ABSTRACT
This is one of the longest chapters in the book as it deals with a difficult topic, the theory of rent and profit. The approach to rent is topical, and a series of supply and demand models is used to illustrate Smith’s key propositions. The central problem is that rent is both a surplus and cost, an unearned income and a compensation for foregone opportunities. The models show how to reconcile these seemingly contradictory claims, and they also show how to interpret the claim that rent at the best mines regulates the rent of all other mines by looking at the effect on the value of silver in Europe following the discovery of silver in America. The chapter concludes with another model which illuminates Smith’s hierarchy of capital investments in conjunction with the tendency of profit to fall as more capital is invested in a particular use.
