much greater value than that of the support which such
improvements require. This support, however, still requires a
certain portion of that produce. A certain quantity of materials,
and the labour of a certain number of workmen, both of which
might have been immediately employed to augment the food,
clothing and lodging, the subsistence and conveniencies of the
society, are thus diverted to another employment, highly
advantageous indeed, but still different from this one. It is
upon this account that all such improvements in mechanics, as
enable the same number of workmen to perform an equal quantity of
work, with cheaper and simpler machinery than had been usual
before, are always regarded as advantageous to every society. A
certain quantity of materials, and the labour of a certain number
of workmen, which had before been employed in supporting a more
complex and expensive machinery, can afterwards be applied to
augment the quantity of work which that or any other machinery is
useful only for performing. The undertaker of some great
manufactory who employs a thousand a year in the maintenance of
his machinery, if he can reduce this expense to five hundred will
naturally employ the other five hundred in purchasing an
additional quantity of materials to be wrought up by an
additional number of workmen. The quantity of that work,
therefore, which his machinery was useful only for performing,
will naturally be augmented, and with it all the advantage and
conveniency which the society can derive from that work.
The expense of maintaining the fixed capital in a great
country may very properly be compared to that of repairs in a
private estate. The expense of repairs may frequently be
necessary for supporting the produce of the estate, and
consequently both the gross and the net rent of the landlord.
When by a more proper direction, however, it can be diminished
without occasioning any diminution of produce, the gross rent
remains at least the same as before, and the net rent is
necessarily augmented.
But though the whole expense of maintaining the fixed
capital is thus necessarily excluded from the net revenue of the
society, it is not the same case with that of maintaining the
circulating capital. Of the four parts of which this latter
capital is composed- money, provisions, materials, and finished
work- the three last, it has already been observed, are regularly
withdrawn from it, and placed either in the fixed capital of the
society, or in their stock reserved for immediate consumption.
Whatever portion of those consumable goods is employed in
maintaining the former, goes all to the latter, and makes a part
of the net revenue of the society. The maintenance of those three
parts of the circulating capital, therefore, withdraws no portion
of the annual produce from the net revenue of the society,
besides what is necessary for maintaining the fixed capital.
The circulating capital of a society is in this respect
different from that of an individual. That of an individual is
totally excluded from making any part of his net revenue, which
must consist altogether in his profits. But though the
circulating capital of every individual makes a part of that of
the society to which he belongs, it is not upon that account
totally excluded from making a part likewise of their net
revenue. Though the whole goods in a merchant's shop must by no
means be placed in his own stock reserved for immediate
consumption, they may in that of other people, who, from a
revenue derived from other funds, may regularly replace their
value to him, together with its profits, without occasioning any
diminution either of his capital or of theirs.
Money, therefore, is the only part of the circulating
capital of a society, of which the maintenance can occasion any
diminution in their net revenue.
The fixed capital, and that part of the circulating capital
which consists in money, so far as they affect the revenue of the
society, bear a very great resemblance to one another.
First, as those machines and instruments of trade, etc.,
require a certain expense, first to erect them, and afterwards to
support them, both which expenses, though they make a part of the
gross, are deductions from the net revenue of the society; so the
stock of money which circulates in any country must require a
certain expense, first to collect it, and afterwards to support
it, both which expenses, though they make a part of the gross,
are, in the same manner, deductions from the net revenue of the
society. A certain quantity of very valuable materials, gold and
silver, and of very curious labour, instead of augmenting the
stock reserved for immediate consumption, the subsistence,
conveniencies, and amusements of individuals, is employed in
supporting that great but expensive instrument of commerce, by
means of which every individual in the society has his
subsistence, conveniencies, and amusements regularly distributed
to him in their proper proportions.
Secondly, as the machines and instruments of a trade, etc.,
which compose the fixed capital either of an individual or of a
society, make no part either of the gross or of the net revenue
of either; so money, by means of which the whole revenue of the
society is regularly distributed among all its different members,
makes itself no part of that revenue. The great wheel of
circulation is altogether different from the goods which are
circulated by means of it. The revenue of the society consists
altogether in those goods, and not in the wheel which circulates
them. In computing either the gross or the net revenue of any
society, we must always, from their whole annual circulation of
money and goods, deduct the whole value of the money, of which
not a single farthing can ever make any part of either.
It is the ambiguity of language only which can make this
proposition appear either doubtful or paradoxical. When properly
explained and understood, it is almost self-evident.
When we talk of any particular sum of money, we sometimes
mean nothing but the metal pieces of which it is composed; and
sometimes we include in our meaning some obscure reference to the
goods which can be had in exchange for it, or to the power of
purchasing which the possession of it conveys. Thus when we say
that the circulating money of England has been computed at
eighteen millions, we mean only to express the amount of the
metal pieces, which some writers have computed, or rather have
supposed to circulate in that country. But when we say that a man
is worth fifty or a hundred pounds a year, we mean commonly to
express not only the amount of the metal pieces which are
annually paid to him, but the value of the goods which he can
annually purchase or consume. We mean commonly to ascertain what
is or ought to be his way of living, or the quantity and quality
of the necessaries and conveniencies of life in which he can with
propriety indulge himself.
When, by any particular sum of money, we mean not only to
express the amount of the metal pieces of which it is composed,
but to include in its signification some obscure reference to the
goods which can be had in exchange for them, the wealth or
revenue which it in this case denotes, is equal only to one of
the two values which are thus intimated somewhat ambiguously by
the same word, and to the latter more properly than to the
former, to the money's worth more properly than to the money.
Thus if a guinea be the weekly pension of a particular
person, he can in the course of the week purchase with it a
certain quantity of subsistence, conveniencies, and amusements.
In proportion as this quantity is great or small, so are his real
riches, his real weekly revenue. His weekly revenue is certainly
not equal both to the guinea, and to what can be purchased with
it, but only to one or other of those two equal values; and to
the latter more properly than to the former, to the guinea's
worth rather than to the guinea.
If the pension of such a person was paid to him, not in
gold, but in a weekly bill for a guinea, his revenue surely would
not so properly consist in the piece of paper, as in what he
could get for it. A guinea may be considered as a bill for a
certain quantity of necessaries and conveniencies upon all the
tradesmen in the neighbourhood. The revenue of the person to whom
it is paid, does not so properly consist in the piece of gold, as
in what he can get for it, or in what he can exchange it for. If
it could be exchanged for nothing, it would, like a bill upon a
bankrupt, be of no more value than the most useless piece of
paper.
Though the weekly or yearly revenue of all the different
inhabitants of any country, in the same manner, may be, and in
reality frequently is paid to them in money, their real riches,
however, the real weekly or yearly revenue of all of them taken
together, must always be great or small in proportion to the
quantity of consumable goods which they can all of them purchase
with this money. The whole revenue of all of them taken together
is evidently not equal to both the money and the consumable
goods; but only to one or other of those two values, and to the
latter more properly than to the former.
Though we frequently, therefore, express a person's revenue
by the metal pieces which are annually paid to him, it is because
the amount of those pieces regulates the extent of his power of
purchasing, or the value of the goods which he can annually
afford to consume. We still consider his revenue as consisting in
this power of purchasing or consuming, and not in the pieces
which convey it.
But if this is sufficiently evident even with regard to an
individual, it is still more so with regard to a society. The
amount of the metal pieces which are annually paid to an
individual, is often precisely equal to his revenue, and is upon
that account the shortest and best expression of its value. But
the amount of the metal pieces which circulate in a society can
never be equal to the revenue of all its members. As the same
guinea which pays the weekly pension of one man to-day, may pay
that of another to-morrow, and that of a third the day
thereafter, the amount of the metal pieces which annually
circulate in any country must always be of much less value than
the whole money pensions annually paid with them. But the power
of purchasing, or the goods which can successively be bought with
the whole of those money pensions as they are successively paid,
must always be precisely of the same value with those pensions;
as must likewise be the revenue of the different persons to whom
they are paid. That revenue, therefore, cannot consist in those
metal pieces, of which the amount is so much inferior to its
value, but in the power of purchasing, in the goods which can
successively be bought with them as they circulate from hand to
hand.
Money, therefore, the great wheel of circulation, the great
instrument of commerce, like all other instruments of trade,
though it makes a part and a very valuable part of the capital,
makes no part of the revenue of the society to which it belongs;
and though the metal pieces of which it is composed, in the
course of their annual circulation, distribute to every man the
revenue which properly belongs to him, they make themselves no
part of that revenue.
Thirdly, and lastly, the machines and instruments of trade,
etc., which compose the fixed capital, bear this further
resemblance to that part of the circulating capital which
consists in money; that as every saving in the expense of
erecting and supporting those machines, which does not diminish
the productive powers of labour, is an improvement of the net
revenue of the society, so every saving in the expense of
collecting and supporting that part of the circulating capital
which consists in money, is an improvement of exactly the same
kind.
It is sufficiently obvious, and it has partly, too, been
explained already, in what manner every saving in the expense of
supporting the fixed capital is an improvement of the net revenue
of the society. The whole capital of the undertaker of every work
is necessarily divided between his fixed and his circulating
capital. While his whole capital remains the same, the smaller
the one part, the greater must necessarily be the other. It is
the circulating capital which furnishes the materials and wages
of labour, and puts industry into motion. Every saving,
therefore, in the expense of maintaining the fixed capital, which
does not diminish the productive powers of labour, must increase
the fund which puts industry into motion, and consequently the
annual produce of land and labour, the real revenue of every
society.
The substitution of paper in the room of gold and silver
money, replaces a very expensive instrument of commerce with one
much less costly, and sometimes equally convenient. Circulation
comes to be carried on by a new wheel, which it costs less both
to erect and to maintain than the old one. But in what manner
this operation is performed, and in what manner it tends to
increase either the gross or the net revenue of the society, is
not altogether so obvious, and may therefore require some further
explication.
There are several different sorts of paper money; but the
circulating notes of banks and bankers are the species which is
best known, and which seems best adapted for this purpose.
When the people of any particular country have such
confidence in the fortune, probity, and prudence of a particular
banker, as to believe that he is always ready to pay upon demand
such of his promissory notes as are likely to be at any time
presented to him; those notes come to have the same currency as
gold and silver money, from the confidence that such money can at
any time be had for them.
A particular banker lends among his customers his own
