William J. Polley

I actually would like to ask a question related to a previous blog posting about Adam Smith and his use of the term "rent" in his treatise on the wealth of nations. Couldn't see how to respond from that post.

I thought I "got it" as being equivalent to profit until I read in Smith:

a "gentleman who farms a part of his own estate, after paying the expence of cultivation, should gain both the rent of the landlord and the profit of the farmer. He is apt to denominate, however, his whole gain, profit, and thus confounds rent with profit, at least in common language."

Not wanting to confound the two myself and incur the wrath of others more knowledgable than this struggling pharmacologist, I beg for enlightenment!

Good question! Here's how Smith defines rent:

"Rent, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. In adjusting the terms of the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock from which he furnishes the seed, pays the labour, and purchases and maintains the cattle and other instruments of husbandry, together with the ordinary profits of farming stock in the neighbourhood."

And this is generally what economists mean when they speak of rent. "Ordinary profits" are not rent. Rent is the extraordinary return to a fixed factor of production. Land is, of course, one of the best examples of a fixed factor and thus many examples of rent revolve around land.

The owner of a fixed factor has a kind of monopoly power. The owner of a patent, for example, will be able to earn more than the average market rate of profit because of the patent protection. That is rent. Additional examples abound.

In the passage you cite, the "profit of the farmer" is the ordinary profit. That is, it's the profit that everyone else in the area gets from farming which would be sufficient to keep him in business in the long run. Anything above that is rent, which perhaps he gets because his farmland is a little better than his neighbors, for example.

Does that help?