Chapter 6b

Rent, Wages, and Labor

by Adam Smith22 Icon

9 The real value of the parts of price is measured by the amount of labour which each part can purchase or command.

Labour measures the value that resolves itself into labour, rent, and profit.

10 The price of every commodity finally resolves itself into some or all of those three parts. In every improved society, all the three, more or less, become components of the price of most commodities.

11 For example, the price of wheat is composed ultimately of=

  • the rent of the landlord,
  • the wages of the labourers and labouring cattle employed, and
  • the profit of the farmer

A fourth part might be thought necessary for replacing=

  • the farmer’s stock, and
  • the wear and tear of his tools and labouring cattle.

But the price of the tools and labouring cattle is itself made up of the=

  • rent of the land it is reared on,
  • wages for the labour of tending and rearing the cattle, and
  • profits of the farmer who pays for these rent and wages.

Even if the price of the wheat pays for such wear and tear, its total price still resolves itself ultimately into rent, labour, and profit.

12 The price of flour includes:

  • the price of the wheat,
  • the profits of the miller, and
  • the wages of his workers.

The price of bread has:

  • the profits of the baker,
  • the wages of the baker’s workers, and
  • the price of the transportation which is made up of=
  • the wages of those who transport the wheat from the farmer to the miller to the baker, and
  • the profits of those who employ them

13 The price of flax has the same three parts as wheat.

The price of linen includes:

  • the wages of the flax-dresser, spinner, weaver, bleacher, etc., and
  • the profits of their respective employers.

14 The more a good is processed:

  • the less the rent makes up the price, and
  • the more profit and wages make up its price.

The number of profits increase. Every subsequent profit becomes greater because its capital becomes greater.

For example, the capital which employs weavers must be bigger than the capital which employs the spinners. The capital of the weavers=

  • pays the wages of the weavers, and
  • replaces the capital of the spinners with its profits.

These profits must always bear some proportion to the capital.

The Three Sources of Revenue From the Parts of Price

15 In the most improved societies, there are a few commodities with prices made up only of wages and profits.

There are even fewer commodities with their price made up only of wages. For example, the price saltwater fish has=

  • the wages of the fisherman,
  • the profits of the capital employed in fishery.

Rent makes a part of it only sometimes. On the other hand, the price of a salmon freshwater fish pays for river rent, wares, and profit. Poor people in Scotland gather Scotch pebbles from the seashore and sell them to the stone cutter. The price they get represents their wages.

16 The price of any commodity must have one, some, or all of those three parts.

Whatever remains after paying the rent and wages for the end product must be profit to somebody.

17 Since all commodities have these components, the whole produce of a society, taken complexly, must also resolve itself into the same three parts to be distributed among some its members as=

  • the wages of their labour,
  • the profits of their stock,
  • rent of their land.

Wages, profit, and rent, are the three original sources of all revenue and all exchangeable value.

All other revenue is ultimately derived from some one or other of these.

18 Wages are the revenue from labour.

Profits are the revenue derived from stock by the person who manages or employs it.

Interest is revenue derived from stock lent to another as money.

  • It is the compensation which the borrower pays to the lender for the profit he can make from using that money.
  • Part of that profit naturally belongs to the borrower.
    • He runs the risk and takes the trouble of employing it.
  • Part of that profit belongs to the lender.
    • He gives the borrower the opportunity of making this profit.

Interest is always a derivative revenue.

  • It is made up of profit gained from the use of the money.
  • If it does not earn a profit, it must earn a revenue from other sources, unless the borrower is a spendthrift who contracts a second debt to pay the interest of the first debt.

Rent is the revenue from land and belongs to the landlord. The farmer’s revenue is derived partly from his labour and partly from his stock. Land to him is only the instrument which enables his wages and profits. All taxes and all revenue founded on taxes, such as salaries, pensions, and annuities, are derived from wages, profits, or rent.

19 When wages, rent, and profits belong to different persons, they are readily distinguished.

But when they belong to different persons, they are sometimes confounded with one another.

20 Farmers who farm their own land, like the North American and West Indian planters, should earn both profits and rent by themselves.

They frequently confound rents with profits. We seldom hear the rent of a plantation, but frequently of its profit.

21 Common farmers frequently work directly on the farms they manage.

They seldom employ an overseer to manage their farms. After paying the rent, they should have enough crop remaining to= replace the stock employed, with ordinary profits serve as his wages both as farm worker and overseer In this case, his wages are mixed into his ordinary profits.

22 An independent manufacturer who works his own stock gains both wages and profits.

In this case, his wages are also mixed into his profits.

23 A gardener who cultivates his own garden combines the character of the landlord, farmer, and labourer.

His produce, therefore, should pay him rent, profit, and wages. In this case, his rent and profit revenues are mixed into his wages.

24 The price of most commodities in civilized countries are made up largely of rent and profits, instead of wages.

Thus, the annual produce of a country’s labour will always be sufficient to command much more labour than what was used to create that produce. If the country employed all the labour it could annually purchase, the quantity of labour would increase greatly every year.

The produce of every succeeding year would have vastly greater value than the year before. However, the idle people of every country consume much of it.

The value of a country’s produce will depend annually on how it is divided between the idle and the industrious.


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