The Wisdom of Adam Smith

10. Money, Gold, and Wealth

JSmith_051-100.indd 23 11/28/11 10:01 AM 10 Money, Gold, and Wealth It would be too ridiculous to go about seriously to prove that wealth does not consist in money, or in gold and silver; but in what money purchases, and is valuable only for purchasing. WN438 That wealth consists in money, or in gold and silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce and as the measure of value. In consequence of its being the instrument of commerce, when we have money we can more readily obtain whatever else we have occasion for than by means of any other commodity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any subsequent purchase. WN429 JSmith_051-100.indd 24 11/28/11 10:01 AM The Wisdom ofAdam Smith The value of money is in proportion to the quantity of the necessaries of life which it will purchase. WN886 It is not for its own sake that men desire money, but for the sake of what they can purchase with it. WN439 Upon every account ... the attention of government never was so unnecessarily employed as when directed to watch over the preservation or increase of the quantity of money in any country. No complaint, however, is more common than that of a scarcity of money. Money, like wine, must always be scarce with those who have neither wherewithal to buy it nor credit to borrow it. Those who have either will seldom be in want either of the money or of the wine which they have occasion for. This complaint, however, of the scarcity of money is not always confined to improvident spendthrifts. It is sometimes general through a whole mercantile town and the country in its neighborhood. Over-trading is the common cause of it. Sober men, whose projects have been disproportioned to their capitals, are as likely to have neither wherewithal to buy money nor credit to borrow it, as prodigals whose expense has been disproportioned to their revenue. Before their projects can be brought to bear, their stock is gone, and the credit with it. They run about everywhere to borrow money, and everybody tells them that they have JSmith_051-100.indd 25 11/28/11 10:01 AM Money, Gold, and Wealth • 75 none to lend. Even such general complaints of the scarcity of money do not always prove that the usual number of gold and silver pieces are not circulating in the country , but that many people want those pieces who have nothing to give for them. When the profits of trade happen to be greater than ordinary, over-trading becomes a general error both among great and small dealers. They do not always send more money abroad than usual, but they buy upon credit, both at home and abroad, an unusual quantity of goods, which they send to some distant market in hopes that the returns will come in before the demand for payment. The demand comes before the returns , and they have nothing at hand with which they can either purchase money, or give solid security for borrowing . It is not any scarcity of gold and silver, but for the difficulty which such people find in borrowing, and which their creditors find in getting payment, that occasions the general complaint of the scarcity of money. WN 437-38 In order to put industry into motion, three things are requisite; materials to work upon, tools to work with, and the wages or recompence for the sake of which the work is done. Money is neither a material to work upon, nor a tool to work with; and though the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists, not in the money, but in the money's worth; not in the metal pieces, but in what can be got for them. WN 295 JSmith_051-100.indd 26 11/28/11 10:01 AM The Wisdom of Adam Smith The judicious operations of banking, by substituting paper in the room of a great part of this gold and silver, enables the country to convert a great part of this dead stock into active and productive stock; into stock which produces something to the country. The gold and...