 Introduction and Plan of the Work of the Wealth of Nations. The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences of life, which it annually consumes, and which consists always either in the immediate produce of that labor or in what is purchased with that produce from other nations. According therefore, as this produce or what is purchased with it bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion. But this proportion must in every nation be regulated by two different circumstances, first by the skill, dexterity, and judgment with which its labor is generally applied, and secondly by the proportion between the number of those who are employed in useful labor and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must in that particular situation depend upon those two circumstances. The abundance or scantiness of this supply too seems to depend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work is more or less employed in useful labor and endeavors to provide as well as he can the necessaries and conveniences of life for himself and such of his family or tribe as are either too old or too young or too infirm to go hunting and fishing. Such nations, however, are so miserably poor that from mere want they are frequently reduced, or at least think themselves reduced, to the necessity sometimes of directly destroying and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases to perish with hunger or to be devoured by wild beasts. Among civilized and thriving nations on the contrary, though a great number of people do not labor at all, many of whom consume the produce of ten times frequently of a hundred times more labor than the greater part of those who work, yet the produce of the whole labor of the society is so great that all are often abundantly supplied and a workman, even of the lowest and poorest order if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire. The causes of this improvement and the productive powers of labor and the order according to which its produce is naturally distributed among the different ranks and conditions of men in the society make the subject of the first book of this inquiry. Whatever be the actual state of the skill, dexterity, and judgment with which labor is applied in any nation, the abundance or scantiness of its annual supply must depend, during the continuance of that state, upon the proportion between the number of those who are annually employed in useful labor and that of those who are not so employed. The number of useful and productive laborers, it will hereafter appear, is everywhere in proportion to the quantity of capital stock which is employed in setting them to work and to the particular way in which it is so employed. The second book, therefore, treats of the nature of capital stock of the manner in which it is gradually accumulated and of the different quantities of labor which it puts into motion according to the different ways in which it is employed. Nations tolerably well advanced as to skill, dexterity, and judgment in the application of labor have followed very different plans in the general conduct or direction of it, and those plans have not all been equally favorable to the greatness of its produce. The policy of some nations has given extraordinary encouragement to the industry of the country, that of others, to the industry of towns. Scarce any nation has dealt equally and impartially with every sort of industry. Since the downfall of the Roman Empire, the policy of Europe has been more favorable to arts, manufacturers, and commerce, the industry of towns, than to agriculture, the industry of the country. The circumstances which seem to have introduced and established this policy are explained in the third book. Though these different plans were perhaps first introduced by the private industries and prejudices of particular orders of men without any regard to or foresight of their consequences upon the general welfare of the society, yet they have given occasion to vary different theories of political economy, of which some magnify the importance of that industry which is carried on in towns, others of that which is carried on in the country. Those theories have had a considerable influence not only upon the opinions of men of learning, but upon the public conduct of princes and sovereign states. I have endeavored, in the fourth book, to explain as fully and distinctly as I can those different theories, and the principal effects which they have produced in different ages and nations. To explain in what has consisted the revenue of the great body of the people, or what has been the nature of those funds which, in different ages and nations, have supplied their annual consumption, is the object of these four first books. The fifth and last book treats of the revenue of the sovereign or commonwealth. In this book I have endeavored to show first what are the necessary expenses of the sovereign or commonwealth, which of those expenses ought to be defrayed by the general contribution of the whole society, and which of them, by that of some particular part only, or of some particular members of it. Secondly, what are the different methods in which the whole society may be made to contribute towards defraying the expenses incumbent on the whole society? And what are the principal advantages and inconveniences of each of those methods? And thirdly, and lastly, what are the reasons and causes which have induced almost all modern governments to mortgage some part of this revenue or to contract debts? And what have been the effects of those debts upon the real wealth, the annual produce of the land and labor of the society? End of Introduction and Plan of the Work. Chapter 1 of Book 1 of The Wealth of Nations. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org. Recording by Stephen Escalera. The Wealth of Nations by Adam Smith. Book 1 of the Causes of Improvement and the Productive Powers of Labor and of the Order according to which its produce is naturally distributed among the different ranks of the people. Chapter 1 of Book 1 of the Division of Labor. The greatest improvements in the Productive Powers of Labor and the greater part of the skill, dexterity, and judgment with which it is anywhere directed or applied seem to have been the effects of the Division of Labor. The effects of the Division of Labor in the general business of society will be more easily understood by considering in what manner it operates in some particular manufacturers. It is commonly supposed to be carried furthest in some very trifling ones, not perhaps that it is really carried further in them than in others of more importance, but in those trifling manufacturers which are destined to supply the small ones of but a small number of people, the whole number of workmen must necessarily be small, and those employed in every different branch of the work can often be collected into the same workhouse and placed at once under the view of the spectator. In those great manufacturers on the contrary, which are destined to supply the great wants of the great body of the people, every different branch of the work employs so great a number of workmen that it is impossible to collect them all into the same workhouse. We can seldom see more at one time than those employed in one single branch, though in such manufacturers, therefore, the work may really be divided into a much greater number of parts than in those of a more trifling nature. The division is not near so obvious and has accordingly been much less observed. To take an example, therefore, from a very trifling manufacturer, but one in which the division of labor has been very often taken notice of, the trade of a pinmaker. A workman not educated to this business, which the division of labor has rendered a distinct trade, nor acquainted with the use of the machinery employed in it, to the invention of which the same division of labor has probably given occasion, could scarce perhaps with his utmost industry make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head. To make the head requires two or three distinct operations. To put it on is a peculiar business. To whiten the pins is another. It is even a trade by itself to put them into the paper, and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufacturers are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufacturing of this kind, where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore, but indifferently accommodated with a necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day, that is certainly not the two hundred and fortyth, perhaps not the four thousand eight hundredth, part of what they are at present capable of performing, and consequence of a proper division in combination of their different operations. In every other art and manufacturer, the effects of the division of labor are similar to what they are in this very trifling one, though in many of them the labor can either be so much subdivided nor reduced to so great a simplicity of operation. The division of labor, however, so far as it can be introduced, occasions in every art a proportionable increase of the productive powers of labor. The separation of different trades and employments from one another seems to have taken place in consequence of this advantage. This separation, too, is generally carried furthest in those countries which enjoy the highest degree of industry and improvement. What is the work of one man in a rude state of society being generally that of several in an improved one? In every improved society, the farmer is generally nothing but a farmer, the manufacturer nothing but a manufacturer. The labor, too, which is necessary to produce any one complete manufacturer, is almost always divided among a great number of hands. How many different trades are employed in each branch of the linen and woolen manufacturers from the growers of the flax and the wool to the bleachers and smoothers of the linen or to the dyers and dressers of the cloth? The nature of agriculture indeed does not admit of so many subdivisions of labor nor of so complete a separation of one business from another as manufacturers. It is impossible to separate so entirely the business of the grazier from that of the corn farmer, as the trade of the carpenter is commonly separated from that of the smith. The spinner is almost always a distinct person from the weaver, but the plowman, the harrower, the sower of the seed, and the reaper of the corn are often the same. The occasions for those different sorts of labor returning with the different seasons of the year, it is impossible that one man should be constantly employed in any one of them. This impossibility of making so complete and entire as separation of all the different branches of labor employed in agriculture is perhaps the reason why the improvement of the productive powers of labor in this art does not always keep pace with their improvements in manufacturers. The most opulent nations indeed generally excel all their nations in agriculture as well as in manufacturers, but they are commonly more distinguished by their superiority in the latter than in the former. Their lands are in general better cultivated and having more labor and expense bestowed upon them produced more in proportion to the extent and natural fertility of the ground. But this superiority of produce is seldom much more than in proportion to the superiority of labor and expense. In agriculture the labor of the rich country is not always much more productive than that of the poor, or at least it is never so much more productive as it commonly is in manufacturers. The corn of the rich country therefore will not always in the same degree of goodness come cheaper to market than that of the poor. The corn of Poland in the same degree of goodness is as cheap as that of France, notwithstanding the superior opulence and improvement of the latter country. The corn of France is in the corn provinces fully as good and in most years nearly about the same price with the corn of England, though in opulence and improvement France is perhaps inferior to England. The corn lands of England however are better cultivated than those of France and the corn lands of France are said to be much better cultivated than those of Poland. But though the poor country, notwithstanding the inferiority of its cultivation, can in some measure rival the rich and the cheapness and goodness of its corn, it can pretend to know such competition in its manufacturers, at least if those manufacturers suit the soil, climate, and situation of the rich country. The silks of France are better and cheaper than those of England because the silk manufacturer, at least under the present high duties upon the importation of raw silk, does not so well suit the climate of England as that of France. But the hardware and the coarse woolens of England are beyond all comparison superior to the those of France and much cheaper too in the same degree of goodness. In Poland there are said to be scarce any manufacturers of any kind, a few of those coarser household manufacturers accepted, without which no country can well subsist. This great increase in the quantity of work which in consequence of the division of labor, the same number of people are capable of performing, is owing to three different circumstances. First, to the increase of dexterity in every particular workman. Secondly, to the saving of the time which is commonly lost in passing from one species of work to another. And lastly, to the invention of a great number of machines which facilitate and abridge labor, and enable one man to do the work of many. First, the improvement of the dexterity of the workman necessarily increases the quantity of the work he can perform. And the division of labor by reducing every man's business to some one simple operation, and by making this operation the sole employment of his life, necessarily increases very much the dexterity of the workman. A common Smith who, though accustomed to handle the hammer, has never been used to make nails if upon some particular occasion he is obliged to attempt it, will scarce, I am assured, be able to make above two or three hundred nails in a day, and those two very bad ones. A Smith who has been accustomed to make nails, but whose sole or principal business has not been that of a nailer, can seldom, with his utmost diligence, make more than eight hundred or a thousand nails in a day. I have seen several boys, under twenty years of age, who had never exercised any other trade but that of making nails, and who, when they exerted themselves, could make each of them upwards of two thousand three hundred nails in a day. The making of a nail, however, is by no means one of the simplest operations. The same person blows the bellows, stirs or mends the fire as there is occasion, heats the iron, and forges every part of the nail. In forging the head too, he is obliged to change his tools. The different operations into which the making of a pin or of a metal button is subdivided are all of them much more simple, and the dexterity of the person of whose life it has been the sole business to perform them is usually much greater. The rapidity with which some of the operations of those manufacturers are performed exceeds what the human hand could by those who had never seen them be supposed capable of acquiring. Secondly, the advantage which is gained by saving the time commonly lost and passing from one sort of work to another is much greater than we should at first view be apt to imagine it. It is impossible to pass very quickly from one kind of work to another that is carried on in a different place and with quite different tools. A country weaver who cultivates a small farm must lose a good deal of time and passing from his loom to the field and from the field to his loom. When the two trades can be carried on in the same workhouse the loss of time is no doubt much less. It is, even in this case, however, very considerable. A man commonly saunters a little and turning his hand from one sort of employment to another. When he first begins the new work he is seldom very keen and hearty. His mind, as they say, does not go to it and for some time he rather trifles than applies to good purpose. The habit of sauntering and of indolent careless application which is naturally or rather necessarily acquired by every country workman who is obliged to change his work and his tools every half hour and to apply his hand in 20 different ways almost every day of his life renders him almost always slothful and lazy and incapable of any vigorous application even on the most pressing occasions. Independent, therefore, of his deficiency and point of dexterity this cause alone must always reduce considerably the quantity of work which he is capable of performing. Thirdly and lastly everybody must be sensible how much labor is facilitated and abridged by the application of proper machinery. It is unnecessary to give any example. I shall only observe, therefore, that the invention of all those machines by which labor is so much facilitated and abridged seems to have been originally owing to the division of labor. Men are much more likely to discover easier and readier methods of attaining any object when the whole attention of their minds is directed towards that single object then when it is dissipated among a great variety of things. But in consequence of the division of labor the whole of every man's attention comes naturally to be directed towards some one very simple object. It is naturally to be accepted therefore that someone or other of those who are employed in each particular branch of labor should soon find out easier and readier methods of performing their own particular work whenever the nature of it admits of such improvement. A great part of the machines made use of in those manufacturers in which labor is most subdivided were originally the invention of common workmen who being each of them employed in some very simple operation naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufacturers most frequently have been shown very pretty machines which were the inventions of such workmen in order to facilitate and quicken their own particular part of the work. In the first fire engines a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder according as the piston either ascended or descended. One of those boys who loved to play with his companions observed that by tying a string from the handle of the valve which opened this communication to another part of the machine the valve would open and shut without his assistance and leave him at liberty to divert himself with his play fellows. One of the greatest improvements that has been made upon this machine since it was first invented was in this manner the discovery of a boy who wanted to save his own labor. All the improvements in machinery however have by no means been the inventions of those who had occasion to use the machines. Many improvements have been made by the ingenuity of the makers of the machines when to make them became the business of a peculiar trade and some by that of those who are called philosophers or men of speculation whose trade it is not to do anything but to observe everything and who upon that account are often capable of combining together the powers of the most distant and dissimilar objects in the progress of society, philosophy or speculation becomes like every other employment the principal or sole trade in occupation of a particular class of citizens. Like every other employment too it is subdivided into a great number of different branches each of which affords occupation to a peculiar tribe or class of philosophers and this subdivision of employment and philosophy as well as in every other business improved dexterity and saves time. Each individual becomes more expert in his own peculiar branch more work is done upon the whole and the quantity of science is considerably increased by it. It is the great multiplication of the productions of all the different arts and consequence of the division of labor which occasions in a well governed society the universal opulence which extends itself to the lower strengths of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for and every other workman being exactly in the same situation he is unable to exchange a great quantity of his own goods for a great quantity or what comes to the same thing for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for and they accommodate him as amply with what he has occasion for and a general plenty diffuses itself through all the different ranks of the society. Observe the accommodation of the most common artificer or day labor in a civilized and thriving country and you will perceive that the number of people of whose industry a part though but a small part has been employed in procuring him this accommodation exceeds all computation. The woolen coat for example which covers the day labor as coarse and rough as it may appear is the produce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the woolcomber or carter, the dire, the scribbler, the spinner, the weaver, the fuller, the dresser with many others must all join their different arts in order to complete even this homely production. How many merchants and carriers besides must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country? How much commerce and navigation in particular, how many shipbuilders, sailors, sailmakers, rope makers must have been employed in order to bring together the different drugs made use of by the dire which often come from the remotest corners of the world. What a variety of labor too is necessary in order to produce the tools of the meanest of those workmen. To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labor is requisite in order to form that very simple machine, the shears, with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting house, the brick maker, the bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine in the same manner all the different parts of his dress and household furniture, the coarse linen shirt which he wears next to his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniences. If we examine, I say, all these things and consider what a variety of labor is employed about each of them, we shall be sensible that, without the assistance and cooperation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated. Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy, and yet it may be true, perhaps, that the accommodation of a European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute masters of the lives and liberties of ten thousand naked savages. End of Book One, Chapter One Chapter Two of Book One of the Wealth of Nations This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer, please visit LibriVox.org recording by Steven Ascalara. The Wealth of Nations by Adam Smith Chapter Two of Book One of the Principle which Gives Occasion to the Division of Labor This division of labor from which so many advantages are derived is not originally the effect of any human wisdom which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature which has in view no such extensive utility, the propensity to truck, barter, and exchange one thing for another. Whether this propensity be one of those original principles in human nature of which no further account can be given, or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to inquire. It is common to all men and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. Two greyhounds and running down the same hair have sometimes the appearance of acting in some sort of concert. Each turns her towards his companion, or endeavors to intercept her when his companion turns her towards himself. This, however, is not the effect of any contract, but of the accidental concurrence of their passions in the same object at that particular time. Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal, by its gestures and natural cries, signify to another, this is mine, that's yours, I'm willing to give this for that. When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion, but to gain the favor of those who service it requires. A puppy fawns upon its dam, and a spaniel endeavors, by a thousand attractions, to engage the attention of its master who is at dinner when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavors by every servile and fawning attention to obtain their goodwill. He has not time, however, to do this upon every occasion. In civilized society, he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals, each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasioned for the assistance of no other living creature. But man has almost constant occasioned for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer. And it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people indeed supplies him with the whole fund of his subsistence. But though this principal ultimately provides him with all the necessaries of life which he has occasioned for, it neither does, nor can provide him with them as he has occasioned for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him, he purchases food. The old clothes which another bestows upon him he exchanges for other clothes which suit him better, or for lodging, or for food, or for money, with which he can buy either food, clothes, or lodging as he has occasion. As it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of, so it is this same trucking disposition which originally gives occasion to the division of labor. In the tribe of hunters or shepherds, a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions, and he finds at last that he can, in this manner, get more cattle and venison than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armorer. Another excels in making the frames and covers of the little huts or movable houses. He is accustomed to be of use in this way to his neighbors, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house carpenter. In the same manner, a third becomes a smith or a brazier, a fourth a tanner or dresser of hides or skins, the principal part of the clothing of savages, and thus the certainty of being able to exchange all that surplus part of the produce of his own labor, which is over and above his own consumption, for such parts of the produce of other men's labor as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent and genius he may possess for that particular species of business. The difference of natural talents in different men is in reality much less than we are aware of, and the very different genius which appears to distinguish men of different professions when grown up to maturity is not upon many occasions so much the cause as the effect of the division of labor. The difference between the most dissimilar characters between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education. When they came into the world and for the first six or eight years of their existence they were perhaps very much alike and neither their parents nor playfellows could perceive any remarkable difference. About that age or soon after they came to be employed in very different occupations. The difference of talents comes then to be taken notice of and widens by degrees till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance. But without the disposition to truck, barter, and exchange every man must have procured to himself every necessary and conveniency of life which he wanted. All must have had the same duties to perform and the same work to do and there could have been no such difference of employment as could alone give occasion to any great difference of talents. As it is this disposition which forms that difference of talents so remarkable among men of different professions so it is this same disposition which renders that difference useful. Many tribes of animals acknowledged the same species derive from nature a much more remarkable distinction of genius than what antecedent to custom and education appears to take place among men. By nature a philosopher is not ingenious in disposition half so different from a street porter as a mastiff is from a greyhound or a greyhound from a spaniel or this last from a shepherd's dog. Those different tribes of animals however though all of the same species are of scarce any use to one another. The strength of the mastiff is not in the least supported either by the swiftness of the greyhound or by the sagacity of the spaniel or by the the facility of the shepherd's dog. The effects of those different geniuses and talents for one of the power or disposition to barter and exchange cannot be brought into a common stock and do not in the least contribute to the better accommodation and convenience of the species. Each animal is still obliged to support and defend itself separately and independently and derives no sort of advantage from that variety of talents with which nature has distinguished its fellows. Among men on the contrary the most dissimilar geniuses are of use to one another. The different produce of their respective talents by the general disposition to truck barter and exchange being brought as it were into a common stock where every man may purchase whatever part of the produce of other men's talents he has occasion for. End of Book 1 Chapter 2 Chapter 3 of Book 1 of the wealth of nations. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith Chapter 3 of Book 1 That the division of labour is limited by the extent of the market. As it is the power of exchanging that gives occasion to the division of labour so the extent of this division must always be limited by the extent of that power or in other words by the extent of the market. When the market is very small no person can have any encouragement to dedicate himself entirely to one employment for want of the power to exchange all that surplus part of the produce of his own labour which is over and above his own consumption for such parts of the produce of other men's labour as he has occasion for. There are some sorts of industry even of the lowest kind which can be carried on nowhere but in a great town. A porter for example can find employment and subsistence in no other place. A village is by much too narrow a sphere for him. Even an ordinary market town is scarce large enough to afford him constant occupation. In the lone houses and very small villages which are scattered about and so desert a country as the highlands of Scotland every farmer must be butcher baker and brewer for his own family. In such situations we can scarce expect to find even a Smith a carpenter or a Mason within less than 20 miles of another of the same trade. The scattered families that live at 8 or 10 miles distance from the nearest of them must learn to perform themselves a great number of little pieces of work for which in more populist countries they would call in the assistance of those workmen. Country workmen are almost everywhere obliged to apply themselves to all the different branches of industry that have so much affinity to one another as to be employed about the same sort of materials. A country carpenter deals in every sort of work that is made of wood. A country Smith in every sort of work that is made of iron. The former is not only a carpenter but a joiner a cabinet maker and even a carver in wood as well as a wheel right a plow right a cart and wagon maker. The employment of the latter are still more various. It is impossible that there should be such a trade as even that of a nailer in the remote and inland parts of the highlands of Scotland. Such a workman at the rate of a thousand nails a day and 300 working days in the year will make 300,000 nails in the year. But in such a situation it will be impossible to dispose of 1,000 that is of one day's work in the year. As by means of water carriage a more extensive market is open to every sort of industry than what land carriage alone can afford it. So it is upon the seacoast and along the banks of navigable rivers the industry of every kind naturally begins to subdivide and improve itself and it is frequently not till a long time after that those improvements extend themselves to the inland parts of the country. A broad-wheeled wagon attended by two men and drawn by eight horses in about six weeks time carries and brings back between London and Edinburgh near four ton weight of goods and about the same time a ship navigated by six or eight men and sailing between the ports of London and Leith frequently carries and brings back 200 ton weight of goods. Six or eight men therefore by the help of water carriage can carry and bring back in the same time the same quantity of goods between London and Edinburgh as 50 broad-wheeled wagons attended by 100 men and drawn by 400 horses. Upon 200 tons of goods therefore carried by the cheapest land carriage from London to Edinburgh there must be charged the maintenance of 100 men for three weeks and both the maintenance and what is nearly equal to maintenance the wear and tear of 400 horses as well as a 50 great wagons. Whereas upon the same quantity of goods carried by water there is to be charged only the maintenance of six or eight men and the wear and tear of a ship of 200 tons berthin together with the value of the superior risk or the difference of the insurance between land and water carriage. Were there no other communication between those two places therefore but by land carriage as no goods could be transported from the one to the other except such whose price was very considerable in proportion to their weight they could carry on but a small part of that commerce which at present subsists between them and consequently could give but a small part of that encouragement which they at present mutually afford to each other's industry. There could be little or no commerce of any kind between the distant parts of the world. What goods could bear the expense of land carriage between London and Calcutta or if there were any so precious as to be able to support this expense with what safety could they be transported through the territories of so many barbarous nations. Those two cities however at present carry on a very considerable commerce with each other and by mutually affording a market give a good deal of encouragement to each other's industry. Since such therefore are the advantages of water carriage it is natural that the first improvements of art and industry should be made where this conveniency opens the whole world for a market to the produce of every sort of labor and that they should always be much later in extending themselves into the inland parts of the country. The inland parts of the country can for a long time have no other market for the greater part of their goods but the country which lies round about them and separates them from the seacoast and the great navigable rivers. The extent of the market therefore must for a long time be in proportion to the riches and populousness of that country and consequently their improvement must always be posterior to the improvement of that country. In our North American colonies the plantations have constantly followed either the seacoast or the banks of the navigable rivers and have scarce anywhere extended themselves to any considerable difference from both. The nations that according to the best authenticated history appear to have been first civilized were those that dwelt round the coast of the Mediterranean Sea. That sea by far the greatest inlet that is known in the world having no tides nor consequently any waves except such as are caused by the wind only was by the smoothness of its surface as well as by the multitude of its islands and the proximity of its neighboring shores extremely favorable to the infant navigation of the world wind from their ignorance of the compass men were afraid to quit the view of the coast and from the imperfection of the art of shipbuilding to abandon themselves to the boisterous waves of the ocean. To pass beyond the pillars of Hercules that is to sail out of the Straits of Gibraltar was in the ancient world long considered as a most wonderful and dangerous exploit of navigation. It was late before even the Phoenicians and Carthaginians the most skillful navigators and shipbuilders of those times attempted it and they were for a long time the only nations that did attempted. Of all the countries on the coast of the Mediterranean Sea Egypt seems to have been the first in which either agriculture or manufacturers were cultivated and improved to any considerable degree. Upper Egypt extends itself nowhere above a few miles from the Nile and in lower Egypt that great river breaks itself into many different canals which with the assistance of a little art seem to have afforded a communication by water carriage not only between all the great towns but between all the considerable villages and even to many farmhouses in the country nearly in the same manner as the Rhine and the Mace do in Holland at present. The extent and easiness of this inland navigation was probably one of the principal causes of the early improvement of Egypt. The improvements in agriculture and manufacturers seem likewise to have been a very great antiquity in the provinces of Bingle in the East Indies and in some of the Eastern provinces of China though the great extent of this antiquity is not authenticated by any histories of whose authority we in this part of the world are well assured. In Bingle the Ganges and several other great rivers form a great number of navigable canals in the same manner as the Nile does in Egypt. In the Eastern provinces of China too several great rivers form by their different branches a multitude of canals and by communicating with one another afford an inland navigation much more extensive than that either of the Nile or the Ganges or perhaps then both of them put together. It is remarkable that neither the ancient Egyptians nor the Indians nor the Chinese encouraged foreign commerce but seem all to have derived their great opulence from this inland navigation. All the inland parts of Africa and all that part of Asia which lies any considerable way north of the Yucsen and Caspian seas the ancient Scythia the modern Tartary and Siberia seem in all ages of the world to have been in the same barbarous and uncivilized state in which we find them at present. The Sea of Tartary is the frozen ocean which admits of no navigation and though some of the greatest rivers in the world run through that country they are at too great a distance from one another to carry commerce and communication through the greater part of it. There are in Africa none of those great inlets such as the Baltic and Adriatic seas in Europe the Mediterranean and Yucsen seas in both Europe and Asia and the Gulfs of Arabia Persia India Bengal and Siam and Asia to carry maritime commerce into the interior parts of that great continent and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation. The commerce besides which any nation can carry on by means of a river which does not break itself into any great number of branches or canals and which runs into another territory before it reaches the sea can never be very considerable because it is always in the power of the nations who possess that other territory to obstruct the communication between the upper country and the sea. The navigation of the Danube is of very little use to the different states of Bavaria, Austria and Hungary in comparison of what it would be if any of them possess the whole of its course till it falls into the Black Sea. End of Book 1, Chapter 3 Chapter 4 of Book 1 of the Wealth of Nations This is a Libravox recording. All Libravox recordings are in the public domain. For more information or to volunteer please visit Libravox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith Chapter 4 of Book 1 of the Origin and Use of Money When the division of labour has been once thoroughly established it is but a very small part of a man's wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour which is over and above his own consumption for such parts of the produce of other men's labour as he has occasion for. Every man thus lives by exchanging or becomes in some measure a merchant and the society itself grows to be what is properly a commercial society. But when the division of labour first began to take place this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man we shall suppose has more of a certain commodity than he himself has occasioned for while another has less. The former consequently would be glad to dispose of and the latter to purchase a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of no exchange can be made between them. The butcher has more meat in his shop than he himself can consume and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange except the different productions of their respective trades and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange can, in this case, be made between them. He cannot be their merchant nor they his customers. And they are all of them thus mutually less serviceable to one another. In order to avoid the inconvenience of such situations every prudent man in every period of society after the first establishment of the division of labour must naturally have endeavored to manage his affairs in such a manner as to have at all times by him besides the peculiar produce of his own industry a certain quantity of some one commodity or another such as he imagined few people would be likely to refuse in exchange for the produce of their industry. Many different commodities it is probable were successfully both thought of and employed for this purpose. In the rude ages of society cattle are said to have been the common instrument of commerce and though they must have been a most inconvenient one yet in the old times we find things were frequently valued according to the number of cattle which had been given in exchange for them. The armour of Diomedes as Homer cost only nine oxen but that of Glaucus cost a hundred oxen. Salt is said to be the common instrument of commerce and exchanges in Abyssinia a species of shells in some parts of the coast of India dried cod at Newfoundland tobacco in Virginia sugar in some of our West India colonies hides or dressed leather in some other countries. And there is at this day a village in Scotland where it is not uncommon I am told for a workman to carry nails instead of money to the baker's shop or the alehouse. In all countries however men seem at last to have been determined by irresistible reasons to give the preference for this employment to metals above every other commodity. Metals cannot only be kept with as little loss as any other commodity scarce anything being less perishable than they are but they can likewise without any loss be divided into any number of parts as by fusion those parts can easily be reunited again a quality which no other equally durable commodities possess in which more than any other quality renders them fit to be the instruments of commerce and circulation. The man who wanted to buy salt for example and had nothing but cattle to give an exchange for it must have been obliged to buy salt to the value of a whole ox or a whole sheep at a time. He could sell them by less than this because what he has to give for it could sell them be divided without loss and if he had a mind to buy more he must for the same reasons have been obliged to buy double or triple the quantity the value to it of two or three oxen or of two or three sheep. If on the contrary instead of sheep or oxen he had metals to give an exchange for it he could easily proportion the quantity of the metal to the precise quantity of the commodity which he had immediate occasion for. Different metals have been made use of by different nations for this purpose iron was the common instrument of commerce among the ancient Spartans copper among the ancient Romans and gold and silver among all rich and commercial nations. Those metals seem originally to have been made use of for this purpose in rude bars without any stamp or coinage. Thus we are told by Pliny upon the authority of Timaeus an ancient historian that till the time of Servius Tuleus the Romans had no coined money but made use of unstamped bars of copper to purchase whatever they had occasion for. These rude bars therefore performed at this time the function of money. The use of metals in this rude state was attended with two very considerable inconveniences. First with the trouble of weighing and secondly with that of assaying them. In the precious metals where a small difference in the quantity makes a great difference in the value even the business of weighing with proper exactness requires at least very accurate weights and scales. The weighing of gold in particular is an operation of some nicety. In the coarser metals indeed where a small error would be of little consequence less accuracy would no doubt be necessary. Yet we should find excessively troublesome if every time a poor man had occasion either to buy or sell a farthing's worth of goods he was obliged to weigh the farthing. The operation of assaying is still more difficult still more tedious and unless a part of the metal is fairly melted in the crucible with proper dissolvents any conclusion that can be drawn from it is extremely uncertain. Before the institution of coined money however unless they went through this tedious and difficult operation people must always have been liable to the grossest frauds and impositions and instead of a pound weight of pure silver or pure copper might receive in exchange for their goods an adulterated composition of the coarsest and cheapest materials which had however in their outward appearance been made to resemble those metals. To prevent such abuses to facilitate exchanges and thereby to encourage all sorts of industry and commerce it has been found necessary in all countries that have made any considerable advances toward improvement to affix a public stamp upon certain quantities of such particular metals as were in those countries commonly made use of to purchase goods. Hence the origin of coined money and of those public offices called mints institutions exactly of the same nature with those of the all-noggers and stamp masters of woollen and linen cloth all of them are equally meant to ascertain by means of a public stamp the quantity and uniform goodness of those different commodities when brought to market. The first public stamps of this kind that were affixed to the current metals seem in many cases to have been intended to ascertain what it was both most difficult and most important to ascertain the goodness or fineness of the metal and to have resembled the sterling mark which is at present affixed to plate and bars of silver or the Spanish mark which is sometimes affixed to ingots of gold and which being instruct only upon one side of the piece and not covering the whole surface ascertains the fineness but not the weight of the metal. Abraham weighs to Ephron the four hundred shekels of silver which he had agreed to pay for the field of Macpilla. They are said, however, to be the current money of the merchant and yet are received by weight and not by tail in the same manner as ingots of gold and bars of silver are at present. The revenues of the ancient Saxon kings of England are said to have been paid not in money but in kind that is in victuals and provisions of all sorts. William the Conqueror introduced the custom of paying them in money. This money, however, was for a long time received at the Exchequer by weight and not by tail. The inconvenience and difficulty of weighing those metals with exactness gave occasion to the institution of coins of which the stamp covering entirely both sides of the piece and sometimes the edges too was supposed to ascertain not only the finest but the weight of the metal. Such coins therefore were received by tail as at present without the trouble of weighing. The denominations of those coins seem originally to have expressed the weight or quantity of metal contained in them. In the time of Servius Julius who first coined money at Rome the Roman as or pondo contained a Roman pound of good copper. It was divided in the same manner as our Troyus pound into twelve ounces each of which contained a real ounce of good copper. The English pound sterling in the time of Edward I contained a pound tower weight of silver of a known fineness. The tower pound seems to have been something more than the Roman pound and of something less than the Troyus pound. This last was not introduced into the mint of England to the 18th of Henry VIII. The French lever contained in the time of Charlemagne a pound, Troyus weight, of silver of a known fineness. The fair of Troyus in Champagne was at that time frequented by all the nations of Europe and the weights and measures of so famous a market were generally known and esteemed. The Scots money pound contained from the time of Alexander I to that of Robert Bruce a pound of silver of the same weight and fineness with the English pound sterling. English, French, and Scots pennies too contained all of them originally a real penny weight of silver the twentieth part of an ounce and the two hundred and fortyth part of a pound. The shilling, too, seems originally to have been the denomination of a weight. When wheat is at twelve shillings the quarter, says an ancient statute of Henry III, then wasteful bread of a farthing shall weigh eleven shillings and fourpence. The proportion, however, between the shilling and either the penny on the one hand or the pound on the other seems not to have been so constant and uniform as that between the penny and the pound. During the first race of the kings of France the French sue or shilling appears upon different occasions to have contained five, twelve, twenty, and forty pennies. Among the ancient Saxons a shilling appears at one time to have contained only five pennies and it is not improbable that it may have been as variable among them as among their neighbors the ancient Franks. From the time of Charlemagne among the French and from that of William the Conqueror among the English the proportion between the pound, the shilling, and the penny seems to have been uniformly the same as at present though the value of each has been very different for in every country of the world I believe the avarice and injustice of princes and sovereign states abusing the confidence of their subjects have by degrees diminished the real quantity of metal which had been originally contained in their coins. The Roman ass in the latter ages of the republic was reduced to the 24th part of its original value and instead of weighing a pound came to weigh only half an ounce. The English pound and penny contained at present about a third only the Scots pound and penny about a 36th and the French pound and penny about a 66th part of their original value. By means of those operations the princes and sovereign states which performed them were enabled in appearance to pay their debts and fully their engagements with a smaller quantity of silver than what otherwise have been requisite. It was indeed in appearance only for their creditors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. Such operations therefore have always proved favorable to the debtor and ruinous to the creditor and have sometimes produced a greater and more universal revolution in the fortunes of private persons then could have been occasioned by a very great public calamity. It is in this manner that money has become in all civilized nations the universal instrument of commerce by the intervention of which goods of all kinds are bought and sold or exchanged for one another. What are the rules which men naturally observe in exchanging them either for money or for one another I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods. The word value it is to be observed has two different meanings and sometimes expresses the utility of some particular object and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called value in use the other value in exchange. The things which have the greatest value in use have frequently little or no value in exchange and on the contrary those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water but it will purchase scarce anything. Scarce anything can be had in exchange for it. A diamond on the contrary has scarce any value in use but a very great quantity of other goods may frequently be had in exchange for it. In order to investigate the principles which regulate the exchangeable value of commodities I shall endeavor to show first what is the real measure of this exchangeable value or wherein consists the real price of all commodities. Secondly, what are the different parts of which this real price is composed or made up. And lastly what are the different circumstances which sometimes raise some or all of these different parts of price above and sometimes sink them below their natural or ordinary rate or what are the causes which sometimes hinder the market price that is the actual price of commodities from coinciding exactly with what may be called their natural price. I shall endeavor to explain as fully and distinctly as I can those three subjects in the three following chapters for which I must very earnestly entreat both the patience and the tension of the reader his patience in order to examine a detail which may perhaps in some places appear unnecessarily tedious and his attention in order to understand what may perhaps after the fullest explication of what I am capable of giving it appears still in some degrees obscure. I am always willing to run some hazard of being tedious in order to be sure that I am perspicuous and after taking the utmost pains that I can to be perspicuous some obscurity may still appear to remain upon a subject in its own nature extremely abstracted. End of Book 1, Chapter 4. Part 1 of Chapter 5 of Book 1 of The Wealth of Nations. This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org recording by Stephen Escalera. The Wealth of Nations by Adam Smith Part 1 of Chapter 5 of Book 1 of The Real and Nominal Price of Commodities or of their price in labor and their price in money. Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life. But after the division of labor has once thoroughly taken place it is but a very small part of these with which a man's own labor can supply him. The far greater part of them he must derive from the labor of other people and he must be rich or poor according to the quantity of that labor which he can command or which he can afford to purchase. The value of any commodity therefore to the person who possesses it and who means not to use or consume it himself but to exchange it for other commodities is equal to the quantity of labor which it enables him to purchase or command. Labor therefore is the real measure of the exchangeable value of all commodities. The real price of everything, what everything really costs the man who wants to acquire it is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it and who wants to dispose of it or exchange it for something else is the toil and trouble which he can save to himself and which he can impose upon other people. What is bought with money or with goods is purchased by labor as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labor which we exchange for what is supposed at the time to contain the value of an equal quantity. Labor was the first price, the original purchase money that was paid for all things. It was not by gold or by silver but by labor that all the wealth of the world was originally purchased, and its value to those who possess it and who want to exchange it for some new productions is precisely equal to the quantity of labor which it can enable them to purchase or command. Wealth, as Mr. Hobb says, is power but the person who either acquires or succeeds to a great fortune does not necessarily acquire or succeed to any political power either civil or military. His fortune may perhaps afford him the means of acquiring both but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him is the power of purchasing a certain command over all the labor or over all the produce of labor which is then in the market. His fortune is greater or less precisely in proportion to the extent of this power or to the quantity either of other men's labor or what is the same thing of the produce of other men's labor which it enables him to purchase or command. The exchangeable value of everything must always be precisely equal to the extent of this power which it conveys to its owner. But though labor be the real measure of the exchangeable value of all commodities it is not that by which their value is commonly estimated. It is often difficult to ascertain the proportion between two different quantities of labor. The time spent in two different sorts of work will not always alone determine this proportion. The different degrees of hardship endured and of ingenuity exercised must likewise be taken into account. There may be more labor in an hour's hard work than in two hours easy business or in an hour's application to a trade which it costs 10 years labor to learn than in a month's industry at an ordinary and obvious employment. But it is not easy to find any accurate measure either of hardship or ingenuity. In exchanging, indeed, the different productions of different sorts of labor for one another some allowance is commonly made for both. It is adjusted, however, not by any accurate measure but by the higgling and bargaining of the market according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life. Every commodity besides is more frequently exchanged for and thereby compared with other commodities than with labor. It is more natural, therefore, to estimate its exchangeable value by the quantity of some other commodity than by that of the labor which it can produce. The greater part of people, too, understand better what is meant by a quantity of a particular commodity than by a quantity of labor. The one is a plain, palpable object. The other, an abstract notion which, though it can be made sufficiently intelligible, is not altogether so natural and obvious. But when barter ceases and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity. The butcher seldom carries his beef or his mutton to the baker or the brewer in order to exchange them for bread or for beer, but he carries them to the market where he exchanges them for money and afterwards exchanges that money for bread and for beer. The quantity of money which he gets for them regulates, too, the quantity of bread and beer which he can afterwards purchase. It is more natural and obvious to him, therefore, to estimate their value by the quantity of money the commodity for which he immediately exchanges them, then by that of bread and beer the commodities for which he can exchange them only by the intervention of another commodity. And rather to say that his butcher's meat is worth three pence or four pence a pound than it is worth three or four pounds of bread or three or four quarts of small beer. Hence it comes to pass that the exchangeable value of every commodity is more frequently estimated by the quantity of money than by the quantity either of labor or of any other commodity which can be had in exchange for it. Gold and silver, however, like every other commodity, vary in their value. Are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. The quantity of labor which any particular quantity of them can purchase or command or the quantity of other goods which it will exchange for depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made. The discovery of the abundant minds of America reduced in the 16th century the value of gold and silver in Europe to about a third of what it had been before. As it cost less labor to bring those metals from the mine to the market so when they were brought thither they could purchase or command less labor. And this revolution in their value though perhaps the greatest is by no means the only one of which history gives some account. But as a measure of quantity such as the natural foot, fathom, or handful which is continually varying in its own quantity can never be an accurate measure of the quantity of other things. So a commodity which is itself continually varying in its own value can never be an accurate measure of the value of other commodities. Equal quantities of labor at all times and places may be said to be of equal value to the laborer. In his ordinary state of health strength and spirits in the ordinary degree of his skill and dexterity he must always lay down the same portion of his ease his liberty and his happiness. The price which he pays must always be the same whatever may be the quantity of goods which he receives in return for it. Of these indeed it may sometimes purchase a greater and sometimes a smaller quantity but it is their value which varies not that of the labor which purchases them. At all times and places that is dear which it is difficult to come at or which it costs much labor to acquire and that cheap which is to be had easily or with very little labor. Labor alone therefore never varying in its own value is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price money is their nominal price only. But though equal quantities of labor are always of equal value to the laborer yet to the person who employs him they appear sometimes to be of greater and sometimes of smaller value. He purchases them sometimes with a greater and sometimes with a smaller quantity of goods and to him the price of labor seems to vary like that of all other things. It appears to him dear in the one case and cheap in the other. In reality however it is the goods which are cheap in the one case and dear in the other. In this popular sense therefore labor like commodities may be said to have a real and nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniences of life which are given for it. It's nominal price in the quantity of money. The laborer is rich or poor as well or ill rewarded in proportion to the real not the nominal price of his labor. The distinction between the real and the nominal price of commodities in labor is not a matter of mere speculation but may sometimes be of considerable use in practice. The same real price is always of the same value but on account of the variations in the value of gold and silver the same nominal price is sometimes of very different values. When they landed estate therefore is sold with a reservation of a perpetual rent if it is intended that this rent should always be of the same value it is of importance to the family in whose favor it is reserved that it should not consist in a particular sum of money. Its value would in this case be liable to variations of two different kinds first to those which arise from the different quantities of gold and silver which are contained at different times in coin of the same denomination and secondly to those which arise from the different values of equal quantities of gold and silver at different times. Princes and sovereign states have frequently fancied that they had a temporary interest to diminish the quantity of pure metal contained in their coins but they seldom have fancied that they had any to augment it. The quantity of metal contained in the coins I believe of all nations has accordingly been almost continually diminishing and hardly ever augmenting. Such variations therefore tend almost always to diminish the value of a money rent. The discovery of the minds of America diminished the value of gold and silver in Europe. This diminution it is commonly supposed though I apprehend without any certain proof is still going on gradually and is likely to continue to do so for a long time. Upon this supposition therefore such variations are more likely to diminish than to augment the value of a money rent even though it should be stipulated to be paid not in such a quantity of coin money of such a denomination in so many pounds sterling for example but in so many ounces either of pure silver or of silver of a certain standard. The rents which have been reserved in corn have preserved their value much better than those which have been reserved in money even where the denomination of the coin has not been altered. By the 18th of Elizabeth it was enacted that a third of the rent of all college leases should be reserved in corn to be paid either in kind or according to the current prices at the nearest public market. The money arising from this corn rent though originally but a third of the whole is in the present times according to Dr. Blackstone commonly near double of what arises from the other two-thirds. The old money rents of colleges must according to this account have sunk almost to a fourth part of their ancient value or are worth little more than a fourth part of the corn which they were formally worth. But since the reign of Philip and Mary the denomination of the English coin has undergone little or no alteration and the same number of pounds, shillings, and pints have contained very nearly the same quantity of pure silver. This degradation therefore and the value of the money rents of colleges has arisen altogether from the degradation in the price of silver. When the degradation in the value of silver is combined with the diminution of the quantity of it contained in the coin of the same denomination, the loss is frequently still greater. In Scotland, where the denomination of the coin has undergone much greater alterations than it ever did in England and in France, where it has undergone still greater than it ever did in Scotland, some ancient rents originally of considerable value have in this manner been reduced almost to nothing. Equal quantities of labor will at distant times be purchased more nearly with equal quantities of corn the subsistence of the laborer than with equal quantities of gold and silver or perhaps of any other commodity. Equal quantities of corn, therefore, will at distant times be more nearly of the same real value or enable the possessor to purchase or command more nearly the same quantity of the laborer of other people. They will do this, I say, more nearly than equal quantities of almost any other commodity for even equal quantities of corn will not do it exactly. The subsistence of the laborer or the real price of labor as I shall endeavor to show hereafter is very different upon different occasions. More liberal in a society advancing to opulence than in one that is standing still and in one that is standing still than in one that is going backwards. Every other commodity, however, will at any particular time purchase a greater or smaller quantity of labor in proportion to the quantity of subsistence which it can purchase at that time. A rent, therefore, reserved in corn is liable only to the variations in the quantity of labor which a certain quantity of corn can purchase. But a rent reserved in any other commodity is liable not only to the variations in the quantity of labor which any particular quantity of corn can purchase but to the variations in the quantity of corn which can be purchased by any particular quantity of that commodity. Though the real value of a corn rent it is to be observed, however, varies much less from century to century than that of a money rent it varies much more from year to year. The money price of labor as I shall endeavor to show hereafter does not fluctuate from year to year with the money price of corn but seems to be everywhere accommodated not to the temporary or occasional but to the average or ordinary price of that necessary of life. The average or ordinary price of corn again is regulated as I shall likewise endeavor to show hereafter by the value of silver by the richness or barrenness of the mines which supply the market with that metal or by the quantity of labor which must be employed and consequently of corn which must be consumed in order to bring any particular quantity of silver from the mine to the market. But the value of silver though it sometimes varies greatly from century to century seldom varies much from year to year but frequently continues the same or very nearly the same for half a century or a century together. The ordinary or average money price of corn therefore may during so long a period continue the same or very nearly the same too and along with it the money price of labor provided at least the society continues in other respects in the same or nearly in the same condition. In the meantime the temporary and occasional price of corn may frequently be double one year of what it had been the year before or fluctuate for example from 5 and 20 to 50 shillings the quarter. But when corn is at the latter price not only the nominal but the real value of a corn rent will be double of what it is when at the former or will command double the quantity either of labor or of the greater part of other commodities. The money price of labor and along with it that of most other things continue in the same during all these fluctuations. Labor therefore it appears evidently is the only universal as well as the only accurate measure of value or the only standard by which we can compare the values of different commodities at all times and at all places. We cannot estimate it is allowed the real value of different commodities from century to century by the quantities of silver which were given for them. We cannot estimate it from year to year by the quantities of corn. By the quantities of labor we can with the greatest accuracy estimate it both from century to century and from year to year. From century to century corn has a better measure than silver because from century to century equal quantities of corn will command the same quantity of labor more nearly than equal quantities of silver. From year to year on the contrary silver is a better measure than corn because equal quantities of it will more nearly command the same quantity of labor. But though in establishing perpetual rents or even in letting very long leases it may be of use to distinguish between real and nominal price. It is of none in buying and selling the more common and ordinary transactions of human life. At the same time and place the real and nominal price of all commodities are exactly in proportion to one another. The more or less money you get for any commodity in the London market for example the more or less labor it will at that time and place enable you to purchase or command. At the same time and place therefore money is the exact measure of the real exchangeable value of all commodities. Though at distant places there is no regular proportion between the real and the money price of commodities yet the merchant who carries goods from the one to the other has nothing to consider but the money price or the difference between the quantity of silver for which he buys them and that for which he is likely to sell them. Half an ounce of silver at Canton in China may command a greater quantity both of labor and of the necessaries and conveniences of life than an ounce at London. A commodity therefore which sells for half an ounce of silver at Canton may there be really dear of more real importance to the man who possesses it there than a commodity which sells for an ounce at London is to the man who possesses it at London. If a London merchant however can buy at Canton for half an ounce of silver a commodity which he can afterward sell at London for an ounce he gains a hundred percent by the bargain just as much as if an ounce of silver was at London exactly of the same value as at Canton. It is of no importance to him that half an ounce of silver at Canton would have given him the command of more labor and of a greater quantity of the necessaries and conveniences of life than an ounce can do at London. An ounce at London will always give him the command of double the quantity of all these which half an ounce could have done there and this is precisely what he wants. As it is the nominal or money price of goods therefore which finally determines the prudence or imprudence of all purchases and sales and thereby regulates almost the whole business of common life in which price is concerned we cannot wonder that it should have been so much more attended to than the real price. In such a work as this however it may sometimes be of use to compare the different real values of a particular commodity at different times and places or the different degrees of power over the labor of other people which it may upon different occasions have given to those who possessed it. We must in this case compare not so much the different quantities of silver for which it was commonly sold as the different quantities or labor which those different quantities of silver could have purchased. But the current prices of labor at distant times and places can scarce ever be known with any degree of exactness. Those of corn though they have in few places been regularly recorded are in general better known and have been more frequently taken notice of by historians and other writers. We must generally therefore consent ourselves with them not as being always exactly in the same proportion as the current prices of labor but as being the nearest approximation which can commonly be had to that proportion. I shall hereafter have occasion to make several comparisons of this kind. End of Book 1 Chapter 5 Part 1 Part 2 of Chapter 5 of Book 1 of The Wealth of Nations This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Stephen Escalera The Wealth of Nations by Adam Smith Part 2 of Chapter 5 of Book 1 of the real and nominal price of commodities or of their price in labor and their price in money. In the progress of industry commercial nations have found it convenient to coin several different metals into money. Gold for larger payments silver for purchases of moderate value and copper or some other coarse metal for those of still smaller consideration. They have always however considered one of those metals as more peculiarly the measure of value than any of the other two. And this preference seems generally to have been given to the metal which they happened first to make use of as the instrument of commerce. Having once begun to use it as their standard which they must have done when they had no other money they have generally continued to do so even when the necessity was not the same. The Romans are said to have had nothing but copper money till within five years before the First Punic War when they first began to coin silver. Copper therefore appears to have continued always the measure of value in that republic. At Rome all accounts appear to have been kept and the value of all estates to have been computed either in the asses or in Cesterti. The ass was always the denomination of a copper coin. The word Cestertius signifies two asses and a half. Though the Cestertius therefore was originally a silver coin its value was estimated in copper. At Rome one who owed a great deal of money was said to have a great deal of other people's copper. The northern nations who established themselves upon the ruins of the Roman Empire seemed to have had silver money from the first beginning of their settlements and not to have known either gold or copper coins for several ages thereafter. There were silver coins in England in the time of the Saxons but there was little gold coin till the time of Edward III nor any copper till that of James I of Great Britain. In England therefore and for the same reason I believe in all other modern nations of Europe all accounts are kept and the value of all goods and of all estates is generally computed in silver. And when we mean to express the amount of a person's fortune we seldom mention the number of guineys but the number of pound sterling which we suppose would be given for it. Originally in all countries I believe a legal tender of payment could be made only in the coin of that metal which was peculiarly considered as the standard or measure of value. In England gold was not considered as a legal tender for a long time after it was coined into money. The proportion between the values of gold and silver money was not fixed by any public law or proclamation but was left to be settled by the market. If a debtor offered payment in gold and the creditor might either reject such payment altogether or accept of it at such evaluation of the gold as he and his debtor could agree upon. Copper is not at present a legal tender except in the change of the smaller silver coins. In this state of things the distinction between the metal which was the standard and that which was not the standard was something more than a nominal distinction. In process of time and as people became gradually more familiar with the use of the different metals and coin and consequently better acquainted with the proportion between their respective values it has in most countries I believe been found convenient to ascertain this proportion and to declare by a public law that a guinea for example of such a weight and fineness should exchange for one and 20 shillings or be a legal tender for a debt of that amount. In this state of things and during the continuance of any one regulated proportion of this kind the distinction between the metal which is the standard and that which is not the standard becomes little more than a nominal distinction. In consequence of any change however in this regulated proportion this distinction becomes or at least seems to become something more than nominal again. If the regulated value of a guinea for example was either reduced to 20 or raised to two and 20 shillings all accounts being kept and almost all obligation for debt being expressed in silver money the greater part of payments could in either case be made with the same quantity of silver money as before but would require very different quantities of gold money a greater in the one case and a smaller in the other. Silver would appear to be more invariable in its value than gold. Silver would appear to measure the value of gold and gold would not appear to measure the value of silver. The value of gold would seem to depend upon the quantity of silver which it would exchange for and the value of silver would not seem to depend upon the quantity of gold which it would exchange for. This difference however would be altogether owe into the custom of keeping accounts and have expressed in the amount of all great and small sums rather in silver than in gold money. One of Mr. Drummond's notes for five and twenty or fifty guineas would after an alteration of this kind be still payable with five and twenty or fifty guineas in the same manner as before. It would after such an alteration be payable with the same quantity of gold as before but with very different quantities of silver. In the payment of such a note gold would appear to be more invariable in its value than silver. Gold would appear to measure the value of silver and silver would not appear to measure the value of gold. If the custom of keeping accounts and of expressing promissory notes and other obligations for money in this manner should ever become general gold and not silver would be considered as the metal which was peculiarly the standard or measure of value. In reality during the continuance of any one regulated proportion between the respective values of the different metals and coin the value of the most precious metal regulates the value of the whole coin. Twelve copper pints contain half a pound average depoys of copper of not the best quality which before it is coin is seldom worth seven pints in silver. But as by the regulation twelve such pints are ordered to exchange for a shilling they are in the market considered as worth a shilling and a shilling can in any time be had for them. Even before the late reformation of the gold coin of Great Britain the gold that part of it at least which circulated in London and its neighborhood was in general less degraded below its standard weight than the greater part of the silver. One and twenty worn and defaced shillings however were considered as equivalent to againy which perhaps indeed was worn and defaced too but seldom so much so. The late regulations have brought the gold coin as near perhaps to its standard weight as it is possible to bring the current coin of any nation and the order to receive no gold at the public offices but by weight is likely to preserve it so as long as that order is enforced. The silver coin still continues in the same worn and degraded state as before the reformation of the cold coin. In the market however one and twenty shillings of this degraded silver coin are still considered as worth a guinea of this excellent gold coin. The reformation of the gold coin has evidently raised the value of the silver coin which can be exchanged for it. In the English mint a pound weight of gold is coined into forty four guineas and a half which at one and twenty shillings the guinea is equal to forty six pounds fourteen shillings and six pence. An ounce of such gold coin therefore is where three pounds seventeen shillings and ten pence half penny in silver. In England no duty or seniorage is paid upon the coinage and he who carries a pound weight or an ounce weight of standard gold bullion to the mint gets back a pound weight or an ounce weight of gold and coin without any deduction. Three pounds seventeen shillings and ten pence half penny an ounce therefore is said to be the mint price of gold in England or the quantity of gold coin which the mint gives in return for standard gold bullion. Before the reformation of the gold coin the price of standard gold bullion in the market had for many years been upwards of three pounds eighteen shillings sometimes three pound nineteen shillings and very frequently four pounds an ounce. That sum it is probable in the worn and degraded gold coin seldom containing more than an ounce of standard gold. Since the reformation of the gold coin the market price of standard gold bullion seldom exceeds three pounds seventeen shillings seven pence an ounce. Before the reformation of the gold coin the market price was always more or less above the mint price. Since that reformation the market price has been constantly below the mint price. But that market price is the same whether it is paid in gold or in silver coin. The late reformation of the gold coin therefore has raised not only the value of the gold coin but likewise that of the silver coin in proportion to gold bullion and probably to in proportion to all other commodities. Though the price of the greater part of other commodities being influenced by so many other causes the rise in the value of either gold or silver coin in proportion to them may not be so distinct and sensible. In the English mint a pound weight of standard silver bullion is coined into 62 shillings containing in the same manner a pound weight of standard silver. Five shillings and two pence an ounce therefore is said to be the mint price of silver in England or the quantity of silver coin which the mint gives in return for standard silver bullion. Before the reformation of the gold coin the market price of standard silver bullion was upon different occasions five shillings in four pence five shillings in five pence five shillings in six pence five shillings in seven pence and very often five shillings in eight pence an ounce. Five shillings in seven pence however seems to have been the most common price. Since the reformation of the gold coin the market price of standard silver bullion has fallen occasionally to five shillings in three pence five shillings in four pence and five shillings in five pence an ounce which last price it has scarce ever exceeded. Though the market price of silver bullion has fallen considerably since the reformation of the gold coin it has not fallen so low as the mint price. In the proportion between the different medals in the English coin as copper is rated very much above its real value so silver is rated somewhat below it. In the market of Europe in the French coin and in the Dutch coin an ounce of fine gold exchanges for about 14 ounces of fine silver. In the English coin it exchanges for about 15 ounces that is for more silver than it is worth according to the common estimation of Europe. But as the price of copper and bars is not even in England raised by the high price of copper and English coin so the price of silver and bullion is not sunk by the low rate of silver and English coin. Silver and bullion still preserves its proper proportion to gold for the same reason that copper and bars preserves its proper proportion to silver. Upon the reformation of the silver coin in the reign of William III the price of silver bullion still continued to be somewhat above the mint price. Mr. Locke imputed this high price to the permission of exporting silver bullion and to the prohibition of exporting silver coin. This permission of exporting he said rendered the demand for silver bullion greater than the demand for silver coin. But the number of people who want silver coin for the common uses of buying and selling at home is surely much greater than that of those who want silver bullion either for the use of exportation or for any other use. There subsists at present a like permission of exporting gold bullion and a like prohibition of exporting gold coin. And yet the price of gold bullion has fallen below the mint price. But in the English coin silver was then in the same manner as now underrated in proportion to gold and the gold coin which at that time too was not supposed to require any reformation regulated then as well as now the real value of the whole coin. As the reformation of the silver coin did not then reduce the price of silver bullion to the mint price it is not very probable that a like reformation will do so now. Were the silver coin brought back as near to its standard weight as the gold againy it is probable would according to the present proportion exchange for more silver and coin than it would purchase in bullion. The silver coin containing its full standard weight there would in this case be a profit and melt in it down in order first to sell the bullion for gold coin and afterwards to exchange this gold coin for silver coin to be melted down in the same manner. Some alteration in the present proportion seems to be the only method of preventing this inconvenience. The inconvenience perhaps would be less if silver was rated in the coin as much above its proper proportion to gold as it is at present rated below it provided it was at the same time enacted that silver should not be a legal tender for more than the change of a guinea in the same manner as copper is not a legal tender for more than the change of a shilling. No creditor could in this case be cheated in consequence of the high valuation of silver and coin as no creditor can at present be cheated in consequence of the high valuation of copper. The bankers only would suffer by this regulation. When a run comes upon them they sometimes endeavor to gain time by paying in six pence and they would be precluded by this regulation from this discreditable method of evading immediate payment. They would be obliged in consequence to keep at all times in their coffers a greater quantity of cash than at present. And though this might no doubt be a considerable inconvenience to them it would at the same time be a considerable security to their creditors. Three pounds, seventeen shillings and ten pence half-penny, the mint price of gold certainly does not contain even in our present excellent gold coin more than an ounce of standard gold and it may be thought therefore should not purchase more standard bullion. But gold and coin is more convenient than gold and bullion and though in England the coinage is free yet the gold which is carried in bullion to the mint can seldom be returned in coin to the owner till after a delay of several weeks. In the present hurry of the mint it could not be returned till after a delay of several months. This delay is equivalent to a small duty and renders gold and coins somewhat more valuable than an equal quantity of gold and bullion. If in the English coin silver was rated according to its proper proportion to gold the price of silver bullion would probably fall below the mint price even without any reformation of the silver coin. The value even of the present worn in the face silver coin being regulated by the value of the excellent gold coin for which it can be changed. A small signurage or duty upon the coinage of both gold and silver would probably increase still more the superiority of those metals and coin above an equal quantity of either of them in bullion. The coinage would in this case increase the value of the metal coined in proportion to the extent of this small duty for the same reason that the fashion increases the value of plate in proportion to the price of that fashion. The superiority of coin above bullion would prevent the melting down of the coin and would discourage its exportation. If upon any public exigency it should become necessary to export the coin the greater part of it would soon return again of its own accord. Abroad it could sell only for its weight in bullion. At home it would buy more than that weight. There would be a profit therefore in bringing it home again. In France a signurage of about 8% is imposed upon the coinage and the French coin when exported is said to return home again of its own accord. The occasion fluctuations in the market price of gold and silver bullion arise from the same causes as the like fluctuations in that of all other commodities. The frequent loss of those metals from various accidents by sea and by land the continual waste of them in gilding and plating in lace and embroidery in the wear and tear of coin and in that of plate require in all countries which possess no minds of their own a continual importation in order to repair this loss and this waste. The merchant importers like all other merchants we may believe endeavor as well as they can to suit their occasional importations to what they judge is likely to be the immediate demand. With all their attention however they sometimes overdo the business and sometimes underdo it. When they import more bullion than is wanted rather than incur the risk and trouble of exporting it again they are sometimes willing to sell a part of it for something less than the ordinary or average price. When on the other hand they import less than as wanted they get something more than this price. But when under all those occasional fluctuations the market price either of gold or silver bullion continues for several years together steadily and constantly either more or less above or more or less below the mint price we may be assured that this steady and constant either superiority or inferiority of price is the effect of something in the state of the coin which at that time renders a certain quantity of coin either of more value or of less value than the precise quantity of bullion which it ought to contain. The constancy and steadiness of the effect supposes a proportional constancy and steadiness in the cause. The money of any particular country is at any particular time and place more or less an accurate measure or value according as the current coin is more or less exactly agreeable to its standard or contains more or less exactly the precise quantity of pure gold or pure silver which it ought to contain. If in England for example 44 guineas and a half contained exactly a pound weight of standard gold or 11 ounces of fine gold and one ounce of alloy the gold coin of England would be as accurate a measure of the actual value of goods at any particular time and place as the nature of the thing would admit. But if by rubbing and wearing 44 guineas and a half generally contain less than a pound weight of standard gold the diminution however being greater in some pieces than in others the measure of value comes to be liable to the same sort of uncertainty to which all other weights and measures are commonly exposed. As it rarely happens that these are exactly agreeable to their standard the merchant adjusts the price of his goods as well as he can. Not to what those weights and measures ought to be but to what upon an average he finds by experience they actually are. In consequence of a like disorder in the coin the price of goods comes in the same manner to be adjusted not to the quantity of pure gold or silver which the coin ought to contain but to that which upon an average it is found by experience it actually does contain. By the money price of goods it is to be observed I understand always the quantity of pure gold or silver for which they are sold without any regard to the denomination of the coin. Six shillings and eight pence for example in the time of Edward the first I consider as the same money price with a pound sterling in the present times because it contained as nearly as we can judge the same quantity of pure silver. End of Book 1 Chapter 5 Part 2 Chapter 6 of Book 1 of the Wealth of Nations This is a LibriVox recording. All LibriVox recordings are in the public domain. For more information or to volunteer please visit LibriVox.org Recording by Steven Escalera The Wealth of Nations by Adam Smith Chapter 6 of Book 1 of 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 labor 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 labor 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 labor should be worth double of what is usually the produce of one days or one hours labor. If the one species of labor should be more severe than the other some allowance will naturally be made for this superior hardship and the produce of one hours labor in the one way may frequently exchange for that of two hours labor and the other. Or if the one species of labor 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 sell them 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 labor 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 labor 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 labor belongs to the laborer and the quantity of labor commonly employed in acquiring or producing any commodity is the only circumstance which can regulate the quantity of labor 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 labor adds to the value of the materials. In exchanging the complete manufacturer either for money for labor 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 his adventure. The value which the workmen adds 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 of the 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 and may perhaps be thought are only a different name for the wages of a particular sort of labor. The labor 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 labor 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 the stock. Let us suppose for example that in some particular place where the common annual profits of manufacturing stock are 10% there are two different manufacturers in each of which 20 workmen are employed at the rate of 15 pounds a year each or at the expense 300 a year in each manufacturing. Let us suppose too that the course materials annually wrought up in the one cost only 700 pounds while the finer materials in the other cost 7,000. The capital annually employed in the one will in this case amount only to 1,000 pounds whereas that employed in the other will amount to 7,300 pounds. At the rate of 10% therefore the undertaker of the one will expect a yearly profit of about 100 pounds only while that of the other will expect about 730 pounds. But though their profits are so very different their labor of inspection and direction may be either altogether or very nearly the same. In many great works almost the whole labor of this kind is committed to some principle clerk. His wages properly express the value of this labor of inspection and direction. Though in settling them some regard is had commonly not only to his labor 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 labor 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 labor and regulated by quite different principles. In this state of things the whole produce of labor does not always belong to the laborer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labor 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 advance the wages and furnish the materials of that labor. 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 laborer only the trouble of gathering them come even to him to have an additional price fixed upon them. He must then pay for the license to gather them and must give up to the landlord a portion of what his labor 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 labor which they can each of them purchase or command. Labor measures the value not only of that part of price which resolves itself into labor 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 laborers in laboring 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 laboring cattle and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry such as a laboring horse is itself made up of the same time parts. The rent of the land upon which he is reared the labor of tending and rearing him and the profits of the farmer who advances both the rent of this land and the wages of this labor. 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 labor 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 labor 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 labor. 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 stressor 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 manufacturer 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 labor and the profits of stock and the still smaller number in which it consists altogether in the wages of labor. In the price of sea fish for example one part pays the labor 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 show 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 the land makes a part of the price of a salmon as well as weirs and profit. In some parts of Scotland a few poor people make a trade of gathering along seashore 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 labor. 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 labor 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 labor of every country taken complexly must resolve itself into the same three parts and be parceled out among different inhabitants of the country either as the wages of their labor the profits of their stock or the rent of their land. The whole of what is annually either collected or produced by the labor 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 labor from his stock or from his land. The revenue derived from labor 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 spin thrift 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 labor and partly from his stock. To him, land is only the instrument which enables him to earn the wages of this labor and to make the profits of the 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 immediately from the wages of labor 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 planners 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 plowmen, 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 laborers 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 laborer. 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 labor 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 labor only. Rent and profit contributing largely to that of the far greater part of them so the annual produce of its labor will always be sufficient to purchase or command a much greater quantity of labor than what was employed in raising, preparing, and bringing that produce to market. If the society were annually to employ all the labor which it can annually purchase as the quantity of labor would increase greatly every year so the produce of every succeeding year would be a 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. End of Book 1, Chapter 6