Vocabulary for this chapter

Assay - Qualitative or quantitative analysis of a metal or ore to determine its components.
Aulnager - A sworn officer in England, whose duty was to inspect and measure woolen cloth, and fix upon it a seal.
Tale - A tally or reckoning; a total.

Chapter summary

It is obvious that once division of labor has become established, an arrow maker will not be able to farm if they consistently make arrows with their time. So they must trade with the farmer for their sustenance and the society develops into a commercial society. But what happens when the farmer does not need arrows but the arrow maker needs food? The answer is that he would not get it, unless he also had something else held in reserve that nobody would refuse. Thus in ancient times, things ranging from cattle, sugar, shells, and fish were used as a general currency, but metals proved to be the most successful currency, as they were durable, and could be divided up into small chunks to buy a small quantity of goods, unlike cattle.

Many different metals have been used for money from iron, copper, silver, and gold, but they were not always coined. Even the Romans for a while used unstamped bars of copper for money. This led to a problem with verification of amounts, and eventually governments commissioned mints to verify the weight and purity of the metals, and stamp them into coins that signified that they were true, but did not signify the weight. This still proved to be difficult, and eventually the metal was stamped on both sides and sometimes even the edges, and was made into coins.

When the coins were first developed, they represented the weights of the metal that coins were named after. So a pound of silver in England, contained a Troy pound. Princes though reduced this value in order to pay off creditors with fewer silver, and thus a pound Stirling contains much less silver then it originally had.

There are rules that govern the value of money, but before the rules can be understood, it is necessary to understand value, and the two facets of it. There is 'value of use', which is something that is valuable in daily use, and 'value of exchange', which is how many goods can be purchased  by it. The rules that govern it are: how goods and services acquire a monetary value; what makes up the different parts of those goods and services; and how that monetary price fluctuates with the market.

In the next three chapters, Smith will explain those three rules in greater, and even sometimes painstaking, detail.