Secondly, by secrets in manufacture, which enable the capitalist to cut production costs and sell his goods at the same price, or even at a lower price than his competitors, while making a bigger profit. (Deceit by concealment is not immoral? Dealings on the Stock Exchange.) Furthermore, where production is confined to a particular locality (as in the case of select wines) and the effective demand can never be satisfied. Finally, through monopolies granted to individuals or companies. The price of monopoly is the highest which can be got. [Smith, pp. 53-4]
Other chance causes which can raise the profit on capital:
The acquisition of new territory, or of new branches of trade, may sometimes rise the profits of stock even in a wealthy country, because part of the capital is withdrawn from the old branches of trade, competition comes to be less than before, and the market is less fully supplies with commodities, the prices of which then rise: those who deal in these commodities can then afford to borrow at a higher interest. [Smith, p. 83] 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 of commodity, not only the number of the profits increase, but every subsequent profit is greater than the preceding one; 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. [Smith, p. 45]
So, the growing role played by human labor in fashioning the natural product increases not the wages of labor but partly the number of profitable capitals and partly the size of each capital in proportion to those that precede it.
More later about the profit which the capitalist derives from the division of labor.
He profits in two ways: firstly, from the division of labor and secondly, and more generally, from the growing role played by human labor in fashioning the natural product. The larger the human share in a commodity, the larger the profit of dead capital.
In one and the same society, the average rates of profit on capital are more nearly upon a level than are the wages of different kinds of labor.
[Smith, p. 45] In the different employments of capital, the ordinary rate of profit varies more or less with the certainty or uncertainty of the returns; "... the ordinary profit of stock, though it rises with the risk, does not always seem to rise in proportion to it."
[ Smith, pp. 99-100 ] Needlesstosay, profits also rise if the means of circulation ( e.g., paper money) improve or become less expensive.
3. The Rule of Capital over Labor and the Motives of the Capitalist "The consideration of his own private profit is the sole motive which determines the owner of any capital to employ it either in agriculture, in manufactures, or in some particular branch of the wholesale or retail trade. The different quantities of productive labor which may put it into motion, and the different values which it may add to the annual produce of the land and labor of the society, according as it is employed in one or other of those different ways, never enter into his thoughts."
[ Smith, p. 355 ]
"The most useful employment of capital for the capitalist is that which, with the same degree of security, yields him the largest profit; but this employment is not always the most useful for society... the most useful is that which... stimulates the productive power of its land and labor."
[ Say, II, pp. 130-31 ]
"The plans and projects of the employers of stock regulate and direct all the most important operations of labor, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in countries which are going fastest to ruin. The interest of this third order [those who live by profit], therefore, has not the same connection with the general interest of the society as that of the other two.... The interest of the dealer, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.
To widen the market and to narrow the competition, is always the interest of the dealers... and order of men whose interest is never exactly the same as that of the public, who have generally an interest to decisive and even to oppress the public..."
[ Smith I, pp. 231-2 ] 4. The Accumulation of Capitals and the Competition among the Capitalists The increase of capitals, which raises wages, tends to lower profits, as a result of the competition among capitalists. [Smith, p. 78]
If, for example, the capital which is necessary for the grocery trade of a particular town "is divided between two different grocers, their competition will tend to make both of them sell cheaper than if it were in the hands of one only; and if it were divided among 20, their competition would be just so much the greater, and the chance of their combining together, in order to raise the price, just so much the less."
[ Smith I, p. 322 ] Since we already know that monopoly prices are as high as possible, since the interest of the capitalists, even from a straight-forwardly economic point of view, is opposed to the interest of society, and since the growth of profits acts on the price of the commodity like compound interest [Smith, pp. 87-8], it follows that the sole defense against the capitalists is competition, which in the view of political economy has the beneficial effect both of raising wages and cheapening commodities to the advantage of the consuming public.
