The Wealth of Nations

Book 1, Chapter 8

the Wages of Labor

Download Preston's Free Checklist

Download Preston's free checklist. His checklist was developed after spending countless hours studying billionaires like, Warren Buffett, Carl Icahn, and Ray Dalio. With his checklist, you can find safe picks that protect and grow your principal. Additionally, Preston reads a lot of books and writes an executive summary for each book he reads. If you download his checklist, you will be added to his monthly e-mail list where he sends his book summaries. There are never any advertisements...ever. Here's an example of one of Preston's executive summaries, based on the book written by Billionaire Charlies Koch.

Chapter 8 Summary


The wages of labor consist of what the labor produces.


As soon as land becomes private property, the landlord requests a share of the produce.


In the manufacturing trade, workmen need an employer to supply the materials, their wages and maintenance. The employer benefits from the value added to the materials by the workmen, and this is his profit.


Wages of labor are governed by the contract signed between the two parties, with workmen aiming to gain as much as possible, and employers aiming to give as little as possible. Under the law, employers are allowed to join forces, whereas workmen are not. There are no acts of parliament against joining forces to lower the price of work, but many against joining forces to raise it.


Wages cannot be reduced below a certain rate, even for the most menial types of labor. As a general guide, the lowest-paid workers must earn at least double the cost of their own maintenance in order to bring up two children. Since half of all children die before reaching adulthood, a man should aim to have at least four children, in the hope that two may live to that age. The upkeep for four children may be nearly equal to that for one man.


A wealthy man with an income high enough to cover the upkeep of his family will employ servants. An independent worker with sufficient stock to purchase the materials for his own work and pay for his upkeep will himself employ workers, in order to make a profit from their work.


A steady increase in a society’s revenue will result in a consistent rise in wages. Wages are significantly higher in North America than in Britain: in 1773, workers in the province of New York earned more than workers in London, despite the fact that provisions are much lower in North America than in Britain. North America, although not as rich as Britain, is heading faster towards the acquisition of wealth.


The most indicative sign of a country’s prosperity is the increase in number of inhabitants. The number of inhabitants in the British colonies in North America doubled within twenty years; labor in this region is so well rewarded that having numerous children was viewed as a source of prosperity rather than a burden to the parents. The price of bread and meat is the same throughout the United Kingdom, but wages in large towns are frequently twenty percent higher than those in surrounding, smaller towns. A poor workman who is able to afford the upkeep of his family in an area in which wages are low would be affluent if he lived in an area in which wages are high.


It is difficult to accurately ascertain wages of labor, since wages can differ even within the same workplace and for the same sort of labor, depending not only on the workers’ skills but also the employer's fair-mindedness.


Over time, the real quantity of wants and needs that can be purchased with labor has increased in greater proportion than its money price. Grain is cheaper, potatoes cost half the price; turnips, carrots and cabbages are all widely produced. Improved manufacturing has led to widespread availability of good-quality, reasonably priced linen and woolen clothing, as well as cheaper and better-quality tools and equipment.


No society can flourish if the majority of its citizens are miserable. Those who employ and as such feed, clothe, and lodge the majority of a society's people should have a share of the produce of their own labor, to ensure that they themselves are well-fed, clothed, and lodged.


Poverty does not prevent people from getting married—and, indeed, seems to go hand in hand with a higher number of children in families. A half-starved Highland woman will often have over twenty children, while wealthier women are often unable to conceive or are exhausted by two or three children. But poverty is not conducive to raising children; it is not uncommon for a mother who has given birth to twenty children to have only two of them alive. In some cases, half of children die before reaching the age of four—and in almost all cases before the age of ten. These high mortality rates are particularly prevalent amongst children of families from poorer backgrounds who cannot afford to care for them as well as their wealthier counterparts. Population figures are regulated by these deaths; on the other hand, the demand for men, as for any other commodity, regulates the production of men.


Men will always be more active in employment for which wages are high as opposed to low. The wages of labor are regulated by the demand for labor and sustenance costs. The demand for labor determines the quantity of needs and wants that a worker will be able to purchase, with wages of labor being determined by what is needed to purchase this quantity. In times of abundance, demand for labor increases and wages therefore increase; whereas in times of scarcity, wages will decrease.


Next Chapter

Don't get lost in the Wall Street Fee-Factory

It's taken us a few years to finally figure out the right mix of tools that get results and save money. If you click on the toolbox, you'll see an article we wrote that lays-out the brokers and research tools we personally use.

Got Questions?


The Investor's PODcast

Get a free autographed copy of the Warren Buffett Accounting Book or Warren Buffett's Three Favorite Books. Simply submit your question to The Investor's PODcast. If your question gets answered on the air, the founders of this site, Preston Pysh and Stig Brodersen, will send you a free signed copy of their book!


The Warren Buffett Forum

Ask your question at the Buffett's Books money forum and interact with other smart investors like yourself. You won't find any day traders on this forum! Here's the link to The Warren Buffett Forum.