Book I, Chapter X, 2

Yet these professions maintain their standing alongside other occupations; despite such discouragements, people of the most generous and cultivated spirit eagerly enter them. Two causes make them attractive: first, the desire for the reputation conferred by outstanding achievement in any of them; second, the natural confidence nearly everyone feels both in personal ability and in personal good fortune.

To excel in a profession in which few even reach mediocrity is the clearest sign of what is called genius, or superior talent. The public admiration that attends such distinguished ability is always part of its reward, a larger or smaller part according to its degree. It makes up a considerable part of the reward in medicine, perhaps a still larger part in law, and almost the entire reward in poetry and philosophy.

Certain very pleasing and beautiful talents command a kind of admiration in their possessors, yet their exercise for money is regarded, whether reasonably or through prejudice, as a form of public prostitution. The monetary reward of those who use them this way must therefore pay not only for the time, effort, and expense of acquiring the talents, but also for the discredit of using them to earn a living. The exorbitant rewards of actors, opera singers, opera dancers, etc. rest on these two grounds: the rarity and beauty of their talents, and the discredit attached to using them in this fashion. It seems absurd at first that we should despise the performers themselves while rewarding their talents with such lavish generosity. Yet if we do the first, we must necessarily do the second. If public opinion or prejudice concerning such occupations ever changed, their monetary reward would soon decline. More people would take them up, and competition would quickly lower the price of their labor. Though uncommon, such talents are by no means as rare as people imagine. Many possess them to a high degree but refuse to put them to this use; many more could acquire them if it were possible to earn something honorably by doing so.

The excessive opinion most people hold of their own abilities is an ancient failing noted by philosophers and moralists of every age. Their absurd faith in their own good fortune has attracted less notice, though it is, if anything, still more widespread. No living person in reasonably good health and spirits is entirely without it. Everyone overestimates the chance of gain to some extent; most underestimate the chance of loss, and hardly anyone in reasonably good health and spirits rates that chance higher than its true value.

The universal success of lotteries shows how naturally people overestimate the chance of gain. The world has never seen, and never will see, a perfectly fair lottery in which total winnings equal total losses, for its operator could make no money from it. In state lotteries, tickets are not really worth what the first subscribers pay, yet they commonly sell on the market for twenty, thirty, and sometimes forty per cent. more. Vain hopes of winning one of the great prizes alone create this demand. Even the most sober-minded hardly regard it as foolish to pay a small sum for a chance at ten or twenty thousand pounds, although they know that this small sum may itself be twenty or thirty per cent. more than the chance is worth. If no prize in a lottery exceeded twenty pounds, there would be less demand for tickets, even if in every other respect the lottery came much closer to being perfectly fair than the ordinary state lotteries. To increase their chances of a great prize, some buy several tickets, while others buy small shares in still more. Yet no mathematical proposition is more certain than this: the more tickets you risk money on, the likelier you are to lose. Risk money on every ticket in the lottery and you certainly lose; the more tickets you buy, the closer you come to that certainty.

The modest profits of insurers show that the chance of loss is often underestimated and hardly ever overestimated. For fire or marine insurance to be a viable trade, its usual premium must cover ordinary losses and the costs of management, and yield the profit that an equal capital could earn in any ordinary trade. Whoever pays no more than this plainly pays no more than the real value of the risk—the lowest price at which insurance could reasonably be expected. Yet although many people have earned a little from insurance, very few have made a great fortune; this fact alone seems to show clearly enough that its ordinary balance of profit and loss is no more favorable than that of other ordinary trades, in which so many people do make fortunes. Moderate as the insurance premium generally is, many people disregard the risk too much to pay it. Over the kingdom as a whole, nineteen houses in twenty—or perhaps rather ninety-nine in a hundred—are uninsured against fire. Marine risks cause most people greater alarm, and a far greater proportion of ships are insured than of houses. Nevertheless, many ships sail in every season, even in wartime, without insurance. This may sometimes be quite prudent. If a large company, or even a major merchant, has twenty or thirty ships at sea, they can, in effect, insure one another. The premiums saved on them all may more than cover the losses they are likely to suffer in the ordinary course of events. In most cases, however, failing to insure ships, like failing to insure houses, results not from such careful calculation but from sheer thoughtless rashness and presumptuous disregard of risk.

Contempt for risk and presumptuous hope of success are more active at no time of life than when young people choose their occupations. The readiness of ordinary people to enlist as soldiers or go to sea shows even more clearly than the eagerness of those of higher standing to enter the so-called liberal professions how little fear of misfortune can then counterbalance hope of good luck.

What an ordinary soldier stands to lose is plain enough. Yet, regardless of danger, young volunteers enlist most readily at the start of a new war; though their chances of promotion are slight, youthful fancy offers them a thousand occasions for winning honor and distinction that never materialize. These romantic hopes are the whole price they receive for their blood. Their pay is below that of ordinary laborers, while their exertions on active service are far greater.

The lottery of a life at sea is not quite so unfavorable as the army's. The son of a respectable laborer or craftsman may often go to sea with his father's consent; if he enlists as a soldier, it is always without that consent. Others can see some prospect of his earning something in the first occupation; no one but he sees any such prospect in the second. The great admiral commands less public admiration than the great general; and the highest success at sea promises a less brilliant fortune and reputation than equal success on land. The same difference holds at every lower level of advancement in the two services. Under the rules of precedence, a naval captain ranks with an army colonel, but public estimation does not rank him equally. Because the great prizes in the naval lottery are smaller, its lesser prizes must be more numerous. Ordinary sailors consequently obtain some fortune and promotion more often than ordinary soldiers; it is chiefly the hope of these prizes that attracts them to the occupation. Though their skill and dexterity greatly exceed those of almost any craftsman, and though their whole life is a continuous succession of hardship and danger, while they remain ordinary sailors they receive for all their skill, hardship, and danger scarcely any reward beyond the pleasure of exercising their abilities and overcoming their trials. Their wages are no greater than those of ordinary laborers at the port that determines the rate of seamen's wages. Because sailors continually move from one port to another, the monthly pay of sailors departing from the various ports of Great Britain is more nearly equal than the pay of any other class of workers in those places; the port from which and to which the greatest number sail, London, sets the rate for all the rest. In London, the wages of most classes of workers are about twice those of the same classes in Edinburgh. But sailors departing London seldom earn more than three or four shillings a month above sailors departing Leith, and often the difference is smaller. In peacetime merchant service, the London rate ranges from a guinea to about seven-and-twenty shillings per calendar month. An ordinary laborer in London, earning nine or ten shillings a week, may earn from forty to five-and-forty shillings per calendar month. The sailor, it is true, receives provisions besides his pay. Their value, however, may not always exceed the difference between his pay and an ordinary laborer's; and even when it does, the excess is not clear gain to the sailor, since he cannot share the provisions with his wife and family, whom he must support at home from his wages.

The dangers and narrow escapes of an adventurous life often attract young people to a trade rather than deter them. A loving mother among the lower ranks is often afraid to send her son to school in a seaport town, lest the ships he sees and the sailors' tales and adventures entice him to go to sea. The distant prospect of dangers from which we hope to escape through courage and resourcefulness is not disagreeable to us and does not raise wages in any occupation. It is different where courage and resourcefulness offer no protection. Wages are always notably high in trades known to be very unhealthy. Unhealthiness is a form of unpleasantness, and its effect on wages belongs under that general heading.

In every different use of stock, the ordinary rate of profit varies to some extent with the certainty or uncertainty of returns. Returns are generally more certain in domestic than in foreign trade, and more certain in some branches of foreign trade than in others—in trade with North America, for example, than in trade with Jamaica. Ordinary profit always increases to some extent with risk, but it does not seem to increase in proportion to risk or to compensate for it fully. Bankruptcies are most frequent in the most hazardous trades. Smuggling, the most hazardous trade of all, is the surest path to bankruptcy, although its ventures are also the most profitable when they succeed. Presumptuous hope of success seems to operate here as everywhere else, enticing so many adventurers into hazardous trades that their competition lowers profit below what is needed to cover the risk. For full compensation, ordinary returns would have to cover all occasional losses over and above ordinary profits of stock, and also yield adventurers an additional profit of the same kind as insurers' profit. But if ordinary returns were enough for all this, bankruptcies would be no more common in these trades than in others.

Of the five circumstances that cause wages to vary, then, only two affect profits of stock: whether a business is agreeable or disagreeable, and the risk or security that accompanies it. In agreeableness or unpleasantness, most ways of employing stock differ little or not at all, while employments of labor differ greatly. And though the ordinary profit of stock rises with risk, it does not always appear to rise in proportion to it. It follows that within a given society or neighborhood, average ordinary rates of profit among different uses of stock should be closer to one another than the money wages of different kinds of labor.

And so they are. The difference between an ordinary laborer's earnings and those of a lawyer or physician in full practice is clearly much greater than the difference between ordinary profits in any two branches of trade. Moreover, apparent differences in profits among trades generally arise from our failure to distinguish what should be counted as wages from what should be counted as profit.

The apothecary's profit has become proverbial for extravagance. Yet this seemingly enormous profit is often no more than reasonable wages for labor. An apothecary's skill is finer and more delicate than any craftsman's, and the trust placed in him matters far more. He is the poor person's physician in all cases, and the rich person's when illness or danger is not severe. His reward should therefore match his skill and the trust placed in him; it generally comes from the prices at which he sells his medicines. Yet all the medicines sold in a year by the busiest apothecary in a large market town may cost him no more than thirty or forty pounds. Even if he sells them for three or four hundred, or at a thousand per cent. profit, that may often amount to no more than reasonable wages for his labor, added to the price of his medicines because he has no other way to charge for it. Most of the apparent profit is really wages disguised as profit.

Even so, these professions remain on a level with other occupations. Despite the disadvantages, the most ambitious and broad-minded people eagerly enter them. Two things make them appealing. First is the desire for the reputation that comes from outstanding achievement in them. Second is people's natural confidence, to a greater or lesser degree, in both their own abilities and their good luck.

To excel in a profession where few people even become competent is strong evidence of what people call genius, or exceptional talent. Public admiration of such ability is always part of its reward. The greater the admiration, the greater that reward. Admiration provides a considerable part of a physician's reward, perhaps a still greater part of a lawyer's, and almost the whole reward of a poet or philosopher.

Some talents are very pleasing and beautiful. People admire those who have them but consider using them for money, rightly or wrongly, a kind of public prostitution. People who earn a living from these talents must therefore receive enough money to pay not only for the time, work, and expense of developing them but also for the loss of respect that comes from using them to earn a living. The exceptionally high pay of actors, opera-singers, opera-dancers, etc. rests on two things: their talents are rare and beautiful, and using those talents for a living is disrespected. At first it seems absurd that we look down on these people yet pay so lavishly for their talents. But as long as we do the first, we must do the second. If public opinion or prejudice about these jobs ever changed, their pay would quickly fall. More people would enter the occupations, and competition would quickly bring down the price of their work. Such talents are uncommon but nowhere near as rare as people imagine. Many people possess them to a high degree but refuse to use them for money. Many more could develop them if doing so could bring them a respectable living.

Most people have an exaggerated opinion of their own abilities. Philosophers and moralists in every age have noted this old failing. They have paid less attention to people's unreasonable confidence in their own good luck, though it is even more widespread, if that is possible. Everyone in reasonably good health and spirits has some of it. Everyone overestimates the chance of gain to some degree. Most people underestimate the chance of loss, and almost no one in reasonably good health and spirits overestimates it.

The widespread success of lotteries shows that people naturally overestimate their chances of winning. There has never been, and never will be, a perfectly fair lottery in which total winnings equal total losses, because its operator would make no money. In state lotteries, tickets are worth less than their original buyers pay for them. Yet the tickets commonly resell for twenty, thirty, and sometimes forty per cent. more. This demand comes solely from the empty hope of winning a large prize. Even very sensible people hardly think it foolish to spend a little money for the chance of winning ten or twenty thousand pounds. They know that this small payment may still be twenty or thirty per cent. more than the chance is worth. If no prize in a lottery exceeded twenty pounds, people would want far fewer tickets, even if the lottery were much closer to fair than ordinary state lotteries. Some people buy several tickets to improve their chance of winning a large prize. Others buy small shares in an even larger number. Yet few mathematical truths are more certain than this: the more tickets you risk money on, the more likely you are to lose money. Buy every ticket and you are certain to lose; the more tickets you buy, the closer you get to that certainty.

The modest profits of insurers show that people often underestimate the chance of loss and almost never overestimate it. For insurance against fire or danger at sea to be a viable trade, its usual premium must cover ordinary losses and management costs. It must also provide the profit that an equal amount of capital could earn in an ordinary trade. Someone paying only that much pays just the real value of the risk: the lowest price at which he can reasonably expect to insure against it. Many people have made a little money from insurance, but very few have made a great fortune. That fact alone strongly suggests that the usual balance of profit and loss in insurance is no better than in other ordinary trades, where so many people do make fortunes. Yet even though premiums are usually moderate, many people dismiss the danger and refuse to pay them. Across the whole kingdom, nineteen houses in twenty, or perhaps ninety-nine in a hundred, lack fire insurance. Most people worry more about danger at sea, and a much larger proportion of ships are insured. Still, many ships sail uninsured in every season and even during war. Sometimes this may be sensible. A large company or even a large merchant with twenty or thirty ships at sea can, in effect, have the ships insure one another. The premiums saved on all of them may more than cover the losses likely to arise over time. In most cases, however, failing to insure ships, like failing to insure houses, is not the result of any such careful calculation. It comes from thoughtless recklessness and an overconfident disregard for danger.

People's disregard for danger and overconfident hopes of success are especially strong at the age when young people choose their occupations. Ordinary people's willingness to enlist in the army or go to sea shows even more clearly than wealthier people's eagerness to enter the liberal professions how little fear of misfortune can offset their hopes of good luck at that age.

It is easy to see what an ordinary soldier stands to lose. Even without considering the danger, though, young volunteers are never so willing to enlist as when a new war begins. They have almost no chance of promotion, yet their youthful imaginations picture countless opportunities for honor and distinction that never arise. Those unrealistic hopes are the full payment for risking their lives. Soldiers' pay is lower than ordinary laborers' pay, while active service involves much harder work.

Going to sea is not quite as bad a gamble as joining the army. A respectable laborer's or craft worker's son may often go to sea with his father's permission. If he becomes a soldier, he always does so without it. Others can see some chance that he will gain something as a sailor; only he sees any such chance as a soldier. The public admires a great admiral less than a great general, and the greatest success at sea brings less wealth and reputation than equal success on land. The same holds for every lower rank of promotion in the two services. Officially, a navy captain has the same rank as an army colonel, but people do not see him as his equal. Since the large prizes at sea are smaller, the smaller prizes must be more numerous. Ordinary sailors therefore gain some wealth and promotion more often than ordinary soldiers do. The hope of those rewards is what mainly draws them to the job. Their skill and ability greatly exceed those of almost any craft workers, and their entire lives are filled with hardship and danger. Yet while they remain ordinary sailors, they receive almost no reward for their skill and for those hardships and dangers beyond the pleasure of using their abilities and overcoming difficulties. Their wages are no higher than those of ordinary laborers in the port that sets the wage rate for sailors. Because sailors constantly travel between ports, the monthly pay of sailors leaving different ports in Great Britain varies less than the wages of any other workers across those places. The rate in the port used by the most sailors—London—sets the rate for the others. In London, most kinds of workers earn about twice what workers of the same kinds earn in Edinburgh. Sailors departing from London, however, seldom earn more than three or four shillings a month above sailors departing from Leith, and the gap is often smaller. In peacetime, in merchant shipping, the London rate runs from a guinea to about seven-and-twenty shillings the calendar month. At nine or ten shillings a week, an ordinary London laborer may earn from forty to five-and-forty shillings in a calendar month. Sailors do receive food in addition to their pay. But its value may not always exceed the gap between their pay and the laborer's pay. Even if it sometimes does, the excess is not a clear gain to a sailor: he cannot share the food with his wife and family, whom he must support at home out of his wages.

Danger and narrow escapes during an adventurous life often attract young people rather than put them off. A caring mother in the poorer ranks is often afraid to send her son to school in a seaport town. She fears that seeing ships and hearing sailors' stories of their adventures will tempt him to go to sea. The prospect of a distant danger from which we hope to escape through courage and skill does not repel us, so it does not raise wages in any occupation. The case is different when courage and skill cannot help. Wages are always especially high in trades known to be very unhealthy. Unhealthy work is one kind of unpleasant work, and its effect on wages belongs under that heading.

Across the different uses of stock, normal profit rates vary to some extent with how certain or uncertain the returns are. Returns are usually more certain in domestic than in foreign trade, and more certain in some foreign trades than in others. Trade with North America, for example, is more certain than trade with Jamaica. Normal profit tends to rise as risk rises, but it does not seem to rise enough to cover all the risk. Bankruptcies are most common in the riskiest trades. Smuggling is the riskiest trade of all. Though it can be the most profitable when an operation succeeds, it is a sure path to bankruptcy. Overconfident hopes of success attract so many people into these risky trades that their competition reduces profits below what is needed to make up for the risk. To cover the risk fully, normal returns would have to pay for all occasional losses and also give the traders an extra profit like the profit an insurer earns, in addition to normal profits on stock. If normal returns covered all that, bankruptcies would be no more common in these trades than in others.

So of the five factors that change wages, only two affect profits on stock: whether the business is pleasant or unpleasant and whether it is risky or secure. Most uses of stock differ little or not at all in how pleasant they are, while kinds of labor differ greatly. And although normal profits on stock rise with risk, they do not always rise enough to match it. It follows that, within the same society or area, average normal profits across different uses of stock should be more nearly equal than money wages across different kinds of labor.

That is what we find. The difference between an ordinary laborer's earnings and those of a busy lawyer or physician is clearly much greater than the difference in normal profits between any two kinds of trade. Besides, the apparent differences between trades' profits often result from confusing pay for work with profit on stock.

An apothecary's profit has become a common expression for an extraordinarily large profit. But what looks like a huge profit is often only fair pay for work. An apothecary needs more exact and delicate skills than any other craft worker, and people place far greater trust in him. He acts as a physician for poor people in every case, and for rich people when their illness or danger is not very serious. His reward should match his skill and the trust placed in him. He normally receives it through the price of the medicines he sells. But even the busiest apothecary in a large market town may pay no more than thirty or forty pounds for all the medicines he sells in a year. If he sells them for three or four hundred pounds, or at a thousand per cent. profit, that may often be only fair pay for his work, added to the price of his medicines because he has no other way to charge for it. Most of his apparent profit is really wages in disguise.