Adam Smith's Simplified Wealth of Nations, Book 2, Chapter 2a: The Net Revenue of Society

Chapter 2a: Money as Part of the General Stock of Society

(the Cost of Maintaining the National Capital)

1 Book 1 showed that the price of most commodities is made up of wages, profits, and rent.

2 This is the case for every commodity taken both separately and complexly.

3 The total annual produce of a country is divided as a revenue to its inhabitants.

4 The gross rent of a private farm is paid by the farmer.

[Net Rent + Expences (management, repairs, etc) = Gross Rent] (paid by the farmer to the landlord)

The Net Revenue of Society

5The gross revenue of everyone in a country makes up their total national annual produce.

6 The whole expence of maintaining the fixed capital must be excluded from the net revenue of society.

7 The intention of the fixed capital is to increase productivity.

8 The expence of maintaining the fixed capital in a country may be compared to the repairs in a private farm.

9 The cost of maintaining the fixed capital is excluded from the society's net revenue.

10  The society's circulating capital in this respect is different from an individual's circulating capital.

11 Therefore, money is the only part of the society's circulating capital, of which the maintenance can reduce their net revenue.

12 The fixed capital, and that circulating capital called money, are very similar to one another in affecting the society's revenue.

  1. 13 Those machines and tools of trade, etc. require expences to build and support them.
    • Those expenses are deductions from the society's net revenue.
    • The stock of money which circulates in any country must require a certain expence:
      • to collect it, and
      • to support it.
    • Both expenses make a part of the society's gross revenue and are deductions from its net revenue.
    • Some gold and silver and labour is employed to support that great but expensive instrument of commerce, instead of increasing the stock reserved for immediate consumption.
    • Money allows everyone to have their subsistence, conveniencies, and amusements regularly distributed to them.

  1. 14 The machines, instruments of a trade, etc., which make up the fixed capital of an individual or a society make no part either of their gross or net revenue.
    • The money which circulates the society's whole revenue among its members makes no part of that revenue.
    • The great wheel of circulation is different from the goods which are circulated through it.
    • The society's revenue is in those goods, not in the wheel that circulates them.
    • In computing any society's gross or net revenue, we must always deduct the whole value of money from the whole annual circulation of money and goods.
      • The value of money can never make a part of the society's gross or net revenue.

15 Only the ambiguity of language makes this proposition doubtful or paradoxical.

16 When we talk of a sum of money, we sometimes only mean the metal pieces it is made of.

17 When we combine the two meanings ambiguously into the word 'money', or when we mean the amount of the metal pieces and some obscure reference to the goods which can be bought by that money, the wealth or revenue is equal only to one of the two amounts.

[Translator's Note: The amount is money is objective, the money's worth is subjective]

18 Thus, if a guinea be one's weekly pension, he can buy a certain amount of goods and services worth a guinea with his pension.

19 If his pension were paid in a weekly paper bill for a guinea, his revenue would depend on what he could get for the paper and surely not the paper itself.

20 Though the weekly or yearly revenue of all a country's inhabitants is paid in money, their real riches must always be in proportion to the amount of consumable goods which they can buy with this money.

21 We frequently express a person's revenue by the metal pieces paid to him because the amount of those pieces regulates his purchasing power, or the value of the goods which he can afford to consume.

22 An individual's purchasing power is similar to the society's purchasing power.

23 Physical money is the great wheel of circulation and the great instrument of commerce.

  1. 24 Every saving in the cost of collecting and supporting money (circulating capital) is an improvement exactly of the same kind as every saving and cost-reduction in the building and supporting of machines and the tools of trade (fixed capital),  as long as the savings do not reduce labour productivity.
    • Both savings are an improvement of the society's net revenue.

25 Reducing the expences of supporting the fixed capital improves the society's net revenue.

26 The substitution of gold and silver money with paper, replaces a very expensive instrument of commerce with one much less costly.
Next: Chapter 2b: Paper Money