The Wealth of Nations_ Books 4-5 - Adam Smith [7]
finds itself, so to speak, subdivided into two orders; that of the Entrepreneurs, Manufacturers and masters who are all possessors of large capitals which they turn to account by setting to work, through the medium of their advances the second order, which consist of ordinary Artisans who possess no property but their own hands, who advance nothing but their daily labour, and who receive no profit but their wages.29
Turgot also remarked that the position of the entrepreneurs engaged in agriculture ‘must be the same as that of the Entrepreneurs in Factories’,30only adding,
We also see that it is capitals alone which establish and maintain great Agricultural enterprises, which give the land, so to speak, an invariable rental value, and which ensure to the Proprietors a revenue which is always regular and as high as it is possible for it to be.31
Turgot thus isolated four distinct factors of production (land, labour, capital and entrepreneurship), and three categories of return (rent, wages, and profit). He also supplied a distinctive version of the circular flow. If we map these points against Quesnay’s basic model, it now emerges that the entrepreneurs engaged in agriculture advance rent to the proprietors, thus providing this group with an income which is available for use in a given time period. The entrepreneurs advance wages to labour as a group and also effect purchases between the sectors in which they are engaged, as well as within the sectors to which they belong.
Looked at from another point of view, Turgot’s model indicates that output is made up of consumer and investment goods; that the income thus generated may be divided into two streams (consumption and saving) and used to make purchases of consumer and investment goods. The goods withdrawn from the market in a given period are then replaced by virtue of current productive activity. While aware of the possibility of contraction, it is interesting to note that Turgot believed that savings will normally be converted into capital expenditure ‘sur le champ’ (immediately).
The logic of the whole process was completed by the
intervention of merchants, properly so-called, between the Producers of commodities and consumers… this is the purpose of the profession of the Merchant, who buys commodities from the hands of the producer in order to accumulate them or put them in a warehouse, where the Consumer comes to get what he wants. By this means the Entrepreneur, assured of a market and of the return of his capital, devotes himself without anxiety and without any letting up, to produce further goods, and the consumer finds within his reach, and at any moment, the things of which he stands in need.32
Thus the wholesaler replaces the outlays of the entrepreneurs; outlays which are in turn replaced by the purchases of retailers, whose outlays are in turn replaced by the purchases of consumer and of investment goods.
It is this continual advance and return of capitals which constitutes what ought to be called the circulation of money; that useful and productive circulation which enlivens all the work of society, which maintains movement and life in the body politic, and which is with good reason compared to the circulation of the blood in the animal body.33
Turgot was then able to illuminate a further example of the interdependence of economic phenomena. His account had served to identify five different employments of capital, all of which are interdependent in a functional sense.34Such capitals may be employed in the purchase of land, commerce, manufactures, agriculture, or lent at interest.35He concluded that ‘the annual products which can be derived from capitals invested in these different employments are mutually limited by one another, and that all are relative to the existing rate of interest on money.’36
Turgot introduced a further dimension