An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader macos .TXT) 📕

wages of their labour, the profits of their stock, or the rent of their

land.

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.

The gross rent of a private estate comprehends whatever is paid by the

farmer; the neat rent, what remains free to the landlord, after deducting

the expense of management, of repairs, and all other necessary charges; or

what, without hurting his estate, he can afford to place in his stock

reserved for immediate consumption, or to spend upon his table, equipage,

the ornaments of his house and furniture, his private enjoyments and

amusements. His real wealth is in proportion, not to his gross, but to his

neat rent.

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 upon their capital, they can place in their stock reserved for

immediate consumption, or spend upon their subsistence. conveniencies, and

amusements. Their real wealth, too, is in proportion, not to their gross,

but to their neat revenue.

The whole expense of maintaining the fixed capital must evidently be

excluded from the neat revenue of the society. Neither the materials

necessary for supporting their useful machines and instruments of trade,

their profitable buildings, etc. nor the produce of the 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 intention of the fixed capital is to increase the productive powers of

labour, or to enable the same number of labourers to perform a much greater

quantity of work. In a farm where all the necessary buildings, fences,

drains, communications, etc. are in the most perfect good order, the same

number of labourers and labouring cattle will raise a much 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, who employs a

thousand a-year in the maintenance of his machinery, if he can reduce this

expense to five hundred, will naturally employ the other five hundred in

purchasing an additional quantity of materials, to he wrought up by an

additional number of workmen. The quantity of that work, therefore, which

his machinery was useful only for performing, will naturally be augmented,

and with it all the advantage and conveniency which the society can derive

from that work.

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.

But though the whole expense of maintaining the fixed capital is thus

necessarily excluded from the neat revenue of the society, it is not the

same case with that of maintaining the circulating capital. Of the four

parts of which this latter capital is composed, money, provisions,

materials, and finished work, the three last, it has already been observed,

are 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 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. But

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 circulating capital which consists

in money, so far as they affect the revenue of the society, bear a very

great resemblance to one another.

First, as those machines and instruments of trade, etc. require a certain

expense, first to erect them, and afterwards to support them, both which

expenses, though they make a part of the gross, are deductions from the neat

revenue of the society ; so the stock of money which circulates in any

country must require a certain expense, first to collect it, and afterwards

to support it; both which expenses, though they make a part of the gross,

are, in the same manner, deductions from the neat revenue of the society. A

certain quantity of very valuable materials, gold and silver, and of very

curious labour, instead of augmenting the stock reserved for immediate

consumption, the subsistence, conveniencies, and amusements 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.

Secondly, as the machines and instruments of trade, etc. 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, makes itself no part of that revenue. The 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.

It is the ambiguity of language only which can make this proposition appear

either doubtful or paradoxical. When properly explained and understood, it

is almost self-evident.

When we talk of any particular sum of money, we sometimes mean nothing but

the metal pieces of which it is composed, and sometimes we include in our

meaning some obscure reference to the goods which can be had in exchange for

it, or to the power of purchasing which the possession of it conveys. Thus,

when we say that the circulating money of England has been computed at

eighteen millions, we mean only to express the amount of the metal pieces,

which some writers have computed, or rather have supposed, to circulate in

that country. But when we say that a man is worth fifty or a hundred pounds

a-year, 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 which he can

annually purchase or consume; we mean commonly to assertain what is or ought

to be his way of living, or the quantity and quality of the necessaries and

conveniencies of life in which he can with propriety indulge himself.

When, by any particular sum of money, we mean not only to express the amount

of the metal pieces of which it is composed, but to include in its

signification some obscure reference to the goods which can be had in

exchange for them, the wealth or revenue which it in this case denotes, is

equal only to one of the two values which are thus intimated somewhat

ambiguously by the same word, and to the latter more properly than to the

former, to the money’s worth more properly than to the money.

Thus, if a guinea be the weekly pension of a particular person, he can in

the course of the week purchase with it a certain quantity of 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 properly consist

in the piece of paper, as in what he could get for it. A guinea may be

considered as a bill for a certain quantity of necessaries and conveniencies

upon all the tradesmen in the neighbourhood The revenue of the person to

whom it is paid, does not so properly consist in the piece of gold,