Book II, Chapter XIX
THE MANUFACTURING POWER AND THE
INSTRUMENTAL POWERS (MATERIAL CAPITAL) OF THE NATION.
THE nation derives its productive power from the mental and
physical powers of the individuals; from their social, municipal, and political
conditions and institutions; from the natural resources placed at its disposal,
or from the instruments it possesses as the material products of former mental
and bodily exertions (material, agricultural, manufacturing, and commercial
capital). In the last two chapters we have dealt with the influence of manufactures
on the three first-named sources of the national productive powers; the present
and the following chapter are devoted to the demonstration of its influence
on the one last named.
That which we understand by the term 'instrumental powers' is called
'capital' by the school. It matters but little by what word an object
is signified, but it matters very much (especially with regard to scientific
investigations) that the word selected should always indicate one and the same
object, and never more or less. As often, therefore, as different branches of
a matter are discussed, the necessity for a distinction arises. The school now
understands by the term 'capital' not merely the material, but also all
mental and social means of and aids to production. It clearly ought, therefore,
to specify wherever it speaks of capital, whether the material capital, the
material instruments of production, or the mental capital, the moral and physical
powers which are inherent in individuals, or which individuals derive from social,
municipal, and political conditions, are meant. The omission of this distinction,
where it ought to be drawn, must necessarily lead to false reasoning, or else
serve to conceal false reasoning. Mean-while, however, as it is not so much
our business to found a new nomenclature as to expose the errors committed under
the cover of an inexact and inadequate nomenclature, we will adopt the term
'capital,' but distinguish between mental and material capital, between
material, agricultural, manufacturing, and commercial capital, between private
and national capital.
Adam Smith (by means of the common expression, capital) urges
the following argument against the protective commercial policy which is adopted
to the present day by all his followers: 'A country can indeed by means of such
(protective) regulations produce a special description of manufactures sooner
than without them; and this special kind of manufactures will be able to yield
after some time as cheap or still cheaper productions than the foreign country.
But although in this manner we can succeed in directing national industry sooner
into those channels into which it would later have flowed of its own accord,
it does not in the least follow that the total amount of industry or of the
incomes of the community can be increased by means of such measures. The
industry of the community can only be augmented in proportion as its capital
increases, and the capital of the community can only increase in accordance
with the savings which it gradually makes from its income. Now, the immediate
effect of these measures is to decrease the income of the community. But it
is certain that that which decreases that income cannot increase the capital
more quickly than it would have been increased by itself, if it, as well as
industry, had been left free.'
As a proof of this argument, the founder of the school adduces the well-known
example, refuted by us in the previous chapter, how foolish it would be to plant
the vine in Scotland.
In the same chapter he states, the annual income of the community is
nothing else but the value in exchange of those objects which the national
industry produces annually.
In the above-named argument lies the chief proof of the school against the
protective commercial policy. It admits that by measures of protection manufactories
can be established and enabled to produce manufactured goods as cheap or even
cheaper than they can be obtained from abroad; but it maintains that the immediate
effect of these measures is to decrease the income of the community (the value
in exchange of those things which the national industry produces annually).
It thereby weakens its power of acquiring capital, for capital is formed by
the savings which the nation makes out of its annual income; the total of the
capital, however, determines the total of the national industry, and the latter
can only increase in proportion to the former. It therefore weakens its industry
by means of those measures—by producing an industry which, in the nature
of things, if they had been left to their own free course would have originated
of its own accord.
It is firstly to be remarked in opposition to this reasoning, that Adam Smith
has merely taken the word capital in that sense in which
it is necessarily taken by rentiers or merchants in their book-keeping and their
balance-sheets, namely, as the grand total of their values of exchange in contradistinction
to the income accruing therefrom.
He has forgotten that he himself includes (in his definition of capital) the
mental and bodily abilities of the producers under this term.
He wrongly maintains that the revenues of the nation are dependent only on
the sum of its material capital. His own work, on the contrary, contains a thousand
proofs that these revenues are chiefly conditional on the sum of its mental
and bodily powers, and on the degree to which they are perfected, in social
and political respects (especially by means of more perfect division of labour
and confederation of the national productive powers), and that although measures
of protection require sacrifices of material goods for a time, these sacrifices
are made good a hundred-fold in powers, in the ability to acquire values of
exchange, and are consequently merely reproductive outlay by the nation.
He has forgotten that the ability of the whole nation to increase the sum of
its material capital consists mainly in the possibility of converting unused
natural powers into material capital, into valuable and income-producing instruments,
and that in the case of the merely agricultural nation a mass of natural powers
lies idle or dead which can bequickened into activity only by manufactures.
He has not considered the influence of manufactures on the internal and external
commerce, on the civilisation and power of the nation, and on the maintenance
of its independence, as well as on the capability arising from these of gaining
He has e.g. not taken into consideration what a mass of capital the English
have obtained by means of colonisation (Martin estimates the amount of this
at more than two and ahalf milliards of pounds sterling).
He, who nevertheless elsewhere proves so clearly that the capital employed
in intermediate commerce is not to be regarded as belonging to any given nation,
so long as it is not equally embodied in that nation's land, has here not duly
considered that the nationalisation of such capital is most effectually realised
by favouring the nation's inland manufactures.
He has not taken into account, that by the policy of favouring native manufacture
a mass of foreign capital, mental as well as material, is attracted into the
He falsely maintains that these manufactures have originated in the natural
course of things and of their own accord; notwithstanding that in every nation
the political power interferes to give to this
so-called natural course an artificial direction for the nation's own special
He has illustrated his argument, founded on an ambiguous expression and consequently
fundamentally wrong, by a fundamentally wrong example, in seeking to prove that
because it would be foolish to produce wine in Scotland by artificial methods,
therefore it would be foolish to establish manufactures by artificial methods.
He reduces the process of the formation of capital in the nation to the operation
of a private rentier, whose income is determined by the value of his material
capital, and who can only increase his income by savings which he again turns
He does not consider that this theory of savings, which in the merchant's office
is quite correct, if followed by a whole nation must lead to poverty, barbarism,
powerlessness, and decay of national progress. Where everyone saves and economises
as much as he possibly can, no motive can exist for production. Where everyone
merely takes thought for the accumulation of values of exchange, the mental
power required for production vanishes. A nation consisting of such insane misers
would give up the defence of the nation from fear of the expenses of war, and
would only learn the truth after all its property had been sacrificed to foreign
extortion, that the wealth of nations is to be attained in a manner different
to that of the private rentier.
The private rentier himself, as the father of a family, must follow a totally
different theory to the shopkeeper theory of the material values of exchange
which is here set up. He must at least expend on the education of his heirs
as much value of exchange as will enable them to administer the property which
is some day to fall to their lot.
The building up of the material national capital takes place in quite another
manner than by mere saving as in the case of the rentier, namely, in the same
manner as the building up of the productive powers, chiefly by means of the
reciprocal action between the mental and material national capital, and between
the agricultural, manufacturing, and commercial capital.
The augmentation of the national material capital is dependent on the augmentation
of the national mental capital, and vice versâ.
The formation of the material agricultural capital is dependent on the formation
of the material manufacturing capital, and vice versâ.
The material commercial capital acts everywhere as an intermediary, helping
and compensating between both.
In the uncivilised state, in the state of the hunter and the fisher, the powers
of nature yield almost everything, capital is almost nil. Foreign commerce
increases the latter, but also in so doing (through
fire-arms, powder, lead) totally destroys the productiveness of the former.
The theory of savings cannot profit the hunter; he must be ruined or become
In the pastoral state the material capital increases quickly, but only so far
as the powers of nature afford spontaneously nourishment to the cattle. The
increase of population, however, follows closely upon the increase of flocks
and herds and of the means of subsistence. On the one hand, the flocks and herds
as well as pastures become divided into smaller shares; on the other hand, foreign
commerce offers inducements to consumption. It would be in vain to preach to
the pastoral nation the theory of savings; it must sink into poverty or pass
over into the agricultural State.
To the agricultural nation is open an immense, but at the same time limited,
field for enriching itself by utilising the dormant powers of nature.
The agriculturist for himself alone can save provisions, improve his fields,
increase his cattle; but the increase of the means of subsistence always follows
the increase of population. The material capital (namely, cultivated land and
cattle), in proportion as the former becomes more fertile and the latter increase,
becomes divided among a larger number of persons. Inasmuch, however, as the
surface of the land cannot be increased by industry, and the land cannot be
utilised up to the measure of its natural capacity, for want of means of transport,
which (as we showed in the preceding chapter) must remain imperfect in such
a state of things owing to lack of intercourse; and as moreover the merely agricultural
nation is mostly in want of those instruments, intelligence, motives to exertion,
and also of that energy and social development which are imparted to the nation
through manufactures and the commerce which originates from them, the mere agricultural
population soon reaches a point in which the increase of material agricultural
capital can no longer keep pace with the increase of population, and where consequently
individual poverty increases more and more, notwithstanding that the total capital
of the nation is continually increasing.
In such a condition the most important product of the nation consists of men,
who, as they cannot find sufficient support in their own country, emigrate to
other countries. It can be but little consolation to such a country, that the
school regards man as an accumulated capital; for the exportation of men does
not occasion return freights, but, on the contrary, causes the unproductive
export of considerable amounts of material values(in the shape of implements,
utensils, money, &c.).
It is clear that in such a state of things, where the national division of
labour is not properly developed, neither industry nor economy
can bring about the augmentation of the material capital (material enrichment
The agricultural country is, of course, rarely quite without any foreign commerce,
and foreign commerce, as far as it extends, also supplies the place of internal
manufactures with regard to the augmentation of capital, inasmuch as it places
the manufacturer of the foreign country in commercial relation with the agriculturist
of the home country. This, however, takes place only partially and very imperfectly:
firstly, because this commerce extends merely to special staple products, and
chiefly only to those districts which are situated on the sea-coast and on navigable
rivers; and secondly, because it is in any case but a very irregular one, and
is liable to be frequently interrupted by wars, fluctuations in trade and changes
in commercial legislation, by specially rich harvests, and by foreign importations.
The augmentation of the material agricultural capital can only take place on
a large scale, with regularity and continuously, if a completely developed manufacturing
power is established in the midst of the agriculturists.
By far the greatest portion of the material capital of a nation is bound to
its land and soil. In every nation the value of landed property, of dwelling
houses in rural districts and in towns, of workshops, manufactories, waterworks,
mines, &c. amounts to from two-thirds to nine-tenths of the entire property
of the nation. It must therefore be accepted as a rule, that all that increases
or decreases the value of the fixed property, increases or decreases the total
of the material capital of the nation. Now, it is evident that the capital value
of land of equal natural fertility is incomparably larger in the proximity of
a small town than in remote districts; that this value is incomparably larger
still in the neighbourhood of a large town than in that of a small one; and
that in manufacturing nations these values are beyond all comparison greater
than in mere agricultural nations. We may observe (inversely) that the value
of the dwelling houses and manufacturing buildings in towns, and that of building
land, rises or falls (as a rule) in the same ratio in which the commercial intercourse
of the town with the agriculturists is extended or restricted, or in which the
prosperity of these agriculturists progresses or recedes. From this it is evident
that the augmentation of the agricultural capital is dependent on the augmentation
of the manufacturing capital; and (inversely) the latter on the former.
This reciprocal action is, however, in the case of the change from the agricultural
state into the manufacturing state much stronger on the part of manufacture
than on the part of agriculture. For as the increase of capital which results
from the change from the condition of the mere hunter to the pastoral condition
is chiefly effected by the rapid increase of flocks and herds, as the increase
of capital resulting from the change from the pastoral condition into the agricultural
condition is chiefly effected by the rapid increase in cultivated land and in
surplus produce, so, in the event of a change from the agricultural condition
into the manufacturing condition, is the augmentation of the material capital
of the nation chiefly effected by those values and powers which are devoted
to the establishment of manufactures, because thereby a mass of formerly unutilised
natural and mental powers are converted into mental and material capital. Far
from hindering the saving of material capital, the establishment of manufactures
is the first thing which affords to the nation the means of employing its agricultural
savings in an economical manner, and it is the first means by which the nation
can be incited to agricultural economy.
In the legislative bodies of North America it has often been mentioned that
corn there rots in the ear from want of sale, because its value will not pay
the expense of harvesting it. In Hungary it is asserted that the agriculturist
is almost choked with excess of produce, while manufactured goods are three
to four times dearer there than in England. Germany even can remember such
times. In agricultural States, therefore, all surplus agricultural produce is
not material capital. By means of manufactures it first becomes commercial capital
by being warehoused, and then by being sold to the manufacturers it is turned
into manufacturing capital. What may be unutilised stock in the hand of the
agriculturist, becomes productive capital in the hand of the manufacturer, and
Production renders consumption possible, and the desire to consume incites
to production. The mere agricultural nation is in its consumption dependent
on foreign conditions, and if these are not favourable to it, that production
dies out which would have arisen in consequence of the desire to consume. But
in that nation which combines manufactures with agriculture in its territory,
the reciprocal inducement continually exists, and therefore, also, there will
be continuous increase of production and with it augmentation of capital on
As the agricultural-manufacturing nation is (for the reasons which we have
already given) always incomparably richer in material capital than the mere
agricultural nation (which is evident at a glance), so in the former the rate
of interest is always much lower, and larger capital and more favourable conditions
are at the disposal of men of enterprise, than in the purely agricultural nation.
It follows that the former can always victoriously compete with the newly formed
manufactories in the agricultural nation; that the agricultural nation remains
continually in debt to the manufacturing nation, and that in the markets of
the former continual fluctuations in the prices of produce and manufactured
goods and in the value of money take place, whereby the accumulation of material
wealth in the purely agricultural nation is no less endangered than its morality
and its habits of economy.
The school distinguishes fixed capital from circulating capital, and classes
under the former in a most remarkable manner a multitude of things which are
in circulation without making any practical application whatever of this distinction.
The only case in which such a distinction can be of value, it passes by without
notice. The material as well as the mental capital is (namely) bound in a great
measure to agriculture, to manufactures, to commerce, or to special branches
of either—nay often, indeed, to special localities. Fruit trees, when
cut down, are clearly not of the same value to the manufacturer (if he uses
them for woodwork) as they are to the agriculturist (if he uses them for the
production of fruit). Sheep, if, as has already frequently happened in Germany
and North America, they have to be slaughtered in masses, have evidently not
the value which they would possess when used for the production of wool. Vineyards
have (as such) a value which, if used as arable
fields, they would lose. Ships, if used for timber or for firewood, have a much
lower value than when they serve as means of transport. What use can be made
of manufacturing buildings, water-power, and machinery if the spinning industry
is ruined? In like manner individuals lose, as a rule, the greatest part of
their productive power, consisting in experience, habits, and skill, when they
are displaced. The school gives to all these objects and properties the general
name of capital, and would transplant them (by virtue of this terminology) at
its pleasure from one field of employment to another. J. B. Say thus advises
the English to divert their manufacturing capital to agriculture. How this wonder
is to be accomplished he has not informed us, and it has probably remained a
secret to English statesmen to the present day. Say has in this place evidently
confounded private capital with national capital. A manufacturer or merchant
can withdraw his capital from manufactures or from commerce by selling his works
or his ships and buying landed property with the proceeds. A whole nation, however,
could not effect this operation except by sacrificing a large portion of its
material and mental capital. The reason why the school so deliberately obscures
things which are so clear is apparent enough. If things are called by their
proper names, it is easily comprehended that the transfer of the productive
powers of a nation from one field of employment to another is subject to difficulties
and hazards which do not always speak in favour of 'free trade,' but very often
in favour of national protection.