Thread by @adamsmithworks

Good morning Smithketeers! Today's section of #WealthOfNations is full of material on the history of money. If you're a #bitcoin and #cryptocurrencies fan, or if you're following @DocumentingBTC @Bitcoin @BTCTN or @BitcoinMagazine, this section of #AdamSmith's work is for you!

An observation: Despite the common claim that economics is about money, it’s not until Book 2, Chapter 2 of Wealth of Nations that we get a chapter dedicated to money. Maybe there’s other stuff that matters too? (II.ii) #WealthOfTweets #SmithTweets

#AdamSmith kicks it off by comparing individual estates to nations. Individual estates have “gross rent” which is what is paid to the landlord & “neat (net) rent” which is what remains once expenses and circulating capital are deducted. (II.ii.1–4) #WealthOfTweets #SmithTweets

Real wealth is in proportion to the "neat" (net), not the gross.(II.ii.4) #WealthOfTweets #SmithTweets

The gross revenue of a nation is ALL our grosses combined. The neat (net) is all our expenses and circulating capital deducted from the gross. The real wealth of nations (That has a ring to it!) is in proportion to the neat, not the gross. (II.ii.5) #WealthOfTweets #SmithTweets

You don’t get to count the stuff you use to maintain your fixed capital (machines, etc.) as part of the net either. But that’s okay because properly maintained machinery → more production. (Is anyone else having flashbacks to shop class?) (II.ii.6) #WealthOfTweets #SmithTweets

This is why innovation is so important, though! Better, simpler, cheaper machinery enables more productivity with less loss to net revenue. (SmithTweets were a lot more expensive when we had to hand set the type, you know.) (II.ii.7) #WealthOfTweets #SmithTweets

You don’t have to deduct all the expenses of maintaining circulating capital, though, because you can move it into the stock that supports society if you’re not circulating it to make a profit at the moment. (II.ii.9) #WealthOfTweets #SmithTweets

Money (💰finally!💰) is the only part of circulating capital whose maintenance expenses have to be deducted from the net revenue of the nation. (II.ii.11) #WealthOfTweets #SmithTweets

Why? Remember: in this section, money isn’t #bitcoin or #EFT or even paper. It’s coin. And so money is sort of like a machine. You have to “collect and support it.” (II.ii.13) #WealthOfTweets #SmithTweets

Smith does understand and know about paper money. He’s not a moron. But he’s clearly talking about coins here. (II.ii.13) #WealthOfTweets #SmithTweets

He's living in a time where money still means coin. You have to specify if you mean paper money. Later, you can just say "money" and mean bills. Our grandkids will say "money" & mean #bitcoin and #EFT. It's like phone/wall phone/cell phone. (II.ii.13) #WealthOfTweets #SmithTweets

Anyway. The point is that our wealth is about the goods that circulate, not about the money that helps them circulate. Money is just the wheel that makes them easier to move. (II.ii.14) #WealthOfTweets #SmithTweets

Sometimes we conflate those, though, “when we talk of any particular sum of money, sometimes we mean nothing but the metal pieces of which it is composed and sometimes we include in our meaning…the power of purchasing.”(II.ii.16) #WealthOfTweets #SmithTweets

So what your pay is worth can mean both “The physical money” or “What you can buy with it.” The ambiguity irritates Smith because he is the sort of person who spends fifty pages trying to clarify it. (II.ii.15–17) #WealthOfTweets #SmithTweets

Smith prefers to think of money as purchasing power. (II.ii.16–17) #WealthOfTweets #SmithTweets

NOW we get to paper money!

So, we don't know if you know this, but if you’re paid in paper instead of coin, the value of your pay is NOT the trivial value of the paper. It’s the value of what you can BUY with it. (II.ii.19) #WealthOfTweets #SmithTweets

OBVIOUSLY, right? This is such a hard concept for modern people to talk about because, for us, of COURSE the value of paper money isn’t the value of the paper and ink! But it was a major mental shift in the 18th century. (II.ii.19–21) #WealthOfTweets #SmithTweets

Imagine being the first person who was expected to take a piece of paper instead of literal gold and silver! (II.ii.19–21) #WealthOfTweets #SmithTweets

(Okay, clearly we, the SmithTweeters, <3 the intellectual history of money. Georg Simmel and @GeorgeSelgin can tell you more.)
amazon.com/Philosophy-Mon… amazon.com/Good-Money-Bir…

This all cashes out (ha!) to mean that the wealth of a nation is NOT about the amount of money circulating. That's only important to the amount of economic activity it can support. Wealth is a much bigger issue. (II.ii.22) #WealthOfTweets #SmithTweets

Coins pass from person to person, and the same coins are used to purchase goods over and over and over. National wealth does not equal national money supply. (II.ii.22) #WealthOfTweets #SmithTweets

Smith would have LOVED Wheel of Fortune. (II.ii.23) #WealthOfTweets #SmithTweets

Every time you decrease the costs of producing and maintaining money or machinery (because money’s like a machine) you increase purchasing power and we get wealthier. (II.ii.25) #WealthOfTweets #SmithTweets

Paper money is great because it’s a cheaper way to store purchasing power. It’s a less expensive machine than coins. (II.ii.26) #WealthOfTweets #SmithTweets

But you do have to be able to trust your banks and your bankers for paper money to function properly. (II.ii.28) #WealthOfTweets #SmithTweets

And...actually, Smith is about to talk about banks a lot. So, having established the role of money in the stock of a commercial society, let's leave it here for today. Tomorrow...banks with paper money: how do they work? (II.ii.29–fin) #WealthOfTweets #SmithTweets

Want more about #AdamSmith and #cryptocurrencies? Our friend @burrow_JohnR has you covered over at AdamSmithWorks.org! adamsmithworks.org/documents/cryp…