The Wealth of Nations

F 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.

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, in such things as had been purchased by
either of these in former years, and which are not yet entirely consumed,
such as a stock of clothes, household furniture, and the like. In one or
other, or all of these three articles, consists the stock which men
commonly reserve for their own immediate consumption.

There are two different ways in which a capital may be employed so as to
yield a revenue or profit to its employer.

First, it may be employed in raising, manufacturing, or purchasing goods,
and selling them again with a profit. The capital employed in this manner
yields no revenue or profit to its employer, while it either remains in
his possession, or continues in the same shape. The goods of the merchant
yield him no revenue or profit till he sells them for money, and the money
yields him as little till it is again exchanged for goods. His capital is
continually going from him in one shape, and returning to him in another;
and it is only by means of such circulation, or successive changes, that
it can yield him any profit. Such capitals, therefore, may very properly
be called circulating capitals.

Secondly, it may be employed in the improvement of land, in the purchase
of useful machines and instruments of trade, or in such like things as
yield a revenue or profit without 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 requires 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.

That part of the capital of the farmer which is employed in the
instruments of agriculture is a fixed, that which is employed in the wages
and maintenance of his labouring servants is a circulating capital. He
makes a profit of the one by keeping it in his own possession, and of the
other by parting with it. The price or value of his labouring cattle is a
fixed capital, in the same manner as that of the instruments of husbandry;
their maintenance is a circulating capital, in the same manner as that of
the labouring servants. The farmer makes his profit by keeping the
labouring cattle, and by parting with their maintenance. Both the price
and the maintenance of the cattle which are bought in and fattened, not
for labour, but for sale, are a circulating capital. The farmer makes his
profit by parting with them. A flock of sheep or a herd of cattle, that,
in a breeding country, is brought in neither for labour nor for sale, but
in order to make a profit by their wool, by their milk, and by their
increase, is a fixed capital. The profit is made by keeping them. Their
maintenance is a circulating capital. The profit is made by parting with
it; and it comes back with both its own profit and the profit upon the
whole price of the cattle, in the price of the wool, the milk, and the
increase. The whole value of the seed, too, is properly a fixed capital.
Though it goes backwards and forwards between the ground and the granary,
it never changes masters, and therefore does not properly circulate. The
farmer makes his profit, not by its sale, but by its increase.

The general stock of any country or society is the same with that of all
its inhabitants or members; and, therefore, naturally divides itself into
the same three portions, each of which has a distinct function or office.

The first is that portion which is reserved for immediate consumption, and
of which the characteristic is, that it affords no revenue or profit. It
consists in the stock of food, clothes, household furniture, etc. which
have been purchased by their proper consumers, but which are not yet
entirely consumed. The whole stock of mere dwelling-houses, too,
subsisting at any one time in the country, make a part of this first
portion. The stock that is laid out in a house, if it is to be the
dwelling-house of the proprietor, ceases from that moment to serve in the
function of a capital, or to afford any revenue to its owner. A
dwelling-house, as such, contributes nothing to the revenue of its
inhabitant; and though it is, no doubt, extremely useful to him, it is as
his clothes and household furniture are useful to him, which, however,
make a part of his expense, and not of his revenue. If it is to be let to
a tenant for rent, as the house itself can produce nothing, the tenant
must always pay the rent out of some other revenue, which he derives,
either from labour, or stock, or land. Though a house, therefore, may
yield a revenue to its proprietor, and thereby serve in the function of a
capital to him, it cannot yield any to the public, nor serve in the
function of a capital to it, and the revenue of the whole body of the
people can never be in the smallest degree increased by it. Clothes and
household furniture, in the same manner, sometimes yield a revenue, and
thereby serve in the function of a capital to particular persons. In
countries where masquerades are common, it is a trade to let out
masquerade dresses for a night. Upholsterers frequently let furniture by
the month or by the year. Undertakers let the furniture of funerals by the
day and by the week. Many people let furnished houses, and get a rent, not
only for the use of the house, but for that of the furniture. The revenue,
however, which is derived from such things, must always be ultimately
drawn from some other source of revenue. Of all parts of the stock, either
of an individual or of a society, reserved for immediate consumption, what
is laid out in houses is most slowly consumed. A stock of clothes may last
several years; a stock of furniture half a century or a century; but a
stock of houses, well built and properly taken care of, may last many
centuries. Though the period of their total consumption, however, is more
distant, they are still as really a stock reserved for immediate
consumption as either clothes or household furniture.

The second of the three portions into which the general stock of the
society divides itself, is the fixed capital; of which the characteristic
is, that it affords a revenue or profit without circulating or changing
masters. It consists chiefly of the four following articles.

First, of all useful machines and instruments of trade, which facilitate
and abridge labour.

Secondly, of all those profitable buildings which are the means of
procuring a revenue, not only to the proprietor who lets them for a rent,
but to the person who possesses them, and pays that rent for them; such as
shops, warehouses, work-houses, farm-houses, with all their necessary
buildings, stables, granaries, etc. These are very different from mere
dwelling-houses. They are a sort of instruments of trade, and may be
considered in the same light.

Thirdly, of the improvements of land, of what has been profitably laid out
in clearing, draining, inclosing, manuring, and reducing it into the
condition most proper for tillage and culture. An improved farm may very
justly be regarded in the same light as those useful machines which
facilitate and abridge labour, and by means of which an equal circulating
capital can afford a much greater revenue to its employer. An improved
farm is equally advantageous and more durable than any of those machines,
frequently requiring no other repairs than the most profitable application
of the farmer’s capital employed in cultivating it.

Fourthly, of the acquired and useful abilities of all the inhabitants and
members of the society. The acquisition of such talents, by the
maintenance of the acquirer during his education, study, or
apprenticeship, always costs a real expense, which is a capital fixed and
realized, as it were, in his person. Those talents, as they make a part of
his fortune, so do they likewise that of the society to which he belongs.
The improved dexterity of a workman may be considered in the same light as
a machine or instrument of trade which facilitates and abridges labour,
and which, though it costs a certain expense, repays that 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, etc. 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, etc.

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, etc. 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.

Every fixed capital is both originally derived from, and requires to be
continually supported by, a circulating capital. All useful machines and
instruments of trade are originally derived from a circulating capital,
which furnishes the materials of which they are made, and the maintenance
of the workmen who make them. They require, too, a capital of the same
kind to keep them in constant repair.

No fixed capital can yield any revenue but by means of a circulating
capital. The most useful machines and instruments of trade will produce
nothing, without the circulating capital, which affords the materials they
are employed upon, and the maintenance of the workmen who employ them.
Land, however improved, will yield no revenue without a circulating
capital, which maintains the labourers who cultivate and collect its
produce.

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.

Land, 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 and worn out in the same time. This is the real exchange that is
annually made between those two orders of people, though it seldom happens
that the rude produce of the one, and the manufactured produce of the
other, are directly bartered for one another; because it seldom happens
that the farmer sells his corn and his cattle, his flax and his wool, to
the very same person of whom he chuses to purchase the clothes, furniture,
and instruments 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. Land even replaces, in part
at least, the capitals with which fisheries and mines are cultivated. 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.

In those unfortunate countries, indeed, where men are continually afraid
of the violence of their superiors, they frequently bury or conceal a
great part of their stock, in order to have it always at hand to carry
with them to some place of safety, in case of their 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 those times, considered as no
contemptible part of the revenue of the greatest sovereigns in Europe. It
consisted in such treasure as was found concealed in the earth, and to
which no particular person could prove any right. This was regarded, in
those times, as so important an object, that it was always considered as
belonging to the sovereign, and neither to the finder nor to the
proprietor of the land, unless the right to it had been conveyed to the
latter by an express clause in his charter. It was put upon the same
footing with gold and silver 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.