Адам Смит
An Inquiry Into the Nature and Causes of the Wealth of Nations
PART SECOND. – OF STOCK AND ITS EMPLOYMENT
Wealth, accumulated in the possession of an individual, is of two descriptions, according to its destination or employment:
1. That reserved for immediate consumption.
2. That employed as capital, for the production of a revenue – book 2, chap. i.
Capital is also of two kinds:
1. Fixed capital, which produces a revenue and still remains in the same hands
2. Circulating capital, which yields no revenue unless it be employed in trade – book 2 chap. i.
The whole accumulated wealth of any community may be divided into three parts:
1. The fund appropriated to the immediate consumption of the proprietors of wealth.
2. The fixed capital of the community.
3. Its circulating capital.
The fixed capital of the society consists,
1. Of all machines and instruments of labour;
2. Of all buildings and edifices erected for the purposes of industry;
3. Of every kind of agricultural improvement which can tend to render the soil more productive;
4. Of the talents and skill which certain members of the community have acquired by time and expense.
The circulating capital of a community consists,
1. In the money in circulation;
2. In the stock of provisions in the hands both of the producers and of the merchants, and from the sale of which they expect to derive a profit;
3. In the materials of lodging, clothing, dress, and ornament, more or less manufactured, which are in the hands of those who are employed in rendering them fit for use and consumption;
4. In the goods more completely fit for consumption, and preserved in warehouses and shops, by merchants who propose to sell them with a profit – book 2, chap. i.
Of the relation existing between the employment of these two kinds of capital – ibid.
Of the mode in which the capital withdrawn from circulation is disposed of – ibid.
The sources which continually renew the circulating capital, as soon as it enters into the fixed capital, or the stock for immediate consumption, are,
1. Lands;
2. Mines and quarries;
3. Fisheries – ibid.
Of the purposes accomplished by circulating coin – book 2, chap. ii; and the expedients which may be resorted to, in order to attain these with less expense, and fewer of those inconveniencies to which money is subjected – ibid.
Of the stock lent at interest; and of those things which regulate the proportion that this kind of stock bears to the whole existing stock of the community. The quantity of stock which may be lent depends in no degree upon the quantity of money in circulation – book 2, chap. iv.
Of the principles which determine the rate of interest – ibid.
There exists a necessary relation between this and the price of land – ibid.
PART THIRD – OF THE MANNER IN WHICH THE MULTIPLICATION AND DISTRIBUTION OF WEALTH TAKES PLACE
Wealth uniformly increases in proportion to the augmentation which the power producing it receives, whether that be in energy or in extent– book I. introduction.
Labour, in which this power increases in energy,
1. By the division of the parts of the same work;
2. By the invention of such machines as abridge and facilitate labour – book I, chap. i.
The division of labour adds to its energy,
1. By the skill which the workman in this way acquires;
2. By the saving of time – ibid.
The invention of machines is itself an effect of the division of labour – ibid.
The natural disposition of mankind to exchange with each other the different productions of their respective labours and talents, is the principle which has given birth to the division of labour – book I, chap. ii.
The division of labour must of course be limited by the extent of the market; therefore, whatever tends to widen the market, facilitates the progress of a nation towards opulence – book I, chap. iii.
Labour gains in extent,
1. In proportion to the accumulation of capital;
2. In proportion to the manner in which these are employed – book I, introduction.
The accumulation of capitals is hastened by the increase of the proportion existing between the productive and unproductive consumers – book 2, chap. iii.
The proportion between these two classes of consumers is determined by the proportion existing between that part of the annual produce destined to the replacement of capital, and that destined for the purpose of revenue – ibid.
The proportion between that part of the annual produce which goes to form capital, and that which goes to form revenue, is great in a rich country, and small in a poor one – ibid.
In a wealthy country, the rent of land, taken absolutely, is much greater than in a poor country; but, taken in relation to the capital employed, it is much less – book 2, chap. iii.
In a wealthy country, the whole profits of its capital are infinitely greater than in one that is poor; although a given quantity of capital will, in a country of the latter description, produce profits much greater than in an opulent one – ibid.
It is industry that furnishes the produce; but it is economy that places in the capital that part of it which would otherwise have become revenue – ibid.
The economy of individuals arises from a principle which is universally diffused, and one that is continually in action; the desire of ameliorating their condition. This principle supports the existence and increase of national wealth, in spite of the prodigality of some individuals; and even triumphs over the profusion and errors of governments – ibid.[Pg xxviii]
Of the different modes of spending money, some are more favourable than others to the increase of national wealth – ibid.
Those branches of employment which require a capital, never fail to call forth more or less labour; and thus contribute, in a greater or less degree, to increase the extent of national labour.
Capital can be employed only in four ways:
1. In cultivating and improving the earth, or, in other words, multiplying its rude produce;
2. In supporting manufactures;
3. In buying by the gross, to sell in the same manner;
4. In buying by the gross, to sell by retail.
These four modes of employing capital are equally necessary to, and serve mutually to support, each other. The first supports, beyond all comparison, the greatest number of productive hands; the second occupies more than the two remaining; and the fourth the fewest of any.
Capital may be employed, according to the third mode, in three different ways; each contributing in a very different degree to the support and encouragement of national industry.
When capital is employed in exchanging one description of the produce of national industry for another, it then supports as great a portion of industry as can be done by any capital employed in commerce.
When it is employed in exchanging the produce of national for that of foreign industry, for the purposes of home consumption, half of it goes to the support of foreign industry; by which means, it is only of half that service to the industry of the nation which it would have been had it been employed another way.
Lastly, when it is employed in exchanging one description of the produce of foreign industry for another, or in what is termed the carrying trade, it then serves wholly for the support and encouragement of the industry of the two foreign nations, and adds only to the annual produce of the country the profits of the merchant – book 2, chap. v.
Self-interest, when left uncontrouled, will necessarily lead the proprietors of capitals to prefer that species of employment which is most favourable to national industry, because it is, at the same time, most profitable for themselves – ibid. For, when capitals have been employed in a way different from that suggested by the infallible instinct of self-interest, it has always been in consequence of the peculiar circumstances of the European governments, and of that influence which the vulgar prejudices of merchants have had over the system of administration which these governments have adopted.
The account of these circumstances, with the discussion of the errors of this system, form the matter of the third and fourth books.
Political Economy is, of all sciences, that which affords most room for prejudices, and in which they are most liable to become deeply rooted. The desire of improving our condition, that universal principle, which continually acts upon every member of the community, is ever directing the thoughts of each individual to the means of increasing his private fortune. But should this individual ever chance to raise his views to the management of the public money, he would naturally be led to reason from analogy, and apply to the general interest of his country those principles which reflection and experience have led him to regard as the best guides in the conduct of his own private affairs. Thus, from attending to the fact, that money constitutes a part of the productive stock in the fortune of an individual, and that his fortune increases in proportion to the increase of this article, there arises that erroneous opinion so generally received, that money is a constituent part of national wealth, and that a country becomes rich, in proportion as it receives money from those countries with which it has commercial connections.
Merchants who have been accustomed to retire each night to their desks, to count, with eagerness, the quantity of currency, or of good debts, which their day's sale has produced, calculating their profits only by this result, and confident that such a calculation has never deceived them, are naturally led to think that the affairs of the nation must follow the same rule; and they have been strengthened in this opinion by that unshaken confidence which a long and never-failing experience, that has been the source of wealth and prosperity, inspires. Hence those extravagant opinions respecting the advantages and profits of foreign commerce, and the importance of money; hence those absurd calculations that have been made regarding what is termed the balance of trade, the thermometer of public prosperity; hence those systems of regulations, and those oppressive monopolies, which are resorted to for the purpose of making one side of the balance preponderate; hence, too, those bloody and destructive wars, which have raged in both hemispheres, from the period in which the road to the Indies, and to the new world, became familiar to European nations.
When we observe, that the many bloody wars that have been waged in the different parts of the world for these two last centuries, and even the present war, in many points of view, have had, as their principal end, the maintenance of some monopoly, contrary even to the interest of the nation armed to protect it; we shall feel the full importance of those benefits which the illustrious author of the 'Wealth of Nations' has endeavoured to confer upon mankind, by victoriously combating such strong and baneful prejudices. But we cannot help deeply lamenting, to see how slowly, and with what difficulty, reason in all its strength, and truth in all its clearness, regain the possession of these territories which error and passion have so rapidly overrun.
The prejudices so successfully attacked by Dr. Smith, appear again and again, with undiminished assurance, in the tribunals of legislature, in the councils of administration, in the cabinets of ministry, and in the writings of politicians. They still talk of the importance of foreign and colonial commerce; they still attempt to determine the balance of trade; they renew all the reveries of political arithmetic, as if these questions had not been determined by Smith, in a way which renders them no longer capable of controversy.
It was in the midst of a country, the most deeply imbued with mercantile prejudices; the most completely subjected to its prohibitory policy, that Dr. Smith sapped the foundations of this absurd and tyrannical system; it was at the very moment when England, in alarm, saw, with terror, the possibility of a separation from her American colonies: it was then that he derided the universal fear, and proudly prophesied the success of the colonists, and their approaching independence; and that he confidently announced, what experience has since completely affirmed, the happy consequences which this separation and this independence, so much dreaded, would produce upon the prosperity, both of Great Britain and her colonies – book 4, chap. vii. part 3.
The wealth of communities is so intimately connected with their civil and political existence, that the author has been drawn by his subject into numerous other discussions, which seem more or less removed from it; and in which we discover the same sagacity of observation, the same depth of research, and the same force of reasoning.
The advantages of a complete and permanent freedom in the corn trade have never been better shown; and they have been proved by Dr. Smith, to arise from that fruitful source of wealth, the division of labour – book 4, chap. v.
The national defence and public education, two objects of very high importance, have also been discussed at length by our author.
He proves, that, in conformity to that desire to better our condition, by which all men are directed, and upon which the author has founded his whole doctrine, the teacher, whose wages are a fixed salary, will have no other end than to spare himself every trouble, and dedicate as little attention as possible to his pupils; while he that is paid in proportion to his labour, will naturally endeavour, by every means in his power, to increase his success, at the same time that he confers a great advantage on his scholars and on society. He confirms his theoretical opinions by incontestible examples – book 5, chap. i. part 3.
The superiority of regular troops over national militia is proved in theory, by the division of labour; and in practice, by the most remarkable facts in history – book 5, chap. i, part 1.
AN
INQUIRY
INTO
THE NATURE AND CAUSES
OF THE
WEALTH OF NATIONS
INTRODUCTION AND PLAN OF THE WORK
The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.
According, therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.
But this proportion must in every nation be regulated by two different circumstances: first, by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in that particular situation, depend upon those two circumstances.
The abundance or scantiness of this supply, too, seems to depend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tribe as are either too old, or too young, or too infirm, to go a-hunting and fishing. Such nations, however, are so miserably poor, that, from mere want, they are frequently reduced, or at least think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilized and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times, more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great, that all are often abundantly supplied; and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire.
The causes of this improvement in the productive powers of labour, and the order according to which its produce is naturally distributed among the different ranks and conditions of men in the society, make the subject of the first book of this Inquiry.
Whatever be the actual state of the skill, dexterity, and judgment, with which labour is applied in any nation, the abundance or scantiness of its annual supply must depend, during the continuance of that state, upon the proportion between the number of those who are annually employed in useful labour, and that of those who are not so employed. The number of useful and productive labourers, it will hereafter appear, is everywhere in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed. The second book, therefore, treats of the nature of capital stock, of the manner in which it is gradually accumulated, and of the different quantities of labour which it puts into motion, according to the different ways in which it is employed.
Nations tolerably well advanced as to skill, dexterity, and judgment, in the application of labour, have followed very different plans in the general conduct or direction of it; and those plans have not all been equally favourable to the greatness of its produce. The policy of some nations has given extraordinary encouragement to the industry of the country; that of others to the industry of towns. Scarce any nation has dealt equally and impartially with every sort of industry. Since the downfall of the Roman empire, the policy of Europe has been more favourable to arts, manufactures, and commerce, the industry of towns, than to agriculture, the industry of the country. The circumstances which seem to have introduced and established this policy are explained in the third book.
Though those different plans were, perhaps, first introduced by the private interests and prejudices of particular orders of men, without any regard to, or foresight of, their consequences upon the general welfare of the society; yet they have given occasion to very different theories of political economy; of which some magnify the importance of that industry which is carried on in towns, others of that which is carried on in the country. Those theories have had a considerable influence, not only upon the opinions of men of learning, but upon the public conduct of princes and sovereign states. I have endeavoured, in the fourth book, to explain as fully and distinctly as I can those different theories, and the principal effects which they have produced in different ages and nations.
To explain in what has consisted the revenue of the great body of the people, or what has been the nature of those funds, which, in different ages and nations, have supplied their annual consumption, is the object of these four first books. The fifth and last book treats of the revenue of the sovereign, or commonwealth. In this book I have endeavoured to shew, first, what are the necessary expenses of the sovereign, or commonwealth; which of those expenses ought to be defrayed by the general contribution of the whole society, and which of them, by that of some particular part only, or of some particular members of it: secondly, what are the different methods in which the whole society may be made to contribute towards defraying the expenses incumbent on the whole society, and what are the principal advantages and inconveniencies of each of those methods; and, thirdly and lastly, what are the reasons and causes which have induced almost all modern governments to mortgage some part of this revenue, or to contract debts; and what have been the effects of those debts upon the real wealth, the annual produce of the land and labour of the society.