# Chapter VSM Analysis: The Component Parts of Price

## Chapter Summary

This chapter presents Adam Smith's fundamental analysis of how commodity prices resolve into three distinct components: wages of labour, profit of stock, and rent of land. Smith begins by examining the primitive economic state where exchange is based solely on labour quantities, then traces how the accumulation of stock and appropriation of land create more complex pricing structures. He argues that profits are determined by the amount of capital employed rather than the labour of supervision, using detailed manufacturing examples to illustrate this principle. The chapter concludes by showing how all revenue ultimately derives from these three original sources, including derivative forms like interest on money. Smith's analysis establishes the foundation for understanding economic distribution and the relationship between different forms of economic activity and their claims on value creation.

## Entities Extracted

- **component parts of price** - The three fundamental elements constituting commodity prices: wages, profit, and rent
- **wages of labour** - Compensation for work performed in producing commodities
- **profits of stock** - Returns to capital investment in production
- **rent of land** - Payment for use of land and its natural resources
- **accumulation of stock** - Process of gathering wealth to enable commercial ventures
- **natural produce of land** - Resources growing naturally on land without cultivation
- **labour of inspection and direction** - Supervisory work in overseeing production
- **materials and subsistence** - Physical inputs and provisions supplied to workers
- **advanced state of society** - Economic development stage with accumulated capital and private property
- **early and rude state of society** - Primitive economic condition without accumulated capital
- **whole produce of labour** - Complete output created by worker's labour in primitive conditions
- **complete manufacture** - Finished product after transformation of raw materials
- **price of commodities** - Value at which goods exchange in the market
- **quantity of labour** - Amount of work required to produce commodities
- **superior hardship and superior skill** - Additional compensation for difficult or skilled labour
- **common annual profits of manufacturing stock** - Typical rate of return on manufacturing capital
- **principal clerk** - Chief administrative officer overseeing operations
- **capital employed** - Total value of resources advanced in productive enterprise
- **stock of the farmer** - Capital resources invested in agricultural production
- **labouring cattle** - Animals used for agricultural work
- **instruments of husbandry** - Tools and equipment used in farming
- **coarser and finer materials** - Raw materials of different qualities used in manufacturing
- **licence to gather natural produce** - Permission required to collect resources from private land
- **three original sources of revenue** - Fundamental origins of economic income: wages, profit, rent
- **interest or use of money** - Payment for use of capital without direct employment
- **wages of a journeyman** - Payment to skilled workers under master direction
- **idle consumers** - Those who consume without contributing to production

## VSM Mappings

- **component parts of price → System 1 (Operations)** - Strong
- **wages of labour → System 1 (Operations)** - Strong
- **profits of stock → System 1 (Operations)** - Strong
- **rent of land → System 1 (Operations)** - Strong
- **accumulation of stock → System 3 (Control)** - Moderate
- **natural produce of land → System 1 (Operations)** - Strong
- **labour of inspection and direction → System 1 (Operations)** - Strong
- **materials and subsistence → System 1 (Operations)** - Strong
- **advanced state of society → System 5 (Policy)** - Moderate
- **early and rude state of society → System 5 (Policy)** - Moderate
- **whole produce of labour → System 1 (Operations)** - Strong
- **complete manufacture → System 1 (Operations)** - Strong
- **price of commodities → System 2 (Coordination)** - Strong
- **quantity of labour → System 2 (Coordination)** - Moderate
- **superior hardship and superior skill → System 3 (Control)** - Moderate
- **common annual profits of manufacturing stock → System 3 (Control)** - Moderate
- **principal clerk → System 1 (Operations)** - Strong
- **capital employed → System 3 (Control)** - Moderate
- **stock of the farmer → System 1 (Operations)** - Strong
- **labouring cattle → System 1 (Operations)** - Strong
- **instruments of husbandry → System 1 (Operations)** - Strong
- **coarser and finer materials → System 1 (Operations)** - Strong
- **licence to gather natural produce → System 3 (Control)** - Moderate
- **three original sources of revenue → System 3 (Control)** - Moderate
- **interest or use of money → System 3 (Control)** - Moderate
- **wages of a journeyman → System 1 (Operations)** - Strong
- **idle consumers → System 5 (Policy)** - Weak

## VSM Coverage

This chapter demonstrates strong coverage of System 1 (Operations) through its extensive mapping of productive activities, labour compensation, capital investment, and material transformation. The analysis shows how all three component parts of price emerge from operational activities, with wages, profits, and rent all mapped to System 1. System 2 (Coordination) is well-represented through the mapping of price mechanisms and quantity of labour as coordination metrics. System 3 (Control) receives moderate coverage through mappings related to capital regulation, profit standards, and resource allocation, though the regulatory framework could be more explicitly developed. System 5 (Policy) has limited but meaningful representation through mappings of different societal states and the challenge of idle consumption, suggesting policy-level considerations about economic identity and purpose. System 3* (Audit/Monitoring) is notably absent from this chapter's analysis, as Smith does not address verification mechanisms or direct oversight of operations. The chapter's focus on distribution and pricing mechanisms means that System 4 (Intelligence/Adaptation) - which would cover environmental scanning and strategic adaptation - is also not represented.

## Gaps & Observations

The most significant gap in this chapter's VSM coverage is the absence of System 3* (Audit/Monitoring) and System 4 (Intelligence/Adaptation). Smith's analysis focuses primarily on the internal structure of pricing and distribution without addressing how economic systems verify operational performance or adapt to environmental changes. The strong emphasis on System 1 coverage reflects Smith's focus on productive operations and their outputs, but this comes at the expense of understanding how these operations are monitored and how the system learns from its environment.

The mapping of all three price components to System 1, while economically accurate, suggests that the VSM might need refinement to better distinguish between different types of operational outputs (wages, profits, rent) versus the coordination mechanisms that govern them. The price of commodities mapping to System 2 is particularly strong, as it captures Smith's insight that prices serve as the primary coordination mechanism across the entire economic system.

Several entities proved difficult to map definitively, including "idle consumers" which received only weak mapping to System 5, and "advanced state of society" which represents a policy framework but lacks the operational specificity of other System 5 elements. The chapter's focus on primitive versus advanced economic states suggests themes of economic evolution and adaptation that could be better captured through System 4 mappings in future analysis.

The analysis reveals a pattern where Smith's economic framework emphasizes the internal structure of productive activity and its outputs, with less attention to external intelligence gathering and verification mechanisms. Future chapters might benefit from exploring how economic systems monitor their own performance and adapt to changing environmental conditions, which would provide more complete VSM coverage.