Three Divisions of Stock

Fixed Capital, Circulating Capital, and Stock for Consumption

¹ When a man’s stock can only maintain him for a few weeks, he seldom thinks of deriving any revenue from it.

• He consumes it as sparingly as he can.
• He tries to acquire new supplies before it is consumed.
  • In this case, his revenue is derived from his labour only.
  • This is the state of most of the labouring poor in all countries.

² But when he has enough stock to maintain him for months or years, he tries to derive a revenue from it. He reserves some for his consumption until this revenue comes in.

His whole stock is made up of 2 parts:

1. His capital

• He expects this part to provide revenue

2. His stock for immediate consumption

• This consists of:
  • the stock that he means to consume,
  • the stock that becomes his revenue, or
  • the stock obtained in previous years which has not yet been consumed, such as clothes, furniture, etc.

The stock for immediate consumption can be one or a mix of these three.

³ Capital may yield a revenue or profit to its employer in 2 ways:

1. ⁴ As Circulating Capital

This is employed in raising, manufacturing, or buying goods and selling them again with a profit. A Circulating Capital yields no revenue to its employer while it remains in his possession.

A merchant’s goods provide no revenue until he sells them for money.

• The money yields him little until it is exchanged for goods.
• His capital is continually going from him in one shape and returning to him in another.
• Only such successive exchanges can yield him any profit.

2. ⁵ As Fixed Capital

This yields a revenue without changing masters or circulating any further. Examples are=

• land improvements
• useful machines

⁶ Different occupations require very different proportions of fixed and circulating capitals.

⁷ A merchant’s capital is a circulating capital. He uses no machines or instruments of trade other than his shop or warehouse.

⁸ A manufacturer’s capital must be fixed in the tools of his trade.

This part may be very small in some while very great in others.

• A tailor only requires needles as his tools.
• A shoemaker needs more expensive tools.
• A weaver needs more expensive tools than a shoemaker.

However, most of the capital of all such craftsmen are circulated in:

• the wages of their workers, or
• the price of their materials

They are repaid with a profit by the price of the work.

⁹ In other works, more fixed capital is required. For example=

• in a big ironworks, the furnace, forge, and slit-mill are very expensive instruments
• in coal-works and mines, the machinery for drawing out the water is even more expensive

¹⁰ A farmer’s agricultural tools are a fixed capital. He earns from his tools by keeping them.

The wages and maintenance of his labouring servants are a circulating capital.

• He parts with the wages that he gives to them and earns from their labour.

The price of his labouring cattle is a fixed capital.

• The farmer earns by keeping them.

The maintenance of his cattle is a circulating capital.

• He profits by parting with their maintenance.

Cattle, which are sold and not used for labour, are a circulating capital.

• The farmer profits by parting with them.

A flock of sheep or a herd of cattle used for wool and milk is a fixed capital.

• Profits are made by keeping them.

Their food is a circulating capital.

• Profit is made by parting with it to feed them, to then produce wool and milk for sale.

The whole value of the seed is a fixed capital.

• It goes backwards and forwards between the ground and the granary.
• But it never changes masters and does not circulate.
• The farmer profits by its increase, not by its sale.

¹¹ The general stock of any society is the same with that of all its inhabitants. It naturally divides itself into the same three portions, each with a distinct function.