Abstract

Adam Smith paid considerable attention to the problems of money, banking, and the price level in The Wealth of Nations. Smith favoured private ownership and competition in banking, but he also favoured several legal restrictions, including usury laws, a lower limit on the size of bank notes, and elimination of ‘the option clause’ which permitted banks to delay payment of notes in hard money if they chose to do so. In monetary theory, Smith was a quantity theorist. He thought that real income was determined mainly by real forces, so that money in Smith’s schema mostly affected the price level. All of Smith’s judgements in the area of money and banking were based on his wide reading of monetary history, and his empirical investigations