An Epitome
Book I, Chapter 1. Of the Division of Labor:
THE greatest
improvement in the productive powers of labor, and the greater part of the skill,
dexterity, and judgment with which it is anywhere directed, or applied, seem to have been
the effects of the division of labor....
To take an example, therefore, the trade of the
pin-maker; a workman not educated to this business, nor acquainted with the use of the
machinery employed in it, could scarce, perhaps, with his utmost industry, make one pin in
a day, and certainly could not make twenty. But in the way in which this business is now
carried on, not only the whole work is a peculiar trade, but it is divided into a number
of branches, of which the greater part are likewise peculiar trades. One man draws out the
wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the
top for receiving, the head; to make the head requires two or three distinct operations;
to put it on is a peculiar business, to whiten the pins is another; it is even a trade by
itself to put them into the paper; and the important business of making a pin is, in this
manner, divided into about eighteen distinct operations, which, in some factories, are all
performed by distinct hands, though in others the same man will sometimes perform two or
three of them. I have seen a small manufactory of this kind where ten men only were employed, and
where some of them consequently performed two or three distinct operations. But though
they were very poor, and therefore but indifferently accommodated with the necessary
machinery, they could, when they exerted themselves, make among them about twelve pounds
of pins in a day. There are in a pound upwards of four thousand pins of a middling size.
Those ten persons, therefore, could make among them upwards of forty-eight thousand pins
in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might
be considered as making four thousand eight hundred pins in a day. But if they had all
wrought separately and independently, and without any of them having been educated to this
peculiar business, they certainly could not each of them have made twenty, perhaps not one
pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four
thousand eight hundredth part of what they are at present capable of performing, in
consequence of a proper division and combination of their different operations....
The division of labor, so far as it can be introduced, occasions, in every art, a
proportionable increase of the productive powers of labor. The separation of different
trades and employments from one another seems to have taken place in consequence of this
advantage. This separation, too, is generally called furthest in those countries which
enjoy the highest degree of industry and improvement; what is the work of one man in a
rude state of society being generally that of several in an improved one.....
This great
increase of the quantity of work which, in consequence of the division of labor, the same
number of people are capable of performing, is owing to three different circumstances; first,
to the increase of dexterity in every particular workman; secondly, to the saving
of the time which is commonly lost in passing from one species of work to another; and lastly,
to the invention of a great number of machines which facilitate and abridge labor, and
enable one man to do the work of many....
It is the great multiplication of the productions of all the different arts, in
consequence of the division of labor, which occasions, in a well-governed society, that universal
opulence which extends itself to the lowest ranks of the people. Every workman has a
great quantity of his own work to dispose of beyond what he himself has occasion for; and
every other workman being exactly in the same situation, he is enabled to exchange a great
quantity of his own goods for a great quantity, or, what comes to the same thing, for the
price of a great quantity of theirs. He supplies them abundantly with what they have
occasion for, and they accommodate him as amply with what he has occasion for, and a
general plenty diffuses itself through all the different ranks of the society....
Book I, Chapter 2. Of the
Principle which gives occasion to the Division of Labor:
THIS division of labor, from
which so many advantages are derived, is not originally the effect of any human wisdom,
which foresees and intends that universal opulence to which it gives occasion. It is the
necessary, though very slow and gradual consequence of a certain propensity in human
nature which has in view no such extensive utility; the propensity to truck, barter, and
exchange one thing for another.....
Man has almost constant occasion for the help of his
brethren, and it is in vain for him to expect it from their benevolence only. He will be
more likely to prevail if he can interest their self-love in his favor, and show them that
it is for their own advantage to do for him what he requires of them. Whoever offers to
another a bargain of any kind, proposes to do this. Give me that which I want, and you
shall have this which you want, is the meaning of every such offer; and it is in this
manner that we obtain from one another the far greater art of those good offices which we
stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker
that we expect our dinner, but from their regard to their own interest.As it is by treaty, by barter, and by purchase that we obtain from one another the
greater part of those mutual good offices which we stand in need of, so it is this same
trucking disposition which originally gives occasion to the division of labor. In a tribe
of hunters or shepherds a particular person makes bows and arrows, for example, with more
readiness and dexterity than any other. He frequently exchanges them for cattle or for
venison with his companions; and he finds at last that he can in this manner get more
cattle and venison than if he himself went to the field to catch them. From a regard to
his own interest, therefore, the making of bows and arrows grows to be his chief business,
and he becomes a sort of armorer, etc......
Book I, Chapter 4. Of the
Origin and Use of Money:
WHEN the division of labor has been once thoroughly
established, it is but a very small part of a man's wants which the produce of his own
labor can supply. He supplies the far greater part of them by exchanging that surplus part
of the produce of his own labor, which is over and above his own consumption, for such
parts of the produce of other men's labor as he has occasion for. Every man thus lives by
exchanging, or becomes in some measure a merchant, and the society itself grows to be what
is properly a commercial society.But when the division of labor first began to take place, this power of exchanging must
frequently have been very much clogged and embarrassed in its operations. One man, we
shall suppose, has more of a certain commodity than he himself has occasion for, while
another has less. The former consequently would be glad to dispose of, and the latter to
purchase, a part of this superfluity. But if this latter should chance to have nothing
that the former stands in need of, no exchange can be made between them. The butcher has
more meat in his shop than he himself can consume, and the brewer and the baker would each
of them be willing to purchase a part of it. But they have nothing to offer in exchange,
except the different productions of their respective trades, and the butcher is already
provided with all the bread and beer which he has immediate occasion for. No exchange can,
in this case, be made between them. In order to avoid the inconvenience of such
situations, every prudent man in every period of society, after the first establishment of
the division of labor, must naturally have endeavored to manage his affairs in such a
manner as to have at all times by him, besides the peculiar produce of his own industry, a
certain quantity of some one commodity or other, such as he imagined few people would be
likely to refuse in exchange for their produce....
It is in this manner that money has
become in all civilized nations the universal instrument of commerce, by the intervention
of which goods of all kinds are bought and sold, or exchanged for one another....
Book I, Chapter 5. Of the
Real and Nominal Price of Commodities, or their Price in Labor, and their Price in Money:
EVERY man is rich or poor according to the degree in which he can afford to enjoy the
necessaries, conveniences, and amusements of human life. But after the division of labor
has once thoroughly taken place, it is but a very small part of these with which a man's
own labor can supply him. The far greater part of them he must derive from the labor of
other people, and he must be rich or poor according to the quantity of that labor which he
can command, or which he can afford to purchase. The value of any commodity, therefore, to
the person who possesses it, and who means not to use or consume it himself, but to
exchange it for other commodities, is equal to the quantity of labor which it enables him
to purchase or command. Labor, therefore, is the real measure of the exchangeable value of
all commodities....The real price of everything, what everything really costs to the man who wants to
acquire it, is the toil and trouble of acquiring it. What everything is really worth to
the man who has acquired it, and who wants to dispose of it or exchange it for something
else, is the toil and trouble which it can save to himself, and which it can impose upon
other people. What is bought with money or with goods is purchased by labor as much as
what we acquire by the toil of our own body. That money or those goods indeed save us this
toil.....
Book I, Chapter 6. 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 labor 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 labor 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' labor,
should be worth double of what is usually the produce of one day's or one hour's labor. If
the one species of labor should be more severe than the other, some allowance will
naturally be made for this superior hardship; and the produce of one hour's labor in the
one way may frequently exchange for that of two hours' labor in the other.....
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 labor adds to the value of the materials. In exchanging the complete manufacture
either for money, for labor, 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 ease 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....In this state of things, the whole produce of labor does not always belong to the
laborer. He must in most cases share it with the owner of the stock which employs him.
Neither is the quantity of labor commonly employed in acquiring or producing any
commodity, the only circumstance 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
labor....
The real value of all the different component parts of price, it must be
observed, is measured by the quantity of labor which they can, each of them, purchase or
command. Labor measures the value not only of that part of price which resolves itself
into labor, 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.....
Book I, Chapter 7. Of the
Natural and Market Price of Commodities:
THERE is in every society or neighborhood an ordinary
or average rate both of wages and profit in every different employment of labor and
stock. This rate is naturally regulated, as I shall show 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 neighborhood an ordinary or average
rate of rent, which is regulated too, as I shall show hereafter, partly by the general
circumstances of the society or neighborhood 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 prevail. 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 labor, 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. 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, labor, and profit,
which must be paid in order to bring it thither. 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.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. 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 cannot 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.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 labor; with work done, or with work to be done. 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 police, 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.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 their business.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 labor and the profits of the stock employed
about them somewhat above their natural rate. Such enhancements of the market price may
last as long as the regulations of police which give occasion to them....
Book I, Chapter 8. Of
the Wages of Labor:
THE produce of labor constitutes the natural recompense or wages
of labor. In that original state of things, which precedes both the appropriation of land
and the accumulation of stock, the whole produce of labor belongs to the laborer. He has
neither landlord nor master to share with him. Had this state continued, the wages of
labor would have augmented with all those improvements in its productive powers to which
the division of labor gives occasion. All things would gradually have become cheaper. They
would have been produced by a smaller quantity of labor; and as the commodities produced
by equal quantities of labor would naturally in this state of things be exchanged for one
another, they would have been purchased likewise with the produce of a smaller quantity.
But this original state of things, in which the laborer enjoyed the whole produce of his
own labor, could not last beyond the first introduction of the appropriation of land and
the accumulation of stock. It was at an end, therefore, long before the most considerable
improvements were made in the productive powers of labor, and it would be to no purpose to
trace further what might have been its effects upon the recompense or wages of labor. As
soon as land becomes private property, the landlord demands a share of almost all the
produce which the laborer can either raise, or collect from it. His rent makes the first
deduction from the produce of the labor which is employed upon land.Masters are always and everywhere in a sort of tacit, but constant and uniform
combination, not to raise the wages of labor above their actual rate. To violate this
combination is everywhere a most unpopular action, and a sort of reproach to a master
among his neighbors and equals. Masters, too, sometimes enter into particular combinations
to sink the wages of labor even below this rate. These are always conducted with the
utmost silence and secrecy, till the moment of execution, and when the workmen yield, as
they sometimes do, without resistance, though severely felt by them, they are never heard
of by other people. Such combinations, however, are frequently resisted by a contrary
defensive combination of the workmen; who sometimes too, without any provocation of this
kind, combine of their own accord to raise the price of their labor.....
A man must always
live by his work, and his wages must at least be sufficient to maintain him. They must
even upon most occasions be somewhat more; otherwise it would be impossible for him to
bring up a family, and the race of such workmen could not last beyond the first
generation.... When the landlord, annuitant, or monied man, has a greater revenue than what he judges
sufficient to maintain his own family, he employs either the whole or a part of the
surplus in maintaining one or more menial servants. Increase this surplus, and he will
naturally increase the number of those servants. When an independent workman, such as a
weaver or shoemaker, has got more stock than what is sufficient to purchase the materials
of his own work, and to maintain himself till he can dispose of it, he naturally employs
one or more journeymen with the surplus, in order to make a profit by their work. Increase
this surplus, and he will naturally increase the number of his journeymen. The demand for
those who live by wages, therefore, necessarily increases with the increase of the revenue
and stock of every country, and cannot possibly increase without it. The increase of
revenue and stock is the increase of national wealth....
Is this improvement in the circumstances of the lower ranks of the people to be
regarded as an advantage or as an inconvenience to the society? The answer seems at first
sight abundantly plain. Servants, laborers, and workmen of different kinds, make up the
far greater part of every great political society. But what improves the circumstances of
the greater part can never be regarded as an inconvenience to the whole. No society can
surely be flourishing and happy, of which the far greater part of the members are poor and
miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body
of the people, should have such a share of the produce of their own labor as to be
themselves tolerably well fed, clothed, and lodged.The liberal reward of labor, as it encourages the propagation, so it increases the
industry of the common people. The wages of labor are the encouragement of industry,
which, like every other human quality, improves in proportion to the encouragement it
receives. A plentiful subsistence increases the bodily strength of the laborer, and the
comfortable hope of bettering his condition, and of ending his days perhaps in ease and
plenty, animates him to exert that strength to the utmost. Where wages are high,
accordingly, we shall always find the workmen more active, diligent, and expeditious than
where they are low.
Book I, Chapter 10. Of
Wages and Profit in the different Employments of Labor and Stock:
THE policy of
Europe, by not leaving things at perfect liberty, occasions other inequalities of much
greater importance. It does this chiefly in the three following ways. First, by
restraining the competition in some employments to a smaller number than would otherwise
be disposed to enter into them; Second, by increasing it in others beyond what it
naturally would be; and, Third, by obstructing the free circulation of labor and
stock, both from employment to employment and from place to place.First, the policy of Europe occasions a very important inequality in the whole of
the advantages and disadvantages of the different employments of labor and stock, by
restraining the competition in some employments to a smaller number than might otherwise
be disposed to enter into them. The exclusive privileges of corporations, or guilds, are
the principal means it makes use of for this purpose. The property which every man has in
his own labor, as it is the original foundation of all other property, so it is the most
sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of
his hands; and to hinder him from employing this strength and dexterity of his hands; and
to hinder him from employing this strength and dexterity in what manner he thinks proper
without injury to his neighbor is a plain violation of this most sacred property. It is a
manifest encroachment upon the just liberty both of the workman and of those who might be
disposed to employ him. As it hinders the one from working at what he thinks proper, so it
hinders the others from employing whom they think proper....
The pretense that corporations
are necessary for the better government of the trade is without any foundation. The real
and effectual discipline which is exercised over a workman is not that of his corporation,
but that of his customers. It is the fear of losing their employment which restrains his
frauds and corrects his negligence. An exclusive corporation necessarily weakens the force
of this discipline. Second, the policy of Europe, by increasing the competition in some employments
beyond what it naturally would be, occasions another inequality of an opposite kind in the
whole of the advantages and disadvantages of the different employments of labor and
stock....
In the professions, such as law and medicine, if an equal proportion of people
were educated at the public expense, the competition would soon be so great as to sink
very much their pecuniary reward. It might then not be worth any man's while to educate
his son to either of those professions at his own expense.... Third, the policy of Europe, by obstructing the free circulation of labor and stock
both from employment to employment, and from place to place, occasions in some cases a
very inconvenient inequality in the whole of the advantages and disadvantages of their
different employments....
Whatever obstructs the free circulation of labor from one
employment to another obstructs that of stock likewise; 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. Corporation laws, however, give less obstruction to the free circulation
of stock from one place to another than to that of labor. It is everywhere much easier for
a wealthy merchant to obtain the privilege of trading in a town corporate, than for a poor
artificer to obtain that of working in it....
Book I, Chapter 11. Effects
of the Progress of Improvement upon the Real Price of Manufactures:
It is the
natural effect of improvement, however, to diminish gradually the real price of almost all
manufactures. That of the manufacturing workmanship diminishes, perhaps, in all of them
without exception. 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 compensate the greatest rise
which can happen in the price....
But in all cases in which the real price of the rude
materials either does not rise at all, or does not rise very much, that of the
manufactured commodity sinks very considerably.Every improvement in the circumstances of the society tends either directly or
indirectly to raise the real rent of land, to increase the real wealth of the landlord,
his power of purchasing the labor, or the produce of the labor of other people. The
extension of improvement and cultivation tends to raise it directly. The landlord's share
of the produce necessarily increases with the increase of the produce.....
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. A certain proportion of this
labor naturally goes to the land. A greater number of men and cattle are employed in its
cultivation, the produce increases with the increase of the stock which is thus employed
in raising it, and the rent increases with the produce.
Source; From: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations,
2 Vols., Everyman's Library (London: Dent & Sons, 1904), Vol. I, passim. Scanned and organized by Jerome S. Arkenberg, Cal. State Fullerton.
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Paul Halsall, January 1999
