#WealthofTweets: Book 2.5
Of the Different Employment of Capitals
1 Feb • 34 tweets • adamsmithworks/status/1356256888078422017
Is there a better way to start the day than with a good ol' Smithian subdivision? OBVIOUSLY NOT. Capital can be employed in four ways:
1. procuring rude produce (raw materials)
2. manufacturing
3. wholesale
4. retail(II.v.2)
All four employments depend on each other. You can't have retail without raw materials, manufacturing, wholesaling. You won't procure raw materials with no one to sell them to. &c. (II.v.3–7) #WealthOfTweets #SmithTweets
Retail needs to be defended more than the other three categories. Smith is arguing against political writers who think that the number of retailers needs to be controlled to protect consumers and the public interest. (II.v.7) #WealthOfTweets #SmithTweets
It would be terrible for everyone if you could only buy from wholesalers! But especially terrible for the poor. (II.v.7) #WealthOfTweets #SmithTweets
As we, the SmithTweeters, have pointed out: It's inconvenient to have to work with whole cows. 🐄 (II.v.7) #WealthOfTweets #SmithTweets
It would be ideal if you could purchase what you need to consume just as you need it. This would leave all of your other resources available for use as stock. (II.v.7) #WealthOfTweets #SmithTweets
This means retailers provide a useful service! They should be allowed to multiply and compete. This helps consumers, encourages the best use of stock, and makes collusion to raise prices harder. (II.v.7) #WealthOfTweets #SmithTweets
Monopolies: Smith still hates 'em. (II.v.7) #WealthOfTweets #SmithTweets
Don't blame the retailers responding to consumers' demands for the consumers' demands. You don't get more drunks because there are more bars. (II.v.7)#SmithTweetshttps://www.youtube.com/embed/tzWckYfZhbA
Just think of the owners of each category of capital as though they're laborers for other owners of capital, says Smith, to help you think about how much productive labor they put into motion. Great. This shouldn't be confusing at all. (II.v.8) #WealthOfTweets #SmithTweets"
So a retailer is like a worker for the wholesaler. They return the stock the wholesaler extends to them plus some in the same way that a laborer produces more value for the employer than their wages are worth. (II.v.9) #WealthOfTweets #SmithTweets
In this way the capital of the retailer "replaces" the capital of the merchant (wholesaler). (II.v.9) #WealthOfTweets #SmithTweets
The capital of the merchant goes on and replaces the capitals of the farmers and manufacturers. Manufacturers' capital replaces the capital of other manufacturers and also pays for actual labor. 😵 (II.v.10–11) #WealthOfTweets #SmithTweets
But none of this can compare to agriculture! Because agriculture doesn't only put into motion farm workers but also...the fertility of nature? (II.v.12) #WealthOfTweets #SmithTweets
...hold on, we're going to make more tea. # WealthOfTweets #SmithTweets
Smith has hammered home that you don't get any other production if you don't have agricultural production, but it might have been worth mentioning that rude produce is where all circulating capital comes from instead of...whatever this is. (II.v.12) #WealthOfTweets #SmithTweets
Moving on. How capital is used can determine where it's used. Agriculture is tied geographically to the society that produces it and retail is tied geographically to the society it serves. (II.v.13) #WealthOfTweets #SmithTweets
Manufacturers, on the other hand, can do their manufacturing wherever, so long as they can get their materials and get their goods to market and turn a profit. (II.v.15) #WealthOfTweets #SmithTweets
Why do we care? Because when capital starts moving out of the country, people get uppity. They worry this makes the country poorer. (II.v.16–37) #WealthOfTweets # SmithTweets
Smith thinks different uses for capital have the potential to affect the wealth of a country differently. And capital matters more than labor! Whether a merchant is a foreigner doesn't matter so much as where their capital is employed. (II.v.16–17) #WealthOfTweets #SmithTweets
That said, there are reasons that people use capital where they do. It's not arbitrary. Ignoring what profits are telling the holders of stock won't let you fast forward to a richer society. (II.v.17–20) #WealthOfTweets #SmithTweets
(18thC Scots get a lot of stuff wrong about China. Smith says the "Chinese have never excelled in foreign commerce", but we think that he would have been pretty interested in Zheng He's Treasure Ships.) (II.v.22) #WealthOfTweets #SmithTweets
https://www.independent.co.uk/news/world/americas/500-years-ago-china-destroyed-its-world-dominating-navy-because-its-political-elite-was-afraid-free-trade-a7612276.html
(Hume once said that China never had to worry about foreign invasion. It's not like they ever built a wall or anything because of it, right?) #HistoryIsHard #WealthOfTweets #SmithTweets
If you are just buying and selling in your own country, that puts into motion more productive domestic resources than buying/selling to or from (or to AND from) foreign countries. (II.v.25–31) #WealthOfTweets #SmithTweets
Smith casts some shade on the "carrying trade" (moving goods between two foreign countries) for not delivering quick returns. But he's got all sorts of love for agriculture. Seems a bit inconsistent. (II.v.27) #WealthOfTweets #SmithTweets
But how many productive resources can be put into motion isn't all that matters! The international market encourages domestic production (II.v.17), and foreign goods might be cheaper (II.v.29), for instance. #WealthOfTweets #SmithTweets
DO NOT BE DISTRACTED BY THE FACT THAT GOLD AND SILVER GET INVOLVED. You will vex the Smith. Plus, he will address your concerns "at great length" later. (II.v.29) #WealthOfTweets #SmithTweets
There's a lot of worry about all of this trade, but it is necessary and unavoidable so long as it arises from the natural course of things. Remember: how the holders of stock employ their capital isn't arbitrary! (II.v.32) #WealthOfTweets #SmithTweets
All uses of capital benefit from access to foreign markets. Surplus produce is sold abroad, surplus capital is sent abroad (or foreign capital is attracted). (II.v.33–36) #WealthOfTweets #SmithTweets
When a country is rich enough, it can get into the carrying trade. But you can't get rich by getting into the carrying trade. (II.v.33–36) #WealthOfTweets #SmithTweets
The wealth of the country might be no part of the intention of the owners of capital, but they increase it most when they use profit to tell them how best to use their resources. (II.v.37) #WealthOfTweets #SmithTweets
Even though agriculture is the "most advantageous to the whole society", there's nowhere in Europe where it's paying the highest returns. No one amasses a huge fortune by farming. Why's that? Well, that's the subject of Book III. (II.v.37) #WealthOfTweets #SmithTweets
And that's it for Book II! Not so bad after the marathon of Book I chapter 11, right? (If you made it through that, you can make it through all the rest!) #WealthOfTweets #SmithTweets
What did we learn?
Stock: You need it for the division of labor. Money: The paper kind works, too.
Productive and unproductive labor: Not what you think. Interest: It's like profit.
Capital allocation: Like that for a reason.
# WealthOfTweets #SmithTweets