An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader with highlighter txt) 📖

the discovery of the mines of America, the value of fine gold to fine

silver was regulated in the different mines of Europe, between the

proportions of one to ten and one to twelve ; that is, an ounce of fine gold

was supposed to be worth from ten to twelve ounces of fine silver. About the

middle of the last century, it came to be regulated, between the proportions

of one to fourteen and one to fifteen; that is, an ounce of fine gold came

to be supposed worth between fourteen and fifteen ounces of fine silver.

Gold rose in its nominal value, or in the quantity of silver which was given

for it. Both metals sunk in their real value, or in the quantity of labour

which they could purchase; but silver sunk more than gold. Though both the

gold and silver mines of America exceeded in fertility all those which had

ever been known before, the fertility of the silver mines had, it seems,

been proportionally still greater than that of the gold ones.

 

The great quantities of silver carried annually from Europe to India, have,

in some of the English settlements, gradually reduced the value of that

metal in proportion to gold. In the mint of Calcutta, an ounce of fine gold

is supposed to be worth fifteen ounces of fine silver, in the same manner as

in Europe. It is in the mint, perhaps, rated too high for the value which it

bears in the market of Bengal. In China, the proportion of gold to silver

still continues as one to ten, or one to twelve. In Japan, it is said to be

as one to eight.

 

The proportion between the quantities of gold and silver annually imported

into Europe, according to Mr Meggens’ account, is as one to twenty-two

nearly ; that is, for one ounce of gold there are imported a little more

than twenty-two ounces of silver. The great quantity of silver sent annually

to the East Indies reduces, he supposes, the quantities of those metals

which remain in Europe to the proportion of one to fourteen or fifteen, the

proportion of their values. The proportion between their values, he seems to

think, must necessarily be the same as that between their quantities, and

would therefore be as one to twenty-two, were it not for this greater

exportation of silver.

 

But the ordinary proportion between the respective values of two commodities

is not necessarily the same as that between the quantities of them which are

commonly in the market. The price of an ox, reckoned at ten guineas, is

about three score times the price of a lamb, reckoned at 3s. 6d. It would be

absurd, however, to infer from thence, that there are commonly in the market

three score lambs for one ox ; and it would be just as absurd to infer,

because an ounce of gold will commonly purchase from fourteen or fifteen

ounces of silver, that there are commonly in the market only fourteen or

fifteen ounces of silver for one ounce of gold.

 

The quantity of silver commonly in the market, it is probable, is much

greater in proportion to that of gold, than the value of a certain quantity

of gold is to that of an equal quantity of silver. The whole quantity of a

cheap commodity brought to market is commonly not only greater, but of

greater value, than the whole quantity of a dear one. The whole quantity of

bread annually brought to market, is not only greater, but of greater value,

than the whole quantity of butcher’s meat; the whole quantity of butcher’s

meat, than the whole quantity of poultry ; and the whole quantity of

poultry, than the whole quantity of wild fowl. There are so many more

purchasers for the cheap than for the dear commodity, that, not only a

greater quantity of it, but a greater value can commonly be disposed of. The

whole quantity, therefore, of the cheap commodity, must commonly be greater

in proportion to the whole quantity of the dear one, than the value of a

certain quantity of the dear one, is to the value of an equal quantity of

the cheap one. When we compare the precious metals with one another, silver

is a cheap, and gold a dear commodity. We ought naturally to expect,

therefore, that there should always be in the market, not only a greater

quantity, but a greater value of silver than of gold. Let any man, who has a

little of both, compare his own silver with his gold plate, and he will

probably find, that not only the quantity, but the value of the former,

greatly exceeds that of the latter. Many people, besides, have a good deal

of silver who have no gold plate, which, even with those who have it, is

generally confined to watch-cases, snuff-boxes, and such like trinkets, of

which the whole amount is seldom of great value. In the British coin,

indeed, the value of the gold preponderates greatly, but it is not so in

that of all countries. In the coin of some countries, the value of the two

metals is nearly equal. In the Scotch coin, before the union with England,

the gold preponderated very little, though it did somewhat {See Ruddiman’s

Preface to Anderson’s Diplomata, etc. Scotiae.}, as it appears by the

accounts of the mint. In the coin of many countries the silver

preponderates. In France, the largest sums are commonly paid in that metal,

and it is there difficult to get more gold than what is necessary to carry

about in your pocket. The superior value, however, of the silver plate above

that of the gold, which takes place in all countries, will much more than

compensate the preponderancy of the gold coin above the silver, which takes

place only in some countries.

 

Though, in one sense of the word, silver always has been, and probably

always will be, much cheaper than gold ; yet, in another sense, gold may

perhaps, in the present state of the Spanish market, be said te be somewhat

cheaper than silver. A commodity may be said to be dear or cheap not only

according to the absolute greatness or smallness of its usual price, but

according as that price is more or less above the lowest for which it is

possible to bring it to market for any considerable time together. This

lowest price is that which barely replaces, with a moderate profit, the

stock which must be employed in bringing the commodity thither. It is the

price which affords nothing to the landlord, of which rent makes not any

component part, but which resolves itself altogether into wages and profit.

But, in the present state of the Spanish market, gold is certainly somewhat

nearer to this lowest price than silver. The tax of the king of Spain upon

gold is only one-twentieth part of the standard metal, or five per cent.;

whereas his tax upon silver amounts to one-tenth part of it, or to ten per

cent. In these taxes, too, it has already been observed, consists the whole

rent of the greater part of the gold and silver mines of Spanish America;

and that upon gold is still worse paid than that upon silver. The profits of

the undertakers of gold mines, too, as they more rarely make a fortune,

must, in general, be still more moderate than those of the undertakers of

silver mines. The price of Spanish gold, therefore, as it affords both less

rent and less profit, must, in the Spanish market, be somewhat nearer to the

lowest price for which it is possible to bring it thither, than the price of

Spanish silver. When all expenses are computed, the whole quantity of the

one metal, it would seem, cannot, in the Spanish market, be disposed of so

advantageously as the whole quantity of the other. The tax, indeed, of the

king of Portugal upon the gold of the Brazils, is the same with the ancient

tax of the king of Spain upon the silver of Mexico and Peru; or one-fifth

part of the standard metal. It may therefore be uncertain, whether, to the

general market of Europe, the whole mass of American gold comes at a price

nearer to the lowest for which it is possible to bring it thither, than the

whole mass of American silver.

 

The price of diamonds and other precious stones may, perhaps, be still

nearer to the lowest price at which it is possible to bring them to market,

than even the price of gold.

 

Though it is not very probable that any part of a tax, which is not only

imposed upon one of the most proper subjects of taxation, a mere luxury and

superfluity, but which affords so very important a revenue as the tax upon

silver, will ever be given up as long as it is possible to pay it; yet the

same impossibility of paying it, which, in 1736. made it necessary to reduce

it from one-fifth to one-tenth, may in time make it necessary to reduce it

still further ; in the same manner as it made it necessary to reduce the tax

upon gold to one-twentieth. That the silver mines of Spanish America, like

all other mines, become gradually more expensive in the working, on account

of the greater depths at which it is necessary to carry on the works, and of

the greater expense of drawing out the water, and of supplying them with

fresh air at those depths, is acknowledged by everybody who has inquired

into the state of those mines.

 

These causes, which are equivalent to a growing scarcity of silver (for a

commodity may be said to grow scarcer when it becomes more difficult and

expensive to collect a certain quantity of it), must, in time, produce one

or other of the three following events: The increase of the expense must

either, first, be compensated altogether by a proportionable increase in the

price of the metal ; or, secondly, it must be compensated altogether by a

proportionable diminution of the tax upon silver ; or, thirdly, it must be

compensated partly by the one and partly by the other of those two

expedients. This third event is very possible. As gold rose in its price in

proportion to silver, notwithstanding a great diminution of the tax upon

gold, so silver might rise in its price in proportion to labour and

commodities, notwithstanding an equal diminution of the tax upon silver.

 

Such successive reductions of the tax, however, though they may not

prevent altogether, must certainly retard, more or less, the rise of the

value of silver in the European market. In consequence of such reductions,

many mines may be wrought which could not be wrought before, because they

could not afford to pay the old tax ; and the quantity of silver annually

brought to market, must always be somewhat greater, and, therefore, the

value of any given quantity somewhat less, than it otherwise would have

been. In consequence of the reduction in 1736, the value of silver in the

European market, though it may not at this day be lower than before that

reduction, is, probably, at least ten per cent. lower than it would have

been, had the court of Spain continued to exact the old tax.

 

That, notwithstanding this reduction, the value of silver has, during the

course of the present century, begun to rise somewhat in the European

market, the facts and arguments which have been alleged above, dispose me to

believe, or more properly to suspect and conjecture; for the best opinion

which I can form upon this subject, scarce, perhaps, deserves the name of

belief. The rise, indeed, supposing there has been any, has hitherto been so

very small, that after all that has been