BOOK II. OF THE NATure, accumuLATION, AND EMPLOYMENT OF STOCK. NTRODUCTION. In that rude state of society, in which there is no division of labour, in which exchanges are seldom made, and in which every man provides every thing for himself, it is not necessary that any stock should be accumulated, or stored up before-hand, in order to carry on the business of the society. Every man endeavours to supply, by his own industry, his own occasional wants, as they occur. When he is hungry, he goes to the forest to hunt; when his coat is worn out, he clothes himself with the skin of the first large animal he kills: and when his hut begins to go to ruin, he repairs it, as well as he can, with the trees and the turf that are nearest it. But when the division of labour has once been thoroughly introduced, the produce of a man's own labour can supply but a very small part of his occasional wants. The far greater part of them are supplied by the produce of other men's labour, which he purchases with the produce, or, what is the same thing, with the price of the produce, of his own. But this purchase cannot be made till such time as the produce of his own labour has not only been completed, but sold. A stock of goods of different kinds, therefore, must be stored up somewhere, sufficient to maintain him, and to supply him with the materials and tools of his work, till such time at least as both these events can be brought about. A weaver cannot apply himself entirely to his peculiar business, unless there is before-hand stored up somewhere, either in his own possession, or in that of some other person, a stock sufficient to maintain him, and to supply him with the materials and tools of his work, till he has not only completed, but sold his web. This accumulation must evidently be previous to his applying his industry for so long a time to such a peculiar business. As the accumulation of stock must, in the nature of things, be previous to the division of labour, so labour can be more and more subdivided in proportion only as stock is previously more and more accumulated. The quantity of materials which the same number of people can work up, increases in a great proportion as labour comes to be more and more subdivided; and as the operations of each workman are gradually reduced to a greater degree of simplicity, a variety of new machines come to be invented for facilitating and abridging those operations. As the division of labour advances, therefore, in order to give constant employment to an equal number of workmen, an equal stock of provisions, and a greater stock of materials and tools than what would have been necessary in a ruder state of things, must be accumulated before-hand. But the number of workmen in every branch of business generally increases with the division of labour in that branch; or rather it is the increase of their number which enables them to class and subdivide themselves in this manner. As the accumulation of stock is previously necessary for carrying on this great improvement in the productive powers of labour, so that accumulation naturally leads to this improvement. The person who employs his stock in maintaining labour, necessarily wishes to employ it in such a manner as to produce as great a quantity of work as possible. He endeavours, therefore, both to make among his workmen the most proper distribution of employment, and to furnish them with the best machines which he can either invent or afford to purchase. His abilities, in both these respects, are generally in proportion to the extent of his stock, or to the number of people whom it can. employ. The quantity of industry, therefore, not only increases in every country with the increase of the stock which employs it, but, in consequence of that in crease, the same quantity of industry produces a much greater quantity of work. Such are in general the effects of the increase of stock upon industry and its productive powers. In the following book, I have endeavoured There are two different ways in which a to explain the nature of stock, the effects capital may be employed so as to yield a reof its accumulation into capital of different venue or profit to its employer. kinds, and the effects of the different employ- First, it may be employed in raising, maments of those capitals. This book is divided|nufacturing, or purchasing goods, and selling into five chapters. In the first chapter, I have them again with a profit. The capital employed endeavoured to shew what are the different in this manner yields no revenue or profit to parts or branches into which the stock, either its employer, while it either remains in his of an individual, or of a great society, natu- possession, or continues in the same shape. rally divides itself. In the second, I have en- The goods of the merchant yield him no redeavoured to explain the nature and operation venue or profit till he sells them for money, of money, considered as a particular branch and the money yields him as little till it is of the general stock of the society. The stock again exchanged for goods. His capital is which is accumulated into a capital, may ei- continually going from him in one shape, and ther be employed by the person to whom it returning to him in another; and it is only belongs, or it may be lent to some other per- by means of such circulation, or successive son. In the third and fourth chapters, I have changes, that it can yield him any profit. endeavoured to examine the manner in which Such capitals, therefore, may very properly be it operates in both these situations. The fifth called circulating capitals. and last chapter treats of the different effects Secondly, it may be employed in the imwhich the different employments of capital improvement of land, in the purchase of useful mediately produce upon the quantity, both of machines and instruments of trade, or in such national industry, and of the annual produce like things as yield a revenue or profit withof land and labour. CHAP. I. OF THE DIVISION OF STOCK. WHEN the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. He consumes it as sparingly as he can, and endeavours, by his labour, to acquire something which may supply its place before it be consumed altogether. His revenue is, in this case, derived from his labour only. This is the state of the greater part of the labouring poor in all countries. out changing masters, or circulating any further. Such capitals, therefore, may very properly be called fixed capitals. Different occupations require very different proportions between the fixed and circulating capitals employed in them. The capital of a merchant, for example, is altogether a circulating capital. He has occasion for no machines or instruments of trade, unless his shop or warehouse be considered as such. Some part of the capital of every master artificer or manufacturer must be fixed in the instruments of his trade. This part, however, is very small in some, and very great in others. A master tailor requirs no other instruments of trade but a parcel of needles. Those of the master shoemaker are a little, though but a very little, more expensive. Those of the weaver rise a good deal above those of the shoemaker. The far greater part of the capital of all such master artificers, however, is circulated either in the wages of their workmen, or in the price of their materials, and repaid, with a profit, by the price of the work. In other works a much greater fixed capital is required. In a great iron-work, for example, the furnace for melting the ore, the forge, the slit-mill, are instruments of trade which cannot be erected without a very great expense. In coal works, and mines of every kind, the machinery necessary, both for drawing out the water, and for other purposes, is frequently still more expensive. But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from the greater part of it, reserving only so much for his immediate consumption as may maintain him till this revenue begins to come in. His whole stock, therefore, is distinguished into two parts. That part which he expects is to afford him this revenue is called his capital. The other is that which supplies his immediate consumption, and which consists either, first, in that portion of his whole stock which was originally reserved for this purpose; or, secondly, in his revenue, from whatever source derived, as it gradually comes in; or, thirdly, That part of the capital of the farmer which in such things as had been purchased by ei- is employed in the instruments of agriculture ther of these in former years, and which are is a fixed, that which is employed in the wages not yet entirely consumed, such as a stock of and maintenance of his labouring servants is clothes, household furniture, and the like. In a circulating capital. He makes a profit of one or other, or all of these three articles, con- the one by keeping it in his own possession, sists the stock which men commonly reserve ind of the other by parting with it. The for their own immediate consumption. price or value of his labouring cattle is a fixed capital, in the same manner as that of the in-ner, sometimes yield a revenue, and therestruments of husbandry; their maintenance by serve in the function of a capital to paris a circulating capital, in the same manner as ticular persons. In countries where masque that of the labouring servants. The farmer rades are common, it is a trade to let out makes his profit by keeping the labouring masquerade dresses for a night. Upholcattle, and by parting with their maintenance. sterers frequently let furniture by the month Both the price and the maintenance of the cat- or by the year. Undertakers let the furtle which are bought in and fattened, not for niture of funerals by the day and by the labour, but for sale, are a circulating capital. week. Many people let furnished houses, and The farmer makes his profit by parting with get a rent, not only for the use of the house, them. A flock of sheep or a herd of cattle, but for that of the furniture. The revenue, that, in a breeding country, is brought in nei- however, which is derived from such things, ther for labour nor for sale, but in order to must always be ultimately drawn from some make a profit by their wool, by their milk, other source of revenue. Of all parts of the and by their increase, is a fixed capital. The stock, either of an individual or of a society, profit is made by keeping them. Their main- reserved for immediate consumption, what is tenance is a circulating capital. The profit is laid out in houses is most slowly consumed. made by parting with it; and it comes back A stock of clothes may last several years; a with both its own profit and the profit upon stock of furniture half a century or a century; the whole price of the cattle, in the price of but a stock of houses, well built and properthe wool, the milk, and the increase. The ly taken care of, may last many centuries. whole value of the seed, too, is properly a Though the period of their total consumption, fixed capital. Though it goes backwards and however, is more distant, they are still as forwards between the ground and the gran- really a stock reserved for immediate conary, it never changes masters, and therefore sumption as either clothes or household furdoes not properly circulate. The farmer niture. makes his profit, not by its sale, but by its increase. labour. The second of the three portions into which the general stock of the society divides itself, The general stock of any country or socie- is the fixed capital; of which the characteristy is the same with that of all its inhabitants tic is, that it affords a revenue or profit withor members; and, therefore, naturally divides out circulating or changing masters. It itself into the same three portions, each of consists chiefly of the four following articles. which has a distinct function or office. First, of all useful machines and instruThe first is that portion which is reserv-ments of trade, which facilitate and abridge ed for immediate consumption, and of which the characteristic is, that it affords no revenue Secondly, of all those profitable buildings r profit. It consists in the stock of food, which are the means of procuring a revenue, clothes, household furniture, &c. which have not only to the proprietor who lets them for been purchased by their proper consumers, a rent, but to the person who possesses them, but which are not yet entirely consumed. The and pays that rent for them; such as shops, whole stock of mere dwelling-houses, too, warehouses, work-houses, farm-houses, with all subsisting at any one time in the country, their necessary buildings, stables, granaries, make a part of this first portion. The stock &c. These are very different from mere dwelthat is laid out in a house, if it is to be the ling-houses. They are a sort of instruments dwelling-house of the proprietor, ceases from of trade, and may be considered in the same that moment to serve in the function of a ca-light. pital, or to afford any revenue to its owner. Thirdly, of the improvements of land, of A dwelling-house, as such, contributes nothing what has been profitably laid out in clearing, to the revenue of its inhabitant; and though draining, inclosing, manuring, and reducing it is, no doubt, extremely useful to him, it is it into the condition most proper for tillage as his clothes and household furniture are use- and culture. An improved farm may very ful to him, which, however, make a part of justly be regarded in the same light as those his expense, and not of his revenue. If it is useful machines which facilitate and abridge to be let to a tenant for rent, as the house it-labour, and by means of which an equal cirself can produce nothing, the tenant must al- culating capital can afford a much greater reways pay the rent out of some other revenue, venue to its employer. An improved farm is which he derives, either from labour, or stock, equally advantageous and more durable than or land. Though a house, therefore, may yield any of those machines, frequently requiring a revenue to its proprietor, and thereby serve: no other repairs than the most profitable apin the function of a capital to him, it cannot plication of the farmer's capital employed in yield any to the public, nor serve in the func- cultivating it. tion of a capital to it, and the revenue of Fourthly, of the acquired and useful abithe whole body of the people can never be lities of all the inhabitants and members of in the smallest degree increased by it. Clothes the society. The acquisition of such talents, and household furniture, in the same man- by the maintenance of the acquirer during his H education, study, or apprenticeship, always No fixed capital can yield any revenue but costs a real expense, which is a capital fixed by means of a circulating capital The most and realized, as it were, in his person. Those useful machines and instruments of trade will talents, as they make a part of his fortune, so produce nothing, without the circulating capido they likewise that of the society to which tal, which affords the materials they are emhe belongs. The improved dexterity of a ployed upon, and the maintenance of the workman may be considered in the same light workmen who employ them. Land, however as a machine or instrument of trade which improved, will yield no revenue without a cirfacilitates and abridges labour, and which, culating capital, which maintains the labourers though it costs a certain expense, repays that who cultivate and collect its produce. expense with a profit. The third and last of the three portions into which the general stock of the society naturally divides itself, is the circulating capital, of which the characteristic is, that it affords a revenue only by circulating or changing masters. It is composed likewise of four parts. First, of the money, by means of which all the other three are circulated and distributed to their proper consumers. Secondly, of the stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn-merchant, the brewer, &c. and from the sale of which they expect to derive a profit. Thirdly, of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture, and building which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the mercers, and drapers, the timber-merchants, the carpenters and joiners, the brick-makers, &c. Fourthly, and lastly, of the work which is made up and completed, but which is still in the hands of the merchant and manufacturer, and not yet disposed of or distributed to the proper consumers; such as the finished work which we frequently find ready made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china-merchant, &c. The circulating capital consists, in this manner, of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them to those who are finally to use or to consume them. Of these four parts, three-provisions, materials, and finished work, are either annually or in a longer or shorter period, regularly withdrawn from it, and placed either in the fixed capital, or in the stock reserved for immediate consumption. To maintain and augment the stock which may be reserved for immediate consumption, is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depend upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption. So great a part of the circulating capital being continually withdrawn from it, in order to be placed in the other two branches of the general stock of the society, it must in its turn require continual supplies without which it would soon cease to exist. These supplies are principally drawn from three sources; the produce of land, of mines, and of fisheries. These afford continual supplies of provisions and materials, of which part is afterwards wrought up into finished work and by which are replaced the provisions, materials, and finished work, continually withdrawn from the circulating capital. From mines, too, is drawn what is necessary for maintaining and augmenting that part of it which consists in money. For though, in the ordinary course of business, this part is not, like the other three, necessarily withdrawn from it, in order to be placed in the other two branches of the general stock of the society, it must, however, like all other things, be wasted and worn out at last, and sometimes, too, be either lost or sent abroad, and must, therefore, require continual, though no doubt much smaller, supplies. Lands, mines, and fisheries, require all both a fixed and circulating capital to cultivate them; and their produce replaces, with a profit not only those capitals, but all the others in the society. Thus the farmer annually replaces to the manufacturer the provisions which he had consumed, and the materials which he had wrought up the year before; and the manufacturer replaces to the farmer the finished work which he had wasted Every fixed capital is both originally de- and worn out in the same time. This is the rived from, and requires to be continually sup- real exchange that is annually made between ported by, a circulating capital. All useful those two orders of people, though it seldom machines and instruments of trade are origi- happens that the rude produce of the one, and nally derived from a circulating capital, which the manufactured produce of the other, are furnishes the materials of which they are directly bartered for one another; because it made, and the maintenance of the workmen seldom happens that the farmer sells his corn who make them. They require, too, a capi- and his cattle, his flax and his wool, to the tal of the same kind to keep them in constant very same person of whom he chuses to purrepair. chase the clothes, furniture, and instruments |