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.