ADAM SMITH AND THE CLASSICAL CONCEPT OF PROFIT
| DOI | http://doi.org/10.1111/j.1467-9485.1954.tb00923.x |
| Published date | 01 June 1954 |
| Date | 01 June 1954 |
| Author | Ronald L. Meek |
ADAM
SMITH
AND
THE CLASSICAL CONCEPT
OF
PROFIT
I
‘
THE whole annual produce of the land and labour of every country,’
said Adam Smith in the
Wealth
of
Nations,
‘
or what comes to the
same thing, the whole price of that annual produce, naturally divides
itself
.
. .
into three parts; the rent of land, the wages of labour, and
the profits of stock; and constitutes a revenue
to
three different orders
of
people; to those who live by rent, to those who live by wages, and
to those who live by profit. These are the three great, original and
constituent orders of every civilized society, from whose revenue that
of every other order is ultimately derived.”
We today have grown
so
accustomed to the postulation
of
this
basic social pattern of landlords. labourers and capitalists, living
respectively on rent, wages and profit, that it is sometimes difficult
for
us
to imagine that
it
is less than two hundred years old. Yet
Adam Smith seems to have been, if not the first to discern the exist-
ence of this pattern in the society around him. at least the first to
appreciate its enormous significance. We
look
in vain for any real
understanding
of
its importance in other places where we might
perhaps have expected to find it-in Steuart. Hutcheson and Ferguson,
for example. Even in Cantillon. and even, what is more surprising,
in the Smith of the
Glasgow Lectures,
we find little more than a
few educated inklings of it. Adam Smith’s predecessors certainly
supplied various elements of the pattern, but he himself seems to have
been
the
first to grasp it in its entirety and to attempt consciously
to analyse its complex internal relationships.
The special feature
of
the pattern which marked it off from those
put forward by earlier economists was the inclusion
of
profit
on
capital
as a general category of class income which accrued to all
who used
‘
stock
’
in the employment of
‘
productive
’
wage-labour,
and which was qualitatively distinct both from the rent of land and
from the wages of labour. Many of Smith’s predecessors had
recognised. of course, that those who employed stock
in
mercantile
pursuits generally received a net reward which was proportioned not
to the effort, if any, which they expended, but rather to the value of
the stock employed.
In
Smith’s new model
it
was
recosnised that
net gains similar
in
this respect
to
mercantile profit were now also
*
Wealth
of
Nations,
Cannan
ed..
I.
p.
248.
Cf.
11,
p.
411.
138
ADAM
SMITH
AND
PROFIT
139
being earned on capital employed in other economic pursuits, such
as agriculture and manufacture. But. even more important, it was also
recognised that the
origin
of these net gains was now very different
from what it had formerly been. To Smith's predecessors, generally
speaking, profit had appeared as
'
profit upon alienation '-i.e., as the
gain from buying things cheap and selling them dear.
To
Smith, on
the other hand, profit began to appear as an income uniquely
associated with the use of capital in the employment of wage-labour.
Profit was primarily derived from the value which the wage-labour
employed added to the original value of the raw materials, etc.. upon
which they worked. 'The value which the workmen add to the
materials,' said Smith,
'
resolves itself
. .
.
into two parts, of which the
one pays their wages, the other the profits
of
their employer upon the
whole stock of materials and wages which he advanced.'*
And not only this. In Smith's model, the 'constituent order'
whose income consisted of profit on capital was regarded in a certain
sense
as
the
leading
economic order, in
so
far as the mainspring of
the economic mechanism was conceived in terms of the desire
of
individual capitalists to secure the highest rate of profit
on
their capital
and to accumulate
as
rapidly as possible. In the
Glasgow
Lectures,
Smith had already gone a considerable distance towards understanding
the importance of capitaL3 but he had apparently still tended to
visualise the equilibrating movements of effort and resources
in
the
economy in terms of
'
the concurrence of different labourers
'.4
In
the
Wealth
of
Nations,
on the other hand, the drive to maximise profit
and to accumulate capital is presented as the essential precondition
and basic cause of the growth of opulence. The urge to accumulate
leads not only to the optimum allocation of resources within each
employment
'
and between different employments,6 but also to a
substantial increase
in
real income over time. Smith was, indeed, quite
prepared to suggest that the secular increase
in
real income was and
always had been uniquely correlated with the increase
in
capital.'
It
was
Smith's great emphasis on the economic r61e
of
profit on capital
and capital accumulation which more than anything else gave unity
and strensth to the structure
of
the
Wealth
of
Nations.
The emergence of profit on capital
in
the classical sense
as
a new
category of class income was not merely
a
conceptual but
also
a
historical phenomenon.
As
Engels once remarked
in
a
similar connection,
?
Ihid.
I.
p.
50.
'
For
example.
in
Lecfvws
011
Justice,
Police,
Retmtce
and
Antis.
p.
220.
Ihid,
p. 179.
It'ealth
of
Safiotis.
I.
p.
259.
Ihid.
p. 419.
'
Ibid.
pp.
325-8.
Cf.
11.
p. 414.
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