Chapter VI

Of the Component Parts of the Price of Commodities
In that early and rude state of society which precedes both the accumulation of stock and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer. It is natural that what is usually the produce of two days or two hours labour, should be worth double of what is usually the produce of one day’s or one hour’s labour.

If the one species of labour should be more severe than the other, some allowance will naturally be made for this superior hardship; and the produce of one hour’s labour in the one way may frequently exchange for that of two hours labour in the other.

Or if the one species of labour requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents, will naturally give a value to their produce, superior to what would be due to the time employed about it. Such talents can seldom be acquired but in consequence of long application, and the superior value of their produce may frequently be no more than a reasonable compensation for the time and labour which must be spent in acquiring them. In the advanced state of society, allowances of this kind, for superior hardship and superior skill, are commonly made in the wages of labour; and something of the same kind must probably have taken place in its earliest and rudest period.

In this state of things, the whole produce of labour belongs to the labourer; and
*44 the quantity of labour commonly employed in acquiring or producing any commodity, is the only circumstance which can regulate the quantity of labour which it ought commonly to purchase, command, or exchange for.

As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of the materials. In exchanging the complete manufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of the materials, and the wages of the workmen, something must be given for the profits of the undertaker of the work who hazards his stock in this adventure. The value which the workmen add to the materials, therefore, resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advanced. He could have no interest to employ them, unless he expected from the sale of their work something more than what was sufficient to replace his stock to him; and he could have no interest to employ a great stock rather than a small one, unless his profits were to bear some proportion to the extent of his stock.

The profits of stock, it may perhaps be thought, are only a different name for the wages of a particular sort of labour, the labour of inspection and direction. They are, however, altogether different, are regulated by quite different principles, and bear no proportion to the quantity, the hardship, or the ingenuity of this supposed labour of inspection and direction. They are regulated altogether by the value of the stock employed, and are greater or smaller in proportion to the extent of this stock. Let us suppose, for example, that in some particular place, where the common annual profits of manufacturing stock are ten per cent. there are two different manufactures, in each of which twenty workmen are employed at the rate of fifteen pounds a year each, or at the expence of three hundred a year in each manufactory. Let us suppose too, that the coarse materials annually wrought up in the one cost only seven hundred pounds, while the finer materials in the other cost seven thousand. The capital annually employed
*45 in the one will in this case amount only to one thousand pounds; whereas that employed in the other will amount to seven thousand three hundred pounds. At the rate of ten per cent. therefore, the undertaker of the one will expect an yearly profit of about one hundred pounds only; while that of the other will expect about seven hundred and thirty pounds. But though their profits are so very different, their labour of inspection and direction may be either altogether or very nearly the same. In many great works, almost the whole labour of this kind is
*46 committed to some principal clerk. His wages properly express the value of this labour of inspection and direction. Though in settling them some regard is had commonly, not only to his labour and skill, but to the trust which is reposed in him, yet they never bear any regular proportion to the capital of which he oversees the management; and the owner of this capital, though he is thus discharged of almost all labour, still expects that his profits should bear a regular proportion to his capital.
*47 In the price of commodities, therefore, the profits of stock constitute a component part
*48 altogether different from the wages of labour, and regulated by quite different principles.

In this state of things, the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him. Neither is the quantity of labour commonly employed in acquiring or producing any commodity, the only circumstance
*49 which can regulate the quantity which it ought commonly to purchase, command, or exchange for. An additional quantity, it is evident, must be due for the profits of the stock which advanced the wages and furnished the materials of that labour.

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed,
*50 and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him,
*51 to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities makes a third component part.

The real value of all the different component parts of price, it must be observed, is measured
*53 by the quantity of labour which they can, each of them, purchase or command. Labour measures the value not only of that part of price which resolves itself into labour, but of that which resolves itself into rent, and of that which resolves itself into profit.

In every society the price of every commodity finally resolves itself into some one or other, or all of those three parts; and in every improved society, all the three enter more or less, as component parts, into the price of the far greater part of commodities.

In the price of corn, for example, one part pays the rent of the landlord, another pays the wages or maintenance of the labourers and labouring cattle
*54 employed in producing it, and the third pays the profit of the farmer. These three parts seem either immediately or ultimately to make up the whole price of corn. A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer, or for compensating the wear and tear
*55 of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts; the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer who advances both the rent of this land, and the wages of this labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour,
*56 and profit.

In the price of flour or meal, we must add to the price of the corn, the profits of the miller, and the wages of his servants; in the price of the bread, the profits of the baker, and the wages of his servants; and in the price of both, the labour of transporting the corn from the house of the farmer to that of the miller, and from that of the miller to that of the baker, together with the profits of those who advance the wages of that labour.

The price of flax resolves itself into the same three parts as that of corn. In the price of linen we must add to this price the wages of the flax-dresser, of the spinner, of the weaver, of the bleacher, &c. together with the profits of their respective employers.

As any particular commodity comes to be more manufactured, that part of the price which resolves itself into wages and profit, comes to be greater in proportion to that which resolves itself into rent. In the progress of the manufacture, not only the number of profits increase, but every subsequent profit is greater than the foregoing; because the capital from which it is derived must always be greater. The capital which employs the weavers, for example, must be greater than that which employs the spinners; because it not only replaces that capital with its profits, but pays, besides, the wages of the weavers; and the profits must always bear some proportion to the capital.

In the most improved societies, however, there are always a few commodities of which the price resolves itself into two parts only, the wages of labour, and the profits of stock; and a still smaller number in which it consists altogether in the wages of labour. In the price of sea-fish, for example, one part pays the labour of the fishermen, and the other the profits of the capital employed in the fishery. Rent very seldom makes any part of it, though it does sometimes, as I shall shew hereafter.
*58 It is otherwise, at least through the greater part of Europe, in river fisheries. A salmon fishery pays a rent, and rent, though it cannot well be called the rent of land, makes a part of the price of a salmon as well as wages and profit. In some parts of Scotland a few poor people make a trade of gathering, along the sea-shore, those little variegated stones commonly known by the name of Scotch Pebbles. The price which is paid to them by the stone-cutter is altogether the wages of their labour; neither rent nor profit make any part of it.

But the whole price of any commodity must still finally resolve itself into some one or other, or all of those three parts; as whatever part of it remains after paying the rent of the land, and the price of the whole labour employed in raising, manufacturing, and bringing it to market, must necessarily be profit to somebody.

As the price or exchangeable value of every particular commodity, taken separately, resolves itself into some one or other, or all of those three parts; so that of all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be parcelled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land.
*60 The whole of what is annually either collected or produced by the labour of every society, or what comes to the same thing, the whole price of it, is in this manner originally distributed among some of its different members. Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value. All other revenue
*61 is ultimately derived from some one or other of these.

Whoever derives his revenue from a fund which is his own, must draw it either from his labour, from his stock, or from his land. The revenue derived from labour is called wages. That derived from stock, by the person who manages or employs it, is called profit. That derived from it by the person who does not employ it himself, but lends it to another, is called the interest or the use of money. It is the compensation which the borrower pays to the lender, for the profit which he has an opportunity of making by the use of the money. Part of that profit naturally belongs to the borrower, who runs the risk and takes the trouble of employing it; and part to the lender, who affords him the opportunity of making this profit. The interest of money is always a derivative revenue, which, if it is not paid from the profit which is made by the use of the money, must be paid from some other source of revenue, unless perhaps the borrower is a spendthrift, who contracts a second debt in order to pay the interest of the first. The revenue which proceeds altogether from land, is called rent, and belongs to the landlord. The revenue of the farmer is derived partly from his labour, and partly from his stock. To him, land is only the instrument which enables him to earn the wages of this labour, and to make the profits of this stock. All taxes, and all the revenue which is founded upon them, all salaries, pensions, and annuities of every kind, are ultimately derived from some one or other of those three original sources of revenue, and are paid either immediately or mediately from the wages of labour, the profits of stock, or the rent of land.

When those three different sorts of revenue belong to different persons, they are readily distinguished; but when they belong to the same they are sometimes confounded with one another, at least in common language.

A gentleman who farms a part of his own estate, after paying the expence of cultivation, should gain both the rent of the landlord and the profit of the farmer. He is apt to denominate, however, his whole gain, profit, and thus confounds rent with profit, at least in common language. The greater part of our North American and West Indian planters are in this situation. They farm, the greater part of them, their own estates, and accordingly we seldom hear of the rent of a plantation, but frequently of its profit.

Common farmers seldom employ any overseer to direct the general operations of the farm. They generally too work a good deal with their own hands, as ploughmen, harrowers, &c. What remains of the crop after paying the rent, therefore, should not only replace to them their stock employed in cultivation, together with its ordinary profits, but pay them the wages which are due to them, both as labourers and overseers. Whatever remains, however, after paying the rent and keeping up the stock, is called profit. But wages evidently make a part of it. The farmer, by saving these wages, must necessarily gain them. Wages, therefore, are in this case confounded with profit.

An independent manufacturer, who has stock enough both to purchase materials, and to maintain himself till he can carry his work to market, should gain both the wages of a journeyman who works under a master, and the profit which that master makes by the sale of the journeyman’s work.
*62 His whole gains, however, are commonly called profit, and wages are, in this case too, confounded with profit.

A gardener who cultivates his own garden with his own hands, unites in his own person the three different characters, of landlord, farmer, and labourer. His produce, therefore, should pay him the rent of the first, the profit of the second, and the wages of the third. The whole, however, is commonly considered as the earnings of his labour. Both rent and profit are, in this case, confounded with wages.

As in a civilized country there are but few commodities of which the exchangeable value arises from labour only, rent and profit contributing largely to that of the far greater part of them, so the annual produce of its labour will always be sufficient to purchase or command a much greater quantity of labour than what was employed in raising, preparing, and bringing that produce to market. If the society were
*64 annually to employ all the labour which it can annually purchase, as the quantity of labour would increase greatly every year, so the produce of every succeeding year would be of vastly greater value than that of the foregoing. But there is no country in which the whole annual produce is employed in maintaining the industrious. The idle every where consume a great part of it; and according to the different proportions in which it is annually divided between those two different orders of people, its ordinary or average value must either annually increase, or diminish, or continue the same from one year to another.

[‘La richesse en elle-même n’est autre chose que la nourriture, les commodités et les agréments de la vie.’—Cantillon,
Essai, pp. 1, 2.]

[‘Everything in the world is purchased by labour.’—Hume, ‘Of Commerce,’ in
Political Discourses, 1752, p. 12.]

[‘Also riches joined with liberality is Power, because it procureth friends and servants: without liberality not so, because in this case they defend not but expose men to envy as a prey.’—
Leviathan, I., x.]

[This paragraph appears first in Additions and Corrections and ed. 3.]

[The absence of any reference to the lengthy discussion of this subject in chap. x. is curious.]


[Ed. 1 reads ‘there’.]

[Ed. 1 reads ‘Equal quantities of labour must at all times and places be’.]

[The words from ‘In his ordinary state of health’ to ‘dexterity’ appear first in ed. 2.]

[‘Be above all things careful how you make any composition or agreement for any long space of years to receive a certain price of money for the corn that is due to you, although for the present it may seem a tempting bargain.’—Fleetwood,
Chronicon Preciosum, p. 174.]



[C. 6, which applies to Oxford, Cambridge, Winchester and Eton, and provides that no college shall make any lease for lives or years of tithes, arable land or pasture without securing that at least one-third of ‘tholde’ (presumably the whole not the old) rent should be paid in coin. The Act was promoted by Sir Thomas Smith to the astonishment, it is said, of his fellow-members of Parliament, who could not see what difference it would make. ‘But the knight took the advantage of the present cheapness; knowing hereafter grain would grow dearer, mankind daily multiplying, and licence being lately given for transportation. So that at this day much emolument redoundeth to the colleges in each university, by the passing of this Act; and though their rents stand still, their revenues do increase.’—Fuller,
Hist. of the University of Cambridge, 1655, p. 144. quoted in Strype,
Life of the learned Sir Thomas Smith, 1698, p. 192.]

Commentaries, 1765, vol. ii., p. 322.]



[Below, chap. xi., see esp.

[Ed. 1 reads ‘it.’]

[Ed. 1 places the ‘for example’ here.]

[‘In England and this part of the world, wheat being the constant and most general food, not altering with the fashion, not growing by chance: but as the farmers sow more or less of it, which they endeavour to proportion, as near as can be guessed to the consumption, abstracting the overplus of the precedent year in their provision for the next; and
vice versa, it must needs fall out that it keeps the nearest proportion to its consumption (which is more studied and designed in this than other commodities) of anything, if you take it for seven or twenty years together: though perhaps the scarcity of one year, caused by the accidents of the season, may very much vary it from the immediately precedent or following. Wheat, therefore, to this part of the world (and that grain which is the constant general food of any other country) is the fittest measure to judge of the altered value of things in any long tract of time: and therefore wheat here, rice in Turkey, etc., is the fittest thing to reserve a rent in, which is designed to be constantly the same for all future ages. But money is the best measure of the altered value of things in a few years: because its vent is the same and its quantity alters slowly. But wheat, or any other grain, cannot serve instead of money: because of its bulkiness and too quick change of its quantity.’—Locke,
Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, ed. of 1696, pp. 74, 75.]

[Ed. 1 reads ‘than one which sells for an ounce at London to’.]

[Below, chap. xi.

Pliny, lib. xxxiii. c. 3. [This note is not in ed. 1.]

[Eds. 1 and 2 read ‘always’.]

[Habere aes alienum.]

[Ed. 1 does not contain ‘sterling’.]

[Ed. 1 places the ‘originally’ here.]

[Ed. 1 places the ‘only’ here.]

[The Act, I9 Hen. VII., c. 5, ordered that certain gold coins should pass for the sums for which they were coined, and 5 and 6 Ed. VI. prescribed penalties for giving or taking more than was warranted by proclamation. The value of the guinea was supposed to be fixed by the proclamation of 1717, for which see
Economic Journal, March, 1898. Lead tokens were corned by individuals in the reign of Elizabeth. James I. coined copper farthing tokens, but abstained from proclaiming them as money of that value. In 1672 copper halfpennies were issued, and both halfpennies and farthings were ordered to pass as money of those values in all payments under sixpence.—Harris,
Money and Coins, pt. i., § 39; Liverpool,
Treatise on the Coins of the Realm, 1805, pp. I30, 131.]

[Ed. 1 reads ‘sum’.]

I.e., if 21 pounds may be paid with 420 silver shillings or with 20 gold guineas it does not matter whether a ‘pound’ properly signifies 20 silver shillings or 20/21 of a gold guinea.]

[This happens to have been usually, though not always, true, but it is so simply because it has usually happened that the most precious metal in use as money has been made or become the standard. Gold was already the standard in England, though fact was not generally recognised; see Harris,
Money and Coins, pt. ii., §§ 36, 37, below, vol. ii.,

[In I774.]

[These regulations, issued in 1774, provided that guineas should not pass when they had lost a certain portion of their weight, varying with their age.—Liverpool,
Coins Of the Realm, p. 216, note.]

Universal Merchant, ed. Horsley, 1753, pp. 53-55, gives the proportions thus: French coin, 1 to 14 5803/12279, Dutch, 1 to 14 82550/154425, English, 1 to 15 14295/68200.]

[Full weight silver coins would not remain in circulation, as the bullion in them was worth more reckoned in guineas and in the ordinary old and worn silver coins than the nominal amount stamped on them.]

Further Considerations Concerning Raising the Value of Money, 2nd ed., 1695, pp. 58-60. The exportation of foreign coin (misprinted ‘kind’ in Pickering) or bullion of gold or silver was permitted by 15 Car. II, c. 7, on the ground that it was ‘found by experience that’ money and bullion were ‘carried in greatest abundance (as to a common market) to such places as give free liberty for exporting the same’ and in order ‘the better to keep in and increase the current coins’ of the kingdom.]

[Harris, writing nearly twenty years earlier, had said, ‘it would be a ridiculous and vain attempt to make a standard integer of gold whose parts should be silver, or to make a motley standard, part gold and part silver.’—
Money and Coins, pt. i., § 36.]

I.e., an ounce of standard gold would not actually fetch £3 17
s. 10 1/2
d. if sold for cash down.]

[This erroneous statement is repeated below, p. 501, and also vol. ii., p. 60, where the calculations on which it is based are given. See the note on that passage.]

[The question of seignorage is further discussed at some length in the chapter on Commercial Treaties vol. ii.,

[Ed. 1 reads ‘in the tear and wear of coin, and in the tear and wear of plate’.]

[Ed. 1 does not contain ‘the whole produce of labour belongs to the labourer; and’. The words, however, occur in all eds. at
I.8.2 below.]

[‘The capital annually employed’ is the working expenses for twelve months, not capital in the usual modern sense.]

[Ed. 1 inserts ‘frequently’.]

[Eds. 1 and 2 read ‘proportion to it’.]

[Ed. 1 reads ‘profits of stock are a source of value’.]

[Ed. 1 reads from the beginning of the paragraph: ‘In this state of things, therefore, quantity of labour commonly employed in acquiring or producing any commodity is by no means the only circumstance’.]

[Buchanan, ed.
Wealth of Nations, 1814, vol. i., p. 80, says: ‘They do so. But the question is why this apparently unreasonable demand is so generally complied with. Other men love also to reap where they never sowed, but the landlords alone, it would appear, succeed in so desirable an object.’]

[Ed. 1 does not contain ‘the labourer’ and ‘even to him’.]

[Ed. 1 in place of these two sentences reads: ‘Men must then pay for the licence to gather them; and in exchanging them either for money, for labour, or for other goods, over and above what is due, both for the labour of gathering them, and for the profits of the stock which employs that labour, some allowance must be made for the price of the licence, which constitutes the first rent of land. In the price therefore of the greater part of commodities the rent of land comes in this manner to constitute a third source of value. In this state of things, neither the quantity of labour commonly employed in acquiring or producing any commodity, nor the profits of the stock which advanced the wages and furnished the materials of that labour, are the only circumstances which can regulate the quantity of labour which it ought commonly to purchase command or exchange for. A third circumstance must likewise be taken into consideration; the rent of the land; and the commodity must commonly purchase, command or exchange for, an additional quantity of labour, in order to enable the person who brings it to market to pay this rent.’]

[Ed. 1 reads ‘The real value of all the different component parts of price is in this manner measured’.]

[Smith overlooks the fact that his inclusion of the maintenance of labouring cattle here as a sort of wages requires him to include it in the national income or ‘ wealth of the nation,’ and therefore to reckon the cattle themselves as part of the nation.]

[Ed. 1 reads ‘tear and wear’.]

[The use of ‘labour’ instead of the more natural ‘ wages’ here is more probably the result of its use five lines higher up than of any feeling of difficulty about the maintenance of cattle. On
I.7.2-3 below ‘rent, labour and profit’ and ‘rent, wages and profit’ are both used; see below,
II.3.4, and note.]

[The fact that the later manufacturer has to replace what is here called the capital,
i.e., the periodical expenditure of the earlier manufacturer, does not necessarily require him to have a greater capital to deal with the same produce. It need not be greater if he requires less machinery and buildings and a smaller stock of materials.]


[Only true if ‘commodity’ be understood to include solely goods which constitute income.]

[The ‘ whole annual produce’ must be taken to mean the income and not the whole mass of goods produced, including those which perish or are used up in the creation of others.]

[Some parts of this ‘other revenue,’
viz., interest and taxes, are mentioned in the next paragraph. It is perhaps also intended to include the rent of houses; see below,

[Ed. 1 reads ‘sale of his work’.]


[Eds. 1-3 read ‘ was’.]

[The chapter follows
Lectures, pp. 173-182, very closely.]

[Below, chaps. viii. and ix.]

[Below, chap. xi.]

[The same phrase occurs below,

I.7.11 and
note 56.]

[Ed. 1, beginning four lines higher up, reads ‘according as the greatness of the deficiency increases more or less the eagerness of this competition. The same deficiency’.]

[Ed. 1 reads ‘the competitors’.]

[Ed. 1 reads ‘fall short of it’.]

[See below,

[Repeated below,

[Ed. 1 does not contain ‘more’.]

[They are called profits simply because all the gains of the master-manufacturer are called profits. They can scarcely be said to have been ‘considered’ at all; if they had been, they would doubtless have been pronounced to be, in the words of the next paragraph, ‘the effects of a particular accident,’ namely, the possession of peculiar knowledge on the part of the dyer.]

[Ed. 1 places ‘for whole centuries together’ here instead of in the line above.]

[See below,
I.10.56-89. Playfair, in a note on this passage, ed.
Wealth of Nations, 1805, vol. i. p. 97, says: ‘This observation about corporations and apprenticeships scarcely applies at all to the present day. In London, for example, the freemen only can carry on certain businesses within the city: there is not one of those businesses that may not be carried on elsewhere, and the produce sold in the city. If Mr. Smith’s principle applied, goods would be dearer in Cheapside than in Bond Street, which is not the case.’]

I.7.6, and below,

Lectures, p. 168, the Egyptian practice is attributed to ‘a law of Sesostris’.]