Definition
Saving in Smith's framing is the portion of annual produce that is not consumed but is instead set aside to support future labour — to feed workmen, buy materials, and build tools. It is the door through which present output becomes future capacity. Without saving, a nation can replicate its current output indefinitely but cannot grow it.
Smith does not romanticize saving as virtue. He treats it as a mechanism: what is saved is invested, and what is invested employs productive labour. What is consumed disappears into the past.
Why it matters
How it works
Smith's mechanism is straightforward. In any given year a nation produces a total output. That output is divided between what is consumed (food, drink, clothing, services that vanish in the using) and what is saved. The saved portion is converted into capital — either fixed (tools, buildings, machinery) or circulating (wages, materials, finished goods awaiting sale). Capital sets productive labour in motion; productive labour generates next year's output, which can in turn be partly saved.
The lever is the savings rate. A society that consumes everything it produces stays exactly as wealthy next year as it is today. A society that saves and reinvests grows. Smith uses this to argue against the mercantilist obsession with gold reserves — a hoarded stock of bullion is not wealth in the way that a stock of working capital is. Bullion does not employ workmen; capital does.
The contemporary literature on savings rates, retained earnings, sovereign wealth, and capital formation all sits in the same conceptual frame Smith laid out. The mechanism by which an economy compounds is unchanged; only the financial plumbing has grown more elaborate.