Chap. 6a: Components of Price

Book I, Chap. 6a: the Component Parts of the Price of Commodities

In The Rude State, Price Has One Component: Wages

1 In the rude state of society, only the quantity of labour regulates the exchangeable value of  commodities.

  • For example, in a nation of hunters, a beaver is twice as hard to kill than a deer.
    • A beaver is naturally exchanged for, or is worth, two deer.
  • The produce of two hours of labour should naturally be worth double the produce of one hour’s labour.

2 If one kind of work is harder, it naturally becomes worth more than an easier kind of work.

  • The produce of one hour’s hard work may frequently exchange for the produce of two hour’s easy work.

3 Or if one kind of work requires specialized skills, the people’s esteem for such skills will naturally give it a higher value.

  • Such skills usually take time and effort to develop.
  • The high price of skilled produce is a reasonable compensation for this time and effort in developing those skills.
    • This compensation manifests as higher wages both in the advanced and rude state.

4 In the rude state, without the accumulation of stock, one’s work belongs solely to oneself.

  • In this case, the quantity of work is the only regulator of exchangeable value.

In The Advanced State, Price has Three Components: Wages, Profits, Rent

5 In the advanced state, stock is accumulated.

  • Some people will supply this stock as materials to workers to be worked on.
    • Those workers add value to those materials.
    • The employers then sell their work to make a profit.
  • The exchangeable value of the finished product must include the:
    • price of those materials
    • wages of the workers
    • profits of the employer who risks his stock this way
  • The value added by the workers is composed of:
    • their wages
    • the profits of their employer on the materials and wages he advanced
      • He would only advance his stock, in the form of wages and materials to those workers, if he could get more in return from their work.
      • He would advance big stocks only if his profits were proportional to the size of his stock.

6 Profits of stock are not the same as the wages of management, although people may mistake them as the same.

  • They are regulated by different principles.
  • Profits bear no proportion to the quantity or quality of management work.
    • Profits are:
      • regulated by the value of the stock employed
      • proportional to the size of this stock
  • Let us suppose that:
    • The profits of manufacturing stock are 10% and there are two factories.
      • Each factory has 20 workers at £15 pounds a year each or £300 a year.
      • The coarse raw materials in Factory A cost only £700.
        • The finer raw materials in Factory B cost £7,000.
      • The capital annually employed in Factory A will be £1,000. [£700+£300]
        • The capital annually employed in Factory B will be £7,300. [£7,000+£300]
      • At 10% profits, the employer in Factory A will expect a yearly profit of £100 only. [£1,000*0.10]
        • The employer in Factory B will expect a profit of £730. [£7,300*0.10]
    • Their profits are very different but their management work may be nearly the same.
  • In big business, management is committed to an executive manager.
    • His wages:
      • properly express the value of his management work
      • are determined by his skill and trustworthiness
      • bear no regular proportion to the size of the capital he manages
        • The owner of this capital still expects that his profit should bear a regular proportion to his capital even if he does almost no work.
  • In the price of commodities, profits are different from wages.
    • They are regulated by different principles.

7 In this state of things, the whole produce of labour does not always belong to the labourer.

  • He must share it with the owner of the stock.
  • Wages and profits are not the only parts of the price of commodities.

The Third Component: Rent

8 As soon as land becomes private property, the landlords, like all other men, love to reap where they never sowed.

  • They demand a rent even for its natural produce.
  • When land was not private property, its natural produce only cost the labourer the trouble of gathering them.
  • When land becomes private property, he needs to pay:
    • for the licence to gather them
    • a share of his produce for the landlord
  • This share is the rent of land.
    • It is the third component part of price.

9 The real value of the parts of price is measured by the quantity of labour which each part can purchase or command.

  • Labour measures the value of labour, rent, profit.

10 The price of every commodity finally resolves itself into some or all of those three parts.

  • In every improved society, all the three, more or less, become components of the price of most commodities.

Examples Of The Three Parts In Commodity Prices

11 For example, the price of corn is composed ultimately of the:

  • rent of the landlord
  • wages of the labourers and labouring cattle employed
  • profit of the farmer

A fourth part might be thought necessary for replacing the:

  • farmer’s stock
  • wear and tear of his tools and labouring cattle

But the price of the tools and labouring cattle is itself made up of the:

  • rent of the land it is reared on
  • wages for the labour of tending and rearing the cattle
  • profits of the farmer who pays for these rent and wages

Even if the price of the corn pays for such wear and tear, its total price still resolves itself ultimately into rent, labour, and profit.

foodsupplychain

12  The price of flour includes the:

  • price of the corn
  • profits of the miller
  • wages of his workers

The price of bread has the:

  • wages of the baker’s workers
  • profits of the baker
  • price of the transportation:
    • the wages of those who transport the corn from the farmer to the miller to the baker
    • the profits of those who employ them

13 The price of flax has the same three parts as corn.

The price of linen includes the:

  • wages of the:
    • flax-dresser
    • spinner
    • weaver
    • bleacher, etc
  • profits of their respective employers

More Processing, More Profits

14  The more a good is processed:

  • the less the rent makes up the price
  • the more profit and wages make up its price
    • The number of profits increase.
    • Every subsequent profit becomes greater because its capital becomes greater.
  • For example, the capital which employs weavers must be bigger than the capital which employs the spinners.
    • The capital of the weavers:
      • pays the wages of the weavers
      • replaces the capital of the spinners with its profits
        • These profits must always bear some proportion to the capital.

Words: 1090

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s