Front Page Titles (by Subject) [II.iii] CHAPTER III: Of the Accumulation of Capital, or of productive and unproductive Labour - Glasgow Edition of the Works and Correspondence Vol. 2a An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 1
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[II.iii] CHAPTER III: Of the Accumulation of Capital, or of productive and unproductive Labour - Adam Smith, Glasgow Edition of the Works and Correspondence Vol. 2a An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. 1 
An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981).
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Of the Accumulation of Capital, or of productive and unproductive Labour
1There is one sort of labour which adds to the value of the subject upon which it is bestowed: There is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive* labour.1 Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master’s profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expence, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers: He grows poor, by maintaining a multitude of menial servants. The labour of the latter, however, has its value, and deserves its reward as well as that of the former. But the labour of the manufacturer fixes and realizes itself in some particular subject or vendible commodity, which lasts for some time at least after that labour is past.2 It is, as it were, a certain quantity of labour stocked and stored up to be employed, if necessary, upon some other occasion. That subject, or what is the same thing, the price of that subject, can afterwards, if necessary, put into motion a quantity of labour equal to that which had originally produced it.3 The labour of the menial servant, on the contrary, does not fix or realize itself in any particular subject or vendible commodity. His services generally perish in the very instant of their performance, and seldom leave any trace or value behind them, for which an equal quantity of service could afterwards be procured.4
2The labour of some of the most respectable orders in the society is, like that of menial servants, unproductive of any value, and does not fix or realize itself in any permanent subject, or vendible commodity, which endures after that labour is past, and for which an equal quantity of labour could afterwards be procured. The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers.5 They are the servants of the publick, and are maintained by a part of the annual produce of the industry of other people.6 Their service, how honourable, how useful,7 or how necessary soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence of the commonwealth, the effect of their labour this year, will not purchase its protection, security, and defence, for the year to come. In the same class must be ranked, some both of the gravest and most important, and some of the most frivolous professions: churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera–singers, opera–dancers, &c.8 The labour of the meanest of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour;9 and that of the noblest and most useful, produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production.10
3 Both productive and unproductive labourers, and those who do not labour at all, are all equally maintained by the annual produce of the land and labour of the country. This produce, how great soever, can never be infinite, but must have certain limits. According, therefore, as a smaller or greater proportion of it is in any one year employed in maintaining unproductive hands, the more in the one case and the less in the other will remain for the productive, and the next year’s produce will be greater or smaller accordingly; the whole annual produce, if we except the spontaneous productions of the earth, being the effect of productive labour.
4Though the whole annual produce of the land and labour of every country, is, no doubt, ultimately destined for supplying the consumption of its inhabitants, and for procuring a revenue to them; yet when it first comes either from the ground, or from the hands of the productive labourers, it naturally divides itself into two parts. One of them, and frequently the largest, is, in the first place, destined for replacing a capital, or for renewing the provisions, materials, and finished work, which had been withdrawn from a capital; the other for constituting a revenue either to the owner of this capital, as the profit of his stock; or to some other person, as the rent of his land. Thus, of the produce of land, one part replaces the capital of the farmer; the other pays his profit and the rent of the landlord; and thus constitutes a revenue both to the owner of this capital, as the profits of his stock; and to some other person, as the rent of his land. Of the produce of a great manufactory, in the same manner, one part, and that always the largest, replaces the capital of the undertaker of the work; the other pays his profit, and thus constitutes a revenue to the owner of athisa capital.
5That part of the annual produce of the land and labour of any country which replaces a capital, never is immediately employed to maintain any but productive hands. It pays the wages of productive labour only. That which is immediately destined for constituting a revenue either as profit or as rent, may maintain indifferently either productive or unproductive hands.
6Whatever part of his stock a man employs as a capital, he always expects bisb to be replaced to him with a profit. He employs it, therefore, in maintaining productive hands only; and after having served in the function of a capital to him, it constitutes a revenue to them. Whenever he employs any part of it in maintaining unproductive hands of any kind, that part is, from that moment, withdrawn from his capital, and placed in his stock reserved for immediate consumption.
7Unproductive labourers, and those who do not labour at all, are all maintained by revenue; either, first, by that part of the annual produce which is originally destined for constituting a revenue to some particular persons, either as the rent of land or as the profits of stock; or, secondly, by that part which, though originally destined for replacing a capital and for maintaining productive labourers only, yet when it comes into their hands, whatever part of it is over and above their necessary subsistence, may be employed in maintaining indifferently either productive or unproductive hands. Thus, not only the great landlord or the rich merchant, but even the common workman, if his wages are considerable, may maintain a menial servant; or he may sometimes go to a play or a puppet–show, and so contribute his share towards maintaining one set of unproductive labourers; or he may pay some taxes, and thus help to maintain another set, more honourable and useful, indeed, but equally unproductive. No part of the annual produce, however, which had been originally destined to replace a capital, is ever directed towards maintaining unproductive hands, till after it has put into motion its full complement of productive labour, or all that it could put into motion in the way in which it was employed.11 The workman must have earned his wages by work done, before he can employ any part of them in this manner. That part too is generally but a small one. It is his spare revenue only, of which productive labourers have seldom a great deal. They generally have some, however; and in the payment of taxes the greatness of their number may compensate, in some measure, the smallness of their contribution.12 The rent of land and the profits of stock are every where, therefore, the principal sources from which unproductive hands derive their subsistence. These are the two sorts of revenue of which the owners have generally most to spare. They might both maintain indifferently either productive or unproductive hands. They seem, however, to have some predilection for the latter. The expence of a great lord feeds generally more idle than industrious people. The rich merchant, though with his capital he maintains industrious people only, yet by his expence, that is, by the employment of his revenue, he feeds commonly the very same sort as the great lord.13
8The proportion, therefore, between the productive and unproductive hands, depends very much in every country upon the proportion between that part of the annual produce, which, as soon as it comes either from the ground or from the hands of the productive labourers, is destined for replacing a capital, and that which is destined for constituting a revenue, either as rent, or as profit. This proportion is very different in rich from what it is in poor countries.14
9Thus, at present, in the opulent countries of Europe, a very large, frequently the largest portion of the produce of the land, is destined for replacing the capital of the rich and independent farmer; the other for paying his profits, and the rent of the landlord. But antiently, during the prevalency of the feudal government, a very small portion of the produce was sufficient to replace the capital employed in cultivation. It consisted commonly in a few wretched cattle, maintained altogether by the spontaneous produce of uncultivated land, and which might, therefore, be considered as a part of that spontaneous produce. It generally too belonged to the landlord, and was by him advanced to the occupiers of the land. All the rest of the produce properly belonged to him too, either as rent for his land, or as profit upon this paultry capital. The occupiers of land were generally bondmen, whose persons and effects were equally his property. Those who were not bondmen were tenants at will, and though the rent which they paid was often nominally little more than a quit–rent, it really amounted to the whole produce of the land. Their lord could at all times command their labour in peace, and their service in war. Though they lived at a distance from his house, they were equally dependent upon him as his retainers who lived in it. But the whole produce of the land undoubtedly belongs to him, who can dispose of the labour and service of all those whom it maintains. In the present state of Europe, the share of the landlord seldom exceeds a third, sometimes not a fourth part of the whole produce of the land. The rent of land, however, in all the improved parts of the country, has been tripled and quadrupled since those antient times; and this third or fourth part of the annual produce is, it seems, three or four times greater than the whole had been before. In the progress of improvement, rent, though it increases in proportion to the extent, diminishes in proportion to the produce of the land.15
10In the opulent countries of Europe, great capitals are at present employed in trade and manufactures. In the antient state, the little trade that was stirring, and the few homely and coarse manufactures that were carried on, required but very small capitals. These, however, must have yielded very large profits. The rate of interest was no where less than ten per cent. and their profits must have been sufficient to afford this great interest. At present the rate of interest, in the improved parts of Europe, is no where higher than six per cent. and in some of the most improved it is so low as four, three, and two per cent. Though that part of the revenue of the inhabitants which is derived from the profits of stock is always much greater in rich than in poor countries, it is because the stock is much greater: in proportion to the stock the profits are generally much less.
11That part of the annual produce, therefore, which, as soon as it comes either from the ground, or from the hands of the productive labourers, is destined for replacing a capital, is not only much greater in rich than in poor countries, but bears a much greater proportion to that which is immediately destined for constituting a revenue either as rent or as profit. The funds destined for the maintenance of productive labour, are not only much greater in the former than in the latter, but bear a much greater proportion to those which, though they may be employed to maintain either productive or unproductive hands, have generally a predilection for the latter.
12The proportion between those different funds necessarily determines in every country the general character of the inhabitants as to industry or idleness. We are more industrious than our forefathers; because in the present times the funds destined for the maintenance of industry, are much greater in proportion to those which are likely to be employed in the maintenance of idleness, than they were two or three centuries ago. Our ancestors were idle for want of a sufficient encouragement to industry. It is better, says the proverb, to play for nothing, than to work for nothing. In mercantile and manufacturing towns, where the inferior ranks of people are chiefly maintained by the employment of capital, they are in general industrious, sober, and thriving; as in many English, and in most Dutch towns. In those towns which are principally supported by the constant or occasional residence of a court, and in which the inferior ranks of people are chiefly maintained by the spending of revenue, they are in general idle, dissolute, and poor; as at Rome, Versailles, Compiegne, and Fontainbleau. If you except Rouen and Bourdeaux, there is little trade or industry in any of the parliament towns of France;16 and the inferior ranks of people, being chiefly maintained by the expence of the members of the courts of justice, and of those who come to plead before them, are in general idle and poor. The great trade of Rouen and Bourdeaux seems to be altogether the effect of their situation.17 Rouen is necessarily the entrepôt of almost all the goods which are brought either from foreign countries, or from the maritime provinces of France, for the consumption of the great city of Paris. Bourdeaux is in the same manner the entrepôt of the wines which grow upon the banks of the Garonne, and of the rivers which run into it, one of the richest wine countries in the world, and which seems to produce the wine fittest for exportation, or best suited to the taste of foreign nations. Such advantageous situations necessarily attract a great capital by the great employment which they afford it; and the employment of this capital is the cause of the industry of those two cities. In the other parliament towns of France, very little more capital seems to be employed than what is necessary for supplying their own consumption; that is, little more than the smallest capital which can be employed in them. The same thing may be said of Paris, Madrid, and Vienna. Of those three cities, Paris is by far the most industrious; but Paris itself is the principal market of all the manufactures established at Paris, and its own consumption is the principal object of all the trade which it carries on. London, Lisbon, and Copenhagen, are, perhaps, the only three cities in Europe, which are both the constant residence of a court, and can at the same time be considered as trading cities, or as cities which trade not only for their own consumption, but for that of other cities and countries. The situation of all the three is extremely advantageous, and naturally fits them to be the entrepôts of a great part of the goods destined for the consumption of distant places. In a city where a great revenue is spent, to employ with advantage a capital for any other purpose than for supplying the consumption of that city, is probably more difficult than in one in which the inferior ranks of people have no other maintenance but what they derive from the employment of such a capital. The idleness of the greater part of the people who are maintained by the expence of revenue, corrupts, it is probable, the industry of those who ought to be maintained by the employment of capital, and renders it less advantageous to employ a capital there than in other places. There was little trade or industry in Edinburgh before the union. When the Scotch parliament was no longer to be assembled in it, when it ceased to be the necessary residence of the principal nobility and gentry of Scotland, it became a city of some trade and industry. It still continues, however, to be the residence of the principal courts of justice in Scotland, of the boards of customs and excise, &c. A considerable revenue, therefore, still continues to be spent in it. In trade and industry it is much inferior to Glasgow, of which the inhabitants are chiefly maintained by the employment of capital. The inhabitants of a large village, it has sometimes been observed, after having made considerable progress in manufactures, have become idle and poor, in consequence of a great lord’s having taken up his residence in their neighbourhood.18
13The proportion between capital and revenue, therefore, seems every where to regulate the proportion between industry and idleness. Whereever capital predominates, industry prevails: wherever revenue, idleness. Every increase or diminution of capital, therefore, naturally tends to increase or diminish the real quantity of industry, the number of productive hands, and consequently the exchangeable value of the annual produce of the land and labour of the country, the real wealth and revenue of all its inhabitants.
14Capitals are increased by parsimony, and diminished by prodigality and misconduct.
15Whatever a person saves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits.19 As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner.
16Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.20
17Parsimony, by increasing the fund which is destined for the maintenance of productive hands, tends to increase the number of those hands whose labour adds to the value of the subject upon which it is bestowed. It tends therefore to increase the exchangeable value of the annual produce of the land and labour of the country. It puts into motion an additional quantity of industry, which gives an additional value to the annual produce.
18What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too; but it is consumed by a different set of people.21 That portion of his revenue which a rich man annually spends, is in most cases consumed by idle guests, and menial servants, who leave nothing behind them in return for their consumption. That portion which he annually saves, as for the sake of the profit it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people, by labourers, manufacturers, and artificers, who re–produce with a profit the value of their annual consumption. His revenue, we shall suppose, is paid him in money. Had he spent the whole, the food, cloathing, and lodging which the whole could have purchased, would have been distributed among the former set of people. By saving a part of it, as that part is for the sake of the profit immediately employed as a capital either by himself or by some other person, the food, cloathing, and lodging, which may be purchased with it, are necessarily reserved for the latter. The consumption is the same, but the consumers are different.
19By what a frugal man annually saves, he not only affords maintenance to an additional number of productive hands, for that or the ensuing year, but, like the founder of a publick workhouse, he establishes as it were a perpetual fund for the maintenance of an equal number in all times to come. The perpetual allotment and destination of this fund, indeed, is not always guarded by any positive law, by any trust–right or deed of mortmain. It is always guarded, however, by a very powerful principle, the plain and evident interest of every individual to whom any share of it shall ever belong. No part of it can ever afterwards be employed to maintain any but productive hands, without an evident loss to the person who thus perverts it from its proper destination.22
20The prodigal perverts it in this manner. By not confining his expence within his income, he encroaches upon his capital. Like him who perverts the revenues of some pious foundation to profane purposes, he pays the wages of idleness with those funds which the frugality of his forefathers had, as it were, consecrated to the maintenance of industry. By diminishing the funds destined for the employment of productive labour, he necessarily diminishes, so far as citc depends upon him, the quantity of that labour which adds a value to the subject upon which it is bestowed, and, consequently, the value of the annual produce of the land and labour of the whole country, the real wealth and revenue of its inhabitants. If the prodigality of some was not compensated by the frugality of others, the conduct of every prodigal, by feeding the idle with the bread of the industrious, tends not only to beggar himself, but to impoverish his country.
21Though the expence of the prodigal should be altogether in home–made, and no part of it in foreign commodities, its effect upon the productive funds of the society would still be the same.23 Every year there would still be a certain quantity of food and cloathing, which ought to have maintained productive, employed in maintaining unproductive hands. Every year, therefore, there would still be some diminution in what would otherwise have been the value of the annual produce of the land and labour of the country.
22This expence, it may be said indeed, not being in foreign goods, and not occasioning any exportation of gold and silver, the same quantity of money would remain in the country as before. But if the quantity of food and cloathing, which were thus consumed by unproductive, had been distributed among productive hands, they would have reproduced, together with a profit, the full value of their consumption. The same quantity of money would in this case equally have remained in the country, and there would besides have been a reproduction of an equal value of consumable goods. There would have been two values instead of one.
23The same quantity of money, besides, cannot long remain in any country, in which the value of the annual produce diminishes. The sole use of money is to circulate consumable goods.24 By means of it, provisions, materials, and finished work, are bought and sold, and distributed to their proper consumers. The quantity of money, therefore, which can be annually employed in any country must be determined by the value of the consumable goods annually circulated within it. These must consist either in the immediate produce of the land and labour of the country itself, or in something which had been purchased with some part of that produce. Their value, therefore, must diminish as the value of that produce diminishes, and along with it the quantity of money which can be employed in circulating them. But the money which by this annual diminution of produce is annually thrown out of domestick circulation will not be allowed to lie idle. The interest of whoever possesses it, requires that it should be employed. But having no employment at home, it will, in spite of all laws and prohibitions, be sent abroad, and employed in purchasing consumable goods which may be of some use at home.25 Its annual exportation will in this manner continue for some time to add something to the annual consumption of the country beyond the value of its own annual produce. What in the days of its prosperity had been saved from that annual produce, and employed in purchasing gold and silver, will contribute for some little time to support its consumption in adversity. The exportation of gold and silver is, in this case, not the cause, but the effect of its declension, and may even, for some little time, alleviate the misery of that declension.
24 The quantity of money, on the contrary, must in every country naturally increase as the value of the annual produce increases. The value of the consumable goods annually circulated within the society being greater, will require a greater quantity of money to circulate them. A part of the increased produce, therefore, will naturally be employed in purchasing, wherever it is to be had, the additional quantity of gold and silver necessary for circulating the rest. The increase of those metals will in this case be the effect, not the cause, of the publick prosperity. Gold and silver are purchased every where in the same manner.26 The food, cloathing, and lodging, the revenue and maintenance of all those whose labour or stock is employed in bringing them from the mine to the market, is the price paid for them in Peru as well as in England. The country which has this price to pay, will never be long without the quantity of those metals which it has occasion for; and no country will ever long retain a quantity which it has no occasion for.
25Whatever, therefore, we may imagine the real wealth and revenue of a country to consist in, whether in the value of the annual produce of its land and labour, as plain reason seems to dictate; or in the quantity of the precious metals which circulate within it, as vulgar prejudices suppose;27 in either view of the matter, every prodigal appears to be a publick enemy, and every frugal man a publick benefactor.
26 The effects of misconduct are often the same as those of prodigality. Every injudicious and unsuccessful project in agriculture, mines, fisheries, trade, or manufactures, tends in the same manner to diminish the funds destined for the maintenance of productive labour.28 In every such project, though the capital is consumed by productive hands only, yet, as by the injudicious manner in which they are employed, they do not reproduce the full value of their consumption, there must always be some diminution in what would otherwise have been the productive funds of the society.
27It can seldom happen, indeed, that the circumstances of a great nation can be much affected either by the prodigality or misconduct of individuals; the profusion or imprudence of some being always more than compensated by the frugality and good conduct of others.
28With regard to profusion, the principle, which prompts to expence, is the passion for present enjoyment; which, though sometimes violent and very difficult to be restrained, is in general only momentary and occasional. But the principle which prompts to save, is the desire of bettering our condition,29 a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates those two moments, there is scarce perhaps a single dinstantd in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement, of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition.30 It is the means the most vulgar and the most obvious; and the most likely way of augmenting their fortune, is to save and accumulate some part of what they acquire, either regularly and annually, or upon some extraordinary occasions. Though the principle of expence, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occasions, yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly.
29With regard to misconduct, the number of prudent and successful undertakings is every where much greater than that of injudicious and unsuccessful ones. After all our complaints of the frequency of bankruptcies, the unhappy men who fall into this misfortune make but a very small part of the whole number engaged in trade, and all other sorts of business; not much more perhaps than one in a thousand. Bankruptcy is perhaps the greatest and most humiliating calamity which can befal an innocent man. The greater part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it; as some do not avoid the gallows.
30Great nations are never impoverished by private, though they sometimes are by publick prodigality and misconduct. The whole, or almost the whole publick revenue, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace produce nothing, and in time of war acquire nothing which can compensate the expence of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men’s labour. When multiplied, therefore, to an unnecessary number, they may in a particular year consume so great a share of this produce, as not to leave a sufficiency for maintaining the productive labourers, who should reproduce it next year. The next year’s produce, therefore, will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.
31This frugality and good conduct, however, is upon most occasions, it appears from experience, sufficient to compensate, not only the private prodigality and misconduct of individuals, but the publick extravagance of government. The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which publick and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.31 Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor.
32The annual produce of the land and labour of any nation can be increased in its value by no other means, but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed.32 The number of its productive labourers, it is evident, can never be much increased, but in consequence of an increase of capital, or of the funds destined for maintaining them. The productive powers of the same number of labourers cannot be increased, but in consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour; or of a more proper division and distribution of employment.33 In either case an additional capital is almost always required. It is by means of an additional capital only that the undertaker of any work can either provide his workmen with better machinery, or make a more proper distribution of employment among them. When the work to be done consists of a number of parts, to keep every man constantly employed in one way, requires a much greater capital than where every man is occasionally employed in every different part of the work. When we compare, therefore, the state of a nation at two different periods, and find, that the annual produce of its land and labour is evidently greater at the latter than at the former, that its lands are better cultivated, its manufactures more numerous and more flourishing, and its trade more extensive, we may be assured that its capital must have increased during the interval between those two periods, and that more must have been added to it by the good conduct of some, than had been taken from it either by the private misconduct of others, or by the publick extravagance of government. But we shall find this to have been the case of almost all nations, in all tolerably quiet and peaceable times, even of those who have not enjoyed the most prudent and parsimonious governments. To form a right judgment of it, indeed, we must compare the state of the country at periods somewhat distant from one another. The progress is frequently so gradual, that, at near periods, the improvement is not only not sensible, but from the declension either of certain branches of industry, or of certain districts of the country, things which sometimes happen though the country in general ebee in great prosperity, there frequently arises a suspicion, that the riches and industry of the whole are decaying.
33The annual produce of the land and labour of England, for example, is certainly much greater than it was, a little more than a century ago, at the restoration of Charles II. Though at present, few people, I believe, doubt of this, yet during this period, five years have seldom passed away in which some book or pamphlet has not been published, written too with such abilities as to gain some authority with the publick, and pretending to demonstrate that the wealth of the nation was fast declining, that the country was depopulated, agriculture neglected, manufactures decaying, and trade undone. Nor have these publications been all party pamphlets, the wretched offspring of falshood and venality. Many of them have been written by very candid and very intelligent people; who wrote nothing but what they believed, and for no other reason but because they believed it.
34The annual produce of the land and labour of England again, was certainly much greater at the restoration, than we can suppose it to have been about an hundred years before, at the accession of Elizabeth. At this period too, we have all reason to believe, the country was much more advanced in improvement, than it had been about a century before, towards the close of the dissensions between the houses of York and Lancaster. Even then it was, probably, in a better condition than it had been at the Norman conquest, and at the Norman conquest, than during the confusion of the Saxon Heptarchy. Even at this early period, it was certainly a more improved country than at the invasion of Julius Caesar, when its inhabitants were nearly in the same state with the savages in North America.34
35In each of those periods, however, there was, not only much private and publick profusion, many expensive and unnecessary wars, great perversion of the annual produce from maintaining productive to maintain unproductive hands; but sometimes, in the confusion of civil discord, such absolute waste and destruction of stock, as might be supposed, not only to retard, as it certainly did, the natural accumulation of riches, but to have left the country, at the end of the period, poorer than at the beginning. Thus, in the happiest and most fortunate period of them all, that which has passed since the restoration, how many disorders and misfortunes have occurred, which, could they have been foreseen, not only the impoverishment, but the total ruin of the country would have been expected from them? The fire and the plague of London, the two Dutch wars, the disorders of the revolution, the war in Ireland, the four expensive French wars of 1688, f1702f , 1742, and 1756, together with the two rebellions of 1715 and 1745. In the course of the four French wars, the nation has contracted more than a hundred and forty–five millions of debt, over and above all the other extraordinary annual expence which they occasioned, so that the whole cannot be computed at less than two hundred millions.35 So great a share of the annual produce of the land and labour of the country, has, since the revolution, been employed upon different occasions, in maintaining an extraordinary number of unproductive hands. But had not those wars given this particular direction to so large a capital, the greater part of it would naturally have been employed in maintaining productive hands, whose labour would have replaced, with a profit, the whole value of their consumption. The value of the annual produce of the land and labour of the country, would have been considerably increased by it every year, and every year’s increase would have augmented still more that of the gfollowingg year. More houses would have been built, more lands would have been improved, and those which had been improved before would have been better cultivated, more manufactures would have been established, and those which had been established before would have been more extended; and to what height the real wealth and revenue of the country might, by this time, have been raised, it is not perhaps very easy even to imagine.36
6But though the profusion of government must, undoubtedly, have retarded the natural progress of England towards wealth and improvement, it has not been able to stop it. The annual produce of its land and labour is, undoubtedly, much greater at present than it was either at the restoration or at the revolution. The capital, therefore, annually employed in cultivating this land, and in maintaining this labour, must likewise be much greater. In the midst of all the exactions of government, this capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times, and which, it is to be hoped, will do so in all future times.37 England, however, as it has never been blessed with a very parsimonious government, so parsimony has at no time been the characteristical virtue of its inhabitants. It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the œconomy of private people, and to restrain their expence either by sumptuary laws, or by prohibiting the importation of foreign luxuries.38 They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.
37As frugality increases, and prodigality diminishes the publick capital, so the conduct of those, whose expence just equals their revenue, without either accumulating or encroaching, neither increases nor diminishes it. Some modes of expence, however, seem to contribute more to the growth of publick opulence than others.
38 The revenue of an individual may be spent, either in things which are consumed immediately, and in which one day’s expence can neither alleviate nor support that of another; or it may be spent in things more durable, which can therefore be accumulated, and in which every day’s expence may, as he chuses, either alleviate or support and heighten the effect of that of the following day.39 A man of fortune, for example, may either spend his revenue in a profuse and sumptuous table, and in maintaining a great number of menial servants, and a multitude of dogs and horses; or contenting himself with a frugal table and few attendants, he may lay out the greater part of it in adorning his house or his country villa, in useful or ornamental buildings, in useful or ornamental furniture, in collecting books, statues, pictures; or in things more frivolous, jewels, baubles, ingenious trinkets of different kinds; or, what is most trifling of all, in amassing a great wardrobe of fine cloaths, like the favourite and minister of a great prince who died a few years ago.40 Were two men of equal fortune to spend their revenue, the one chiefly in the one way, the other in the other, the magnificence of the person whose expence had been chiefly in durable commodities, would be continually increasing, every day’s expence contributing something to support and heighten the effect of that of the following day: that of the other, on the contrary, would be no greater at the end of the period than at the beginning. The former too would, at the end of the period, be the richer man of the two. He would have a stock of goods of some kind or other, which, though it might not be worth all that it cost, would always be worth something. No trace or vestige of the expence of the latter would remain, and the effects of ten or twenty years profusion would be as completely annihilated as if they had never existed.
39As the one mode of expence is more favourable than the other to the opulence of an individual, so is it likewise to that of a nation. The houses, the furniture, the cloathing of the rich, in a little time, become useful to the inferior and middling ranks of people.41 They are able to purchase them when their superiors grow weary of them, and the general accommodation of the whole people is thus gradually improved, when this mode of expence becomes universal among men of fortune. In countries which have long been rich, you will frequently find the inferior ranks of people in possession both of houses and furniture perfectly good and entire, but of which neither the one could have been built, nor the other have been made for their use. What was formerly a seat of the family of Seymour, is now an inn upon the Bath road. The marriage–bed of James the First of Great Britain, which his Queen brought with her from Denmark, as a present fit for a sovereign to make to a sovereign, was, a few years ago, the ornament of an alehouse at Dunfermline. In some ancient cities, which either have been long stationary, or have gone somewhat to decay, you will sometimes scarce find a single house which could have been built for its present inhabitants. If you go into those houses too, you will frequently find many excellent, though antiquated pieces of furniture, which are still very fit for use, and which could as little have been made for them. Noble palaces, magnificent villas, great collections of books, statues, pictures, and other curiosities, are frequently both an ornament and an honour, not only to the neighbourhood, but to the whole country to which they belong. Versailles is an ornament and a honour to France, Stowe and Wilton to England. Italy continues to command some sort of veneration by the number of monuments of this kind which it possesses, though the wealth which produced them has decayed, and hthoughh the genius which planned them seems to be extinguished, perhaps from not having the same employment.
40The expence too, which is laid out in durable commodities, is favourable, not only to accumulation, but to frugality. If a person should at any time exceed in it, he can easily reform without exposing himself to the censure of the publick.42 To reduce very much the number of his servants, to reform his table from great profusion to great frugality, to lay down his equipage after he has once set it up, are changes which cannot escape the observation of his neighbours, and which are supposed to imply some acknowledgment of preceding bad conduct.43 Few, therefore, of those who have once been so unfortunate as to launch out too far into this sort of expence, have afterwards the courage to reform, till ruin and bankruptcy oblige them. But if a person has, at any time, been at too great an expence in building, in furniture, in books or pictures, no imprudence can be inferred from his changing his conduct. These are things in which further expence is frequently rendered unnecessary by former expence; and when a person stops short, he appears to do so, not because he has exceeded his fortune, but because he has satisfied his fancy.
41The expence, besides, that is laid out in durable commodities, gives maintenance, commonly, to a greater number of people, than that which is employed in the most profuse hospitality. Of two or three hundred weight of provisions, which may sometimes be served up at a great festival, one–half, perhaps, is thrown to the dunghill, and there is always a great deal wasted and abused. But if the expence of this entertainment had been employed in setting to work, masons, carpenters, upholsterers, mechanicks, i&c.i a quantity of provisions, of equal value, would have been distributed among a still greater number of people, who would have bought them in penny–worths and pound weights, and not have lost or thrown away a single ounce of them. In the one way, besides, this expence maintains productive, in the other unproductive hands. In the one way, therefore, it increases, in the other, it does not increase, the exchangeable value of the annual produce of the land and labour of the country.
42 I would not, however, by all this be understood to mean, that the one species of expence always betokens a more liberal or generous spirit than the other. When a man of fortune spends his revenue chiefly in hospitality, he shares the greater part of it with his friends and companions; but when he employs it in purchasing such durable commodities, he often spends the whole upon his own person, and gives nothing to any body without an equivalent.44 The latter species of expence, therefore, especially when directed towards frivolous objects, the little ornaments of dress and furniture, jewels, trinkets, gewgaws, frequently indicates, not only a trifling, but a base and selfish disposition. All that I mean is, that the one sort of expence, as it always occasions some accumulation of valuable commodities, as it is more favourable to private frugality, and, consequently, to the increase of the publick capital, and as it maintains productive, rather than unproductive hands, conduces more than the other to the growth of publick opulence.
[* ]Some French authors of great learning and ingenuity have used those words in a different sense. In the last chapter of the fourth book, I shall endeavour to show that their sense is an improper one.
[1 ]The term ‘unproductive’ is described at IV.ix.5 as a ‘humiliating appellation’. IV.ix may acquire an added interest when read in conjunction with the present chapter.
[2 ]The activities of merchants are described as productive, e.g. at II.v.6. and 8.
[3 ]This doctrine is related to that of ‘labour commanded’ as used in the discussion of value in I.v.
[4 ]Similar expressions to those used in the preceding two sentences occur at IV.ix.31.
[5 ]But see below, V.i.a.14 and V.ii.i.7.
[6 ]See below, IV.i.20 and V.i.a.11, where Smith discusses this point in relation to the costs of defence. In his essay ‘Of Interest’ Hume made the interesting point that ‘lawyers and physicians beget no industry; and it is even at the expence of others they acquire their riches’. He went on, like Smith, to include merchants among the class who ‘beget industry’ by ‘serving as canals to convey it through every corner of the state’ (Essays Moral, Political, and Literary, ed. Green and Grose, i.326). Cantillon remarks, Essai, 61, ed. Higgs 47, that: ‘As for those who exercise Professions which are not essential, like Dancers, Actors, Painters, Musicians, etc. they are only supported in the State for pleasure or for ornament, and their number is always very small in proportion to the other Inhabitants.’
[7 ]The term ‘useful’ appears to be equated with ‘productive’ in the Introduction, § 6.
[8 ]The rewards of opera singers etc are discussed in I.x.b.25. It is also suggested at V.i.g.15 that the labour of those who provide public shows may be indirectly productive of benefit to the community.
[9 ]It is to be emphasized that Smith does not deny that the kinds of unproductive labour cited have a value. For example, it is pointed out in the Imitative Arts II.1 that after ‘the gratification of the bodily appetities, there seem to be none more natural to man than Music and Dancing’ and refers to the ‘delicious pleasure’ to be derived from such arts, including the opera, and to the ‘pleasure and delight’ to be derived from a concert of instrumental music. He also suggests that a very high intellectual pleasure may be derived from such a source, not unlike that to be derived from ‘the contemplation of a great system in any other science’ (ibid., II.30). See below. IV.ix.31.
[10 ]There is an interesting variant on the theme of this paragraph in Steuart’s Principles, II.xxvi. Here Steuart draws a distinction between ‘goods’ which do, and those which do not, have an ‘intrinsic substance’ which is ‘permanent and vendible’; i.e. a distinction between things which are ‘corporeal’ and those which are not. The first species of things incorporeal, which may be purchased with money, is personal service; such as the attendance of a menial servant, the advice of a physician, of a lawyer, the assistance of skilful people in order to acquire knowledge, the service of those employed in the administration of public affairs at home and abroad, or for the defence of a kingdom by sea, or land; the residence of great men at court, who do honour to princes, and make their authority respected; and even when money is given to procure amusement, pleasure, or dissipation, when no durable and transferable value is given in return.’ (Principles, i.369, ed. Skinner, i.318.)
[a–a]his <corrected 4e–6>
[11 ]This subject is discussed in the preceding chapter.
[12 ]See below, V.ii.k.43 and cf. II.1.8.
[13 ]The point made in this paragraph is that funds used as capital (savings) directly employ productive labour, whereas funds used as revenue do not. Smith recognized, however, that all forms of consumption expenditure, whether emanating directly from the productive wage–earner, or from the expenditure of the player he pays, seem always ultimately to support productive labour through the purchase of commodities. As Smith points out at III.iv.11, the rich man who pays the price of a commodity ‘indirectly contributes to the maintenance of all the workmen and their employers’. See also the concluding paragraphs of the present chapter where Smith comments on the different modes of expense and the ways in which they contribute to public opulence.
[14 ]Smith took account of a particular problem facing indebted countries at V.iii.47, where it is argued that investment in public funds may turn capital away from productive to unproductive uses.
[15 ]The figure of a third is cited at I.xi.c.20, II.v.12, and V.ii.a.17. Cf. above I.xi.p.2.
[16 ]In 1776 the thirteen Parlements of France, with dates of foundation were: Paris (1302), Toulouse (1443), Grenoble (1451), Bordeaux (1462), Dijon (1476) Rouen (1499), Aix–en–Provence (1501), Rennes (1553), Pau (1620), Metz (1633), Besançon (1674), Douai (1686), Nancy (1775). The Encycopédie (1765), xii.1, did not, of course, list Nancy.
[17 ]See above, I.iii.4, where Smith discusses the advantages of location on waterways
[18 ]See LJ (B) 203–5, ed. Cannan 154–6. It is argued at 204, ed. Cannan 155, that the development of industry reduces idleness and thus crime and that ‘Nothing tends so much to corrupt mankind as dependency, while independencey still encreases the honesty of the people.’ Hence Smith suggested, ‘In Glasgow where almost no body has more than one servant, there are fewer capital crimes than in Edinburgh.’ Similar points are made at greater length in LJ (A) vi.1–6, and see below. III.iv.13–15.
[19 ]It is remarked at IV.vii.c.57 that capitals can be increased only through savings from revenue; see also IV.ix.33. Cf. Turgot (Reflections, LVIII): ‘Anyone, who, whether in the form of revenue from his land, or of wages for his labour or his industry, receives each year more value than he needs to spend, can put this surplus into reserve and accumulate it: these accumulated values are what is called a capital.’
[20 ]Cf. Mandeville (The Fable of the Bees, pt. i. 105–6, ed. Kaye i.104–5): ‘Frugality is like Honesty, a mean starving Virtue, that is only fit for small Societies of good peaceable Men, who are contented to be poor so they may be easy; but in a large stirring Nation you may have soon enough of it. ’Tis an idle dreaming Virtue that employs no Hands, and therefore very useless in a trading Country, where there are vast Numbers that one way or other must be all set to Work. Prodigality has a thousand Inventions to keep People from sitting still, that Frugality would never think of; and as this must consume a prodigious Wealth, so Avarice again knows innumerable Tricks to rake it together, which Frugality would scorn to make use of.’
[21 ]The necessary condition being ‘tolerable security’, II.i.30. See also, IV.iii.c.15 and IV.ii.8. Cf. Turgot (Reflections, CI): ‘In fact almost all savings are made only in the form of money . . . but none of the entrepreneurs make any other use of it than to convert it immediately into the different kinds of effects upon which their enterprise depends.’ In the Ashley edition of the Reflections (London, 1898) the word ‘immediately’ is italicized.
[22 ]TMS VI.i, which was added to the last edition of 1790, contains one of the most elaborate statements which Smith offered with regard to the psychology behind economic activity. Here Smith argued that if the pursuit of social status was the real objective of the drive to better our condition, then the means to this end are foresight and sacrifice—in short, prudence. He says also at VI.i.11 that such qualities attract general approval. Smith added that ‘It is the consciousness of this merited approbation and esteem which is alone capable of supporting the agent in this tenour of conduct’ (TMS IV.i.2.8). Cf. TMS VII.ii.3.16: ‘The habits of œconomy, industry, discretion, attention, and application of thought, are generally supposed to be cultivated from self–interested motives, and at the same time are apprehended to be very praiseworthy qualities, which deserve the esteem and approbation of everybody.’ See also TMS II.iii.3.3, where Smith emphasizes that we tend to approve of the actual achievement of fortune, not just the intention; of the end involved and not simply the means. Cf. Mandeville (Fable of the Bees. pt. 1.58, ed. Kaye i.68.) ‘The Greediness we have after the Esteem of others, and the Raptures we enjoy in the Thoughts of being liked, and perhaps admired, are Equivalents that overpay the Conquest of the strongest Passions . . .’
[23 ]In LJ (B) 266–7, ed. Cannan 207–8, the view that ‘no expence at home can be hurtful’ is attributed to Mandeville and described as ‘still another bad effect proceeding from that absurd notion that national opulence consists in money’. The same point is made in LJ (A) vi.169, where the authority of ‘Dr John Mandeville’ is cited. See below, IV.i. where Smith reviews the main doctrines of mercantilism.
[24 ]See for example, II.ii.23, IV.i.18, and IV.vi.27.
[25 ]This point is made above, II.ii.30.
[26 ]See below, for example, IV.i.12.
[27 ]The ‘vulgar prejudices’ are discussed in IV.i and vii.
[28 ]See below, II.iv.15, where Smith justifies control of the rate of interest in terms of curtailing the activities of projectors; cf I.x.b.43. He was also prepared to curb prodigality through the use of taxation: see for example, V.ii.c.12 and cf. IV.vii.a.18.
[29 ]The general term ‘bettering our condition’ is often used in the course of the present chapter. See also I.viii.44, III.iii.12, IV.v.b.43, and IV.ix.28. In Mandeville’s Third Dialogue, Cleo. remarks that ‘The restless Industry of Man to supply his Wants, and his constant Endeavours to meliorate his Condition upon Earth, have produced and brought to Perfection many useful Arts and Sciences . . . ’ (Fable of the Bees, pt. ii.132, ed. Kaye ii.128). A similar point occurs in the Fourth Dialogue where Horace inquires if the desire of ‘meliorating our Condition’ is so general that ‘no Man is without it? Cleo. Not one that can be call’d a sociable Creature; and I believe this to be as much a Characteristick of our Species, as any can be named: For there is not a Man in the World, educated in Society, who, if he could compass it by wishing, would not have something added to, taken from, or alter’d in his Person, Possessions, Circumstances, or any part of the Society he belongs to. This is what is not to be perceiv’d in any Creature but Man’. (Ibid., pt. ii.200, ed. Kaye ii.181).
[30 ]In TMS I.iii.2.1 Smith inquires: ‘what are the advantages which we propose by that great purpose of human life which we call bettering our condition? To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it.’ Cf. TMS VI.i.3. Montesquieu also commented that ‘It is pride that renders us polite; we are flattered with being taken notice of for behaviour that shows we are not of a mean condition’. (Esprit, IV.ii.12.) Mandeville made similar points several times. In ‘An Enquiry into the Origin of Moral Virtue,’ for example, he wrote: ‘the great Recompence in view, for which the most exalted Minds have with so much Alacrity sacrificed their Quiet, Health, sensual Pleasures, and every Inch of themselves, has never been anything else but the Breath of Man, the Aerial Coin of Praise.’ (Fable of the Bees, pt. i.40, ed. Kaye i.54–5). In the Second Dialogue Cleo held: ‘The true Object of Pride or Vain–glory is the Opinion of others; and the most superlative Wish, which a Man possess’d, and entirely fill’d with it can make, is, that he may be well thought of, applauded, and admired by the whole World . . .’ (Ibid., pt. ii.47, ed. Kaye ii.64.)
[31 ]Cf. V.iii.58. The extravagance of government is a recurring theme: see, for example, V.ii.a.4, V.iii.8 and 49.
[32 ]See IV.ix.34.
[33 ]See below, IV.ix.36.
[34 ]The savage nations of North America are described as the ‘lowest and rudest state of society’ at V.i.a.2.
[35 ]It is stated at IV.1.26 that the last war with France cost over £90 millions and added some £75 millions to the debt. See also IV.vii.c.64, IV.viii.53, and V.iii.92. The progress of the British national debt is reviewed in V.iii. The highest total of the national debt before 1776 was £134·2 million in 1764.
[36 ]See below, V.iii.
[37 ]Smith discusses the link between industry and security, for example, at II.i.30 and V.iii.7, and uses the point to explain the rapid progress of England at III.iii.12, IV.v.b.43, and IV.vii.c.54.
[38 ]See below, IV.ix.51.
[39 ]In TMS V.i.1.4, ‘Of the Influence of Custom and Fashion upon our notions of Beauty and Deformity’, Smith made the point that the durability of goods, e.g. buildings as contrasted with articles of apparel, is often related to the nature and extent of their influence on fashion. Thus he suggests that styles of dress change more rapidly than styles of furniture, and the latter more rapidly than architectural styles. See above, I.xi.c.31.
[40 ]‘. . . to what idol does that man offer incense, whom no less than three or four hundred suits of rich cloathes will satisfy? Count Bruhl has collected all the finest colours of all the finest cloths, velvets and silks of all the manufacturers, not to mention the different kinds of lace and embroideries, of EUROPE. He calls for his book of patterns, which are numbered, and chuses that suit which pleases his fancy for the day. They boast that he has boots and shoes in proportion to his cloathes.’ (J. Hanway, An Historical Account of the British Trade over the Caspian Sea (London, 1753), ii.230.)
[41 ]See above, I.xi.c.7.
[42 ]Cf. TMS VI.i.3 ‘we cannot live long in the world without perceiving that the respect of our equals, our credit and rank in the society we live in, depend very much upon the degree in which we possess, or are supposed to possess, those advantages [of external fortune].’ Cf. TMS I.iii.2.1.
[43 ]In TMS VI.iii.37 Smith ascribes this behaviour to the vain man who seeks to claim ‘both a higher rank and a greater fortune than really belong to him’ and who thereby reduces himself to ‘poverty and distress’. In TMS III.i.3.18 it is argued that the person who has been guilty of such misconduct will often be supported by his friends so as to avoid the public degradation of poverty or reduced circumstances. Smith gave a good deal of attention to problems of this kind and commented at TMS VI.i.6 that we suffer more ‘when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better.’ Cf. LJ(A) i.24–5: ‘One of the chief studies of a man’s life is to obtain a good name, to rise above those about and render himself some way their superiors. When therefore one is thrown back not only to one level, but even degraded below the common sort of men, he receives one of the most affecting and atrocious injuries that possibly can be inflicted on him.’
[44 ]See below, III.iv.5, where Smith discusses the nature of feudal hospitality, linking it to the form of economy prevailing and with the self–interest of the great proprietors.