First let me start off by saying I am like a monkey with a loaded gun when it comes to economics. I am just starting off and have read some basic books, but now I have taken the leap and I am reading Adam Smith’s “Wealth of Nations”. I only a little over halfway through the book and I am finding it very interesting from both a economics and historical prospective.
But after reading the first few chapters some question came to me that I was wondering if someone could help me with. Before I ask the questions let me restate the points that Mr. Smith made that raises my question, If I am mistaken about any of these points please let me know.
First, if I understand Mr. Smith correctly, he believed that the true wealth of a nation was the labor of the people in that nation. It is the labor that increases the value of goods in the country, both by improving them and also by people spending the money that they get for their labor on the goods.
Second, again if I understand Mr. Smith correctly, he postulated that money that was based on metals would only be good if the most common currency was in those metals. The reason for this is that banks have a tendency to generate more script then they had precious metals on hand. By limiting the script to only the largest sums of precious metals and having the everyday currency in the metal, doing this would be harder and if done it would not effect the normal market, only the market that traded in large sums of precious metals.
This leads us into a fact about today. We have been moving towards a system where most if not all transaction take place using electronic currency. This means that most people have very little to no cash in their pockets. So even if we went to a precious metal standard, most if not all the money spent in this country would not be in the form of precious metals.
So here is my question. If what I have stated above is true and correct, and I could be way off base on all of it, I do not see how we can return to a currency standard based on precious metals. Basically we are moving towards a system when our currency is electronic and moving towards a precious metal standard would be hard. So would it not make more sense to look at a system that moves us down one more level and uses some calculation of the net change in the value of labor as the basis of our currency?
Now I do not know what that calculation is. First I do not understand economics enough to know what should be included or not included. Second I do not know what information we have available that that calculations could be based on. And that is the second part of the question, is there a value that currently exist or that could be calculated that would represent the net change in the value of produced by labor for a period of time?
As I said at the start, I could be totally off base, and completely wrong. But I figured the only way I would learn that would be by asking the question.