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• Preface
• Introduction and Plan of the Work
• Book I: Of the Causes of Improvement In the Productive Powers of Labour, and of the Order According to Which Its Produce Is Naturally Distributed Among the Different Ranks of the People
• Chapter I: Of the Division of Labour
• Chapter II: Of the Principle Which Gives Occasion to the Division of Labour
• Chapter III: That the Division of Labour Is Limited By the Extent of the Market 1
• Chapter IV: Of the Origin and Use of Money 1
• Chapter V: Of the Real and Nominal Price of Commodities, Or of Their Price In Labour, and Their Price In Money
• Chapter VI: Of the Component Parts of the Price of Commodities
• Chapter VII: Of the Natural and Market Price of Commodities 1
• Chapter VIII: Of the Wages of Labour
• Chapter IX: Of the Profits of Stock
• Chapter X: Of Wages and Profit In the Different Employments of Labour and Stock
• Chapter XI: Of the Rent of Land
• Book II: Of the Nature, Accumulation, and Employment of Stock
• Introduction
• Chapter I: Of the Division of Stock
• Chapter II: Of Money Considered As a Particular Branch of the General Stock of the Society, Or of the Expence of Maintaining the National Capital
• Chapter III: Of the Accumulation of Capital, Or of Productive and Unproductive Labour
• Chapter IV: Of Stock Lent At Interest
• Chapter V: Of the Different Employment of Capitals
• Book III: Of the Different Progress of Opulence In Different Nations
• Chapter I: Of the Natural Progress of Opulence
• Chapter II: Of the Discouragement of Agriculture In the Antient State of Europe After the Fall of the Roman Empire 1
• Chapter III: Of the Rise and Progress of Cities and Towns, After the Fall of the Roman Empire
• Chapter IV: How the Commerce of the Towns Contributed to the Improvement of the Country
• Book IV: Of Systems of Political Oeconomy
• Introduction
• Chapter I: Of the Principle of the Commercial, Or Mercantile System 1
• Chapter II: Of Restraints Upon the Importation a From Foreign Countries of Such Goods a As Can Be Produced At Home
• Chapter III: Of the Extraordinary Restraints Upon the Importation of Goods of Almost All Kinds, From Those Countries With Which the Balance Is Supposed to Be Disadvantageous
• Chapter IV: Of Drawbacks
• Chapter V: Of Bounties

CHAPTER IV

Of the Origin and Use of Money1

1When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.

2But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations.2 One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange, except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange can, in this case, be made between them. He cannot be their merchant, nor they his customers; and they are all of them thus mutually less serviceable to one another. In order to avoid the inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.3

3Many different commodities, it is probable, were successively both thought of and employed for this purpose. In the rude ages of society, cattle are said to have been the common instrument of commerce; and, though they must have been a most inconvenient one, yet in old times we find things were frequently valued according to the number of cattle which had been given in exchange for them.4 The armour of Diomede, says Homer, cost only nine oxen; but that of Glaucus cost ^aan^a hundred oxen.5 Salt is said to be the common instrument of commerce and exchanges in Abyssinia;6 a species of shells in some parts of the coast of India; dried cod at Newfoundland; tobacco in Virginia; sugar in some of our West India colonies; hides or dressed leather in some other countries; and there is at this day a village in Scotland where it is not uncommon, I am told, for a workman to carry nails instead of money to the baker’s shop or the ale–house.7

4In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity.8 Metals can not only be kept with as little loss as any other commodity, scarce any thing being less perishable that they are, but they can likewise, without any loss, be divided into any number of parts, as by fusion those parts can easily be re–united again; a quality which no other equally durable commodities possess, and which more than any other quality renders them fit to be the instruments of commerce and circulation. The man who wanted to buy salt, for example, and had nothing but cattle to give in exchange for it, must have been obliged to buy salt to the value of a whole ox, or a whole sheep at a time. He could seldom buy less than this, because what he was to give for it could seldom be divided without loss; and if he had a mind to buy more, he must, for the same reasons, have been obliged to buy double or triple the quantity, the value, to wit, of two or three oxen, or of two or three sheep. If, on the contrary, instead of sheep or oxen, he had metals to give in exchange for it, he could easily proportion the quantity of the metal to the precise quantity of the commodity which he had immediate occasion for.

5Different metals have been made use of by different nations for this purpose. Iron was the common instrument of commerce among the antient Spartans; copper among the antient Romans9 ; and gold and silver among all rich and commercial nations.10

6Those metals seem originally to have been made use of for this purpose in rude bars, without any stamp or coinage. Thus we are told by Pliny* , upon the authority of ^cTimaeus^c , an antient ^dhistorian^d , that, till the time of Servius Tullius, the Romans had no coined money, but made use of unstamped bars of copper to purchase whatever they had occasion for. These rude bars, therefore, performed at this time the function of money.

7The use of metals in this rude state was attended with two very considerable inconveniencies; first, with the trouble of weighing ^e ; and, secondly, with ^fthat^f of assaying them. In the precious metals, where a small difference in the quantity makes a great difference in the value, even the business of weighing, with proper exactness, requires at least very accurate weights and scales. The weighing of gold in particular is an operation of some nicety. In the coarser metals, indeed, where a small error would be of little consequence, less accuracy would, no doubt, be necessary. Yet we should find it excessively troublesome, if every time a poor man had occasion either to buy or sell a farthing’s worth of goods, he was obliged to weigh the farthing. The operation of assaying is still more difficult, still more tedious, and, unless a part of the metal is fairly melted in the crucible, with proper dissolvents, any conclusion that can be drawn from it, is extremely uncertain. Before the institution of coined money, however, unless they went through this tedious and difficult operation, people must always have been liable to the grossest frauds and impositions, and instead of a pound weight of pure silver, or pure copper, might receive in exchange for their goods, an adulterated composition of the coarsest and cheapest materials, which had, however, in their outward appearance, been made to resemble those metals. To prevent such abuses, to facilitate exchanges, and thereby to encourage all sorts of industry and commerce, it has been found necessary, in all countries that have made any considerable advances towards improvement, to affix a publick stamp upon certain quantities of such particular metals, as were in those countries commonly made use of to purchase goods. Hence the origin of coined money, and of those publick offices called mints;11 institutions exactly of the same nature with those of the aulnagers and stampmasters of woollen and linen cloth.12 All of them are equally meant to ascertain, by means of a publick stamp, the quantity and uniform goodness of those different commodities when brought to market.13

8The first publick stamps of this kind that were affixed to the current metals, seem in many cases to have been intended to ascertain, what it was both most difficult and most important to ascertain, the goodness or fineness of the metal, and to have resembled the sterling mark which is at present affixed to plate and bars of silver, or the Spanish mark which is sometimes affixed to ingots of gold, and which being struck only upon one side of the piece, and not covering the whole surface, ascertains the fineness, but not the weight of the metal. Abraham weighs to Ephron the four hundred shekels of silver which he had agreed to pay for the field of Machpelah.14 They are said however to be the current money of the merchant, and yet are received by weight and not by tale, in the same manner as ingots of gold and bars of silver are at present. The revenues of the antient Saxon kings of England are said to have been paid, not in money but in kind, that is, in victuals and provisions of all sorts.15 William the Conqueror introduced the custom of paying them in money. This money, however, was, for a long time, received at the exchequer, by weight and not by tale.16

9The inconveniency and difficulty of weighing those metals with exactness gave occasion to the institution of coins, of which the stamp, covering entirely both sides of the piece and sometimes the edges too, was supposed to ascertain not only the fineness, but the weight of the metal. Such coins, therefore, were received by tale as at present, without the trouble of weighing.

10The denominations of those coins seem originally to have expressed the weight or quantity of metal contained in them. In the time of Servius Tullius, who first coined money at Rome, the Roman As or Pondo contained a Roman pound of good copper.17 It was divided in the same manner as our Troyes pound, into twelve ounces, each of which contained a real ounce of good copper. The English pound sterling, in the time of Edward I., contained a pound, Tower weight, of silver of a known fineness.18 The Tower pound seems to have been something more than the Roman pound, and something less than the Troyes pound.19 This last was not introduced into the mint of England till the 18th of Henry VIII.20 The French livre contained in the time of Charlemagne a pound, Troyes weight, of silver of a known fineness. The fair of Troyes in Champaign was at that time frequented by all the nations of Europe, and the weights and measures of so famous a market were generally known and esteemed.21 The Scots money pound contained, from the time of Alexander the First to that of Robert Bruce, a pound of silver of the same weight and fineness with the English pound sterling. English, French, and Scots pennies too, contained all of them originally a real pennyweight of silver, the twentieth part of an ounce, and the twohundred–and–fortieth part of a pound. The shilling too seems originally to have been the denomination of a weight. When wheat is at twelve shillings the quarter, says an antient statute of Henry III. then wastel bread of a farthing shall weigh eleven shillings and four pence.22 The proportion, however, between the shilling and either the penny on the one hand, or the pound on the other, seems not to have been so constant and uniform as that between the penny and the pound. During the first race of the kings of France, the French sou or shilling appears upon different occasions to have contained five, twelve, twenty, ^gand forty^g pennies. Among the antient Saxons a shilling appears at one time to have contained only five pennies,23 and it is not improbable that it may have been as variable among them as among their neighbours, the antient Franks. From the time of Charlemagne among the French,24 and from that of William the Conqueror among the English,25 the proportion between the pound, the shilling, and the penny, seems to have been uniformly the same as at present, though the value of each has been very different. For in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins. The Roman As, in the latter ages of the Republick, was reduced to the twenty–fourth part of its original value, and, instead of weighing a pound, came to weigh only half an ounce.26 The English pound and penny contain at present about a third only; the Scots pound and penny about a thirty–sixth; and the French pound and penny about a sixty–sixth part of their original value.27 By means of those operations the princes and sovereign states which performed them were enabled, in appearance, to pay their debts and ^hto^h fulfil their engagements with a smaller quantity of silver than would otherwise have been requisite. It was indeed in appearance only; for their creditors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old.28 Such operations, therefore, have always proved favourable to the debtor, and ruinous to the creditor, and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great publick calamity.29

11It is in this manner that money has become in all civilized nations the universal instrument of commerce, by the intervention of which goods of all kinds are bought and sold, or exchanged for one another.30

12What are the rules which men naturally observe in exchanging them either for money or for one another, I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods.

13 The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called ‘value in use;’ the other, ‘value in exchange.’ The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.31

14In order to investigate the principles which regulate the exchangeable value of commodities, I shall endeavour to shew,

15First, what is the real measure of this exchangeable value; or, wherein consists the real price of all commodities,

16Secondly, what are the different parts of which this real price is composed or made up.

17And, lastly, what are the different circumstances which sometimes raise some or all of these different parts of price above, and sometimes sink them below their natural or ordinary rate; 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.

18 I shall endeavour to explain, as fully and distinctly as I can, those three subjects in the three following chapters, for which I must very earnestly entreat both the patience and attention of the reader: his patience in order to examine a detail which may perhaps in some places appear unnecessarily tedious; and his attention in order to understand what may, perhaps, after the fullest explication which I am capable of giving ⁱofⁱ it, appear still in some degree obscure. I am always willing to run some hazard of being tedious in order to be sure that I am perspicuous; and after taking the utmost pains that I can to be perspicuous, some obscurity may still appear to remain upon a subject ^j in its own nature extremely abstracted.32

[1 ]In both sets of lectures and the ED Smith considers the analysis of money immediately after that of market and natural price (which forms the subjects of I.vii. below). The subjects of this chapter, e.g. with regard to the inconvenience of barter, the usefulness of the metals as a medium of exchange, the need for coinage, debasement, etc., are considered in LJ (A) vi.97–117, LJ (B) 235–44, ed. Cannan 182–90, ED 4.1–3. In ED 4, however, Smith planned to introduce at this point a discussion of banks and paper money (the subjects of II.ii below) before proceeding directly to the examination of the fallacy that opulence consists in money (the subjects of IV). The lectures also follow this order of argument, save that LJ (B) includes an account of John Law’s scheme (see below, II.ii.78) and of the Bank of Amsterdam (below IV.iii.b). In ED Smith styled chapter 4 ‘Of money, its nature, origin and history, considered first, as the measure of value, and secondly as the instrument of commerce’ and remarked that ‘Under the first head I have little to say that is very new or particular; except a general history of the coins of France, England, & Scotland: the different changes they have undergone: their causes and effects.’

[2 ]It is remarked at I.xi.g.26 that the economy of Peru had been based on barter and that ‘there was accordingly scarce any division of labour among them’. See also IV.vii.b.7. In LJ (A) ii.53 Smith cites the ‘Negroes on the Coast of Guinea’ as still operating a barter economy.

[3 ]Cleomanes, In The Fable of the Bees, Sixth Dialogue (pt. ii.422, ed. Kaye ii.349), asks: ‘Which way shall I persuade a Man to serve me, when the Service, I can repay him in, is such as he does not want or care for? . . . Money obviates and takes away all those Difficulties, by being an acceptable Reward for all the Services Men can do to one another.’ See also Harris, Essay, i.34–6.

[4 ]See IV.i.2 where Smith comments on the Tartar economy and the use of cattle as a measure of value. The Greek economy at the time of the Trojan War is described as having just left the shepherd state, V.i.b.16.

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[5 ]‘From Glaucus did Zeus, son of Cronos, take away his wits, seeing he made exchange of armour with Diomedes, son of Tydeus, giving golden for bronze, the worth of an hundred oxen for the worth of nine.’

(Homer, Iliad, vi.234–6, translated by A. T. Murray in Loeb Classical Library (1965) i.278–9.) The example of Glaucus and Diomede appears in LJ (A) vi.98 where Smith also adds a comment on the use of sheep as money in Italy and especially Tuscany. (Cf. LJ (B) 235, ed. Cannan 183 where the Greek cattle are said to have been black cattle.) Smith comments on the use of the metals as money in LJ (B) 238–9, ed. Cannan 185, and LJ (A) vi.99, 105, Montesquieu also noted that the Athenians made use of oxen and the Romans of sheep (Esprit, XXII.ii.2).

[6 ]The use of salt in Abyssinia is mentioned by Montesquieu, Esprit, XXII.i, note. He also suggests that it was used by the Moors in Africa in exchange for gold.

[7 ]Cantillon pointed out that ‘Tobacco, Sugar, and Cocoa’ had been used as money in the American colonies (Essai, 145, ed. Higgs 111). Harris also reviews the problems of barter, Essay, i.34–5, and goes on (42) to comment on the use of particular commodities such as salt or ‘the small shells called by us couries’ in barbarous countries such as Africa.

[8 ]Harris continued, Essay, i.43–4: ‘For the purpose of universal commerce, metals seem the fittest materials for a standard measure, or money; as copper, silver, or gold; they having all the properties above required: They are moreover divisible into minute parts, which parts retain nevertheless an intrinsic value, in proportion to their quantity or weight; because those parts may, without injuring the metal, be again united together into a greater mass. These metals are durable, and also susceptible of any form, mark, or impression; and are convertible from money or coins, into utensils of various kinds; and from these, into money again.’ See also Cantillon, Essai, I.xvii and II.i; Montesquieu, Esprit, XXII.ii, and John Law, Money and Trade Considered (Edinburgh, 1705), 8–9.

[9 ]See below, I.v.24.

[10 ]The examples of Rome and Sparta appear in LJ (A) vi.105 and similar points are made in LJ (B) 237, ed. Cannan 184–5. See also Cantillon, Essai, 143–4, ed. Higgs 109.

[bb* ]Plin. Hist. Nat. lib. 33. cap. 3.b [‘King Servius was the first to stamp a design on bronze; previously according to Timaeus, at Rome they used raw metal.’ Pliny, Natural History, XXXIII. xiii translated by H. Rackham in Loeb Classical Library (1952), ix. 37.]

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[11 ]Similar points are made by Harris, Essay, i.48. Pufendorf (citing the authority of Aristotle) also comments on the advantages of coined money, De Jure, V.i.12. The same arguments appear in his De Officio, I.xiv and cf. Grotius, De Jure Belli, II.xii.17. See Aristotle, Politics I, 1372a (translated by William Ellis in Everyman Library (1912), 16): ‘Barter introduced the use of money . . . for which reason they invented something to exchange with each other which they should mutually give and take, that being really valuable itself, should have the additional advantage of being of easy conveyance, for the purposes of life, as iron and silver, or anything else of the same nature: and this at first passed in value simply according to its weight or size, but in process of time it had a certain stamp, to save the trouble of weighing, which stamp expressed its value.’

Cf. ‘. . . as silver can be combined with Iron, Lead, Tin, Copper, etc. which are not such scarce Metals and are mined at less expense, the exchange of Silver was subject to much fraud, and this caused several Kingdoms to establish Mints in order to certify by a public coinage the true quantity of silver that each coin contains and to return to individuals who bring bars or ingots of Silver to it the same quantity in coins bearing a stamp or certificate of the true quantity of Silver they contain.’ Cantillon, Essai, 135–6, ed. Higgs 103: Hutcheson reviews the problems of barter, the advantages of the metals as an acceptable equivalent in exchange, and the necessity of coinage (System, II.xii). Similar arguments are developed in his Short Introduction to Moral Philosophy (Glasgow, 1747), II.xii.

[12 ]The aulanger sealed cloth which met prescribed standards and so ensured uniformity of production. 10 Anne, c.23 (1711) in Statutes of the Realm, ix.682–4; 10 Anne, c.21 in Ruffhead’s edition provided for the stamping of linen in Scotland. 13 George I, c.26 (1726) detailed the standard length and breadth of cloth. See below, I.x.c.13.

[13 ]The subjects of the preceding paragraph are considered in LJ (A) vi.108–9 and LJ (B) 239, ed. Cannan 185. Cf. LJ (A) vi.114: ‘It was necessary that the government should be at the trouble and expence of coinage; no other could find their interest in it. The stamp gives it no additionall value; it merely ascertains the value. The government found it in their interest to be at that expence, as money facilitated taxes and the intercourse by commerce, which as it enriched the people was beneficial to the government.’ See below, I.v.38, where it is noted that the coinage was free in England.

[14 ]‘And Ephron answered Abraham . . . the land is worth four hundred shekels of silver . . . and Abraham weighed to Ephron the silver which he had named . . . four hundred shekels of silver, current money with the merchant. And the field of Ephron, which was in Machpelah . . . were made sure unto Abraham for a possession.’ (Genesis 23: 14–18.)

[15 ]‘The revenues of the king seem to have consisted chiefly in his demesnes, which were large; and in the tolls and imports which he probably levied at discretion on the boroughs and sea–ports, that lay within his demesnes.’ (D. Hume, The History of England (London, 1778), i.225.)

[16 ]‘. . . when King William the First, for the better pay of his Warriors, caused the Firmes, which till his time, had for the most part been answered in Victuals, to be converted in Pecuniam Numeratam . . . the Money afterwards declining, and becoming worse, it was Ordained That the Firmes of Manors should not only be paid ad Scalam, but also ad Pensam, which latter was the paying as much money for a Pound Sterling as weighed Twelve Ounces Troy.’ (W. Lowndes, Report containing an Essay for the Amendment of the Silver Coins (London, 1695), 4.) But as H. R. Loyn has pointed out, ‘money was in general use for the last four centuries of Anglo–Saxon England’ (Anglo–Saxon England and the Norman Conquest (London, 1962), 117).

[17 ]See IV.ix.47 where Smith comments on the price of the ‘finer sort’ of manufactures in ancient Rome, and below I.v.24.

[18 ]These points appear in LJ (A) vi.111 and LJ (B) 239, ed. Cannan 186.

[19 ]A similar point is made in LJ (A) vi.112 and LJ (B) 240, ed. Cannan 187.

[20 ]‘. . . the Tower weight does not seem to have been taken away before the 18th year of the king’s reign [Henry VIII]’ (M. Folkes, A Table of English Silver Coins (London, 1745), 20). Harris commented that ‘The Tower weight continued in use at the mint there, from the conquest till the 18th year of the reign of Henry VIII; at which time it was laid aside, and the Troy weight introduced in its stead’ (Essay, i.50).

[21 ]The subjects of this sentence are considered in LJ (A) vi.111 and LJ (B) 240, ed. Cannan 187. LJ (B) also adds at 304, ed. Cannan 234, that ‘Till the sixteenth century all commerce was carried on by fairs. The fairs of Bartholemew, of Leipsic, of Troy in Champaigne, and even of Glasgow, are much talked of in antiquity.’ In the latter passage from LJ (B) Smith cited the use of fairs and staple towns as factors which contributed to the slow progress of opulence in Europe.

[22 ]The statute is cited to the same end by Harris, Essay, i.50. Smith’s library had a copy of the Statutes at Large from Magna Charta to the Twentieth Year of the Reign of King George III, 13 vols. (London, 1769–80). In the text (I.xi.e.20) Smith refers to this edition of the Statutes by Ruffhead and takes his other references from it. In the present edition statutes are cited according to the Statutes of the Realm for the period covered by that edition, until the end of the reign of Queen Anne in 1713, and a cross–reference is given to Ruffhead. Thereafter Ruffhead’s edition is used. A ‘Table of Variances’ between the two editions is in The Chronological Table of the Statutes from which the dates of statutes are taken. The Assize of Bread and Ale, quoted here, is given various dates. Statutes of the Realm, i.199, n., gives the date as uncertain, but recognizes that the printed copies, including Ruffhead’s, attributes it to 51 Henry III, which would make the date 1266–7. See also I.x.c.62, I.xi.e.6, 19–20.

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[23 ]W. Fleetwood, Chronicon Preciosum (London, 1707), 30; Hume, History of England (1778), i.226.

[24 ]‘It is thought that the livre, or pound weight, of silver, was instituted as the money integer, by CHARLEMAGNE: And this he subdivided into sols, and deniers, which bore exactly the same proportion to the pound, as our shillings and pence, now do, to our money pound, or pound sterling.’ (Harris, Essay, i.50.)

[25 ]‘It is thought that soon after the conquest a pound sterling was divided into twenty shillings.’ Hume, History of England (1778), i.227.

[26 ]‘Next according to a law of Papirius asses weighing half an ounce were struck.’ (Pliny, Natural History, XXXIII.xiii, translated by H. Rackham in Loeb Classical Library (1952), ix.39.) Also quoted in Montesquieu, Esprit, XXII.xi.3. See below, V.iii.61.

[27 ]Cf. ‘Our money pound is at present . . . about one–third of what it was at the conquest . . . At the accession of King James I to this throne, the Scotch money pound was but equal to the 1/12 of ours; and the French livre is at present, only about half the value of the Scotch pound’ (Harris, Essay, i.52n.). The problems of debasement are discussed at V.iii.59–64; in LJ (A) vi.114ff. and LJ (B) 240, ed. Cannan 186. The figures given in the text as regards the content of the English and Scots pound are cited at LJ (A) vi.116–17, and the French livre is said to have been reduced ‘to less than one seventieth’. Smith also remarked with reference to Britain that ‘still the coin is on a precarious footing, being under the management of the king and privy councill, as the parliament cannot legally intermeddle.’ In LJ (A) ii.81 debasement is attributed to ‘the difficulty of raising money’ and the same point is made in LJ (B) 179–80, ed. Cannan 134, in the course of a discussion of the law of contract. In LJ (A) vi.114 and 118 debasement is attributed to the ‘necessities or frauds of the government’, cf. LJ (B) 241–2, ed. Cannan 187–8.

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[28 ]Cf. LJ (A) ii.80–1: ‘Justice and equity plainly require that one should restore the same value as he received without regard to the nominal value of money . . . But the civil government in all countries have constituted the exact contrary of this.’

[29 ]Hutcheson develops a rather similar argument in the System, ii.60–1. Harris discusses the problem of debasement, and its impact on debtors and creditors, and those on fixed incomes, in the Essay, Part II, chapters 1, 10, 17, 18. See also Steuart Principles, III.2.vi and III.1.vi. The impact of debasement on creditors and debtors is considered in LJ (A) vi.119–20 where Smith also points out that a change in the coinage ‘necessarily embarrasses commerce’ since buyers and sellers will delay purchases and sales due to the prevailing state of uncertainty: ‘And as both stand off in this manner, the merchant choosing rather to keep up his goods than to sell them too low, a stagnation must necessarily follow in the exchange of commodities; and money in some measure ceases to answer its end as a measure of value.’ Cf. LJ (B) 242, ed. Cannan 188: ‘People are disposed to keep their goods from the market, as they know not what they will get for them. Thus a stagnation of commerce is occasioned. Besides, the debasing of the coin takes away the public faith.’ Montesquieu also noted that ‘Trade is in its own nature extremely uncertain; and it is a great evil to add a new uncertainty to that which is founded on the nature of the thing’ (Esprit, XXII.iii.4).

[30 ]In the lectures, the discussion of money proceeds from this point to the rejection of the view that opulence consists in money and to the examination of banks and paper money. The same order of argument is suggested in ED 4.1.

[31 ]Smith throws further light on the ‘paradox of value’ at I.xi.c.31, 32 and IV.vii.a.19. He also points out at I.xi.c.3 that under some circumstances goods which are of great value in use have little or no value in exchange. Cf. LJ (B) 205–6, ed. Cannan 157: ‘Cheapness is in fact the same thing with plenty. It is only on account of the plenty of water that it is so cheap as to be got for the lifting, and on account of the scarcity of diamonds (for their real use seems not yet to be discovered) that they are so dear.’

The so–called paradox of value figures in Smith’s lectures on two occasions. In the first place, Smith set out to explain the grounds of preference ‘which give occasion to pleasure and pain’ (LJ (B) 209, ed. Cannan 159) in stating the general thesis that all the arts are subservient to the ‘natural wants’ of man. In this context Smith explained that men require basic necessities, but also that his delicacy of taste gives occasion to ‘many insignificant demands’. For example he argued that qualities such as colour or variety constitute grounds of preference and thus help to explain why we place a value on commodities—including the precious stones. In LJ (A) vi.13–4 the ‘paradox’ is examined in exactly the same context and the grounds of preference summarized as ‘colour, form, variety or rarity, and imitation’ (LJ (A) vi.16). (It is interesting to note that Smith began the economic sections of his lectures in this way and that these passages should have been omitted from the WN.) The second example occurs in the course of a discussion of the determinants of price, which are stated to be (LJ (B) 227–8, ed. Cannan 176–7):

1st, The demand or need for the commodity. There is no demand for a thing of little use; it is not a rational object of desire. 2ndly, the abundance or scarcity of the commodity in proportion to the need of it. If the commodity be scarce, the price is raised, but if the quantity be more than is sufficient to supply the demand, the price falls. Thus it is that diamonds and other precious stones are dear, while iron, which is much more usefull, is so many times cheaper, tho’ this depends principally on the last cause, viz: 3rdly, the riches or poverty of those who demand. Smith was thus able to explain the paradox, while pointing out that in some conditions, such as the rich merchant lost in the deserts of Arabia, the price of water could be very high. The same examples occur in LJ (A) vi.70–5 where Smith also indicates that the price of diamonds would sink if ‘by industry their quantity could be multiplied’. The determinants of market price are summarized in ED 3.1 and LJ (A) vi.70. See below I.vii.

The contrast between the value of water and diamonds is stated and explained by Samuel von Pufendorf, who also cites Plato’s Euthydemus 304B: ‘Only what is rare is valuable, and water, which is the best of all things, . . . is also the cheapest.’ De Jure Naturae et Gentium, V.i. 6, see generally V.i. and the same author’s De Officio Hominis et Civis Juxta Legem Naturalem, I.xiv, ‘On Value’. The latter work is an abridgement of the former. Cf. Grotius, De Jure Belli ac Pacis, II.xii, 14, and see below, I.xi. c.31–3. John Law, Money and Trade Considered, 4, also noted that:

Goods have a Value from the Uses they are apply’d to; And their Value is greater or Lesser, not so much from their more or less valuable, or necessary Uses: As from the greater or lesser Quantity of them in proportion to the Demand for them. Example Water is of great use, yet of little Value; Because the Quantity of Water is much greater than the Demand for it. Diamonds are of little use, yet of great Value, because the Demand for Diamonds is much greater, than the Quantity of them. A similar example appears in Harris, Essay i.5., and cf. Cantillon, Essai, 36, ed. Higgs 29, and Mandeville, The Fable of the Bees, pt. ii.423, ed. Kaye ii.350. In his System, ii.53–4, Hutcheson remarked that:

The natural ground of all value or price is some sort of use which goods afford in life; this is prerequisite to all estimation. But the prices or values in commerce do not at all follow the real use or importance of goods for the support, or natural pleasure of life. By the wisdom and goodness of Providence there is such plenty of the means of support, and of natural pleasures, that their prices are much lower than of many other things which to a wise man seem of little use. But when some aptitude to human use is presupposed, we shall find that the prices of goods depend on these two jointly, the demand on account of some use or other which many desire, and the difficulty of acquiring, or cultivating for human use. A similar argument appears in his Short Introduction, 209–10.

[i–i]om. 6

[j]which is 1

[32 ]It is interesting that Steuart also found difficulty in dealing with the determinants of price, and that he too should have felt moved to confess that ‘I feel a great want of language to express my ideas, and it is for this reason I employ so many examples, the better to communicate certain combinations of them, which otherwise would be inextricable’ (Principles, i.197, ed. A. S. Skinner (Edinburgh and Chicago, 1966), i.172).

[bb* ]Plin. Hist. Nat. lib. 33. cap. 3.b [‘King Servius was the first to stamp a design on bronze; previously according to Timaeus, at Rome they used raw metal.’ Pliny, Natural History, XXXIII. xiii translated by H. Rackham in Loeb Classical Library (1952), ix. 37.]