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The Wealth of Nations | Glossary

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agio: (n) the premium charged by a bank to account for the difference in value between its uncirculated currency and the worn, debased currency in general circulation. The word was later more broadly used to mean "exchange rate."

balance of trade: (n) the difference between a country's imports and exports, either generally or in terms of a specific counterparty (e.g., England's balance of trade with France). Maintaining a favorable balance of trade was a key concern of the mercantilists.

carrying trade: (n) any trade that involves the exchange of goods between two foreign countries. An English merchant shipping Portuguese wine to the Netherlands would be engaged in the carrying trade.

circulating capital: (n) capital spent on short-term needs such as wages, fuel, and goods for resale. In modern accounting terminology these are known as "operating expenses."

debase: (v) to diminish the value of currency by decreasing its precious metal content. An entire currency can be debased if it is recoined with less expensive metals, but individual coins can also be debased by having their edges clipped or their surfaces ground down.

effectual demand: (n) demand for a commodity by someone with the means to actually purchase it. Although people often want things they cannot afford, such demand is not effectual since it has no effect on the market for those goods.

fixed capital: (n) capital employed in purchasing long-term investments like land and machinery. In modern terms, capital spent in this way is called a "capital expenditure," and the asset obtained is called a "fixed asset."

foreign trade of consumption: (n) Smith's term for any trade in which foreign goods are purchased for domestic consumption. In his view this trade promotes economic growth better than the carrying trade, but not as well as the home trade does.

home trade: (n) a trade that involves moving goods from place to place within a country's borders. Smith regards this as the type of trade most beneficial for economic growth.

market price: (n.) the price for which a good is actually sold in a specific time and place. This may be lower or higher than the good's natural price, but seldom equals it exactly.

money price: (n) the amount of money for which a commodity can be exchanged. Smith also calls this the "nominal price" at various points in his work.

natural price: (n) the (largely theoretical) price necessary to repay all the costs involved in bringing a good to market. Fluctuations in supply and demand lead to discrepancies between this price and the market price.

productive labor: (n) labor that produces goods to replace the capital spent in supporting it. Farm labor and manufacturing are typical examples.

real price: (n) the amount of labor that can be obtained in exchange for a commodity. Smith views the real price of goods as more essential—but harder to determine—than the money price.

rude produce: (n) commodities, such as grain, coal, or timber, that are obtained by working the land. A nearly synonymous modern term is "raw materials."

seignorage: (n) the fee, usually a percentage, charged by a mint for converting bullion into coin. In Smith's time, the British mint charged no seignorage.

unproductive labor: (n) labor that produces no goods and thus does not replace the capital spent in supporting it. In Smith's view, unproductive labor is not necessarily frivolous, but it does drain the economic resources of a country.

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