Second Period : 1776–1817.

§1. Adam Smith’s Wealth of Nations, published in 1776, is chiefly noticeable, for our present purpose, by reason of its influence upon the framework within which subsequent economic ideas have been set. This influence has been specially strong upon later theories of distribution. From Adam Smith is derived the threefold classification of the factors of production—land, labour and capital—which has been so prominent in the work of later writers. This historic tripod of the economist is first introduced by Adam Smith in his discussion of the component elements of price. “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 ; 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.… Wages, profit and rent are the three original sources of all revenue, as well as of all exchangeable value.” ¹ In subsequent chapters, however, Adam Smith fixes his attention upon the causes which determine wages per head, profits per cent, and rent per acre. ² Of the causes which determine wages, profits and rent in the aggregate, or aggregate wages, profits and rent, relatively to one another, he has practically nothing to say. His chapter on the variations of “wages and profit in the different employments of labour and stock” ¹ has become famous, not so much because the reasoning is correct—in fact, it is far from correct, especially as regards profits,—but because it contains the germ from which later theories have sprung.