WEALTH OF NATIONS BOOK I CHAPTER 6

 Components of Price

 

Of the Component Parts of the Price of Commodities

In a primitive society, where everybody worked and there were no owners of land and capital, everybody got full product of his labor.

 

IN that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another….

 In this state of things, the whole produce of labour belongs

to the labourer;

When capital and its owners exist then price must cover cost of used materials and value added by labor. However labor is paid only subsistence wage so some part of value added by labor becomes profit of the capitalist.

 

As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials.

In exchanging the complete manufacture ... over and above what may be sufficient to pay the price of the materials, and the wages of the workmen, something must be given for the profits of the undertaker of the work who hazards his stock in this adventure.

The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer ....

He could have no interest to employ them, unless he expected from the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one, unless his profits were to bear some proportion to the extent of his stock.

In this state of things, the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour.

If in addition to capital also land becomes privately owned, then value added by labor is divided in three components wage, profit and rent for the landlord.

 

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 real value of all the different component parts of

price, it must be observed, is measured by the quantity of labour

which they can, each of them, purchase or command. Labour

measures the value not only of that part of price which resolves

itself into labour, but of that which resolves itself into rent,

and of that which resolves itself into profit.   

 

The annual net product of the country is equal to value added by labor and is distributed into three sources of revenue: wages, profits and rent.

 

As the price or exchangeable value of every particular commodity, taken separately, resolves itself into some one or other or all of those three parts; so that of all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be parcelled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land. ... 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.

The total of rents and profits in the society is used for consumption of nonproductive people and for investment that cause economic growth.

 

     As in a civilised country there are but few commodities of which the exchangeable value arises from labour only, rent and profit contributing largely to that of the far greater part of them, so the annual produce of its labour will always be sufficient to purchase or command a much greater quantity of labour than what employed in raising, preparing, and bringing that produce to market. If the society were annually to employ all the labour which it can annually purchase, as the quantity of labour would increase greatly every year, so the produce of every succeeding year would be of vastly greater value than that of the foregoing. But there is no country in which the whole annual produce is employed in maintaining the industrious. The idle everywhere consume a great part of it; and according to the different proportions in which it is annually divided between those two different orders of people, its ordinary or average value must either annually increase, or diminish, or continue the same from one year to another.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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