of trade, which he wants. He sells, therefore, his rude produce for money, with which he can purchase, wherever it is to be had, the manufactured produce he has occasion for. CHAP. II. BRANCH OF THE GENERAL STOCK OF THE Land even replaces, in part at least, the capi- OF MONEY, CONSIDERED AS A PARTICULAK tals with which fisheries and mines are cultirated. It is the produce of land which draws the fish from the waters; and it is the produce of the surface of the earth which extracts the minerals from its bowels. The produce of land, mines, and fisheries, when their natural fertility is equal, is in proportion to the extent and proper application of the capitals employed about them. When the capitals are equal, and equally well applied, it is in proportion to their natural fertility. In all countries where there is a tolerable security, every man of common understanding will endeavour to employ whatever stock he can command, in procuring either present enjoyment or future profit. If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption. If it is employed in procuring future profit, it must procure this profit either by staying with him, or by going from him. In the one case it is a fixed, in the other it is a circulating capital. A man must be perfectly crazy, who, where there is a tolerable security, does not employ all the stock which he commands, whether it be his own, or borrowed of other people, in some one or other of those three ways. IT has been shown in the First Book, that the price of the greater part of commodities resolves itself into three parts, of which one pays the wages of the labour, another the profits of the stock, and a third the rent of the land which had been employed in producing and bringing them to market: that there are, indeed, some commodities of which the price is made up of two of those parts only, the wages of labour, and the profits of stock; and a very few in which it consists altogether in one, the wages of labour; but that the price of every commodity necessarily resolves itself into some one or other, or all, of those three parts; every part of it which goes neither to rent nor to wages, being necessarily profit to somebody. But though the whole value of the annual produce of the land and labour of every country, is thus divided among, and constitutes a revenue to, its different inhabitants; yet, as in the rent of a private estate, we distinguish between the gross rent and the neat rent, so may we likewise in the revenue of all the inhabitants of a great country. Since this is the case, it has been observed, with regard to every particular commodity, taken separately, it must be so with regard to all the commodities which compose the whole annual produce of the land and labour of every country, taken complexly. The whole In those unfortunate countries, indeed, price or exchangeable value of that annual where men are continually afraid of the vio-produce must resolve itself into the same three lence of their superiors, they frequently bury parts, and be parcelled out among the diffeor conceal a great part of their stock, in or- rent inhabitants of the country, either as the der to have it always at hand to carry with wages of their labour, the profits of their them to some place of safety, in case of their stock, or the rent of their land. being threatened with any of those disasters to which they consider themselves at all times exposed. This is said to be a common practice in Turkey, in Indostan, and, I believe, in most other governments of Asia. It seems to have been a common practice among our ancestors during the violence of the feudal government. Treasure-trove was, in these times, considered as no contemptible part of the re- The gross rent of a private estate comprevenue of the greatest sovereigns in Europe. hends whatever is paid by the farmer; the It consisted in such treasure as was found neat rent, what remains free to the landconcealed in the earth, and to which no parti- lord, after deducting the expense of managecular person could prove any right. This was ment, of repairs, and all other necessary regarded, in those times, as so important an charges; or what, without hurting his estate, object, that it was always considered as belong- he can afford to place in his stock reserved for ing to the sovereign, and neither to the immediate consumption, or to spend upon his finder nor to the proprietor of the land, unless table, equipage, the ornaments of his house the right to it had been conveyed to the latter and furniture, his private enjoyments and by an express clause in his charter. It was amusements. His real wealth is in proporput upon the same footing with gold and sil- tion, not to his gross, but to his neat rent. ver mines, which, without a special clause in the charter, were never supposed to be comprehended in the general grant of the lands, though mines of lead, copper, tin, and coal were, as things of smaller consequence. The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour, the neat revenue, what remains free to them, after deducting the expense of maintaining, first, their fixed, and, secondly, their circulating capital, or what, without encroaching up on their capital, they can place in their stock re- | who employs a thousand a-year in the mainserved for immediate consumption, or spend up- tenance of his machinery, if he can reduce on their subsistence, conveniencies, and amuse- this expense to five hundred, will naturally ments. Their real wealth, too, is in propor.. employ the other five hundred in purchasing tion, not to their gross, but to their neat revenue. an additional quantity of materials, to be The whole expense of maintaining the fixed wrought up by an additional number of workcapital must evidently be excluded from the men. The quantity of that work, therefore, neat revenue of the society. Neither the ma- which his machinery was useful only for perterials necessary for supporting their useful forming, will naturally be augmented, and machines and instruments of trade, their pro- with it all the advantage and conveniency fitable buildings, &c. nor the produce of the which the society can derive from that work. labour necessary for fashioning those materials into the proper form, can ever make any part of it. The price of that labour may indeed make a part of it; as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labour, both the price and the produce go to this stock; the price to that of the workmen, the produce to that of other people, whose subsistence, conveniencies, and amusements, are augmented by the labour of those workmen. The expense of maintaining the fixed capital in a great country, may very properly be compared to that of repairs in a private estate. The expense of repairs may frequently be necessary for supporting the produce of the estate, and consequently both the gross and the neat rent of the landlord. When by a more proper direction, however, it can be diminished without occasioning any diminution of produce, the gross rent remains at least the same as before, and the neat rent is necessarily augmented. regularly withdrawn from it, and placed either in the fixed capital of the society, or in their stock reserved for immediate consumption. Whatever portion of those consumable goods is not employed in maintaining the former, goes all to the latter, and makes a part of the neat revenue of the society. The maintenance of those three parts of the circulating capital, therefore, withdraws no portion of the annual produce from the neat revenue of the society, besides what is necessary for maintaining the fixed capital. The intention of the fixed capital is to in- But though the whole expense of maintaincrease the productive powers of labour, or to ing the fixed capital is thus necessarily exenable the same number of labourers to per- cluded from the neat revenue of the society, it form a much greater quantity of work. In a is not the same case with that of maintaining farm where all the necessary buildings, fences, the circulating capital. Of the four parts of drains, communications, &c. are in the most which this latter capital is composed, money, perfect good order, the same number of la-provisions, materials, and finished work, the bourers and labouring cattle will raise a much three last, it has already been observed, are greater produce, than in one of equal extent and equally good ground, but not furnished with equal conveniencies. In manufactures, the same number of hands, assisted with the best machinery, will work up a much greater quantity of goods than with more imperfect instruments of trade. The expense which is properly laid out upon a fixed capital of any kind, is always repaid with great profit, and increases the annual produce by a much greater value than that of the support which such improvements require. This support, however, still requires a certain portion of that produce. A certain quantity of materials, and the labour of a certain number of workmen, both of which might have been immediately employed to augment the food, clothing, and lodging, the subsistence and conveniencies of the society, are thus diverted to another employment, highly advantageous indeed, but still different from this one. It is upon this account that all such improvements in mechanics, as enable the same number of workmen to perform an equal quantity of work with cheaper and simpler machinery than had been usual before, are always regarded as advantageous to every society. A certain quantity of materials, and the labour of a certain number of workmen, which had before been employed in supporting a more complex and expensive machinery, can afterwards be applied to augment the quantity of work which that or any other machinery is useful only for performing. The undertaker of some great manufactory, But The circulating capital of a society is in this respect different from that of an individual. That of an individual is totally excluded from making any part of his neat revenue, which must consist altogether in his profits. though the circulating capital of every individual makes a part of that of the society to which he belongs, it is not upon that account totally excluded from making a part likewise of their neat revenue. Though the whole goods in a merchant's shop must by no means be placed in his own stock reserved for immediate consumption, they may in that of other people, who, from a revenue derived from other funds, may regularly replace their value to him, together with its profits, without occasioning any diminution either of his capital or of theirs. Money, therefore, is the only part of the circulating capital of a society, of which the maintenance can occasion any diminution in their neat revenue. The fixed capital, and that part of the cir- which he can annually purchase or consume; culating capital which consists in money, so we mean commonly to assertain what is or far as they affect the revenue of the society, ought to be his way of living, or the quantity bear a very great resemblance to one another. and quality of the necessaries and convenienFirst, as those machines and instruments of cies of life in which he can with propriety intrade, &c. require a certain expense, first to dulge himself. erect them, and afterwards to support them, When, by any particular sum of money, both which expenses, though they make a we mean not only to express the amount of part of the gross, are deductions from the neat the metal pieces of which it is composed, but revenue of the society; so the stock of money to include in its signification some obscure rewhich circulates in any country must require ference to the goods which can be had in exa certain expense, first to collect it, and after. change for them, the wealth or revenue which wards to support it; both which expenses, it in this case denotes, is equal only to one of though they make a part of the gross, are, in the two values which are thus intimated somethe same manner, deductions from the neat what ambiguously by the same word, and to the revenue of the society. A certain quantity of latter more properly than to the former, to the very valuable materials, gold and silver, and money's worth more properly than to the money. of very curious labour, instead of augmenting Thus, if a guinea be the weekly pension of the stock reserved for immediate consumption, a particular person, he can in the course of the subsistence, conveniencies, and amusements the week purchase with it a certain quantity of of individuals, is employed in supporting that great but expensive instrument of commerce, by means of which every individual in the society has his subsistence, conveniencies, and amusements, regularly distributed to him in their proper proportions. subsistence, conveniencies, and amusements In proportion as this quantity is great or small, so are his real riches, his real weekly revenue. His weekly revenue is certainly not equal both to the guinea and to what can be purchased with it, but only to one or other of those two equal values, and to the latter more properly than to the former, to the guinea's worth rather than to the guinea. If the pension of such a person was paid to him, not in gold, but in a weekly bill for a guinea, his revenue surely would not so pro Secondly, as the machines and instruments of trade, &c. which compose the fixed capital either of an individual or of a society, make no part either of the gross or of the neat revenue of either; so money, by means of which the whole revenue of the society is regularly distributed among all its different members, perly consist in the piece of paper, as in makes itself no part of that revenue. great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in those goods, and not in the wheel which circulates them. In computing either the gross or the neat revenue of any society, we must always, from the whole annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever make any part of either. The reve The what he could get for it. A guinea may be It is the ambiguity of language only which Though the weekly or yearly revenue of all can make this proposition appear either doubt- the different inhabitants of any country, in the fal or paradoxical. When properly explained | same manner, may be, and in reality frequentand understood, it is almost self-evident. ly is, paid to them in money, their real riches, When we talk of any particular sum of however, the real weekly or yearly revenue of money, we sometimes mean nothing but the all of them taken together, must always be metal pieces of which it is composed, and great or small, in proportion to the quantity sometimes we include in our meaning some of consumable goods which they can all of obscure reference to the goods which can be them purchase with this money. The whole had in exchange for it, or to the power of pur- revenue of all of them taken together is evichasing which the possession of it conveys.dently not equal to both the money and the Thus, when we say that the circulating money consumable goods, but only to one or other of of England has been computed at eighteen those two values, and to the latter more promillions, we mean only to express the amount perly than to the former. of the metal pieces, which some writers have Though we frequently, therefore, express a computed, or rather have supposed, to circu-person's revenue by the metal pieces which are Late in that country. But when we say that a annually paid to him, it is because the amount man is worth fifty or a hundred pounds a-year, of those pieces regulates the extent of his we mean commonly to express, not only the amount of the metal pieces which are annually paid to him, but the value of the goods power of purchasing, or the value of the goods which he can annually afford to consume. We still consider his revenue as consisting in this power of purchasing or consuming, and not in the pieces which convey it. culating capital which furnishes the materials and wages of labour, and puts industry into motion. Every saving, therefore, in the expense of maintaining the fixed capital, which does not diminish the productive powers of labour, must increase the fund which puts industry into motion, and consequently the annual produce of land and labour, the real revenue of every society. The substitution of paper in the room of gold and silver money, replaces a very expensive instrument of commerce with one much less costly, and sometimes equally convenient. Circulation comes to be carried on by a new wheel, which it costs less both to erect and to maintain than the old one. But in what manner this operation is performed, and in what manner it tends to increase either the gross ot the neat revenue of the society, is not altogether so obvious, and may therefore require some further explication. But if this is sufficiently evident, even with regard to an individual, it is still more so with regard to a society. The amount of the metal pieces which are annually paid to an individual, is often precisely equal to his revenue, and is upon that account the shortest and best expression of its value. But the amount of the metal pieces which circulate in a society, can never be equal to the revenue of all its members. As the same guinea which pays the weekly pension of one man to-day, may pay that of another to-morrow, and that of a third the day thereafter, the amount of the metal pieces which annually circulate in any country, must always be of much less value than the whole money pensions annually paid with them. But the power of purchasing, or the goods which can successively be bought with the whole of those money pensions, as they are successively paid, must always be preThere are several different sorts of paper cisely of the same value with those pensions; money; but the circulating notes of banks as must likewise be the revenue of the differ- and bankers are the species which is best ent persons to whom they are paid. That re-known, and which seems best adapted for this venue, therefore, cannot consist in those metal pieces, of which the amount is so much inferior to its value, but in the power of purchasing, in the goods which can successively be bought with them as they circulate from hand to hand. Money, therefore, the great wheel of circulation, the great instrument of commerce, like all other instruments of trade, though it makes a part, and a very valuable part, of the capital, makes no part of the revenue of the society to which it belongs; and though the metal pieces of which it is composed, in the course of their annua! circulation, distribute to every man the revenue which properly belongs to him, they make themselves no part of that revenue. purpose. When the people of any particular country have such confidence in the fortune, probity, and prudence of a particular banker, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him, those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them. A particular banker lends among his customers his own promissory notes, to the extent, we shall suppose, of a hundred thousand pounds. As those notes serve all the purposes of money, his debtors pay him the same interest as if he had lent them so much money. This interest is the source of his gain. Though Thirdly, and lastly, the machines and in- some of those notes are continually coming struments of trade, &c. which compose the back upon him for payment, part of them fixed capital, bear this further resemblance to continue to circulate for months and years tothat part of the circulating capital which con-gether. Though he has generally in circulasists in money; that as every saving in the tion, therefore, notes to the extent of a hunexpense of erecting and supporting those ma- dred thousand pounds, twenty thousand pounds chines, which does not diminish the produc- in gold and silver may, frequently, be a sufftive powers of labour, is an improvement of cient provision for answering occasional dethe neat revenue of the society; so every sav-mands. By this operation, therefore, twenty ing in the expense of collecting and support- thousand pounds in gold and silver perform ing that part of the circulating capital which consists in money is an improvement of exactly the same kind. It is sufficiently obvious, and it has partly, too, been explained already, in what manner every saving in the expense of supporting the fixed capital is an improvement of the neat revenue of the society. The whole capital of the undertaker of every work is necessarily divided between his fixed and his circulating capital. While his whole capital remains the same, the smaller the one part, the greater must necessarily be the other. It is the cir all the functions which a hundred thousand could otherwise have performed. The same exchanges may be made, the same quantity of consumable goods may be circulated and distributed to their proper consumers, by means of his promissory notes, to the value of a hundred thousand pounds, as by an equal value of gold and silver money. Eighty thousand pounds of gold and silver, therefore, can in this manner be spared from the circulation of the country; and if different operations of the the same kind should, at the same time, be carried on by many different banks and bank ers, the whole circulation may thus be con- one foreign country, in order to supply the ducted with a fifth part only of the gold and consumption of another, or in what is called silver which would otherwise have been requisite. the carrying trade, whatever profit they make will be in addition to the neat revenue of their own country. It is like a new fund, created for carrying on a new trade; domestic business being now transacted by paper, and the gold and silver being converted into a fund for this new trade. Let us suppose, for example, that the whole circulating money of some particular country amounted, at a particular time, to one million sterling, that sum being then sufficient for circulating the whole annual produce of their land and labour; let us suppose, too, that If they employ it in purchasing foreign some time thereafter, different banks and goods for home consumption, they may either, bankers issued promissory notes payable to first, purchase such goods as are likely to be the bearer, to the extent of one million, re- consumed by idle people, who produce noserving in their different coffers two hundred thing, such as foreign wines, foreign silks, thousand pounds for answering occasional de- &c.; or, secondly, they may purchase an admands; there would remain, therefore, in cir. ditional stock of materials, tools, and provi.. culation, eight hundred thousand pounds in sions, in order to maintain and employ an adgold and silver, and a million of bank notes, ditional number of industrious people, who or eighteen hundred thousand pounds of pa- reproduce, with a profit, the value of their per and money together. But the annual pro-annual consumption. duce of the land and labour of the country So far as it is employed in the first way, i had before required only one million to cir- promotes prodigality, increases expense and culate and distribute it to its proper consum- consumption, without increasing production, ers, and that annual produce cannot be im- or establishing any permanent fund for supmediately augmented by those operations of porting that expense, and is in every respect banking. One million, therefore, will be suf- hurtful to the society. ficient to circulate it after them. The goods So far as it is employed in the second way, to be bought and sold being precisely the same it promotes industry; and though it increases as before, the same quantity of money will be the consumption of the society, it provides a sufficient for buying and selling them. The permanent fund for supporting that consumpchannel of circulation, if I may be allowed tion; the people who consume reproducing, such an expression, will remain precisely the with a profit, the whole value of their annual same as before. One million we have sup- consumption. The gross revenue of the soposed sufficient to fill that channel. What-ciety, the annual produce of their land and ever, therefore, is poured into it beyond this labour, is increased by the whole value which sum, cannot run into it, but must overflow. the labour of those workmen adds to the maOne million eight hundred thousand pounds terials upon which they are employed, and are poured into it. Eight hundred thousand their neat revenue by what remains of this vapounds, therefore, must overflow, that sum lue, after deducting what is necessary for being over and above what can be employed supporting the tools and instruments of their in the circulation of the country. But though this sum cannot be employed at home, it is That the greater part of the gold and silver too valuable to be allowed to lie idle. It will, which being forced abroad by those operatherefore, be sent abroad, in order to seek that tions of banking, is employed in purchasing profitable employment which it cannot find at foreign goods for home consumption, is, and home. But the paper cannot go abroad; be- must be, employed in purchasing those of this cause at a distance from the banks which issue second kind, seems not only probable, but alit, and from the country in which payment of most unavoidable. Though some particuit can be exacted by law, it will not be re-lar men may sometimes increase their expense ceived in common payments. Gold and sil- very considerably, though their revenue does ver, therefore, to the amount of eight hun-not increase at all, we may be assured that dred thousand pounds, will be sent abroad, no class or order of men ever does so; beand the channel of home circulation will remain filled with a million of paper instead of a million of those metals which filled it before. trade. cause, though the principles of common prudence do not always govern the conduct of every individual, they always influence that of the majority of every class or order. But the But though so great a quantity of gold and revenue of idle people, considered as a class silver is thus sent abroad, we must not ima- or order, cannot, in the smallest degree, be gine that it is sent abroad for nothing, or that increased by those operations of banking. its proprietors make a present of it to foreign Their expense in general, therefore, cannot nations. They will exchange it for foreign be much increased by them, though that of a goods of some kind or another, in order to supply the consumption either of some other foreign country, or of their own. few individuals among them may, and in reality sometimes is. The demand of idle people, therefore, for foreign goods, being the If they employ it in purchasing goods in same, or very nearly the same as before, a |