The Dream Café

Steven Brust: “A masterful storyteller of contagious glee and self-deprecating badassery” —Skyler White

Adam Smith, The Wealth of Nations


I’m going to need to take notes as I read this, so I figured I may as well do it here as anywhere else–especially because doing it here gives Smart People a chance to point out where I’m being stupid.

I’m using the Bantom Dell paperback edition, March 2003, edited and annotated by Doug Fraser, ISBM 0-553-58597-5

Introduction: The title is The Wealth of Nations.  Later, I may have some thoughts about wealth, but what intrigues me right away is that in the very title  he makes reference to nations–that is, to a very specific organization of the State, and one closely associated with the economy of commodity-exchange, as opposed to, for example, the Kingdom, the City-State, the Tribe, &c.  I wonder, therefore, to what degree his intention is to talk about general economic laws, and to what extent he intends to limit his discussion to the specifics of a market economy.

In the introuction itself, the first sentence reads as follows: “The annual labor of every nation is the fund which originally supplies with all the necessaries and conveniences of life.”  So then, what would later come to be called the Labor Theory of Value, appears here as a given.  Is he going to establish this later, or is it merely assumed?

In the second paragraph, he is already entering into a discussion of the productivity of labor–in other words, he is setting aside (at least for the moment) the material wealth with which a given region is endowed, and instead concentrating on the degree to which labor can multiply that wealth.  To my mind, this seems perfectly reasonable.

He returns to this with more force on page 3, although I’ve now run into the term “capital stock” in the sentence, “The number of useful and productive labourers, it will hereafter appear, is every where in propotion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.”  I think I’m going to have a real problem if I can’t figure out what he means by “capital stock.”  Raw material?  Capital in the sense of wealth for investment?  Hope I figure it out.

Later on page 3 he makes the interesting point that Europe has concentrated (since the fall of the Roman Empire) on industry of the town as opposed to industry of the country.  Here he refers to it as a matter of “policy,” which seems arbitrary absent discussion of the material causes of that policy, but I trust he’ll expand on that later.

On to Book One


Author: corwin

Site administrative account, so probably Corwin, Felix or DD-B.


  1. “The number of useful and productive labourers, it will hereafter appear, is every where in propotion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.”

    Well, the capital stock is employed in setting productive labourers to work. So it appears that ‘capital stock’ would be the resources used to finance the industry employing the laborers. So, yes, it would be wealth/capital available for investment in either new enterprises or in expanding existing ones.

    At least that is how it looks to me…

  2. The first sentence as you quoted it didn’t make sense to me, so I looked for the text on line. This one is described as “Complete text, including tables and is fully searchable”, and it has hypernotes. Might be useful…

    Oh, so the first sentence is “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”

  3. So then, he is using “capital stock” where we would simply use “capital.” Makes sense. Thanks, Vnend; I’ll go with that until I get some reason to change my mind.

  4. Mark: Right, sloppy copying on my part. Get used to it. 🙂

  5. Capital Stock…Stock is basically your personal wealth used for food, clothing, housing, investment, etc. In the case of lower income folks, you only have enough stock to meet your very essential needs, if that. In the case of the richer folks, they have a small portion put away to meet immediate needs, but they may also use another portion of it to generate further revenues, in other words, make an investment with an expectation of generating a profit. This money used to generate revenues is called Capital. Thus, the money that is used to hire laborers is Capital Stock – it is capital to the investor and stock to laborer. The expectation would be that investor pays the laborers to work (with Capital Stock), who in turn create a product or service that is of sufficient value to create a revenue stream.

    Hopefully that helps…I got two degrees in this kinda junk, so hopefully I’m making sense.

  6. For once I don’t feel like the dumb kid in class. I wrote my thesis on Smith, I’m a registered financial adviser, and I teach economics at Granite State College in NH. So I’ll give you the consensus on Adam Smith.

    According to Smith, “capital stock” refers to the ability of a group to manufacture products with a skill. Adam Smith was fascinated with why some countries seemed to become wealthy and why others underachieved. Without paraphrasing the whole book, he identifies 4 major factors in what determines a nations potential.

    1. Land – What we now refer to natural resources.

    2. Labor – You need a skilled labor force in order to realizes the potential of the land.

    3. Capital – Again, this is not money. It’s the ability to manufacture.

    4. Entrepreneurial Spirit – Unless people have a financial incentive to work harder for their own benefit, they simply won’t.

    I hope this gets you off to a good start. Let me know if I can help. BTW- Smith is not anti-labor as some contend. The problem is that many who have read WoN simply see them as an ingredient, not the purpose.

  7. … in the very title he makes reference to nations–that is, to a very specific organization of the State, and one closely associated with the economy of commodity-exchange as opposed to, for example, the Kingdom, the City-State, the Tribe, &c.

    I’d be a little cautious about assuming what Smith (writing in the 18th Century) means by “nation” is precisely what we ( in the early 21st Century) assume it means.

    Granted, he probably did mean relatively organized states and not “tribes”; on the other hand, “nation” and “kingdom” were practically synonymous in his time.

  8. Jo’din,

    First, I don’t know if I need to, but in order to avoid looking like some financially uneducated guy who jumped in on the conversation, I will also mention my qualifications: I have an MBA and work in the finance department of a Fortune 500 company, so I’m also no slouch.

    Next, In the big picture, I don’t disagree with what you’re saying, but in the context which is being mentioned here, capital is money. If you start reading at the beginning of Chapter I of Book II, Smith discusses that when a man only has enough stock (wealth or money) to meet his immediate needs he uses it sparingly and doesn’t seek to create revenue from it. However, when a man has sufficient money to meet all his needs and also extra stock, he will seek to generate revenue from this excess portion of his stock. At this point, Smith pretty clearly states the following: “His whole stock, therefore, is distinguished into two parts. That part which, he expects, is to afford him this revenue, is called his capital.”

    Also the sentence in question says, “The number of useful and productive labourers, it will hereafter appear, is every where in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.” If we use your definition of capital in this situation, you would be saying that you are using your “ability to manufacture” to set your laborers to work. You do not use your ability to manufacture to set your laborers to work, you use money or some form of incentive to get your laborers to work, which creates your ability to manufacture.

  9. Wade, I think you are being a little careless with an assumption here. Yes, in a society where money, whether specie or currency, can be freely converted to goods and those goods can be freely converted back into money, then you can consider capital stock and money to be synonymous. But what if there are impediments to exchange, like excessive regulation, wildly fluctuating values on goods or property or severe, unpredictable shortages? Or, worse, a state that seizes assets without due process?

    Money only rises to the level of a reliable form of capital if the entire society cooperates to afford it that status. Without a system of laws, financial regulation and shared values, capital stock might just as well consist only of real or intellectual property or even just the strength of your arm.

  10. Peter,

    I agree with you, again, in general, like I did with Jo’din, but again, in this case, we’re not talking about capital in the “big picture” sense. You’re right in the fact that capital can be several things. However, the instance in question is pretty clearly laid out. I also agree with you that it might be careless to strictly call it money, but I’ve also pointed out in post 8 that it could be “some kind of incentive”, so maybe it’s a trade of labor for food, or labor for rent, etc. However, like I said to Jo’din, keep in mind that in this specific situation, my intellectual property or the strength of my arm will not set laborers to work for me, rather I will compensate them to work for me with my capital stock, whether it’s food, a roof over their head or currency. I would agree, however, that the strength of the laborer’s arm or their intellectual property would be THEIR capital.

  11. More generally, when paired with “labor”, “capital” in an economic sense is used to describe things the labor operates with or upon, in order to produce. So, if someone wants to dig a hole, the shovels (or steam engines or dynamite or whatever) are the capital. The people who do the shoveling or dynamiting are the labor.

  12. This is fantastic, thanks for being willing to share your thoughts on this.

  13. Hey Wade!!!

    I actually think you’re right here.

    I read it fast and somehow took it out of context. For this part I agree he’s talking about money. I think I was just trying to get the general use of the word capital by Smith in context with the work as a whole.

  14. For what this may be worth, On the Moral Sentiment is pretty important to understand where Smith is coming from in TWoN. Interestingly, the concept of the invisible hand comes from the former work, not the latter.

  15. Being functionally illiterate makes it very hard to read any book – you have to know what the words mean. E. g. the common American mistake that ‘nation’ has something to do with a government. It does not. A nation is a people – that is a tribe or ethnic group. The Nation-state is a recent invention that came upon the world at the end of the first world war.

  16. “Nation: n, a politically organized body of people under a single government.”

    And no, the Nation-state emerged in the 17th Century, not the 20th.

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