On Some Fundamental Issues in 21st Century Political Economy
Chapter 5: Adam Smith on Money and Capital
THE USE OF MONEY (OR VALUE) TO PRODUCE (OR ACQUIRE) MORE MONEY (OR REVENUE) It was pointed out in the last chapter that for Smith, following Aristotle, money developed out of the exchange of products. The precious metals gold and silver over time became money. People appreciated these metals for their utility, beauty and scarcity.1 Moreover, they were durable, and could be divided and re-united easily. The metals were originally used in rude bars without stamp or coinage. At this time, they had to be weighed and assayed as to their quality. Over time, the metals were stamped, attesting to their goodness or fitness. This was done by governments. Finally, coinage arose, where the government attested to both the fineness and the weight of the metal (I.iv.3–9). Thus, Smith generally assumes that money is a produced commodity. Therefore the value of money (or the general price level) will be determined in some sense by what it costs to produce the money commodity. Sometimes, as discussed earlier, Smith reduces this to labor: ‘Labour, it must be remembered, is the ultimate price which is paid for everything’ (I.xi.e.34). In any event, the value of money itself should really be measured by labor: ‘Labour, it must always be remembered, and not any particular commodity or set of commodities, is the real measure of the value both of silver and of all other commodities’ (I.xi.e.26, emphasis added). The value of money, gold and silver, is high, and gold and silver tend to be...
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