# Was Adam Smith correct about the relative marginal productivities of capital in agriculture, manufacturing, and trade?

Adam Smith (1776):

No equal capital puts into motion a greater quantity of productive labour than that of the farmer.

After agriculture, the capital employed in manufactures puts into motion the greatest quantity of productive labour, and adds the greatest value to the annual produce. That which is employed in the trade of exportation, has the least effect of any of the three.

In modern language, we might write the above as

$$MPK_{\text{Agriculture}}>MPK_{\text{Manufacturing}}>MPK_{\text{Trade}}.$$

Has there been any research proving/disproving the above assertion (in the context of 18th-century Britain)?

• It seems plausible if you count the value of land in agricultural capital – Henry Jun 23 at 10:21

## 1 Answer

He is saying that agriculture is the least capital intensive of the three. This is not about marginal product- the labor might be low productivity such that MPK is still low.

Saying agriculture isnt capital intensive is more or less axiomatic. Everyone starts with agriculture. In Smith's time what today uses tractors and machines was done with livestock. It blurs the distinction.

His trade comment is probably highly ambiguous. What types of trade? There are probably canal boats and barges that passively float along rivers and dont involve any direct labor at all. On the other hand goods could be moved by courier and be all labor.

The easiest way to measure labor productivity or labor/capital ratio for an occupation is wages.

http://victorian-era.org/the-victorian-era-wages-salary-earnings.html

It lists a wage of a textile worker as up to 16s and common laborers as 3s. Other laborers made within this range. London laborers made 20s but this seems to be the high end. Sailors made 15s.

It is also possible these are due to labor power. However, these are generally fairly open, nonunionized jobs so the main factor in wages would be productivity. This is stuff subject to child labor so guilds have limited power.

So, just based on these wage rates, and basic assumptions, it does look like sea trade is more capital intensive than most laboring jobs, but it depends on the job.

• I'm not the downvoter but I think a number of assertions here are unsound. Firstly, wage rates are not a reliable guide to labour productivity - they can simply be the product of a strong bargaining position. Secondly, if Smith's argument is that trade is highly capital intensive, then that seems to be proven by the fact that although a canal boat may float passively and the courier may operate a horse, the waterways and highways themselves are the overwhelming capital elements of the activity, and a bag of grain (for example) is far less labour intensive to move by any means, than to grow. – Steve Jun 23 at 12:06
• It is in any case unclear because the waters are not always artifical, and there is post and other items that doenst require much manufacturing – user23368 Jun 23 at 17:52