Most Viewed Of Drawbacks
That The Division Of Labour Is Limited By The Extent Of The Market
Conclusion Of The Mercantile System
Of The Wages Of Labour
Of The Extraordinary Restraints Upon The Importation Of Goods Of Almost All Kinds
Of The Rent Of Land
Of The Rise And Progress Of Cities And Towns After The Fall Of The Roman Empire
Of Wages And Profit In The Different Employments Of Labour And Stock
Introduction To Stock Theory
Of The Agricultural Systems Or Of Those Systems Of Political Economy Which Represent The Produce Of Land
Of The Component Part Of The Price Of Commodities
How The Commerce Of Towns Contributed To The Improvement Of The Country
Of The Different Employments Of Capitals
Of The Principle Which Gives Occasion To The Division Of Labour
Of The Profits Of Stock
Of Money Considered As A Particular Branch Of The General Stock Of The Society
Of The Division Of Stock
Of The Natural And Market Price Of Commodities
There is in every society or neighbourhood an ordinary or average rate,
both of wages and profit, in every different employment of labour and
stock. This rate is naturally regulated, as I shall shew hereafter,
partly by the general circumstances of the society, their riches or
poverty, their advancing, stationary, or declining condition, and partly
by the particular nature of each employment.
There is likewise in every society or neighbourhood an ordinary
or average rate of rent, which is regulated, too, as I shall shew
hereafter, partly by the general circumstances of the society or
neighbourhood in which the land is situated, and partly by the natural
or improved fertility of the land.
These ordinary or average rates may be called the natural rates of
wages, profit and rent, at the time and place in which they commonly
When the price of any commodity is neither more nor less than what is
sufficient to pay the rent of the land, the wages of the labour, and the
profits of the stock employed in raising, preparing, and bringing it to
market, according to their natural rates, the commodity is then sold for
what may be called its natural price.
The commodity is then sold precisely for what it is worth, or for what
it really costs the person who brings it to market; for though, in
common language, what is called the prime cost of any commodity does not
comprehend the profit of the person who is to sell it again, yet, if he
sells it at a price which does not allow him the ordinary rate of profit
in his neighbourhood, he is evidently a loser by the trade; since, by
employing his stock in some other way, he might have made that profit.
His profit, besides, is his revenue, the proper fund of his subsistence.
As, while he is preparing and bringing the goods to market, he advances
to his workmen their wages, or their subsistence; so he advances to
himself, in the same manner, his own subsistence, which is generally
suitable to the profit which he may reasonably expect from the sale of
his goods. Unless they yield him this profit, therefore, they do not
repay him what they may very properly be said to have really cost him.
Though the price, therefore, which leaves him this profit, is not always
the lowest at which a dealer may sometimes sell his goods, it is the
lowest at which he is likely to sell them for any considerable time; at
least where there is perfect liberty, or where he may change his trade
as often as he pleases.
The actual price at which any commodity is commonly sold, is called its
market price. It may either be above, or below, or exactly the same with
its natural price.
The market price of every particular commodity is regulated by the
proportion between the quantity which is actually brought to market,
and the demand of those who are willing to pay the natural price of the
commodity, or the whole value of the rent, labour, and profit, which
must be paid in order to bring it thither. Such people may be called
the effectual demanders, and their demand the effectual demand; since it
maybe sufficient to effectuate the bringing of the commodity to market.
It is different from the absolute demand. A very poor man may be said,
in some sense, to have a demand for a coach and six; he might like to
have it; but his demand is not an effectual demand, as the commodity can
never be brought to market in order to satisfy it.
When the quantity of any commodity which is brought to market falls
short of the effectual demand, all those who are willing to pay the
whole value of the rent, wages, and profit, which must be paid in order
to bring it thither, cannot be supplied with the quantity which they
want. Rather than want it altogether, some of them will be willing to
give more. A competition will immediately begin among them, and the
market price will rise more or less above the natural price, according
as either the greatness of the deficiency, or the wealth and wanton
luxury of the competitors, happen to animate more or less the eagerness
of the competition. Among competitors of equal wealth and luxury,
the same deficiency will generally occasion a more or less eager
competition, according as the acquisition of the commodity happens to
be of more or less importance to them. Hence the exorbitant price of the
necessaries of life during the blockade of a town, or in a famine.
When the quantity brought to market exceeds the effectual demand, it
cannot be all sold to those who are willing to pay the whole value of
the rent, wages, and profit, which must be paid in order to bring it
thither. Some part must be sold to those who are willing to pay less,
and the low price which they give for it must reduce the price of the
whole. The market price will sink more or less below the natural price,
according as the greatness of the excess increases more or less the
competition of the sellers, or according as it happens to be more or
less important to them to get immediately rid of the commodity. The same
excess in the importation of perishable, will occasion a much greater
competition than in that of durable commodities; in the importation of
oranges, for example, than in that of old iron.
When the quantity brought to market is just sufficient to supply the
effectual demand, and no more, the market price naturally comes to be
either exactly, or as nearly as can be judged of, the same with the
natural price. The whole quantity upon hand can be disposed of for
this price, and can not be disposed of for more. The competition of the
different dealers obliges them all to accept of this price, but does not
oblige them to accept of less.
The quantity of every commodity brought to market naturally suits itself
to the effectual demand. It is the interest of all those who employ
their land, labour, or stock, in bringing any commodity to market, that
the quantity never should exceed the effectual demand; and it is the
interest of all other people that it never should fall short of that
If at any time it exceeds the effectual demand, some of the component
parts of its price must be paid below their natural rate. If it is rent,
the interest of the landlords will immediately prompt them to withdraw
a part of their land; and if it is wages or profit, the interest of the
labourers in the one case, and of their employers in the other, will
prompt them to withdraw a part of their labour or stock, from this
employment. The quantity brought to market will soon be no more than
sufficient to supply the effectual demand. All the different parts of
its price will rise to their natural rate, and the whole price to its
If, on the contrary, the quantity brought to market should at any time
fall short of the effectual demand, some of the component parts of its
price must rise above their natural rate. If it is rent, the interest of
all other landlords will naturally prompt them to prepare more land for
the raising of this commodity; if it is wages or profit, the interest
of all other labourers and dealers will soon prompt them to employ more
labour and stock in preparing and bringing it to market. The quantity
brought thither will soon be sufficient to supply the effectual demand.
All the different parts of its price will soon sink to their natural
rate, and the whole price to its natural price.
The natural price, therefore, is, as it were, the central price,
to which the prices of all commodities are continually gravitating.
Different accidents may sometimes keep them suspended a good deal above
it, and sometimes force them down even somewhat below it. But whatever
may be the obstacles which hinder them from settling in this centre of
repose and continuance, they are constantly tending towards it.
The whole quantity of industry annually employed in order to bring
any commodity to market, naturally suits itself in this manner to the
effectual demand. It naturally aims at bringing always that precise
quantity thither which may be sufficient to supply, and no more than
supply, that demand.
But, in some employments, the same quantity of industry will, in
different years, produce very different quantities of commodities;
while, in others, it will produce always the same, or very nearly the
same. The same number of labourers in husbandry will, in different
years, produce very different quantities of corn, wine, oil, hops, etc.
But the same number of spinners or weavers will every year produce the
same, or very nearly the same, quantity of linen and woollen cloth. It
is only the average produce of the one species of industry which can
be suited, in any respect, to the effectual demand; and as its actual
produce is frequently much greater, and frequently much less, than its
average produce, the quantity of the commodities brought to market will
sometimes exceed a good deal, and sometimes fall short a good deal,
of the effectual demand. Even though that demand, therefore, should
continue always the same, their market price will be liable to great
fluctuations, will sometimes fall a good deal below, and sometimes
rise a good deal above, their natural price. In the other species of
industry, the produce of equal quantities of labour being always the
same, or very nearly the same, it can be more exactly suited to the
effectual demand. While that demand continues the same, therefore, the
market price of the commodities is likely to do so too, and to be either
altogether, or as nearly as can be judged of, the same with the natural
price. That the price of linen and woollen cloth is liable neither to
such frequent, nor to such great variations, as the price of corn,
every man's experience will inform him. The price of the one species of
commodities varies only with the variations in the demand; that of the
other varies not only with the variations in the demand, but with the
much greater, and more frequent, variations in the quantity of what is
brought to market, in order to supply that demand.
The occasional and temporary fluctuations in the market price of any
commodity fall chiefly upon those parts of its price which resolve
themselves into wages and profit. That part which resolves itself into
rent is less affected by them. A rent certain in money is not in the
least affected by them, either in its rate or in its value. A rent which
consists either in a certain proportion, or in a certain quantity, of
the rude produce, is no doubt affected in its yearly value by all the
occasional and temporary fluctuations in the market price of that
rude produce; but it is seldom affected by them in its yearly rate.
In settling the terms of the lease, the landlord and farmer endeavour,
according to their best judgment, to adjust that rate, not to the
temporary and occasional, but to the average and ordinary price of the
Such fluctuations affect both the value and the rate, either of wages or
of profit, according as the market happens to be either overstocked or
understocked with commodities or with labour, with work done, or with
work to be done. A public mourning raises the price of black cloth
( with which the market is almost always understocked upon such
occasions), and augments the profits of the merchants who possess any
considerable quantity of it. It has no effect upon the wages of the
weavers. The market is understocked with commodities, not with labour,
with work done, not with work to be done. It raises the wages of
journeymen tailors. The market is here understocked with labour. There
is an effectual demand for more labour, for more work to be done, than
can be had. It sinks the price of coloured silks and cloths, and thereby
reduces the profits of the merchants who have any considerable quantity
of them upon hand. It sinks, too, the wages of the workmen employed
in preparing such commodities, for which all demand is stopped for six
months, perhaps for a twelvemonth. The market is here overstocked both
with commodities and with labour.
But though the market price of every particular commodity is in this
manner continually gravitating, if one may say so, towards the natural
price; yet sometimes particular accidents, sometimes natural causes, and
sometimes particular regulations of policy, may, in many commodities,
keep up the market price, for a long time together, a good deal above
the natural price.
When, by an increase in the effectual demand, the market price of some
particular commodity happens to rise a good deal above the natural
price, those who employ their stocks in supplying that market, are
generally careful to conceal this change. If it was commonly known,
their great profit would tempt so many new rivals to employ their stocks
in the same way, that, the effectual demand being fully supplied, the
market price would soon be reduced to the natural price, and, perhaps,
for some time even below it. If the market is at a great distance from
the residence of those who supply it, they may sometimes be able to
keep the secret for several years together, and may so long enjoy their
extraordinary profits without any new rivals. Secrets of this kind,
however, it must be acknowledged, can seldom be long kept; and the
extraordinary profit can last very little longer than they are kept.
Secrets in manufactures are capable of being longer kept than secrets in
trade. A dyer who has found the means of producing a particular colour
with materials which cost only half the price of those commonly made use
of, may, with good management, enjoy the advantage of his discovery as
long as he lives, and even leave it as a legacy to his posterity. His
extraordinary gains arise from the high price which is paid for his
private labour. They properly consist in the high wages of that labour.
But as they are repeated upon every part of his stock, and as their
whole amount bears, upon that account, a regular proportion to it, they
are commonly considered as extraordinary profits of stock.
Such enhancements of the market price are evidently the effects of
particular accidents, of which, however, the operation may sometimes
last for many years together.
Some natural productions require such a singularity of soil and
situation, that all the land in a great country, which is fit for
producing them, may not be sufficient to supply the effectual demand.
The whole quantity brought to market, therefore, may be disposed of to
those who are willing to give more than what is sufficient to pay the
rent of the land which produced them, together with the wages of the
labour and the profits of the stock which were employed in preparing
and bringing them to market, according to their natural rates. Such
commodities may continue for whole centuries together to be sold at this
high price; and that part of it which resolves itself into the rent of
land, is in this case the part which is generally paid above its natural
rate. The rent of the land which affords such singular and esteemed
productions, like the rent of some vineyards in France of a peculiarly
happy soil and situation, bears no regular proportion to the rent
of other equally fertile and equally well cultivated land in its
neighbourhood. The wages of the labour, and the profits of the stock
employed in bringing such commodities to market, on the contrary, are
seldom out of their natural proportion to those of the other employments
of labour and stock in their neighbourhood.
Such enhancements of the market price are evidently the effect of
natural causes, which may hinder the effectual demand from ever being
fully supplied, and which may continue, therefore, to operate for ever.
A monopoly granted either to an individual or to a trading company, has
the same effect as a secret in trade or manufactures. The monopolists,
by keeping the market constantly understocked by never fully supplying
the effectual demand, sell their commodities much above the natural
price, and raise their emoluments, whether they consist in wages or
profit, greatly above their natural rate.
The price of monopoly is upon every occasion the highest which can
be got. The natural price, or the price of free competition, on the
contrary, is the lowest which can be taken, not upon every occasion
indeed, but for any considerable time together. The one is upon every
occasion the highest which can be squeezed out of the buyers, or which
it is supposed they will consent to give; the other is the lowest which
the sellers can commonly afford to take, and at the same time continue
The exclusive privileges of corporations, statutes of apprenticeship,
and all those laws which restrain in particular employments, the
competition to a smaller number than might otherwise go into them, have
the same tendency, though in a less degree. They are a sort of enlarged
monopolies, and may frequently, for ages together, and in whole classes
of employments, keep up the market price of particular commodities above
the natural price, and maintain both the wages of the labour and the
profits of the stock employed about them somewhat above their natural
Such enhancements of the market price may last as long as the
regulations of policy which give occasion to them.
The market price of any particular commodity, though it may continue
long above, can seldom continue long below, its natural price. Whatever
part of it was paid below the natural rate, the persons whose interest
it affected would immediately feel the loss, and would immediately
withdraw either so much land or no much labour, or so much stock, from
being employed about it, that the quantity brought to market would soon
be no more than sufficient to supply the effectual demand. Its market
price, therefore, would soon rise to the natural price; this at least
would be the case where there was perfect liberty.
The same statutes of apprenticeship and other corporation laws, indeed,
which, when a manufacture is in prosperity, enable the workman to raise
his wages a good deal above their natural rate, sometimes oblige him,
when it decays, to let them down a good deal below it. As in the one
case they exclude many people from his employment, so in the other
they exclude him from many employments. The effect of such regulations,
however, is not near so durable in sinking the workman's wages below, as
in raising them above their natural rate. Their operation in the one way
may endure for many centuries, but in the other it can last no longer
than the lives of some of the workmen who were bred to the business in
the time of its prosperity. When they are gone, the number of those who
are afterwards educated to the trade will naturally suit itself to the
effectual demand. The policy must be as violent as that of Indostan or
ancient Egypt (where every man was bound by a principle of religion to
follow the occupation of his father, and was supposed to commit the
most horrid sacrilege if he changed it for another), which can in any
particular employment, and for several generations together, sink either
the wages of labour or the profits of stock below their natural rate.
This is all that I think necessary to be observed at present concerning
the deviations, whether occasional or permanent, of the market price of
commodities from the natural price.
The natural price itself varies with the natural rate of each of its
component parts, of wages, profit, and rent; and in every society this
rate varies according to their circumstances, according to their riches
or poverty, their advancing, stationary, or declining condition. I
shall, in the four following chapters, endeavour to explain, as fully
and distinctly as I can, the causes of those different variations.
First, I shall endeavour to explain what are the circumstances which
naturally determine the rate of wages, and in what manner those
circumstances are affected by the riches or poverty, by the advancing,
stationary, or declining state of the society.
Secondly, I shall endeavour to shew what are the circumstances which
naturally determine the rate of profit; and in what manner, too, those
circumstances are affected by the like variations in the state of the
Though pecuniary wages and profit are very different in the different
employments of labour and stock; yet a certain proportion seems commonly
to take place between both the pecuniary wages in all the different
employments of labour, and the pecuniary profits in all the different
employments of stock. This proportion, it will appear hereafter, depends
partly upon the nature of the different employments, and partly upon the
different laws and policy of the society in which they are carried on.
But though in many respects dependent upon the laws and policy, this
proportion seems to be little affected by the riches or poverty of that
society, by its advancing, stationary, or declining condition, but to
remain the same, or very nearly the same, in all those different states.
I shall, in the third place, endeavour to explain all the different
circumstances which regulate this proportion.
In the fourth and last place, I shall endeavour to shew what are the
circumstances which regulate the rent of land, and which either raise or
lower the real price of all the different substances which it produces.
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