In 1764 Smith devoted time to developing his thoughts on economics. During this time period, governments were active in granting monopolies and controlling foreign trade. In 1764-66 Smith made a grand tour of the European Continent as the tutor to the young duke of Buccleuch. While in France, Smith, spent considerable time in Paris, where he met with Quesay, the founder of the Physiocratic system. He discussed economic issues with these leading French intellectuals. Smith described the Physiocratic system as close to the truth of political economy that has yet been published. After returning to Scotland, Smith settled back in Kirkcaldy and spent the next ten years working entirely on the composition of his greatest work, The Wealth of Nations. It went through many editions during his lifetime with much small change and only one new chapter. During this time period the British Colonies were in rebellion, and the races of India were being brought under British domination. Smith did not invent economics. Joseph Schumpeter observed that "The Wealth of Nations" did not contain "a single analytic idea, principle or method that was entirely new." Smith's achievement was to combine an encyclopedic variety of insight, information and anecdote, and to distil from it a revolutionary doctrine. The resulting masterpiece is the most influential book about economics ever published. Remarkably, much of it speaks directly to questions that are still of pressing concern. Smith's major thesis in the WEALTH OF NATIONS was that, except for limited functions (defense, justice, certain public works), the state should refrain from interfering with the economic life of a nation. Another main idea that Smith puts forward in Wealth of Nations is that specialization will make a nation and people wealthy. "The greatest improvement in the productive powers of labor (seems to have the effects of the division of labor." [Smith 1759, I.1] Adam Smith uses division of labor as an expression for specialization. The degree of specialization or division of labor is the result our propensity to bargain or exchange of one good or service for another. The self-interest of individuals leads them to specialize in those activities that maximize their own gain.

Chapter IV of Book I is titled "Of the Origin and Use of Money". Smith states that in the early days cattle was the means of exchange. Problems arose in that if all that person had to exchange was cattle he would have to exchange for the amount equal to the value of a whole ox. But if this same person had metals to exchange, he could portion out an amount equal to the quantity that he required. Many different metals were used for exchange. Iron was common among the Spartans; copper among the Romans, and gold and silver among the rich. The inconvenience of assuring the weight of the metals led the way to coins. A person could take his product to the market and exchange it for money and then go to another part of the market and exchange the money for items that he requires. Then the real price of the goods is the labor that is required to acquire the good. On the one hand, economists prior to Adam Smith were regarded as believing that gold and silver were the only forms of real wealth, and on the other hand they were represented as not having realized the simple fact that labor is the primary creator of wealth (Rashid,63). Children hear their fathers complain about money and this is one of the ways in which people come to believe that money is real wealth. Economists such as John Locke, who emphasized the importance of the balance of trade, never quite outgrew this early impression. In Adam Smith and Ricardo we find the notion of 'effectual demand,' defined as "the demand of those who are willing to pay the natural price of the commodity"(Smith 1776, Bk. I, ch VII, I, p. 49). The role of effectual demand is to explain the tendency of the actual or "market" price toward the normal price and not that of deter

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