The Real Story of Your Paycheck — The Wealth of Nations

Smith opens by defining the natural recompence of labour: in the original state before land was appropriated and stock accumulated, the worker kept the whole produce. Had that condition lasted, wages would have risen with every improvement in productive power from the division of labour, and all things would gradually have become cheaper in real terms even when some goods looked dearer in exchange. He illustrates with a thought experiment: if most trades became ten times more productive while one trade only doubled, that specialty would appear five times dearer when traded for others while actually requiring half the labour to obtain. That counterfactual ended long before modern improvements matured, once landlords took rent and masters took profit, so he does not trace it further.

Rent makes the first deduction from produce on land; profit makes the second when a farmer advances a labourer's maintenance until harvest. The same pattern holds in manufacture: most workmen need a master to supply materials and wages until work is finished, and the master shares in the value added. A few independent artisans combine both roles, but in every part of Europe twenty workmen serve under a master for one who is independent. Common wages depend on a contract between parties whose interests diverge: workmen want more, masters want less. Both may combine, but masters are fewer, combine more easily, and face no parliamentary ban on lowering the price of work while laws prohibit labourers from raising it.

Masters can hold out longer because accumulated stock sustains a landlord, farmer, or merchant for a year or two without a single hire; few workmen subsist a month, scarce any a year, without employment. We rarely hear of master combinations only because they are the usual state: a tacit, constant, uniform agreement not to raise wages above the actual rate. Violating that norm is unpopular among neighbours. Sometimes masters combine secretly to sink wages below even that rate; workmen resist or combine offensively, but tumults usually end in punishment of ringleaders, not lasting gains. The structural imbalance remains: necessity binds the worker immediately; the master can wait.

Yet there is a floor below which ordinary wages cannot long fall. A man must live by his work; wages must at least maintain him and, on most occasions, something more so he can bring up a family and the race of workmen continue. Cantillon argued the lowest common labourers must earn at least double their own maintenance so that, one with another, they can rear two children when half die before manhood and the wife's labour covers only herself. Smith will not fix the exact proportion, but the principle holds: even the meanest labour must exceed bare subsistence if the workforce is to reproduce. Certain circumstances let labourers raise wages considerably above that lowest rate consistent with common humanity, and the rest of the chapter explains when that happens and when it does not.

When workmen combine offensively, their usual pretences are the high price of provisions or the great profit masters make by their work; when they combine defensively against secret wage cuts, they act with the desperation of men who must either starve or frighten employers into immediate compliance. Masters answer with clamour for magistrates and rigorous execution of laws against servants, labourers, and journeymen who combine. The superior steadiness of capital, the interposition of civil authority, and the greater part of workmen's need for present subsistence generally ensure that violent tumults end in punishment or ruin of ringleaders, not permanent advantage. Smith is not cheering either side; he is mapping why the bargaining table tilts before growth or scarcity enters the story. That floor and that tilt together frame every wage rate readers will meet in the pages that follow.