Page:The Harvard Classics Vol. 51; Lectures.djvu/349

Rh the public services. It proposes to enrich both the people and the sovereign."

PRODUCTION AND DISTRIBUTION

Captious critics have pronounced the arrangement of "The Wealth of Nations" unsystematic, but it is in fact well suited to Smith's purpose. The first book studies the process by which wealth is produced and then distributed among laborers, entrepreneurs, and landlords. It lays down the doctrine that the increased productivity of the industry of modern societies is due to division of labor. The discussion of this subject is an economic classic, and the reader should observe that Smith finds here an illustration of his cardinal doctrine that it is self-interest, not the action of government, that has brought about the improvement of economic conditions. Division of labor presupposes exchange, and so Smith naturally proceeds to consider money and price. His study of price leads to an investigation of its component parts—wages, profits, and rent; and thus Smith is led to consider fully the subject of the distribution of wealth. His theory of value at the hands of certain later writers becomes the classical cost-of-production theory; while, given another slant, it becomes the labor theory of Marx and the socialists. His theory of wages becomes, at the hands of later writers, the wage-fund theory of the classical English school. His theory of profits supplied much material for his followers, particularly concerning the difference of profits in the various employments of capital. His theory of rent, or rather his three different theories, needed to be reconstructed by Ricardo before it could be added to our stock of economic principles.

THE NATURE AND USE OF CAPITAL

The second book investigates the nature and employment of "capital stock," which is the force that sets laborers at work and puts industry in motion. Smith holds that capital originates in saving, that its function is to maintain productive labor, and that it may be either fixed or circulating.