The World's Greatest Books [Volumes 1-15, 17-20]

II.—Nature, Accumulation, and Employment of Stock

When the stock which a man possesses is no more than sufficient to maintain him for a few days or weeks, he seldom thinks of deriving any revenue from it; but when he possesses enough to maintain him for months or years, he endeavours to derive a revenue from the greater part of it. The part of his stock from which he expects to derive revenue is called his capital.

There are two ways in which capital may be employed so as to yield a profit to its employer. First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit; this is circulating capital. Secondly, it may be employed in the improvement of land, or in the purchase of machines and instruments; and this capital, which yields a profit from objects which do not change masters, is called fixed capital.

The general stock of any country or society is the same as that of all its inhabitants or members, and is therefore divided into the same three portions, each of which has a different function. The first is the portion which is reserved for immediate consumption, and so affords no revenue or profit. The second is the fixed capital, which consists of

(a) all useful machines and instruments of trade which facilitate and abridge labour;

(b) all profitable buildings, which procure a revenue, not only to their owner, but also to the person who rents them, such as shops, warehouses, farmhouses, factories, &c.;

(c) the improvements of land, and all that has been laid out in clearing, draining, enclosing, manuring, and reducing it into the condition most proper for culture; and

(d) the acquired and useful abilities of all the inhabitants or members of the society, for the acquisition of such talents, by the maintenance of the learner during his education or apprenticeship, costs a real expense, which is a capital fixed in his person.

The third and last of the three portions into which the general stock of the society naturally divides itself is the circulating capital, which affords a revenue only by changing masters. It includes

(a) all the money by means of which all the other three are circulated and distributed to their proper consumers;

(b) all the stock of provisions which are in the possession of the butcher, farmer, corn-merchant, &c., and from the sale of which they expect to derive a profit;

(c) all the materials, whether altogether rude, or more or less manufactured, for clothes, furniture and building, which are not yet made up into any of these shapes, but remain in the hands of the growers, manufacturers and merchants; and

(d) all the work which is made up and completed, but is not yet disposed of to the proper consumers.

The substitution of paper in the place of gold and silver money replaces a very expensive instrument of commerce by one much less costly, and sometimes equally convenient. Circulation comes to be carried on by a new wheel, which it costs less both to erect and to maintain than the old one. The effect of the issue of large quantities of bank-notes in any country is to send abroad the gold, which is no longer needed at home, in order that it may seek profitable employment. It is not sent abroad for nothing, but is exchanged for foreign goods of various kinds in such a way as to add to the revenue and profits of the country from which it is sent; unless, indeed, it is spent abroad on such goods as are likely to be consumed by idle people who produce nothing.