Wages and Capital

During the first half of the present century, when Adam Smith’s prestige was greatest, it was the custom to treat all earlier contributions to economic thought as of little account, and to begin the history of the subject with the Wealth of Nations. In the reaction of the second half of the century there has been a disposition to credit too much to Adam Smith’s predecessors, and to belittle his own contributions. Before proceeding to the details of his discussion of capital and wages, we may consider for a moment his general position in the growth of economic theory: thereby supplementing what has just been said of the stage of earlier speculation as to wages.

On some subjects, and notably on those which most attracted the attention of his contemporaries, Adam Smith gained much and directly from his predecessors. The mercantile ideas, in their cruder forms, had been refuted by a long series of writers, by North and Hume among the English, by Boisguillebert, Cantillon, and the whole line of the Physiocrats. The functions of money in domestic and in international trade had been fully and adequately discussed by these writers; and much had also been done toward clearing up the subject of money by writers who, like Locke and Steuart, were still befogged on international commerce and the balance of trade. On credit, paper money, and banking there had been active discussion since the close of the seventeenth century, when banks began to exercise their functions on a considerable scale, and paper-money experiments came to be tried in almost every form. Adam Smith was abundantly familiar with the literature of his subject, and accepted without hesitation what had been accomplished by his predecessors. The famous attack on the mercantile system bears, indeed, the unmistakable marks of his vigorous and independent mind, in the reasoning as to the limitation of industry by capital, and in the general discussion of foreign trade. But the ground had been prepared for it by a long line of writers; and the upper tier of the educated public was prepared to accept “his views at once.

The subjects of production and distribution show Adam Smith, not perhaps at his best, but at his freshest. Here he broke new ground. On the division of labor and its causes and effects, the functions of capital, the partition of income into wages, profits, and rent, the causes determining the amount of each form of remuneration, on all these topics he started economic thought on new lines, and on lines that have been substantially followed since his time. The very novelty of his investigation made it inevitable that his results here should be more crude than on the subjects which had been worked over by two or three generations of previous thinkers; a defect which, rightly considered, makes the debt of science to him so much the greater.

Even on these subjects, it would be a mistake to consider Adam Smith as an unaided pioneer. The division of labor, and its consequences in bringing exchange and necessitating a medium of exchange, had been noted by a long series of writers, from ancient times to modern. Further, some stimulus to his thought on capital doubtless came from the general reaction against the treatment of interest and money by the mercantile writers. The older and cruder notions as to the importance of an abundance of specie had been effectually exploded before he began. As these exaggerations in regard to the importance of plentiful specie crumbled away, it was inevitable that other ideas connected with them should be overhauled and reshaped. The function of money having become clear, interest could no longer be explained as affected simply by the abundance or scarcity of money. The better understanding of the medium of exchange, again, directed attention to the nature and qualities of the commodities whose barter was seen to be facilitated. All this paved the way to the consideration of real capital, and the real machinery of production. In such indirect ways Adam Smith probably got a stimulus to his speculations on capital and interest, and so, by a natural progression, on capital and wages.

The Physiocrats, moreover, had attacked the real problems of production and distribution. The place of land in production had been emphasized by them. The derivation of all net income from land, and the reasoning which led to the denial of net income in other directions, began the treatment of distribution on the lines of modern theory. The very emphasis on these deeper subjects, as compared with the almost exclusive attention of their predecessors to the more superficial phenomena of money, was an important advance. Turgot, as we have seen, had described the importance and functions of capital with great insight and ability. Adam Smith was familiar with the writings of his French contemporaries; he used them freely, and certainly drew much from them.

But, when all is said, the essential novelty of Adam Smith’s contributions remains unmistakable. The importance and consequences of the division of labor he followed into regions where his predecessors had left a blank. Any one who compares his discussion of the income from land with that of the Physiocratic writers must see that, both m the main lines and in the details with which they are illustrated, an essentially new turn had been given to the discussion. On capital and its functions, his treatment, in some respects no more profound than Turgot’s, is yet fresher, more direct, and closer to the real phenomena which it is the object of the economist to explain. Distribution was practically created by him. The simple division under the three heads of wages, profits, and rent, in itself marks an epoch. Something of the sort may indeed be said to underlie the Physiocratic separation of the three classes, — the productive, the barren, the disposable; but the most cursory comparison shows how much closer to the actual phenomena was Adam Smith’s classification of income and income-receivers. Under each head, again, he advanced far in the direction which subsequent thought has followed to our own time. This is especially the case with his treatment of the main subject of the present inquiry: wages and capital, and the relations of workmen and employers.

The point of departure in Adam Smith’s reasoning on production and distribution is the division of labor. The first and second books of the Wealth of Nations, which contain chapters of most interest and importance to later generations, open with this topic. The emphasis was intentional, and is one of the marks of Adam Smith’s insight. He rightly thought that the characteristic phenomena of advanced societies rest on the division of labor, developed under the conditions of free industry. And this he held to be true of distribution as well as of production. The account of the increase in the productiveness of labor from its division is one of the best-known, as it is one of the most interesting passages in the book.

Observe the accommodation of the most common artificer or day labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many shipbuilders, sailors, sailmakers, ropemakers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest parts of the world!I What a variety of labour, too, is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ships of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting house, the brickmaker, the bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them.*

From this initial description, Adam Smith is led to the discussion of the exchange of commodities, the first effect of the division of labor; then to that of money as the medium of exchange; then to price, and the component parts of price; and so to wages, profits, and rent, as the component parts of the price of commodities. His first Book, whose main subject is announced in the introduction to be “the causes of the improvement in the productive powers of labor,” is thus occupied largely with the subject of distribution.

This is one of the many incongruities in the marshalling of the matter of the Wealth of Nations, — incongruities ascribable to the difficulty of presenting in systematic fashion so great a mass of new reasoning, new facts, new conclusions. Another of the consequences of the division of labor might have been advantageously taken up before entering on the discussion of distribution; but it does not appear until the first Book, with all its details and digressions, is done with, and the second Book, on capital, is introduced. The division of labor brings not only the cooperation of many thousands of laborers and the exchange of their products, but the succession, step by step, of different stages in the processes of production, and so the spreading of labor over a considerable time. With the element of time, capital appears. The best way of introducing the uninitiated reader to the fundamental truths of economics would be to bring close together at the outset the three topics between which Adam Smith has interposed his long account of distribution, — the division of labor, the use of money, and the nature and functions of capital. One consequence of their separation in the Wealth of Nations is that passages under each head, not professedly connected with each other, need to be put together in order to get a full understanding of the author’s conclusions; while another consequence probably is that Adam Smith himself missed conclusions that would have suggested themselves from a more compact exposition of these related subjects.

When Adam Smith, after long digressions, gets to the third of the topics just mentioned, — the functions of capital, — he recurs to the first and fundamental thought. The second Book, whose subject is described as “the Nature, Accumulation, and Employment of Stock,” begins thus, in the Introduction:

In that rude state of society in which there is no division of labour, in which exchanges are seldom made, and in which every man provides everything for himself, it is not necessary that any stock should be accumulated or stored up beforehand, in order to carry on the business of society. Every man endeavours to supply by his own industry his own occasional wants as they occur. When he is hungry, he goes to the forest to hunt; when his coat is worn out, he clothes himself with the skin of the first large animal he kills; and when his hut begins to go to ruin, he repairs it, as well as he can, with the trees and the turf that are nearest it.

But when the division of labour has once been thoroughly introduced, the produce of a man’s own labour can supply but a very small part of his occasional wants. The far greater part of them are supplied by the produce of other men’s labour, which he purchases with the produce of, or what is the same thing with the price of the produce of his own. But this purchase can not he made till such time as the produce of his own labour has not only been completed, but sold. A stock of goods of different kinds, therefore, must be stored up somewhere sufficient to maintain him, and to supply him with the materials and tools of his work, till such time, at least, as both these events can be brought about. A weaver can not apply himself entirely to his peculiar business, unless there is beforehand stored up somewhere, either in his own possession or in that of some other person, a stock sufficient to maintain him, and to supply him with the materials and tools of his work, till he has not only completed, but sold his web. This accumulation must, evidently, be previous to his applying his industry for so long a time to such a peculiar business.*

Here the essential function of capital is clearly explained. It enables labor to be spread over a long period, and so makes possible the division of labor and that development of the arts under the division of labor, which are the main causes of the efficiency of civilized industry. The analysis, it is true, is not complete. The process of production is regarded from the point of view of the individual producer. When the weaver has completed and sold his web, capital is supposed to be no longer needed. It has been shown, in the first part of the present volume, that capital performs its functions not by enabling the individual to carry on his operations until he gets a salable commodity, but by enabling society as a whole to carry on complicated operations involving a long interval between the beginning of production and the final enjoyable commodity. Though Adam Smith had himself given warning, often enough, against confounding the needs of the community with those of the individual, it is not surprising that he should himself have failed to observe the distinction in this, the most intricate part of the whole subject. As will appear more fully in the coming chapters, most writers after him, to our own time, have stopped short at the same point in analyzing the function of capital.

It suffices for the present subject to consider very briefly the further analysis by Adam Smith of the functions of capital. Not only is it essential to the division of labor, but it increases the productive powers of labor; it employs “productive” labor, and stimulates industry. Its effects in getting raw produce from the land, in manufactures, in wholesale trade, in retail trade, are examined and classified. Certain fundamental propositions, which have made their influence felt in all the literature of economics, first appear in developed form in the Wealth of Nations, — that capital is the result of saving; that it is perpetually consumed and reproduced; that industry is limited by capital. On some of these topics the reasoning is carried only half way; thus on the mode in which capital limits industry, and, as has just been stated, on the connection between capital and the division of labor. On others, while the fundamental propositions laid down by Adam Smith can not be shaken, he gave an undue emphasis to some corollaries; as in the excessive eulogy on parsimony which he attached to the solid truth that capital had its origin in saving. In all this the order is again confusing, and appears to be largely a matter of accident: a defect which is due, — to repeat what was said a moment ago, — to the fact that his analysis of the whole subject was practically a new birth.*

We may turn now to that part of the discussion of capital which bears more directly on the question of wages. The eighth chapter of the first Book of the Wealth of Nations treats of the Wages of Labour: the first deliberate and extended treatment of that subject in the literature of economics. In Adam Smith’s arrangement of his matter, it comes before the discussion of capital in the second Book; but the doctrines set forth in the later passages were clearly in his mind when writing the earlier. The oft-quoted opening paragraphs of the chapter on wages are, in their essential parts, as follows:

In that original state of things which preceded both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. ... But this original state of things ... could not last beyond the first introduction of the appropriation of land and the accumulation of stock. It was at an end, therefore, long before the most considerable improvements were made in the productive powers of labour. ...

It seldom happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. His maintenance is generally advanced to him from the stock of a master, the farmer who employs him. … In all arts and manufactures the greater part of the workmen stand in need of a master to advance them the materials of their work, and their wages and maintenance till it be completed. ...

It sometimes happens, indeed, that a single independent workman has stock sufficient both to purchase the materials of his work, and to maintain himself till it be completed. He is both master and workman, and enjoys the whole produce of his own labour, or the whole value which it adds to the materials on which it is bestowed. ... Such cases, however, are not very frequent, and in every part of Europe, twenty workmen serve under a master for one that is independent: and the wages of labour are everywhere understood to be, what they usually are, when the labourer is one person, and the owner of the stock which employs him another.*

Here we have two fundamental propositions. First, that in civilized industry maintenance must be provided for some considerable time, until the product is completed. The division of labor is not referred to, in terms, as the essence of the “improvements in the productive powers of labor” which cause the need of such maintenance; but that Adam Smith had this in mind, is clear from the other passages, already quoted, in earlier and later parts of his treatise. As in the later account of capital, the time during which maintenance must be provided is not described with regard to the final attainment of enjoyable goods; it is that which elapses until the particular product in hand is ready for market. When the harvest is reaped, when the specific work in hand is “completed,” the need of maintenance is supposed to cease. Secondly, we have the proposition that the needed supplies of food and materials are rarely owned by the workmen, and that hired laborers get their wages through a bargain with employers. How it happens that workmen hardly ever own “stock “sufficient for their materials and maintenance, Adam Smith does not stop to inquire; nor, for that matter, did any of the economists who came after him, until, in our own day, the assaults of the socialists compelled attention to the origin and justification of the unequal division of wealth. But Adam Smith was at least aware that the historical fact of unequal distribution was an essential premise to his reasoning on wages, and in that regard saw the situation more clearly than many of his immediate successors.

Wages, then, “depend everywhere upon the contract usually made between these two parties,” the workmen and the masters. The conditions under which the bargain is made, and the extent and limit of the demand for labor by the masters, presently come up for consideration.

The demand for those who live by wages, it is evident, cannot increase but in proportion to the increase of the funds which are destined for the payment of wages. These funds are of two kinds: first, the revenue which is over and above what is necessary for the maintenance; and secondly, the stock which is over and above what is necessary for the employment of the masters.

When the landlord, annuitant, or moneyed man, has a greater revenue than what he judges sufficient to maintain his own family, he employs either the whole or a part of the surplus in maintaining one or more servants. Increase this surplus, and he will naturally increase the number of those servants.

When an independent workman, such as a weaver or shoemaker, has got more stock than what is sufficient to purchase the materials of his own work, and to maintain himself till he can dispose of it, he naturally employs one or more journeymen with the surplus, in order to make a profit by their work. Increase this surplus, and he will naturally increase the number of his journeymen.

The demand for those who live by wages, therefore, necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it. The increase of revenue and stock is the increase of national wealth. The demand for those who live by wages, therefore, naturally increases with the increase of national wealth, and cannot possibly increase without it.*

Here are mentioned two sources of demand for labor, “revenue” and “stock.”

“Revenue” evidently means what is spent for servants and retainers, hired by the employer for the direct satisfaction of his own wants or whims. When Adam Smith gets to the elaborate treatment of stock and capital in his second Book, he has much more to say of laborers hired from revenue. They are unproductive” laborers; and what is spent on them is “prodigality,” and entails pure loss to the community.*

Without going into any extended consideration of the outlying topics which these distinctions suggest, we may note how the discussion of this part of the demand for labor, scattered as it is through various passages of the Wealth of Nations, illustrates both the strength and the weakness of Adam Smith’s treatment of the course of production and distribution. His historical knowledge and practical bent led him to give more attention to the demand for u unproductive” labor than was given to it by his successors. He was living at a time when luxury still took in large part the form of a great retinue of servants; though it was beginning to take more and more the modern form of the purchase of commodities from capitalist middlemen, who have hired the laborers ministering to the wants and caprices of the rich. He reasoned as if the difference were of vital consequence to the community: the one course was the result of “prodigality” and led to waste, while the other entailed “parsimony” and brought progress. There may be an important element of truth in the proposition that the workman hired by the capitalist is likely to be more sober and industrious than the retainer of the nobleman;* and there are important social consequences from the rise of a class of capitalist en­trepreneurs. But clearly the direction of production and consumption remains the same at bottom, whether the unequal distribution of wealth works itself out in one way or the other. All laborers employed out of “revenue” are supposed to be unproductive; a proposition which, in any larger consideration of wants and their satisfaction, is crude and untenable. The further conclusions to which Adam Smith was thus led, in his consideration of “unproductive” labor, while consistent in themselves, are unsatisfactory enough. They go with that undue emphasis which the classic economists, following his lead, put on the mere accumulation of capital as the one thing needful for public prosperity. But he was certainly right on one point: in maintaining that the demand for “unproductive” labor occurred under different conditions and with a different play of motives from those which appear in the case of “productive” labor. In so far, he showed his insight into the complexities of real life, and set an example of close attention to varied facts which might have been usefully followed by the long series of his admirers and expositors.

On the second and more important part of the demand for labor, — that which comes from “stock,” — it is less easy to make the different parts of the Wealth of Nations hang together. Sometimes, indeed most commonly, this “stock” is conceived in terms of money, or as consisting of funds in the hands of the immediate employer. Sometimes the money payments are described as of no essential importance, as only steps toward the distribution of real wages. The uncertainty and confusion which thus showed itself in Adam Smith continued to appear in almost all the discussions of wages for fully a century after his time.

The phrases “funds destined for the maintenance of labour,” and “funds destined for the payment of wages,” occur again and again: they are the undoubted parent of the word “wages-fund” as it is used in later literature. Sometimes, “capital” and “stock” are used to denote the source of wages. In the chapter on profits we find all these phrases used interchangeably: “The dimmution of the capital stock of the society, or of the funds destined for the maintenance of labor, as it lowers the wages of labour, so it raises the profits of stock.”* Whichever words were used, Adam Smith, when speaking directly of wages, seems to have conceived of their source simply as funds in the hands of the immediate employer. In the passage quoted a few moments ago.† again from the chapter on wages, the “stock” of the master is apparently thought of in terms of money. It is the amount over “what is sufficient to purchase the materials of his own work, and to maintain himself till he can dispose of it.” In the later discussion of fixed and circulating capital, in the second Book, we read that “that part of the capital of the farmer ... which is employed in the wages and maintenance of his labouring servants is a circulating capital.”‡ The funds controlled by the immediate employer would seem to be referred to in all these passages.

On the other hand, when the independent discussion of capital is undertaken, in the second Book, a different view appears. Here Adam Smith comes so much nearer the truth, — indeed, states the essential truth so clearly that it is surprising he did not turn back to his chapter on wages in the first Book, and remodel its matter and its phrases. The same remark might be made, to be sure, of many passages in the Wealth of Nations. On a great range of topics, — rent, profits, value, international trade, — there are flashes of insight, pregnant statements, which yet fail to be carried to their last consequences.

The “stock” of society is divided, in the second Book, into two parts: the” stock,” in a narrower sense, of finished commodities which is” reserved” for immediate consumption; and the “capital,” whether fixed or circulating, which is expected to afford a revenue. The distinction between fixed and circulating capital, (very different from that which became traditional with later writers) is largely fanciful; but the confusion here does not affect the part of the reasoning that bears on our present subject. It is under the head of circulating capital, that we should expect a consideration of those forms of capital which make the demand for what Adam Smith called “productive” labor. Either the money funds in the hands of the immediate employer, or the finished consumable commodities on which the laborers spend their money wages, might here be given the chief emphasis. Both of them, in fact, receive their share of attention, and both are discussed in curious harmony with distinctions and definitions that have come to the front again in very recent times; while yet, under either head, the reasoning is not carried to its logical conclusion as to the real and important source of wages.

Adam Smith rightly treats the commodities which in one sense are finished, but are not yet in consumers’ hands, as capital. “The stock of provisions which are in the possession of the butcher, the grazier, the farmer, the corn merchant,” and “the work which is made up and completed, but which is still in the hands of the merchant or manufacturer, and not yet disposed of or distributed to their proper consumers,” — these are parts of circulating capital.* Adam Smith did not indeed call them capital for the reason which would nowadays be given: that the butcher and merchant do a share of helpful work in production, and that goods in their hands are wealth not yet enjoyable. But the essence of the situation was grasped by him, even if all its connections and consequences were not perceived. Adam Smith had defined capital as that which yielded a revenue; whence it would have followed, that a dwelling house or a suit of clothes, if let for hire by the owner, became capital. Nevertheless he qualifies his general definition at this point: such revenue-yielding commodities belong not to the community’s capital, but to its stock reserved for immediate consumption. “The stock of food, clothes, household furniture, etc., which have been purchased by their proper consumers, but which are not yet entirely consumed,” are not capital: they are realized income. But “work which is made up and completed, but which is still in the hands of the manufacturer and merchant, and not yet disposed of or distributed to the proper consumers: such as the finished work which we frequently find ready-made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china merchant,” — all this is part of capital, being not yet in the hands of the “proper consumer.”† At this point Adam Smith might be expected to look for the capital which is the immediate real source of wages, as of all other income, — the consumable goods, in dealers’ hands, ready for purchase by laborers. But he never did so. The illustration which he used for bringing out his meaning as to this form of circulating capital is “the finished work which we frequently find ready-made in the shops of the smith, the cabinet-maker, the goldsmith, the jeweller, the china-merchant, etc.” The simpler goods which laborers will buy obviously belong in the same class; they are capital in the same sense and for the same reason. But Adam Smith’s thought seems turned to these only in dealing with other subjects, and never in connection with the payment of wages out of capital. The hints which he gave, the acute distinctions which he suggested, if followed to their consequences, might easily have led to the development of a theory of wages that would have kept close to the concrete facts, and avoided the vague generalizations of the wages fund doctrine of later days. Adam Smith himself never followed them out; his successors did even less; and thus the passages which have here been cited make the impression of curious but unfruitful anticipations of the essential truths.

So far as money and money wages, and the place of money in capital, are concerned, Adam Smith’s direct discussion is admirable; and the substantial ground for criticism can again be only that the truths here set forth were not brought to bear more fully on the question of real wages. While he classes money as part of circulating capital, he notes the peculiar place which it has in the capital of the community. It never wears out: hence “the fixed capital, and that part of circulating capital which consists in money, ... bear a great resemblance to one another.”* Money has a place of its own; he describes it, in language used with frequent emphasis, as simply “the great wheel of circulation,” and as “altogether different from the goods which are circulated by means of it.” The real revenue of society, and of each individual in society, is in “the quantity of consumable goods which they can all of them purchase with this money.”* This simple and oft-neglected truth he dwells on at length, having an eye on the familiar fallacies of the mercantile writers, to which he was giving the finishing stroke. And yet, as we have seen, when capital is regarded as the source of demand for labor, he seems to think of the money funds with which the employer pays the hired laborer. It is true that a case to which he often refers, by way of illustrating the need of advances to the laborer, is that of the farmer, maintaining his laborers at his own table, and so owning in natura the capital which remunerates them: a case which emerges again and again in later literature. But Adam Smith usually has in mind the very different conditions which in fact prevail in the modern world. He describes a society with a developed money régime, in which all income appears first in the form of money payments and money rights. He does not fail to point out, with emphasis, the simple distinction between money wages and real wages; but he never goes into any further detail as to the connection between the two, or as to the nature and determination of the flow of consumable commodities whence real wages must come. Here, as on the question of the place of such commodities in “stock” or “capital,” he advanced without error to a certain point, and then stopped short.

No doubt the reason why Adam Smith failed to carry further his reasoning both as to the relation between money wages and real capital, and as to the place of dealers’ stocks in social capital, is to be found in his mistaken view as to the extension of the productive cycle. He thought of production piece by piece. The employer needed funds with which to pay laborers simply until the product was salable: the need of advances ceased when the particular article in hand was completed. This simple every-day operation is easily confounded with the larger and more intricate process by which the labor of the whole community is spread over a lengthened period. Many writers after Adam Smith have been guilty here of much worse confusion: the great master’s fault was one of inattention rather than of express error.

To sum up the theory of capital and wages, as it stood with the appearance of the Wealth of Nations. Adam Smith had shown that, in a society having a developed division of labor, the process of production was spread over some length of time, and that for the laborers in such a society subsistence must be provided until their present labor should result in finished goods in the future. How great this provision must be, was not indeed considered with a full appreciation of the position of the whole community; but the fundamental fact had been clearly pointed out. Further, he had shown that, under the unequal distribution of wealth in modern societies, the supplies from which laborers must for the moment get their subsistence, are in the hands of others: hence laborers get them by a bargain with those others. Exactly what the employers have to offer in that bargain, he did not consistently and fully set forth. Some of them have “revenue,” more of them have “capital “and “funds,” with which they remunerate labor. All laborers hired by those who employ them for gain from the sale of the product, are dependent on advances from the capital of the employers. But what that capital consists of, is not clearly stated. The remarkable analysis of capital in the second Book might easily have led the way to a more explicit statement: but Adam Smith did not advance farther on the path which he here opened.

• *a*b*c*d*e*f*g*h*i*j*kWealth of Nations, Book I, chapter i, p. 6. The page numbers given here and elsewhere for the Wealth of Nations, refer to McCulloch’s edition. I have quoted only a part of this closing paragraph in the chapter: enough to indicate its character.
• †a†bAt p. 142.
• ‡Book II, ch. i, p. 120.