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An Inquiry into the Nature and
Causes by Adam Smith 1776 Book 1, Chapter 6 OF THE COMPONENT PARTS 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. [I, vi, 4, p. 65] 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 exchange for 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... 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... 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. [I, vi, 8, p. 67] 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... 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. Book 1, Chapter 7 OF THE NATURAL AND MARKET PRICE OF COMMODITIES
There is likewise in every
society or neighbourhood an
ordinary or average rate of rent, which is regulated too, as I shall
show
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. [I, vii, 7, p. 73] 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 bring it thither. Such people may be called the
effectual demanders,
and their demand the effectual demand; since it may be sufficient to
effectuate
the bringing of the commodity to market. It is different from the
absolute
demand... When the quantity of any
commodity which is brought to
market falls short of the effectual demand, all those who are willing
to pay
the whole value of the rent, wages, and profit, which must be paid in
order to
bring it thither, cannot be supplied with the quantity which they want.
Rather
than want it altogether, some of them will be willing to give more. A
competition will immediately begin among them, and the market price
will rise
more or less above the natural price, according as either the greatness
of the
deficiency, or the wealth and wanton luxury of the competitors, happen
to
animate more or less the eagerness of the competition. . . [I, vii, 12, p. 74] If at any time it exceeds the
effectual demand, some of
the component parts of its price must be paid below their natural rate.
If it
is rent, the interest of the landlords will immediately prompt them to
withdraw
a part of their land; and if it is wages or profit, the interest of the
labourers in the one case, and of their employers in the other, will
prompt
them to withdraw a part of their labour or stock from this employment.
The
quantity brought to market will soon be no more than sufficient to
supply the
effectual demand. All the different parts of its price will rise to
their
natural rate, and the whole price to its natural price. . . [I, vii, 15, p. 75] [I, vii, 26, p. 78] The price of monopoly is upon
every occasion the highest
which can be got. The natural price, or the price of free competition,
on the
contrary, is the lowest which can be taken, not upon every occasion,
indeed,
but for any considerable time together. . . [I, vii, 33, p. 80] Book 1, Chapter 8 OF THE WAGES OF LABOUR
In that original state of
things, which precedes both the
appropriation of land and the accumulation of stock, the whole produce
of
labour belongs to the labourer. He has neither landlord nor master to
share
with him. [I, viii, 6, p. 83] It seldom happens that the
person who tills the ground
has wherewithal to maintain himself till he reaps the harvest. His
maintenance
is generally advanced to him from the stock of a master, the farmer who
employs
him, and who would have no interest to employ him, unless he was to
share in
the produce of his labour, or unless his stock was to be replaced to
him with a
profit. This profit, makes a second deduction from the produce of the
labour
which is employed upon land. [I, viii, 11, p. 83] It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer... We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals... But though in disputes with
their workmen, masters must
generally have the advantage, there is, however, a certain rate below
which it
seems impossible to reduce, for any considerable time, the ordinary
wages even
of the lowest species of labour. A man must always live by his
work, and his wages must at
least be sufficient to maintain him. They must even upon most occasions
be
somewhat more; otherwise it would be impossible for him to bring up a
family,
and the race of such workmen could not last beyond the first
generation. . . There are certain
circumstances, however, which sometimes
give the labourers an advantage, and enable them to raise their wages
considerably
above this rate; evidently the lowest which is consistent with common
humanity. When in any country the demand
for those who live by
wages, labourers, journeymen, servants of every kind, is continually
increasing; when every year furnishes employment for a greater number
than had
been employed the year before, the workmen have no occasion to combine
in order
to raise their wages. The scarcity of hands occasions a competition
among
masters, who bid against one another, in order to get workmen, and thus
voluntarily break through the natural combination of masters not to
raise
wages. The demand for those who live
by wages, it is evident,
cannot increase but in proportion to the increase of the funds which
are
destined for the payment of wages. These funds are of two kinds; first,
revenue
which is over and above what is necessary for the maintenance; and,
secondly,
the stock which is over and above what is necessary for the employment
of their
masters. [I, viii, 22, p. 87] [I, viii, 24, p. 89] [I, viii, 38, p. 97] |