Category: Steve

This chapter deals with the accumulation of capital.  The second half of the chapter isn’t especially interesting to me, as it concerns itself with the way an individual might spend his capital (luxeries or production, and the kind of luxeries) and the effect this has on the capital of the nation.  Today, the issue is much more the degree of concentration of wealth in a few hands, and much less whether those with wealth spend it on feasts or expensive trinkets.

The first half of the chapter is more interesting in terms of the economic laws.  On page 270 he writes: “There is one sort of labor which adds to the value of the subject upon which it is bestowed: there is another which has no such effect.”  In the first category he includes farmers and manufacturers; in the second servants.  Later, he implies this also includes opera-singers, opera-dancers, lawyers, churchmen, &c.

“A man grows rich by employing a multitude of manufacturers: he grows poor by maintaining a multitude of servants.”  In Marxist terms, the latter are not performing labor because they are not adding value to a commodity; but I think Smith’s distinctions make sense; in any case, both Marx and Smith arrived at the same place in terms of use of capital to create value.  It is interesting that Smith ignores the profit made by, for example, the owner of the opera company by employing singers and dancers; apparently to him this does not constitute value, though clearly it does increase capital.

Further down on 270 he speaks of labor invested in machinery as labor stocked up and stored against later use.  This is profound, and helps to understand why machinery cannot, itself, increase the value of a commoodity, but only transfer it.  “That subject, or what is the same thing, the price of that subject, can afterwards, if necessary, put into motion a quantity of labor equal to that which had originally produced it.”  This is well known in physics, and seems to also apply to economics: machines can store, transfer, or alter the form of energy (or work, or labor), but cannot create it.  Where we depart from physics is that machinery can multiply the effect of labor by increasing its efficiency, but this is still qualitatively different from creating it.

Speaking again of lawyers, clergymen, prostitutes, and similar laborours: “Like the declamation of the actor, the harrangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of production.”  This has changed because of the improvement in technology to preserve information: now, a singer is able to add value to a commodity: a CD or DVD.  But even if the case has changed, his method is spot on.  (Sidenote: One might consider that pornographic film and video has changed some forms of prostitution from unproductive to productive labor; I wonder what Smith would say?)

Page 273: “The proportion, therefore, between the productive and unproductive hands, depends very much in every country upon the proportion between that part of the annual produce which, as soon as it becomes either from the ground or from the hands of the productive laborers, is destined for constituting a revenue, either as rent, or as profit.  This proportion is very different in rich from what it is in poor countries.”

This is very important in a couple of ways.  First, the difference between rich and poor countries consists in several things, but most importantly on the cultural level–by which I mean, specifically, the technological level: how productive is labor in that country?  To what extent can labor be multiplied?  The other interesting thing that came to mind is that it struck me, when he spoke of rent and profit, that is often treating those two things in the same way.  It is not so big a leap after all from Smith’s saying that ground-rent is a division of value (along with wages and profit) to saying that ground-rent and profit are among the ways that suprlus value is divided.

Page 281: “The value of consumable goods annually circulated within the society being greater, will require a greater quantity of money to circulate them.”

Page 283: “Such people, as they themselves producing nothing, are all maintained by the produce of other men’s labor.”  He is not speaking here of capitalists, but, notwithstandind their useful (and, in a market economy, necessary) role in production, he could be.

Page 284: “The productive powers of the same number of laborers cannot be increased, but in consequence either of some addition and improvement to those machiens and instruments which facilitate and abridge labor; or of a more proper division and distribution of employment.  In either case, addtional capital is almost always required.  It is by means of an additional capital only, that the undertaker of any work can either provide his workmen with better machinery, or make a more proper distribution of employment among them.”  Very nice!  That is, indeed, how a market economy works.  That’s why it is called capitalism.

On page 251 he discusses what happens when a bank tries to circulate more currency than what the country can employ, and how the excess is almost immediately returned.  I suspect this is another area that is no longer applicable; at least directly.

Similarly, on page 254: “What a bank can with propriety advance to a merchant or undertaker of any kind, is not either the whole capital with which he trades, or even any considerable part of that capital; but that part of it only, which he would otherwise be obliged to keep by him unemployed, and in ready money for answering occasional demands.”  Not so much any more–banks have become completely intertwined in every branch of every industry.  Indeed, Lenin defined Imperialism as that stage of capitalism which is dominated by finance capital, with industrial capital taking a back seat.

He goes on in this vein for some time, cautioning banks against making loans which cannot be returned for many years.  Page 258: “It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.”  I may be brushing over this too lightly, but it just seems to me to no longer apply.  Perhaps there would be value in tracing exactly when and how it stopped applying, and what the consequences are, but there’s no way I could pull that off.  A man’s got to know his limitations.

Page 259, quoted mostly because I like it: “The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper money, as when they travel upon the solid ground of gold and silver.”

He then goes on to discuss the reglulation of banks by government, arguing that small denominations of paper should be avoided, and admitting that some people may see such regulations as infringement upon personal liberty.  Page 263: “But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotic.  The obligation of bulding party walls, in order to prevent the communication of fire, is a violation of natural liberty, excactly of the same kind, with the regulations of the banking trade which are here proposed.”

He then asserts that paper money is exactly the same as gold and silver, under certain conditions: “issued by people of undoubted credit, payable upon demand without any condition, and in fact always readily paid as soon as presented.”

He discusses errors in the banking trade which no longer, I think, apply.  He talks about the North American colonies (most of which would no longer be colonies within a decade), and how these colonies attempted, by law, to declare certain paper currencies to be above their actual value, with Smith condems as, in essence, debtors attempting to steal from their creditors.  Page 266: “No law, therefore, could be more equitable than the act of parliament, so unjustly complained of in the colonies, which declared that no paper currency to be emitted there in time coming should be a legal tender of payment.”

Page 268: The proportion between the value of gold and silver and that of goods of any other kind, depends in all cases , not upon the nature or quantity of any particular paper money, which may be current in any particular country, but upon the richness of poverty of the mines, which happen at any particular time to supply the great market of the commercial world with those metals.”

Which brings us, at least, to the end of the this chapter.  I only hope that my confusion over much of what was covered here won’t interfere with my understanding further chapters, because if it does, I’ll have to go back to this one and try again, and I may jump off the Mendota Bridge instead.