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’ servants and cattle. He went on to observe that the produce which remains to the farmer after the payment of rent was to be sufficient to replace the whole of his annual expenses together with the ordinary profits of stock, and to replace within ‘a reasonable time’ or the period of the lease, the whole of the original expenses together with a rate of return on capital equal to the ordinary or usual rate of profit. It is thus suggested that profit is the relevant form of return as far as the undertaker engaged in farming is concerned, and that it also accrues to the proprietor in respect of his avances foncières. In addition, the latter also receives a distinct form of return in the shape of rent, properly so called, which is ‘no more than the neat produce which remains after paying in the completest manner all the necessary expences which must be previously laid out in order to raise the gross, or the whole produce’.46

As far as the third class is concerned, there is a division between manufacturers and merchants, and, in terms of the latter groups, between employers and labourers. The employers emerge as being responsible for certain advances, which include ‘materials, tools, and wages’,47so that the goods produced, once sold, must be sufficient to repay the maintenance which the employer advances to himself, ‘as well as the materials, tools and wages which he advances to his workmen’. Wages thus emerge as the payment which accrues to the workmen, and profit as the fund which ‘is destined for the maintenance of their employer’.48Such an account takes the reader well beyond Quesnay, and into the world of the Reflections.

The task of reaching some conclusions with regard to Smith’s sources helps to focus attention on the critical importance of his early writings, such as the Lectures on Jurisprudence and the early draft of The Wealth of Nations. As Edwin Cannan noted when introducing the Lectures in 1896, their discovery

enables us to follow the gradual construction of the work almost from its very foundation, and to distinguish positively between what the original genius of the author created out of British materials on the one hand and French materials on the other.49

Cannan gave a good deal of emphasis to Smith’s debts to Francis Hutcheson, his former teacher, but did not dispute the influence of physiocratic teaching.

That Smith benefited from his own examination of the physiocratic system may be seen not so much in the account offered in The Wealth of Nations (Book IV, Chapter IX), as in the analytical apparatus of Books I and II. For example, although the theory of price and allocation which is developed in The Wealth of Nations relies on distinctions already established in the Lectures, supply price is now defined in terms of the ‘ordinary or average’ rates of payment for rent, profit and wages – a division that had struck Smith forcibly, and which still possessed some novelty, as may be seen in the way he warns his readers against confusion among them.50 In this way Smith made allowance for the existence of the three factors of production, and also gave his analysis an explicitly static aspect by treating the rates of return as given and the factors as stocks rather than flows, at least in the short run. At the same time, the earlier analysis of allocation is transformed by the central role given to profit; a role which, as R. L. Meek has noted, finally exposed the real significance behind Smith’s earlier, intuitive, preoccupation with the ‘natural balance of industry’.51The theory of distribution was not a feature of Smith’s Lectures. Cannan was able to conclude that ‘Smith acquired the idea of the necessity of a scheme of distribution from the physiocrats’.52

Secondly, in examining the functioning of the economy from a macro point of view, Smith produced an argument which gives a great deal of prominence to the different employments of capital and to the distinction between fixed and circulating capital. But it is perhaps in his treatment of the ‘division of stock’ seen from the standpoint of society at large,53rather