Page 91: “The produce of labour constitutes the natural recompence or wages of labor.” In other words, the “natural” or baseline value of labor is the amount that labor adds to the commodity. This is why Smith was forced to create profit as an independant part of the value of a commodity, and why he was unable to explain where it came from.
This becomes even more clear in the following paragraphs, where he observes that, originally, “whole produce of labor belonged to the laboror” and goes on to suggest that, had this continued, all things would have become cheaper as the productivity of labor increased. “They would have been produced by a smaller quantity of labor; and as the commodities produced by equal quantites of labor would naturally in this state of things be exchanged for one another, they would have been purchased likewise with the produce of a smaller quantity.”
It seems to me that Smith was a sharp observer, and he certainly had a luminous mind. Where he fails is in failure observe the effect of form (which is rather pleasing, since today it is so popular to concentrate exclusively on form and utterly ignore content). What I mean is, he makes sharp observation about the functions of a market economy, but fails when he tries to show that they applied to other forms of economy. The laws of commodity exchange no more apply to a fuedal-agrarian economy than the laws of astronomy apply to biological function; both are forms of matter in motion, but the laws of each must be learned independently.
Page 92: “As soon as land becomes private property, the landlord demands a share of almost all the produce which the laboror can raise or collect from it. His rent makes the first deduction from the produce of the labor which is employed upon land.” On the other hand, there are times he recognizes how the change in form affects content, so maybe I’m full of shit.
“In all arts and manufactures the greater part of the workmen stand in need of a master to advance the materials of their work, and their wages and maintenance till it be compleated. He shares in the produce of their labor or in the value which it adds.” (emphasis added) He then goes on to observe that it is possible for the workman and the master to be the same person, in which case enjoys the whoe produce of his labor, but points out that this is very rare.
He observes on page 94 that the interest of the master and laborer are by no means the same. In other words, they are each have an interest in getting as much as possible of the value the laborer adds. This underlines his skill as an observer, as he made this observation before the discovery of surplus value.
“We have no acts of parliament against combining to lower the price of work; but many against combining to raise it…in the long-run the workman may be as necessary to the master as the master is to him, but the necessity is not so immediate…We rarely hear, it has been said, of the combinations of masters, though frequenetly of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate.”
Page 95 on “combinations of laborers”: “They are desperate, and act with the folly and extravagance of desperate men, who must either starve or frighten their masters into an immediate compliance with their demands. The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against combinations of servants, laborers, and journeymen.”
On page 97 we get to something more daring and interesting: “When in any country the demand for (workers) is continually increasing…the workmen have no occasion to combine in order to raise their wages.” And, further, “The demand for those who lives by wages, it is evident, cannot increase but in proportion to the increase of the funds which are destined for the payment of wages.”
Yes and no. It seems that, yes, when the economy is rapidly expanding, it works to the advantage of the workman, in that he can command a higher price. But that is not the only way in which he can do so. History, after Smith’s time, showed that broad and determination combinations of workers can have drastic influence on the standard of living of the entire class, and can even force repeal of the most draconian of the anti-labor laws he refers to.
Nevertheless, he makes a strong, even a profound point. Page 98: “It is not the actual greatness of national wealth, but its continual increase, which occasions a rise in wages. It is not, accordingly, in the richest countries, but in the most thriving, or in those growing rich the fastest, that the wages of labor are highest.” Later economists would find other reasons why a given capitalist economy must be continually expanding; but Smith got there first.
Page 99: “The most decisive mark of the prosperity of any country is the increase of the number of its inhabitants.” Interest. Is this true? I can see his arguments, but I’m not convinced. Still, he is more nearly correct than Malthus.
Page 104: “The liberal reward of labor, therefore, as it is the necessary effect, so it is the necessary symptom of increasing national wealth.”
On page 105 he observes that the wages of labor do not necessarily fluctuate with the price of provisions. In other words, he asserts–quite correctly–the independence of the cost of labor and the value of labor. This hints at the discovery of labor-power.
Page 107: (comparing different levels of subsistence in England and Scotland) “This difference, however, in the mode of their subsistence is not the cause, but the effect, of the diference in their wages; though, by a strange misapprehension, I have frequently heard it represented as the cause. It is not because one man keeps a coach while his neighbor walks a-foot that the one is rich and the other poor, but because the one is rich he keeps a coach, and because the other is poor he walks a-foot.” Brilliant.
Page 111: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”
On page 114 he speaks of the benefits of to the capitalist of happy, rested, strong, and well-fed (in effect, well-paid) workmen. This reminds me very much of the arguments advance by antebellum apologists for slavery that it is in the masters interest to keep the slaves happy, rested, strong, and well-fed; and yet history shows that, generally speaking, it didn’t work out that way. Why not? In my opinion, because of competition, which, while it has many beneficial effects, also has profoundly destructive effects. Today, in the midst of the financial crisis, the impressionists are trying to convince us that the bankers who led us into this path were foolish, because they were not acting in their own long-term interests. They ignore the demands of competition. In the day to day life of the capitalist, profit does not come up all that often; instead the constant battles are: cash-flow, and market share. An investment banker in the last few years who acted “in his own long-term interests” was in danger of losing his market share, and thus his economic life, against competitors who were concentrating on short-term interests. That Smith didn’t see this is, in my opinion, through no fault of his own, but simply because, in the middle of the 18th Century, there the data wasn’t there to draw this conclusion. It wasn’t until the industrial revolution that these tendencies became plain.
Page 119: “The money price of labor is determined by what is requisite for purchasing (the necessaries and conveniences of life which must be given to the laborer).” True in part, but it ignores the social aspect of the question–the effect of those combinations of laborers that are successful. Smith can hardly be blamed for not seeing this, because he lived before such combinations became powerful; this, too, was a result of the industrial revolution.
Page 120: “The increase in the wages of labor necessarily increases the price of many commodities, by increaseing the part of it that resolves itself into wages…” This contradicts what he said earlier about the independence of the cost of labor and the value of labor. It is also contradicts observed data (though these data were scarce in Smith’s era). But I believe in the most backward bourgious economist no longer clings to the “wage-price spiral” that enjoyed a brief vogue in the 1970’s.