An Overview of Book Two Introduction And Chapter One of The Book “Wealth of Nations”

 * Book Two: Of the Nature, Accumulation, and

Employment of Stock:

                 INTRODUCTION:

Adam smith’s had a bigger and more global impact when he published “An inquiry into the nature and causes of the wealth of Nations” also referred to as The Wealth of Nations published on the 9th of march 1776.

Smith who is a Scottish moral philosopher by trade ,Author and a political Economist who also known as the father of Economics, wrote this book to describe the industrialized capitalist system that was upending mercantilist system.

Mercantilism held that wealth was fixed and finite and that the only way to prosper was to hoard gold and traffic products from abroad.

According to this theory, Nations should trade with buying anything in return (nations should sell their good in exchange for money and not goods)

Adam smith’s among the first philosophers of his time that propounded theories that states: that wealth is created through self interest and productive labor he said that will make people put their resources into best use instead of trading spade for clothes or clothes for spade.

 

To start with, book 2 of the “wealth of nations”, which address “of the Nature, Accumulation, and Empowerment of stock”, referred to “stock” as asserts or capital used for consumption or to earn profit, and “Nature” as the basic quality of the assets or capital (stock). “Accumulation” the interest to acquired or gradual gathering of stock. And “Empowerment” as the utilization of the stock. 

   Smith started book 2 by giving an introduction where he critically compared two periods of economic system. Such as;

   There is a bad-mannered society wherein there is no system of division of labor, the exchanges of assets (stocks) is not often, and is not a system that is been practiced. It is a society where people provides for themselves. There is no system of gradually acquiring and stored beforehand in order to carry on the business of the society. In the society people try to get themself what they occasionally want from their own labor. When they are hungry, they go to the forest to hunt and get food, when they need clothes, they clothes themself with the skin of the first big animal they have killed, and when they hut get distorted or begin to get ruin, they will repair it to the best standard that they can, with forest trees that they can easily reach and get.

   However, when a system of division of labor throughly introduced within, the process of production is spelt up into many simple parts and each person produce a specific part of his specialization. What people can now produce can satisfy just a small parts of their occasional wants. The greater parts of the person needs or wants can now be satisfy or supplied by other person’s labor. People now purchase with their  produce or the same thing equivalent to the product. People can now have all their want after his labor completed and sold and employed to get his full want. 

  Therefore, a stuck of goods of different kinds, must be stored up somewhere sufficient to maintain man little want, and to be able to supply to other man to get in return the grater part of man’s want. And to also get material and tools of his work to continue his product.

  Smith give an instance of a weaver; a weaver cannot apply himself entirely to different improvements in his business is there is no beforehand stored up somewhere, either in his possession or possession of some other person. A stork that can be sufficient to maintain him, and supply him material and tool needed for his work, till every produce is completed and sold. This must be a continuing process. 

  Smith further further his arguments that, as the gradual gathering of stock is a must in different nature and in the division of labour. Therefore, labour can be more and more subdivided and stock can be more and more differently acquired. He stated that it is the quantity of materials and same number of people can work up, but as increases in the demand of produce and lead labour to be more subdivided, the operation of each workmen gradually reduced to a greater degree of simplicity when a variety of new machines come into invention for facilitating and abridging the operation of men labour.

  Therefore, as division of labour advances, and in order to give constant empowerment to an equal number of workmen, an equal stock of provisions, and grater stock of tool or material must be accumulated beforehand and stored, than what would have been necessary in a ruder state of things.

  However, the number of workmen in every branch of business generally increases of their number which enables them to class and subdivided themselves.

  As the accumulation (gradual gathering) of stock is necessary for having greater improvement in the productive powers of labour. Therefore, accumulation naturally leads to improvement in the productive power of labour.

  This part of the book is about people personal stock of Wealth. You have to have at least a small pile of accounted stock, even if just little to get other want. The more people build up their assets, the more they are likely to employs those assets to accumulate more stocks (capital or assets). A country quantity of industry does not only increases with the increase of stock employs (use occasionally), but the quantity of every country industry increases with the produce of a much greater quantity of work (fixed capital or assets).

  In book 2, smith endeavored to explain the nature of stock, the effects of its accumulation into capitals of different kinds, and the effects of the different employments of those capitals. 

  Book 2, is divided into five chapters. In chapter one (1), Smith endeavored to show what are the different parts or branches into which the stock, either of an individual or of a great society, naturally divides itself. In chapter two (2), he continue to explain the nature and operation of money considered as a particular branch of the general stock of the society. The stock which is accumulated into a capital , may either be employed by the person whom it belongs, or it maybe lent to some other person. In chapter three (3) and four (4), Smith try to examines the manner in which it operates in both these situations(in chapter 1 and 2). In chapter five (5), the last chapter of book 2, Smith deal with the different effects which the different emoluments of capital immediately produce upon the quantity of both national industry and of the annual produce of land and labour. 

                     Chapter one (1): 

Of the Division of Stock: 

 Adam Smith start chapter one of book two by describing two ways man use stock;

   When the stock man possess is not sufficient to maintain him for long period of time, he hardly think of making revenue from it, but use it in a little quantity and try to labour to have something he can use by the time he would have used all his stock. Due to this the man revenue is derived from his labour only. This is the way many poor labouries live in all countries.

  But when man posses stock sufficient to maintain him for a long period of time, he think of making revenue from the greater part of the stuck and also reserved some that he will be using to maintain him for the moment till he start to derive revenue from his stock. 

  Therefore, the whole stock of a man is divided into two part, that part in which a man use his stock in the expectation to get revenue is called is call capital. While the other part is when a man use his stock to supplies his immediate consumption, which consists either first his whole stock reserved for consumption, or secondly, other stock bought from his revenue for immediate consumption, or, thirdly things man has purchased to consumed but has not been entirely consumed’ such as; cloths, household furnitures e.t.c. All these consists the stock men commonly reserved for their own immediate consumption.

  Smith go further by describing two different ways in which man can use or employed capital to derived a revenue or profit for it employer.

  First, you can employed your capital in raising, manufacturing, or purchasing goods, and selling them again with a profit. The capital which is been employed in this manner do not give profit or revenue to it employer while it is in the employer possession or continue in the same shape. The goods (stocks) of the employer derived no revenue or profit till he sell them for money, and the money provides him as little profits till it is again exchange for goods. In this process his capital is continually going from him in one shape and returning to him in another shape, and it is only by that circulation and successive exchanges that the capital can derived him profits. And such capitals may properly be called “Circulating capitals.” 

  Secondly, man can employed his capital in the improvement of land, in the purchase of useful machine and trade instruments, or in other things to derived revenue or profit without changing products or circulating any further. This process is very properly be calling fixed capitals. 

  Smith continue to state that different occupations require very different part between the fixed and circulating capital use in them. For example; the capital of a merchant is together a circulating capital. E does not has interest of no machines or instruments of trade, unless his shop, or warehouse, that he considered as instruments.

  Manufacturer capital must be fixed in the instruments of his trade, though it can be small in some part and as well large in some other part. For example a master tailor only require a parcel of needles, and a master shoemaker may also required needle but in a very small quantity though it maybe expensive. The far greater part of the capital is employed either in the wages of their workmen, or in the price of their materials and can derive profit by the price of the work. 

  There are many other work where a fixed capital is required, in great iron work, in coal-work and mines of every kind etc. The machinery needed for all these work are more expensive.

  Smith furthermore described how both fixed and circulating capital can employed to make revenue. For example; when a farmer employed his capital in instruments of agriculture is fixed, but the capital employed in the payment of work-men is a circulating capital. The farmer make a profit of instruments by keeping it in his possession and be using it, and of the work men by parting with them. The piece or value of his labouring cattle is a fixed capital just like the instruments, and the maintenance of the cattle is a circulating capital just like the labouring servants (workmen). Here the farmer makes his profit from the labouring cattle, and parting with the workmen, when the farmer sell the cattle as it and pay for their maintenance is a circulating capital. But when the farmer use the cattle milk, wool, and their increases to make profits is fixed capital. The farmer make it profit not by it sale but by it increase. 

  Moreover, Smith also look at how a country or society stocks depends on it inhabitants or members stocks. And he therefore devise this process into there portions, and each has it own function of office.

  The first, is the portion reserved for immediate consumption, and it is described as stock that can afford no profit or revenue. These are food, cloth, dwelling house, household furniture etc. they are purchased by there final consumer but not yet finish their use.

 The second of three portions into which the general stock of the society divides itself is the fixed capital. Where they get revenue or profit without circulating or exchanging masters (stocks). It consists of four process; 

 First, the process of having useful machines and instruments of trade which are use to facilitate and a ridge labour.

 Secondly, the pieces of having building that can make profit for the owner and even the one that might rent as well.

 Thirdly having a lane that is improving by caring, maturing etc. make it fit for tillage and culture. And it is obvious the improvements of land is a durable fixed capital.

  Fourthly, all the acquired and useful abilities of people in the society through education to other active means to take active part in the development of society are fixed capital.

  The third and last of the three portions into which the general stock of society is natural divides itself is the circulating capital. Capital meant for exchange. Money, material for circulation, etc. 

Smith concluded this chapter by show how fixed capital are mostly derived from circulating capital and how they must be work together. And how both capital are employed to satisfy the first division, which are the immediate consumption stocks. It define individual reaches or poverty of every nation.