histofthought1

The celebrated Adam Smith 459the population and hence the supply of labour, raising wages to the subsistencerate; and if wages should rise above subsistence, the 'excessive multiplication'of workers 'would soon lower it to this necessary rate'.One of the many problems of this 'Malthusian' approach is that it assumesthat human beings will not be able to act on their own to limit populationgrowth in order to preserve a newly achieved standard of living. 22In addition to Smith's erroneous Malthusian view that long-run wage ratesare at the means of subsistence, he also introduced into economics the unfortunatefallacy that wages, at least in the shorter run, are determined by therelative 'bargaining power' of employers and workers. It was a simple leapfrom that position to the view that employers have greater bargaining powerthan workers, thus setting the stage for later pro-union propagandists claimingerroneously that unions can raise overall wage rates throughout theeconomy.In his view of rent, Smith characteristically held several unintegratedviews running side by side. On the one hand, as we have seen, rent isdemanded by landlords who 'reap where they have never sowed'. Why arethey able to collect such a rent? Because, now that land has become privateproperty, the labourer 'must pay for the licence' to cultivate the land and'must give to the landlord a portion of what his labour either collects orproduces'. Smith concludes that 'the rent of land therefore.. .is naturally amonopoly price', since he regards private property in land in the same categoryas monopolization. Surely, socialist and Henry Georgite calls for landnationalization found here their fundamental inspiration. Smith also sensiblypoints out that rent will vary according to superior fertility and location of theland. Furthermore, as we have indicated, he attributes rent to the 'powers ofnature', which supposedly earns an extra return in agriculture as compared toother occupations.Smith is also inconsistent on whether land rent is included in cost. Atvarious points he includes land rent in cost and therefore as an allegeddeterminant of long-run price. On the other hand, he also asserts that high orlow rents are the effect of high or low product prices and that since the supplyof land is fixed, the full incidence of taxes upon rent will fall on land ratherthan being shifted. All these inconsistencies can be cleared up if we regard allcosts as determined by expected future selling prices, and individual costs tobe the opportunity foregone to contribute to expected productive revenueelsewhere. More specifically, while costs do not determine price directly,they do limit supply, and in this sense every expenditure, whether on rent orelsewhere, is definitely a part of cost.But as we have seen, the greatest of the many defects in Smith's theorywas his totally discarding Cantillon's and Turgot's brilliant analysis of theentrepreneur. It was as if these great eighteenth century Frenchmen had never