Note 147 — Chapter II · : ADAM SMITH

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.