity, the
hardship, or the ingenuity of this supposed labour of inspection and
direction. They are regulated altogether by the value of the stock
employed, and are greater or smaller in proportion to the extent of this
stock. Let us suppose, for example, that in some particular place, where
the common annual profits of manufacturing stock are ten per cent. there
are two different manufactures, in each of which twenty workmen are
employed, at the rate of fifteen pounds a year each, or at the expense of
three hundred a-year in each manufactory. Let us suppose, too, that the
coarse materials annually wrought up in the one cost only seven hundred
pounds, while the finer materials in the other cost seven thousand. The
capital annually employed in the one will, in this case, amount only to
one thousand pounds; whereas that employed in the other will amount to
seven thousand three hundred pounds. At the rate of ten per cent.
therefore, the undertaker of the one will expect a yearly profit of about
one hundred pounds only; while that of the other will expect about seven
hundred and thirty pounds. But though their profits are so very different,
their labour of inspection and direction may be either altogether or very
nearly the same. In many great works, almost the whole labour of this kind
is committed to some principal clerk. His wages properly express the value
of this labour of inspection and direction. Though in settling them some
regard is had commonly, not only to his labour and skill, but to the trust
which is reposed in him, yet they never bear any regular proportion to the
capital of which he oversees the management; and the owner of this
capital, though he is thus discharged of almost all labour, still expects
that his profit should bear a regular proportion to his capital. In the
price of commodities, therefore, the profits of stock constitute a
component part altogether different from the wages of labour, and
regulated by quite different principles.

In this state of things, the whole produce of labour does not always
belong to the labourer. He must in most cases share it with the owner of
the stock which employs him. Neither is the quantity of labour commonly
employed in acquiring or producing any commodity, the only circumstance
which can regulate the quantity which it ought commonly to purchase,
command or exchange for. An additional quantity, it is evident, must be
due for the profits of the stock which advanced the wages and furnished
the materials of that labour.

As soon as the land of any country has all become private property, the
landlords, like all other men, love to reap where they never sowed, and
demand a rent even for its natural produce. The wood of the forest, the
grass of the field, and all the natural fruits of the earth, which, when
land was in common, cost the labourer only the trouble of gathering them,
come, even to him, to have an additional price fixed upon them. He must
then pay for the licence to gather them, and must give up to the landlord
a portion of what his labour either collects or produces. This portion,
or, what comes to the same thing, the price of this portion, constitutes
the rent of land, and in the price of the greater part of commodities,
makes a third component part.

The real value of all the different component parts of price, it must be
observed, is measured by the quantity of labour which they can, each of
them, purchase or command. Labour measures the value, not only of that
part of price which resolves itself into labour, but of that which
resolves itself into rent, and of that which resolves itself into profit.

In every society, the price of every commodity finally resolves itself
into some one or other, or all of those three parts; and in every improved
society, all the three enter, more or less, as component parts, into the
price of the far greater part of commodities.

In the price of corn, for example, one part pays the rent of the landlord,
another pays the wages or maintenance of the labourers and labouring
cattle employed in producing it, and the third pays the profit of the
farmer. These three parts seem either immediately or ultimately to make up
the whole price of corn. A fourth part, it may perhaps be thought is
necessary for replacing the stock of the farmer, or for compensating the
wear and tear of his labouring cattle, and other instruments of husbandry.
But it must be considered, that the price of any instrument of husbandry,
such as a labouring horse, is itself made up of the same time parts; the
rent of the land upon which he is reared, the labour of tending and
rearing him, and the profits of the farmer, who advances both the rent of
this land, and the wages of this labour. Though the price of the corn,
therefore, may pay the price as well as the maintenance of the horse, the
whole price still resolves itself, either immediately or ultimately, into
the same three parts of rent, labour, and profit.

In the price of flour or meal, we must add to the price of the corn, the
profits of the miller, and the wages of his servants; in the price of
bread, the profits of the baker, and the wages of his servants; and in the
price of both, the labour of transporting the corn from the house of the
farmer to that of the miller, and from that of the miller to that of the
baker, 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
flax-dresser, 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 any 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.