An inquiry into the nature and causes of the wealth of

76

The Wealth of Nations

lished with so much parade, and from which our merchants and

manufacturers would often vainly pretend to announce the pros-

perity or declension of the greatest empires.

Through the variations in the price of labour not only do not

always correspond with those in the price of provisions, but are

frequently quite opposite, we must not, upon this account, imag-

ine that the price of provisions has no influence upon that of labour.

The money price of labour is necessarily regulated by two circum-

stances; the demand for labour, and the price of the necessaries

and conveniencies of life. The demand for labour, according as it

happens to be increasing, stationary, or declining, or to require an

increasing, stationary, or declining population, determines the

quantities of the necessaries and conveniencies of life which must

be given to the labourer; and the money price of labour is deter-

mined by what is requisite for purchasing this quantity. Though

the money price of labour, therefore, is sometimes high where the

price of provisions is low, it would be still higher, the demand

continuing the same, if the price of provisions was high.

It is because the demand for labour increases in years of sudden

and extraordinary plenty, and diminishes in those of sudden and

extraordinary scarcity, that the money price of labour sometimes

rises in the one, and sinks in the other.

In a year of sudden and extraordinary plenty, there are funds in

the hands of many of the employers of industry, sufficient to main-

tain and employ a greater number of industrious people than had

been employed the year before; and this extraordinary number

cannot always be had. Those masters, therefore, who want more

workmen, bid against one another, in order to get them, which

sometimes raises both the real and the money price of their labour.

The contrary of this happens in a year of sudden and extraordi-

nary scarcity. The funds destined for employing industry are less

than they had been the year before. A considerable number of

people are thrown out of employment, who bid one against an-

other, in order to get it, which sometimes lowers both the real and

the money price of labour. In 1740, a year of extraordinary scar-

city, many people were willing to work for bare subsistence. In the

succeeding years of plenty, it was more difficult to get labourers

and servants. The scarcity of a dear year, by diminishing the de-

mand for labour, tends to lower its price, as the high price of pro-

visions tends to raise it. The plenty of a cheap year, on the con-

trary, by increasing the demand, tends to raise the price of labour,

as the cheapness of provisions tends to lower it. In the ordinary

variations of the prices of provisions, those two opposite causes

seem to counterbalance one another, which is probably, in part,

the reason why the wages of labour are everywhere so much more

steady and permanent than the price of provisions.

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77

Adam Smith

The increase in the wages of labour necessarily increases the

price of many commodities, by increasing that part of it which

resolves itself into wages, and so far tends to diminish their con-

sumption, both at home and abroad. The same cause, however,

which raises the wages of labour, the increase of stock, tends to

increase its productive powers, and to make a smaller quantity of

labour produce a greater quantity of work. The owner of the stock

which employs a great number of labourers necessarily endeavours,

for his own advantage, to make such a proper division and distri-

bution of employment, that they may be enabled to produce the

greatest quantity of work possible. For the same reason, he

endeavours to supply them with the best machinery which either

he or they can think of. What takes place among the labourers in

a particular workhouse, takes place, for the same reason, among

those of a great society. The greater their number, the more they

naturally divide themselves into different classes and subdivisions

of employments. More heads are occupied in inventing the most

proper machinery for executing the work of each, and it is, there-

fore, more likely to be invented. There me many commodities,

therefore, which, in consequence of these improvements, come to

be produced by so much less labour than before, that the increase

of its price is more than compensated by the diminution of its

quantity.

CHAPTER IX

CHAPTER IX

CHAPTER IX

CHAPTER IX

CHAPTER IX

OF 

OF 

OF 

OF 

OF THE PR

THE PR

THE PR

THE PR

THE PROFIT

OFIT

OFIT

OFIT

OFITS OF ST

S OF ST

S OF ST

S OF ST

S OF STOCK

OCK

OCK

OCK

OCK

T

HE

 

RISE

 

AND

 

FALL

 in the profits of stock depend upon the same

causes with the rise and fall in the wages of labour, the increasing

or declining state of the wealth of the society; but those causes

affect the one and the other very differently.

The increase of stock, which raises wages, tends to lower profit.

When the stocks of many rich merchants are turned into the same

trade, their mutual competition naturally tends to lower its profit;

and when there is a like increase of stock in all the different trades

carried on in the same society, the same competition must pro-

duce the same effect in them all.

It is not easy, it has already been observed, to ascertain what are

the average wages of labour, even in a particular place, and at a

particular time. We can, even in this case, seldom determine more

than what are the most usual wages. But even this can seldom be

done with regard to the profits of stock. Profit is so very fluctuat-

ing, that the person who carries on a particular trade, cannot al-

ways tell you himself what is the average of his annual profit. It is

affected, not only by every variation of price in the commodities

which he deals in, but by the good or bad fortune both of his

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