[161] The whole passage, almost word for word, may be found in Smith’s course of lectures at Glasgow, and the whole is taken from Mandeville’s Fable des Abeilles.
[162] Wealth of Nations, Book I, chap. 4; Cannan, vol. i, p. 24.
[163] For a long time economists were quite content with Smith’s theory of capital. Like other portions of his work, it readily became classic, and subsequent writers simply repeated it. To-day, however, this success hardly seems to have been warranted. “It can scarcely be denied,” writes Cannan, “that Smith left the whole subject of capital in the most unsatisfactory state.” (Theories of Production and Distribution, p. 89.) If this remark needs any justification we have it in the many discussions which have taken place on this subject during the last fifty years, and which are not yet at an end. Some of the most original works of recent years, Böhm-Bawerk’s Positive Theory of Capital, for example, are entirely taken up with this topic. In England, America, and Italy the best-known economists, Cannan, Fisher, and Pareto, have recently revived the ancient notions, and the discussions which have followed are sufficient evidence that Smith had by no means exhausted the subject. If we carefully read Book II of the Wealth of Nations, which is entirely devoted to this topic, what do we find? We have a distinction drawn between fixed and circulating capital borrowed from practical affairs, but possessing no great scientific value; the very doubtful identification of national capital with the sum of private capitals; a very unsatisfactory attempt at differentiating between the notions of capital and revenue; the affirmation that saving involves consumption, a paradox repeated ad nauseam down to the days of Mill; the commonplace statement that capital increases as saving grows; and, finally, the proposition that “capital limits industry.”
[164] Wealth of Nations, Book II, chap. 3; Cannan, vol. i, p. 325. “The annual produce of the land and labour of any nation can be increased in its value by no other means, but by increasing either the number of its productive labourers, or the productive powers of those labourers who had before been employed. The number of its productive labourers, it is evident, can never be much increased, but in consequence of an increase of capital, or of the funds destined for maintaining them. The productive powers of the same number of labourers cannot be increased, but in consequence either of some addition and improvement to those machines and instruments which facilitate and abridge labour; or of a more proper division and distribution of employment. In either case an additional capital is almost always required.”
[165] Ibid., Book IV, chap. 2; vol. i, p. 423.
[166] “The general industry of the society never can exceed what the capital of the society can employ.” (Ibid., Book IV, chap. 2; vol. i, p. 419.) John Stuart Mill was the first to employ the formula in its condensed form, “Industry is limited by capital.”
[167] We have spoken of the controversies as threadbare, for every economist is by this time persuaded that, assuming the necessity for the co-operation of capital, land, and labour in production, it is quite clear that the amount of produce raised must depend upon the amount of each of these factors employed, and not upon the amount of any one of them.
Smith had anticipated the arguments advanced by such socialists as Rodbertus and Lassalle, who regard saving rather than labour as the source of capital. “Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.” (Wealth of Nations, Book II, chap. 3; Cannan, vol. i, p. 320.)
[168] Ibid., Book II, chap. 3; vol. i, pp. 323, 324, 325.
[169] Wealth of Nations, Book I, chap. 7; Cannan, vol. i, p. 58. “The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.”