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The distinction between relative and positive profit: Sir James Steuart after Adam Smith and the Classics

Abstract The distinction between relative and positive profit was put forward by Sir James Steuart in the shortest chapter of his book An Inquiry into the Principles of Political Economy (1767). This distinction has been scarcely noticed in the literature to follow except for some comments made by Marx especially in the initial chapter of his Theories of Surplus Value. The purpose of this paper is to investigate, in an attempt to keep words apart from concepts, whether and to what extent Steuart’s distinction, which is never mentioned in Smith’s Wealth of Nations (in spite of his familiarity with Steuart’s work), is an essential part of Adam Smith’s system of thought. The point of departure for tracing this distinction is, first, Smith’s elementary example of dwelling-houses and profitable buildings; and, then, his more advanced discussion (to be developed by later scholars and in particular by Marx) between the process of circulation (from one individual to another) and the process of production (and reproduction) of national wealth in the light of the two points of view, that of an individual and that of the whole society, on which Smith’s theory of capital is based. This point of departure is used in the paper to trace Steuart’s distinction between relative and positive profit behind the different terminology adopted in the classical literature that followed suit with particular regard to the wage-profit inverse relationship, the competition-of-capitals doctrine and the distinction between value and wealth. Steuart’s own distinction is thus used in the paper to support Ricardo’s conception of the “neat produce” as put forward in his Essay on Profits; as well as to differentiate Ricardo’s theory of rent (as a transfer of existing wealth between different parties rather than as a creation of new wealth) not only from Malthus’s theory (in which the two concepts of rent are mixed up) but also from Smith’s (who used the word rent to convey the former concept in Book I and the latter concept in Book II of the Wealth of Nations).