Adam Smith's Simplified Wealth of Nations, Book 2, Chapter 1: Division of Stock

Chapter 1a: The Division of Stock

1 When a man's stock can only maintain him for a few weeks, he seldom thinks of deriving any revenue from it.

This is the state of most of the labouring poor in all countries.

2 But when he has stock sufficient to maintain him for months or years, he tries to derive a revenue from it. 3 Capital may yield a revenue or profit to its employer in two ways:
  1. 4 It may be employed in raising, manufacturing, or buying goods and selling them again with a profit.
    • The capital employed this way yields no revenue or profit to its employer while it:
      • remains in his possession or
      • continues in the same shape
    • A merchant's goods yield him no revenue or profit until he sells them for money.
      • The money yields him as little until it is again exchanged for goods.
      • His capital is continually going from him in one shape and returning to him in another.
      • Only such successive exchanges or circulation can yield him any profit.
    • Such capitals are 'circulating capitals'.
  1. 5 It may be employed to yield a revenue or profit without changing masters or circulating any further, such as:
Such capitals are 'fixed capitals'. 6 "Different occupations require very different proportions between the fixed and circulating capitals employed in them." 7 A merchant's capital is a circulating capital. 8 Some of the capital of every master artificer or manufacturer must be fixed in the tools of his trade. 9 In other works, more fixed capital is required. 10 A farmer's instruments of agriculture is a fixed capital. The wages and maintenance of his labouring servants are a circulating capital. The price of his labouring cattle is a fixed capital. The maintenance of his cattle is a circulating capital. Cattle, which are sold and not used for labour, are a circulating capital. A flock of sheep or a herd of cattle used for wool and milk is a fixed capital. The whole value of the seed is a fixed capital.
Next: Book 2, Chapter 1b: Three Divisions of Stock