CHAP. III.

How are Capitals employed?

IN proportion as capital is created, it follows various employments, which divide into as many distinct branches, of which Dr. Quesnay enumerates four: The original advances, which have cleared the ground;

The annual advances, which reward, the labour of the husbandmen, preserve the original advances, and, provide against the accidents inseparable from that kind of labour;

The advances of the unproductive classes, which serve to pay for the raw materials and wages of labour;

Lastly, the advances of the merchants who defray carriage and warehouse expences, which this author considers as a stock distinct from the national capital.

Adam Smith took a more enlarged, view of the employment, of capitals. He assigned them more importance, and, as it were, revealed their power.

He devotes part of them to immediate consumption, which he states to consist of food, clothing, household-furniture, dwelling-houses, and all objects of conveniency and comfort.

The second of the three portions, into which he divides the general stock of the society, is called the fixed capital, the characteristic of which is, that it

affords a revenue or profit without circulating, or changing masters. It consists chiefly of the four following articles: 1st, of all useful machines and instruments of trade which facilitate and abridge labour; 2d, of all those profitable buildings which are the means of procuring a revenue, not only to their proprietor, who lets them for a rent, but to the person who pays that rent for their use; 3d, of the improvements of land; and 4th, of the acquired and useful abilities of all the inhabitants or members of the society.

The third and last of the three portions into which the general capital stock of a community naturally divides itself, is called by Adam Smith the circulating capital: its characteristic is, that it affords a revenue only by circulating, or changing masters. It is composed, 1st, of the money, by means of which all the other three are circulated and distributed to their proper consumers; 2d, of the stock of provisions, from the sale of which a profit is expected; 3d, of the materials, whether rude or not completely manufactured ; and 4th, of the work which is made up ánd completed, but not yet disposed of to the proper con

sumers.

This enumeration and classification of capitals appears totally different from that of Dr. Quesnay; and yet it is easy to perceive that they approximate to a certain degree, and are really at no very great distance.

The capital which Adam Smith calls a fixed capital, is partly the same with that which Dr. Quesnay calls original advances to put the ground into a state of cultivation,

The only difference worthy of remark between these original advances and the fixed capital is, that Dr. Quesnay calls those advances only original ones which have put the ground into a state of cultivation; while Adam Smith gives the name of fixed capital not only to the improvements of the land, but also to the instruments and machines which facilitate and shorten labour, and to the acquired and useful abilities of all the members of the community.

This diversity of opinion is, with these two authors, the just consequence of their different theories concerning the source of wealth, which one places in agriculture, and the other in any labour which fixes and realizes itself in some permanent object.

The inquiry which I have made into these two opinions in the preceding book, renders all further discussion unnecessary.

Yet it may be useful to observe, in support of the opinion which I have established, that Adam Smith, by assigning to the acquired and useful abilities of all the members of the community a place in the fixed capital, has to a certain degree destroyed the restric¬ tion with which he had shackled the productiveness of labour.

If it be true, as he has taught, that productive labour is that which fixes and realizes itself in some permanent object, and if it be the essential and distinctive characteristic of a fixed capital to produce a revenue, that is to say, a fixed and permanent object, it would be necessary that acquired and useful abilities should produce a revenue or a fixed and permanent object and as it is certain that the labours of most

useful and acquired abilities are not fixed and realized in a permanent object, it is evident that they have been improperly comprised in the fixed capital by Adam Smith.

Or if, as I flatter myself to have made manifest, any labour is productive of the stock that pays for it, and ought on that account, to be comprised in the fixed capital; then it is evident that Adam Smith was mistaken when he denied productiveness to labours which do not fix and realize themselves in any permanent object.

The alternative is unavoidable, and helps to corroborate the reasons which induced me to oppose Adam Smith's opinion on this head.

That part of capital stock, which Adam Smith denominates the circulating capital, is nearly the same with that which Dr. Quesnay calls annual advances.

Both destine this part of the capital stock of a country to provide for the divers wants of agriculture, manufactures and commerce; they only differ in so far as Adam Smith admits the metallic currency of the country into the circulating capital, which is not mentioned at all by Dr. Quesnay.

We ought, however, to be little surprised at this omission on the part of Dr. Quesnay, and the French economists. The theory of circulation, of which a metallic currency is the principal instrument, had made but small progress at the time they wrote, and its benefits could not easily be foreseen, nor its extent, resources, and results, calculated.

But is it true, as Adam Smith has taught, that the

metallic currency of a country forms part of her circulating capital, and is not only of no benefit to wealth, but even burthensome to it as an object of expense ?

Many writers on subjects connected with political economy have not adopted this part of Adam Smith's theory. On the contrary, they think that money operates in the same manner as other machines employed in agriculture, manufactures, and commerce; and tends like them to shorten and facilitate labour, and is of course productive of whatever the exchange of commodities costs less than what it would have cost without the assistance of money.†

But none has placed this truth in a more luminous point of view, than the Earl of Lauderdale. Though the demonstration of the noble Earl be rather long, I am yet convinced the reader will thank me for transcribing it entire; because it explains, in a novel and truly ingenious manner, the operation of money in the interchange of the produce of labour.

"In considering how that portion of the nation"al capital, employed in conducting circulation, "produces a profit, it is necessary," says the noble lord, “clearly to distinguish what forms circulating capital, from the goods that are circulated by

means of capital; and this becomes the more so, "because we are accustomed to see these two things, "however different, almost uniformly confounded

by those who have treated on the subject."

* Traité d'Economie Politique, par Jean Baptiste de Say. Paris, 1803. vol. i. page 12.