tal, therefore, employed in the home trade,
will sometimes make twelve operations, or be sent out and returned
twelve times, before a capital employed in the foreign trade of
consumption has made one. If the capitals are equal, therefore, the one
will give four and twenty times more encouragement and support to the
industry of the country than the other."[322]

If this position of Adam Smith's be tenable, it cannot be true, that the
purchase of foreign commodities encourages British industry as much as
the purchase of British commodities. In order to have a clear idea of
his reasoning it will be useful to repeat some of the leading principles
which regulate and explain the nature of capital. 1. Capital is usually
defined to be the _accumulated stock of the produce of labour_. A
definition which, if not completely satisfactory, is sufficiently
correct for our present purpose. 2. _Capital is essential to
production_. 3. _Capital employed in production is wholly consumed in
the process of production_. "Capital," as Mill, and in fact as every
political economist says, "is all consumed; though not by the
capitalist. Part is exchanged for tools or machinery, which are worn out
by use; part for seed or materials, which are destroyed as such, by by
being sown or wrought up, and destroyed altogether by the consumption of
the ultimate product. The remainder is paid to labourers, who consume it
for their daily wants; or if they, in their turn, save any part, this
also is not generally speaking, hoarded, but (through savings banks,
benefit clubs, or some other channel) re-employed as capital, and
consumed."[323] These principles open the way to the understanding of
what Adam Smith means by the _replacing of capital_.

Capital is consumed in production, and must be replaced. How is it
replaced? By the new product. _It reappears in the new product_; in the
production of which it was consumed. Moreover it reappears with a profit
to the capitalist, who has employed it for the purposes of production.
Let us hear well in mind that the capital consumed in production is
consumed, not by the capitalist himself, but in the purchase of various
things necessary for production, and in wages. All this capital which is
employed and consumed in production, is _the net spendable income of the
producing nation_. And it is spent in food, raiment, lodging, and other
necessaries; and of course in luxuries too; and when it is spent, or
"consumed," as t