The Division of Stock

When the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. He consumes it as sparingly as he can, and endeavours, by his labour, to acquire something which may supply its place before it be consumed altogether. His revenue is, in this case, derived from his labour only. This is the state of the greater part of the labouring poor in all countries.

When a man has only enough resources to support himself for a few days or weeks, he rarely thinks of earning income from them. He uses them as sparingly as he can. He tries to earn something through his work to replace them before they are completely used up. In this case, his income comes only from his work. This is the situation of most of the working poor in all countries.

But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from the greater part of it, reserving only so much for his immediate consumption as may maintain him till this revenue begins to come in. His whole stock, therefore, is distinguished into two parts. That part which he expects is to afford him this revenue is called his capital. The other is that which supplies his immediate consumption, and which consists either, first, in that portion of his whole stock which was originally reserved for this purpose; or, secondly, in his revenue, from whatever source derived, as it gradually comes in; or, thirdly, in such things as had been purchased by either of these in former years, and which are not yet entirely consumed, such as a stock of clothes, household furniture, and the like. In one or other, or all of these three articles, consists the stock which men commonly reserve for their own immediate consumption.

But when a man has enough resources to support himself for months or years, he naturally tries to earn income from most of them. He sets aside only enough for his immediate use to support himself until that income begins to arrive. His resources are therefore divided into two parts. The part he expects to earn income from is called his capital. The other part supplies his immediate needs. It consists of the portion he originally set aside for that purpose, or his income as it gradually arrives, whatever its source. It may also consist of things he bought in earlier years with either of these and has not yet used up, such as clothes, household furniture, and the like. One or more of these three kinds of resources make up what people commonly reserve for their own immediate use.

There are two different ways in which a capital may be employed so as to yield a revenue or profit to its employer.

Capital can be used in two different ways to earn income or profit for its owner.

First, it may be employed in raising, manufacturing, or purchasing goods, and selling them again with a profit. The capital employed in this manner yields no revenue or profit to its employer, while it either remains in his possession, or continues in the same shape. The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another; and it is only by means of such circulation, or successive changes, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capitals.

First, capital may be used to grow, manufacture, or buy goods and sell them at a profit. Capital used in this way yields its owner no income or profit while it remains in their possession or in the same form. A merchant’s goods yield no income or profit until they are sold for money. The money yields just as little until it is exchanged for goods again. The merchant’s capital continually leaves in one form and returns in another. Only through this circulation, or successive changes, can it yield any profit. Such capital may therefore properly be called circulating capital.

Secondly, it may be employed in the improvement of land, in the purchase of useful machines and instruments of trade, or in such like things as yield a revenue or profit without changing masters, or circulating any further. Such capitals, therefore, may very properly be called fixed capitals.

Second, it may be used to improve land, buy useful machines and tools of the trade, or acquire similar things. These yield revenue or profit without changing owners or circulating further. Such capital may therefore properly be called fixed capital.

Different occupations require very different proportions between the fixed and circulating capitals employed in them.

Different occupations require very different proportions of fixed and circulating capital.

The capital of a merchant, for example, is altogether a circulating capital. He has occasion for no machines or instruments of trade, unless his shop or warehouse be considered as such.

A merchant’s capital, for example, is entirely circulating capital. He needs no machines or tools of the trade, unless his shop or warehouse counts as one.

Some part of the capital of every master artificer or manufacturer must be fixed in the instruments of his trade. This part, however, is very small in some, and very great in others, A master tailor requires no other instruments of trade but a parcel of needles. Those of the master shoemaker are a little, though but a very little, more expensive. Those of the weaver rise a good deal above those of the shoemaker. The far greater part of the capital of all such master artificers, however, is circulated either in the wages of their workmen, or in the price of their materials, and repaid, with a profit, by the price of the work.

Every master craftsperson or manufacturer must invest some capital in the tools of the trade. For some, however, this investment is very small, while for others it is very large. A master tailor needs only a set of needles. A master shoemaker’s tools are a little more expensive, though only a little. A weaver’s tools cost considerably more than a shoemaker’s. Most of the capital of all such master craftspeople, however, goes to workers’ wages or the cost of materials. They recover this money, with a profit, through the price of their work.

In other works a much greater fixed capital is required. In a great iron-work, for example, the furnace for melting the ore, the forge, the slit-mill, are instruments of trade which cannot be erected without a very great expense. In coal works, and mines of every kind, the machinery necessary, both for drawing out the water, and for other purposes, is frequently still more expensive.

Other operations require much more fixed capital. A large ironworks, for example, needs a furnace to melt the ore, a forge, and a slitting mill. These tools of the trade are very expensive to build. In coal works and mines of every kind, the machinery needed to pump out water and serve other purposes is often even more expensive.

That part of the capital of the farmer which is employed in the instruments of agriculture is a fixed, that which is employed in the wages and maintenance of his labouring servants is a circulating capital. He makes a profit of the one by keeping it in his own possession, and of the other by parting with it. The price or value of his labouring cattle is a fixed capital, in the same manner as that of the instruments of husbandry; their maintenance is a circulating capital, in the same manner as that of the labouring servants. The farmer makes his profit by keeping the labouring cattle, and by parting with their maintenance. Both the price and the maintenance of the cattle which are bought in and fattened, not for labour, but for sale, are a circulating capital. The farmer makes his profit by parting with them. A flock of sheep or a herd of cattle, that, in a breeding country, is brought in neither for labour nor for sale, but in order to make a profit by their wool, by their milk, and by their increase, is a fixed capital. The profit is made by keeping them. Their maintenance is a circulating capital. The profit is made by parting with it; and it comes back with both its own profit and the profit upon the whole price of the cattle, in the price of the wool, the milk, and the increase. The whole value of the seed, too, is properly a fixed capital. Though it goes backwards and forwards between the ground and the granary, it never changes masters, and therefore does not properly circulate. The farmer makes his profit, not by its sale, but by its increase.

The part of a farmer’s capital invested in farming equipment is fixed capital. The part spent on wages and support for farm workers is circulating capital. He profits from the first by keeping it, and from the second by spending it. The price or value of his working livestock is fixed capital, just like the value of his farming equipment. The cost of maintaining the livestock is circulating capital, just like the cost of supporting his workers. The farmer profits by keeping the working livestock and spending money on their maintenance. Both the price and the maintenance of livestock bought and fattened for sale, rather than for work, are circulating capital. The farmer profits by parting with them. In a livestock-breeding region, a flock of sheep or a herd of cattle may be acquired neither for work nor for sale. Instead, the farmer keeps them to profit from their wool, milk, and offspring. Such animals are fixed capital. The profit comes from keeping them. Their maintenance is circulating capital. The profit comes from spending money on their maintenance. That expense is recovered through the price of the wool, milk, and offspring. Their price also returns a profit on the maintenance and on the full price of the animals. The full value of the seed is also properly fixed capital. Although the seed goes back and forth between the ground and the granary, it never changes owners. Therefore, it does not properly circulate. The farmer profits not by selling the seed, but from its increase.

The general stock of any country or society is the same with that of all its inhabitants or members; and, therefore, naturally divides itself into the same three portions, each of which has a distinct function or office.

The total stock of a country or society is the same as the stock of all its members. It therefore naturally divides into the same three parts, each with a distinct function.

The first is that portion which is reserved for immediate consumption, and of which the characteristic is, that it affords no revenue or profit. It consists in the stock of food, clothes, household furniture, etc. which have been purchased by their proper consumers, but which are not yet entirely consumed. The whole stock of mere dwelling-houses, too, subsisting at any one time in the country, make a part of this first portion. The stock that is laid out in a house, if it is to be the dwelling-house of the proprietor, ceases from that moment to serve in the function of a capital, or to afford any revenue to its owner. A dwelling-house, as such, contributes nothing to the revenue of its inhabitant; and though it is, no doubt, extremely useful to him, it is as his clothes and household furniture are useful to him, which, however, make a part of his expense, and not of his revenue. If it is to be let to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue, which he derives, either from labour, or stock, or land. Though a house, therefore, may yield a revenue to its proprietor, and thereby serve in the function of a capital to him, it cannot yield any to the public, nor serve in the function of a capital to it, and the revenue of the whole body of the people can never be in the smallest degree increased by it. Clothes and household furniture, in the same manner, sometimes yield a revenue, and thereby serve in the function of a capital to particular persons. In countries where masquerades are common, it is a trade to let out masquerade dresses for a night. Upholsterers frequently let furniture by the month or by the year. Undertakers let the furniture of funerals by the day and by the week. Many people let furnished houses, and get a rent, not only for the use of the house, but for that of the furniture. The revenue, however, which is derived from such things, must always be ultimately drawn from some other source of revenue. Of all parts of the stock, either of an individual or of a society, reserved for immediate consumption, what is laid out in houses is most slowly consumed. A stock of clothes may last several years; a stock of furniture half a century or a century; but a stock of houses, well built and properly taken care of, may last many centuries. Though the period of their total consumption, however, is more distant, they are still as really a stock reserved for immediate consumption as either clothes or household furniture.

The first portion is reserved for immediate consumption. Its defining feature is that it provides no income or profit. It consists of food, clothes, household furniture, and other goods bought by their actual consumers but not yet entirely used up. All houses used solely as dwellings in a country at any given time also belong to this first portion. If a house is to be its owner’s dwelling, the resources spent on it immediately stop serving as capital or providing income to the owner. A dwelling, as such, adds nothing to its occupant’s income. It is certainly extremely useful to the occupant, but so are clothes and household furniture. These are expenses, not sources of income. If the house is rented to a tenant, the house itself can produce nothing. So the tenant must always pay the rent from some other income derived from labor, capital, or land. A house may therefore provide income to its owner and serve as capital for that owner. But it cannot provide income to the public or serve as capital for the public. It can never increase the income of the people as a whole in the slightest degree. Clothes and household furniture likewise sometimes provide income to particular people and so serve as capital for them. In countries where masquerades are common, people make a trade of renting out masquerade costumes for a night. Upholsterers often rent out furniture by the month or year. Undertakers rent out funeral furnishings by the day or week. Many people rent out furnished houses and receive rent for the use of both the house and the furniture. But the income derived from such things must always ultimately come from some other source of income. Of all the resources that individuals or society reserve for immediate consumption, those spent on houses are consumed most slowly. A supply of clothes may last several years, and furniture may last half a century or a century. But well-built and properly maintained houses may last many centuries. Even though houses take longer to be completely consumed, they are still just as much resources reserved for immediate consumption as clothes or household furniture.

The second of the three portions into which the general stock of the society divides itself, is the fixed capital; of which the characteristic is, that it affords a revenue or profit without circulating or changing masters. It consists chiefly of the four following articles.

The second of the three parts of society's total stock is fixed capital. Fixed capital produces income or profit without circulating or changing owners. It consists chiefly of the following four items.

First, of all useful machines and instruments of trade, which facilitate and abridge labour.

First, all useful machines and tools of the trade that make work easier and save time.

Secondly, of all those profitable buildings which are the means of procuring a revenue, not only to the proprietor who lets them for a rent, but to the person who possesses them, and pays that rent for them; such as shops, warehouses, work-houses, farm-houses, with all their necessary buildings, stables, granaries, etc. These are very different from mere dwelling-houses. They are a sort of instruments of trade, and may be considered in the same light.

Secondly, all profitable buildings that generate income for both the owner and the tenant. The owner earns rent, and the tenant earns income while paying that rent. These buildings include shops, warehouses, workshops, and farmhouses with all their necessary buildings, stables, granaries, and so on. They are very different from buildings used only as homes. They are a kind of tool for trade and may be regarded in the same way.

Thirdly, of the improvements of land, of what has been profitably laid out in clearing, draining, inclosing, manuring, and reducing it into the condition most proper for tillage and culture. An improved farm may very justly be regarded in the same light as those useful machines which facilitate and abridge labour, and by means of which an equal circulating capital can afford a much greater revenue to its employer. An improved farm is equally advantageous and more durable than any of those machines, frequently requiring no other repairs than the most profitable application of the farmer’s capital employed in cultivating it.

Thirdly, land improvements include money profitably spent on clearing, draining, enclosing, and fertilizing land. They also include spending to make land as suitable as possible for farming and cultivation. An improved farm may fairly be regarded like a useful machine that makes work easier and faster. Like such a machine, an improved farm allows its owner to earn much more from the same amount of circulating capital. An improved farm is equally advantageous and more durable than any such machine. Often, it needs no repairs beyond the most profitable use of the farmer’s capital in cultivating it.

Fourthly, of the acquired and useful abilities of all the inhabitants and members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.

Fourthly, the acquired and useful skills of all the inhabitants and members of society. Acquiring such skills always involves a real expense. The person must be supported during education, study, or apprenticeship. This expense is, in a sense, capital fixed and embodied in the person. These skills are part of that person's wealth. They are also part of the wealth of the society to which the person belongs. A worker's improved skill may be compared to a machine or tool that makes work easier and faster. Though the machine or tool costs money, it repays that expense with a profit.

The third and last of the three portions into which the general stock of the society naturally divides itself, is the circulating capital, of which the characteristic is, that it affords a revenue only by circulating or changing masters. It is composed likewise of four parts.

The third and last portion of society’s total stock is circulating capital. It produces income only by circulating or changing owners. It also consists of four parts.

First, of the money, by means of which all the other three are circulated and distributed to their proper consumers.

First, money is used to circulate and distribute the other three to their intended consumers.

Secondly, of the stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn-merchant, the brewer, etc. and from the sale of which they expect to derive a profit.

Second, the stock of food held by butchers, livestock farmers, farmers, grain merchants, brewers, and others. They expect to profit from selling it.

Thirdly, of the materials, whether altogether rude, or more or less manufactured, of clothes, furniture, and building which are not yet made up into any of those three shapes, but which remain in the hands of the growers, the manufacturers, the mercers, and drapers, the timber-merchants, the carpenters and joiners, the brick-makers, etc.

Thirdly, materials for clothes, furniture, and buildings that have not yet been made into any of those three forms. These materials may be raw or processed to varying degrees. They remain in the hands of growers, manufacturers, fabric merchants, timber merchants, carpenters, joiners, brickmakers, and others.

Fourthly, and lastly, of the work which is made up and completed, but which is still in the hands of the merchant and manufacturer, and not yet disposed of or distributed to the proper consumers; such as the finished work which we frequently find ready made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china-merchant, etc. The circulating capital consists, in this manner, of the provisions, materials, and finished work of all kinds that are in the hands of their respective dealers, and of the money that is necessary for circulating and distributing them to those who are finally to use or to consume them.

Fourth and last, there are finished goods still held by merchants and manufacturers, not yet sold or distributed to their intended consumers. These include the finished goods often found ready-made in the shops of blacksmiths, cabinetmakers, goldsmiths, jewelers, china dealers, and others. Circulating capital consists of the provisions, materials, and finished goods of all kinds held by their respective dealers. It also includes the money needed to circulate and distribute these goods to those who will ultimately use or consume them.

Of these four parts, 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.

Of these four parts, three are provisions, materials, and finished goods. These are regularly withdrawn from it, either annually or at shorter or longer intervals. They are then placed in either fixed capital or the stock reserved for immediate consumption.

Every fixed capital is both originally derived from, and requires to be continually supported by, a circulating capital. All useful machines and instruments of trade are originally derived from a circulating capital, which furnishes the materials of which they are made, and the maintenance of the workmen who make them. They require, too, a capital of the same kind to keep them in constant repair.

All fixed capital comes from circulating capital and must be continually supported by it. All useful machines and tools used in trade come from circulating capital. This capital provides the materials to make them and supports the workers who make them. They also need circulating capital to keep them in constant repair.

No fixed capital can yield any revenue but by means of a circulating capital. The most useful machines and instruments of trade will produce nothing, without the circulating capital, which affords the materials they are employed upon, and the maintenance of the workmen who employ them. Land, however improved, will yield no revenue without a circulating capital, which maintains the labourers who cultivate and collect its produce.

Fixed capital cannot generate revenue without circulating capital. Even the most useful machines and tools produce nothing without it. Circulating capital supplies the materials they work on and supports the workers who use them. However improved, land yields no revenue without circulating capital to support the workers who cultivate it and gather its produce.

To maintain and augment the stock which may be reserved for immediate consumption, is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depend upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption.

The sole purpose of fixed and circulating capital is to maintain and increase the stock available for immediate consumption. This stock feeds, clothes, and houses the people. Their wealth or poverty depends on how much the two kinds of capital can supply 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. These afford continual supplies of provisions and materials, of which part is afterwards wrought up into finished work and by which are replaced the provisions, materials, and finished work, continually withdrawn from the circulating capital. From mines, too, is drawn what is necessary for maintaining and augmenting that part of it which consists in money. For though, in the ordinary course of business, this part is not, like the other three, necessarily withdrawn from it, in order to be placed in the other two branches of the general stock of the society, it must, however, like all other things, be wasted and worn out at last, and sometimes, too, be either lost or sent abroad, and must, therefore, require continual, though no doubt much smaller supplies.

A large part of circulating capital is continually withdrawn and placed in the other two branches of society’s total stock. It therefore needs continual replenishment. Without it, circulating capital would soon cease to exist. These supplies come mainly from three sources: the produce of land, mines, and fisheries. These sources continually provide provisions and materials, some of which are later made into finished goods. They replace the provisions, materials, and finished goods continually withdrawn from circulating capital. Mines also provide what is needed to maintain and increase the part of circulating capital that consists of money. In ordinary business, money is not necessarily withdrawn and placed in the other two branches of society’s total stock, as the other three components are. But money, like everything else, eventually wears out. It is also sometimes lost or sent abroad. It therefore needs continual replenishment, though no doubt on a much smaller scale.

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, though it seldom happens that the rude produce of the one, and the manufactured produce of the other, are directly bartered for one another; because it seldom happens that the farmer sells his corn and his cattle, his flax and his wool, to the very same person of whom he chuses to purchase the clothes, furniture, and instruments of trade, which he wants. He sells, therefore, his rude produce for money, with which he can purchase, wherever it is to be had, the manufactured produce he has occasion for. Land even replaces, in part at least, the capitals with which fisheries and mines are cultivated. It is the produce of land which draws the fish from the waters; and it is the produce of the surface of the earth which extracts the minerals from its bowels.

Land, mines, and fisheries all require both fixed and circulating capital to produce goods. Their output replaces those capitals, as well as all the others in society, with a profit. Each year, the farmer replaces the provisions the manufacturer consumed and the materials the manufacturer worked up the year before. In turn, the manufacturer replaces the finished goods the farmer used up or wore out during the same period. This is the real exchange made each year between these two groups. Yet they seldom trade raw produce directly for manufactured goods. A farmer rarely sells his grain, cattle, flax, and wool to the same person from whom he chooses to buy the clothes, furniture, and tools he needs. So he sells his raw produce for money. He can then use that money to buy the manufactured goods he needs wherever they are available. Land also replaces, at least in part, the capital used in fisheries and mines. It is the produce of the land that draws fish from the water. And it is the produce of the earth’s surface that extracts minerals from its depths.

The produce of land, mines, and fisheries, when their natural fertility is equal, is in proportion to the extent and proper application of the capitals employed about them. When the capitals are equal, and equally well applied, it is in proportion to their natural fertility.

When land, mines, and fisheries are equally fertile, their output depends on how much capital is invested and how well it is used. When equal amounts of capital are invested and used equally well, their output depends on their natural fertility.

In all countries where there is a tolerable security, every man of common understanding will endeavour to employ whatever stock he can command, in procuring either present enjoyment or future profit. If it is employed in procuring present enjoyment, it is a stock reserved for immediate consumption. If it is employed in procuring future profit, it must procure this profit either by staying with him, or by going from him. In the one case it is a fixed, in the other it is a circulating capital. A man must be perfectly crazy, who, where there is a tolerable security, does not employ all the stock which he commands, whether it be his own, or borrowed of other people, in some one or other of those three ways.

In every country with reasonable security, anyone of ordinary understanding will try to use whatever resources they control for present enjoyment or future profit. If used for present enjoyment, those resources are reserved for immediate consumption. If used for future profit, they must bring profit either by staying with their owner or by leaving them. In the first case, they are fixed capital. In the second, they are circulating capital. Where there is reasonable security, a person must be completely crazy not to use all the resources they control in one of these three ways. This applies whether the resources are their own or borrowed from others.

In those unfortunate countries, indeed, where men are continually afraid of the violence of their superiors, they frequently bury or conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their being threatened with any of those disasters to which they consider themselves at all times exposed. This is said to be a common practice in Turkey, in Indostan, and, I believe, in most other governments of Asia. It seems to have been a common practice among our ancestors during the violence of the feudal government. Treasure-trove was, in those times, considered as no contemptible part of the revenue of the greatest sovereigns in Europe. It consisted in such treasure as was found concealed in the earth, and to which no particular person could prove any right. This was regarded, in those times, as so important an object, that it was always considered as belonging to the sovereign, and neither to the finder nor to the proprietor of the land, unless the right to it had been conveyed to the latter by an express clause in his charter. It was put upon the same footing with gold and silver mines, which, without a special clause in the charter, were never supposed to be comprehended in the general grant of the lands, though mines of lead, copper, tin, and coal were, as things of smaller consequence.

In those unfortunate countries where men constantly fear violence from their superiors, they often bury or hide much of their wealth. They do this so they can take it somewhere safe if threatened by the disasters they feel constantly exposed to. This is said to be a common practice in Turkey, in Indostan, and, I believe, in most other governments of Asia. It also seems to have been common among our ancestors during the violence of feudal government. In those days, treasure-trove was considered a significant source of revenue for the greatest sovereigns in Europe. It consisted of treasure found buried in the ground that no individual could prove a right to. Treasure-trove was considered so important that it always belonged to the sovereign, not to the finder or the landowner. The landowner could claim it only if his charter expressly gave him that right. Treasure-trove was treated like gold and silver mines. Without a special clause in the charter, these mines were never assumed to be included in a general grant of land. Mines of lead, copper, tin, and coal were included, however, because they were less important.