The Components of Price are Wages, Profit, Rent.
All things which man uses are the results of labour.Take for example the objects before and about usthe table, thetable-cloth, the ink-stand, the window, the carpet, the fire-irons, the gold watchwe can easily trace the processes of humanlabour by which these became what they are.
All these things have their price.Upon what does their price depend? The Price of any article involves three elements,Wages, Profits, Rent.This is one of the cardinal points and foundation stones of Smith's doctrines.
He teaches (B.i.c.vi.), as we have said, that all things which man needs or desires is provided by labour.And that at first,all thus produced belongs to the labourer; and what he gets for it is his wages.But when men have capital or stock on whichthey can support others while they labour (that is, have food, clothing, &c.), or have the command of these by raisingmoney, they set others to work, and charge the labour with a profit in the price of what they produce.Further, theproduction of many things requires land; and when the land has all been appropriated, rent is demanded for it.Now land haseverywhere been appropriated in a very early stage of society.For instance, in New Zealand the claim to property in land isas technical and as obstinately urged as in England.
(Smith, W.N.p.22.) "As soon as stock has accumulated in the hands of particular persons, some of them will naturallyemploy it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make aprofit by the sale of their work, or by what their labour adds to the value of the materials.In exchanging the completemanufacture either for money, for labour, or for other goods, over and above what may be sufficient to pay the price of thematerials and the wages of the workmen, something must be given for the profits of the undertaker of the work, whohazards his stock in this adventure.The value which the workmen add to the materials, therefore, resolves itself in this caseinto two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materialsand wages which he advanced.He could have no interest to employ them, unless he expected from the sale of their worksomething more than what was sufficient to replace his stock to him and he could have no interest to employ a great stockrather than a small one, unless his profits were to bear some proportion to the extent of his stock.
"The profits of stock, it may perhaps be thought, are only a different name for the wages of a particular sort of labour, thelabour of inspection and direction.They are however altogether different, are regulated by quite different principles, andbear no proportion to the quantity, the hardship, and the ingenuity of this supposed labour of inspection and direction.Theyare regulated altogether by the value of the stock employed, and are greater or smaller in proportion to the extent of thisstock.Let us suppose, for example, that in some particular place, where the common annual profits of manufacturing stockare ten per cent.there are two different manufactures, in each of which twenty workmen are employed at the rate of fifteenpounds a year each, or at the expense of three hundred a year in each manufactory.Let us suppose too that the coarsematerials annually wrought up in the one cost only seven hundred pounds, while the finer materials in the other cost seventhousand.The capital annually employed in the one will in this case amount only to one thousand pounds; whereas thatemployed in the other will amount to seven thousand three hundred pounds.At the rate of ten per cent., therefore, theundertaker of the one will expect a yearly profit of about one hundred pounds only; while that of the other will expect aboutseven hundrel and thirty pounds.But though their profits are so very different, their labour of inspection and direction maybe either altogether or very nearly the same.In many great works, almost the whole labour of this kind is committed to someprincipal clerk.His wages properly express the value of this labour of inspection and direction.Though in settling themsome regard is had commonly, not only to his labour and skill, but to the trust which is reposed in him, yet they never bearany regular proportion to the capital of which he oversees the management; and the owner of this capital, though he is thusdischarged of almost all labour, still expects that his profits shall bear a regular proportion to his capital.In the price ofcommodities, therefore, the profits of stock constitute a component part altogether different from the wages of labour, andregulated by quite different principles.
"In this state of things, the whole produce of labour does not always belong to the labourer.He must in most cases share itwith the owner of the stock which employs him.Neither is the quantity of labour commonly employed in acquiring orproducing 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 thewages and furnished the materials of that labour.
