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Nominal Price
Smith observes that investors’ profit margins gravitate toward a standard rate in any given time and place, just like the market price of any good tends to gravitate toward its natural price. On the one hand, competition prevents profit rates from rising too high. Firms’ costs to produce the same goods at the same time and in the same place are generally very similar, so consumers will buy from whoever is willing to take the lowest profit margin. But on the other hand, investors always try to achieve the highest possible profit rates, which prevents profit rates from dropping too low. Anyone who earns less than the ordinary rate of profit in some business will withdraw their capital and reallocate it to another, more profitable business. As a society advances economically and its most productive investment opportunities (like land improvement) get snatched up, this ordinary rate of profit tends to gradually fall, but business revenues rise enough to make up the difference.
Ordinary Rate of Profit Quotes in The Wealth of Nations
The The Wealth of Nations quotes below are all either spoken by Ordinary Rate of Profit or refer to Ordinary Rate of Profit. For each quote, you can also see the other terms and themes related to it (each theme is indicated by its own dot and icon, like this one:
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Book 1, Chapter 11
Quotes
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 only serve to enable the dealers, 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. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined [...]. 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.
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Ordinary Rate of Profit Term Timeline in The Wealth of Nations
The timeline below shows where the term Ordinary Rate of Profit appears in The Wealth of Nations. The colored dots and icons indicate which themes are associated with that appearance.
Book 1, Chapter 7
...commodity’s natural price is the cost of rent and labor to produce it, plus the average rate of profit in the investor’s area. (The investor will take their money elsewhere if they do not...
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...for it and its prices drop, then rent, wages, and/or profit must fall below their ordinary rate s. Thus, landlords, workers, and/or investors will correspondingly withdraw their land, labor, and/or capital. This...
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Book 1, Chapter 9
...rates of profit, all revenue except workers’ subsistence-level wages go to profit. In Smith’s Britain, ordinary market profit rates are about double interest rates, but can vary within reason. This is why countries with...
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Book 1, Chapter 11
...goods, the lowest price for silver and gold is the cost of wages plus the ordinary rate of profit on the capital required to mine and sell them. But their highest price...
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Book 4, Chapter 9
...planting and cultivating it, so the cost of these investments—plus the land rent and an ordinary rate of profit—should be exempt from taxation.
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Book 5, Chapter 2
...rent has two parts. Building rent pays for the cost of the construction, plus the ordinary rate of interest (so that the builder can make a profit). Ground rent pays for the...
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...has two parts. One part is interest, which pays back the stockowner’s investment at an ordinary profit rate . The other part is the surplus earned in exchange for employing the capital. Taxes...
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