The Simplified Wealth of Nations of Adam Smith, Book 1, Chapter 4: The origin and use of money

Chapter 4: The origin and use of Money

1 When the division of labour is established, each person can only supply a very small part of one's wants. 2But when the division of labour first began, this power of exchanging was frequently very much clogged and embarrassed in its operations.
  • To avoid this inconvenience, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have tried to always have:
  • 3Probably many different commodities were thought of and used for this purpose. 4However, men in all countries were finally determined by irresistible reasons to prefer metals above every other commodity.   5Different metals have been used by different nations for commerce. 6Those metals were originally in the form of rude bars, without any stamp or coinage. 7These rude bars had two major inconveniences:
    1. The trouble of weighing
    2. The trouble of assaying them
    8The first public stamps affixed to precious metals were intended to ascertain the goodness or fineness of the metal.   9The inconvenience and difficulty of weighing those metals precisely gave rise to to the institution of coins. 10 The denominations of those coins originally expressed the weight or amount of metal in them. 11In this way, money became the universal instrument of commerce in all civilized nations.

    12People naturally observe rules in exchanging goods either for money or for one another. These rules determine the 'relative' or 'exchangeable' value of goods.

    13'VALUE' has two different meanings.

    14-17To investigate the principles which regulate the exchangeable value of commodities, I shall try to show:

    1. 15The real measure of this exchangeable value; or, wherein consists the real price of all commodities.
    2. 16The parts of which this real price is composed or made up.
    3. 17The circumstances which:
    4. or, what are the causes which sometimes hinder the market price, that is, the actual price of commodities, from coinciding exactly with what may be called their natural price.

    18I shall try to explain those three subjects in the three following chapters.

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    Next: Chapter 5: Real and Nominal Price