Introduction
1 In the rude state of society, there is no division of labour and exchanges are seldom made.
- Every man provides everything for himself
- Stock does not need to be accumulated beforehand to carry on the business of society.
- Every man supplies his own wants by his own industry.
2 But when the division of labour has been thoroughly introduced, the produce of a man’s own labour can supply only a few of his wants.
- Most of them are supplied by the produce of other men’s labour.
- He buys them with the price of his own produce.
- But this purchase cannot be made until his produce has been sold.
- Therefore, a stock of goods must be stored up to supply him with the materials and tools of his work until he can sell his produce.
- A weaver must have enough stock to supply him with the materials and tools of his work, until he has sold his web.
- This accumulation is a prerequisite for his work.
- A weaver must have enough stock to supply him with the materials and tools of his work, until he has sold his web.
3 The accumulation of stock must be previous to the division of labour.
- Labour can only be more subdivided according to the stock that has been more accumulated.
- The amount of materials, which the same number of people can work up, increases greatly as labour becomes more subdivided.
- Each worker’s operations becomes simpler.
- New machines come to be invented for facilitating those operations.
- As the division of labour advances, an equal stock of provisions and more materials and tools must be accumulated beforehand to give constant employment to the same workers.
- But the number of workers in every business increases with the division of labour in that business.
- The increase of the number of workers enables them to subdivide themselves.
4 The accumulation of stock leads to, and is necessary for, the great increase in productivity.
- The employer wishes to employ his stock in the most efficient way.
- He arranges the most proper distribution of employment.
- He furnishes them with the best machines he can buy or invent.
- His success in these two depend on the extent of his stock or the number of people it can employ.
- Therefore, the amount of industry increases with the increase of the stock which employs it.
- The increase in stock allows the same amount of industry to generate more work.
5 Such are the effects of the increase of stock on industry and productivity.
6 In Book 2, I explain:
- the nature of stock
- the effects of
- its accumulation into different kinds of capitals
- the different employments of those capitals
This book has five chapters.
- Chap. 1 – I show the different branches which the stock of an individual or a society, naturally divides itself into.
- Chap. 2 – I explain the nature and operation of money, as a branch of the stock of society.
- Accumulated stock is called capital.
- It may be:
- employed by its owner or
- lent to others.
- It may be:
- Accumulated stock is called capital.
- Chap. 3 to 4 – I examine how money operates:
- when it is employed by its owner and
- when it is lent.
- Chap. 5 – I explore the immediate effects of the different employments of capital on:
- the amount of national industry
- the annual produce of land and labour
Chap 1: the Division of Stock
1 When a man’s stock can only maintain him for a few weeks, he seldom thinks of deriving any revenue from it.
- He consumes it as sparingly as he can.
- He tries to acquire new supplies before it is consumed altogether.
- In this case, his revenue is derived from his labour only.
This is the state of most of the labouring poor in all countries.
2 But when he has stock sufficient to maintain him for months or years, he tries to derive a revenue from it.
- He reserves some for his immediate consumption until this revenue begins to come in.
- His whole stock is distinguished into two parts:
- Capital – the stock that gives him this revenue
- Stock for immediate consumption – consisting of:
a. A part of his original stock reserved for immediate consumption
b. The stock that becomes his revenue
c. Stock which has not yet been consumed (clothes, furniture, etc.)- The stock for immediate consumption can be a mix of those three.
3 Capital may yield a revenue or profit to its employer in two ways:
- 4 It may be employed in raising, manufacturing, or buying goods and selling them again with a profit.
- The capital employed this way yields no revenue or profit to its employer while it:
- remains in his possession or
- continues in the same shape
- A merchant’s goods yield him no revenue or profit until he sells them for money.
- The money yields him as little until it is again exchanged for goods.
- His capital is continually going from him in one shape and returning to him in another.
- Only such successive exchanges or circulation can yield him any profit.
- Such capitals are ‘circulating capitals’.
- The capital employed this way yields no revenue or profit to its employer while it:
- 5 It may be employed to yield a revenue or profit without changing masters or circulating any further, such as:
- land improvements
- the purchase of useful machines and instruments of trade
Such capitals are ‘fixed capitals’.
6 “Different occupations require very different proportions between the fixed and circulating capitals employed in them.”
7 A merchant’s capital is a circulating capital.
- He uses no machines or instruments of trade other than his shop or warehouse.
8 Some of the capital of every master artificer or manufacturer must be fixed in the tools of his trade.
- This part may be very small in some while very great in others.
- A tailor only requires needles as his tools.
- A shoemaker needs more expensive tools.
- A weaver needs more expensive tools than a shoemaker.
- However, most of the capital of all such artificers is circulated in:
- the wages of their workers, or
- the price of their materials
- They are repaid with a profit by the price of the work.
9 In other works, more fixed capital is required.
- In a big iron-work, for example, the furnace, forge, and slit-mill are very expensive instruments.
- In coal-works and mines, the machinery for drawing out the water is still more expensive.
10 A farmer’s instruments of agriculture is a fixed capital.
- He makes a profit from his instruments by keeping them.
The wages and maintenance of his labouring servants are a circulating capital.
- He profits from wages by by parting with it.
The price of his labouring cattle is a fixed capital.
- The farmer profits by keeping them.
The maintenance of his cattle is a circulating capital.
- He profits by parting with their maintenance.
Cattle, which are sold and not used for labour, are a circulating capital.
- The farmer profits by parting with them.
A flock of sheep or a herd of cattle used for wool and milk is a fixed capital.
- Profits are made by keeping and increasing them.
- Their maintenance is a circulating capital.
- The profit is made by parting with it.
- It comes back with:
- its own profit and
- the profit from the whole price of the cattle, wool, and milk.
- It comes back with:
The whole value of the seed is a fixed capital.
- It never changes masters even if it is planted in the ground and harvested into the granary.
- It does not circulate.
- The farmer profits by its increase, not by its sale.
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