# Chapter VSM Analysis: Of the Different Employments of Capitals

## Chapter Summary

Smith's chapter provides a systematic classification of how capital can be employed in an economy, arguing that all capital must fall into one of four categories: procuring rude produce, manufacturing, transportation, or retail distribution. He demonstrates that different capital employments produce vastly different quantities of productive labour and add varying amounts of value to annual produce. Agriculture emerges as the most productive form of capital employment, followed by manufacturing, with trade (both wholesale and retail) being the least productive in terms of labour utilization and value creation. Smith emphasizes that the natural progress of improvement occurs when capital flows to its most profitable employments without artificial constraints, and he argues against government intervention that would force capital into less productive channels. The chapter establishes fundamental principles about the relationship between capital allocation, productive labour, and national wealth, providing the theoretical foundation for understanding how different economic activities contribute to overall prosperity.

## Entities Extracted

- **Four Methods of Employing Capital**: The four distinct ways capital can be deployed: procuring rude produce, manufacturing, transportation, and retail distribution.
- **Rude Produce**: Raw materials in their natural state requiring further processing before consumption.
- **Manufactured Produce**: Rude produce that has been processed and transformed through human labour for immediate use.
- **Wholesale Merchants**: Capitalists who employ capital in transporting goods between locations.
- **Retailers**: Capitalists who divide goods into smaller parcels for consumer consumption.
- **Productive Labourers**: Workers whose labour creates tangible commodities that can be accumulated and exchanged.
- **Unproductive Labourers**: Workers whose labour provides immediate services rather than creating tangible goods.
- **Fixed Capital**: Capital invested in durable assets like machinery, buildings, and tools.
- **Circulating Capital**: Capital that flows through production, including raw materials and wages.
- **Agricultural Capital**: Capital employed in land cultivation, mining, and fisheries.
- **Manufacturing Capital**: Capital employed in transforming raw materials into finished goods.
- **Trade Capital**: Capital employed in exchange and distribution of goods.
- **Home Trade**: Internal trade within a single country.
- **Foreign Trade of Consumption**: Trade involving purchasing foreign goods for domestic use.
- **Carrying Trade**: Trade facilitating commerce between foreign countries.
- **Surplus Produce**: Production exceeding domestic consumption available for exchange or export.
- **Annual Produce of Land and Labour**: Total value of goods and services produced within a country annually.
- **Capital Employment Effects**: Varying impacts of different capital employments on productive labour and value creation.
- **Natural Progress of Improvement**: Spontaneous economic development when capital flows to profitable employments without constraints.
- **Economic Residence**: The location and distribution of economic activities and capital within regions.

## VSM Mappings

- **Four Methods of Employing Capital → S1 Operations**: Strong
- **Rude Produce → S1 Operations**: Strong
- **Manufactured Produce → S1 Operations**: Strong
- **Wholesale Merchants → S1 Operations**: Strong
- **Retailers → S1 Operations**: Strong
- **Productive Labourers → S1 Operations**: Strong
- **Fixed Capital → S1 Operations**: Strong
- **Circulating Capital → S1 Operations**: Strong
- **Agricultural Capital → S1 Operations**: Strong
- **Manufacturing Capital → S1 Operations**: Strong
- **Trade Capital → S1 Operations**: Strong
- **Home Trade → S1 Operations**: Strong
- **Foreign Trade of Consumption → S1 Operations**: Strong
- **Carrying Trade → S1 Operations**: Strong
- **Surplus Produce → S1 Operations**: Strong
- **Annual Produce of Land and Labour → S1 Operations**: Strong
- **Capital Employment Effects → S1 Operations**: Strong
- **Natural Progress of Improvement → S1 Operations**: Strong
- **Economic Residence → S1 Operations**: Strong

## VSM Coverage

The chapter demonstrates strong coverage of System 1 (S1) operations, with all extracted entities mapping to S1 operations. This reflects Smith's focus on the primary productive activities of the economy and how different forms of capital employment create value through autonomous operations. The chapter extensively covers the operational aspects of economic activity, including production, manufacturing, trade, and distribution.

However, the chapter shows limited coverage of other VSM systems:
- **System 2 (S2)**: Coordination mechanisms are not explicitly discussed, though market price mechanisms could be inferred.
- **System 3 (S3)**: Internal regulation and control systems are mentioned only in passing when discussing government intervention.
- **System 3* (S3*)**: Audit and monitoring functions are not addressed.
- **System 4 (S4)**: Intelligence and adaptation functions are largely absent, with minimal discussion of environmental scanning or strategic responses.
- **System 5 (S5)**: Policy-making and identity functions are only briefly touched upon in the context of government intervention.

## Gaps & Observations

The chapter's heavy emphasis on S1 operations reflects Smith's primary focus on productive activities and capital allocation as the foundation of economic growth. This operational focus is appropriate for a chapter examining different forms of capital employment, but it leaves significant gaps in understanding the broader organizational structure of the economy.

The absence of detailed discussion of coordination mechanisms (S2) is notable, as Smith's later work on market prices and the invisible hand could provide this missing element. The limited treatment of control systems (S3) suggests that Smith viewed government intervention as largely detrimental, though he does acknowledge some role for regulation.

The complete absence of intelligence and adaptation functions (S4) is particularly striking for a work that discusses international trade and economic development. Smith's later discussions of colonial trade and foreign markets could enrich this aspect of the analysis.

The minimal treatment of policy and identity (S5) reflects Smith's classical liberal philosophy, which emphasizes spontaneous order over directed policy. However, his discussions of national economic identity and the role of government in other chapters could provide valuable context.

The mapping of all entities to S1 operations suggests that Smith's framework is primarily operational in nature, focusing on how different activities create value rather than on the broader organizational structures that coordinate and regulate these activities. This operational emphasis provides a strong foundation for understanding economic production but requires supplementation with analysis of coordination, control, intelligence, and policy functions to achieve a complete VSM analysis.