general stock of any country or society is the same with that of all its inhabitants, is not prepared in Book II. chapter i. to assert that the capital of a country is exactly the same with that of all of its inhabitants. In order that a thing may form part of the capital of a country, it must, he thinks, not only bring in a money revenue to its owner, but also bring in a real revenue to the community. The real revenue of the community he always, at least in the Second Book, as we have already seen,2 imagines to consist solely of tangible objects. Consequently he excludes from the capital of the community everything which does not appear to him to yield a revenue consisting of such objects. It is nothing to him that houses, clothes, and furniture yield shelter, warmth, and comfort; they yield no tangible objects and no real revenue. If the owners of such things receive a money revenue from them, that money revenue is 'paid out of some other revenue,'s and therefore they are not part of the capital of the country.

Innumerable fallacies have lurked under propositions to the effect that the incomes of one set of persons are 'paid out of' those of another set. The truth is that the real incomes consist of what is bought with money. The 'money' which a man pays as the rent of his house is not his real income or revenue; his real income or revenue is the comfort of living in the house. This is not paid out of any other revenue; the money he is doubtless derived from some other source, but this is the case with all his payments. The man's house rent is paid out of the money he derives from his labour or from his property, but so is his butcher's bill. His landlord's income is as real an income as that of his butcher. 'The house itself,' says Adam Smith, by way of clinching his argument, 'can produce nothing.' If this is to prove his case, the things which do constitute the capital and bring in

pays

1 In chap. iii., however (p. 149 b), he speaks of 'the capital of a society' as being the same with that of all the individuals who compose it.' 2 Above, p. 24.

8 P. 121 a.

Of course the total received by the landlord is not entirely his money income any more than the total received by the butcher is entirely his money income; in both cases the money income is only the profits, the amounts which the landlord and the butcher could, if they chose, spend upon the comforts, conveniences, and amusements of life without reducing their property, and the real income is what they actually do buy with these amounts of money. 5 P. 121 a.

a real revenue, ought all to produce something, but how a shop or a warehouse can be any more capable of producing something than a house, it is impossible to conceive; Adam Smith does no more than suggest that they do so because 'they are a sort of instruments of trade,' and instruments of trade 'facilitate and abridge labour.' In order to show that money, provisions, and materials produce something, he is reduced to insinuating that they do so because the most useful machines and instruments of trade will produce nothing without them.2 That the revenue which the owners of all the articles comprised in the capital of the country derive from them is not, just as much as the rent of houses, 'paid out of some other revenue,' he makes no attempt to show, except in the case of 'profitable buildings,' and, with regard to them, he only says that they are a means of procuring a revenue to their tenants as well as to their owners.3 His meaning probably is that the tenants pay the rent out of their gross receipts, and not out of their net receipts or income. This, no doubt, is true, but it only carries the matter one step further back: the rent of a grocer's shop does not come out of the grocer's money revenue or income, but it does come out of the money revenues or incomes of his customers, just as much as the rent of a dwelling-house comes out of the money income of the occupier. If whether a thing is part of the capital of a country or not is to be decided by the answer to the question whether the payments made for the use of it are drawn immediately from the payer's gross receipts or from his income, a dwelling-house let to a lodging-house keeper would form part of the capital of the country, in spite of its inability to produce anything, and in spite of its exact similarity to another house let to a private individual.

Adam Smith's division of the stock of a society into the part from which it derives a revenue and the part from which it does not derive a revenue is, in short, perfectly indefensible. The society derives a real revenue consisting of 'necessaries, conveniences, and amusements' from the whole of its stock. According to Book II. chap. i. of the Wealth of Nations, the commodities stored in the shop of a dealer yield a revenue to the community, while the very same

1 P. 121 b.

2 P. 122 b.

$ P. 121 b.

commodities, when sold to their final user or consumer, yield no revenue; a carriage, for instance, yields a revenue, and perhaps even 'produces something,' so long as it is standing idle in the coachmaker's shop, but ceases to yield a revenue the moment it is sold and taken into use. A house yields a revenue so long as it remains in the hands of the builder, finished or unfinished, but when it is sold and inhabited, it ceases to yield a revenue. It would even appear that if the builder built the house with the intention of letting it, it would yield a revenue so long as he failed to find a tenant, and cease to yield a revenue when he found a tenant and began to receive a rent.

Statisticians, who have to do with concrete things, have never attempted to divide the nation's property at a given point of time into its land, its capital, and its stock for immediate consumption. Andrew Hooke, in his Essay on the National Debt and National Capital (1750), takes the national capital to consist of (1) 'cash, stock, or coin,' (2) 'personal stock,' or 'wrought plate and bullion, jewels, rings, furniture, apparel, shipping, stock in trade, stock for consumption, and live stock of cattle,' and (3) 'land stock' or land capital, the value of all the lands in the kingdom.' Sir R. Giffen, in his Growth of Capital (1889), a hundred and forty years later, understands the national capital in the same sense.

1

But not content with excluding a part of the stock of the nation from its capital, Adam Smith very frequently forgets that the nation's capital is at least a part of its stock. Travers Twiss thought that he did not very clearly conceive the stock of an individual or community as an accumulation or amount existing at a given moment, since he includes in a man's stock reserved for immediate consumption, 'his revenue, from whatever source derived, as it gradually comes in.' As Twiss observes, 'Revenue as it gradually comes in is incoming produce; stock is accumulated produce.'2 A man's stock is a pounds at a given point of time, while his revenue or income is a pounds per annum. An income of £1000 a year cannot possibly be added into a man's stock. But it is quite possible

1 Pp. 4, 5, 13, et passim.

2 View of the Progress of Political Economy in Europe since the Sixteenth Century, 1847, p. 186.

and surely far more probable, that Adam Smith meant by his 'revenue as it gradually comes in,' merely so much of his revenue-money revenue-as he happens to have in hand at any given moment. A man's income cannot be part of his stock, but his last half-year's dividends lying unspent, certainly are for the time being a part of his stock. It is, accordingly, justifiable to assume that the capital of a country, being a part of its stock, should always in Adam Smith, as in ordinary language, be an accumulated amount, and not a periodical or recurrent receipt or expense. It should be so much at such and such a day and hour, and not so much a week, or so much a month, or so much a year.

It is not, however, always so conceived by Adam Smith. In the sixth paragraph of the 'Introduction and Plan,' as we have seen,' he says that the Second Book shows that the number of useful and productive labourers is everywhere in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.' A part of what is intended as the proof of this proposition is contained in the third chapter, ‘Of the accumulation of capital, or of productive and unproductive labour,' and in that chapter the capital which determines the number of productive labourers is looked on as a part of the annual produce instead of, or as well as, a part of the accumulated stock:

"Though,' says Adam Smith, '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

1 Above, p. 37.

E

of his land. Of the produce of a great manufactory, in the same manner, one part, and that part 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 this capital.'1

The first part, that which is destined for replacing a capital, 'never is immediately employed to maintain any but productive hands,' since

'Whatever part of his stock a man employs as a capital, he always expects it 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.'

The second part of the produce, 'that which is immediately destined for constituting a revenue either as profits or as rent, may maintain indifferently either productive or unproductive hands.' It seems, however, to have some predilection for the latter' :

'The 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.'2

In this passage, instead of the absolute number of productive hands, we find ourselves investigating the proportion between the number of productive and the number of unproductive hands. But here, as in the 'Introduction and Plan,' Adam Smith mixes up proportion and absolute magnitude, as well as 'unproductive' labour and idleness, in the most inextricable confusion. After giving some most unconvincing historical examples of the way in which the proportion between the two parts of the produce necessarily determines in every country the general character of the inhabitants as to industry or idleness,' he concludes:

The proportion between capital and revenue, therefore, seems everywhere to regulate the proportion between industry and idleness. Wherever capital predominates, industry prevails; wherever revenue, idleness. Every increase or diminution of capital, therefore, naturally * P. 148 b.

1 P. 147 a.

2 P. 147 b.