Wealth of Nations, Book 2: Prudence, Competition, and Party Walls at Econlib
We’re Celebrating the 250th Anniversary of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations
Join us as we partner with Liberty Matters to commemorate the 250th anniversary of the publication of An Inquiry into the Nature and Causes of the Wealth of Nations with a series of six insightful essays.
Today, we delve into Maria Pia Paganelli’s exploration of Book II of Wealth of Nations, focusing on how countries sustain the capital necessary to support the division of labor. Paganelli sheds light on Smith’s view that money can serve dual roles as both a medium of exchange (pecunia) and as investment capital (capitale). By introducing the concept of bank money as a new medium of exchange, Smith likens it to a sky highway that frees up resources for productive use.
Perpere (2024) elucidates Smith’s analogy by likening the use of gold and silver solely as money to a road on the ground that restricts agricultural activities. However, by introducing bank money as a new medium of exchange, resources such as gold and silver are liberated for investment purposes, akin to a highway in the sky that unlocks the potential of the land below. This shift allows for the efficient allocation of capital to support economic growth and the division of labor.
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