showed with an abundance of historical references of the most important character, exchange becomes of more and more importance. At the outset we are told that division of labour is limited by the extent of the market; and we cannot have markets, except of the most rudimentary kind, without the use of money.

One of the great merits of Adam Smith compared with his successors and also with his predecessors, is that he realises better than they do the uses and functions of money, both in practice and in theory. He attacked the mercantilists because, as the basis of their commercial policy, they had come to attach too much importance to the inflow of actual treasure into a country; and because in their theories, although they might begin with the real constituents of national wealth, in the course of their reasonings they forgot the things for the money measure. But one consequence of the success of this attack on a degenerate mercantilism was, as so often happens, that inferior writers carried the attack to an extreme. They seemed to imagine that unless they were always thinking with ideas of " things" they must be thinking with all the old fallacies about money. Accordingly, it became the fashion to speak of money as a mere medium of exchange, and mere measure of value, and of gold as a commodity like other commodities. One consequence of this neglect of the special attributes of money was that too little attention was given to markets, and the organisation of trade. It seemed to be taken for granted that

once the things were there," once the technical processes were complete, the things would exchange themselves. Quite recently this maladjustment of emphasis has been corrected to some extent, but even now the appreciation of markets, and of the money power as the basis of production, is not so clearly realised as it was by Adam Smith.

On his view money is of fundamental importance, not only in connection with exchange and markets, but equally in the creation and the application of capital.

Capital is required to carry on both wholesale and retail trade; and wholesale and retail traders are both classed as productive labourers, even in the narrow sense of the term. They add to the value of the vendible commodities by increasing their utility in time or place.

§ 6. Increasing Importance of the Money Attribute of Capital.

In tracing the historical development of capital we observe the changes in the forms of "capital goods" of all kinds, but we also observe that the money attribute becomes of greater importance. This fact is made prominent by Adam Smith in his very definition of capital. Capital is that part of a man's wealth which is employed so as to yield him a revenue, as distinct from that part which is devoted to immediate consumption. But this revenue comes to him in the form of money (or credit which commands money). In a nation with a developed

money economy, the profit on capital can only be reckoned in terms of money. If the money valuation of the capital depreciates, although the machinery or building or whatever material form the capital may assume, remains as good as ever, the capital itself is so far depreciated. The forms of capital are continuously being consumed and reproduced, but they are only reproduced by passing through a money transformation. The products must be sold for money, and the money directed to the acquisition of the capital forms required. This is the reason why in speaking of any vendible commodity Adam Smith constantly uses the expression-the subject, or what is the same thing, the price of it.

§ 7. Circulating and Fixed Capital.

Capital can only obtain its revenue by being employed. Circulating capital yields its profit or revenue by changing hands or circulating. "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." The fixed capitale.g. machinery, improvements in lands, etc.-yields its revenue without changing hands, but here again it only yields a revenue by the sale of the product, and the wear and tear can only be made good also by the sale of the product.

The money attribute of capital is also manifest when we consider the special case of capital lent at

interest. "The stock which is lent at interest is always considered as a capital by the lender. He expects that in due time it will be restored to him, and that in the meantime the borrower will pay him a certain annual rent for the use of it. The borrower may use it either as a capital or as stock reserved for immediate consumption." Here it is plain that the capital must be lent, and returned in the form of money in the first place, and also that in general the interest is also paid in the form of money.

§ 8. Mental or Immaterial Capital.

One of the most notable features of Adam Smith's treatment of fixed capital is that he includes under it "the acquired and useful abilities of all the inhabitants and members of the society." Such talents can only be acquired by the maintenance of the acquirer during his education, study, or apprenticeship, and this involves a real expense which is a capital fixed and realised as it were in the person. This inclusion of mental or personal capital is in many ways interesting, and especially as showing Adam Smith's grasp of the principle of continuity, which we are apt to look on as a modern discovery. The conception of capital fixed and embodied in persons serves to show the continuity between productive and unproductive labour. Labour is productive (in the narrow technical sense) if it is used to make some vendible commodity which will command at least an equal quantity of labour. It is easy to see that the people of a country can only be kept up

from generation to generation, with all the qualities which differentiate civilised man from the lowest savages, if the labour of the parents or the elders is fixed and embodied in the children or the younger. The importance of this continuity in the mental capital of the human race was justly emphasised by List, and he only weakened his case by supposing he was contradicting instead of developing the ideas of Adam Smith. Even amongst savages, as a recent American writer has forcibly pointed out, the very existence of a tribe of wandering Indians depends on the stores of mental capital in the shape of knowledge of natural conditions locked up in the minds of the squaws. But in nations with a money economy the continuance of this mental capital is only possible (as in the case of material capital) through the continuous intervention of money. The enormous increase in recent years in national expenditure on elementary and secondary education is an illustration so large that it may well be called proof.

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