Book I, Chapter XI, 5

Yet because the sovereign draws a substantial part of his revenue from the output of silver mines, Peruvian law gives every possible encouragement to discovering and working new ones. Anyone who discovers a new mine may measure out two hundred and forty-six feet along what he believes to be the vein, and half that distance across. He becomes the owner of this portion of the mine and may work it without paying anything to the landowner. The interest of the duke of Cornwall has prompted a nearly identical rule in that ancient duchy. On wasteland and unenclosed land, anyone who finds a tin mine may mark off an area of a specified size, an act called bounding a mine. The bounder becomes its actual owner and may work it himself or lease it to someone else without the landowner's consent, though a very small payment must be made to the landowner when the mine is worked. Under both rules, the sacred rights of private property are sacrificed to the supposed interests of public revenue.

Peru gives the same encouragement to the discovery and working of new gold mines; on gold the king's tax amounts to only a twentieth part of the standard rental. It was once a fifth, and later a tenth, as it is on silver; but it was found that the work could not sustain even the lesser of those two taxes. Yet, as the same authors, Frezier and Ulloa, report, if it is rare to find anyone who has made a fortune from a silver mine, it is rarer still to find someone who has done so from a gold mine. This twentieth seems to be the entire rent paid by most of the gold mines of Chili and Peru. Gold is also more easily smuggled than silver, not only because the metal is worth more for its bulk but because of the particular form in which nature produces it. Silver is very seldom found in its native state: like most other metals, it is usually combined with some other substance. Separating it in quantities sufficient to repay the expense requires a long and laborious process, which can scarcely be carried out except in purpose-built workshops exposed to inspection by the king's officers. Gold, by contrast, is almost always found in its native state. Sometimes it occurs in pieces of considerable size; and even when it is mingled in tiny, almost invisible particles with sand, earth, and other foreign matter, it can be separated by a very short, simple process. Anyone with a little mercury can carry it out in a private house. If, then, the king's tax is poorly paid on silver, it is likely to be paid even worse on gold; and rent must account for a much smaller part of the price of gold than of silver.

The lowest price at which the precious metals can be sold for any considerable time—the smallest quantity of other goods for which they can be exchanged—is governed by the same principles that determine the lowest ordinary price of all other goods. It is determined by the stock that normally has to be employed, and the food, clothing, and lodging that normally have to be consumed, in bringing them from the mine to the market. The price must at least replace that stock, together with the ordinary profits.

Their highest price, however, seems to depend necessarily on nothing but how scarce or plentiful the metals themselves are. It is not set by the abundance of another commodity, as the price of coal is set by the price of wood, beyond which no scarcity can ever raise it. Make gold scarce enough and its smallest fragment might become more precious than a diamond, and exchange for a greater quantity of other goods.

Demand for these metals arises partly from their usefulness and partly from their beauty. Apart from iron, they are perhaps more useful than any other metal. Because they are less prone to rust and tarnish, they are easier to keep clean; utensils for the table or kitchen are therefore often more pleasing when made from them. A silver boiler is cleaner than one made of lead, copper, or tin, and the same property would make a gold boiler better still. Their principal attraction, however, is their beauty, which makes them especially suited to ornamenting dress and furniture. No paint or dye can produce a color as splendid as gilding. Scarcity greatly enhances the appeal of their beauty. For most rich people, the chief pleasure of wealth lies in displaying it; and, to their minds, the display is never complete until they appear to possess unmistakable signs of opulence that no one else can afford. In their eyes, the value of anything useful or beautiful is greatly increased by its rarity, or by the immense labor needed to gather any substantial quantity of it—labor that only they can afford to pay for. They will pay more for such objects than for others far more useful and beautiful but more common. Usefulness, beauty, and scarcity are the original basis of the high price of these metals, or of the great quantity of other goods for which they can everywhere be exchanged. This value preceded their use as coin and existed independently of it; indeed, it was the quality that made them suitable for that use. Their use as coin, however, by creating a new demand and reducing the quantity available for other purposes, may subsequently have helped maintain or increase their value.

Demand for precious stones arises entirely from their beauty. They serve no purpose except ornament, and the appeal of their beauty is greatly heightened by their rarity or by the difficulty and expense of extracting them from the mine. Wages and profit accordingly make up almost the whole of their high price in most cases. Rent accounts for only a very small share, often none at all; only the most productive mines yield any considerable rent. When Tavernier, a jeweler, visited the diamond mines of Golconda and Visiapour, he learned that the country's sovereign, for whose benefit they were worked, had ordered all but the mines yielding the largest and finest stones to be closed. Apparently the others were not worth working for their owner.

Since the prices of both precious metals and precious stones are governed throughout the world by their price at the most productive mine, the rent that a mine of either kind can yield its owner is proportional not to its absolute fertility but to what may be called its relative fertility—its superiority over other mines of the same kind. If mines were discovered as much richer than those of Potosi as those of Potosi were richer than Europe's, the value of silver might fall so far that even the mines of Potosi would no longer be worth working. Before the discovery of the Spanish West Indies, Europe's richest mines may have yielded their owners as great a rent as the richest mines of Peru do today. Although there was much less silver, it might have exchanged for an equal quantity of other goods, while the owner's share might have allowed him to buy or command an equal quantity of labor or commodities.

The value both of the output and of the rent—the real revenue that the mines yielded both to the public and to their owners—might have been the same.

Even the most abundant mines of precious metals or precious stones could add little to the world's wealth. A product whose value comes chiefly from scarcity necessarily loses value when it becomes abundant. Silverware and the other frivolous ornaments of dress and furniture could then be bought for fewer commodities; this would be the only benefit the world could gain from such abundance.

Estates above ground are another matter. The value both of their output and of their rent is proportional to their absolute fertility, not their relative fertility. Land that produces a certain amount of food, clothing, and lodging can always feed, clothe, and house a certain number of people. Whatever share the landlord receives will give him a corresponding command over those people's labor and the commodities their labor can supply. The value of the least fertile land is not reduced by its proximity to the most fertile; on the contrary, it is generally increased. The many people supported by fertile land provide a market for parts of the output of poorer land that could never find buyers among the people its own output supports.

Anything that improves the land's capacity to produce food increases not only the value of the land improved but also the value of many other lands, by creating new demand for their products. The abundance of food that improved land places in the hands of many people beyond what they can consume themselves is the great source of demand for precious metals and precious stones, as well as for every other convenience and ornament of dress, housing, household furniture, and equipage. Food not only constitutes the principal part of the world's riches: its abundance also gives many other kinds of riches the principal part of their value. When the Spaniards first encountered the poor inhabitants of Cuba and St. Domingo, the inhabitants wore tiny pieces of gold as ornaments in their hair and elsewhere on their clothing. They seemed to value them much as we would value attractive little pebbles: worth picking up, but not worth refusing to anyone who asked. They gave them to their new visitors at the first request, without seeming to think they were giving anything particularly valuable. They were astonished by the Spaniards' eagerness to obtain them; they could not imagine a country where many people had such a surplus of food—always so scarce among themselves—that they would willingly give enough to sustain a whole family for many years in return for a very small quantity of these glittering trinkets. If they had understood this, the Spaniards' passion would not have surprised them.

PART III.—On the variations in the Proportion between the respective Values of the kind of Produce which always yields Rent and the kind which sometimes does and sometimes does not yield Rent.

As cultivation and improvement bring an increasing abundance of food, demand must necessarily increase for every part of the land's output that is not food and can be put to use or ornament. Throughout the course of improvement, therefore, we might expect only one kind of change in the relative values of these two kinds of output. The value of the kind that sometimes yields rent and sometimes does not should steadily rise relative to the kind that always yields some rent. As skill and industry advance, materials for clothing and housing, useful minerals and materials from the earth, precious metals, and precious stones should all gradually be sought more and more, exchange for increasing quantities of food, or, in other words, grow ever dearer. This has indeed happened to most of these things on most occasions. It would have happened to all of them on every occasion if particular accidents had not sometimes increased the supply of some of them even faster than the demand.

The value of a building-stone quarry, for example, must rise as the surrounding country becomes more developed and populous, especially if it is the only quarry nearby. But the value of a silver mine need not rise with the development of the country where it lies, even if there is no other mine within a thousand miles. The market for a building-stone quarry's output rarely extends more than a few miles around it, and demand is generally proportional to the development and population of that small district. The market for a silver mine's output, however, may span the entire known world. Unless the world as a whole is growing in development and population, therefore, even the improvement of a large country near the mine might not increase the demand for silver at all. Even if the world as a whole were improving, new mines far richer than any previously known might be discovered in the process. Although demand for silver would necessarily rise, supply could rise so much faster that the metal's real price would gradually fall: a given amount—a pound weight of silver, for example—might buy or command less and less labor, or exchange for less and less corn, the principal part of the laborer's subsistence.

The great market for silver is the commercial and civilized part of the world.

If general progress increased demand in this market while supply failed to keep pace, the value of silver would gradually rise relative to corn. A given quantity of silver would exchange for more and more corn; in other words, the average money price of corn would gradually become cheaper and cheaper.

If, conversely, some accident caused supply to rise faster than demand for many years, the metal would gradually become cheaper and cheaper; in other words, despite all improvements, the average money price of corn would gradually become dearer and dearer.

But if the supply of the metal rose at nearly the same rate as demand, it would continue to buy or exchange for nearly the same quantity of corn; and despite all improvements the average money price of corn would remain nearly the same.

These three cases seem to cover every possible course of events as improvement advances. If we judge from what happened in both France and Great Britain during the four centuries preceding the present, all three seem to have occurred in the European market, and in nearly the order in which I have set them out.

Digression on the Variations in the Value of Silver during the Last Four Centuries.

First Period.—In 1350, and for some time before it, the average price of a quarter of wheat in England seems not to have been reckoned below four ounces of silver, Tower weight, equal to about twenty shillings in our present money. It seems to have fallen gradually from this level to two ounces of silver, equal to about ten shillings in our present money. This is the price at which we find it reckoned at the beginning of the sixteenth century, and at which it seems to have continued until about 1570.

The sovereign gets a considerable share of revenue from silver mines. So the law in Peru strongly encourages people to find and work new ones. Anyone who finds a new mine may mark out a stretch two hundred and forty-six feet long, following what they think is the direction of the vein, and half that distance wide. That person owns this part of the mine and can work it without paying the landowner anything. The duke of Cornwall's interest led to a similar rule in that old duchy. On waste and unenclosed land, anyone who finds a tin mine can mark out an area of a specified size. This is called bounding a mine. The person who marks it out becomes its actual owner. They can work it or lease it to someone else without the landowner's consent, though they must pay that owner a very small amount when they work it. Both rules sacrifice the sacred rights of private property for what are supposed to be the interests of public revenue.

Peru offers the same encouragement to find and work new gold mines. On gold, the king's tax is only a twentieth part of the standard rental. It used to be a fifth, then a tenth, as with silver. But it turned out that the work could not support even the lower of those two taxes. Frezier and Ulloa, the same authors, say that few people make their fortunes from silver mines, and still fewer from gold mines. This twentieth part seems to be all the rent paid by most gold mines in Chili and Peru. Gold is also much easier to smuggle than silver. It is worth more for its size, and the way it occurs in nature makes it easier to hide. Silver is rarely found in a pure state. Like most metals, it is usually combined with another substance. Separating it in amounts that cover the cost takes a long, laborious process. This generally requires special workhouses where the king's officers can inspect it. Gold, by contrast, is almost always found pure. Sometimes it comes in sizable pieces. Even when tiny, barely visible particles are mixed with sand, earth, and other materials, they can be separated quickly and simply. Anyone with a little mercury can do this in a private house. If people pay the king's tax poorly on silver, they probably pay it even less on gold. Rent must therefore make up a much smaller part of gold's price than of silver's.

The same principles that set the lowest normal price of other goods also set the lowest price at which precious metals can be sold for a substantial period. That is the smallest amount of other goods they can be exchanged for over that time. The stock normally needed to get them from mine to market, along with the food, clothes, and lodging normally consumed in doing so, determines that price. It must at least replace the stock and yield ordinary profits.

Their highest price, however, seems to depend only on how scarce or plentiful the metals themselves are. No other good limits it in the way that the price of wood limits the price of coal: no shortage can push coal beyond that limit. Make gold scarce enough, and even its smallest piece might become more precious than a diamond and buy more other goods.

People want these metals partly because they are useful and partly because they are beautiful. Apart from iron, they may be more useful than any other metals. They resist rust and dirt, so they are easier to keep clean. For this reason, table and kitchen utensils made from them are often more pleasant. A silver boiler is cleaner than one of lead, copper, or tin; a gold boiler would be cleaner still. But their main attraction is their beauty, which makes them especially suitable for decorating clothing and furniture. No paint or dye shines as brilliantly as gilding. Scarcity adds greatly to the appeal of their beauty. For most rich people, the chief pleasure of wealth lies in displaying it. They feel that the display is most complete when they show unmistakable signs of wealth that only they can afford. In their eyes, scarcity or the great labor needed to gather a large quantity makes any useful or beautiful thing much more desirable. Only people like them can pay for that labor. They will pay more for such objects than for things that are much more beautiful and useful but more common. Usefulness, beauty, and scarcity originally gave these metals their high price: they could be exchanged everywhere for a great quantity of other goods. Their value existed before they were used as coins and did not depend on that use. Indeed, that value made them suitable for coins. Using them as coins may later have sustained or raised their value by creating new demand and leaving less for other uses.

People want precious stones entirely for their beauty. They have no use except decoration. Their scarcity, and the difficulty and expense of extracting them, add greatly to the appeal of that beauty. Wages and profit therefore make up almost all of their high price in most cases. Rent accounts for very little, often nothing. Only the most productive mines yield any substantial rent. When Tavernier, a jeweler, visited the diamond mines of Golconda and Visiapour, he learned that the country's sovereign, for whose benefit they were worked, had ordered all but those yielding the largest and finest stones closed. Apparently the others were not worth working for their owner.

The prices of precious metals and stones throughout the world are governed by their prices at the most productive mines. So the rent a mine can pay its owner depends not on its absolute productivity but on its relative productivity: how much better it is than other mines of its kind. If mines were found that surpassed those of Potosi as much as Potosi's surpassed Europe's, silver could lose so much value that even the mines of Potosi would not be worth working. Before the discovery of the Spanish West Indies, Europe's most productive mines may have paid their owners as much rent as Peru's richest mines do now. The quantity of silver was much smaller, but it might have bought just as many other goods. The owner's share might have commanded just as much labor or as many goods.

The value of both the output and the rent—the real revenue they gave to the public and the owner—might have been the same.

Even the most plentiful mines of precious metals or stones could add little to the world's wealth. When something gets most of its value from scarcity, abundance reduces that value. People could buy a set of silver plate and other frivolous decorations for clothing and furniture with fewer goods. That would be the only advantage the world would gain from such abundance.

Land above ground is different. The value of its output and rent depends on its absolute productivity, not how productive it is compared with other land. Land that produces a given amount of food, clothing, and lodging can always support a given number of people. Whatever share goes to the landlord gives the landlord a corresponding claim on those people's labor and on the goods their labor can provide. The poorest land does not lose value because highly productive land is nearby. Usually it gains value. The many people supported by the good land provide a market for some of the poor land's produce that the people supported by the poor land could never provide on their own.

Anything that makes land more productive of food raises not just the value of the improved land, but also the value of many other plots by creating demand for their produce. When land is improved, many people have more food available than they need for themselves. That surplus is the main reason people want precious metals, precious stones, and every other useful or decorative item for clothing, homes, furniture, and carriages. Food makes up the principal part of the world's wealth. An abundance of food also gives much other wealth most of its value. When the Spaniards first encountered the poor inhabitants of Cuba and St. Domingo, the inhabitants wore small pieces of gold in their hair and on their clothing. They seemed to value the pieces as we would value slightly prettier-than-usual pebbles: worth picking up, but not worth refusing to anyone who asked for them. They handed them to their new guests as soon as they asked, apparently without thinking the gift was valuable. They were astonished at the Spaniards' eagerness for gold. They did not imagine that anywhere many people had so much surplus food—food was always scarce among them—that they would gladly give enough to feed a whole family for many years in exchange for a very small quantity of glittering trinkets. If they could have understood this, the Spaniards' eagerness would not have surprised them.

PART III—How the Relative Values Change between Produce That Always Pays Rent and Produce That Sometimes Pays Rent and Sometimes Does Not

As improvements and cultivation increase the food supply, demand must rise for every other useful or decorative product of the land. Throughout this process, we might therefore expect just one change in the relative values of these two kinds of produce. The value of produce that sometimes pays rent and sometimes does not should steadily rise compared with the value of produce that always pays rent. As skills and industry develop, materials for clothing and housing, useful minerals and materials from the earth, precious metals, and precious stones should all be increasingly wanted. They should buy more and more food; in other words, they should grow more expensive. That has usually happened with most of them. It would always have happened with all of them if particular events had not sometimes increased the supply of some even faster than demand.

For example, as the surrounding country develops and its population grows, a freestone quarry must gain value, especially if it is the only one nearby. A silver mine need not gain value as the country around it develops, even if there is no other silver mine within a thousand miles. A freestone quarry's market rarely stretches more than a few miles. Demand for its stone generally follows the development and population of that small area. A silver mine's market, however, may cover the whole known world. Unless the world as a whole grows in population and development, even great advances in a large country near the mine might not increase demand for silver at all. And even if the world does develop, new mines much richer than any previously known may be found during that development. Demand for silver would rise, but supply might rise so much faster that silver's real price would gradually fall. A given quantity—say, a pound weight—would then buy less and less labor, or less and less corn, the main part of a laborer's food.

Silver's great market is the commercial and civilized part of the world.

Suppose general development raises demand in this market, but supply does not rise as fast. Silver's value would gradually rise relative to corn. A given quantity of silver would buy increasing amounts of corn. Put another way, the average money price of corn would steadily fall.

Suppose instead that, by some chance, supply rises faster than demand for many years. Silver would steadily grow cheaper. In other words, the average money price of corn would steadily rise despite improvements.

But if silver's supply rises at roughly the same rate as demand, it will keep buying roughly the same amount of corn. The average money price of corn will stay almost unchanged despite improvements.

These three possibilities appear to cover everything that can happen as development proceeds. Judging by events in France and Great Britain, each appears to have occurred in the European market during the four centuries before the present, and in roughly the order I have just given.

A Digression on Changes in the Value of Silver over the Last Four Centuries

First Period—In 1350 and for some time earlier, the average price of a quarter of wheat in England seems to have been no less than four ounces of silver, Tower weight, equal to about twenty shillings in our present money. It seems gradually to have fallen to two ounces of silver, equal to about ten shillings in our present money. That was its estimated price at the start of the sixteenth century, and it seems to have remained so until about 1570.