Note 146 — Chapter II · : ADAM SMITH

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.