p 392: “…every branch of trade in which the merchant can sell his goods for a price which replaces to him, with the ordinary profits of stock, the whole capital employed in preparing and sending them to market, can be carried on without a bounty.”
This is not the first time we’ve seen that phrase, “the ordinary profits of stock.” But what, exactly, does it mean? Smith appears to believe that, when money is productively invested, a certain amount of profit is natural and normal. What determines this amount? What is the percentage, and why? For someone so precise in other things, this vagueness really stands out. It goes back to his assertion, in Book 1, that the value of commodities comes from wages, rent, and profit. In fact, that is how (most) of the value is divided after the sale, but it isn’t it’s source of the value. There is no “ordinary profit of stock.”
Later, he makes another fundamental (thought perfectly understandable) error. On page 397, speaking of corn (ie, grain), he says, “It regulates the money price of labour, which must always be such as to enable the labourer to purchase a quantity of corn sufficient to maintain him and his family either in the liberal, moderate, or scanty manner in which the advancing, stationary, or declining circumstances of the society oblige his employers to maintain him.” And further down, “The money price of labour, and of everything that is the produce either of land or labour, must necessarily either rise or fall in proportion to the money price of corn.”
In other words, because grain is the staple food, it controls the price of labor, and the price of labor controls the value of commodities. But even in his day, the cost or price of labor (wages), insofar as it was determined by the cost of necessaries the worker, was also determined by the price of wool, leather, furnishings, cotton, and all of the other things consumed by the worker. Moreover, the value of a commodity is determined by the value of labor (measured in time), not the cost of labor. Raising the value of basic necessities effectively lowers wages, but this does not change the value of those commodities (whether expressed in labor-time, money, or even grain).