The Online Library of Liberty

A project of Liberty Fund, Inc.

• Advertisement By the American Editor, to the Sixth Edition.
• Advertisement By the American Editor, to the Fifth Edition.
• Introduction
• Book I: Of the Production of Wealth.
• Book I, Chapter I.: Of What Is to Be Understood By the Term, Production.
• Book I, Chapter II.: Of the Different Kinds of Industry, and the Mode In Which They Concur In Production.
• Book I, Chapter III: Of the Nature of Capital, and the Mode In Which It Concurs In the Business of Production.
• Book I, Chapter IV: On Natural Agents That Assist In the Production of Wealth, and Specially of Land.
• Book I, Chapter V: On the Mode In Which Industry, Capital, and Natural Agents Unite In Production.
• Book I, Chapter VI: Of Operations Alike Common to All Branches of Industry.
• Book I, Chapter VII: Of the Labour of Mankind, of Nature, and of Machinery Respectively.
• Book I, Chapter VIII: Of the Advantages and Disadvantages Resulting From Division of Labour, and of the Extent to Which It May Be Carried.
• Book I, Chapter IX: Of the Different Methods of Employing Commercial Industry, and the Mode In Which They Concur In Production.
• Book I, Chapter X: Of the Transformations Undergone By Capital In the Progress of Production
• Book I, Chapter XI: Of the Formation and Multiplication of Capital.
• Book I, Chapter XII: Of Unproductive Capital
• Book I, Chapter XIII: Of Immaterial Products, Or Values Consumed At the Moment of Production.
• Book I, Chapter XIV: Of the Right of Property.
• Book I, Chapter XV: Of the Demand Or Market For Products.
• Book I, Chapter XVI: Of the Benefits Resulting From the Quick Circulation of Money and Commodities.
• Book I, Chapter XVII: Of the Effect of Government Regulations Intended to Influence Production.
• Book I, Chapter XVIII: Of the Effect Upon National Wealth, Resulting From the Productive Efforts of Public Authority.
• Book I, Chapter XIX: Of Colonies and Their Products.
• Book I, Chapter XX: Of Temporary and Permanent Emigration, Considered In Reference to National Wealth.
• Book I, Chapter XXI: Of the Nature and Uses of Money.
• Book I, Chapter XXII: Of Signs Or Representatives of Money.
• Book II: Of the Distribution of Wealth
• Book Ii, Chapter I: Of the Basis of Value; and of Supply and Demand.
• Book Ii, Chapter II: The Sources of Revenue.
• Book Ii, Chapter III: Of Real and Relative Variation of Price.
• Book Ii, Chapter IV: Of Nominal Variation of Price, and of the Peculiar Value of Bullion and of Coin.
• Book Ii, Chapter V: Of the Manner In Which Revenue Is Distributed Amongst Society.
• Book Ii, Chapter VI: Of What Branches of Production Yield the Most Liberal Recompense to Productive Agency.
• Book Ii, Chapter VII: Of the Revenue of Industry
• Book Ii, Chapter VIII: Of the Revenue of Capital.
• Book Ii, Chapter IX: Of the Revenue of Land.
• Book Ii, Chapter X: Of the Effect of Revenue Derived By One Nation From Another.
• Book Ii, Chapter XI: Of the Mode In Which the Quantity of the Product Affects Population.
• Book III: Of the Consumption of Wealth
• Book Iii, Chapter I: Of the Different Kinds of Consumption.
• Book Iii, Chapter II: Of the Effect of Consumption In General.
• Book Iii, Chapter III: Of the Effect of Productive Consumption.
• Book Iii, Chapter IV: Of the Effect of Unproductive Consumption In General.
• Book Iii, Chapter V: Of Individual Consumption—its Motives and Its Effects.
• Book Iii, Chapter VI: On Public Consumption
• Book Iii, Chapter VII: Of the Actual Contributors to Public Consumption.
• Book Iii, Chapter VIII: Of Taxation.
• Book Iii, Chapter IX: Of National Debt.
• Appendix A: a Table, Showing the Result of Value Lent to the State.

BOOK I, CHAPTER III

OF THE NATURE OF CAPITAL, AND THE MODE IN WHICH IT CONCURS IN THE BUSINESS OF PRODUCTION.

As we advance in the investigation of the processes of industry, we cannot fail to perceive, that mere unassisted industry is insufficient to invest things with value. The human agent of industry must, besides, be provided with pre-existing products; without which his agency, however skillful and intelligent, would never be put in motion. These pre-existing requisites are,

• 1. The tools and implements of the several arts. The husbandman could do nothing without his spade and mattock, the weaver without his loom, or the mariner without his ship.
• 2. The products necessary for the subsistence of the industrious agent, as long as he is occupied in completing his share of the work or production. This outlay of his subsistence is, indeed, in the long run, replaced by the product he is occupied upon, or the price he will receive for it; but he is obliged continually to make the advance.
• 3. The raw materials, which are to be converted into finished products by the means of his industry. These materials, it is true, are often the gratuitous offerings of nature, but they are much more generally the products of antecedent industry, as in the case of seed-corn supplied by agriculture, metals, the fruit of the labour of the miner and smelter, drugs brought by the merchant perhaps from the extremities of the globe. The value of all these must be found in advance by the industrious agent that works them up.

The value of all these items constitutes what is denominated productive capital.

Under this head of productive capital must likewise be classed the value of all erections and improvements upon real or landed property, which increase its annual produce, as well as that of the farming live and dead stock, that operates as machinery in aid of human industry.

Another item of productive capital, is money, whenever it is employed to facilitate the interchange of products, without which production could never make any progress. Money distributed through the whole mechanism of human industry, like the oil that greases the wheels of complex machinery, gives the requisite ease and facility to its movements. But gold and silver are not productive unless employed by industry: they are like the oil in a machine remaining in a state of inaction. And so also of all other tools and implements of human industry.

It would evidently be a great mistake to suppose that the capital of a community consists solely of its money. The merchant, the manufacturer, the cultivator, commonly have the least considerable portion of the value composing their capital invested in the form of money; nay, the more active their concern is, the smaller is their relative proportion of their capital so vested to the residue. The funds of the merchant are placed out in goods on their transit by land or water, or warehoused in different directions: the capital of the manufacturer chiefly consists of the raw material in different stages of progress, of tools, implements, and necessaries for his workmen: while that of the cultivator is vested in farming buildings, live stock, fences and enclosures. They all studiously avoid burthening themselves with more money than is sufficient for current use.

What is true of one, two, three, or four individuals, is true of society in the aggregate. The capital of a nation is made up of the sum total of private capitals; and, in proportion as a nation is prosperous and industrious, in the same proportion is that part of its capital, vested in the shape of money, trifling compared to the amount of the gross national capital. Neckar estimates the circulating medium in France, in the year 1784, at about 440 millions of dollars, and there are reasons for believing his estimate exaggerated; but this is not the time to state them. However, if account be taken of all the works, enclosures, live stock, utensils, machines, ships, commodities, and provisions of all sorts belonging to the French people or their government in any part of the world; and, if to these be added the furniture, decorations, jewellery, plate, and other items of luxury or convenience, whereof they were possessed, at the same period, it will be found that 440 millions of circulating medium was a mere trifle compared to the aggregate of these united values.56

Beeke estimates the total capital of Great Britain at 2300 millions sterling,57 (equal to more than 11,000 millions of dollars.) The total amount of her circulating specie, before the establishment of her present paper money, was never reckoned by the highest estimates at more than 47 millions sterling;58 that is to say, about 1-50th of her capital. Smith reckoned it at no more than 18 millions, which could not be the 1-127th part.59

Capital in the hands of a national government forms a part of the gross national capital.

We shall see, by-and-by, how capital, which is subject to a continual wear and consumption in the process of production, is continually replaced by the very operation of production; or rather, how its value, when destroyed under one form, re-appears under another. At present it is enough to have a distinct conception, that, without it, industry could produce nothing. Capital must work, as it were, in concert with industry; and this concurrence is what I call the productive agency of capital.

[56.]Arthur Young, in his "Journey in France," in spite of the unfavourable view he gives of French Agriculture, estimates the total capital employed in that kingdom, in that branch of industry alone, at more than 2200 millions of dollars; and states his belief, that the capital of Great Britain, similarly employed, is in the proportion of two to one.

[57.]Observations on the produce of the income-tax.

[58.]Pitt, who is supposed to have overrated the quantity of specie, states the gold at forty-four-millions; and Price estimates the silver at three millions, making a total of forty-seven millions.

[59.][The following summary recapitulation of the value of property in Great Britain and Ireland, in the year 1833, is extracted from "Table XVI. General Estimate of the Public and Private Property of England and Wales, Scotland and Ireland, (1833)," from "Pebrer on the Taxation, Debt, Capital, Resources, &c. of the whole British Empire," a work of the highest authority, published in London, April, 1833.

American Editor.