Study Guide

The Wealth of Nations Book I, Chapter 4

By Adam Smith

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Book I, Chapter 4

Of the Origin and Use of Money

  • So if we asked you, "Why does money exist?" what would your answer be? Well before you decide, you might want to check out this chapter of The Wealth of Nations. Because ol' Smithy is going to lay it out for us.
  • Turns out that if you're a coat maker who makes a thousand coats a year, you're going to end up with 999 coats too many. So you want to trade those coats for other things you might need, like food. But why not just trade a coat for a hundred potatoes? Why does money have to come into the equation?
  • Well for starters, maybe the only people who want to buy your coats are potato growers. But if you want something more in life than coats and potatoes, you're out of luck because the potato folks are the only ones you can trade with. That's why you need something that will allow you to sell your coats while still buying the products of people who don't want coats.
  • Smith walks us through how shells, metals, and other little objects have been used as money in other societies, like dried cod in Newfoundland.
  • But of all the different things used as money, people have tended to prefer metal because it's not easy to find and because it's so durable.
  • But using metal as money can be inconvenient because you have to weigh the stuff every time you take it as payment. Just imagine yourself in the line at Starbucks and waiting for the barista to weigh every coin handed to them.

The Wealth of Nations Book I, Chapter 4 Study Group

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