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    Book II: Chapter 1

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    Chapter 14
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    When the stock which a man possesses is no more than sufficient to maintain
    him for a few days or a few weeks, he seldom thinks of deriving any revenue
    from it. He consumes it as sparingly as he can, and endeavours, by his
    labour, to acquire something which may supply its place before it be
    consumed altogether. His revenue is, in this case, derived from his labour
    only. This is the state of the greater part of the labouring poor in all

    But when he possesses stock sufficient to maintain him for months or years,
    he naturally endeavours to derive a revenue from the greater part of it,
    reserving only so much for his immediate consumption as may maintain him
    till this revenue begins to come in. His whole stock, therefore, is
    distinguished into two parts. That part which he expects is to afford him
    this revenue is called his capital. The other is that which supplies his
    immediate consumption, and which consists either, first, in that portion of
    his whole stock which was originally reserved for this purpose; or,
    secondly, in his revenue, from whatever source derived, as it gradually
    comes in ; or, thirdly, in such things as had been purchased by either of
    these in former years, and which are not yet entirely consumed, such as a
    stock of clothes, household furniture, and the like. In one or other, or all
    of these three articles, consists the stock which men commonly reserve for
    their own immediate consumption.

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

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

    Secondly, it may be employed in the improvement of land, in the purchase of
    useful machines and instruments of trade, or in such like things as yield a
    revenue or profit without changing masters, or circulating any further. Such
    capitals, therefore, may very properly be called fixed capitals.

    Different occupations require very different proportions between the fixed
    and circulating capitals employed in them.

    The capital of a merchant, for example, is altogether a circulating capital.
    He has occasion for no machines or instruments of trade, unless his shop or
    warehouse be considered as such.

    Some part of the capital of every master artificer or manufacturer must be
    fixed in the instruments of his trade. This part, however, is very small in
    some, and very great in others, A master tailor requires no other
    instruments of trade but a parcel of needles. Those of the master shoemaker
    are a little, though but a very little, more expensive. Those of the weaver
    rise a good deal above those of the shoemaker. The far greater part of the
    capital of all such master artificers, however, is circulated either in the
    wages of their workmen, or in the price of their materials, and repaid, with
    a profit, by the price of the work.

    In other works a much greater fixed capital is required. In a great
    iron-work, for example, the furnace for melting the ore, the forge, the
    slit-mill, are instruments of trade which cannot be erected without a very
    great expense. In coal works, and mines of every kind, the machinery
    necessary, both for drawing out the water, and for other purposes, is
    frequently still more expensive.

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

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

    The first is that portion which is reserved for immediate consumption, and
    of which the characteristic is, that it affords no revenue or profit. It
    consists in the stock of food, clothes, household furniture, etc. which have
    been purchased by their proper consumers, but which are not yet entirely
    consumed. The whole stock of mere dwelling-houses, too, subsisting at anyone
    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

    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

    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 maybe 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

    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.

    Lands, 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 these 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.
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