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Chapter 6



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

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

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 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

Adam Smith

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