Category: The Wealth of Nations

The chapter I’m working on now is the one about rent.  Smith’s analysis of rent is, in fact, what first led me to read this book and try to understand it, and this stuff is murder.  I’m working on it.  I’ll do a post when I’ve finished this read-through, but as of right now, I expect to conclude that I’m just as confused as when I started.

Um, so it looks like I won’t be getting back to work on Adam Smith right away; I appear to have left the book in Missoula, so I’ll have to wait until either I get the hotel to send it to me, or I buy another copy.  Ooops.

The discoveries of Newton were significant advances for his time.  Anyone today using Newton’s laws must be careful to consider where they may be applied, and where further developments of science have negated them.  When the science under consideration is political economy, then the state of the society in which the author wrote is a vital factor.  This section has brough this point very sharply to mind.  Here Smith is speaking of regulations that limit trade, and his obervations and conclusions are splendidly sharp (and, in some cases, more biting than he has been previously).  But if we forget that Smith was writing about the beginnings of market economy, and against the remnents of the the fuedal forms that held it back, confusion is the only possible result.

More precisely, Smith in this section argues against corporations by which, I believe, he refers to guilds in similar associations (in any case what he speaks against is not the corporation in the modern sense of the term) and against laws that protect them.  Page 164: “The exclusive privilege of an incorporated trade necessarily restrains the competition, in the town where it is established, to those who are free of the trade.”

He speaks out, in particular, against efforts to limit the number of apprentices in a trade.

On page 175, he speaks of husbandry as requiring more training and skill than nearly any other trade.  “The man who works upon brass and iron, works with instruments and upon materials of which the temper is always the same, or very nearly the same.  But the man who ploughs the ground with a team of horses or oxen, works with instruments of which the health, strength, and temper, are very different upon different occasions….The common ploughman, though generally regarded as the pattern of stupidity and ignorance, is seldom defective in this judgment and discretion.”

On page 177: “People of the same trade selcom meet together, even for merriment and diversion, but the conversation ends in a conspiricy against the public, or in some contrivance to raise prices.”  (It was especially pleasant to come across this after hearing Leonard Nimoy recite it in Civ IV so many times).

Page 178: “The pretence that coproations necessary for the better government of trade, is without any foundation.  The real and effectual discipline which is exercise3d over a workman, is not that of his corporation, but that of his customers.”  If I am correct that by corporation he refers to guilds; or perhaps to some special form of combinations of guilds, then this is makes perfect sense.

On page 182 he speaks of teaching.  “And this is still surely a more honorable, a more useful, and in general even a more profitable dmployment that that other of writing for a bookseller.”  Hee hee.  “Before the invention of the art of printing, a scholar and a beggar seem to have been terms very nearly synonymous.”

Page 185: “The statute of apprenticeship obstructs the free circulation of labor from employment to another, even in the same place.  The exclusive privileges of coporations obstruct it from one place to another, even in the same employment.”

Page 186: “Whatever obstructs the free circulation of labor from one employment to another, obstructs that of stock likewiwse; the quantity of stock which can be employed in any branch of business depending very much upon that of the labor which can be employed in it.”

Page 195: “Whenever the legistlature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters.  When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when it is in favour of the masters.”

Page 196: “When masters combine together in order to reduce the wages of their workmen, they commonly enter into a private bond or agreement, not to give more than a certain wage under a certain penalty.  Were the workmen to enter into a contrary combination of the same kind, not to accept of a certain wage under a certain penalty, the law would punish them very severely; and if it dealt impartially, it would treat the masters in the same manner.

In a given neighborhood, labor and stock tend toward equalibrium.  Page 138: “The whole of the advantages and disadvantages of the different employments of labor and stock must, in the same neighborhood, be either perfectly equal or continually tending to equality.”

He then discusses what he considers to be the five things that made up for differences in wages and profit in different trades: 1. The agreeableness of the employment 2. the easiness and cheapness of learning them 3. the constancy of employment 4. the degree of trust reposed in those who exercise them and 5. the likelihood of success in them.

Concerning the agreeableness of the employment he includes how easy it is, how clean it is, how honorable it is.  Page 140: “The most despicable of all employments, that of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever.”

Page 141: “Disagreeableness and disgrace affect the profits of stock in the same manner as the wages of labor.”  He mentions the keeping of an inn as being horrible work, requiring one to put up with all manner of discomforts.  “But there is scarce any common trade in which a small stock yields so great a profit.”  Times have changed, I think.

“When any expensive machine is erected, the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out upon it, with at least the ordinary profits.”  This is an important observation because implicit in it is the observation that just as a machine can transfer energy, or work, but not create it; so it can transfer value, but not create it.

Page 143: “All the different ways in which stock is commonly employed in great towns seem, in reality, to be almost equally easy and equally difficult to learn.”

Page 145: “The constancy or inconstancy of employment cannt affect the ordinary profits of stock in any particular trade.  Whether the stock is or is not constantly employed depends, not upon the trade, but upon the trader.”  I’m not sure what he means here, but I thinkby the trader he may mean the consumer.  If not, I’m lost.

In this section, he is making no distinction between the wages of those who create value and those who do not.  The weaver is lumped in with the lawyer, &c.  And, for the purpose of considering the factors that go to determine the worth of an individuals time, I think he is right to ignore that distinction.  He is also ignoring social pressures (I’m thinking above all of unions), but it seems clear that, in his days, these had little or no effect.

On page 149 he speaks how players (actors), opera-singers, opera-dancers, and so on receive high pay because of: “the rarity and beauty of the talents, and the discredit of employing them in this manner.”  He goes on to speculate that “Should the public opinion or prejudice ever alter with regard to such occupations, their pecuniary recompence would quickly diminish.”  In this, history seems to have proven him correct.

He then makes observations about lotteries, which he uses as an example of people’s tendency to over-estimate their expected good fortune, which he says accounts for people’s willingness to engage in occupations in which the expected reward is not worth the risk.  I like his observation on page 150: “Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets the nearer you approach to this certainty.”

Page 153: “The ordinary rate of profit [return on investment] always rises more or less with the risk…the most hazardous of all trades, that of a smuggler, though when the adventure succeeds it is likewise the most profitable, is the infallible road to bankruptcy.”

Page 154: “The difference between the earnings of a common laborer and those of a well emplo9yed lawyer or physician, is evidently much greater than that between the  ordinary profits in any two different branches of trade.”

On page 155: In discussing the markup made by apothecary, “The greater part of the apparent profit is real wages digused in the garb of profit.”  Very astute!  And a little later when he talks about retail and wholesale on page 156 he makes the same point: “The greater part of the apparent profit is, in this case too, real wages.”  What he is talking about (to put it into terms from a later age) is: the middle class, the petit bourgiousie–those who both own and work at the means of production, and his argument is that the money comes, above all, from the value his work adds to the raw materials.

Page 122: “The increase of stock, which raises wages, tends to lower profit.”  He explains this as due to competition, which makes sense.

Page 123: “It may be laid down as a maxim, that wherever a great deal can be made by the use of money, a great deal will commonly be given for the use of it.”  So that interest comes out of profit, and tends to follow profit.  “The progress of interest, therefore, may lead us to form some notion of the progress of profit.”

Discussion of historical trends in profit, comparison of interest in city and town England, Scotland, France, Holland.

Page 129: “A new colony must always for some time be more under-stocked in proportion to the extent of its territory, and more under-peopled in proportion to the extent of its stock, then the greater part of our countries.”

“A great stock, though with small profits, generally increases faster than a small stock with great profits.”  This makes sense, and will, at least in part, account for the general tendency for large corporations to swallow smaller ones.

On page 130 he discusses the expansion of capital into new territories and trades: “The stock of the country not being sufficient for the whole acquisitions present to teh different people among whom it is divided, is applies to those particular branches only which afford the greatest profit.”

Page 131: The dimunition of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labor, so it raises the profits of stock, and consequently the interest of money.”

Page 133: “When the law does not enforce the performance of contracts, it puts all borrowers nearly upon the same footing with bankrupts or people of doubtful in better regulated countries.”  This is very important!  The more capital becomes vital–that is, the more manufacturing expands–the more the power of the State is required to take a hand in private matters of manufacture.  In other words, capitalism will naturally require a larger, more sophisticated, and more complex State than earlier economic forms.

More on the interaction of the law (ie, the State) and interest: “When the law prohibits interest altogether, i;t does not prevent it.  Many people must borrow, and nobody will lend without such a consideration for the use of their money as is suitable, not only to what can be made by the use of it, but to the difficulty and danger of evading the law.  The high rate of interest among all Mahometan nations is accounted for by Montequieu not from their poverty, but partly from this, and partly from the difficulty of recovering the money.”

A bit of observation I like on page 135: “As a man of a civil profession seems awkward in a camp or a garrison, and is even in some danger of being dispised there, so does an idle man among men of business.”

Page 136: “In reality high profits tend much more to raise the price of work than high wages.”

Page 137: “Our merchants and master manufactures complain much of the bad effects of high wages on raising the price, and thereby lessening the sale of their goods both at home and abroad.  The say nothing concerning the bad effects of high profits.  They are silent with regard to the pernicious effects of their own gains.  They complain only of those of other people.”