Thursday, September 6, 2012


IN the foregoing chapter, I have shown how productive capital,
though kept, during the progress of production, in a continual state
of employment, and subject to perpetual change and wear, is yet
ultimately reproduced in full value, when the business of production
is at an end. Since, then, wealth consists in the value of matter or
substance, not in the substance or matter itself, I trust my readers
have clearly comprehended, that the productive capital employed,
notwithstanding its frequent transmutations, is all the while the same
It will be conceived with equal facility, that, inasmuch as the value produced has replaced the value consumed, that produced value may be equal, inferior, or superior in amount, to the value consumed, according to circumstances. If equal, the capital has been merely replaced and kept up; if inferior, the capital has been encroached upon; but if superior, there has been an actual increase and accession of capital. This is precisely the point to which we traced the cultivator, cited by way of an example in the preceding chapter. We supposed him, after the complete re-establishment of his capital, so
as to put him in a condition to begin the new year’s cultivation with
equal means at his disposal, to have netted a surplus produce beyond
his consumption of some value or other; say of 1000 dollars. 
Now, let us .observe the various methods, in which he may dispose
of his surplus of 1000 dollars; for simple as the matter may appear
to be, there is no point upon which more error has prevailed, or
which has greater influence upon the condition of mankind. 
Whatever kind of produce this surplus, which we have valued at
1000 dollars, may consist of, the owner may exchange it for gold or
silver specie, and bury it in the earth till he wants it again. Does
the national capital suffer a loss of 1000 dollars by this operation?
Certainly not; for we have just seen, that the value of that capital was before completely replaced. Has any one been injured to that amount ? By no means; for he has neither robbed nor cheated any body, and has received no value whatever, without giving an equivalent. It may be said, perhaps, he has given wheat in exchange for the dollars he has thus buried, which wheat was very soon consumed;, yet the 1000 dollars still continue withdrawn from the capital of the community. But I trust it will be recollected, that wheat, as well as silver or gold, may compose a part of the national capital; indeed, we have seen that national capital must necessarily consist, in a great measure, of wheat and such like substances, liable to either partial or total consumption, without any diminution ofcapital thereupon ; for, in short, that reproduction completely replaces the value consumed, including the profits of the producers, productive agency is part of the value consumed. Wherefore, the instant that the cultivator has fully replaced his capital, and begins
again with the same means as before, the 1000 dollars may be
thrown into the sea without reducing the national capital. 
But let us trace the disposal of this surplus of 1000 dollars to
every imaginable destination. Suppose, for instance, that instead of
being buried, they have been spent by the cultivator upon an elegant
entertainment. In this case, this whole value has been destroyed in
an afternoon; a sumptuous feast, a ball, and fireworks, will have
swallowed up the whole. The value thus destroyed exists no longer
in the community: it no longer forms an item in the aggregate of
wealth; for those persons, into whose hands the identical pieces of
silver have come, have given an equivalent in wines, refreshments,
eatables, gunpowder,  & c , all which values are reduced to nothing;
the gross national capital, however, is no more diminished in this
case than in the former. A surplus value had been produced; and
this surplus is all that has been destroyed, so that things remain just
as they were.
Again, suppose these 1000 dollars to have been spent in the purchase of furniture, plate, or linen. Still there is no reduction ofnational productive capital; although it must be allowed there is no
accession; for in this case, nothing more is gained than the additional
comforts the cultivator and his family derive from the newly pur
chased moveables.
Fourthly and lastly, suppose the cultivator to add this excess ot
1000 dollars to his productive capital, that is to say, to re-employ it
in increasing the productive powers of his farm as circumstances
may require, in the purchase of more beasts of husbandry, or the
hire and support of more labourers; and in consequence, at the end
of the year, to gather produce enough to replace the full value of the
1000 dollars, with a profit, in such manner, as to make them capable
of yielding a fresh product the year after, and so on every year to
eternity. It is then, and then only, that the productive capital of the
community is really augmented to that extent.
It must on no account be overlooked, that, in one way or other, a saving such as that we have been speaking of, whether expended productively or unproductively, still is in all cases expended and consumed; and this is a truth, that must remove a notion extremely
false, though very much in vogue—namely, that saving limits and injures consumption. No act of saving subtracts in the least from consumption, provided the thing saved be re-invested or restored to productive employment. On the contrary, it gives rise to a consumption perpetually renovated and recurring; whereas there is no repetition of an unproductive consumption.

It must be observed, too, that the form in which the value saved
is so saved and re-employed productively, makes no essential difference. The saving is made with more or less advantage, according
to the circumstances and intelligence of the person making it. Nor
is there any reason why this portion of capital should not have been
accumulated, without ever having for a moment assumed the form of
specie. It may be that an actual product of the farm has been saved
and resown or planted, without having undergone any transmutation ;
perhaps the wood, that might have been used as firing to warm superfluous apartments, may have been converted into palings or other
carpenter's work; and what was cut down in the first instance as an
item of revenue, be so employed, as to become an item of capital.
Now, the only way of augmenting the productive capital of individuals, as well as the aggregate productive capital of the community,
is by this process of saving; in other words, of re-employing in production more products created than have been consumed n their creation. Productive capital cannot be accumulated by the mere scraping together of values without consuming them; nor any otherwise,
than by withdrawing them from unproductive, and devoting them to
reproductive consumption. There is nothing odious in the real
picture of the accumulation of capital; we shall presently see its
happy consequences.
The form under which national capital is accumulated, is commonly determined by the respective geographical position, the moral
character, and the peculiar wants of each nation. The accumulations of a society in its early stages consist, for the most part, of
buildings, implements of husbandry, live stock, improvements of
land; those of a manufacturing people chiefly of raw materials, or
such as are still in the hands of its workmen, in a more or less
finished state; and in some part, of the necessary manufacturing
tools and machinery. In a nation devoted to commerce, capital is
mostly accumulated in the form of wrought or unwrought goods,
that have been bought by the merchant for the purpose of re-sale.
A nation that at the same time directs its energies to all three
branches of industry, namely, agriculture, manufactures, and commerce, has a capital compounded of all three different forms of production ; of that amazing quantity of stores of every kind, that we
find civilized society actually possessed of; and which, by the intelligent use that is made of them, are constantly renovated, or even
increased, in spite of their enormous consumption, provided that the
industry of the community produces more than is destroyed by its
I do not mean to say, that each nation has produced and laid by
the identical article that composes its actual capital. Values, in some
shape or other, have been produced and laid by; and these, through
various transmutations, have assumed the form most convenient fot
the time being. A bushel of wheat saved will feed a mason as well
as a worker in embroidery. In the one case, the bushel of wheat
will be reproduced in the shape of the masonry of a house; in the
other, under that of a laced suit.
Every adventurer in industry, that has a capital of his own embarked in it, has ready means of employing his saving productively;
if engaged in husbandry, he buys fresh parcels of land ; or, by judicious outlays and improvements, augments the productive powers of
what already belongs to him; if in trade, he buys and sells a greater
quantity of merchandise. Capitalists have nearly the same advantage : they invest their whole savings in the same manner as their
former capital is invested, and increase it pro tanto, or look out for
new ways of investment, which they are at no loss to discover; for
the moment they are known to be possessed of loose funds, they
seldom have to wait for propositions for the employment of them;
whereas the proprietors of lands let out to farm, and individuals that
live upon fixed income, or the wages of their personal labour, have
not equal facility in the advantageous disposal of their savings, and
can seldom invest them till they amount to a good round sum.
Many savings are therefore consumed, that might otherwise have
swelled the capitals of individuals, and consequently of the nation at
largf. Banks and associations, whose object is to receive, collect,
and turn to profit the small savings of individuals, are consequently
very favourable to the multiplication of capital, whenever they are
perfectly secure.
The increase of capital is naturally slow of progress: fur it can
never take place without actual production of value, arid the creation
of value is the work of time and labour, besides other ingredients.*
Since the producers are compelled to consume values all the while
they are engaged in the creation of fresh ones, the utmost they can
accumulate, that is to say, add to reproductive capital, is the value
they produce beyond what they consume; and the sum of this sui
plus is all the additional wealth that the public or individuals can
acquire. The more values are saved and reproductively employed
in the year, the more rapid is the national progress towards prosperity. Its capital is swelled, a larger quantity of industry is set in
motion, and saving becomes more and more practicable, because the
additional capital and industry are additional means of production.
Every saving or increase of capital lays the groundwork of a
perpetual annual profit, not only to the saver himself, but likewise to
all those whose industry is set in motion by this item of new capital.
It is for this reason that the celebrated Adam Smith likens the frugal
man, who enlarges his productive capital but in a solitary instance,
to the founder of an almshouse for the perpetual support cf a body
of labouring persons upon the fruits of their own labour; and on the
other hand, compares the prodigal that encroaches upon his capita],
to the roguish steward that should squander the funds of a charitable
institution, and leave destitute, not merely those that derived present
subsistence from it, but likewise all who might derive it hereafter.
He pronounces, without reserve, every prodigal to be a public pest,
and every careful and frugal person to be a benefactor of society, f
It is fortunate, that self-interest is always on the watch to preserve
the capital of individuals; and that capital can at no time be withdrawn from productive employment, without a proportionate loss of
Smith is of opinion, that, in every country, the profusion and ignorance of individuals and of the public authorities, is more than compensated by the prevalent frugality of the people at large, and by their careful atttention to their own interests.* At least it seems
undeniable, that almost all the nations of Europe are at this moment
advancing in opulence; which could not be the case, unless each of
them, taken in the aggregate, produced more than it consumed
unproductively.f Even the revolutions of modern times appear to
have been rather favourable than otherwise to the progress of opulence ; for they are no longer, as in ancient days, followed by continued hostile invasion, or universal and protracted pillage; whereas,
on the other hand, they have commonly overthrown the barriers of
prejudice, and opened a wider field for talent and enterprise. But
it is still a question, whether this frugality, which Smith gives individuals credit for, be not, in the most numerous classes of society, a
forced consequence of a vicious political organization. Is it true,
that those classes receive their fair proportion of the gross produce,
in return for their productive exertions? How many individuals
live in constant penury, in the countries considered as the most
wealthy! How many families are there, both in town and country,
whose whole existence is a succession of privations; who, with every
thing around them to awaken their desires, are reduced to the satisfaction of the very lowest wants, as if they lived in an age of the
grossest barbarism and national poverty!
Thus I am forced to infer, that, though unquestionably there is an
annual saving of produce in almost all the nations of Europe, this
saving is extorted much more commonly from urgent and natural
wants, than from the consumption of superfluities, to which policy
and humanity would hope to trace it. Whence arises a strong suspicion of some radical defect in the policy and internal economical
systems of most of their governments.
Again, Smith thinks that the moderns are indebted for their comparative opulence, rather to the prevalence of individual frugality, than to the enlargement of productive power. I admit, tha sonn
absurd kinds of profusion are more rare now-a-days than formerly ;*
but it should be recollected, that such profusion can never be practised, except by a very small number of persons; and if we take
the pains to consider how widely the enjoyment of a more abundant
and varied consumption is diffused, particularly among the middle
classes of society, I think it will be found, that consumption and frugality have increased both together; for they are by no means incompatible. How many concerns are there in every branch of industry,
that, in times of prosperity, yield enough produce to the adventurers
to enable them to enlarge both their expenses and their savings ?
What is true of one particular concern, may possibly be true of the
national production in the aggregate. The wealth of France was
progressively increasing during the first forty years of the reign of
Louis XIV., in spite of the profusion, public and private, that the
splendour of the court occasioned. The stimulus given to production by Colbert, multiplied her resources faster than the court squandered them. Some people supposed, that this very prodigality was
the cause of their multiplication; the gross fallacy of which notion
is demonstrated by the circumstance, that after the death of that
minister, the extravagancies of the court continuing at the same rate,
and the progress of production being unable to keep pace with them,
the kingdom was reduced to an alarming state of exhaustion. The
close of that reign was the most gloomy that can be imagined.
After the death of Louis XIV., the public and private expenditure of France have been still further increasing ;f and to me it appears indisputable, that her national wealth has advanced likewise:
Smith himself admits that it did ; and what is true of France is so of
most of the other states of Europe in some degree or other.
Turgot* falls in with Smith's opinion. He expresses his belief,
that frugality is more generally prevalent now than in former times,
and gives the following reasons: that, in most European countries,
the interest of money was, on the average, lower than it had ever
before been, a clear proof of the greater abundance of capita]; therefore, that greater frugality must have been exerted in the accumulation of that capital than at any former period; and, certainly, the
low rate of interest proves the existence of more abundant capital:
but it proves nothing with regard to the manner of its acquirement
in fact, it may have been acquired just as well by enlarged production as by greater frugality, as I have just been demonstrating.
However, I am far from denying, that in many particulars, the
moderns have improved the art of saving as well as that of producing.
A man is not easily satisfied with less gratifications than he has been
accustomed to: but there are many which he has learnt to procure
at a cheaper rate. For instance, what can be more beautiful than the
coloured furniture papers that adorn the walls of our apartments,
combining the grace of design with the freshness of colouring 1 Formerly, many of those classes of society that now make use of paper
hangings, were content with whitewashed walls, or a coarse ill-executed tapestry, infinitely dearer than the modern paperings. By the
recent discovery of the efficacy of sulphuric acid in destroying the
mucilaginous articles of vegetable oils, they have been rendered
serviceable in lamps on the Argand principle of a double current of
air, which before could only be lighted with fish oil, twice or thrice
as dear. This discovery has of itself placed the use of those lamps,
and the fine light they give, within reach of almost every class.f
For this improvement in frugality, we are indebted to the advances
of industry, which has, on the one hand discovered a greater number
of economical processes; and, on the other, everywhere solicited
the loan of capital, and tempted the holders of it, great or small, by
better terms and greater security. In times when little industry
existed, capital, being unprofitable, was seldom in any other shape
than that of a hoard of specie locked up in a strong box, or buried in
the earth as a reserve against emergency: however considerable in
amount, it yielded no sort of benefit whatever, being in fact little
else than a mere precautionary deposit, great or small. But the
moment that this hoard was found capable of yielding a profit proportionate to its magnitude, its possessor had a double motive for
increasing it, and that not of remote or precautionary, but of actual, immediate benefit; since the profit yielded by the capital might,
without the least diminution of it, be consumed and procure additional gratifications. Thenceforward it became an object of greater
and more general solicitude than before, in those that had none to
create, and in those that had one to augment, productive capital; and
a capital bearing interest began to be regarded as a property equally
lucrative, and sometimes equally substantial with land yielding rent.
To such as regard the accumulation of capital as an evil, insomuch as
it tends to aggravate the inequality of human fortune, I would suggest, that, if accumulation has a constant tendency to the multiplying
of large fortunes, the course of nature has anjequal tendency to divide
them again. A man, whose life has been spent in augmenting hi;
own capital and that of his country, must die at last, and the succession rarely devolves upon a sole heir or legatee, except where the
national laws sanction entails and the right of primogeniture. In
countries exempt from the baneful influence of such institutions,
where nature is left to its own free and beneficent action, wealth is
naturally diffused by subdivision through all the ramifications of the
social tree, carrying health and life to the furthest extremities.*
The total capital of the nation is enlarged at the same time that the
capital of individuals is subdivided.
Thus, the growing wealth of an individual, when honestly acquired
and reproductively employed, far from being viewed with jealous
eyes, ought to be nailed as a source" of general prosperity. I say
honestly acquired, because a fortune amassed by rapine or extortion
is no addition to the national stock; it is rather a portion of capital
transferred from the hands of one man, where it already existed, to
those of another, who has exerted no productive industry. On the
contrary, it is but too common, that wealth ill-gotten is ill-spent also.
The faculty of amassing capital, or, in other words, value, I apprehend to be one cause of the vast superiority of man over the brute
creation. Capital, taken in the aggregate, is a powerful engine consigned to the use of man alone. He can direct towards any one
channel of employment the successive accumulations of many generations. Other animals can command, at most, no more than their respjctiAie vnd vidual accumulations, scraped together in the course
of a lew days, or a season at the utmost, which can never amount
to any tiling considerable: so that, granting them a degree of intelligence they do not seem possessed of, that intelligence would yet
remain ineffectual, for want of the materials to set it in motion.
Moreover, it may be remarked, that the powers of man, resulting
from the faculty of amassing capital, are absolutely indefinable;
because there is no assignable limit to the capital he may accumulate, with the aid of time, industry, and frugality.

A Treatise on Political Economy

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