to the capital employed, it is much less—book 2, chap. iii.
In a wealthy country, the whole profits of its capital are infinitely greater than in one that is poor; although a given quantity of capital will, in a country of the latter description, produce profits much greater than in an opulent one—ibid.
It is industry that furnishes the produce; but it is economy that places in the capital that part of it which would otherwise have become revenue—ibid.
The economy of individuals arises from a principle which is universally diffused, and one that is continually in action; the desire of ameliorating their condition. This principle supports the existence and increase of national wealth, in spite of the prodigality of some individuals; and even triumphs over the profusion and errors of governments—ibid.[Pg xxviii]
Of the different modes of spending money, some are more favourable than others to the increase of national wealth—ibid.
Those branches of employment which require a capital, never fail to call forth more or less labour; and thus contribute, in a greater or less degree, to increase the extent of national labour.
Capital can be employed only in four ways:
1. In cultivating and improving the earth, or, in other words, multiplying its rude produce;
2. In supporting manufactures;
3. In buying by the gross, to sell in the same manner;
4. In buying by the gross, to sell by retail.
These four modes of employing capital are equally necessary to, and serve mutually to support, each other. The first supports, beyond all comparison, the greatest number of productive hands; the second occupies more than the two remaining; and the fourth the fewest of any.
Capital may be employed, according to the third mode, in three different ways; each contributing in a very different degree to the support and encouragement of national industry.
When capital is employed in exchanging one description of the produce of national industry for another, it then supports as great a portion of industry as can be done by any capital employed in commerce.
When it is employed in exchanging the produce of national for that of foreign industry, for the purposes of home consumption, half of it goes to the support of foreign industry; by which means, it is only of half that service to the industry of the nation which it would have been had it been employed another way.
Lastly, when it is employed in exchanging one description of the produce of foreign industry for another, or in what is termed the carrying trade, it then serves wholly for the support and encouragement of the industry of the two foreign nations, and adds only to the annual produce of the country the profits of the merchant—book 2, chap. v.
Self-interest, when left uncontrouled, will necessarily lead the proprietors of capitals to prefer that species of employment which is most favourable to national industry, because it is, at the same time, most profitable for themselves—ibid. For, when capitals have been employed in a way different from that suggested by the infallible instinct of self-interest, it has always been in consequence of the peculiar circumstances of the European governments, and of that influence which the vulgar prejudices of merchants have had over the system of administration which these governments have adopted.
The account of these circumstances, with the discussion of the errors of this system, form the matter of the third and fourth books.
Political Economy is, of all sciences, that which affords most room for prejudices, and in which they are most liable to become deeply rooted. The desire of improving our condition, that universal principle, which continually acts upon every member of the community, is ever directing the thoughts of each individual to the means of increasing his private fortune. But should this individual ever chance to raise his views to the management of the public money, he would naturally be led to reason from analogy, and apply to the general interest of his country those principles which reflection and experience have led him to regard as the best guides in the conduct of his own private affairs. Thus, from attending to the fact, that money constitutes a part of the productive stock in the fortune of an individual, and that his fortune increases in proportion to the increase of this article, there arises that erroneous opinion so generally received, that money is a constituent part of national wealth, and that a country becomes rich, in proportion as it receives money from those countries with which it has commercial connections.
Merchants who have been accustomed to retire each night to their desks, to count, with eagerness, the quantity of currency, or of good debts, which their day's sale has produced, calculating their profits only by this result, and confident that such a calculation has never deceived them, are naturally led to think that the affairs of the nation must follow the same rule; and they have been strengthened in this opinion by that unshaken confidence which a long and never-failing experience, that has been the source of wealth and prosperity, inspires. Hence those extravagant opinions respecting the advantages and profits of foreign commerce, and the importance of money; hence those absurd calculations that have been made regarding what is termed the balance of trade, the thermometer of public prosperity; hence those systems of regulations, and those oppressive monopolies, which are resorted to for the purpose of making one side of the balance preponderate; hence, too, those bloody and destructive wars, which have raged in both hemispheres, from the period in which the road to the Indies, and to the new world, became familiar to European nations.
When we observe, that the many bloody wars that have been waged in the different parts of the world for these two last centuries, and even the present war, in many points of view, have had, as their principal end, the maintenance of some monopoly, contrary even to the interest of the nation armed to protect it; we shall feel the full importance of those benefits which the illustrious author of the 'Wealth of Nations' has endeavoured to confer upon mankind, by victoriously combating such strong and baneful prejudices. But we cannot help deeply lamenting, to see how slowly, and with what difficulty, reason in all its strength, and truth in all its clearness, regain the possession of these territories which error and passion have so rapidly overrun.
The prejudices so successfully attacked by Dr. Smith, appear again and again, with undiminished assurance, in the tribunals of legislature, in the councils of administration, in the cabinets of ministry, and in the writings of politicians. They still talk of the importance of foreign and colonial commerce; they still attempt to determine the balance of trade; they renew all the reveries of political arithmetic, as if these questions had not been determined by Smith, in a way which renders them no longer capable of controversy.
It was in the midst of a country, the most deeply imbued with mercantile prejudices; the most completely subjected to its prohibitory policy, that Dr. Smith sapped the foundations of this absurd and tyrannical system; it was at the very moment when England, in alarm, saw, with terror, the possibility of a separation from her American colonies: it was then that he derided the universal fear, and proudly prophesied the success of the colonists, and their approaching independence; and that he confidently announced, what experience has since completely affirmed, the happy consequences which this separation and this independence, so much dreaded, would produce upon the prosperity, both of Great Britain and her colonies—book 4, chap. vii. part 3.
The wealth of communities is so intimately connected with their civil and political existence, that the author has been drawn by his subject into numerous other discussions, which seem more or less removed from it; and in which we discover the same sagacity of observation, the same depth of research, and the same force of reasoning.
The advantages of a complete and permanent freedom in the corn trade have never
