ADAM SMITH ON THE FALLING RATE OF PROFIT: A REAPPRAISAL

AuthorFrancisco Verdera
Published date01 February 1992
Date01 February 1992
DOIhttp://doi.org/10.1111/j.1467-9485.1992.tb00608.x
Scorrish
Joitrnal
OJ
Polmcal
Economy.
Vol.
39.
No.
I,
February
1992
IWY?
Scoiiish
Economic
Society
ADAM SMITH
ON
THE FALLING RATE OF
PROFIT: A REAPPRAISAL
FRANCISCO
VERDERA*
New School for Social Research, New York; and Instituto de Estudios
Peruanos, Lima, Peru
1
INTRODUCTION
One
of
the neglected aspects in the studies
of
Adam Smith’s
Wealth
of
Nations
is his thesis
of
the tendency for the rate
of
profit
to
fall. A significant number
of
interpreters have accepted Ricardo’s critique concerning this.
I
Marx also
accepted the authority
of
Ricardo’s interpretation. Marx writes:
A. Smith explained the fall
of
the rate
of
profit, as capital grows, by the
competition among capitals.
To
which ricardo replied that competition can
indeed reduce profits in the various branches
of
business to an average level,
can equalize the rate, but cannot depress this average rate itself.’
This paper has one central purpose: to question Ricardo’s interpretation
of
the causes for this tendency in Smith’s thought. We will try to show in Smith’s
own words that the tendency for the rate
of
profit to fall does not result from
competition, but from an increase in the stock (or capital) in all the society.
1
will present the argument in three stages in the next three sections. Section
I1
contains observations on Ricardo. Section
I11
presents
a
re-reading
of
Smith’s
Book
I,
The Wealth of Nations
(hereafter refered as WN), where he establishes
that both the level and the variations
of
the natural rate
of
profit are not
determined by competition. Section
IV
deals with Smith’s rationale
of
how the
accumulation
of
capital leads to a decline in the rate
of
profit by increasing the
productivity
of
labour. The final section contains the conclusions.
*
1
am indebted
to
Professor Robert Heilbroner for comments and stimulus and also
to
Martin Kolhi, Alex Polo and Eduardo Viotti.
1
also want to thank an anonymous referee for
several suggestions.
‘See Dobb
(1975,
p.
326
and p.
331);
Hollander
(1973.
p.
179);
Tucker
(1960,
p.
60);
Bowley
(1975.
p.
366).
The latter has been one
of
the sources
of
reflexion about this topic;
Bowley intends ‘to show how the role
of
capital came to dominate (The Wealth
of
Nations)
...
as the major influence on growth’ (p.
361).
See also Marx
(1967,
p.
213).
It
is
striking that
Marx does not pay attention to Smith’s writings
on
this issue.
Marx
(1973.
p.
751).
Date
of
receipt of final manuscript: 15th April
1991
100

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