The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

LECTURE IV.

Gentlemen,—

In comparing the costs of production of different commodities by reference to the labour employed in producing them, it is necessary to attend to the kind as well as the quantity of that labour. Different kinds of labour are of different values. Some kinds occasion a much greater sacrifice of easet han others do from the labourer. But besides this, which according to the common theory of labour being the only real measure of value, would be the only manner of accounting for the fact that one kind of labour constantly receives a higher remuneration than another kind, there are several other reasons why one sort of labour is naturally more valuable than other sorts, and therefore naturally requires and obtains better wages. And other things being equal, the natural prices of those commodities on which the more valuable species of labour has been expended will be higher than that of the commodity which is produced by an equal quantity of the cheaper and less valuable labour. This subject has been so well and perspicuously explained and illustrated by Adam Smith, that subsequent writers are in general content to copy from him. But although he has completely succeeded in all that he attempted, which was to lay down and illustrate the principles which cause an apparent inequality in the wages and advantages of labourers in different employments, yet he has been guilty of a few inadvertancies, which succeeding writers have remarked in his explications of the mode and reason of the operation of those principles; and he has altogether omitted to point out the circumstances which modify those principles, and which according to the condition of the country, will render some of them more or less effectual in producing a difference in the rate of wages in different employments. This latter investigation is the more important as it relates to circumstances which exercise an influence upon trade and commerce almost equal to the effects produced by the difference of soil and climate existing in the different regions of the globe.

It is abundantly evident that there are some causes in consequence of which a labourer of one description obtains a higher rate of wages than one who is engaged in a different employment, and it is a subject of some interest to investigate what those causes are, and in what manner they operate. But a mistake or an omission in the enumeration of them will not be attended with any serious consequences. No important propositions in this science are founded upon any particular explanation of the causes of this phenomenon. It will be enough to bear steadily in mind that there are such causes, and that some kinds of labour are in fact paid more highly than other kinds, notwithstanding that the laws permit every man to choose his own employment, and that in consequence some articles are naturally dearer than others, in the fabrication of which an equal quantity of labour may have been expended.

The first principle laid down by Smith is that “the whole of the advantages or disadvantages of the different employments of labour and stock must in the same neighbourhood be either perfectly equal or continually tending to equality. For if in the same neighbourhood there was any employment evidently either more or less advantageous than the rest, so many would crowd into it in the one case, and so many would desert it in the other, that its advantages would soon return to the level of other employments. This at least would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper. Every man’s interest would prompt him to seek the advantageous and shun the disadvantageous employment.” As this state of freedom nearly exists in all civilized countries, the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable practical importance; and the effect of the circumstances which in some cases partially modify its truth can be fully appreciated.

Smith classes under five heads the circumstances which create the difference that exist in the relative wages of different employments; and his classification is a convenient one, although minute criticism might discover imperfections in it. Those five circumstances are—1st. The agreeableness or disagreeableness of the employments themselves. 2ndly. The easiness and cheapness, or the difficulty and expense of learning them. 3dly. The constancy or inconstancy of employment in them. 4thly. The small or great trust which must be reposed in those who exercise them. 5thly. The probability or improbability of success in them. As to the first cause, viz.: The agreeableness of the employment or the contrary—this produces a difference in wages on the common principles of demand and supply which regulate the prices of all things. It is not to be supposed that any man will engage in an unhealthy, disagreeable, or dishonorable employment, if he can obtain the same wages in some occupation more favorable to his health, his comforts, and his respectability. All men will desert the former and crowd into the latter employment, until a difference of wages is produced sufficient to induce some to put up with the inconveniences of the disagreeable employment, and thus to produce an equality between the demand and the supply of labourers of each kind. The effect of this cause upon the relative wages of labourers will be less, in proportion to the poverty of the country and the general depression of the labour. The man who wishes to choose or change his occupation must in general have the means of subsisting for a short time without employment, and this power is less likely to be possessed where the situation of the labourer is one of poverty and depression. Besides, when the wages of the labourer are barely sufficient to supply himself and his family with the necessaries of life, a slight addition will have a greater effect in persuading him to submit to an employment attended with hardships and inconveniences, than a corresponding addition to his salary will have on a man already supplied with a due share of necessaries and comforts. In each case, the hardship of doing without the articles purchased with the additional wages must be equal to the additional hardship imposed by the higher paid employment. The difference created by this cause will therefore increase with the advance of the country in civilization and prosperity, and in consequence there will at the same time be an increase in the relative prices of the articles produced by the less agreeable, healthy, and creditable kinds of labour. Smith instances actors as a class of labourers deriving high rewards from the discredit attached to the profession. He supposes that a talent for acting is not so rare as is commonly imagined, but that many are capable of acquiring it, and would exhibit it if any thing could be honorably made by it. If his statement of facts on this point be correct, his reasoning is quite conclusive, and the instance is as good an example as can be produced of the manner in which discredit, by preventing people from entering a profession, increases the recompence that may be obtained in it. The army is an instance of the converse case. It is a profession into which members of the higher class enter, although the pay is scarcely an equivalent for the expense of obtaining a commission, even counting nothing for the loss of time and trouble. I imagine that the credit and respectability supposed to belong to this profession have a greater effect in inducing people to engage in it than the few splendid prizes to which success in it may lead.

The second cause of variation in the relative wages of labour is the easiness and cheapness, or the difficulty or expense of learning the business. The principle that operates here on the wages of labour is analogous to the effect which the cost of production has upon the price of commodities. It limits the supply to such a number as can obtain employment at a rate of wages sufficiently high not only to pay them for their toil in working like other labourers, but also, within the ordinary duration of human life, to repay to them the whole expense of their education, together with the ordinary profits on the capital originally expended in that education. “The difference between the wages of skilled labour and those of common labour is founded upon this principle.” Wages, as far as they are affected by this principle, will be lowest in those trades in which, as in agriculture, the labour of the person learning his business can be turned to some advantage by his employer. This principle will become less effective as the society advances in civilization and prosperity. The difference thus caused is in fact very analogous to profits, and will diminish with every diminution which, in the progress of society, takes place in the rate of profits; and at a future period we shall see that as society advances, the rate of profits has a tendency to diminish.

As an illustration of the effect which the two principles I have just mentioned may have upon the state of commerce, suppose two countries between which existed a perfect freedom of intercourse, let them be similarly circumstanced as to soil and climate, but in one the inhabitants are all free, while in the other the labouring part of the population is in a state of slavery. The commerce between those countries will necessarily consist of exchange of the products of harsh disagreeable labour from the country of slaves, for the results of skilled and educated labour from the land of freemen. The master will not employ his slave in a more agreeable kind of labour, when he can gain a little more by a different sort, whatever be the hardship and disagreeableness. But the freeman will not sell so cheap this additional sacrifice of ease and comfort; but as his own interests, not those of a master, are concerned, he will learn every kind of skilled labour with greater facility and less expense than the slave. I am not about to pronounce an opinion now on the advantages or disadvantages, the justice or injustice, of an immediate emancipation of the West India slaves. The question is too complicated with a variety of facts and circumstances, and is too angrily agitated, to be a fit subject for a Professor’s chair. I shall confine myself to general principles, and call your attention to a remark which appears to me of some importance. When it is said that free labour is cheaper than that of slaves, or the contrary, the proposition must be considered false if taken universally, since it will depend on the kind of labour whether such a position is true or false. If the slaves in half our West India islands were emancipated, that half might or might not grow in prosperity and exceed in wealth and comfort the remaining islands. But it is highly probable that their exports would no longer consist principally of sugar, and any falling off in their exports of such a commodity could not reasonably be adduced as a proof of their declining state.

3rdly. The wages of labour in different occupations vary with the constancy or inconstancy of employment. The labourer must depend for subsistence for himself and his family upon the wages he receives during the time he is employed. While he is out of work he is also out of pay, and although he then has his time to himself, yet it is occupied by anxious and uneasy reflections, arising from the loss of his employment, and the uncertainty of its return.

Hence no man would engage in a business which only furnished occasional employment, if he could procure equal wages in one wherein the demand was constant. Higher wages must therefore be given in the former business, not only to maintain him while he is idle, but to make some compensation for the greater uncertainty of his situation. He must be repaid for the vicissitudes to which he is subject, that out of his higher wages he may save a sum sufficient in general to support him during the seasons when he is unable to earn any thing. This increase of wages may on an average form an amply sufficient fund, but from the very nature of an average, this fund may sometimes be more than required, and sometimes, on the other hand, may be insufficient for his support, and for this uncertainty he will require some compensation. Owing to this cause partly it is that where the division of labour is carried to a great extent, the wages of the labourer must be higher, as he is more likely to be thrown out of employment by the vicissitudes of trade. This must be more especially the case when the occupation is of such a nature that the labourer, when deprived of it, cannot readily turn to any other employment. On the other hand, when there are several branches of business of such a nature that the labourer can readily turn from one to another, his wages, as far as they are regulated by this principle, will depend upon the certainty of his being able to procure employment in one or other of them. The effect of this principle will be most apparent where the condition of the labourer is least depressed, and where therefore in making the contract for his wages, he can provide for something beyond his present maintenance.

4thly. The wages of labour vary according to the small or great trusts that must be reposed in the workman. “Great confidence it is supposed cannot be safely reposed in persons of very mean or low condition. Their reward therefore must be such as to give them that rank in society which an important trust requires.” It might be thought that the high wages received by those in whom a great degree of confidence is necessarily placed cannot be so readily accounted for on the general principle of demand and supply, for that the confidence to be reposed will not prevent any person from coming forward to accept the employment, and that then competition will reduce their wages to the level of other employments, and that the employer will not often, for the mere purpose of increasing the respectability of his agent or servant, allow him greater wages than the least he would be willing to accept. Something of this kind however does happen, and persons are willing often to give somewhat higher wages than would be demanded by persons in whom a great trust is to be reposed, in order that they may be relieved from the temptation of want to violate their trust, and that the possible loss of their situation may be more than an equivalent to any advantage they could derive from misconduct. But this operation of the principle is less effective than its influence in limiting the supply, by making the employer unwilling to engage with any who do not already possess such advantages as respectability of rank and character, good recommendations, or the power of giving adequate security against the consequences of a breach of trust. Thus this principle, by diminishing the source from which the supply must be derived, increases the emoluments of those who discharge offices of trust and confidence. And perhaps Adam Smith would have been more accurate, if instead of saying that their reward must be such as to give them that rank in society which an important trust requires, he had said their reward must be such as to procure persons of that rank in society which an important trust demands, to accept the office. This difference varies in different stages of society, and will evidently be the least where religion, morality, and education most prevail.

The 5th principle stated by Smith is that the wages of labour in different employments vary according to the probability or improbability of success in them. In occupations where there is a chance of failure, the rewards of success must be sufficient to cover the loss by failures in the estimation of such as engage in them. “Like a lottery, in a profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty.” The advantages of any employment of money or time in this respect may be said to vary according to the rewards of success and the chances of succeeding. If the chance diminishes, the reward ought to increase, or the diminished advantages of the profession would prevent many from engaging in it, and thus by diminishing the competition, increase either the chance or the reward of success, and bring up the profession to a level with other employments. The contrary effect would be produced if the reward of success was more than sufficient to compensate for the chances of failure. It is to this that the high rewards received by the most successful members of the liberal professions are to be attributed. In the profession of law, for instance, how many fail in procuring any reasonable compensation for their laborious and expensive preparation. It is evident that all things considered, the average profits of the members of any profession cannot be too great. Any man, for example, who thinks that labour in the profession of law is over paid, may embrace it himself or send all his family into it. If asked why he did not do so, notwithstanding the prospects of such extravagant rewards, he would probably reply by adverting to the toil and expense of education, the long delay that must intervene before success can be obtained, and the danger of a total failure; in short to all those circumstances which naturally do, and ever must, increase the fair rewards of successful industry. There are two circumstances remarked by Smith, which render it probable that industry in this profession receives upon the whole a less pecuniary reward than an accurate calculation would prove it entitled to, as an equivalent for the expensive education and chance of failure. These are—1st. The credit and rank which may be acquired by success, which increase naturally the numbers of those who enter the profession; and 2ndly. The natural disposition which every man has, particularly in his youth, the time for choosing a profession, to form too high an estimate of his abilities, and even to over estimate his chance of success as far as it depends on fortune or something equally beyond his own control. In some cases the rarity of that species of talents which is required for eminence or success has an effect in increasing the value of labour, although other circumstances may diminish much the chances of failure. In such cases the scarcity of the necessary talents has the effect of increasing the price, by diminishing the supply of works produced by such artists. This increase of price in his works naturally increases the reward of the artist gifted with these rare talents. His high wages are however not necessary to induce him to exercise his employment. It is the scarcity of persons thus qualified, and the competition among employers, that raises his wages to a sum beyond what he would have otherwise considered a fair remuneration for his labour. There is this difference between such arts as painting and music, and such as those of law or medicine. In the latter professions it is not easy to discover, previous to trial made, to what extent any person is likely to succeed or fail, and also in general, talents that render it likely that a person will succeed in one profession will give him an equal chance of success in any other pursuit. In the former arts, on the contrary, a prospect of success is generally held out very early in life, by the display of suitable natural talents and taste. These both promise success and indicate to the young artist the pursuit which he ought to adopt. Hence the artist, to induce him to chuse his profession, need not obtain for his success such wages as would be an equivalent for the number of those who fail, since he was never exposed to any risk of failure, and besides, a natural ability for such an art as music or painting does not give a man the power of selecting one out of several pursuits. This may account for the fact that such talents are not so highly rewarded as in other professions, notwithstanding their rarity and the want of that rank and honor which in other liberal professions attend success and diminish its pecuniary reward.

When investigating the relative values of different kinds of labour, as forming the component parts of the cost of production of any commodity, it is necessary to take into consideration the length of time which must generally elapse before the pay of the labourer can be obtained by the sale of that commodity. It is true that in most cases, I may almost say in every case, the labourer does not and cannot wait for his wages until the sale of the commodity which he has assisted to produce. The person who employs him and directs his labour, in general pays him in the first instance, and repays himself by the sale of the articles thus produced. But he does so for his own benefit and not for the purpose of serving the labourer or the consumer, although he is in reality at the same time serving both. But he would have no motive to advance his capital if the additional value of the article were to be only equal to the sums advanced by him to the labourer. He will not give his money to the labourer in the expectation of getting back precisely the same sum at a future period; he expects to sell it at a greater price, and that difference constitutes his profits. These profits may be said to form part of the price of the article, but their existence does not injure the consumer, for the profit required by the employer is always much less than the increase of wages which the labourer would demand if he were to wait for them until the sale of the commodity, subject also to the inconvenience of a distribution, not easy to be made, among all the labourers who have directly or indirectly contributed to its production. The manufacturer can remain without his money with less inconvenience than the labourer can; he can therefore afford to accept less as a compensation for what he advances, and the effects of competition will be that he will accept as little for profits as any one can afford, having reference to the usual rate of interest and profits. If he will not be contented with the same profits as others, he must either charge more for his goods or pay lower wages to his labourers, or by superior skill furnish articles with a less expenditure of labour. In the first case, if he demands a higher price for his goods, the consumers will desert him and go to those who will supply them with cheaper goods. In the second case, if he pays lower wages to his labourers, his labourers will desert him and resort to those employers who pay higher wages. And in the last case, if he obtains higher profits in consequence of his own superior skill, his high profits are no injury to any person, since the consumer gets as cheap goods and the labourer as high wages as any one else can give. But such high profits are generally only temporary, for as soon as his secret is known, or his skill becomes more general, the effect of competition will either reduce his profits or drive him from the trade. The amount of profits will of course increase with the length of time that must elapse before a return can be expected for the advances that are necessary to be made. Of two articles, therefore, produced by equal quantities of labour, one will be more valuable than the other, if in its fabrication the labour must have been employed at a greater interval from the time at which it can be readily sold.

From what I have said it may appear not only that one sort of labour may be more valuable than another, but that the labour of one person may be worth more than the labour of another person engaged in the same employment, and in like manner that the average value of labour in one country or one age may be greater than its average value in a different age or country, and therefore that labour is not peculiarly well fitted as a measure to compare the values of commodities in different ages or countries. To hold that things are necessarily of equal value, in all times and places, which are produced by means of equal sacrifices of toil and trouble, is to attach to the word value a signification so abstract as to divest it of every circumstance that can render the consideration and investigation of values useful or interesting. It may even happen that the relative values of two articles may vary without any change taking place in the quantity or nature of the labour required to produce them. This may happen by the progress or regress of the country in wealth and happiness, making an alteration in the relative values of different kinds of labour. This variation in the relative values of different kinds of labour, and of the rates of profits, combined with the difference of soil and climate in different countries, gives occasion to commerce, and determines naturally in what channels it shall flow; and of those causes the one relating to the state of labour is frequently the most effective. Some of those causes which affect there lative wages of labour, exert a similar influence upon the rate of profits, as for instance, other circumstances being the same, the rate of profits will be higher in a disagreeable, unwholesome, or disreputable trade, than in one which is pleasant, whole some, and respectable. In the same manner, profits must be higher in a trade where there is a greater risk of failure, or where a tedious and expensive preparation is necessary to learn it, than where success is comparatively certain, and where the necessary previous preparation is comparatively cheap and expeditious.

Henceforward, in order to avoid unnecessary circumlocution, I shall speak of wages and profits as being the same in all employments; meaning thereby that in any state of society there is a constant proportion between them, and that all employments of labour and capital are equally advantageous to the labourer and capitalist, as they must be, since no man will employ his labour or capital in one employment, if by turning to another he can obtain what, taking every thing into consideration, would be a better remuneration. If it is said that a working mason must get the same wages as a working carpenter, it is meant that no difference can exist in their wages, except what may be caused by the preceding circumstances; and the conclusion equally follows, that a permanent rise in the wages of one class cannot take place while the wages of the other classes remain constant. This rise of wages peculiar to one class would be said to disturb the equality, while in reality it would alter the proportion that must exist between wages in different employments. People will crowd into the one which is thus made more advantageous than the rest, and the effects of competition will quickly reduce wages there to their proper proportion, generally called their equality with the wages of other employments.

An objection may here arise in the minds of some of my hearers, that this level or proportion between the profits or wages of different employments will take place only where they are of such a nature that persons may change one for the other, or at least may at the time for adopting an employment, choose between them, if one appears more advantageous than the other. It may be admitted, that taking all things into consideration, the trade of a bricklayer cannot be more or less advantageous than that of a shoemaker. Here the principle mentioned by Smith has room for operation. If one trade is more advantageous than another, so many will crowd into the former in preference to the latter, that the effects of increased competition will soon reduce the advantages of these trades to their proper level. But perhaps it might be hastily thought that such a principle cannot operate where the professions thus compared are filled by persons taken from a different rank or situation in life. Increased profits of bricklayers, or the diminished gains of barristers, will not induce any person to become a bricklayer who would otherwise become a barrister. Neither will the diminished profits of bricklayers, or the increased gains of barristers, enable a man who would otherwise become a bricklayer, to pursue the profession of the bar, and by his competition reduce the gains of the profession to their proper level. This may be the case, and yet the due proportion between the gains of those two professions, so remote from each other, may be preserved by means of the intermediate professions. These act as media of communication. The effects of competition will reduce or raise the advantages of the trade of the bricklayer to the level of other employments which are filled by the same class of persons. It will moreover exert an immediate influence over the trades of a rank one degree higher, that is, in those trades which require a somewhat more tedious or expensive education, and therefore on an average receive higher emoluments, and are filled by a wealthier class of persons. For there are always some who would be influenced in the choice of trades approaching each other in expenses and emoluments, by slight additional circumstances of relative advantages or disadvantages in either. Thus trades one degree higher are brought to their level of advantages; and mounting step by step, even the most distant professions will preserve the natural proportion between their emoluments, as the emoluments of each profession will preserve their fair proportion to those of the profession of equal rank, and to those of all professions of a rank one degree immediately above or below it, and thus a series of communication is established between the lowest and the highest.

It is to be observed that I have confined myself to-day to the relative wages, and have said nothing as to the circumstances which determine the absolute remuneration which the labourer shall receive. The solution of the latter question is more difficult, and also depends in some respects upon the former, and it could not be discussed until the former is well understood. This subject however would, were I to attempt it now, take up more of your time than I can venture to call upon you to give. I must therefore defer it to some more convenient season. On Friday I shall call your attention to the advantages of a division of labour, and the circumstances which lead to its institution.