prior probability

In Chapter 3 of Book II of The Wealth of Nations (available here), Adam Smith draws yet another fundamental distinction, [1] this one between so-called “productive” and “unproductive” professions or pursuits. Smith does not use these terms in a judgmental or normative sense. Both types of labour are, for Smith, “useful” but only one produces durable goods with a definite lifespan (like cars, furniture, houses, etc.), while the other type, by contrast, produces transitory services that are consumed on the spot (like a play or puppetshow, to borrow two of Smith’s own examples).

In brief, Smith’s paradigmatic example of a productive worker is “the labour of the manufacturer”: his labor is productive in a literal sense because it “fixes and realizes itself in some particular subject or vendible commodity, which lasts for some time at least after that labour is past.” (WN, II.ii.1) Consider, for instance, Smith’s famous pin factory example in Chapter 1 of Book 1 of The Wealth of Nations: the workers on the floor of the pin factory are “productive” (again, in a literal sense) because they are manufacturing long-lasting products that can then be used for sewing and other productive activities.

By the same token, Smith’s textbook example of an unproductive worker is “the menial servant.” (WN, II.ii.1) His work is “unproductive” in the Smithian sense because it “does not fix or realize itself in any particular subject or vendible commodity.” (ibid.) Instead, the work product of domestic servants (butlers, cooks, maids, etc.) are transitory and ethereal; their efforts “generally perish in the very instant of their performance, and seldom leave any trace or value behind them for which an equal quantity of service could afterwards be procured.” (ibid.)

But aside from “the menial servant”, who else is unproductive (in the Smithian sense)? Although Smith begins with “the menial servant”, he doesn’t stop there. He classifies all government officials — from the king on down! — as unproductive. Although Smith concedes that government officials like judges and police provide an essential public service (law and order), they are nevertheless “unproductive” in a literal sense since they do not produce durable goods:

“The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers. They are the servants of the public, and are maintained by a part of the annual produce of the industry of other people. Their service, how honourable, how useful, or how necessary soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence of the commonwealth, the effect of their labour this year will not purchase its protection, security, and defence for the year to come.” (WN, II.ii.2)

Indeed, Smith goes even further. He puts “churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, etc.” into the unproductive category because “the work of all of them perishes in the very instant of its production.” (WN, II.ii.2; my emphasis) But why does it matter how a worker is classified? Why is this distinction between productive and unproductive labor so crucial for Adam Smith? And regardless of how these questions are answered, does this distinction still make economic sense today? (To be continued …)

[1] By way of example, some of the previous distinctions we have seen made by Adam Smith thus far include the distinction between value in use and value in exchange (WN, I.iv.13), between real and nominal prices (I.v.7), between actual and natural prices (I.vii.7), between fixed and circulating capital (II.i.4-5), and between money and revenue (II.ii.14).

In my previous post, we saw the pivotal role that banks play in promoting economic growth and development. By issuing bank notes (paper money), discounting bills of exchange (check cashing), and providing cash accounts (lines of credit), banks facilitate trade and the financing of capital assets. But at the same time, as Adam Smith himself points out in the second half of Chapter 2 of Book II of The Wealth of Nations (Paras. 48-106), bad banking practices can endanger economic development. The collapse of the infamous Ayr Bank (Douglas, Heron & Co.) in 1772 is a case in point. According to Smith (see WN, II.ii.73-77), the Ayr Bank issued far too many bank notes than it could convert into gold and silver and was way too liberal in “discounting” bills of exchange and in granting “cash accounts” to borrowers. As a result of these practices, the Ayr Bank produced an over-supply (so to speak) of paper money.

But why is an oversupply of paper money so dangerous? Because when there are too many bank notes in circulation, for example, excess notes will be returned to the issuing banks (the banks that issued those notes) for their face value in gold and silver, but some banks will not have enough gold and silver on reserve to honor their notes. These banks thus run the risk that they will run out of cash and become insolvent. This danger, in turn, can destabilize the entire economy because a run on one bank can spread to others, especially if too many depositors fear their accounts are at risk and try to withdraw their holdings at the same time.

To counteract this danger, Smith calls for … (wait for it!) … aggressive government regulation! Among other things, he proposes the elimination, by law, of small-denomination bank notes: “It were better, perhaps, that no bank notes were issued in any part of the kingdom for a smaller sum than five pounds.” (WN, II.ii.91) Say what?! Doesn’t this heavy-handed approach — a complete and total government ban on small bank notes — contradict Smith’s ringing defense of “natural liberty” and economic freedom in the rest of his Wealth of Nations? [1] To his credit, Smith acknowledges this contradiction and explains why some restrictions on liberty are morally and legally justified:

“To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.” (WN, II.ii.94)

In other words, Smith is a pragmatist, not an ideologue: restrictions on one’s natural liberty are justified when those restrictions are designed to promote the general welfare or otherwise protect a larger group of people from harms caused by a few. (To be continued …)

[1] As an aside, the irony of Smith’s hard-line position against small bank notes is not lost on me: from 2007 to 2020 the Bank of England issued a beautiful £20 note with Adam Smith’s portrait! (Perhaps £20 does not count as “small”?)

Picking up where we last left off, Adam Smith surveys three important substitutes for money and metal currencies in the next part of Chapter 2 of Book II of The Wealth of Nations (specifically, Paras. 26-47): (a) bank notes, (b) bills of exchange, and (c) cash accounts. The first two money substitutes — bank notes and bills of exchange — are what lawyers call negotiable instruments: transferable and unconditional promises or orders to pay a specific sum of money, either on demand or at a set time, as the case may be. A bank note, for example, is a form of paper money consisting of a promise to pay a specific amount (including interest) upon demand. According to Smith, the main advantage of bank notes is that they lower transaction costs; bank notes are little pieces of paper that effectively replace expensive and cumbersome metal currencies (like gold and silver). In fact, Smith explains how banks can circulate up to five or even ten times more money in bank notes than they actually hold in gold and silver reserves! (WN, II.ii.26-42)

A bill of exchange, by contrast, is a credit document on which one party (the drawer) instructs another party (the drawee) to pay a specified sum of money to a third party (the payee) at a future date. By way of example, suppose a merchant in Glasgow wants to sell some goods to a merchant in London. Instead of demanding an immediate payment from the buyer in London, the seller in Glasgow can draw a bill of exchange on the London merchant, payable at a certain future date (say, 30, 60, or 90 days). During this interval of time (i.e. before maturity), the Glasgow merchant can do one of three things: (i) he can keep the bill of exchange until it becomes due; (ii) he can transfer or “endorse” it to a third party (this third party will then have the right to receive payment from the London merchant upon maturity); or (iii) he can “discount” or cash it with a banker for immediate cash at less than its face value. (see, e.g., WN, II.ii.43)

In addition to bank notes and bills of exchange, there is yet another method by which banks inject money — or what today we refer to as “liquidity” — into the economy: a bank can open a “cash account” in the merchant’s name, extending to the merchant a direct line of credit. (see, e.g., WN, II.ii.44-46) Once the merchant opens a cash account at his bank, the merchant may then draw money from this account up to a set limit. The bank charges interest only on the utilized balance, i.e. on the amount of money actually drawn from the account. (ibid.)

But how do these types of financial transactions — promissory notes, bills of exchange, and cash accounts — promote economic growth and development? In a word, these finance instruments do so by making it easier for merchants to trade and finance capital assets. How so? By acting as convenient and perfect substitutes for gold and silver: merchants no longer need to keep large sums of cash on hand in order to do business; instead, they can use bank notes, bills of exchange, and cash accounts to acquire capital assets and invest in productive activities right now. Furthermore, bank notes, bills of exchange, and cash accounts not only replace the need for hoarding gold and silver; these finance instruments also allow the same quantity of metal currency already in circulation to support a much larger volume of trade!

But that said, Smith also has a lot to say about the dark side of banking and finance in the second half of this chapter (Paras. 48-106). Among other things, he describes a real-world banking failure that occurred in Scotland (the spectacular collapse of the Ayr Bank in 1772; see WN, II.ii.73-77), explains why banking is such a risky activity (namely, the oversupply of bank notes), and proposes some ways of reducing this peril. (To be continued …)

To my friends “down under”, 🇦🇺 Happy Australia Day 🇦🇺! And to my friends in the twin cities of Minneapolis and Saint Paul, keep resisting and keep on fighting for our freedoms! The heavy-handed and lawless Gestapo tactics by masked federal officials — extrajudicial murders and warrantless home invasions — must stop immediately!

Now, as promised, to the business at hand: Chapter 2 of Book II of Adam Smith’s Wealth of Nations. It is here, in this prolonged and protracted chapter — it contains more than 100 paragraphs and spans over 75 pages of the Glasgow edition of Smith’s magnum opus! — where the Scottish philosopher explains the pivotal roles that money, banking, and finance play in promoting (and in potentially destroying) economic growth and development. To begin, Smith makes three contributions to our understanding of finance and economics in the first part of this chapter (Paras. 1-25):

1. Contribution #1: What is “money”? Smith points out two possible meanings of the word “money” — money as a unit of accounting, and money as purchasing power: “When we talk of any particular sum of money, we sometimes mean nothing but the metal pieces of which it is composed; and sometimes we include in our meaning some obscure reference to the goods which can be had in exchange for it, or to the power of purchasing which the possession of it conveys.” (WN, II.ii.16)
2. Contribution #2: Smith’s money wheel metaphor. Smith’s focus, however, is not on mere accounting; it’s on the function of money. At several points in this chapter (WN, II.ii.14, II.ii.23, & II.ii.39), for example, Smith describes money as “the great wheel of circulation.” What Smith means by this memorable metaphor is that money is a means to an end: it is an instrument of commerce, just like a turnpike or navigable river, which facilitates trade by making it easier for goods to reach their respective markets.
3. Contribution #3: Smith’s distinction between money and revenue. Smith also draws a fundamental distinction between “individual” and “aggregate” revenue, i.e. between the revenue generated by each individual landlord, worker, or capital owner and the aggregate revenue produced by a nation or other collective:

“The great wheel of circulation is altogether different from the goods [and services] which are circulated by means of it. The revenue of the society consists altogether in those goods [and services], and not in the wheel which circulates them. In computing either the gross or the net revenue of any society, we must always, from their whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever make any part of either.” (WN, II.ii.14)

Put another way, money ≠ revenue:

“Though the weekly or yearly revenue of all the different inhabitants of any country, in the same manner, may be, and in reality frequently is paid to them in money, their real riches, however, the real weekly or yearly revenue of all of them taken together, must always be great or small in proportion to the quantity of consumable goods which they can all of them purchase with this money. The whole revenue of all of them taken together is evidently not equal to both the money and the consumable goods; but only to one or other of those two values, and to the latter more properly than to the former.” (WN, II.ii.20)

Next, after clearing up what he means by “money”, Adam Smith turns his attention in the remainder of this chapter to banking and finance. (To be continued …)

Like a meteor flashing in the night sky, the Spice Girls, the best-selling girl group of all time (see here), were a bright but relatively brief phenomenon …

I concluded my discussion of Adam Smith’s theory of economic development in Chapter 1 of Book II of The Wealth of Nations (see my previous post) with this observation: “a poor or developing nation does not make progress by accumulating or hoarding money and other assets; a nation becomes wealthy when her capital assets are put to productive use.” But this conclusion, in turn, begs the $64 question, how does a nation actually go about putting her capital assets to productive use? As I see it, this question is what this part (Book II) of Smith’s Wealth of Nations is all about!

To the point, for Smith two ingredients are essential for economic growth and development: law and liberty. In summary, if people are free to make their own choices and if property rights are more or less secure and the legal environment is stable (what Smith refers to as “tolerable security”; see the passage quoted below), capital assets will not only be put to good use; they will gravitate to their best or most productive uses! I have already commented on Smith’s resounding and timeless defense of liberty (see here, for example) [1], today I will focus on the “law” side of Smith’s economic equation, for the Scottish philosopher himself compares and contrasts two different types of legal environment in the last two paragraphs of Chapter 1 of Book II of The Wealth of Nations:

“In all countries where there is tolerable security, every man of common understanding will endeavour to employ whatever stock he can command in procuring either present enjoyment or future profit. If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption. If it is employed in procuring future profit, it must procure this profit either staying with him, or by going from him. In the one case it is fixed, in the other it is a circulating capital. A man must be perfectly crazy who, where there is tolerable security, does not employ all the stock which he commands, whether be his own or borrowed of other people, in some one or other of those three ways.

“In those unfortunate countries, indeed, where men are continually afraid of the violence of their superiors, they frequently bury and conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their being threatened with any of those disasters to which they consider themselves as at all times exposed.” (WN, II.i.30-31; my emphasis)

Nota bene: I will resume my survey of Book II of The Wealth of Nations on Monday, 26 January, and then push into Book III by the end of next week!

[1] Cf. WN, I.x.1, where Smith extols the advantages of “a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper.”

Adam Smith is often referred to as “the father of economics.” Although my colleague and friend (and co-author) Salim Rashid has questioned whether Smith is deserving of this title, [1] one thing I can say for certain is this: Smith presents a nascent theory of development economics in Book II of his magnum opus, The Wealth of Nations. Why, for example, are some nations poor, while others are opulent? The five chapters in Book II (“Of the Nature, Accumulation, and Employment of Stock”) are all devoted to this key question. Smith begins by defining the concept of “stock” or capital assets in Chapter 1 of Book II. [2] For Smith, capital can be used in one of two ways:

“First, [capital] may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit. The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession, or continues in the same shape. The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another, and it is only by means of such circulation, or successive exchanges, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capitals.

“Secondly, it may be employed in the improvement of land, in the purchase of useful machines and instruments of trade, or in suchlike things as yield a revenue or profit without changing masters, or circulating any further. Such capitals, therefore, may very properly be called fixed capitals.” (WN, II.i.4-5)

Adam Smith thus compares and contrasts fixed capital, e.g. long-term assets like buildings, tools and machines, and people(!) [3], with circulating capital, e.g. short-term assets like raw materials, inventory, and wages. More importantly, Smith’s distinction is not only relevant today — modern accounting concepts like fixed assets (“Property, Plant, and Equipment” or PP&E) and working capital (Current Assets minus Current Liabilities) can be traced back to Smith — it also goes to the core of his most enduring and original idea, the seed of which he already planted in his lengthy “Digression on the Value of Silver” in Book I of The Wealth of Nations: wealth is not about money; wealth is about economic growth via the production and consumption of goods and services, [4] or in the immortal words of Smith himself:

“To maintain and augment the stock which may be reserved for immediate consumption is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depends upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption.” (WN, II.i.26)

In other words, a poor or developing nation does not make progress by accumulating or hoarding money and other assets; a nation becomes wealthy when her capital assets are put to productive use. (To be continued …)

[1] See generally Salim Rashid, The Myth of Adam Smith, Edward Elgar 1998.

[2] When Smith uses the word “stock”, he isn’t referring to securities or shares in a company (like today’s meaning of “stock”); instead, he has a broader meaning in mind: “stock” refers to capital or all the accumulated wealth or resources of a nation, including such assets as raw materials, provisions, machinery, and money.

[3] Later in this same chapter, Smith includes “human capital” in his definition of fixed capital, thus creating a whole new branch of economics. Referring to “the acquired and useful abilities of all the inhabitants or member of the society,” Smith observes: “The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise of that of the society to which he belongs.” (WN, II.i.17)

[4] Cf. WN, IV.viii.49: “Consumption is the sole end and purpose of all production.”

After his lengthy digression on the value of silver, Adam Smith concludes Book I of The Wealth of Nations with an important and original observation about the three major classes or “orders of people” in any economic system — i.e. landlords or “those who live by rent” (I.xi.p.8), workers or “those who live by wages” (I.xi.p.9), and capitalists or owners of capital or “those who live by profit” (I.xi.p.10). According to Smith, the rents of landlords and the wages of workers will rise when the economy as a whole is expanding, and by the same token, rents and wages will fall when the economy is stagnant or in decline. The profits of the capitalist class, however, are a different story:

But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin. (I.xi.p.10)

The Scottish philosopher then anticipates Karl Marx’s critique of capitalism by concluding Book I with the following ominous warning: the private economic interests of the capitalist class are diametrically opposed to the interests of the general public, or in the immortal words of Adam Smith:

“The interest of the [capitalists] … in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. 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 serve only to enable the [capitalists], 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.” (I.xi.p.10)

As a result, Smith urges people to exercise extreme caution anytime business firms propose a new law or regulation:

“The proposal of any new law or regulation of commerce which comes from this order [i.e. the capitalists] ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. 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.” (I.xi.p.10)

In short, Book I of The Wealth of Nations poses something of a puzzle, maybe even a paradox: on the one hand, Smith thus far has been a vocal champion of laissez faire capitalism as an economic system — i.e. “a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper” (I.x.1) — but at the same time, he is deeply suspicious of capitalists as a class! Does this Smithian paradox have a solution, or is this contradiction inherent to capitalism? I will begin my survey of Book II of Smith’s magnum opus in my next post.

Adam Smith concludes Book I of The Wealth of Nations with a lengthy detour titled “Digression concerning the Variations in the Value of Silver during the Course of the Four last Centuries.” (WN, I.xi.e-p) Although it is tempting to just skim or even skip this seemingly tedious subsection, I agree with my colleague and friend Maria Pia Paganelli [1] that doing so would be a terrible mistake, a reckless omission, for Smith’s “digression” is no mere appendage or afterthought; it is a must-read for two reasons.

One is that Smith’s subsection on silver consists of “new” material. By Smith’s own admission, he wrote this part of his great book in February 1773 (see WN, I.xi.m.10), that is, a few years after his extended visit to France (1764 to 1766) and a decade (if not more) after writing his “early draft” of The Wealth of Nations. The other reason Smith’s lengthy detour is worth reading is that it explores what I like to call the “three-body problem” in economics — namely, what is the relationship between (i) a nation’s wealth, (ii) the price of precious metals like silver, and (iii) the price of consumer goods like corn and cattle? In the course of exploring this complex three-body conundrum, Smith exposes no less than three mercantilist miscues or economic errors:

• Fallacy #1: nominal prices are same as real prices. To begin, most of Smith’s 100-page-plus digression on the value of silver can be summed up in a tweet: We need to look at real prices (measured in terms of others goods and services), not just nominal prices (measured in money).
• Fallacy #2: correlation is causation. In addition, mercantilists confuse correlation with causation: they claim that the long-term increase in the nominal prices of most goods was caused by an increase in the amount of silver after the discovery of Spanish America. Smith, however, explains why this correlation is just a coincidence: the real price of silver and other goods (corn, cattle, etc.) is not only a function of changes in supply and demand but also of changes in overall economic prosperity. (WN, I.xi.n)
• Fallacy #3: money is wealth. Smith’s main punchline: the true wealth of a nation lies in its capacity to produce and consume useful goods and services, not just the amount of gold or silver it possesses. (WN, I.xi.n.1 & I.xi.n.9)

To recap, it is here — in his lengthy digression on the value of silver — that Smith’s debunks classical mercantilism, the idea that national wealth consists of gold and silver. But does Smith’s powerful rebuttal extend to modern mercantilism (e.g. Trumpism), the idea that national wealth consists of positive trade balances? (To be continued …)

[1] See Maria Pia Paganelli, “Adam Smith’s Digression on Silver: The Centerpiece of The Wealth of Nations.” Cambridge Journal of Economics, Vol. 46, No. 3 (2022), pp. 531-544, preprint available here.

What is the relationship between rent, profit, and wages — the ostensible subject of the second half of Book 1 of The Wealth of Nations — or between rents and prices more generally? Adam Smith grapples with these difficult theoretical and practical questions in Chapter 11 (available here) of his magnum opus. [1] Unlike the wages of workers and the profits of owners, however, one often gets the feeling from Smith that landlord rents are a necessary evil! In a previous chapter (Ch. 6), for example, Smith takes a direct swipe at landlords:

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities makes a third component part. (WN, I.vi.8)

After devoting three chapters to wages and profits (Chs. 8-10; see here, here, and here), Smith returns to the subject of landlords and rents in Chapter 11. Here, although Smith’s tone is less judgmental and more analytical, he goes to great lengths to point out how rents generally bear little to no relation to the skill or foresight of landlords. In the preamble to this lengthy concluding chapter (I.xi.a.1-9), for example, Smith defines rent as “the price paid for the use of land” (I.xi.a.1 & I.xi.a.5); then he asserts the following general principle:

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. (I.xi.a.8)

In other words, while the price of any given good or service is a function of profits and wages — i.e. the higher these profits or wages are, the higher the price of the good or service will be — rent, by contrast, is a function of price: the higher the price of any given good or service is, the higher landlord rents will be as a general rule. The key phrase here, however, is “as a general rule,” for Smith devotes the remainder of this chapter to describing three different scenarios regarding rents:

1. Scenario #1: Positive Rents (I.xi.b) — i.e. the circumstances under which landlords (like monopolists) are able to charge high rents;
2. Scenario #2: Negative or Zero Rents (I.xi.c) — i.e. the circumstances under which landlords are in no position to charge high rents; and
3. Scenario #3: Fluctuating Rents (I.xi.d) — i.e. the circumstances under which landlords’ position to charge high rents is unstable or in flux. It is here, when describing this third scenario, that Smith inserts a lengthy digression. [2] (To be continued …)

[1] As an aside, Chapter 11 is by far the most lengthy and tedious chapter of Book 1 of The Wealth of Nations: it spans over 180 pages of the Glasgow edition of Wealth and includes a protracted “Digression concerning the Variations in the Value of Silver during the Course of the Four last Centuries.” (I.xi.e-o)

[2] Smith’s “digression” takes up two-thirds of this lengthy chapter, or 119 pages of the Glasgow edition!