# Chapter VSM Analysis: Wages, Profits, and Economic Viability

## Chapter Summary

Smith's analysis of wage and profit differentials across employments reveals the cybernetic mechanisms that maintain economic viability through natural market adjustments. He identifies five factors affecting wages (agreeableness, learning difficulty, employment constancy, trust requirements, and success probability) and two factors affecting profits (agreeableness and risk), demonstrating how these differentials are naturally compensated by corresponding advantages or disadvantages. The chapter's central thesis is that in a free society with perfect liberty, these inequalities would naturally tend toward equality as market forces correct imbalances. However, Smith systematically documents how European policy—through corporation laws, apprenticeship requirements, settlement laws, and public funding of professional education—artificially creates and maintains significant inequalities in economic advantages across different employments. These policy interventions obstruct the free circulation of labour and capital, preventing the natural equilibration that would otherwise occur. The analysis reveals how wage and profit differentials function as information signals in the economic system, coordinating labour allocation and capital investment while policy interventions act as noise that disrupts these vital signals and reduces overall economic viability.

## Entities Extracted

The chapter identifies numerous economic entities that represent different aspects of the wage and profit system:

- **wages of labour** - Monetary compensation for workers varying by five principal circumstances
- **profits of stock** - Returns to capital affected primarily by agreeableness and risk
- **apprenticeships** - Training systems creating barriers to trade entry
- **corporation laws** - Legal privileges restricting competition in trades
- **settlement laws** - Legal provisions restricting poor person mobility
- **certificates** - Documents allowing settlement-free residence between parishes
- **public education of professionals** - State-funded training creating oversupply
- **speculative trade** - Rapid capital movement based on anticipated opportunities
- **natural state of employments** - Free-market conditions without artificial restraints
- **ordinary state of employments** - Typical market conditions with normal demand
- **principal employments** - Main occupations providing primary subsistence
- **public mourning effects** - Temporary demand increases affecting commodity prices
- **piece-work wages** - Output-based compensation systems
- **common labour wages** - Standard compensation for basic manual work
- **scarcity of hands** - Local labour shortages driving wage increases
- **overstocked market conditions** - Labour oversupply forcing wage reductions
- **advancing state of manufacture** - Expanding industrial production
- **declining manufacture** - Contracting industrial production
- **inland trade** - Domestic commercial exchange
- **foreign trade** - International commercial exchange
- **smuggling trade** - Illegal cross-border commerce
- **common returns of stock** - Average capital profits under normal conditions
- **extraordinary profits** - Returns significantly exceeding average profits
- **public registers of manufactures** - Official records of tradesmen facilitating coordination
- **exclusive corporation** - Legally privileged trading organisations
- **adulterine guilds** - Unauthorised trade associations
- **university of trades** - Medieval term for incorporated trades
- **assize of bread** - Price regulation for essential commodities
- **retail trade** - Direct consumer sales
- **wholesale trade** - Bulk commercial exchange
- **public lottery** - Government gambling schemes as behavioural analogies
- **maritime employment** - Work in shipping and naval services
- **military employment** - Service in armed forces
- **public executioner** - State official performing capital punishment
- **poacher** - Illegal hunter or fisher
- **coal-heaver** - Labourer unloading coal from ships
- **collier** - Coal miner
- **butcher trade** - Commercial meat processing and sales
- **inn or tavern keeper** - Hospitality service provider

## VSM Mappings

The analysis reveals comprehensive coverage across the VSM framework:

**System 1 (Operations):**
- wages of labour → S1 Operations (Strong)
- profits of stock → S1 Operations (Strong)
- piece-work wages → S1 Operations (Strong)
- common labour wages → S1 Operations (Strong)
- advancing state of manufacture → S1 Operations (Strong)
- declining manufacture → S1 Operations (Strong)
- inland trade → S1 Operations (Strong)
- retail trade → S1 Operations (Strong)
- wholesale trade → S1 Operations (Strong)
- maritime employment → S1 Operations (Strong)
- military employment → S1 Operations (Strong)
- public executioner → S1 Operations (Strong)
- poacher → S1 Operations (Strong)
- coal-heaver → S1 Operations (Strong)
- collier → S1 Operations (Strong)
- butcher trade → S1 Operations (Strong)
- inn or tavern keeper → S1 Operations (Strong)

**System 2 (Coordination):**
- wages of labour → S2 Coordination (Strong)
- apprenticeships → S2 Coordination (Moderate)
- certificates → S2 Coordination (Strong)
- scarcity of hands → S2 Coordination (Strong)
- overstocked market conditions → S2 Coordination (Strong)
- public registers of manufactures → S2 Coordination (Strong)

**System 3 (Control):**
- wages of labour → S3 Control (Strong)
- profits of stock → S3 Control (Strong)
- apprenticeships → S3 Control (Strong)
- corporation laws → S3 Control (Strong)
- settlement laws → S3 Control (Strong)
- public education of professionals → S3 Control (Strong)
- piece-work wages → S3 Control (Strong)
- assize of bread → S3 Control (Strong)
- exclusive corporation → S3 Control (Strong)
- adulterine guilds → S3 Control (Moderate)
- university of trades → S3 Control (Strong)

**System 4 (Intelligence):**
- profits of stock → S4 Intelligence (Strong)
- speculative trade → S4 Intelligence (Strong)
- public mourning effects → S4 Intelligence (Strong)
- foreign trade → S4 Intelligence (Strong)
- smuggling trade → S4 Intelligence (Strong)
- common returns of stock → S4 Intelligence (Strong)
- extraordinary profits → S4 Intelligence (Strong)
- public lottery → S4 Intelligence (Moderate)

**System 5 (Policy):**
- corporation laws → S5 Policy (Strong)
- natural state of employments → S5 Policy (Strong)

**System 3* (Audit):**
- No mappings identified

## VSM Coverage Assessment

The chapter demonstrates extensive coverage across the VSM framework with strong representation of all primary systems:

**System 1 (Operations)** receives the most comprehensive coverage, with 17 distinct mappings representing the full spectrum of economic activities from basic labour to complex commercial enterprises. This reflects Smith's focus on how different employments function as the primary productive activities of the economy.

**System 2 (Coordination)** is well-represented with 7 mappings, covering the coordination mechanisms that balance labour markets, facilitate trade, and resolve conflicts between different economic activities. The coordination of labour allocation through wage differentials is a central theme.

**System 3 (Control)** receives robust coverage with 12 mappings, reflecting Smith's detailed analysis of how policy interventions, institutional structures, and regulatory mechanisms govern economic operations and create artificial constraints on market functioning.

**System 4 (Intelligence)** is well-covered with 9 mappings, demonstrating how profit differentials, market opportunities, and risk assessments function as information signals that guide capital allocation and strategic economic decisions.

**System 5 (Policy)** has 2 mappings, representing the highest-level policy frameworks that govern economic organisation and define the philosophical foundations of economic systems.

**System 3* (Audit)** has no direct mappings, representing a gap in the analysis of how the economic system verifies and monitors its own operations outside normal reporting channels.

## Gaps & Observations

**Uncovered Systems:** System 3* (Audit) lacks representation in this chapter. While Smith discusses various forms of regulation and control, he does not explicitly address the audit and monitoring functions that verify economic information through direct investigation outside normal channels. This gap represents the absence of analysis regarding how the system checks for fraud, verifies weights and measures, or conducts surprise inspections of market practices.

**Difficult Mappings:** Several entities presented mapping challenges due to their complex nature. The "university of trades" mapping to System 3 Control required interpretation of historical institutional structures. The "public lottery" mapping to System 4 Intelligence involved understanding its role as a behavioural analogy rather than a direct economic activity. The "adulterine guilds" mapping represented the challenge of mapping informal regulatory mechanisms that operate outside formal legal frameworks.

**Emerging Patterns:** A clear pattern emerges showing Smith's emphasis on how wage and profit differentials function as the primary information signals in the economic system. These differentials coordinate labour allocation, capital investment, and strategic adaptation to environmental conditions. The analysis reveals a strong focus on how policy interventions create noise in these vital signals, disrupting the natural coordination mechanisms that maintain economic viability.

**Future Enrichment:** To enhance coverage, future analysis could explore:
- The audit functions of market regulation (System 3*) through examination of quality control, fraud prevention, and verification mechanisms
- The role of emergent coordination mechanisms beyond formal institutions (System 2)
- The strategic intelligence functions of economic forecasting and long-term planning (System 4)
- The philosophical foundations of economic policy and their relationship to national identity (System 5)
- The recursive nature of economic systems at different scales, from individual workshops to national economies

The chapter's comprehensive mapping to VSM systems demonstrates how Smith's economic analysis aligns with cybernetic principles of viable system organisation, with wage and profit differentials serving as the primary information channels that maintain economic viability through natural market adjustments.