The Wealth of Nations
Book 1, Chapter 6
the Component Part of the Price of Commodities
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Chapter 6 Summary
In early society, it appears that the amount of labor required to purchase an object was the only basis for exchanging objects. As such, a product that took two days of labor to produce was worth double a product requiring one day of labor. The former would also be more valued due to the higher level of complexity and dexterity involved. In later society, labor requiring greater skill was acknowledged in the form of wages of labor.
Once stock is built up, some individuals invest it in employing workers, with a view to adding further value to their merchandise. The value these workmen add to the commodity is then used to pay their wages, with the remainder being profit on stock for the employer. The real value of the different component parts of price is measured by the amount of labor an individual can purchase. In addition, rent and profit are also components of the price of a commodity.
In every modern society, the price of a commodity reflects these three component parts. In the price of corn, for example, one part pays the rent of the landlord, another pays the wages and maintenance of the workers and animals, and the third is the profit made by the farmer. These three parts make up the whole price of corn. A fourth part is used to replenish the farmer’s stock or to compensate the wear and tear of his laboring animals and other farm equipment.
As a commodity undergoes more manufacturing processes, the part of the price which represents wages and profit increases in proportion to rent. In the process of manufacture, every subsequent profit is greater than the previous.
Wages, profit and rent are the three original sources of all revenue, as well as of all exchangeable value. All other revenue is ultimately derived from one of these sources.
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