Wonderful!

I’m really enjoying your summaries. I read this years ago, but I don’t recall making a great effort to understand it. Remembering myself at the time, the goal was most likely to quote from it pretentiously (or better yet, to be seen carrying it).

Second, re Smith’s p. 236 and your puzzlement over the circulating capital of individuals being excluded from net revenue. To me, the individual side isn’t where the question comes in. You’ve paraphrased Smith as saying that any provisions &c not immediately consumed can be sold, but his exact language is that provisions withdrawn from circulating capital go either to maintaining fixed capital or into “the stock reserved for immediate consumption.” Same thing he said in Ch. II.1, where he further made it clear that “stock reserved for immediate consumption,” by definition, “affords no revenue or profit.” It’s for in-house consumption only. So the real issue is, what’s different at the societal level? I’m guessing our answer lies in the aggregation of economic activity. As Smith says, distributed across all of society, the maintenance of circulating capital “withdraws no portion of the annual produce from the net revenue.”

Any circulating capital that’s consumer-ready, and isn’t put into maintaining fixed capital, is going to end up as *somebody’s* personal-consumption stock. On an individual level, however, that somebody is usually a buyer. At time of sale, the subject goods no longer count as circulating capital (see Chapter II.1 again), and their necessary component materials must be replaced if the originating individual wants to remain in business.

Smith says (as I read it):
“Though the whole goods in a merchant’s shop must by no means be placed in his own stock reserved for [his] immediate consumption, they may [be placed] in [the stock reserved for private consumption] of other people, who [...] may regularly replace their value to him, together with its profits, without occasioning any diminution either of his capital or of theirs.”

That sounds to me like he’s saying that the portion of the circulating capital that is ready to do its thing as a final consumable is net revenue to the society, even if it is not yet net revenue to any individual.

The half-sawn boards in the sawmill are part of the sawyer’s circulating capital (materials), but certainly not part of the sawyer’s net revenue, because they aren’t ready to sell. It will take the application of more circulating capital to realize their revenue. More subtly, even when the sawmill work is finished, the boards aren’t yet *revenue* because they must still be transported, stored, marketed, etc. Until the transaction takes place, they still require circulating capital from the sawyer to get to that transaction point. Thus, even “finished goods” in inventory are not really finished, from a circulating capital point of view, and are thus not revenue.

But for the society overall, the wholly-sawn, ready-to-be-sold boards are free to enter the society’s stock of fixed capital, either as part of the sawyer’s capital stock, or by being sold to someone else. Does that make them societal net revenue? Apparently.

(I wonder if Smith thought that the circulating capital required to achieve the sale is a zero-sum transaction from the society’s point of view — “without occasioning any diminution in their net revenue”. That works for transportation costs, but not for spoilage, transshipment losses, etc.)