Note 163 — Chapter II · : ADAM SMITH

For a long time economists were quite content with Smith’s theory of capital. Like other portions of his work, it readily became classic, and subsequent writers simply repeated it. To-day, however, this success hardly seems to have been warranted. “It can scarcely be denied,” writes Cannan, “that Smith left the whole subject of capital in the most unsatisfactory state.” (Theories of Production and Distribution, p. 89.) If this remark needs any justification we have it in the many discussions which have taken place on this subject during the last fifty years, and which are not yet at an end. Some of the most original works of recent years, Böhm-Bawerk’s Positive Theory of Capital, for example, are entirely taken up with this topic. In England, America, and Italy the best-known economists, Cannan, Fisher, and Pareto, have recently revived the ancient notions, and the discussions which have followed are sufficient evidence that Smith had by no means exhausted the subject. If we carefully read Book II of the Wealth of Nations, which is entirely devoted to this topic, what do we find? We have a distinction drawn between fixed and circulating capital borrowed from practical affairs, but possessing no great scientific value; the very doubtful identification of national capital with the sum of private capitals; a very unsatisfactory attempt at differentiating between the notions of capital and revenue; the affirmation that saving involves consumption, a paradox repeated ad nauseam down to the days of Mill; the commonplace statement that capital increases as saving grows; and, finally, the proposition that “capital limits industry.”