The Wealth of Nations_ Books 4-5 - Adam Smith [8]
If interest on money becomes higher, people will prefer to lend it out rather than to turn it to account in a more troublesome and risky manner in agricultural, industrial and commercial enterprises; and only those enterprises will be embarked upon which bring, over and above the wages of labour, a profit much greater than the interest of money placed upon loan. In a word as soon as the profits arising from one employment of money, whatever it may be, increase or diminish, capitals either turn in its direction and are withdrawn from other employments, or are withdrawn from it and turn in the direction of other employments; and this necessarily alters in each of these employments the ratio between the capital and the annual product.38
This is reminiscent of a passage in his Éloge [Eulogy] de Gournay (written in 1759, but unpublished in the author’s lifetime) where he rejected the criticisms levelled against his mentor:
All this despised system was founded on the ordinary maxim that in general a man knows his own interest better than another man can know it for him. Hence he concluded that as the interest of individuals is, on the whole, precisely the same as the general interest, we should leave every man free to manufacture whatever he considers desirable, because, with industry and commerce left free, it would be impossible for the aggregate individual interest, not to concur with the general interest.39
If Henry Higgs could describe Cantillon’s Essai sur la nature du commerce en générale as a ‘statue silted by the sands of time’,40we can surely agree that the Reflections is a ‘masterpiece’.41
Analytically, Turgot’s ‘super-model’ is light years ahead of the apparatus contained in Smith’s Lectures on Jurisprudence. As Meek has noted, with Turgot ‘Physiocracy begins to burst its seams’,42thus clearing the way in effect for The Wealth of Nations.
Edwin Cannan was quite correct in stating that Smith’s account of Physiocratic teaching in Book IV, Chapter IX of The Wealth of Nations did not follow any one book closely, although it is safe to assume that the account of the basic model owed much to Quesnay. But the account offered by Smith is made more intriguing by the fact that, while remaining faithful to the outlines of the original, he went to great pains to associate the model with a clear division between factors of production and categories of return – thus suggesting that he had Turgot in mind, or at least that his account included elements from the ‘revisionists’. For example, in Smith’s account, the proprietors are stated to be responsible for the avances foncières, that is, for expenses incurred in improving land, buildings, drains, enclosures, and ‘other ameliorations, which they may either make or maintain upon it, and by means of which the cultivators are enabled, with the same capital, to raise a greater produce, and consequently to pay a greater rent’.43Smith went on to note that this enhanced payment need not be regarded as rent properly so called: ‘This advanced rent may be considered as the interest or profit due to the proprietor upon the expense or capital which he thus employs.’44The second class, that of the cultivators, is divided into two sections: farmers and country labourers,45with the former having responsibility for two types of advance: original (or primitive) and annual. Smith defines the former in terms of investment in the instruments of husbandry, in the stock of cattle employed, and in the maintenance of the farmers