The Wealth of Nations
Book 1, Chapter 10
Wages and Profit in the Different Employments of Labor and Stock
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Chapter 10 Summary
The advantages and disadvantages of various employments of labor and stock, within a specific geographical area, are either equal or continually tend toward equality.
Wages vary according to the level of difficulty or unpleasantness of an employ. A tailor, for example, earns less than a weaver since his work is much easier. A blacksmith seldom earns as much in twelve hours as a coal miner does in eight; his work is just as dirty but is less dangerous, is carried out in daylight, and above ground.
Disagreeableness and disgrace affect the profits of stock in the same manner as the wages of labor. A pub landlord is exposed to the brutality of every drunkard—yet there is no other trade in which a small stock yields such a large profit.
Wages also vary according to the level of expense and difficulty involved in learning the business. When a business owner invests in expensive machinery, he expects to recover his investment as well as make a profit from the extraordinary work performed by the machine during its life cycle. A man trained for a job that requires extraordinary dexterity and skill, at the expense of time and effort on the part of the employer, may be compared to one of these expensive machines.
During an apprenticeship, the apprentice’s labor belongs to his master, but his upkeep is still the responsibility of his parents. The master is generally paid for teaching him his trade. It is reasonable, therefore, that the wages of skilled mechanics should be higher than those of general workers.
Employment is more constant in some trades than others. In manufacturing, for example, a journeyman can be pretty sure of finding employment throughout the year. A mason or bricklayer, on the other hand, cannot work during bad weather. Consequently, the bricklayer’s wage must be sufficient to ensure his subsistence during the idle periods. Wages vary according to the amount of trust which must be placed in an employee; for example, goldsmiths’ and jewelers’ wages are superior to those of many other employees, on account of the precious materials with which they are entrusted.
Wages also vary according to the probability or improbability of success in a job; for example, the probability of employment in mechanics’ trades is almost certain, whereas it is very uncertain in the liberal professions—for a lawyer the odds are 20:1 against success.
In order to succeed in the insurance business, premiums must be sufficient to compensate for losses, cover administrative and management costs, and guarantee a better profit than would have been made from an equal investment in another trade.
The ordinary rate of profit always rises more or less with the risk. It does not, however, seem to rise in proportion to it.
A pharmacist’s job is much more agreeable than that of a craftsman, and the trust placed in the former is of much greater importance. His profit, however, will generally be no more than the reasonable wages of labor.
Retail goods are generally much cheaper in major towns than in country villages. It costs no more to transport grocery goods to a major town than it does to a country village—but it costs a great deal more to transport corn and cattle.
Fortunes are sometimes made through speculation. The speculative merchant may be a corn merchant this year, a wine merchant the next, and so on. Although a speculator may make a considerable fortune with two or three successful speculations, he is just as likely to lose.
When an entrepreneur attempts to establish a new business, he first needs to attract workmen by offering higher wages than they might earn elsewhere in their trades. Setting up a new business always involves a certain amount of speculation, with the entrepreneur hoping to make extraordinary profits.
The demand for farm labor is greater during the hay-mowing and harvest periods than throughout the rest of the year, and consequently wages rise with the demand. During wartime, when fifty thousand or so sailors were forced from the merchant service into that of the king, the demand for sailors on merchant ships rose with their scarcity—as did their wages.
All commodities are subject to price fluctuations. In some employments, the same quantity of industry will always produce the same quantity of commodities; but there are other employments in which the same quantity of industry will not always produce the same quantity of commodities; for example, agriculture. The price of a commodity, therefore, can vary not only in line with demand, but in line with quantity. Speculators will buy commodities when they expect their prices to rise, and sell them when the price is likely to fall.
Inequalities occasioned by policies in Europe
The (prevailing) policy in Europe causes inequalities in three ways:
First: The exclusive privileges of corporations restrain competition.
In order to practice a trade in a town, a person is required to have carried out an apprenticeship in that town, under a qualified master. Corporations’ bylaws regulate the number of apprentices any master is allowed to train, and the number of years each apprentice is required to serve. The intention is to restrain competition to a smaller number. In Europe, the general duration of an apprenticeship is seven years. 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 is a violation of human rights, both of the workman and of potential employers. Even the longest apprenticeship, however, does not provide security against fraud; customers are more reassured by a sterling mark on a plate or a stamp on linen and woolen goods than they are any apprenticeship qualification.
In order to prevent falls in prices, wages and profits, corporation laws have been implemented that restrain free competition. In Britain, anyone wishing to establish a corporation was required to obtain a charter from the king; it would appear that these charters were generally readily granted against payment of a fee. Towns were responsible for the inspection of all corporations within their jurisdiction, including the corporations’ bye-laws. Towns were governed by traders and skilled workers, and it was in their interests to ensure the market for their own particular industry did not become saturated.
A town’s inhabitants can easily join forces; even the most insignificant trades have been incorporated within a town. Trades employing only a few workers most readily form such unions: six wool-combers are necessary to keep a thousand spinners and weavers at work; by joining forces and thus eliminating the need for apprentices, they will have a monopoly over both the employment side and the manufacturing process, thus raising the price of their labor well above the average for their line of work.
The high duties imposed on foreign manufacturers and all goods imported by foreign merchants all serve the same purpose. Corporation laws enable people living in towns to raise their prices without having to worry about being undercut by free competition from their fellow countrymen. Further regulations also protect them against foreign competition.
Incorporation makes the act of the majority binding upon the whole. In free trade, this corporation can only be established with the unanimous consent of each trader, and only remains implemented for as long as each trader remains of the same mind. The majority of a corporation can enact bylaws, which limit competition more effectively and more sustainably than any voluntary combination.
Secondly, European policies, by increasing competition for some employments beyond what it naturally would be, cause inequality of an opposite kind.
Education and training in specific professions is considered important for the young, and private founders have established scholarships for this purpose, with the result that the numbers of people training in certain trades outnumber the jobs available. In Christian countries, the education of churchmen is paid for in this manner. The lengthy education required will not always result in a job, since many people are willing to work in a church voluntarily or accept a lower wage than such an education would otherwise have entitled them to; in this manner the competition of the poor takes away the reward of the rich.
In professions such as law and medicine, if an equal proportion of people were educated at the expense of the public, the competition would soon be so great that wages would drop. It might then not be worth self-aware father’s while to pay for his son’s education for either of these professions.
A teacher’s salary is generally nowhere near as high as that of a lawyer or physician, because the teaching profession is crowded with disadvantaged people who have been educated at public expense to enter the church, whereas lawyers and physicians have funded their own education.
Thirdly, European policy, by obstructing the free circulation of labor and stock, both from employment to employment and from place to place, results in some cases in inequality in terms of the advantages and disadvantages offered by different jobs.
The statute of apprenticeship obstructs the free circulation of labor from one employment to another, even in the same place. Corporations’ exclusive privileges obstruct circulation of labor from one place to another, even within the same trade. High wages are often paid to workmen in one business, while those in another business barely receive minimum wage. The tasks involved in certain trades are so similar that workers could easily exchange trades with one another if these absurd laws did not prevent it. The crafts of weaving plain linen and plain silk, for example, are almost entirely the same. That of weaving plain woolens is somewhat different—but the difference is so insignificant that a linen or silk weaver could easily be trained up within a few days.
Corporation laws hinder the free circulation of labor more than they do stock. It is much easier for a merchant to obtain authorization to trade in a town than it is for a poor tradesman to obtain work in it. In Britain after the destruction of the monasteries, it was enacted that every parish should be bound to provide for its own poor. When an independent workman carried his industry to a new parish, he was liable to be removed at the whim of the churchwarden.
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