Profit Analysis in The Wealth of Nations

Profit is the return that investors earn on their investments, or the compensation that they earn for supplying and risking their capital. Along with wages and rent, profit is the third component that makes up the national revenue and the cost of goods and services. Due to market competition, all firms in any given society will generally gravitate toward the same ordinary rate of profit.

Profit Quotes in The Wealth of Nations

The The Wealth of Nations quotes below are all either spoken by Profit or refer to Profit. For each quote, you can also see the other terms and themes related to it (each theme is indicated by its own dot and icon, like this one:

As the price or exchangeable value of every particular commodity, taken separately, resolves itself into some one or other, or all of those three parts [wages, profits, and rent]; so that of all the commodities which compose the whole annual produce of the labour of every country, taken complexly, must resolve itself into the same three parts, and be parcelled out among different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land. The whole of what is annually either collected or produced by the labour of every society, or, what comes to the same thing, the whole price of it, is in this manner originally distributed among some of its different members. Wages, profit, and rent, are the three original sources of all revenue, as well as of all exchangeable value. All other revenue is ultimately derived from some one or other of these.

Page Number and Citation: 74

Explanation and Analysis:

Rent, it is to be observed, therefore, 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.

Page Number and Citation: 200

Explanation and Analysis:

To widen the market, and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined [...]. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

Page Number and Citation: 338–339

Explanation and Analysis:

No equal capital puts into motion a greater quantity of productive labour than that of the farmer. Not only his labouring servants, but his labouring cattle, are productive labourers. In agriculture, too, Nature labours along with man; and though her labour costs no expense, its produce has its value, as well as that of the most expensive workmen. [...] The labourers and labouring cattle, therefore, employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its owner’s profits, but of a much greater value. Over and above the capital of the farmer, and all its profits, they regularly occasion the reproduction of the rent of the landlord. This rent may be considered as the produce of those powers of Nature, the use of which the landlord lends to the farmer.

Related Characters: Farmers, Landlords

Page Number and Citation: 462–463

Explanation and Analysis:

Profit Term Timeline in The Wealth of Nations

The timeline below shows where the term Profit appears in The Wealth of Nations. The colored dots and icons indicate which themes are associated with that appearance.

Capital Accumulation and Investment Theme Icon

...others to perform that labor, then take a portion of everything that labor produces as profit. Profits are not just the wages associated with managing others’ labor. Rather, profits depend on... (full context)

...overall revenue also consists of these three categories: wages from labor, rent from land, and profit from stock (including interest, the profit from lending one’s stock to someone else). Often, different... (full context)

Each society’s average rate of wages, profit, and rent depends on its specific circumstances—including its overall wealth, amount of fertile land, degree... (full context)

...a commodity exceeds effectual demand for it and its prices drop, then rent, wages, and/or profit must fall below their ordinary rates. Thus, landlords, workers, and/or investors will correspondingly withdraw their... (full context)

...year to year. These price fluctuations don’t affect rents, but they do affect wages and profits, which go up in times of scarcity and down in times of over-supply. (full context)

Institutions and Good Governance Theme Icon

...above natural prices, for a variety of reasons. Some companies hide their true rate of profit from competitors or benefit from trade secrets. For some specialty goods, like certain French wines... (full context)

Ultimately, the natural price is made up of wages, profit, and rent, which all vary depending on a society’s wealth and rate of economic growth.... (full context)

Once land is privately owned, landlords start demanding rent. Then, they start making profit from the difference between what they pay their farmworkers (as wages and maintenance) and the... (full context)

While a growing economy tends to raise wages, it generally reduces profits because it forces merchants to compete. Exact profit rates are difficult to measure, but interest... (full context)

...more expensive in cities than in villages, since more competition means higher wages and lower profit rates. The same dynamic applies to Scotland and England: although the legal interest rate is... (full context)

...colonies don’t fit this pattern. Wages are highest there, but so are interest rates and profit margins. This is because the colonies are still underpopulated, relative to their land and natural... (full context)

In general, countries will see their profit levels rise as they conquer new territories or absorb new industries, as their existing capital... (full context)

...resources and achieves its maximum level of population will see both low wages and low profits, as there would be high competition among both workers and business owners. No country has... (full context)

...but people still do it in secret—and at higher rates. At a minimum, interest and profit rates must be high enough to compensate for unexpected losses. So in a very wealthy... (full context)

At the highest possible rates of profit, all revenue except workers’ subsistence-level wages go to profit. In Smith’s Britain, ordinary market profit... (full context)

...tend toward equality: people will crowd into the best jobs and investments (whose wages and profit rates will then fall) and abandon the worst ones (whose wages and profit rates will... (full context)

...require a liberal education make even more. This principle applies to wages, but not to profits, since it is not much more difficult to invest in one kind of business than... (full context)

...off ships in London, because these ships only arrive irregularly. Constancy only affects wages, not profits. (full context)

...only natural that these occupations are all well-paid. Like constancy, trust only affects wages, not profits. (full context)

...instead attracts young people to the army and the seas (and doesn’t raise their wages). Profit rates typically rise in riskier businesses, but these are also the most likely to go... (full context)

Of the five factors that affect wages, only agreeableness and risk also affect profits. This is why, in a given time and place, profit rates across industries tend to... (full context)

...join a new, unproven trade requires paying them extra-high wages (and often leads to higher profits). Second, jobs must be in their “natural state,” meaning that there are typical levels of... (full context)

...of Europe.” By making the market deviate from “perfect liberty,” national policies exacerbate wage and profit inequalities in three ways. First, they restrict competition by giving professional associations (also called corporations)... (full context)

...lose out on their revenue from apprentices, and competition would likely drive tradespeople’s wages and profits down, but the public would benefit from greater access to cheaper high-quality goods. Indeed, professional... (full context)

...over the country is shrinking. This is because, as town industries grew larger and more profitable, they accumulated more and more capital stock, which they invested back into their operations. This... (full context)

The second way that policy drives inequalities in wages and profits is by artificially increasing competition. For instance, public scholarships and prizes draw too many people... (full context)

The third and final way that policy drives wage and profit inequalities is by preventing labor and capital from moving freely across different places and employments.... (full context)

...hard and innovating. Parliament still passes labor regulations, which generally just help masters increase their profits. Similarly, while the government no longer sets the prices for all different goods, there are... (full context)

...producing. This demand always exists for some products and varies for others. Thus, wages and profits determine prices, and prices determine rents. (full context)

...always demand for food, and nearly all land produces enough food to cover wages and profits, so nearly all land yields rent. The more fertile the land and the closer it... (full context)

...is particularly valuable because the harvest requires cattle. Still, in most situations, the rent and profit for grainland determines the rent and profit for pasture. (full context)

...In other words, people will only decide to grow other produce if this is more profitable than growing grain or raising livestock. These higher profits, and the higher rents that accompany... (full context)

In the 1700s, timber is a more profitable land use than grain or livestock in many parts of Britain. Coal is comparatively cheap:... (full context)

...fall over time and confirms that, the more valuable the metal, the lower the rent. Profits are low, too. In both places, nobody would search for new ore deposits if the... (full context)

When the Spanish discovered massive silver mines in America in 1545, they initially made huge profits. But then, silver prices started to fall. The Spanish king repeatedly reduced the silver tax,... (full context)

But gold is closer to its lowest possible price—wages plus profit, with no rent—because the Spanish king’s tax on gold is lower than his tax on... (full context)

...wool and/or hide prices naturally raise meat prices, as farmers must cover their rent and profit for raising animals with the revenue from selling those products. But in unimproved countries, most... (full context)

The value of a country’s annual produce gets divided into rent, wages, and profit, which respectively go to landlords, workers, and employers. These are “three great, original and constituent... (full context)

However, employers’ interests don’t align with society’s because profit rates don’t track economic growth—rather, profit rates are highest in poorer countries and lowest in... (full context)

...capital: circulating capital, or capital used to produce or obtain goods that are sold for profit, and fixed capital, or capital used to improve production processes by buying machines, improving land,... (full context)

...particular enterprise, the revenue of society as a whole is divided into wages, rent, and profit. Any estate’s gross rent (what the farmer pays) is more than its neat rent (what... (full context)

...in assets that can be used to buy goods from abroad, whether to trade for profit or to bring back to the home country for consumption. (full context)

...Scotland, as it enables merchants to employ more people, trade more goods, and earn greater profits. (full context)

...issues too much paper money will run up significant extra costs, without meaningfully increasing its profits. (full context)

...turn choose to spend it on unproductive labor.) A second part goes to the producer’s profits, and a third part goes to the landlord; these can go to productive laborers, but... (full context)

...little sense, as the availability of more silver doesn’t change the proportion between capital and profit (and thus the interest for lending money). If more goods circulated in a country for... (full context)

...wholesalers’ original capital investment. The amount retailers add to the nation is equal to their profits. Wholesalers spend their capital buying goods from farmers and manufacturers. In the process, they replace... (full context)

...carrying trade—or trading purely between foreign countries—doesn’t benefit the home country, except through the merchant’s profit (if they spend it at home) and the sailors’ wages (if they are from the... (full context)

People with capital decide where to allocate it based only on profit margins, and not on what is best for the economy as a whole. Thus, they... (full context)

...town but can also be distant from it. This surplus forms because, when offered equal profits, people generally prefer to invest in their land over trade and manufacturing. They do this... (full context)

...families generally don’t improve their land, for several reasons: they care more about defense than profit, they lack the necessary patience and frugality, and they prefer to spend on status symbols.... (full context)

...overlooks re-exportation. Many of the goods Britain imports from other countries get re-exported at a profit, and so bring in more gold and silver than were sent away to purchase them. (full context)

...money, but nobody knows how much this really is. The Bank also makes a significant profit by charging fees for every transaction, even though it was originally created as a public... (full context)

...gold and silver) for useful goods, thereby transforming it into “active stock” (capital that yields profit). (full context)

...for four reasons. First, the bounty is too high, and herring fisheries would be deeply unprofitable without it. Second, the bounty is based on a ship’s size, not the amount of... (full context)

...consumption, leaving some grain unsold. If prices fall too low, they cut into the merchant’s profits and encourage people to buy up all the grain at the beginning of the season,... (full context)

...traders and even attack them during lean years, when they raise prices (and make the profits that allow them to sustain losses in better growing years). As a result, reputable people... (full context)

...Britain faced a grain shortage while another country faced a famine, exporters would make more profit by sending British grain to the famine-stricken country. (full context)

...in Holland, Denmark, Portugal, and France in the past), they limit supply to increase their profits, which harms the colonial economy. When trade is limited to a single port, as with... (full context)

...them, which caused more English capital to flow into them. Prices rose, but so did profit margins, so merchants withdrew their capital from other enterprises and forms of foreign trade to... (full context)

...shorter, so goods can circulate back and forth faster, and the same capital can yield profits more frequently. But Britain’s exclusive trade with its colonies has supported a distant, roundabout trade... (full context)

By increasing merchants’ profits, the exclusive trade also reduces wages, discourages land improvement, reduces land rents, and raises interest... (full context)

...home and yield fast returns. When too much capital goes into a certain activity, its profit rates fall back to the standard. This is why people naturally distribute their capital in... (full context)

As merchants, these company workers will always trade on the side for their own private profit, in addition to their public work for the company. This is impossible to stop, as... (full context)

...it, so the cost of these investments—plus the land rent and an ordinary rate of profit—should be exempt from taxation. (full context)

...their land’s rude produce. Second, they give a monopoly to domestic manufacturers and merchants, whose profit rates rise. This draws capital away from agriculture at a stage when land improvement is... (full context)

...after defense and justice, is creating the other crucial institutions that would never return a profit to private investors. Specifically, these are the institutions necessary for commerce, the education of the... (full context)

...because it has no real competitors and very few stockowners, who make low but respectable profits. The South Sea Company bankrupted itself enslaving and selling people to Spain, then whaling in... (full context)

...the government. It is poorly managed because its members and directors care about their immediate profits, and not the company, the Empire, or India. (full context)

...or Arabs, the sovereign’s stock consists of the chief’s herds, and its revenue is the profit those herds generate (as they multiply and yield milk). In mercantile republics like Hamburg, Venice,... (full context)

...most cases, the sovereign’s general revenue must come primarily from taxes. It can tax rents, profits, wages, or all three. Four key principles apply to all four kinds of taxes. First,... (full context)

...the construction, plus the ordinary rate of interest (so that the builder can make a profit). Ground rent pays for the cost of the land. Ground rent is higher wherever there... (full context)

“Article II. Taxes upon Profit, or upon the Revenue arising from Stock.” Profit has two parts. One part is interest,... (full context)

“Taxes upon the Profit of particular Employments.” Some countries impose special taxes on certain occupations, like street hawkers and... (full context)

France does tax the profits of agricultural stock. Historically, it taxed common people who owned land but not nobles, who... (full context)

...taxes on consumable commodities with whatever revenue they happen to have, whether it comes from profit, rent, or wages. (full context)

...customs duties (taxes on imports and exports). Originally, customs duties were supposed to tax merchants’ profits, so they were imposed on all goods. Later, Britain started assessing special duties on wool,... (full context)

...for most of society’s consumption and revenue. (They also earn much of the nation’s total profits and even some of its land rents.) But they should only be taxed for their... (full context)

...for malt and help maltsters in the long term. It certainly won’t lower rents and profits for barley land. Even if barley rents and profits fell, farmers would start growing something... (full context)

...establish monopolies over certain taxes, encourage smuggling, and pass on the cost of their exorbitant profits to consumers. For instance, in France, the five taxes administered by private collectors are full... (full context)

The Wealth of Nations

Adam Smith

Profit Term Analysis

Profit Quotes in The Wealth of Nations

Profit Term Timeline in The Wealth of Nations