Stock is the total accumulated resources available to a person or enterprise. Smith divides stock into two categories — fixed and circulating — and the distinction determines how it is deployed, how it generates returns, and how it must be managed to prevent depletion.
Fixed vs Circulating Stock
- Fixed CapitalStock that generates returns without changing hands — machinery, tools, buildings, improved land. Fixed capital is the productive infrastructure. It does not circulate but enables the circulation of other stock. Its value is realized through use over time, not through exchange.
- Circulating CapitalStock that generates returns through circulation — money, raw materials, finished goods awaiting sale, wages advanced to workers. Circulating capital generates returns precisely by changing hands. When it stops circulating, it stops generating returns.
- The RelationshipFixed capital requires circulating capital to operate. A factory without raw materials or workers is inert. The correct proportion between fixed and circulating capital is determined by the nature of the enterprise — a capital-intensive operation requires more fixed; a trading operation requires more circulating.
Doctrine
The practitioner who commits too much to fixed capital leaves insufficient circulating capital to operate it. The one who holds too much circulating capital and too little fixed has resources without productive infrastructure. The correct balance is determined by what the enterprise actually requires to sustain full operation — not by what appears prudent in the abstract.