Labor Theory of Value
*Translator’s Note: These are mirrored by Book 1 Chapter 5 and Book 3 of The Wealth of Nations by Adam Smith
Everything in the world is purchased by labour. The only cause of our labour are our passions. When a nation abounds in manufactures and mechanic arts, the proprietors of land and the farmers study agriculture as a science. They redouble their industry and attention.
The superfluity from their labour is exchanged with manufactures now coveted by men’s luxury. Through this, land produces in excess of what is needed by its cultivators.
In peacetime, this superfluity maintains manufacturers and the improvers of liberal arts. But it is easy to convert these manufacturers into soldiers and maintain them by the superfluity from the labour of the farmers.
This happens in all civilized governments. A sovereign raises an army by imposing a tax which obliges everyone to cancel their unnecessary expenses. Those, who labour in such commodities, must either enlist in the troops, or turn themselves to agriculture. This obliges some labourers to enlist for lack of business.
Manufactures Add to Wealth by Storing Labor
Manufactures encrease the power of the state by allowing it to store up so much labour that the public needs, without depriving anyone of the necessaries of life.
The more labour, therefore, is employed beyond mere necessaries, the more powerful the state becomes since the persons in non-basic labour may easily be converted to the public service. A state without manufactures will have less labour available because all of it is spent on necessaries.
Thus, the sovereign’s greatness and the state’s happiness are united with regard to trade and manufactures.
The state should not force the labourer to toil to make the land produce more than what is needed by himself and his family. Instead, it should furnish him with manufactures and commodities so that he will do it by himself. Afterwards, it will be easy for the state to seize a part of his superfluous labour and employ it in the public service without compensating him. He will get used to industry and will think that this is less grievous, than if you forced him immediately to work for the public interest without compensation.
The more stock of labour is available, the more can be taken from the heap, without making any sensible alteration in it. The following are real riches and strength in any state:
- a public granary of grain,
- a storehouse of cloth,
- a magazine of arms
Trade and industry are really nothing but a stock of labour which, in peacetime, is employed for private satisfaction. In the exigencies of state, it can be turned to public uses.
In ancient times, people could convert a city into a kind of fortified camp and infuse into each breast:
- a martial genius and
- a passion for public good.
In this way, everyone was willing to undergo the greatest hardships for the public’s sake. These affections were enough to spur industry and support the community. It would then be advantageous to banish all arts and luxury like what is done in camps. This is done by restrictions on equipage and tables. These then make the provisions and forage last longer.
But such principles are too disinterested and unsustainable. Men are governed by other passions and animated with a spirit of avarice, industry, art and luxury. In such a case, the camp might be loaded with a superfluous retinue, but the provisions will flow in proportionably larger.
Commerce Adds to Wealth by Circulating Manufactures
This is how foreign commerce augments the state’s power, as well as the subject’s riches and happiness. Commerce encreases the stock of labour in the nation. The sovereign may convert this stock into whatever is necessary to the public service.
Importation furnishes materials for new manufactures. Exportation produces labour in particular commodities which could not be consumed at home.
A country that has a large foreign trade abounds more with industry, especially of the type employed on delicacies and luxuries, than a country with which is contented with its native commodities. It is, therefore, more powerful, richer, and happier.
This allows more labour to be stored up against any public exigency. More laborious men are maintained, who may be diverted to the public service, without robbing anyone of the necessaries of life.
In most nations, foreign trade came before the improvement of home manufactures and gave birth to domestic luxury.
There is a stronger temptation to use foreign commodities, which are new and ready for use, than to improve domestic commodities which always advance much slower and never affect us by their novelty. Exporting a superfluous local produce overseas which do not have them can produce a great profit. Foreign commerce rouses men from their indolence so that they can enjoy more luxuries than their ancestors.
The few merchants who know the secret of this importation and exportation make great profits. They become rivals in wealth to the ancient nobility, luring other adventurers to enter commerce. Imitation soon diffuses all those arts. The domestic manufactures emulate the foreign goods in their improvements. This improves local commodities to make them more competitive.
Their own steel and iron become equal to the gold and rubies of the Indies. After local manufacturing is improved, the nation can still continue to be great and powerful even if most of its foreign trade might be lost. In such a case, export manufacturing will shift towards local manufacturing.
China is one of the most flourishing empires in the world, even if it has very little foreign commerce. The increase in mechanical arts is advantageous by inreasing the number of people who benefit from its products.
The Dangers of Inequality
A too great disproportion among the citizens weakens any state. Every person should enjoy:
- the fruits of his labour
- full possession of all the necessaries
- many of the conveniencies of life.
Such an equality is most suitable to human nature. It:
- reduces the happiness of the rich much less than it adds to the happiness of the poor
- augments the power of the state
- makes any extraordinary taxes or impositions be paid with more chearfulness.
If riches are engrossed by a few, these few must answer for and supply the public necessities. In this case, these few will readily conspire to lay the whole burden on the poor, oppress them farther, and discourage all industry.
But when the riches are dispersed among many:
- the burden feels light on every shoulder,
- the taxes do not make much negative impact on the people’s way of living.
This is England’s great advantage over other nations. The English feel some disadvantages in foreign trade by the high price of labour, which is the effect of:
- the riches of their artisans,
- the plenty of money
But as foreign trade is not the most material circumstance, it is not to be put in competition with the happiness of so many millions.
And if there were no more to endear to them that free government under which they live, this alone were sufficient.
Democracy and Wealth
The poverty of the common people is a natural and infallible effect of absolute monarchy. But a liberty will not always give them riches. Liberty must be attended with particular accidents, and a certain turn of thinking, in order to make the common people wealthy.
Lord Bacon accounted the great advantages obtained by the English in their wars with France. He ascribes them chiefly to the superior ease and plenty of the English common people. Yet the government of the two was then pretty similar.
If labourers and artisans are used to work for low wages it is difficult for them, even in a free government, to better their condition, or heighten their wages.
But even where they are accustomed to a richer way of life, it is easy for the rich, in an arbitrary government, to conspire against them, and throw the burden of taxes on their shoulders.
The poverty of the common people in France, Italy, and Spain is due to the superior riches of the soil and climate. This makes agriculture easy. One man, with two sorry horses, can cultivate as much land to pay a considerable rent to the proprietor. As soon as it is exhausted, he leaves his ground fallow for a year. In the meantime, he depends on his landlord who gives no leases, nor fears that his land will be spoiled by the ill methods of cultivation.
In England, the land is rich but coarse. It must be cultivated at a great expence. It produces slender crops when not carefully managed, and by a method which gives not the full profit but in a course of several years.
An English farmer, therefore, must have a considerable stock and a long lease which beget proportional profits. The fine vineyards of Champagne and Burgundy often yield to the landlord over £500 per acre. These are cultivated by peasants who scarcely have bread. This is because such peasants need only their own limbs and tools which they can buy for 20 shillings.
The farmers are commonly in better circumstances in those countries. But the graziers are most at their ease of all those who cultivate the land. The reason is still the same.
Men must have profits proportional to their expence and hazard. If most of the labouring poor are very poor, the rest of society shares in their poverty whether the government is monarchical or republican.
Why are Tropical Countries Poor?
Why do people in tropical countries never attain art or civility, or reach any police in their government and military discipline? Why do most of those in temperate climates have these advantages?
The warmth and equality of weather in the tropics render clothes and houses less needed. This removes the necessity for industry and invention. With fewer goods or possessions, the fewer quarrels they have, the less their need for police or protection against foreign enemies or from each other.