# Chapter Analysis: Division of Stock and the Viable System Model

## Chapter Summary

Book II, Chapter 1 establishes the fundamental distinction between stock employed for immediate consumption and stock employed as capital to generate revenue. Smith divides capital into fixed capital (employed in improving land, purchasing machinery, and acquiring instruments of trade) and circulating capital (employed in purchasing goods for resale). The chapter systematically explores how different economic actors—from the labouring poor to farmers, merchants, and master artificers—employ these forms of capital, and how the general stock of society naturally divides into the same three portions: immediate consumption, fixed capital, and circulating capital. Smith concludes by examining the sources that replenish circulating capital (land, mines, and fisheries) and the political conditions (such as feudal insecurity) that inhibit capital accumulation. The analysis provides the foundation for understanding capital accumulation, economic growth, and the relationship between individual economic activity and national wealth.

## Entities Extracted

- **stock**: The accumulated wealth of an individual or society that can be employed to generate revenue, distinguished from immediate consumption goods and divided into capital (which yields profit) and revenue (which supports consumption).
- **capital**: That portion of an individual's stock which is expected to yield revenue, employed either in purchasing goods for resale with profit (circulating capital) or in improving land and acquiring productive machinery (fixed capital).
- **circulating capital**: Capital employed in purchasing goods for resale with profit, which yields no revenue while in possession and only generates profit through successive exchanges and circulation from one form to another.
- **fixed capital**: Capital employed in improving land, purchasing productive machinery, or acquiring instruments of trade that yield revenue or profit without changing masters or requiring circulation.
- **revenue**: The income derived from stock employed as capital, whether through the sale of circulating goods or through the productive use of fixed capital in land improvement and machinery.
- **immediate consumption**: That portion of an individual's stock reserved for present use and subsistence, consisting of food, clothing, household furniture, and dwelling houses that provide no revenue but sustain the owner.
- **labouring poor**: The majority of workers whose stock is insufficient to maintain them beyond a few days or weeks, deriving revenue solely from their labour without capital accumulation.
- **master artificer**: A skilled craftsman who employs capital in his trade, requiring fixed capital in the form of tools and instruments while circulating the remainder in wages and materials.
- **farmer's capital**: The stock employed in agriculture, divided into fixed capital (instruments of husbandry and breeding cattle) and circulating capital (wages of servants and maintenance of labouring cattle).
- **society's general stock**: The aggregate wealth of all inhabitants or members of a country, naturally dividing into the same three portions as individual stock: immediate consumption, fixed capital, and circulating capital.
- **productive abilities**: The acquired and useful talents of society's members, acquired through education and apprenticeship, constituting a form of fixed capital that contributes to national wealth through increased productivity.
- **circulating capital components**: The four parts of circulating capital: money for circulation, provisions in possession of producers, raw materials and partially manufactured goods, and finished work held by merchants and manufacturers.
- **land, mines, and fisheries**: The primary sources of raw materials and provisions that replenish circulating capital and maintain the economic system, providing the natural resources from which all economic activity ultimately derives.
- **feudal government effects**: The political system that encouraged the concealment and burial of stock due to fear of violence from superiors, representing an economic barrier to capital accumulation and market development.
- **treasure-trove**: Concealed wealth discovered in the earth to which no particular person could prove right, considered part of sovereign revenue in feudal times and reflecting the economic insecurity of the period.
- **dwelling house distinction**: The economic difference between houses used as capital (rented for revenue) and those used for immediate consumption (owner-occupied, providing no revenue to the public).
- **masquerade dress trade**: The commercial practice of renting masquerade costumes for temporary use, representing how consumption goods can occasionally function as capital when rented for revenue.
- **improved farm advantages**: Agricultural land that has been profitably enhanced through clearing, draining, enclosing, and manuring, functioning as fixed capital that facilitates and abridges labour like any other productive machine.
- **seed as fixed capital**: The total value of seed employed in agriculture, considered fixed capital because it moves between ground and granary without changing masters, generating profit through increase rather than sale.
- **three-way employment of stock**: The three possible uses of capital: for immediate consumption, as fixed capital, or as circulating capital, representing all possible ways stock can be employed to generate present enjoyment or future profit.

## VSM Mappings

- **stock** → S1 Operations (Strong)
- **capital** → S1 Operations (Strong)
- **circulating capital** → S1 Operations (Strong)
- **fixed capital** → S1 Operations (Strong)
- **revenue** → S1 Operations (Strong)
- **immediate consumption** → S5 Policy (Moderate)
- **labouring poor** → S1 Operations (Strong)
- **master artificer** → S1 Operations (Strong)
- **farmer's capital** → S1 Operations (Strong)
- **society's general stock** → S1 Operations (Strong)
- **productive abilities** → S1 Operations (Strong)
- **circulating capital components** → S2 Coordination (Moderate)
- **land, mines, and fisheries** → S1 Operations (Strong)
- **feudal government effects** → S3 Control (Moderate)
- **treasure-trove** → S3 Control (Moderate)
- **dwelling house distinction** → S3 Control (Moderate)
- **masquerade dress trade** → S4 Intelligence (Moderate)
- **improved farm advantages** → S1 Operations (Strong)
- **seed as fixed capital** → S1 Operations (Strong)
- **three-way employment of stock** → S5 Policy (Strong)

## VSM Coverage

The chapter provides comprehensive coverage of S1 (Operations) with 13 strong mappings, establishing it as the dominant VSM system represented. S1 encompasses the fundamental economic activities of capital employment, production, and exchange through various forms of capital and their applications across different economic actors. S5 (Policy) receives moderate to strong coverage with 3 mappings, representing the policy framework that defines how stock can be employed and the ultimate purposes of economic activity. S3 (Control) has moderate coverage with 3 mappings, illustrating how regulatory frameworks and political institutions affect economic activity and resource allocation. S2 (Coordination) receives moderate coverage with 1 mapping, showing how circulating capital components facilitate exchange and communication between economic units. S4 (Intelligence) has minimal coverage with 1 moderate mapping, representing the identification of new market opportunities. S3* (Audit/Monitoring) receives no coverage in this chapter.

## Gaps & Observations

The chapter demonstrates a strong focus on operational economic activities (S1) and policy frameworks (S5), with less attention to coordination mechanisms (S2), environmental intelligence (S4), and audit functions (S3*). The absence of S3* mapping is notable, as there is no discussion of monitoring, verification, or quality control mechanisms within the economic system. The mapping of feudal government effects and treasure-trove to S3 Control reveals an interesting pattern: Smith uses historical examples to illustrate how political systems can either enable or constrain economic viability, suggesting that S3 functions as both enabling and constraining regulatory mechanisms. The masquerade dress trade mapping to S4 Intelligence, while tenuous, shows how Smith identifies innovative adaptations in market behavior, though this represents a minor theme in the chapter. The comprehensive coverage of S1 through various forms of capital and their applications across different economic actors suggests that Smith's economic theory is fundamentally grounded in operational activities and their productive transformations. Future analysis could benefit from examining how Smith addresses coordination mechanisms (S2) more explicitly, particularly through market price systems and commercial customs, and how he conceptualizes environmental scanning and adaptation (S4) in his broader economic framework.