The Wealth of Nations · Chapter
V: Of the Different Employment of Capitals explained
Smith examines how different employments of capital—agriculture, manufactures, wholesale trade, and retail—affect the quantity of productive labor and the value added to a nation's annual produce.
What happens
Smith examines how different employments of capital—agriculture, manufactures, wholesale trade, and retail—affect the quantity of productive labor and the value added to a nation's annual produce. He argues that agriculture employs the most productive labor, followed by manufactures, then wholesale trade, and that retail trade, though often maligned, is essential for convenience. He illustrates with examples from the American colonies, China, Egypt, and Indostan, and warns against premature attempts to diversify capital.
Themes in this chapter
Division of Labor
Smith discusses how different employments of capital (agriculture, manufactures, wholesale, retail) each play a role in the division of labor and the overall productivity of society.
Wealth and Money
The chapter explores how the employment of capital affects the annual produce and wealth of a nation, with comparisons to the wealth of China, Egypt, and Indostan.
Free Trade and Market Competition
Smith argues against monopolies and premature diversification, using the American colonies as an example of how free trade in agriculture leads to faster wealth accumulation.
Characters to notice
- Great Britain
Mentioned as the home of merchants who finance American trade and as a country with insufficient capital to fully develop all its lands and manufactures.
- The Colonies
American colonies are cited as an example of rapid progress due to heavy investment in agriculture, with their export and coasting trade carried on by British capital.
- The Chinese
Mentioned as a wealthy nation that never excelled in foreign commerce, with its surplus produce exported by foreigners.
Key passages
“It has been the principal cause of the rapid progress of our American colonies towards wealth and greatness, that almost their whole capitals have hitherto been employed in agriculture.”
The American colonies grew wealthy quickly because they invested nearly all their capital in farming.
Smith highlights the effectiveness of agricultural investment for economic growth.
“The prejudices of some political writers against shopkeepers and tradesmen, are altogether without foundation.”
Critics who oppose retailers and shopkeepers are mistaken.
Smith defends the retail trade as essential for convenience and economic efficiency.
“To attempt, however, prematurely and with an insufficient capital, to do all the three, is certainly not the shortest way for a society, no more than it would be for an individual, to acquire a sufficient one.”
Trying to invest in agriculture, manufacturing, and trade all at once with limited capital is inefficient for a nation, just as it would be for a person.
Smith advises against overextending capital before a society is ready.