Every man's wealth is of two kinds; the one which he lays aside for immediate consumption; the other which he reserves for the supply of future wants, or employs in such a manner as to make it produce new wealth. The former is called his income, the latter his capital. In proportion as he devotes his property to the former of these purposes, his wealth is diminished; in proportion as he devotes it to the latter, it is increased. This evidently takes place in the case of an individual; and Smith seems to consider it as taking place *Book ii. equally in the case of a nation *. Later inquirers, however, seem to have proved, that there is here a difference. Extreme parsimony throughout a nation, by preventing the production of all articles but those of the ↑ Lauder- first necessity, would induce general poverty †. Still, however, it is essential to the prosperity of a people, that their annual produce should not be all consumed, but that a considerable portion should be set aside and converted into capital.

ch. iii.

dale on

Wealth.

Smith, book i. ch. iv. 11. Book ii. ch. ii.

Capital is divided into fixed and circulating. Fixed capital consists of all those articles, which, without being themselves calculated for exchange or consumption, tend to increase the production of those articles which are so. Such are all kinds of machinery, farming stock, erections for the purpose of mining or manufacture, ships, &c. These form a most valuable part of the property of the nation, and make its revenue much greater than it would otherwise be. At the same time, as they are of no use in themselves, provided the same effects can be produced without them, or by cheaper instruments, their disuse, by saving expence, forms a real addition to the national wealth.

Circulating capital consists of all those commodities which are produced or purchased for the purpose of being wrought upon, or transported elsewhere, and again sold. It comprises almost all the wealth not included under fixed capital. The seed corn of the farmer, the materials of the manufacturer, the goods purchased by the merchant, come all under this description. Lands, mines, and fisheries, are the sources from which circulating capital originally proceeds; whence, after passing through various hands, it arrives at length, and is lost, in those of the consumer.

SECT. III. Of Money ‡.

Barter, or the exchange of one thing for another of equal value, is essential to the supply of the varied wants of man, and is the grand principle on which commerce depends. Thus it is that men, while merely consulting their own interests, minister to each others necessities. It is attended, however, with an obvious inconvenience. A man may have goods to exchange, which do not suit his neighbour. The farmer has a sheep, and is in want of cloth; but the cloth merchant may not be in want of mutton, or at least may not wish so large a quantity. Hence the necessity of finding some commodity which may at all times be in demand, and which every one may be ready to receive in exchange for every other article. This commodity ought evidently to possess some quality which may render it an object of universal estimation; it ought also to pos

&c.

sess great value in a small compass, so as to be portable, Nature of and not to encumber its possessor; it ought to be divi- Wealth, sible into the smallest portions; and it ought to be durable, so as to be capable of being treasured up till wanted. All these qualities are united in the precious metals. Their beauty, their durability, their very scarcity, render them better fitted than any other commodity for being the standard of value and the medium of exchange. All nations, accordingly, after a trial of some ruder expedients, have finally had recourse to them for this purpose.

Money is in one view a fixed, and in another a circulating capital. To the individual it stands in the latter capacity, for no one receives money unless for the purpose of sooner or latter exchanging it for something else. To the nation, however, it is a fixed capital; being not destined for consumption, but merely an instrument for transacting business with greater facility and advantage.

As the facility of exchanging the precious metals for every other commodity, renders the demand for them constant and universal, their price depends almost wholly on the supply. This, too, is more uniform than that of most other commodities. A great revolution, however, took place at the beginning of the 16th century, in consequence of the discovery of America. For some time before, the value of silver seems rather to have been rising. But the immense mines of Mexico and Peru furnished such a copious supply, as soon reduced it to about one-third of its former value. Smith is of opinion, that since that time there has been rather a rise in the value of these metals. The East Indies, where they still continue scarcer than in Europe, forms a constant drain. The mines, in the course of working, approach nearer to an exhaustion; accordingly, the king of Spain, who originally levied a tax amounting to half the produce of silver, has found it necessary to reduce it successively to oue-third, one-fifth, and at last, to one-tenth. The tax on gold is reduced to one-twentieth. The annual importation of gold and silver into Spain is estimated at about six millions.

It has been a frequent practice with sovereigns to reduce the quantity of bullion in any given denomination of coin, and thus to pay their debts with a smaller amount of gold and silver. To such an extent has this practice been carried, that in England the pound sterling is not quite a third of the real pound of silver, and in France the depreciation is far greater. This practice is completely fraudulent and dishonourable. No power of the sovereign can really make this debased coin pass for as much as it formerly did; the consequence is, an immediate rise in the nominal or money price of every commodity. All those, however, who are in the pay of government, suffer, and so do all creditors both public and private; for though the law cannot compel the nation to set the same value on the new coin as on the old, it can compel the creditor to accept it in payment of the sums which he has previously advanced in good coin.

All states reserve to themselves the privilege of coining money. Some, as England, perform this office gratis; while others, as France, impose a small seignorage at the mint. The latter mode seems rather preferable: for when the circulating coin, as frequently happens, is reduced by long use and attrition, beneath its

real

Nature of The second sort is of those which human industry can Wealth, multiply in proportion to the demand. Where the

& c.

commodity, as corn, is such as cannot be produced but by human industry, the price is more uniform than in almost any other case. The increasing scarcity and consequently value of land, tends indeed to raise it; but this is counteracted by the invention of machinery, and improved methods of labour. The opposite agency of these two causes has a constant tendency to preserve uniformity in the value of grain; though we cannot, with Smith, consider this uniformity as likely to be so complete, as to render the price of grain a sure standard for the value of silver.

There are other commodities, however, which nature produces in abundance, or which, where land is plentiful, can be multiplied with little or no cultivation. Of these the principal is butcher meat. Lands can be covered with cattle or sheep by the labour of few hands, and sometimes without any labour at all. Hence, in rude times, butcher meat is always cheaper than corn; in improved periods, the reverse is the case. For a long time the price continues constantly to rise, as we have seen it do throughout Great Britain, the pasture lands being more and more converted into arable. At last, however, it becomes so high as to make it an object for the farmer to stall his cattle, and to cultivate ground for the purpose of feeding them. After this era, the price is likely to experience a certain diminution, from the improved modes of feeding and rearing, which, in consequence of this new attention, are likely to be discovered and adopted.

There are certain animals, as hogs, poultry, &c. which are fed on mere offals, and in a rude state, therefore, are still cheaper than butcher meat. In an improved state they are dearer; for they have not as yet, at least in this country, become an object of separate cultivation.

The third sort consists of those, in the multiplication of which the power of man is either limited or uncertain. In these the rule is various. Some commodities are not cultivated on their own account, but are appendages to others; as wool and hides to the carcase of the ox or sheep Both these commodities are much more portable, and more easily preserved, than the flesh of the animals from which they are taken; the market for them is thus much more extensive, and the demand more equal at all times. Hence, in rude periods, when the flesh of animals, from its abundance, is of small vaJue, these appendages equal or surpass it in price. At Buenos Ayres frequently, and sometimes even in Spain, an ox is killed for the sake of the hide and tallow. In an improved state of society, on the contrary, the hide and fleece become considerably inferior in value to the

carcase.

Fish is an article, the supply of which is considerably limited, as man has no power of production in respect to it, though, by the exertion of industry, he can collect a greater quantity. Shoals of fish are generally copious, but uncertain.

Metals and minerals are articles, the supply of which is not precisely limited, but extremely uncertain. The discovery of new mines, or the continuance of fertility in the old, are equally beyond the reach of calculation.

ch. v. vi. vii.

Smith has treated of the revenue derived from these three sources as forming the constituent parts of the price of commodities; and with regard to labour in particular, repeatedly considers it as the only source of wealth. According to the view, however, given above, * Book i the price of all commodities depends entirely on the proportion between the demand and the supply. Labour, therefore, (and the same may be said of land and capital), is only a means of furnishing or increasing a supply of those articles for which there already exists a demand, and unless it be successful in so doing, the most severe labours will meet with no remuneration whatever. We shall therefore proceed to consider the revenue which arises from these different sources, and the circumstances by which it is increased or diminished.

SECT. I. Land.

All land which is not naturally barren, and is cultivated with any ease, affords something more than is necessary to pay the expence of labouring it. This surplus goes as a rent to the landlord, who, in consideration of receiving it without risk or trouble, relinquishes to the farmer the profits of cultivation.

The proportion of the produce of a field which is to go for rent, varies with different circumstances. The chief of these is the fertility of the soil, the extent of the market, which enables the produce to be disposed of to greater advantage, the prosperity or poverty of the country, which causes a greater or less demand for that produce, and the average skill and activity of the farmers, which will enable them to turn the fertility of the ground to better account. It is almost needless to observe, were it not for the vague language often made use of upon this subject, that the rate at which farms let, must, like all other commodities, depend altogether upon the demand and the supply. If much is to be made by farming, many will bid for farms, and the rent will be raised by their competition, and vice versa. The idea that all the landlords of an extensive country may combine to raise their rents, is altogether chimerical. Even could it take place, it could be accomplished only by a certain number of them allowing their lands to lie waste, which diminishing the supply, would doubtless raise the rent of the cultivated lands. But we need not fear that any landlord should leave his lands in this condition, from a culpable scheme of aggrandizing the rest of us body at his own expence, as well as that of the public.

Land which produces food for man will at all times afford rent to the landlord, in proportion to its fertility, and the other circumstances mentioned above. Men multiply in proportion to the means of subsistence; they have even a constant tendency to multiply beyond 'hese means; hence there is always a full demand for this

species

Nature of species of produce. The rent, therefore, afforded by Wealth, the ground which is employed in cultivating whatever &c. is the staple food of the community, regulates the rent

= Smith, ook i. ch.

of all other ground. No one, unless forced to it by peculiarities of soil, would cultivate any article which af forded less rent than this. There may be soils indeed which are only fit for the production of an inferior article, and there are others which are fitted for the production of those of higher value. In vine countries, the rent of an ordinary vineyard seems to be nearly on a level with that of corn. But there are others, whose wines being regarded as superior, make them yield a much higher rent. The West India islands, before the late depreciation of their produce, seem to have been nearly in the same predicament.

These observations, however, apply chiefly to that produce of land which is the result of human labour. In regard to the spontaneous produce of land, it depends upon circumstances, whether or not it yields any rent at all. In a rude state of society, above all, the demand is often so slender, that, unless through the intervention of foreign commerce, this produce will bear scarcely any value. Such countries are often covered with immense natural woods, the cutting down of which is a burden instead of an advantage. In an improved country this wood would afford a large revenue. Most of the materials of clothing and lodging are of this nature. In the infancy of society, the great object is food; and provided men can procure that, they are satisfied with very moderate accommodations in other respects. The hides and furs of their cattle, and of the wild animals whom they kill in hunting, are more than sufficient to supply them with coverings. But as society becomes opulent, and luxury is introduced, clothes are among the favourite objects on which this luxury is vented. A great increase therefore takes place in the demand for its materials. The same may be said of those of lodging and furniture.

Mines, in political economy, may be considered in the same light as land. Like it, they yield a rent, which, however, from the difficulty of working, is generally less than that of land. Coal, an important article, is kept down both by its great bulk, which narrows the market, and by its relation to the price of wood, which price it cannot exceed, otherwise wood would be preferred as fuel. A fifth of the whole produce is reckoned a great rent for a coal mine; a tenth is the most common. Metals, even the coarse, and still more the fine, will bear very extensive carriage. In general, however, their rent is not very high. The tin mines of Cornwall, said to be the richest in the world, yield on an average only a sixth part of their gross produce. The king of Spain's tax of a fifth on the silver mines in America, formed indeed the rent of those mines; but this tax he was obliged to reduce to one tenth. It is said to be ill paid *. Fisheries form another source of wealth similar to land and mines. The sea, however, has never yet been appropriated, nor a rent exacted for its use. The right of fishing, however, in some seas of peculiar fertility, has been claimed as national property. River fisheries let frequently at a very high rent.

SECT. II. Labour.

The great source of exchangeable commodities, is the Labour of man. Even those powers of nature for which

& c.

rent is paid, rarely afford any thing valuable unless aid- Nature of ed by human efforts. Capital, however powerful an in- Wealth, strument, consists merely of accumulated labour. Originally the fruit of every man's industry would belong entirely to himself. Soon, however, the proprietor of the land from which he drew food, would claim a share. As the structure of society became more complicated, and markets more remote, something more would be found requisite. It would be necessary to have subsistence while the article was producing and carrying to market, to be able to purchase materials on which to work, and to command machinery or fixed capital in order to render labour more productive. For all these purposes, capital would become necessary; and the person who had accumulated a portion of it would be able to command the services of several others, to whom he would advance subsistence and the materials of working, and would receive in return the fruits of their labour. As capitals accumulate, this becomes almost universally the case; in a commercial state, few independent workmen are to be found.

The price of labour or wages is regulated, like every thing else, by the demand and the supply. If there are many who want and can employ workmen, and if few can be found, the competition of the masters will raise the wages, until the whole capital, not otherwise employed, is distributed among that small number. In the opposite circumstance, workmen, glad to work for any thing rather than starve, will bid against each other till all are employed, at however small a recompense. The combinations among workmen, so much complained of, can never have any permanent effect, unless accompanied by those circumstances which necessarily lead to a rise. The combination of masters, though less heard of, is more to be feared. Their numbers are smaller, and from their greater command of property, they can hold out for a longer time. From the above causes, however, there is no reason whatever to dread any serious or lasting consequences from such a measure.

The supply of labour, or the population, has a natural tendency to suit itself to the demand. High wages, by encouraging early marriage, and enabling the labourer to take better care of his children, soon cause an addition to the numbers of a state, which, in its turn, brings down the wages. Hence uncommonly high wages take place chiefly in an advancing state of society, when a number of employments are open, for which a sufficiency. of labourers cannot be found. When the wealth of a country is stationary, the wages will be moderate, sufficient to admit of the rearing of such a number of children, as may keep up the population, but not such as to admit of any increase. When the country is in a declining state, the wages will fall even below this. They will scarcely enable the labourer to subsist; comparatively few will be able to rear families, and population will decline t.

+ Smith, book i. ch

viii.

From what has been said above, there will appear no reason to suppose, that the price of subsistence has any immediate influence on the wages of labour; an idea which even Smith seems strangely to have entertained ‡. ‡ Ib. book The demand for labour, the funds by which it is paid, iii. and the number of labourers continuing the same, no alteration in its price can take place. For masters to give higher wages on account of scarcity, is, we suspect, a very injudicious benevolence. The funds for the main

tenance

man.

On this ground, goldsmiths and physicians are Sources of entitled to higher gains than others, in order that such Wealth. important trusts may be reposed in persons who have something to lose.

Sources of tenance of labour, far from being increased by a dearth, Wealth. are rather diminished; so that the giving a greater proportion of them than before to some, must be the means of throwing others altogether out of employment; and to this cause we suspect that the want of work usually complained of at these periods, is very much to be ascribed. Where the rise of provisions is permanent, however, that of labour though not immediate, takes place ultimately, in consequence of a diminution of the supply. The difficulty of subsistence prevents labourers from rearing such numerous families; population is thinned; and the diminished competition causes a rise in the price of wages. Wages in general are nearly the same over a country; for if they are higher in any one place, this proves a natural attraction to those of other districts, who soon reduce the rate to its proper level. This free circulation of labour, however, may be prevented by artificial restraints, as was the case, till of late, in England, by means of the poor laws. These authorized the parish officers to prevent any one who was ever likely to become a burden on the parish from settling in it. The most obnoxious part of these laws, however, has been done away, chiefly through the exertions of Mr Rose.

Wages are generally higher in cities than in the country. The capitals there are greater. The country too is more prolific, while few towns keep up their own numbers. Many indeed migrate from the former to the latter; but the predilection for their native spot, and to more wholesome and cheerful occupations, prevents this migration from being so great as completely to equalize the rate. Another cause arises, in modern Europe, from the corporation system which has generally prevailed. Almost every trade has some regulations to limit the number of its members, and thus by restraining competition, to increase their wages. The principal of these regulations are those regarding the duration of apprenticeship. By the fifth of Elizabeth, no trade can be exercised in England, till after an apprenticeship of seven years; and the only freedom from this statute is in the case of those trades which were at that time unknown. In Scotland, apprenticeships are in general much shorter.

Wages, however, vary not only from local causes, but from others connected with the nature of the trades by which they are earned. There seem to be five circumstances which tend to raise the wages of any class of men above the ordinary level.

First, When any employment is of an unwholesome and disagreeable nature. Thus miners, blacksmiths, butchers, and innkeepers, earn higher wages than those whose occupation is not liable to the same objections. On the other hand, hunting and fishing, being naturally agreeable, and pursued by many for mere amusement, are by no means profitable.

Secondly, Where a profession is difficult to learn, as in the fine arts and liberal professions, which require many years study before a man is qualified to exercise them.

Thirdly, Where employment is precarious. Thus masons whose employment depends on the weather, and all workmen who are liable to be called upon and dismissed at a moment's warning, receive higher wages to compensate for this uncertainty in the means of their subsistence.

Fourthly, Where great trust is reposed in the work

Fifthly, Where there is any peculiar risk, either of failure, or of other disasters. Thus in the case of physicians, and still more of lawyers, it is only a few of those who apply to the profession to whom it ever yields a subsistence. Those who rise to eminence, therefore, have gained prizes in a lottery, which ought to be high in proportion to the number of blanks. The effect of this circumstance, however, is diminished by the natural confidence which every one has in his talents and good fortune, and by the brilliant reputation which accompanies success in these departments. The same remark applies to those professions which present a life of danger and adventure, as the naval and military service. Fortunately for the public, notwithstanding the danger, the hardship, and the slender emolument with which these professions are accompanied, no want is found of persons who are ready to engage in them.

Lastly, There are some circumstances, to which all trades are occasionally liable. In a new trade, the wages are generally higher. The success, and consequently the duration, of such must be more or less uncertain; and men will not be inclined, without some extraordinary temptation, to quit their old and established occupations, in order to engage in it. An extraordinary demand too sometimes arises for the commodities furnished by some particular trade; more labourers than usual will consequently be wanted; and these must be allured by the offer of higher wages. Sometimes, on the other hand, work is done cheaper than usual, from being taken up as a bye-employment, by those who derive their subsistence from a different source; as, for instance, stockings in the north of Scotland. This takes place, however, only where the demand for labour is slender, as otherwise the whole of a man's time may be advantageously employed.

In considering the effects of labour in the production of wealth, Smith divides it into two kinds, which he calls productive and unproductive. Productive labourers are those whose industry produces a commodity which remains and can be exchanged for another. Thus the farmer produces corn, the manufacturer cloth or hardware. The unproductive, on the contrary, are those whose services perish in the moment of performance, and never produce any commodity to which value can be attached. These include a variety of professions both the most respectable and the least so. It includes, on one hand, all those employed in the executive government, officers of the army and navy, officers of justice, public teachers of every description; on the other, menial servants, players, musicians, &c. The more a man maintains of the former kind of labourers, the richer be becomes; the more he maintains of the latter, he becomes the poorer.

The most eminent writers on this subject, in the present age, seem disposed to treat this distinction as nugatory. They urge, that wealth consists merely in the abundance of conveniences and pleasures of life; and that whoever contributes to augment these is a productive labourer, although he may not present us with any tangible commodity. The professor who gives me a lecture, and the musician who gives me a tune, give something subser