Wealth of Nations: Book 1: Chapter 4: Of the Origin and Use of Money

Book One, Chapter 4 traces the probable emergence of currency. Division of labor produces a variety of men, each with stocks of goods of their own labor which he may wish to trade for other men's goods. But how can that trade occur when any given person may not want what you wish to trade or in the innate quantities your good presents itself in? If I herd cattle does all trade have to be in relation to 1 cow? This poses any number of problems.

Societies established a center object of trade. Shells, salt, oxen or even nails in one remote Scottish village served as the currency of choice. Over time metals proved to have many characteristics which prove valuable in the establishment of currency. Metals like gold, copper or silver are durable, divisible, and lack much in the way of practical use like oxen would. But metals by themselves could prove hard to manage given dividing them from one pound bars could be trying, or subject to fraud. Maintaining accurate scales was also a barrier to trade of metal. The formulation of mints as a standard way of assuring the value of the metal became commonplace.

Then Smith describes how the Pound was originally a pound, but shrunk over time as a way to allow greedy princes and sovereigns a way to cover their debts, but the long term effect was to benefit debtors across the board at the expense of creditors. I don't know whether Smith realized it, but he basically outlined the basic concept of inflation and an expansionary money supply.

He concludes by making a few points which I assume he will expand on through future chapters. First value has two types. Value of use (like tools) which are poor instruments of exchange, and value of exchange(like coins) which have little practical use. Second he outlines a framework for what I can only assume is the foundation of price theory.