Adam Smith's Simplified Wealth of Nations, Book 2, Chapter 3b: Savings

Chapter 3b: Savings and Frugality

13 The proportion between industry and idleness is regulated by the proportion between capital and revenue.

14 Capitals are increased by parsimony and decreased by prodigality and misconduct.

15"Whatever a person saves from his revenue, he adds to his capital."

16 "Parsimony, and not industry, is the immediate cause of the increase of capital."

17 Parsimony increases the fund destined for maintaining productive hands.

18 Annual savings are regularly consumed nearly in the same time too.

19 The annual savings of a frugal man maintains more productive hands for the current or the ensuing year.

20 The prodigal perverts it in this way.

21 Even if the prodigal's expences are all in local commodities instead of foreign commodities, its effect on the productivity of society would still be the same. 22 This kind of expence would not cause any exportation of gold and silver.

23 The same amount of money cannot long remain in any country where the value of the annual produce diminishes.

But the money thrown out of domestic circulation will not be allowed to lie idle.

24 On the contrary, the amount of money must naturally increase as the value of the annual produce increases.


25 Every prodigal is a public enemy of the real wealth and revenue of a country.

26 "The effects of misconduct are often the same as those of prodigality."

27 It can seldom happen that a great nation can be much affected by the prodigality or misconduct of individuals.

The Origin of the Propensity to Save

28 Regarding profusion, the passion for present enjoyment is the principle which prompts to spend.

29 Regarding misconduct, there are everywhere much more prudent and successful undertakings than injudicious and unsuccessful ones. 30 Great nations are never impoverished by private prodigality and misconduct. 31 This frugality and good conduct is sufficient to compensate private prodigality & misconduct and government extravagance.

32 The annual produce of the land and labour of any nation can be increased in value only by increasing the number of productive labourers or their productive powers.

33 England's national annual produce is certainly greater now than a century ago at the restoration of Charles II. 34 England's national annual produce was much greater at the Restoration than at the accession of Elizabeth 100 years before. 35 In each of those periods, there was much private and public profusion. 36 The profusion of government retarded, but was unable to stop, England's natural progress towards wealth and improvement.

Frugality and Government Spending

37 Frugality increases the public capital and prodigality reduces it.

38 The person's revenue may be spent in either:

For example, a rich man may spend his revenue either in:

Heinrich von Bruhl
39 This way of spending by an individual is the same as that of a nation. 40 The spending for durable commodities maintains more people than the spending for the most profuse hospitality. 41 However, this does not mean that spending on durable goods always indicates more generosity than spending on hospitality.
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Next: Chapter 4: Interest