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Smith describes how capitalism works
{{Cquote|Whatever a person saves from his [[revenue]] he adds to his [[capital]], and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner. <ref>Adam Smith, ''An Inquiry into the Nature and Causes of the Wealth of Nations'', [http://www.econlib.org/library/Smith/smWN.html Book II, Chapter 3, Paragraph 15,] ''Of the Accumulation of Capital, or of Productive and Unproductive Labour'', First Edition 1776.</ref>}}
{{Cquote|Whatever a person saves from his [[revenue]] he adds to his [[capital]], and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits. As the capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital of a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner. <ref>Adam Smith, ''An Inquiry into the Nature and Causes of the Wealth of Nations'', [http://www.econlib.org/library/Smith/smWN.html Book II, Chapter 3, Paragraph 15,] ''Of the Accumulation of Capital, or of Productive and Unproductive Labour'', First Edition 1776.</ref>}}
Smith goes on to describe how the productive powers of labor employed by the owner of a capital allow laborers to reproduce with a profit the value of their maintainance, over and above their own consumption, which then allows for an additional set of hands to be employed. <ref>Smith, 'Wealth of Nations'', Book II, Chapter 3, Paragraph 22.</ref>
Smith goes on to describe how the productive powers of labor employed by the owner of a capital allow laborers to reproduce with a profit the value of their maintainance, over and above their own consumption, which then allows for an additional set of hands to be employed. <ref>Smith, 'Wealth of Nations'', Book II, Chapter 3, Paragraph 22.</ref> Smith observes labor is the original purchase price for all the wealth of the world,
{{Cquote|The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour, <sup>2</sup><ref>'Everything in the world is purchased by labour.'—Hume, 'Of Commerce,' in Political Discourses, 1752, p. 12</ref> as much as what we acquire by the toil of our own body. That money or those goods indeed save us this toil. They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity. Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command. <ref>Adam Smith, ''An Inquiry into the Nature and Causes of the Wealth of Nations'', [http://www.econlib.org/library/Smith/smWN.html Book I, Chapter 5, Paragraph 2,] ''Of the Real and Nominal Price of Commodities'', First Edition 1776.</ref>}}
Real wealth consists not in money, but in the things money will exchange for,
{{Cquote|In order to put industry into motion, three things are requisite; materials to work upon, tools to work with, and the wages or recompense for the sake of which the work is done. Money is neither a material to work upon, nor a tool to work with; and though the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists, not in money, but in the money's worth; not in the metal pieces, but in what can be got for them. <ref>Adam Smith, ''An Inquiry into the Nature and Causes of the Wealth of Nations'', [http://www.econlib.org/library/Smith/smWN7.html Book II, Chapter 2, Paragraph 37,] ''Of Money Considered as a particular Branch of the General Stock of the Society, or of the Expence of Maintaining the National Capital '', First Edition 1776.</ref>}}
Since wealth does not consist in money, gold, or silver, and labor is the original purchase price, Smith explains how the capitalist system is then put into motion, complete with natural incentives, only Smith does not use the word "capital" here to describe what is needed. Smith explains how a "store of goods", or "stock sufficient to maintain" the original capitalist entrepeneur is necessary;
{{Cquote|When the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. He consumes it as sparingly as he can, and endeavours by his labour to acquire something which may supply its place before it be consumed altogether. His revenue is, in this case, derived from his labour only. This is the state of the greater part of the labouring poor in all countries.
But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from the greater part of it; reserving only so much for his immediate consumption as may maintain him till this revenue begins to come in. His whole stock, therefore, is distinguished into two parts. That part which, he expects, is to afford him this revenue, is called his capital. The other is that which supplies his immediate consumption <ref>Adam Smith, ''An Inquiry into the Nature and Causes of the Wealth of Nations'', [http://www.econlib.org/library/Smith/smWN7.html Book II, Chapter 1, Paragraphs 1 & 2,] ''Of the Division of Stock '', First Edition 1776.</ref>}}
==See also==
==See also==