The Wealth of Nations

Book 1, Chapter 4

the Origin and Use of Money

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Chapter 4 Summary

Once division of labor has been implemented within a society, the members of that society will start to trade.

When division of labor was first employed, initial experiences in trade and exchange must have been difficult and often impractical. One man has more of a commodity than he needs; another has less. The former would be glad to dispose of, and the latter to purchase—but if the latter has nothing the former needs, no exchange can be made.

In primitive society, for example, cattle were the common commodity used for commerce; in Abyssinia, it was salt. So the man who wished to buy salt but had nothing other than cattle to give in exchange would have been obliged to buy salt to the value of a whole ox.

This led to the idea of a common currency in the form of metal. This had its inconveniences, however, in terms of weighing and evaluating values. To prevent abuse, countries started to stamp specific quantities onto the metals—which later led to coinage and minting. Coins displayed a stamp on either side confirming the coin’s purity and weight.

The word “value” has two different meanings: it can refer to an object’s utility or its purchasing power. The former could be called “value in use;” the latter “value in exchange.” Water is valuable in the sense that it is essential to the preservation of life, but its purchasing power is very low.

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