[143] “Farmers and country labourers, indeed, over and above the stock which maintains and employs them, reproduce annually a neat produce, a free rent to the landlord. As a marriage which affords three children is certainly more productive than one which affords only two; so the labour of farmers and country labourers is certainly more productive than that of merchants, artificers, and manufacturers. The superior produce of the one class, however, does not render the other barren or unproductive.” (Wealth of Nations, Book IV, chap. 9; Cannan, vol. ii, p. 173.)
[144] Ibid., Book IV, chap. 9; vol. ii, p. 176.
[145] Ibid., Book II, chap. 5; vol. i, p. 344.
[146] Wealth of Nations, Book II, chap. 5; Cannan, vol. i, p. 344. Note that here as elsewhere Smith entertains more than one opinion. In other passages in the book he regards rent as a monopoly price “that enters into the composition of the price of commodities in a different way from wages and profit. High or low wages and profit, are the causes of high or low price; high or low rent is the effect of it. It is because high or low wages and profit must be paid, in order to bring a particular commodity to market, that its price is high or low. But it is because its price is high or low; a great deal more, or very little more, or no more, than what is sufficient to pay those wages and profit, that it affords a high rent, or a low rent, or no rent at all.” (Ibid., Book I, chap. 11; vol. i, p. 147.)
It is impossible to reconcile these statements. In the one case rent is regarded as a constituent element of price, in the other it is the effect of price.
In the first edition this contradiction was still more evident. In that edition rent, along with profit and wages, was treated as a third determinant of value. (See Cannan’s edition, vol. i, p. 51, note 7.) The paragraph was deleted from the second edition, and rent was treated merely as a component part of the price. This modification was perhaps the outcome of a letter written by Hume to Smith on April 1, 1776, after he had read the Wealth of Nations for the first time. “I cannot think,” says Hume, “that the rent of farms makes any part of the price of the produce, but that the price is determined altogether by the quantity and the demand.” (Quoted by Rae in his Life of Adam Smith, p. 286.) The celebrated controversy as to whether rent enters into prices is not a thing of yesterday. Its origin dates from the birth of political economy itself, and it will probably only die with it.
[147] His error is partly due to the fact that he failed to distinguish between the profits of the entrepreneur and the interest of the capitalist. Both with Smith and with his successors the word “profit” signified a twofold revenue, and this was perfectly correct so long as the entrepreneur was also a capitalist. The word “interest” was reserved for the income of that person who lent capital but who did not himself produce anything. The revenue “derived from stock, by the person who manages or employs it, is called profit. That derived from it by the person who does not employ it himself, but lends it to another, is called the interest or the use of money.” (Ibid., Book I, chap. 6; vol. i, p. 54.) J. B. Say was the first to give us a definite idea of the entrepreneur. Had Smith realised more clearly the functions of the entrepreneur he would probably have perceived: (1) That the entrepreneur, in addition to paying interest on his capital, frequently has to pay rent for the use of the soil; (2) that profit strictly so called includes an element analogous to rent. According to Smith, profit was simply payment for risks undergone or for work undertaken.
[148] James Watt in 1756 had set up his workshop within the precincts of the University of Glasgow, for which he manufactured mathematical instruments. The corporation had refused him permission to set it up in the town—a striking illustration of the narrowness and inflexibility of “the corporative régime.”
[149] A combination of Hargreave’s spinning jenny and Arkwright’s water frame.
[150] Marx speaks of Smith as the economist who is the very epitome of the manufacturing period. (Das Kapital, vol. i, p. 313, note.)