Adam Smith · Complete work
Book II, Chapter I, 2
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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.
Musean translation
Mouseia’s complete machine-assisted Musean translation, made directly from the complete English text of all five books for fidelity, the author’s force and cadence, and modern clarity.
The first portion is reserved for immediate consumption, and its distinguishing feature is that it yields no revenue or profit. It consists of food, clothes, household furniture, and the like, purchased by those who will use them but not yet entirely consumed. The entire stock of mere dwelling houses existing in a country at any one time also belongs to this first portion. Stock invested in a house, if the house is to be its owner's dwelling, ceases from that moment to function as capital or to yield its owner revenue. A dwelling house, as such, adds nothing to its occupant's revenue; though certainly very useful to him, it is useful in the same way as his clothes and household furniture, which are part of his expense, not his revenue. If the house is rented to a tenant, since it can produce nothing itself, the tenant must always pay the rent from some other revenue derived from labor, stock, or land. Thus, though a house may yield its owner revenue and so function as capital for him, it cannot yield the public revenue or function as capital for the public; it cannot increase the revenue of the people as a whole in the least. Clothes and household furniture, likewise, sometimes yield revenue and so function as capital for particular people. In countries where masquerades are common, renting out masquerade costumes for an evening is a business. Upholsterers often rent out furniture by the month or year. Undertakers rent out funeral furnishings by the day or week. Many people rent out furnished houses and receive rent not only for the house but also for the furniture. The revenue derived from such things, however, must ultimately be drawn from another source of revenue. Among all the parts of an individual's or society's stock reserved for immediate consumption, the portion invested in houses is consumed most slowly. Clothes may last several years; furniture may last half a century or a century; but houses, well built and properly maintained, may last many centuries. Though they take longer to be consumed entirely, they are just as truly stock reserved for immediate consumption as clothes or household furniture.
The second of the three portions into which society's general stock divides is fixed capital, whose distinguishing feature is that it yields revenue or profit without circulating or changing hands. It consists chiefly of the following four kinds of things.
First, all useful machines and instruments of trade that ease and shorten labor.
Second, all profitable buildings that provide revenue not only to the owner who rents them out but also to the person who occupies them and pays the rent: shops, warehouses, workshops, farmhouses, with all their necessary outbuildings, stables, granaries, and the like. These differ markedly from mere dwelling houses. They are a kind of instrument of trade and may be considered in the same light.
Third, improvements to land: money profitably spent clearing, draining, enclosing, manuring, and bringing land into the condition best suited to tillage and cultivation. An improved farm may rightly be regarded in the same light as useful machines that ease and shorten labor and allow an equal amount of circulating capital to yield its employer much greater revenue. An improved farm is just as beneficial and more durable than any such machine, often requiring no repairs beyond the farmer's most profitable application of capital in cultivating it.
Fourth, the acquired and useful abilities of all the inhabitants and members of society. Acquiring such abilities, through the maintenance of the learner during education, study, or apprenticeship, always involves a real expense: capital fixed and embodied, as it were, in the person. As these abilities form part of his fortune, so they form part of the fortune of the society to which he belongs. A worker's improved skill may be considered in the same light as a machine or instrument of trade that eases and shortens labor and, though it costs something, repays the expense with a profit.
The third and last portion into which society's general stock naturally divides is circulating capital, whose distinguishing feature is that it yields revenue only by circulating or changing hands. It too consists of four parts.
First, money, by which the other three parts are circulated and distributed to their eventual consumers.
Second, the stock of provisions held by butchers, graziers, farmers, grain merchants, brewers, and others who expect a profit from selling them.
Third, the materials for clothes, furniture, and buildings, whether wholly raw or more or less manufactured, that have not yet been made into any of those three finished forms but remain in the hands of growers, manufacturers, sellers of fine fabrics and drapers, timber merchants, carpenters and joiners, brickmakers, and others.
Fourth and last, completed work that is still in the hands of merchants and manufacturers and has not yet been sold or distributed to its eventual consumers: the finished articles we often find ready-made in the shops of smiths, cabinetmakers, goldsmiths, jewelers, china merchants, and others. Circulating capital thus consists of provisions, materials, and finished work of all kinds in the hands of their respective dealers, together with the money needed to circulate and distribute them to those who will finally use or consume them.
Of these four parts, three—provisions, materials, and finished work—are regularly withdrawn from circulating capital, whether annually or after a longer or shorter period, and placed either in fixed capital or in stock reserved for immediate consumption.
Every fixed capital both originates in and must be continually supported by circulating capital. All useful machines and instruments of trade originally come from circulating capital, which supplies the materials from which they are made and maintains the workers who make them. Capital of the same kind is also needed to keep them in constant repair.
No fixed capital can yield revenue except through circulating capital. The most useful machines and instruments of trade will produce nothing without circulating capital to supply the materials on which they work and maintain the workers who operate them. Land, however much improved, will yield no revenue without circulating capital to maintain the laborers who cultivate it and gather its produce.
The sole purpose of both fixed and circulating capitals is to maintain and enlarge the stock that may be reserved for immediate consumption. It is this stock that feeds, clothes, and houses the people. Their wealth or poverty depends on the abundance or scarcity with which those two kinds of capital can supply the stock reserved for immediate consumption.
Because so much circulating capital is continually withdrawn and placed in the other two branches of society's general stock, circulating capital must in turn be continually replenished or it would soon cease to exist. Its supplies come chiefly from three sources: the produce of land, mines, and fisheries. These continually supply provisions and materials, some of which are subsequently made into finished work, replacing the provisions, materials, and finished work continually withdrawn from circulating capital. Mines also supply what is needed to maintain and enlarge the part consisting of money. For although money, in the ordinary course of business, is not necessarily withdrawn from circulating capital and placed in the other two branches of society's general stock, as the other three parts are, it must eventually wear away like everything else; sometimes, too, it is lost or sent abroad. It therefore requires continual replenishment, though undoubtedly on a much smaller scale.
Land, mines, and fisheries all require both fixed and circulating capital to work them; their produce replaces, with a profit, not only these capitals but all the others in society. Thus each year the farmer replaces the provisions the manufacturer consumed and the materials he worked up during the previous year; and the manufacturer replaces the finished work the farmer wore out in the same period. This is the real exchange made annually between these two groups, although the raw produce of one is seldom directly bartered for the manufactured produce of the other: the farmer seldom sells his grain and cattle, flax and wool, to the very person from whom he chooses to buy the clothes, furniture, and instruments of trade he needs. He therefore sells his raw produce for money, with which he can buy the manufactured produce he needs wherever it is available. Land even replaces, at least in part, the capital employed to work fisheries and mines. It is the produce of land that draws fish from the waters, and the produce of the earth's surface that extracts minerals from its depths.
Where their natural fertility is equal, the produce of land, mines, and fisheries is proportional to the amount and proper use of the capital employed on them. Where the capitals are equal and equally well used, it is proportional to their natural fertility.
In every country with reasonable security, any person of ordinary understanding will try to employ whatever stock he can command in obtaining either present enjoyment or future profit. If employed to obtain present enjoyment, it is stock reserved for immediate consumption. If employed to obtain future profit, it must earn that profit either by staying with him or by leaving him. In the first case it is fixed capital; in the second, circulating capital. Where there is reasonable security, a person would have to be utterly irrational not to employ all the stock he controls, whether his own or borrowed from others, in one of these three ways.
In those unfortunate countries where people continually fear violence from their superiors, they often bury or conceal a great part of their stock so they can always have it at hand to carry to safety if threatened by one of the disasters to which they believe themselves constantly exposed. This is said to be common practice in Turkey and Indostan and, I believe, under most other governments in Asia. It seems to have been common among our ancestors under the violent feudal government. Treasure-trove was then considered a substantial part of the revenue of Europe's greatest sovereigns. It consisted of treasure found hidden in the ground to which no particular person could prove a right. At that time it was deemed so important that it was always held to belong to the sovereign, rather than to the finder or the landowner, unless the latter had been granted the right by an express clause in his charter. It was treated like gold and silver mines, which, without a special clause in the charter, were never assumed to be included in a general grant of land, though mines of lead, copper, tin, and coal were included as matters of lesser importance.
Plain English translation
Mouseia’s complete Plain English edition, made independently and directly from the complete English text of all five books.
The first part is stock set aside for immediate use. Its defining feature is that it brings in no revenue or profit. It includes food, clothes, household furniture, and other things that consumers have bought but have not yet used up. All the houses used only as homes in a country at any given time belong to this first part. Once the owner puts stock into a house for himself to live in, it stops acting as capital or earning him revenue. A home, simply as a home, adds nothing to the occupant’s revenue. It is certainly very useful to him, but so are his clothes and furniture, which are expenses, not revenue. If the house is rented to a tenant, the house itself produces nothing. The tenant must therefore pay the rent from some other revenue, earned from labor, stock, or land. A house may bring its owner revenue and so act as capital for him. But it cannot bring society revenue or act as capital for society. It cannot increase the revenue of the people as a whole in the slightest. Clothes and household furniture can likewise sometimes earn revenue and act as capital for particular people. In countries where masquerades are common, some people make a business of renting costumes for a night. Upholsterers often rent out furniture by the month or year. Undertakers rent out funeral furnishings by the day or week. Many people rent furnished houses and receive rent for the furniture as well as the house. But the revenue earned from such things must ultimately come from some other source of revenue. Of all the stock that a person or society sets aside for immediate use, houses are used up most slowly. Clothes may last several years, and furniture half a century or a century. Well-built and properly maintained houses may last many centuries. Even though they take longer to wear out completely, they are still stock for immediate use, just as clothes and furniture are.
The second of society’s three parts of stock is fixed capital. Its defining feature is that it earns revenue or profit without circulating or changing owners. It consists mainly of the following four kinds of things.
First are all useful machines and tools that make work easier and quicker.
Second are buildings that help earn revenue for both the owner who rents them out and the person who occupies them and pays the rent. These include shops, warehouses, workshops, farmhouses and their necessary outbuildings, stables, granaries, and so on. They are quite different from houses used only as homes. They are a kind of tool for a trade and can be treated as such.
Third are improvements to land: money profitably spent clearing, draining, fencing, fertilizing, and making it suitable for farming. An improved farm can be seen in the same way as a useful machine that makes work easier and quicker. Either lets a given amount of circulating capital earn its user much more revenue. An improved farm is just as useful as any such machine and lasts longer. Often the only repairs it needs are the farmer’s most profitable use of the capital spent on cultivating it.
Fourth are the useful skills acquired by all the people in society. To acquire a skill, someone must be supported during education, study, or an apprenticeship. This has a real cost, a kind of capital fixed in the person who acquires it. Those skills are part of that person’s wealth and of the wealth of the society to which the person belongs. A worker’s increased skill is like a machine or tool that makes work easier and quicker: it costs something, but it pays back that cost with a profit.
The third and last part of society’s total stock is circulating capital. Its defining feature is that it earns revenue only by circulating or changing owners. It too has four parts.
First is money, which allows the other three parts to circulate and reach the people who will use them.
Second is the stock of food and drink held by butchers, livestock raisers, farmers, grain merchants, brewers, and others who expect to profit by selling it.
Third are the raw or partly processed materials for clothes, furniture, and buildings. These have not yet been made into any of those three finished kinds of product. They are still in the hands of growers, manufacturers, sellers of fabrics and clothes, timber merchants, carpenters and joiners, brick makers, and others.
Fourth and last are products that have been finished but are still held by merchants or manufacturers and have not been sold or passed on to the consumers who will use them. Examples include finished goods ready for sale in the shops of blacksmiths, cabinetmakers, goldsmiths, jewelers, and china merchants. Circulating capital thus includes the food, materials, and finished products of every kind held by their respective dealers. It also includes the money needed to move and distribute those goods to the people who will finally use or consume them.
Of these four parts, three—food, materials, and finished goods—are regularly taken out of circulating capital, either every year or after a shorter or longer time. They become either fixed capital or stock for immediate use.
Every item of fixed capital originally comes from circulating capital and must keep receiving support from it. All useful machines and tools are originally made with circulating capital. It provides both the materials they are made from and the support of the workers who make them. Capital of the same kind is also needed to keep them in repair.
Fixed capital can earn revenue only with the help of circulating capital. Even the most useful machines and tools produce nothing without circulating capital to provide the materials they work on and support the workers who use them. However improved the land is, it produces no revenue without circulating capital to support the workers who cultivate it and gather its produce.
The sole purpose of both fixed and circulating capital is to maintain and increase the stock set aside for immediate use. That stock feeds, clothes, and houses people. Whether they are rich or poor depends on how much or how little the other two kinds of capital can supply to this stock.
A large share of circulating capital is constantly taken out to become one of the other two parts of society’s total stock. Circulating capital therefore needs regular new supplies or it would soon disappear. These mainly come from three sources: land, mines, and fisheries. They continually provide food and materials, some of which are later made into finished goods. These replace the food, materials, and finished goods continually removed from circulating capital. Mines also provide what is needed to maintain and increase its money. In ordinary business, money is not necessarily taken out of circulating capital to become one of the other two parts, as the other three are. But like everything else, it eventually wears out. Sometimes it is lost or sent abroad. It therefore needs regular new supplies too, though much smaller ones.
Land, mines, and fisheries all need both fixed and circulating capital to work them. Their products replace these kinds of capital with a profit, and also replace all the other capital in society. Every year, for example, the farmer replaces the food the manufacturer consumed and the materials the manufacturer worked up the year before. The manufacturer replaces the finished goods the farmer used up or wore out over the same period. That is the real annual exchange between the two groups. They seldom swap raw farm products directly for manufactured goods. The farmer seldom sells his grain, cattle, flax, and wool to the same person from whom he buys the clothes, furniture, and tools he needs. Instead, he sells his raw products for money and uses it to buy the manufactured goods he needs wherever he finds them. Land even replaces at least some of the capital used in fisheries and mines. Food grown on land enables people to take fish from the water, and products of the earth’s surface enable them to extract minerals from underground.
Where land, mines, and fisheries are equally fertile by nature, the amount they produce depends on how much capital is used and how well it is used. Where the amounts of capital are equal and equally well used, the amount produced depends on natural fertility.
In any country with reasonable security, a person of ordinary understanding will try to use all the stock he can obtain either to enjoy things now or to earn a profit later. Stock used for present enjoyment is set aside for immediate use. Stock used for future profit must earn that profit either by staying with its owner or by leaving him. In the first case it is fixed capital; in the second, circulating capital. Where there is reasonable security, a person would have to be utterly irrational not to use all the stock he controls in one of these three ways, whether it is his own or borrowed from others.
In less fortunate countries, people often fear violence from those who rule them. They bury or hide a large part of their stock so they can quickly take it to safety when threatened by the disasters they always expect. This is said to be common in Turkey and Indostan, and, I believe, in most other governments of Asia. It seems to have been common among our ancestors during the violence of feudal rule. In those days, treasure-trove was considered a significant part of the revenue of Europe’s greatest rulers. It consisted of treasure found hidden in the ground when no particular person could prove a claim to it. People then thought it important enough to assign it to the ruler, not to the finder or the landowner, unless the landowner’s charter expressly granted that right. It was treated like gold and silver mines. Without a special clause in the charter, a general grant of land was not understood to include those mines, although it did include mines of lead, copper, tin, and coal, which were seen as less important.