while net profit is the same, or very nearly the same, at any particular period, in them all. A gunpowder manufacturer, for example, must obtain as much profit, over and above the profit obtained from the capital engaged in the securest businesses, as will suffice to guarantee or insure his capital, from the extraordinary risk to which it is exposed, in a business of such extreme hazard. If the gunpowder manufacturer were to obtain more than this rate, additional capital would be attracted to his business, and if he were to obtain less, he would withdraw capital from it. The constantly acting principle of competition, or, which is just the same thing, the self-interest of every individual, will never permit the wages or the profits obtained by any particular set of workmen or capitalists, taking all things into account, to continue either long below or long above the common and average rate of wages and profits obtained by those who are employed, or who have capital invested in other businesses. It is by this common standard that the wages and profits of particular businesses are always regulated; they can never diverge considerably from it; they have a constant tendency to equalization; and may, in all theoretical inquiries be supposed, without occasioning any error of consequence, exactly to coincide.

The principle of the equality, or rather of the constant tendency to equality, of the wages earned by the labourers, and of the profits derived from the capitals, employed, at the same time, in all the various

4

branches of industry, was pointed out by Mr Harris, * and also by Mr Cantillon; † but it was first fully demonstrated in the eighth, ninth, and tenth chapters of the first book of the Wealth of Nations. The establishment of this principle was one of the greatest services rendered by Dr Smith to the science of Political Economy. Nothing can be clearer, more convincing and satisfactory, than his reasoning on this subject. The equality of wages and of profits has, ever since the publication of his work, been always assumed as admitted and incontestible.

It ought also to be kept in view, throughout all the investigations of this science, that the capitals employed in the production of commodities may be of almost every conceivable degree of durability, or, in other words, that periods of almost every conceivable degree of duration may be required for their consumption. The bread, beer, and other articles pro vided for the subsistence of the labourer, form a part, and an important one too, of the capital of the country; but how limited is the durability of such articles, compared with the durability of a bridge, or a granite dock! The former may be consumed in the space of an hour, while the latter will probably last for five hundred or a thousand years. These two species of capital may be taken as representing the extremes of duration, and the space between them may

Essay on Money and Coins, p. 13.

+ Analysis of Trade, &c. p. 15.

be supposed to be filled up, and I believe is really so, by capitals of every intermediate degree of durability. One machine may be capable of lasting fifty years, another forty, a third ten, and so on. Nor in all the long interval between the duration of the least and that of the most rapidly perishable capital, is it possible to fix on any term which does not, or may not, represent the durability of a capital.

SECTION III.

Cost of Production the regulating principle of Price-Influence of Variations in the Demand for and Supply of Commodities on their Price-Influence of Monopolies--Average Price always coincident with Cost of Production.

HAVING thus seen that the wages earned by the labourers engaged in different employments, are, all things considered, precisely equal; and that the same principle holds with respect to the profit derived from the capitals invested in the different departments of industry, we might proceed to inquire into the effects supposed to be exercised by variations in the rate of wages, and in the rate of profits on the value of commodities. But, before entering on this inquiry, it will be expedient to investigate the influence which the relation between the supply of commodities and the demand for them has in determining their exchangeable value, as compared with each other, and their price or value as compared with money. It was long the universal opinion, and it is still the opinion of the great majority of practical

men, and even of some Political Economists of considerable eminence, that the exchangeable value of commodities depends exclusively on their relative abundance or scarcity in the market compared with the demand. There can be no doubt, however, that this opinion is essentially erroneous; and I shall now very briefly recapitulate some of the statements by which its fallacy has been demonstrated.

It has been already seen, that the capitals invested in different businesses yield, at any given period, the same common and average rate of net profit. But it is quite obvious, that if any commodity were brought to market and exchanged for a greater amount either of other commodities, or of money, than was required to defray the cost of its production, including, in that cost, the common and average rate of net profit at the time, its producers would be placed in a relatively advantageous situation compared with others; and there would, in consequence, be an influx of capital into that particular department, until competition had sunk the value, or price of the article, to the level that would just yield the customary rate of profit on the capital employed in its production. And, on the other hand, if a commodity were brought to market which did not exchange for so great an amount of other commodities, or of money, as was required to cover the cost of its production, its producers would be placed in a relatively disadvantageous situation; and would, in consequence, withdraw their capital from the production of the commodity, until its value or price had

risen to such a level as was sufficient to place them in the same situation as their neighbours, or to yield them the same rate of profit.

The cost of producing commodities,-denominated by Dr Smith and the Marquis Garnier natural or necessary price,―is, as will be afterwards shown, identical with the quantity of labour required to produce them and bring them to market. But, without inquiring at présent into the elements which form the cost of production, it is quite obvious that it is the permanent and ultimate regulator of the exchangeable value or price of every commodity that is not subjected to a monopoly, and that may be indefinitely increased in quantity by the application of fresh capital and labour to its production. That the market price of such commodities and their cost of production do not always coincide is certain; but they cannot, for any considerable period, be far separated, and have a constant tendency to equality. It is plain, that no man will continue to produce commodities if they sell for less than the cost of their production—that is, for less than will indemnify him for his expences, and yield him the common and average rate of profit on his capital. This is a limit below which it is obviously impossible prices can be perma nently reduced; and it is equally obvious, that if they were, for any considerable period, to rise above it, additional capital would be attracted to the advantageous business; and the competition of the producers would lower prices.

A demand, to be effectual, must be such as will