what constitutes profits on the other. To add together the gross receipts of every separate business would bring out a ridiculous total the amount of which would depend chiefly on the number of different owners into whose possession products pass successively on their way to the consumer. Of what use could it be to add together the gross receipts of the tailor, the weaver, and the spinner, or those of the baker, the miller, and the farmer?

On the whole, the probability seems to be that the part of produce which is called 'capital' in Book II. Chapter iii. is much the same thing as the last three parts-' provisions, materials, and finished work-of the circulating capital' of Chapter i.

But how can a particular part of the year's produce be the same thing as a particular part of the accumulated stock? The answer is that Adam Smith had evidently imbued himself with the physiocratic idea of 'reproduction,' and that the difference between the daily or annual produce and the stock of articles which are supposed to be daily or annually reproduced is, if the time when the stock is largest be selected, nil. If a reservoir be filled every night and emptied every day, the stock of water in that reservoir at 6 A.M. will obviously be also the amount of daily supply. Similarly if wheat were all harvested on August 31, and no less than the previous year's supply were ever consumed in the year, the stock on the evening of August 31 would be the same thing as the year's supply of wheat. So, if the whole stock of provisions, materials, and finished work be supposed to be consumed and reproduced, or to be turned over' or 'circulated,' in a given period, it becomes much the same thing as the part of the produce which during that period replaces the stock; the produce of one period becomes the stock out of which the wants of the next period are supplied. Adam Smith says that of the four parts of which the circulating capital consists, 'three, provisions, materials, and finished work, are either annually or in a longer or shorter period regularly withdrawn from it, and placed either in the fixed capital or in the stock reserved for immediate consumption. . . .

'So great a part of the circulating capital being continually withdrawn from it in order to be placed in the other two branches of the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. . . .

Land, 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.'1

Though the passage begins with the admission that some of the provisions, materials, and finished work are consumed and reproduced in a longer and others in a shorter period than a year, the tendency of the whole is to suggest that, at any rate roughly speaking, the whole stock of provisions, materials, and finished goods is turned over or circulated once a year, so that the annual produce of them and the stock of them are equal. The evidence afforded by the tone of the passage that this was the idea latent in Adam Smith's mind receives strong corroboration from the second reason he gives for treating the stock of money as a sort of fixed capital:

'As the machines and instruments of trade, etc., which compose the fixed capital either of an individual or of a society make no part either of the gross or of the net revenue of either, so money, by means of which the whole revenue of the society is regularly distributed among all its different members, makes itself no part of that revenue.'

By this he implies, of course, that the other three parts of the circulating capital do make a part of the society's

revenue.

The great wheel of circulation,' he proceeds, is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in those goods, and not in the wheel which circulates them. In computing either the gross or the net revenue of any society, we must always, from their whole 1 Pp. 122, 123 d.

1

annual circulation of money and goods, deduct the whole value of the money, of which not a single farthing can ever make any part of either.' 1

If he had quite clearly conceived the revenue as a periodical produce, and not as a 'circulation,' he would surely have had no need of this proposition, which he expects to appear 'doubtful or paradoxical.' The stock of money is perfectly obviously not part of the annual produce of the labour of a nation. Moreover, it is quite impossible to give any intelligible meaning to the process of deducting the whole value of the money from 'the whole annual circulation of money and goods,' unless 'the whole annual circulation of money and goods' means the stock of provisions, materials, and finished goods considered as an annual produce, together with the stock of money. It cannot mean the aggregate price of all the things bought and sold in the year, for, if the whole stock of money were deducted from this total, the amount remaining would still have nothing to do with the gross or net revenue; and if the whole amount of money paid for all the things sold were deducted, the amount left would obviously be nil. It cannot mean the aggregate annual produce, because there is no reason for subtracting the stock of money from the annual produce; and if the money paid for the produce, or its money value, were deducted from it, the remainder would again be nil. We are driven, therefore, to conclude that 'the whole annual circulation of money and goods' means nothing more or less than the whole circulating capital, of which the last three parts, the stocks of provisions, materials, and finished goods, are taken to be annually consumed and reproduced, so that their annual circulation,' or the amount of them annually circulated, is equal to the amount of them annually produced.

§ 3. Adam Smith on the Functions of the Capital of a

Community.

If Adam Smith had been asked what is the function or use of 'capital,' he would probably have answered in the first place, 'To yield a profit'; and, doubtless, to each individual

1 Bk. II. ch. ii. p. 125.

capitalist this appears to be the principal use of his capital. But the yielding of a profit is a distributive, and not a productive function. The capital of the community would still be useful if there were no private property, and consequently no profits. A bridge has its uses when the toll for passing over is abolished just as much as before when it yielded a profit. And so we find that besides the yielding of a profit, Adam Smith ascribes various other functions to the capital or to its different parts.

In the Introduction to Book II. he endeavours to show that the accumulation of capital is necessary in order to enable exchange and division of labour to flourish :

'In that rude state of society in which there is no division of labour, in which exchanges are seldom made, and in which every man provides everything for himself, it is not necessary that any stock should be accumulated or stored up beforehand in order to carry on the business of the society. Every man endeavours to supply by his own industry his own occasional wants as they occur. . . .

'But when the division of labour has once been thoroughly introduced, the produce of a man's own labour can supply but a very small part of his occasional wants. The far greater part of them are supplied by the produce of other men's labour, which he purchases with the produce, or, what is the same thing, with the price of the produce, of his own. But this purchase cannot be made till such time as the produce of his own labour has not only been completed, but sold. A stock of goods of different kinds, therefore, must be stored up somewhere sufficient to maintain him, and to supply him with the materials and tools of his work till such time, at least, as both these events can be brought about. A weaver cannot apply himself entirely to his peculiar business, unless there is beforehand stored. up somewhere, either in his own possession or in that of some other person, a stock sufficient to maintain him and to supply him with the materials and tools of his work till he has not only completed, but sold, his web. This accumulation must, evidently, be previous to his applying his industry for so long a time to such a peculiar business.

.

'As the accumulation of stock must, in the nature of things, be previous to the division of labour, so labour can be more and more subdivided in proportion only as stock is previously more and more accumulated. The quantity of materials which the same number of people can work up increases in a great proportion as labour comes to

be more and more subdivided; and as the operations of each workman are gradually reduced to a greater degree of simplicity, a variety of new machines come to be invented for facilitating and abridging those operations. As the division of labour advances, therefore, in order to give constant employment to an equal number of workmen, an equal stock of provisions, and a greater stock of materials and tools than what would have been necessary in a ruder state of things must be accumulated beforehand.' 1

It is not easy to understand how Adam Smith came to commit himself to the statements he made about the weaver. 'Beforehand' must mean before the weaver begins his web, and what possible justification can there be for saying that before a weaver begins his web there must be stored up somewhere a stock sufficient to maintain him and supply him with materials till he has completed or sold the web? The bread and meat which maintain the weaver certainly cannot have been stored up before he began, or they would be uneatable before he finished, and there is no reason why all the materials should have been stored up before he began. Maintenance and materials must be supplied to him as the work proceeds, not stored up beforehand. In return or exchange for this gradual supply of the produce of other men's labour he gradually creates cloth.

The whole of Adam Smith's argument is most delusive. Division of labour, far from necessitating a greater provision of stock or capital, rather economises it. The isolated man is not less, but more, in need of a stock of the produce of past labour than men who live in society. If a hundred men on board ship, instead of dividing their labour in the usual manner, all tried to turn their hand to everything, they would very soon be wrecked, but they would not require less stores than a crew of the same number who behaved more sensibly. If the same hundred men, when establishing themselves on the desert island on which we may suppose them to wreck their ship, proceeded to divide their labour, they certainly would not be any more in need of a stock than if they attempted to live in isolation. If, for example, 30 went to hunt, 20 to fish, 10 to gather sticks for fires, 10 to

1 Pp. 118 b, 119 a.

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