Category: The Wealth of Nations

From the introduction to Book 2:

Page 221: “In that rude state of society in which there is no division of labor, in which exchanges are seldom made, and in which every man provides every thing for himself, it is not necessary that any stock should be accumulated or stores up beforehand, in order to carry on the business of the society . . .  But when the division of labor has once been thoroughly introduced, the produce of man’s own labor can supply but a very small part of his occasional wants.  The far greater part of them are supplied by the produce of other men’s labor, which he purchases with the produce, or, what is the same thing, with the price of the produce of his own.”

On page 222: “As the accumulation of stock must, in the nature of things, be previous to the division of labor, so labor can be more and more subdivided in proportion only as stock is previously more and more accumulated.”  Actually, this isn’t strictly true–in practice it is more a dialectical process, where “accumulation of stock” and division of labor feed  on each other, each driving and adding to the other.  However, I don’t think this will have a significant effect on the understanding of the substance of the following five chapters.

He divides stock into fixed and circulating, according to how profit is realized from it.  For example:

Page 226: “The farmer makes his profit by keeping the laboring cattle, and by parting with their maintainance.”  So the cattle (eg, horse or oxen used for plowing) are fixed stock, and the feed for same are circulating stock.

Further down the page I found something interesting, though not directly related to the subject: “It consists in the stock of food, clothes, household furniture, &c, which have been purchased by their proper consumers, but which are not yet entirely consumed.” (emphasis added)  In other words, here, very possibly for the first time, is the observation that a commodity has not expanded its use-value until it is destroyed.

In any case, this chapter divides stock–of an individual or a nation–first in fixed and circulating.  He also divides it into stock that goes to maintain the person or nation (ie, food for the immediate future, lodging, cloathing), and stock which is intended to create a profit.

As he discusses the fixed stock of a nation, he says the following on page 228: “Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society.”  An important point, reminding me of Trotsky’s discussion of culture in the general sense–knowledge and technique acquired by a given society.  “Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs.”

Page 229: “Every fixed capital is both originally derived from, and requires to be continally supported by circulating capital.”  True and very important.  Later he discusses improvements in efficiency, ie, if a the amount necessary to maintain one’s capital can be reduced, this necessarily increases the profit, or the rent, or the amount available for wages.  Another thought springs from this:If, as Smith argues (and as seems irrefutable) any reduction in maintainance without reduction in produce is pure gain, and if, as Smith also insists on, all value comes from labor, then maintanance (as Marx would point out in a century) comes out of surplus value, the same place rent and profit comes from.

Page 230: “Thus the farmer annually replaces to the manufacturer the provisions which he had consumed and the materials which he had wrought up the year before; and the manufacturer replaces to the farmer the finished work which had wasted and worn out in the same time.  This is the real exchange that is aunnually made between those two orders of people, though it seldom happens that the rude produce of the one and the manufactured produce of the other, are directly bartered for one another . . .”  This is lovely, and very important.

Page 231: “It is the produce of land which draws the fish from the waters; and it is the produce of the surface of the earth which extracts the minerals from its bowels.”  Nice!

“In all countries where there is a tolerable security, every man of common understanding will endeavor to employ whatever stock he can command in producuring either present enjoyment or future profit.   If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption.  If it is employed in procuring future profit, it must procure this profit either by staying with him or by going from him.  In the one case it is a fixed, in the other it is a circulating capital.”

Page 216: “Every improvement in the circumstances of society tends either directly or indirectly to raise the real rent of the land, to increase the real wealth of the landlord, his power of purchasing labor, or the produce of the labor of other people.”

“All those improvements in the productive powers of labor, which tend directly to reduce the real price of manufactures, tend indirectly to raise the real rent of land.”

Page 217: Every increase in the real wealth of the society, every increase in the quantity of useful labor employed within it, tends indirectly to raise the real rent of land.”

“The whole annual produce of the land and labor of every country, or what comes to the samee thing, the whole price of that annual kproduce, naturally divides itself, it has already been observed, into three parts; the rent of land, the wages of labor, and the profits of stock; and constitutes a revenue to three different orders of people; to those who live by rent, to those who live by wages, and to those who live by profit.  There are the three great, original, and constituent orders of every civilized society, from whose revenue that of every other order is ultimately derived.”

He then discusses each of them, describing their characteristics: Of landlords, on page 218: “They are the only one of the three orders whose revenue costs them neither labor nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own.  That indolence, wich is the natural effect of the easy and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation.”

So, the spokesman of capital doesn’t think much of the holdovers from fuedalism.  No surprise there.  What does he think of workers?

“When this real wealth of the society becomes stationary, his wages are soon reduced to what is barely enough to enable him to bring up a family, or to continue the race of laborors [[Hey, Will, interesting use of “race,” no?]].  When the society declines, they fall even below this.  The order of proprietors may, j,perhaps, gain more by the prosperity of the society, than that of laborers; but ther eis no order that suffers so cruelly from its decline.  But though the interest of the laborer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understanding its connection with his own.  His condition leaves him no time to receive the necessary information, and his education and habits are commonly such as to render him unfit to judge even though he was fully informed.  In public deliberations, therefore, his voice is little heard and less regarded, except upon some particular occasions when his clamour is animated, set on, and supported by his employers, not for his, but their own particular purposes.”

I might note in passing that the Paris Commune marked the end of the time when the laborers voice would not be heard; but basically Smith makes a good case here.  What, then of the capitalists?  Is he about to explain how they are the ones we should all listen to?  I thought so.

Page 219: “Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his . . . to widen the market and to narrow the competition, is always the interest of the dealers.  To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it

Page 220: “The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.  It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deeive and even to oppress the public, and hwo accordingly have, upon many occasions, both deceived and oppressed it.”

What is interesting here is: Just who is the public, anyway?  He’s divided society into those who own land, those who own stock, and those who labor.  So, then, the public is…who?  If the overwhelming majority are those who labor, then that would seem to be the answer.

As for rent itself, he never showed a case where rent could be pulled from a place where there was no labor.  If there is labor, there is surplus value created by it; hence I think we can conclude that rent, like profit, is simply a way surplus value is divided.

Page 194: “In call new colones the great quantity of waste land, which can for many years be applied to no other purpose but the feeding of cattle, soon renders them extremely abundant, and in every thing great cheapness is the necessary consequence of great abundance.”

Page 197: “In the progress of improvement, the period at which every particular sort of animal food is dearest, must naturally be that which immediately precedes the general practice of cultivating land for the sake of raising it.”

He then discusses how certain animals (especially poultry and hogs) are at first raised purely on the excess, inedible byproducts of small farmers, until the increase in price made it profitable to grow things specifically for these animals to be raised.  “The great rise in the price of both hogs and poultry has in Great Britain been frequently imputed to the dimnution of the number of cottagers and other small occupiers of land; an event which has in every part of Europe been the immediate forerunner of improvement and better cultivation, but which at the same time may have contributed to raise the price of those articles…”

Page 208: “A market which, from requiring only one thousand, comes to require annually ten thousand ton of fish, can seldom be supplied without employing more than ten times teh quantity of labor which had before been sufficient to supply it.  The fish must generally be sought for at a great distance, large vessels must be employed, and more expensive machinery of every kind made use of.”  This especially grabbed my interest because here, for the first time (I think), he refers to requirements of the market. Let us remember that, before capitalism (ie, before a market economy), the notion of a market having requirements would have been absurd.  People had requirements, some of which (though very few) could be met at the market.  The raising of the market to its own independant force, abstracting it, if you will, from the people who make it up, is a fundamental feature of capitalism, and Smith must be given the credit for identifying it, even if he has not (yet at least) made this point explicitly.

On page 210 he discusses the value of precious metals, changing as more fertile mines are discovered or become exhausted.  “Its nominal value, the quantity of gold and silver by which this annual produce could be expressed or represented, would, no doubt, be very different; but its real value, the reaql quantity of labor which it could purchase or command, would be precisely the same.”

Page 211: “It is the natural effect of improvement, however, to diminish gradually the real price of almost all manufactures.”  Hints here of what Marx, in a hundred years, would call the the falling rate of profit.  “In consequence of better machinery, of greater dexterity, and of a more proper division and distribution of work, all of which are the natural effects of improvement, a much smaller quantity of labor becomes requisite for executing any particular piece of work; and though, in consequence of the flourishing circumstances of the society, the real price of labor should rise very considerably, yet the great diminution of the quantity will generally much more than compenstate the greatest rise which can happen in the price.”

Page 216: “It was not then the policy of Europe to restrain, by high huties, the importation of foreign manufactures, but rather to encourage it, in order that merchants might be enabled to supply, at as easy a rate as possible, the great men with the conveniences and luxuries which they wanted, and which the industry of their own country could not afford them.”  This is another important–very important–observation.  In fuedal monarchial society, providing goods to landlords was a higher prority than the profits of those who sold the goods.  When the State enters the service of capitalism, this is reversed, and the need for profit becomes the most important factor.

Continued in next part

Page 171: “Human food seems to be the only produce of land which always and necessarily affords some rent to the landlord.”

Page 172: “Land in its original rude state can afford the materials of cloathing and lodging to a much greater number of people than it can feed.”  I wonder if this is true of, for example, desert land.  I am inclined to think it is.

“In the present commercial state of the known world, the most barbarous nations, I believe, among whom land property is established, have some ferign commerice of this kind [in animal hides], and find among their wealthier neighbors such a demand for all the materials of cloathing, which their land produces, and which can neither be wrought up nor consumed at home, as raises their price above what it costs to send them to those wealthier neighbors.  It affords, therefore, some rent to the landlord.”  I would love to see documentation on this.  I may be wrong, but it certainly seems to me that nations in such a state as to produce such hides did not have land property established, and hence there were no landlords and no rent.  Maybe someone with better knowledge of history can correct me on this.

Page 174: “Countries are populous, not in proportion to the number of people whom their produce can cloath and lodge, but in proportion to that of those whom it can feed.”  It should be added the question of how many people land can feed is not only geographical, but also a function of technology, as he hints at below:

“But when by the improvement and cultivation of land the labor one family can provide food for two, the labor of half the society becomes sufficient to provide food for the whole.  The other h alf, therefore, or at least the greater part of them, can be employed in providing other things, or in satisfying the other wants and fancies of mankind . . . The rich man consumes no more food than his poor neighbor.  In quality it may be very different, and to select and prepare it may require more labor and art; but in quantity it is very nearly the same.  But compare the spacious palace and great warderobe of the one, with the hovel and the few rags of the other, and you will be sensible that the difference between their cloathing, lodging, and household furniture, is almost as great in quantity as in quality.”

Page 175: “The number of workmen increases with the inreasing quantity of food, or with the growing improvement and cultivation of the lands and as the nature of the their business admits of the utmost subdivisions of labor, the quantity of materials which they can work up, increases in a much greater proportion than their numbers.”

He gets into the economics of mining, to show that the fertiiliy of the most fertile mine determines the price for all of them, such that some can provide no rent, but must be worked by their owners if they are to show a profit.

Later he discusses precious metals and stones, observing that because of their high value relative to their weight, the effective market is the entire commercial world.

Page 183: “With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eye is never so complete as when they appear to posess those decisive marks of opulance which nobody can posess but themselves.”

Page 185: “Whatever increases the fertility of land in producing food increases not only the value of the lands upon which the improvement is bestowed, but contributes likewise to increase that of many other lands, by creating a new demand for their produce.  That abundance of food, of which, in consequence of the improvement of land, many people have the disposal beyond what they themselves can consume, is the great cause of the demand both for precious metals and the precious stones, as well as for every other conveniency and ornament of dress, lodging, household furniture, and equipage.”

Continued in next post

This chapter has been brutal.  When Smith separated profit as a special part of value I could understand him, even if I didn’t agree; but separating rent out confused me; I had to read this chapter several times.  I think I may have finally gotten somewhere; we’ll see if the conclusions I’ve drawn make any sense.

NOTE: I lost my copy of the book and had to get a new one.  From now on, page numbers refer to the Prometheus trade paperback edition, published in 1991, ISBN 978-0-87975-705-2.

Page 153: Rent is the highest the tennant can afford.  “The smallest share with which the tenant can tonent himself without being a loser…Whatever part of the produce, or, what is the same thing, whatever part of its price, is over and above this share, [the landlord] naturally endeavors to reserve to himself.”

He speaks of the ignorance of the landlord sometimes being a factor in setting the price–the ignorance of the landlord is something he returns to very strongly at the end of the chapter.

He defines this amount as the “natural rent of land” in much the same way that he considers there to be a certain “natural profit.”

Page 154: “The rent of land…is not at all proportioned to what the landlord may have laid out upon improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.”  And yet it is obvious that the farmer can afford to give more for improved land–Smith makes this observation later in the chapter.

Page 155: “High or low wages and profit, are the causes of high or low price; high or low rent is the effect of it.”  This is interesting indeed.  Does it hold up?  If we use Smith’s approach and consider the exchange value of a commodity to result from the labor necessary to produce it–and if we go further and accept his argument that rent is a special portion of that value, then it does make sense if a commodity is selling for a high price, the landlord will demand a high price for the land on which it is produced.  But that second “if” seems especially large to me.

Land, he says on page 156 (and I’m pretty sure he is limiting himself to agricultural land) “can always purchase such a quantity of labor as it can maintain” if not more.  In other words (I think) if you can grow enough corn on a given piece of land to support ten laborors, you can always exchange that corn for the wages to pay (at least) ten laborers.  If that is what he means, than I think it makes sense.  He says that it can usually produce more–providing something for profit, and something for rent.

His point here is that agricultural land can always bring in rent.

Further down he argues effectively that where agricultural land is placed (ie, how close to nearby markets) has a major effect on how much rent it can bring in.  This is obviously also a function of technology and infrastructure: “Good roads, canals, and navigable rivers, by diminishing the expense of carriage, put the remote parts of the country more nearly on a level with those in the neighborhood of the town.  They are upon that account the greatest of all improvements.”  He does not specifically mention this as being a function of technology, but it is obvious that improvement in engineering techniques play a major role in infrastructure.

A significant breakthrough in my own understanding came on page 162: “In a hop garden, a fruit garden, a kitchen garden, both the rent of the landlord, and profit of the farmer are generally greater than in a corn or grass field.  But to bring the ground into this condition requires more expense.  Hence a greater rent becomes due the landlord.”  This indicates strongly to me that in fact rent, like profit, has its source in surplus value, which in the end has its source in labor.

On page 165 he speaks of cases where the the quantity that can be produced is smaller than the demand, and that this will drive up the price; and then he adds, “the greater part of this excess naturally goes to the rent of the landlord.”  Here I’m confused: why?  It would seem that negotiation among farmer, landlord, and any labors, would determine where the excess goes.  What am I missing?

On page 166 he speaks of vinyards.  “For though such vinyards [that produce exceptionally valued wines] are in general more carefully cultivated than most others, the high price of the wine seems to be, not so much the effect, as the cause of this careful cultivation.”  To me, this seems over-simplified.  I would think it was both the cause and the effect–the one dialectically transforming into the other–as high price leads to better cultivation which leads to better wine which leads to higher price.

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