Adam Smith's Wealth of Nations Book 2, Chapter 5: Employment of Capitals

Chap. 5a: Employment of capitals

1 The destiny of all capitals is to maintain productive labour.

2 A capital may be employed in four ways:

  1. In procuring the rude produce required for society's use and consumption
  2. In manufacturing and preparing that rude produce for immediate use and consumption
  3. In transporting the rude or manufactured produce from where they abound to where they are wanted
  4. In dividing portions of rude or manufactured produce into small parcels for those who want them.

3 Each of these four methods is needed by the other three, or to the conveniency of society.

4 Unless capital was employed to multiply rude produce, neither manufactures nor trade could exist.

5 Unless capital was employed in processing rude produce for use and consumption, it would never be produced because there could be no demand for such rude produce.

6 Unless capital was employed to transport rude or manufactured produce to where it is wanted, no more could be produced than was necessary for the consumption of its neighbourhood. 7 Unless capital was employed to divide those produce into small parcels, everyone would need to buy more of the goods than needed. 8 People who employ their capitals in any of those four ways are themselves productive labourers.

The Four Employments Of Capitals

9 The retailer's capital replaces, with profits, the merchant's capital from whom he buys goods. 10 The capital of the wholesale merchant replaces, with profits, the capitals of the farmers and manufacturers he buys from. 11 Part of the capital of the master manufacturer is employed as a fixed capital in the instruments of his trade.

12 The farmer's capital mobilizes the most amount of productive labour.



Residence of Capitals Used in Different Employments

13 The agricultural and retail capital of any society must always reside within that society.

14 The wholesale merchant's capital has no fixed residence anywhere.

15 The manufacturer's capital must reside where the manufacture is done. 16 It is not important whether the merchant exporter is a native or a foreigner.

17 It is of more consequence that the capital of the manufacturer should reside within the country.

18 A country, like a person, may frequently not have capital sufficient:

All the British do not not capital sufficient to improve and cultivate all their lands.

19 When the capital of any country is employed largely in agriculture, more productive labour will be mobilized within the country and increase the value it adds to the national annual produce. 20 The country which has insufficient capital for all those three purposes has not reached opulence.

21 Our American colonies progress rapidly towards wealth mainly because almost all their capitals are employed in agriculture.

22 Human prosperity has never lasted long enough to enable any great country to acquire capital for all those three purposes. 23 In any country, the same capital will mobilize varying amounts of productive labour.
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Next: Chapter 5b: Trade