Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 10d, Part 1: Creating equality in wages and profits
Chapter 10d, Part 1: Creating equality in wages and profits
Those five circumstances create inequalities in wages and profits.
- But they create equality when the advantages and disadvantages in employments are both taken into account.
- They balance out gains and losses.
To create this balance or equality, three things are needed on top of the most perfect freedom:
- 44The employments must be well known and long established in the neighbourhood
- 45Where all other circumstances are equal, wages are higher in new than in old trades.
- Before an entrepreneur establishes a new manufacture, he must at first entice workmen from other employments with higher wages
- A considerable time must pass before he can reduce them to the common level.
- Manufactures for products with ever-changing demand, arising from fashion and fancy, seldom last long.
- Manufactures for products with constant demand, arising from necessity, may continue for centuries.
- Wages are likely to be higher in manufactures of products with changing demand, than in those with constant demand.
- Birmingham deals chiefly with products of changing demand and are said to have higher wages than Sheffield which deals with products of constant demand.
- 46 The establishment of any new manufacture or branch of commerce or new agricultural practice, is always a speculation from an entrepreneur who desires extraordinary profits.
- These profits can be very great or very small.
- In general, their profits bear no regular proportion to those of other old trades in the neighbourhood.
- If the project succeeds, profits are commonly at first very high.
- When the trade becomes thoroughly established and well known, competition reduces them to the level of other trades.
- 47 This equality can take place only in the ordinary or natural state of those employments.
- 48 The demand for labour constantly changes.
- The demand and wages for country labour is greatest at hay-time and harvest.
- In wartime, when 40,000-50,000 sailors are forced from the merchant service into the navy, the demand for sailors in merchant ships rises.
- Their wages rise from a guinea and 27 shillings to 40 shillings and 3 pounds a month.
- In a decaying manufacture, many workmen are content with smaller wages rather than quit their old trade.
- 49 Profits vary with the price of the commodities in which stock is employed.
- Profits change as prices change relative to the ordinary rate.
- Some commodities are more liable to price variations than others.
- In manufactured commodities, the quantity of industry annually employed is regulated by the annual demand so that the average annual produce may be equal to the average annual consumption.
- In some employments, the same quantity of industry will always produce nearly the same quantity of commodities.
- In the linen or woollen manufactures, for example, the same number of workers will annually work up nearly the same quantity of linen and woollen cloth.
- The variations in the market price of such commodities can arise only from some accidental variation in the demand.
- A public mourning raises the price of black cloth.
- But the price of plain linen and woollen cloth is uniform because the demand is also uniform.
- There are other employments in which the same quantity of industry will not always produce the same quantity of commodities.
- An example is corn, wine, hops, sugar, tobacco, etc.
- The price of agricultural commodities,varies with the variations of demand and quantity produced.
- It is consequently extremely fluctuating.
- The profit of some of those dealers must fluctuate with the price of the commodities.
- Thus, there are many speculators in agricultural commodities.
- 50 This equality can take place only in the sole or principal employments of those who occupy them.
- 51 When a person derives his subsistence from an employment which can give him some free time, he is often willing to work at another for less wages than normal.
- 52 Cotters (or Cottagers) of Scotland were frequent some years ago.
- They are out-servants of the landlords and farmers.
- They receive from their master a house, a small garden for pot herbs, as much grass as will feed a cow, and, an acre or two of bad arable land.
- When their master needs their labour, he gives them an additional two pecks of oatmeal a week, worth about 16 pence sterling.
- He has no need for their labour during most of the year.
- The cultivation of their own small land is insufficient to keep them occupied.
- In the past, they were willing to work for anybody at a very small pay, even less than other labourers.
- In ancient times, they were common in Europe.
- In countries ill cultivated, with few people, most landlords and farmers could not provide themselves with many workers required by agricultural work during certain seasons.
- The low pay received by Cotters from their masters was not the whole price of their labour.
- Many authors who wrote about wages in ancient times thought them to be.
- Their small tenement made a big part of their pay.
- 53 The produce of Cotters' labour is cheaper than natural.
- Stockings in Scotland are knit much cheaper than the ones produced with the loom.
- They are made by servants who derive their principal subsistence from some other employment.
- More than a thousand pairs priced 5 to 7 pence a pair of Shetland stockings are annually imported into Leith.
- Learwick is the small capital of the Shetland islands
- 10 pence a day is a price of common labour there.
- People of those islands knit worsted stockings worth a guinea a pair or more.
- 54 The spinning of linen yarn in Scotland is done by servants who are chiefly hired for other purposes, in the same way as those who knit stockings.
- They earn very little.
- They do those trades to add to their livelihood.
- In most parts of Scotland, a good spinner can earn 20 pence a week.
The market of opulent countries is so extensive, that any one trade is sufficient to fully employ those who work in it.
- Instances of people living by one employment while deriving some little wage from another, occur chiefly in poor countries though it also happens in the capital of a very rich country.
- London has the most expensive house rent in Europe.
- It is also the only capital where apartment rent can be so cheap.
- Lodging is much cheaper in London than in Paris and Edinburgh
- The dearness of house-rent is the cause of the cheapness of lodging.
- The dearness of house-rent in London arises from:
- The dearness of labour
- The building materials which must be brought from far away
- Most of all, the dearness of ground-rent.
- Every landlord acts as a monopolist.
- He exacts a higher rent for a single acre of bad land in a town than can be had for a hundred of the best in the countryside
- The peculiar customs of the people which oblige every master of a family to hire a whole house from top to bottom.
- A dwelling-house in England means every thing contained under the same roof.
- In France, Scotland, and other European countries, it means a single story.
- A tradesman in London is obliged to hire a whole house where his customers live.
- His shop is on the ground-floor
- He and his family sleep in the attic.
- He pays a part of his house-rent by renting out the two middle stories to lodgers.
- He maintains his family by his trade, not by his lodgers.
- In Paris and Edinburgh, the people who rent out lodgings commonly have no other means of subsistence.
- The rent of the lodging must pay the rent of the house and the whole expence of the family.
Next: Chapter 10e: Part 2: Inequalities by Policy -- Apprenticeships