Category: The Wealth of Nations

Page 424: “When manufactures have advanced to a certain pitch of greatness, the fabrication of the instruments of trade becomes itself the object of a great number of very important manufactures.”

Page 436: “To hurt in any degree the interest of any one order of citizens, for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects.”  Delightfully contradictory when one considers that, by using the terms “sovereign” and “subjects” one is, ipso facto, assuming inequality.

Page 444: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”   But the particular hallmark of capitalism–exactly what makes it capitalism and not something else–is production for exchange, rather than production for use.

Page 445: “A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers, all the good with which these could supply them.”  Ah, if only knew what the future held!

“It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to; and and among this latter class our merchants and manufacturers have been by far the principal architects.”

This chapter deals with colonies.  Smith begins by discussing ancient Greek and Roman colonies, in order to contrast them with the colonies of his day.  I don’t know enough history to be certain, but I get the feeling that the ancient colonies had nothing in common with the more modern ones except the name, so I’m not sure if the comparison is actually valid.  Smith, in any case, does not seem to be a big fan of colonialism.

Page 421: “Projects of mining, instead of replacing the capital employed in them, together with the ordinary profits of stock, commonly absorb both capital and profit.”  His point being that mining is risky, and therefore should not be especially encouraged by extraordinary laws lest it be harmful to the economy in general.

This chapter deals with treaties of commerce.  As one would expect, Smith wants as few restrictions on trade as possible, and makes a good case.

Page 410: “A direct foreign trade of consumption is always more advantageous than a round-about one; and to bring the same value of foreign goods to the home market, requires a much smaller capital in the one way than in the other.”  This brings up again the whole issue of whether transportation adds value, or whether, on the contrary, a portion of the surplus value must be used for transportation.  It makes a difference because, in the latter case, transportation reduces profit.  Smith is somewhat contradictory on the issue.  It may be that it is different in different cases: If I must pay to transport my corn twenty miles to market, whereas another farmer need only transport his two miles to the same market, I cannot charge more for my corn simply because it went further, hence the transportation reduces my profit.  Contrariwise, goods shipped from Japan to US markets must always have a certain markup compared to the price of the same item in Japan.  Interesting question.

p 392: “…every branch of trade in which the merchant can sell his goods for a price which replaces to him, with the ordinary profits of stock, the whole capital employed in preparing and sending them to market, can be carried on without a bounty.”

This is not the first time we’ve seen that phrase, “the ordinary profits of stock.”  But what, exactly, does it mean?  Smith appears to believe that, when money is productively invested, a certain amount of profit is natural and normal.  What determines this amount?  What is the percentage, and why?  For someone so precise in other things, this vagueness really stands out.  It goes back to his assertion, in Book 1, that the value of commodities comes from wages, rent, and profit.  In fact, that is how (most) of the value is divided after the sale, but it isn’t it’s source of the value.  There is no “ordinary profit of stock.”

Later, he makes another fundamental (thought perfectly understandable) error.  On page 397, speaking of corn (ie, grain), he says, “It regulates the money price of labour, which must always be such as to enable the labourer to purchase a quantity of corn sufficient to maintain him and his family either in the liberal, moderate, or scanty manner in which the advancing, stationary, or declining circumstances of the society oblige his employers to maintain him.”  And further down, “The money price of labour, and of everything that is the produce either of land or labour, must necessarily either rise or fall in proportion to the money price of corn.”

In other words, because grain is the staple food, it controls the price of labor, and the price of labor controls the value of commodities.  But even in his day, the cost or price of labor (wages), insofar as it was determined by the cost of necessaries the worker, was also determined by the price of wool, leather, furnishings, cotton, and all of the other things consumed by the worker.  Moreover, the value of a commodity is determined by the value of labor (measured in time), not the cost of labor.  Raising the value of basic necessities effectively lowers wages, but this does not change the value of those commodities (whether expressed in labor-time, money, or even grain).