Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 10f, Part 2: Profit and wage inequality from policy -- Corporations
Chapter 10f, Part 2: Profit and wage inequality from policy -- Corporations
72All corporations and most of corporation laws have been established to prevent this reduction of price by restraining that free competition which would most certainly occasion it.
This price reduction would lower wages and profit.
Only the town corporate's authority was needed to establish a corporation in ancient times.
In England, a charter from the king was necessary.
But this prerogative of the crown was to extort money from the subject, than for defending against oppressive monopolies.
The charter was readily granted upon paying a fine to the king.
Artificers or traders who incorporated into adulterine guilds without a charter, were obliged to pay an annual fine.
They were disfranchised but obliged to fine annually to the king for permission to exercise their usurped privileges.
The immediate inspection of all corporations and their by-laws, belonged to the town corporate where they were established.
Their discipline did not come from the king.
It came from that greater incorporation.
73 The government of towns corporate was in the hands of traders and artificers.
It was their interest to always keep it understocked with their own work.
Each class was eager to establish regulations for this purpose.
Each consented that every other class do the same.
Each was obliged to buy goods from every other class within the town at a higher price than usual.
In recompence, they were enabled to sell their own just as dearer.
None of them were losers by these regulations.
They were all great gainers in their dealings with the countryside.
Those dealings enriched every town.
74 Every town draws its whole subsistence from the countryside.
It pays for these in two ways:
By the manufacturing trade or by sending back some manufactured goods to the countryside.
The price of such goods is increased by the wages of the town's workmen and profits of their employers.
By the inland and foreign trade or by sending to the countryside some of the rude produce and manufactured goods of other provinces of the same country.
The price of such produce and goods are increased by the wages of the transporters and by the profits of the merchants who employ them.
Wages and profits make up the gain of both.
The regulations which unnaturally increase those wages and profits enable the town to buy more of the produce of the countryside's labour with fewer of the produce of the town's labour.
They give the town's traders and artificers an advantage over the landlords, farmers, and labourers in the countryside.
They break down that natural equality of commerce between them.
The whole produce of the labour of society is divided between the people of the town and those of the countryside.
By those regulations, a greater share of it is given to the town and a less to the countryside.
75 The amount of goods annually exported from the town is the price which it really pays for the materials it annually imports.
The dearer its exports, the cheaper its imports.
The industry of the town becomes more advantageous than that of the countryside.
76 Everywhere in Europe, the industry of towns is more advantageous than the industry of the countryside.
This is proven by a simple observation, without the need to enter into any computations:
In every European country, we find at least 100 people who grew rich from small beginnings by trade and manufactures or the industry of towns, for one who has done so by agriculture or the industry of the countryside.
Wages and profits must evidently be greater in towns than in the countryside.
Since stock and labour naturally seek the most advantageous employment, they naturally go to the town and desert the countryside as much as possible.
77 The townspeople, being collected into one place, can easily combine.
The most insignificant trades in towns have been incorporated.
The symptoms of the corporation spirit are:
the jealousy of strangers
the aversion to take apprentices
the aversion to communicate the secret of their trade
Such spirit prevails in insignificant trades.
It teaches them, by voluntary associations and agreements, to prevent that free competition which their by-laws cannot prohibit.
The trades with a few workers easily encounter such combinations.
Half a dozen wool-combers might be necessary to keep 1,000 spinners and weavers at work.
If those wool-combers combine not to take apprentices, they can:
engross the employment
reduce the whole manufacture into slavery to themselves
raise the price of their labour unnaturally.
78 The people of the countryside are dispersed in distant places and cannot easily combine.
They have never been incorporated.
The corporation spirit never has prevailed among them.
Husbandry is the great trade of the countryside.
No apprenticeship was ever necessary for husbandry.
Husbandry may require nearly as much knowledge and experience as the fine arts and the liberal professions.
The innumerable writings about husbandry in all languages proves it was never an easy subject even among the most learned nations.
Those writings have so much knowledge of complicated operations known by the common farmer, despite some authors speaking against farmers contemptuously.
On the contrary, all the operations of the most common mechanic trade can be completely explained in a pamphlet of very few pages.
They can be explained by figures and illustrations.
In the history of the arts, now publishing by the French academy of sciences, several of them are actually explained this way.
Operations which vary with the weather and other accidents require much more judgement and discretion than those which are always the same.
79 Many inferior branches of country labour require much more skill and experience than most of the mechanic trades.
A mechanic works with tools and materials of the same temper.
A country labourer who ploughs the ground with horses or oxen, work with tools of very different health, strength, and temper.
The condition of his materials are as variable as his instruments.
Both require to be managed with much judgement and discretion which the common ploughman has.
He is generally regarded with stupidity and ignorance.
He is less accustomed to social intercourse than the mechanic who lives in a town.
His voice and language are more uncouth and more difficult to understand.
He understands a greater variety of objects than the mechanic.
The mechanic performs a few very simple operations all day.
The superiority of the lower ranks of people in the countryside over those of the town, is known to everyone who has conversed much with both.
In China and India, both the rank and the wages of country labourers are superior to those of most artificers and manufacturers.
They would probably be so everywhere, if corporation laws and the corporation spirit did not prevent it.
80 Aside from corporations and corporation laws, other regulations cause the superiority of the industry of the towns over the industry of the countryside in Europe.
The high duties imported goods add to this superiority.
Corporation laws raise prices without the fear of being under-sold by their own countrymen.
Duties secure them equally against the industry of foreigners.
The enhancement of price by corporation laws and high duties are finally paid by the landlords, farmers, and labourers of the countryside, who have seldom opposed such monopolies.
They do not have the inclination nor fitness to combine.
They are easily persuaded by the clamour and sophistry of merchants and manufacturers that the latter's interests are the general interest of the whole society.
81 In Great Britain, the superiority of the industry of the towns were greater in the beginning of the present century.
Currently, agricultural wages are nearer to those of manufacturing wages.
Agricultural profits are nearer to those of trading and manufacturing stock.
This change was caused by the extraordinary encouragement given to the industry of the towns.
In time, the stock accumulated in towns becomes so great that it can no longer be employed with the ancient profit in the same industry.
That industry has its limits like every other.
The increase of stock, by increasing the competition, necessarily reduces the profit.
The lowering of profits in the town forces stock out to the countryside.
It creates a new demand for country labour and raises its wages.
It then spreads itself over the land.
The expense originally from the town, is then employed in agriculture and partly restored to the countryside.
I shall show that everywhere in Europe, the greatest improvements of the countryside was caused by such overflowings of the stock originally accumulated in towns.
Although some countries have attained opulence, this attainment is:
necessarily slow and uncertain
liable to be disturbed and interrupted by many accidents
contrary to nature and reason
Book 4 explains the interests, prejudices, laws and customs which have caused it.
82 People of the same trade seldom meet together
But when they do, they conspire against the public to raise prices.
It is impossible to prevent such meetings by any law.
The law should do nothing to facilitate such assemblies; much less to render them necessary.
83 A regulation which obliges all those of the same trade to enter their names and addresses in a public register, facilitates such assemblies.
It connects individuals who might never otherwise be known to one another
It allows every man of the trade to find every other man of it.
84 A regulation which enables people of the same trade to tax themselves in order to provide for their poor, sick, widows and orphans renders such assemblies necessary.
Because it gives them a common interest to manage.
85 An incorporation renders assemblies necessary.
It makes the act of the majority binding on the whole.
In a free trade, a combination cannot be established except through the unanimous consent of every single trader.
It can only last until a single trader changes his mind.
A corporation's by-laws can limit competition more effectively and more durably than any voluntary combination.
86The pretence that corporations are necessary for the better government of trade has no foundation.
The real discipline exercised over a worker is not from his corporation, but from his customers.
He fears losing their employment.
This fear restrains his frauds and corrects his negligence.
An exclusive corporation weakens this discipline.
Let workers behave well or ill.
This is why no tolerable workers can be found in large incorporated towns, even in the most necessary trades.
Good work can be expected in the suburbs where workers have no exclusive privilege.
They only have their character to depend on.
You must then smuggle it into the town as well as you can.
87 This is how the the policy of Europe restrains the competition in some employments.
It creates a very important inequality in the employments of labour and stock.