The early accumulation of commodities is the premise of division of labor. Doctors and soldiers can't live without the corresponding food and clothing accumulated in advance. The finer the division of labor, the more items need to be accumulated in advance, including the equipment and raw materials needed for each job.
Commodity savings can be divided into three categories: current capital, fixed capital and consumer goods.
Working capital and fixed capital are both capital, and capital refers to goods that can earn income. Other unprofitable consumer goods are also counted. Working capital can be roughly understood as trading goods and currency; Fixed capital can be roughly understood as means of production, such as factories, equipment and land used for production. Note that the same food is considered as working capital by vendors and consumer goods by customers. Consumer goods can be divided into non-durable goods, such as food, clothing, drama and so on. And durable goods, such as housing, jewelry, furniture and so on.
Usually, the profit of fixed capital cannot be realized without the participation of working capital, just as production cannot be realized without raw materials, and working capital often precipitates into fixed capital, just as equipment is also purchased from trade. The ultimate goal and result of fixed capital and working capital are the increase of consumer goods. Therefore, the surface factor of people's wealth is the quantity of available consumer goods, and the internal factor is the quantity of fixed capital and circulating capital.
Money in working capital
Smith divided working capital into money, food, raw materials and finished products. He believes that the essence of money is somewhat similar to fixed capital. First, it costs money to make money (mainly precious metal money at that time) and money to wear, just like it costs money to keep equipment running. Second, the role of money is to help circulation, and it cannot fully represent all wealth. The total value of money circulating in a country is often far less than the wealth of that country, because money can be turned around. Third, if the cost of maintaining the monetary system can be saved without affecting the operation of the system, then these costs will actually increase wealth, just as saving equipment maintenance costs can increase profits without affecting production.
It is from the above reasoning that Smith thinks it is better to use paper money with low maintenance cost than precious metal currency with high maintenance cost. At that time, there was no central bank and legal paper money in Britain, and the paper money in circulation could be regarded as bills issued by private banks.
If a private bank promises to exchange its bills at any time and cash them as promised, people will be willing to circulate their bills because of their commercial credit. Banks usually don't really store the same amount of gold and silver as bills (usually the reserve will not exceed one fifth, and the current statutory deposit reserve ratio in China is 13%), because most bills are always in circulation. Then the saved maintenance cost of gold and silver currency can be used for other production activities.
If banks issue paper money indiscriminately, there will be two consequences: First, because there is no profit opportunity in the domestic market, the holders will automatically convert it into gold and silver and make profits abroad, resulting in the loss of the bank's gold and silver reserves, and the excess paper money will return to the bank, and the maintenance cost of gold and silver will be lost, which is not worth the loss; Second, if the market finds that a bank's paper money exceeds the level that it can repay at any time, its value will be discounted, or it will be replaced by other bank paper money with better credit, and it will not be worth the candle.
As long as banks ensure that their paper money does not exceed the total amount of gold and silver coins that people leave in their hands at any time without banks, it will not affect the economic operation and the society will save the cost of maintaining gold and silver. Merchants can use this idle gold and silver coin for production through reasonable credit. Banks ensure the quality of their loans (loans are bills issued by banks) through credit evaluation of various businesses. Some radical enterprises will take advantage of the loopholes in banks. Smith gave the example of "money order". The two companies issue bills to each other, go to the bank to discount, obtain funds, and then issue new bills to pay off old accounts. This is obviously not the original intention of issuing banknotes. The probability that speculative profits exceed the cost of capital is very small and the risk is extremely high. If it is not supervised, it will lead to bank bankruptcy.
Smith gave a very vivid example of paper money replacing gold and silver currency. Gold and silver currency is like a road, which helps the circulation of goods, but it will occupy farmland and factory land. Paper money, like a road in the air, also helps to circulate, but it does not occupy land. But because it is in the air, it is more unstable and needs better management technology.
The essence of capital accumulation
Since commodity prices are composed of wages, profits and land rent, a country's annual output must be distributed to its citizens in these three forms. Wages, profits and land rent here refer to net income after deducting input costs. Obviously, in order to keep the machine running, there must be a steady stream of raw materials, maintenance costs and labor, which is not net income. There is always a part of the annual output that needs to continue to be invested in this necessary consumption, and will eventually flow into "productive labor" (somewhat similar to the concept of cost). After deducting this part of wages, profits and land rent can be freely chosen, whether to expand production and enter "productive labor" (the concept here is slightly different from the previous one, the previous one is similar to cost, and this one is similar to reinvestment), or to enter "unproductive labor" with pure consumables, such as buying clothes and going to the theatre.
In the output of rich countries, the proportion of capital entering "productive labor" is higher (similar to the high cost of inputs needed for production), while the production of poor countries depends more on the weather and has little input. Although the proportion of capital investment in "productive labor" in rich countries is relatively high, the absolute value of output in rich countries is relatively large, although the proportion of net income is smaller than that in poor countries (for example, landlords in poor countries depend on the weather for food and need less reinvestment, and most of net income is earned by themselves), but its absolute value is much higher than that in poor countries.
Smith believes that the excessive input of "unproductive labor" in output is not conducive to people's industrious character, encourages laziness and is not conducive to the accumulation of national wealth. First, because "unproductive labor" is not accumulated well, for example, the value of drama dissipates at the moment of performance, while machines can reproduce and create more value. Second, "unproductive labor" relies too much on the charity of big capitalists or powerful people.
For a country, few people in a country squander collectively. Personal profligacy or wrong investment will not reduce the overall wealth, but will reduce the "unproductive labor" of the government and other public officials. If it is not properly managed, it will lose a country's wealth, such as easily launching wars and domestic revolutions. It is also "unproductive labor", and durable consumption is better than instantaneous consumption, such as real estate, jewelry and furniture. Not clothes, food and drama.
There is also a part of capital indirectly used for "productive labor", that is, lending money at interest (few people borrow money purely for consumption). For this part of the funds, as long as an appropriate statutory maximum interest rate is stipulated, this interest rate is slightly higher than the normal lending rate in the market. Setting it too low will not only prevent people from borrowing money, but also increase the cost of borrowing, because it will increase the risk premium of illegal investigation. Set it too high, encouraging some radical entrepreneurs to take high-risk loans.
Various uses of capital
Capital refers to profitable commodities, and capital investment has four directions: investment in primary product production (similar to the primary industry of agriculture and animal husbandry); Invest in the production of finished products (secondary industry); Investment in trade in goods; Invest in retail sales. The first two are the basis of the latter two.
In addition to providing profits for wholesalers, retailers can only drive themselves as the only production workers. Wholesalers not only provide profits for manufacturers in the primary and secondary industries, but also drive two kinds of production workers: the transportation industry and themselves. In addition to providing profits for the primary industry, the manufacturing industry also drives a large number of workers to get wages. Smith believes that the capital investment in agriculture drives the most productive labor, because it requires more labor and more returns. For example, after deducting the cost, the land rent can reach more than a quarter of the output, and the manufacturing industry rarely has such a return.
As far as the circulation scope of capital is concerned, agriculture and retail are usually localized and the circulation scope is narrow. Most factories and workers in manufacturing are also localized, but this is not necessarily the case with raw materials and products. When a country's capital is not enough to invest in the above four directions at the same time, Smith takes North American colonies as an example and thinks that investing in agriculture contributes the most to the country's labor production, followed by manufacturing.
As far as trade in goods is concerned, for the same capital, due to the difference in turnover speed, the production labor driven by domestic trade is higher than that of foreign consumer goods trade and higher than that of pure overseas trade. For example, in domestic trade, funds can be turned over four times a year, while overseas trade can only be turned over once every three years, and half of the turnover is done overseas, so the same capital and labor force are driven, which is 24 times different.
Even so, Smith does not advocate that the policy tends to a certain trade, because the existence of overseas trade shows that a domestic product exceeds the demand of the domestic market, and if overseas trade is not carried out, this part of the labor force will disappear. Even if it is completely selling foreign goods, selling itself is also a kind of labor. A country's massive overseas trade sometimes reflects the country's extremely rich domestic output.
Although agriculture can drive more labor force, the rate of return is higher, but the fact in Europe at that time was that many people made a fortune by manufacturing or trade in goods, and few people made a fortune by agriculture. Smith will answer this question in the third and fourth volumes.