The Simplified Wealth of Nations of Adam Smith, Book 1, Chapter 5b: Grains vs Silver


Chapter 5b: Grains vs Silver in terms of the temporal aspect of value

15 At distant times, equal amounts of labour will be bought more nearly with equal amounts of wheat, the worker's subsistence, than with perhaps any other commodity.

16 The real value of a wheat is more stable from century to century than from year to year, compared to metal money.
Gold & silver prices

17 Labour, therefore, is the only universal and accurate measure of value.



When To Use Real And Nominal Prices

18 Although it is useful to have real and nominal prices for long term leases, it is not useful in common and ordinary transactions.

19 "At the same time and place the real and the nominal price of all commodities are exactly in proportion to one another."

20 At distant places, differences in real and nominal prices exist.



Nominal Prices and Arbitrage

21 Nominal price has become more of a concern than real price because all purchases and sales are transacted in nominal prices.

22 However, real prices are more useful in trades done between two different times and places.



The History Of Metals in Coinage

23 Commercial nations have used gold coins for large payments, silver for moderate purchases, and copper for smaller ones. 24 The Romans used only copper money until five years before the first Punic war, when they first began to coin silver.
Roman As coin
Roman As
25 The Northern Europeans used silver.

Gold Versus Silver

26 The values of gold and silver money were not fixed by any law. 27 In time, people established laws to set the values of gold and silver. 28 If the law changes, then the difference becomes more than nominal again. 29 In reality, the value of the most precious metal regulates the value of all coins. 30 Because the regulation disregards the physical degradation of coins, it raises the real value of silver.
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Next: Chapter 5c: Coin Reformation