Of The Origin And Use Of Money

When the division of labour has been once thoroughly established, it

is but a very small part of a man's wants which the produce of his

own labour can supply. He supplies the far greater part of them by

exchanging that surplus part of the produce of his own labour, which

is over and above his own consumption, for such parts of the produce

of other men's labour as he has occasion for. Every man thus lives by

or becomes, in some measure, a merchant, and the society

itself grows to be what is properly a commercial society.

But when the division of labour first began to take place, this power of

exchanging must frequently have been very much clogged and embarrassed

in its operations. One man, we shall suppose, has more of a certain

commodity than he himself has occasion for, while another has less. The

former, consequently, would be glad to dispose of; and the latter to

purchase, a part of this superfluity. But if this latter should chance

to have nothing that the former stands in need of, no exchange can be

made between them. The butcher has more meat in his shop than he himself

can consume, and the brewer and the baker would each of them be willing

to purchase a part of it. But they have nothing to offer in exchange,

except the different productions of their respective trades, and the

butcher is already provided with all the bread and beer which he has

immediate occasion for. No exchange can, in this case, be made between

them. He cannot be their merchant, nor they his customers; and they are

all of them thus mutually less serviceable to one another. In order to

avoid the inconveniency of such situations, every prudent man in every

period of society, after the first establishment of the division of

labour, must naturally have endeavoured to manage his affairs in such a

manner, as to have at all times by him, besides the peculiar produce

of his own industry, a certain quantity of some one commodity or other,

such as he imagined few people would be likely to refuse in exchange

for the produce of their industry. Many different commodities, it

is probable, were successively both thought of and employed for this

purpose. In the rude ages of society, cattle are said to have been the

common instrument of commerce; and, though they must have been a most

inconvenient one, yet, in old times, we find things were frequently

valued according to the number of cattle which had been given in

exchange for them. The armour of Diomede, says Homer, cost only nine

oxen; but that of Glaucus cost a hundred oxen. Salt is said to be the

common instrument of commerce and exchanges in Abyssinia; a species of

shells in some parts of the coast of India; dried cod at Newfoundland;

tobacco in Virginia; sugar in some of our West India colonies; hides

or dressed leather in some other countries; and there is at this day a

village in Scotland, where it is not uncommon, I am told, for a workman

to carry nails instead of money to the baker's shop or the ale-house.

In all countries, however, men seem at last to have been determined by

irresistible reasons to give the preference, for this employment, to

metals above every other commodity. Metals can not only be kept with

as little loss as any other commodity, scarce any thing being less

perishable than they are, but they can likewise, without any loss, be

divided into any number of parts, as by fusion those parts can easily

be re-united again; a quality which no other equally durable commodities

possess, and which, more than any other quality, renders them fit to be

the instruments of commerce and circulation. The man who wanted to buy

salt, for example, and had nothing but cattle to give in exchange for

it, must have been obliged to buy salt to the value of a whole ox, or a

whole sheep, at a time. He could seldom buy less than this, because what

he was to give for it could seldom be divided without loss; and if he

had a mind to buy more, he must, for the same reasons, have been obliged

to buy double or triple the quantity, the value, to wit, of two or three

oxen, or of two or three sheep. If, on the contrary, instead of sheep

or oxen, he had metals to give in exchange for it, he could easily

proportion the quantity of the metal to the precise quantity of the

commodity which he had immediate occasion for.

Different metals have been made use of by different nations for this

purpose. Iron was the common instrument of commerce among the ancient

Spartans, copper among the ancient Romans, and gold and silver among all

rich and commercial nations.

Those metals seem originally to have been made use of for this purpose

in rude bars, without any stamp or coinage. Thus we are told by Pliny

(Plin. Hist Nat. lib. 33, cap. 3), upon the authority of Timaeus, an

ancient historian, that, till the time of Servius Tullius, the Romans

had no coined money, but made use of unstamped bars of copper, to

purchase whatever they had occasion for. These rude bars, therefore,

performed at this time the function of money.

The use of metals in this rude state was attended with two very

considerable inconveniences; first, with the trouble of weighing, and

secondly, with that of assaying them. In the precious metals, where a

small difference in the quantity makes a great difference in the value,

even the business of weighing, with proper exactness, requires at least

very accurate weights and scales. The weighing of gold, in particular,

is an operation of some nicety in the coarser metals, indeed, where

a small error would be of little consequence, less accuracy would, no

doubt, be necessary. Yet we should find it excessively troublesome if

every time a poor man had occasion either to buy or sell a farthing's

worth of goods, he was obliged to weigh the farthing. The operation of

assaying is still more difficult, still more tedious; and, unless a part

of the metal is fairly melted in the crucible, with proper dissolvents,

any conclusion that can be drawn from it is extremely uncertain. Before

the institution of coined money, however, unless they went through this

tedious and difficult operation, people must always have been liable to

the grossest frauds and impositions; and instead of a pound weight of

pure silver, or pure copper, might receive, in exchange for their goods,

an adulterated composition of the coarsest and cheapest materials, which

had, however, in their outward appearance, been made to resemble those

metals. To prevent such abuses, to facilitate exchanges, and thereby

to encourage all sorts of industry and commerce, it has been found

necessary, in all countries that have made any considerable advances

towards improvement, to affix a public stamp upon certain quantities of

such particular metals, as were in those countries commonly made use of

to purchase goods. Hence the origin of coined money, and of those public

offices called mints; institutions exactly of the same nature with those

of the aulnagers and stamp-masters of woollen and linen cloth. All of

them are equally meant to ascertain, by means of a public stamp, the

quantity and uniform goodness of those different commodities when

brought to market.

The first public stamps of this kind that were affixed to the current

metals, seem in many cases to have been intended to ascertain, what it

was both most difficult and most important to ascertain, the goodness or

fineness of the metal, and to have resembled the sterling mark which

is at present affixed to plate and bars of silver, or the Spanish mark

which is sometimes affixed to ingots of gold, and which, being struck

only upon one side of the piece, and not covering the whole surface,

ascertains the fineness, but not the weight of the metal. Abraham weighs

to Ephron the four hundred shekels of silver which he had agreed to pay

for the field of Machpelah. They are said, however, to be the current

money of the merchant, and yet are received by weight, and not by tale,

in the same manner as ingots of gold and bars of silver are at present.

The revenues of the ancient Saxon kings of England are said to have been

paid, not in money, but in kind, that is, in victuals and provisions of

all sorts. William the Conqueror introduced the custom of paying them

in money. This money, however, was for a long time, received at the

exchequer, by weight, and not by tale.

The inconveniency and difficulty of weighing those metals with

exactness, gave occasion to the institution of coins, of which the

stamp, covering entirely both sides of the piece, and sometimes the

edges too, was supposed to ascertain not only the fineness, but the

weight of the metal. Such coins, therefore, were received by tale, as at

present, without the trouble of weighing.

The denominations of those coins seem originally to have expressed the

weight or quantity of metal contained in them. In the time of Servius

Tullius, who first coined money at Rome, the Roman as or pondo contained

a Roman pound of good copper. It was divided, in the same manner as our

Troyes pound, into twelve ounces, each of which contained a real ounce

of good copper. The English pound sterling, in the time of Edward I.

contained a pound, Tower weight, of silver of a known fineness. The

Tower pound seems to have been something more than the Roman pound, and

something less than the Troyes pound. This last was not introduced into

the mint of England till the 18th of Henry the VIII. The French livre

contained, in the time of Charlemagne, a pound, Troyes weight, of silver

of a known fineness. The fair of Troyes in Champaign was at that time

frequented by all the nations of Europe, and the weights and measures

of so famous a market were generally known and esteemed. The Scots money

pound contained, from the time of Alexander the First to that of Robert

Bruce, a pound of silver of the same weight and fineness with the

English pound sterling. English, French, and Scots pennies, too,

contained all of them originally a real penny-weight of silver, the

twentieth part of an ounce, and the two hundred-and-fortieth part of a

pound. The shilling, too, seems originally to have been the denomination

of a weight. "When wheat is at twelve shillings the quarter," says an

ancient statute of Henry III. "then wastel bread of a farthing shall

weigh eleven shillings and fourpence". The proportion, however, between

the shilling, and either the penny on the one hand, or the pound on the

other, seems not to have been so constant and uniform as that between

the penny and the pound. During the first race of the kings of France,

the French sou or shilling appears upon different occasions to have

contained five, twelve, twenty, and forty pennies. Among the ancient

Saxons, a shilling appears at one time to have contained only five

pennies, and it is not improbable that it may have been as variable

among them as among their neighbours, the ancient Franks. From the time

of Charlemagne among the French, and from that of William the Conqueror

among the English, the proportion between the pound, the shilling, and

the penny, seems to have been uniformly the same as at present, though

the value of each has been very different; for in every country of the

world, I believe, the avarice and injustice of princes and sovereign

states, abusing the confidence of their subjects, have by degrees

diminished the real quantity of metal, which had been originally

contained in their coins. The Roman as, in the latter ages of the

republic, was reduced to the twenty-fourth part of its original value,

and, instead of weighing a pound, came to weigh only half an ounce. The

English pound and penny contain at present about a third only; the Scots

pound and penny about a thirty-sixth; and the French pound and penny

about a sixty-sixth part of their original value. By means of those

operations, the princes and sovereign states which performed them were

enabled, in appearance, to pay their debts and fulfil their engagements

with a smaller quantity of silver than would otherwise have been

requisite. It was indeed in appearance only; for their creditors were

really defrauded of a part of what was due to them. All other debtors in

the state were allowed the same privilege, and might pay with the same

nominal sum of the new and debased coin whatever they had borrowed in

the old. Such operations, therefore, have always proved favourable to

the debtor, and ruinous to the creditor, and have sometimes produced

a greater and more universal revolution in the fortunes of private

persons, than could have been occasioned by a very great public


It is in this manner that money has become, in all civilized nations,

the universal instrument of commerce, by the intervention of which goods

of all kinds are bought and sold, or exchanged for one another.

What are the rules which men naturally observe, in exchanging them

either for money, or for one another, I shall now proceed to examine.

These rules determine what may be called the relative or exchangeable

value of goods.

The word VALUE, it is to be observed, has two different meanings, and

sometimes expresses the utility of some particular object, and sometimes

the power of purchasing other goods which the possession of that object

conveys. The one may be called 'value in use;' the other, 'value

in exchange.' The things which have the greatest value in use have

frequently little or no value in exchange; and, on the contrary, those

which have the greatest value in exchange have frequently little or no

value in use. Nothing is more useful than water; but it will purchase

scarce any thing; scarce any thing can be had in exchange for it. A

diamond, on the contrary, has scarce any value in use; but a very great

quantity of other goods may frequently be had in exchange for it.

In order to investigate the principles which regulate the exchangeable

value of commodities, I shall endeavour to shew,

First, what is the real measure of this exchangeable value; or wherein

consists the real price of all commodities.

Secondly, what are the different parts of which this real price is

composed or made up.

And, lastly, what are the different circumstances which sometimes raise

some or all of these different parts of price above, and sometimes sink

them below, their natural or ordinary rate; or, what are the causes

which sometimes hinder the market price, that is, the actual price

of commodities, from coinciding exactly with what may be called their

natural price.

I shall endeavour to explain, as fully and distinctly as I can, those

three subjects in the three following chapters, for which I must very

earnestly entreat both the patience and attention of the reader: his

patience, in order to examine a detail which may, perhaps, in some

places, appear unnecessarily tedious; and his attention, in order to

understand what may perhaps, after the fullest explication which I am

capable of giving it, appear still in some degree obscure. I am always

willing to run some hazard of being tedious, in order to be sure that

I am perspicuous; and, after taking the utmost pains that I can to be

perspicuous, some obscurity may still appear to remain upon a subject,

in its own nature extremely abstracted.