Book I, Chapter XI, 8

In certain wealthy commercial countries, such as Holland and the territory of Genoa, corn is expensive for the same reason it is expensive in great cities: they do not grow enough to feed their inhabitants. They are rich in the industry and skill of their artisans and manufacturers, in every kind of machinery that can ease and shorten labor, in shipping, and in all the other instruments of transport and commerce. But they are poor in corn, which must be brought from distant countries and must therefore bear the additional cost of that transport in its price. It takes no less labor to bring silver to Amsterdam than to Dantzic; but it takes much more to bring corn there. The real cost of silver must be nearly the same in both places, while that of corn must be very different. Reduce the real wealth of Holland or the territory of Genoa while its population stays the same; reduce its ability to obtain supplies from distant countries; and the price of corn, rather than falling with the decline in its quantity of silver that must accompany this loss of wealth, whether as cause or effect, will rise to famine levels. When necessities are scarce, we must surrender every luxury, whose value rises in prosperity and falls in poverty and distress. Necessities behave otherwise. Their real price—the quantity of labor they can purchase or command—rises in poverty and distress and falls in wealth and prosperity, which are always times of abundance; otherwise they could not be times of wealth and prosperity. Corn is a necessity; silver is only a luxury.

Whatever increase in the quantity of precious metals arose from increasing wealth and improvement between the middle of the fourteenth and the middle of the sixteenth century, it could not tend to lower their value in Great Britain or any other part of Europe. If collectors of ancient prices had no grounds during this period to infer a decline in the value of silver from the prices they observed for corn or other commodities, they had still less grounds to infer one from a supposed increase in wealth and improvement.

Second Period.—However widely scholars may differ about the course of silver's value in the first period, they agree about its course in the second.

From about 1570 to about 1640, a span of about seventy years, the relation between the value of silver and that of corn moved in precisely the opposite direction. Silver fell in real value and would purchase less labor than before; corn rose in nominal price. Instead of commonly selling for about two ounces of silver per quarter, or about ten shillings of our present money, corn came to sell for six and eight ounces of silver per quarter, or about thirty and forty shillings of our present money.

The discovery of America's abundant mines seems to have been the sole cause of this fall in silver's value relative to corn. Everyone explains it in this way; neither the fact nor its cause has ever been disputed. Most of Europe was advancing in industry and improvement during this period, and its demand for silver must therefore have grown. Yet the supply seems to have increased so much more than the demand that the metal's value fell considerably. It is worth noting that the discovery of the American mines seems to have had no appreciable effect on English prices until after 1570, though even the mines of Potosi had been discovered more than twenty years earlier.

From 1595 to 1620, both inclusive, the accounts of Eton college put the average price at Windsor market for a quarter of nine bushels of the best wheat at £ 2:1:6 ⁹⁄₁₃. Omitting the fraction and subtracting a ninth, or 4s. 7 ⅓d., gives £ 1:16:10 ⅔ for a quarter of eight bushels. Omitting that fraction as well and subtracting a ninth, or 4s. 1 ⅑d., to allow for the difference between the best and middle wheat, gives about £ 1:12:8 ⁸⁄₉ for middle wheat, or about six ounces and one-third of an ounce of silver.

From 1621 to 1636, both inclusive, the same accounts put the average price of the same measure of the best wheat at the same market at £ 2:10s. Applying the same deductions as before gives £ 1:19:6, or about seven ounces and two-thirds of an ounce of silver, as the average price of a quarter of eight bushels of middle wheat.

Third Period.—Between 1630 and 1640, or about 1636, the discovery of the American mines appears to have completed its effect in lowering the value of silver. Relative to corn, that metal's value seems never to have fallen below its level at that time. It seems to have risen somewhat during the present century, and probably began to do so some time before the last century ended.

From 1637 to 1700, both inclusive—the final sixty-four years of the last century—the same accounts put the average Windsor market price of a quarter of nine bushels of the best wheat at £ 2:11:0 ⅓, only 1s. 0 ⅓d. above its price during the preceding sixteen years. Yet during these sixty-four years two events occurred that must have produced far greater scarcity of corn than the seasons alone would have caused. Even without supposing any further fall in silver's value, they more than explain this very slight rise in price.

The first event was the civil war. By discouraging cultivation and disrupting commerce, it must have driven corn prices far above what the seasons alone would have caused. Its effects must have been felt to some extent in every market in the kingdom, but especially around London, whose markets must draw supplies from the greatest distances. The same accounts accordingly show that at Windsor market the best wheat cost £ 4:5s. per quarter of nine bushels in 1648 and £ 4 in 1649. Together those two years exceed £ 2:10s. (the average price of the sixteen years preceding 1637) by £ 3:5s. Spread over the final sixty four years of the last century, this excess alone very nearly explains the slight rise in their average price. These two prices, though the highest, were by no means the only high ones apparently caused by the civil wars.

The second event was the bounty on the export of corn granted in 1688. Many have thought that, by encouraging cultivation over many years, the bounty might have made corn more abundant and therefore cheaper in the domestic market than it would otherwise have been. I shall examine later how far it could ever have had this effect. For now I observe only that between 1688 and 1700 it had no time to do so. In that short interval its only effect must have been to encourage exports of each year's surplus, preventing one year's abundance from making up for another year's scarcity, and thus to raise domestic prices. The scarcity that prevailed in England from 1693 to 1699, both inclusive, was doubtless chiefly due to bad seasons, and extended over a considerable part of Europe; but the bounty must have worsened it somewhat. Accordingly, in 1699 further exports of corn were prohibited for nine months.

A third event occurred in the same period. Though it could not have made corn scarcer, nor perhaps increased the real quantity of silver commonly paid for it, it must have increased the nominal sum. This was the great debasement of silver coin through clipping and wear. The evil began under Charles II. and steadily grew until 1695, when, as Mr Lowndes tells us, silver coins in circulation averaged nearly five-and-twenty per cent. below their standard value. The nominal sum making up a commodity's market price is governed less by the amount of silver a coin ought to contain under the standard than by the amount experience shows it actually contains. Thus the nominal sum must be higher when coin is badly debased by clipping and wear than when it approaches its standard value.

During the present century, silver coin has never fallen farther below its standard weight than it has now. Though badly worn, however, its value has been sustained by the gold coin for which it can be exchanged. Even before the recent recoinage, gold coin, though considerably worn itself, was less worn than silver. In 1695, by contrast, gold coin did not sustain silver's value: a guinea commonly exchanged for thirty shillings in worn and clipped silver. Before the recent recoinage of gold, silver bullion rarely cost more than five shillings and sevenpence an ounce, only fivepence above the mint price. In 1695, however, silver bullion commonly cost six shillings and fivepence an ounce, [Lowndes’s Essay on the Silver Coin, 68.] fifteen pence above the mint price. Thus even before gold's recent recoinage, gold and silver coin together, measured against silver bullion, was not thought to be more than eight per cent. below its standard value; in 1695 it was thought to be nearly five-and-twenty per cent. below. At the beginning of the present century, however, immediately after the great recoinage under King William, most silver coins in circulation must have been closer to their standard weight than they are now. Nor has the present century seen a great public calamity, such as a civil war, that could discourage cultivation or disrupt the country's internal commerce. The bounty in force for most of this century must always raise corn prices somewhat above what they would be under the existing state of cultivation. Yet during this century it has also had ample time to produce all the benefits commonly attributed to it: to encourage cultivation and so increase the supply of corn in the domestic market. On the principles of a system I shall explain and examine later, it might therefore be thought to have lowered prices in one way while raising them in another. Many suppose that it has done more than this. The accounts of Eton college accordingly put the average Windsor market price of a quarter of nine bushels of the best wheat over the sixty-four years of the present century at £ 2:0:6 ¹⁰⁄₃₂. This is about ten shillings and sixpence, or more than five-and-twenty percent. cheaper than over the last sixty-four years of the preceding century; about nine shillings and sixpence cheaper than over the sixteen years preceding 1636, when the rich American mines may be supposed to have had their full effect; and about one shilling cheaper than over the twenty-six years preceding 1620, before that discovery could reasonably be supposed to have had its full effect. On this reckoning, middle wheat averaged about thirty-two shillings per quarter of eight bushels during the first sixty-four years of the present century.

Silver's value relative to corn thus seems to have risen somewhat in the present century, and probably began rising some time before the end of the last.

In 1687, a quarter of nine bushels of the best wheat cost £ 1:5:2 at Windsor market, its lowest price since 1595.

In 1688, Mr Gregory King, renowned for his knowledge of such matters, estimated that in moderately abundant years the grower received on average 3s. 6d. per bushel of wheat, or eight-and-twenty shillings per quarter. I take the grower's price to mean what is sometimes called the contract price: the price at which a farmer agrees to deliver a set quantity of corn to a dealer over a number of years. Because such a contract saves the farmer the cost and trouble of marketing, its price is generally below the estimated average market price. Mr King considered eight-and-twenty shillings per quarter the ordinary contract price then, in years of moderate plenty. I have been assured that before the scarcity caused by the recent extraordinary run of bad seasons, it was the ordinary contract price in all ordinary years.

In 1688, Parliament granted the bounty on corn exports. The country gentlemen, who then made up an even greater share of the legislature than they do now, had noticed that the money price of corn was falling. The bounty was a device for artificially restoring it to the high prices it had often fetched under Charles I. and II. It was therefore to operate until wheat reached fortyeight shillings per quarter—that is, twenty shillings, or 5-7ths, more than Mr King estimated the grower's price to be in moderately abundant years of that very year. If his calculations merit any share of their widespread reputation, eight-and-forty shillings per quarter was a price not to be expected then, without such a device as the bounty, except in years of extraordinary scarcity. But King William's government was not yet fully established. It could hardly refuse anything to the country gentlemen, from whom it was then seeking the first establishment of the annual land-tax.

Silver's value relative to corn had therefore probably risen somewhat before the last century ended and seems to have continued rising through most of the present one, although the bounty's inevitable operation must have made that rise less noticeable than it would otherwise have been under the existing state of cultivation.

In plentiful years, the bounty necessarily raises corn prices above what they would otherwise be by prompting extraordinary exports. The stated purpose of its establishment was to encourage cultivation by maintaining the price of corn even in the most plentiful years.

In some very rich trading countries, such as Holland and the territory of Genoa, corn is expensive for the same reason it is expensive in large towns. They do not grow enough to feed their people. They have wealth in the skills of their artisans and manufacturers, in machines that make work easier and faster, in ships, and in other means of transport and trade. But they lack corn. They must bring it from distant countries, so its price must also cover the cost of transport. Bringing silver to Amsterdam takes no less labor than bringing it to Dantzic, but bringing corn there takes much more. The real cost of silver must be nearly the same in both places, while the real cost of corn must differ greatly. Suppose Holland or the territory of Genoa became poorer without losing any people, and became less able to obtain supplies from distant countries. Its corn price would not fall along with its supply of silver, which would necessarily shrink either as a cause or a result of its decline. Instead, corn would rise to a famine price. When people lack necessities, they must give up luxuries. Luxuries gain value during prosperity and lose it during hardship. Necessities behave differently. Their real price—the amount of labor they can buy—rises during hardship and falls during prosperity. Prosperous times always bring plenty; without plenty, they could not be prosperous. Corn is a necessity; silver is only a luxury.

So any increase in precious metals caused by growing wealth and development between the middle of the fourteenth century and the middle of the sixteenth century could not have reduced their value in Great Britain or elsewhere in Europe. People who collected old prices had no reason, during this period, to conclude from corn prices or the prices of other goods that silver had lost value. They had even less reason to conclude it merely from an assumed increase in wealth and development.

Second Period.—Scholars have held many different views about changes in silver's value during the first period. But they agree about the second.

From about 1570 to about 1640, a period of about seventy years, the relationship between the values of silver and corn moved in the opposite direction. Silver fell in real value: it bought less labor than before. Corn rose in money price. Instead of commonly selling for about two ounces of silver a quarter, or about ten shillings of our present money, it came to sell for six and eight ounces a quarter, or about thirty and forty shillings of our present money.

The discovery of America's rich mines seems to have been the only cause of this fall in silver's value relative to corn. Everyone explains it this way, and neither the change nor its cause has been disputed. Most of Europe was developing its industry, so demand for silver must have been increasing. But supply apparently grew so much faster that silver lost considerable value. It is worth noting that the American mines do not seem to have noticeably affected prices in England until after 1570, even though the mines of Potosi had been discovered more than twenty years earlier.

According to the accounts of Eton college, from 1595 to 1620, both inclusive, the average Windsor market price for a quarter of nine bushels of the best wheat was £ 2:1:6 ⁹⁄₁₃. Ignore the fraction and subtract a ninth, or 4s. 7 ⅓d., and the price for a quarter of eight bushels becomes £ 1:16:10 ⅔. Then ignore that fraction too and subtract a ninth, or 4s. 1 ⅑d., to allow for the difference between the best and middle wheat. The resulting price for middle wheat is about £ 1:12:8 ⁸⁄₉, or about six ounces and one-third of an ounce of silver.

From 1621 to 1636, both inclusive, the average price for the same amount of the best wheat at the same market was £ 2:10s., according to those same accounts. Making the same deductions as before gives an average price for a quarter of eight bushels of middle wheat of £ 1:19:6, or about seven ounces and two-thirds of an ounce of silver.

Third Period.—Between 1630 and 1640, or about 1636, the American mines seem to have completed their effect of reducing silver's value. Silver's value relative to corn appears never to have fallen lower than it was around then. It seems to have risen somewhat during the present century, and probably began rising before the end of the last.

From 1637 to 1700, both inclusive—the last sixty-four years of the last century—the average Windsor market price of a quarter of nine bushels of the best wheat was £ 2:11:0 ⅓, according to the same accounts. This was only 1s. 0 ⅓d. higher than during the previous sixteen years. But two events during those sixty-four years must have caused much greater corn shortages than the seasons alone would have caused. They more than explain this very small increase in price, without any further fall in silver's value.

The first was the civil war. By discouraging cultivation and disrupting trade, it must have raised corn prices far beyond what the seasons would have caused. It must have affected markets across the kingdom, especially those near London, which needed supplies brought from the greatest distances. According to the same accounts, the best wheat at Windsor market cost £ 4:5s. for a quarter of nine bushels in 1648, and £ 4 in 1649. Together those two prices exceeded £ 2:10s., the average for the sixteen years before 1637, by £ 3:5s. Spread that excess over the last sixty four years of the last century and it alone almost explains the small increase in the average price. Though these were the highest prices, the civil wars seem to have caused other high prices too.

The second event was the bounty introduced in 1688 for exporting corn. Many people have thought that, by encouraging cultivation over many years, the bounty could make corn more plentiful and therefore cheaper at home than it otherwise would have been. I will examine later whether it could ever do this. For now, I will only note that between 1688 and 1700 it had no time to do so. During that short period, its only possible effect was to encourage exports of each year's surplus. That prevented a plentiful year's crop from making up for a scarce one and raised the price at home. The shortage in England from 1693 to 1699, both inclusive, was mainly due to bad seasons and affected much of Europe. But the bounty must have made it somewhat worse. Accordingly, in 1699 further corn exports were prohibited for nine months.

A third event in the same period could not have caused a corn shortage, or perhaps even increased the actual amount of silver usually paid for corn. But it must have increased the nominal sum paid. This was the severe debasement of silver coins through clipping and wear. The problem began under Charles II. and kept growing until 1695. At that point, according to Mr Lowndes, silver coins in circulation were on average nearly five-and-twenty per cent. below their standard value. The nominal sum that makes up a good's market price depends less on the amount of silver a coin should contain under the standard than on the amount experience shows it actually contains. Thus nominal prices must be higher when coins are badly clipped and worn than when they are close to standard value.

During the present century, silver coins have never been further below their standard weight than they are now. Yet although they are badly worn, gold coins that can be exchanged for them have supported their value. Before the recent recoinage, gold coins were also fairly worn, but less so than silver coins. In 1695, by contrast, gold coins did not support the value of silver coins. A guinea commonly exchanged for thirty shillings in worn and clipped silver. Before the recent recoinage of gold, silver bullion rarely cost more than five shillings and sevenpence an ounce, just fivepence above the mint price. But in 1695 its usual price was six shillings and fivepence an ounce, [Lowndes’s Essay on the Silver Coin, 68.] fifteen pence above the mint price. So before the recent gold recoinage, gold and silver coins together were considered no more than eight per cent. below standard value when compared with silver bullion. In 1695 they were considered nearly five-and-twenty per cent. below it. But at the beginning of the present century, just after the great recoinage under King William, most silver coins in circulation must have been closer to their standard weight than they are now. Nor has any great public disaster, such as a civil war, discouraged cultivation or disrupted domestic trade during the present century. The bounty in force for most of this century must always raise corn prices somewhat above what they would otherwise be at the current level of cultivation. But it has also had enough time to produce all the benefits often credited to it: encouraging cultivation and increasing the domestic supply of corn. Under the principles of a system I will explain and examine later, we might suppose it has lowered prices in one way while raising them in another. Many people think its lowering effect has been greater. According to Eton college's accounts, in the sixty-four years of the present century, the average Windsor market price for a quarter of nine bushels of the best wheat was £ 2:0:6 ¹⁰⁄₃₂. That was about ten shillings and sixpence, or more than five-and-twenty percent., lower than in the last sixty-four years of the last century. It was about nine shillings and sixpence lower than in the sixteen years before 1636, when the rich American mines can be assumed to have had their full effect. And it was about one shilling lower than in the twenty-six years before 1620, when those mines can hardly be assumed to have had their full effect. On these figures, the average price of a quarter of eight bushels of middle wheat during the first sixty-four years of the present century was about thirty-two shillings.

Silver therefore seems to have gained some value relative to corn during the present century. It probably began doing so before the last century ended.

In 1687, a quarter of nine bushels of the best wheat cost £ 1:5:2 at Windsor market, its lowest price since 1595.

In 1688, Mr Gregory King, known for his expertise in such matters, estimated that in years of moderate abundance the grower received an average of 3s. 6d. a bushel for wheat, or eight-and-twenty shillings a quarter. By the grower's price, I mean what is sometimes called the contract price. This is the price at which a farmer agrees to deliver a given amount of corn to a dealer over a set number of years. Because such a contract saves the farmer the expense and trouble of going to market, its price is generally below the estimated average market price. Mr King judged eight-and-twenty shillings a quarter to be the normal contract price in moderately abundant years at that time. I have been told it remained the normal contract price in ordinary years before the shortages caused by the recent exceptionally bad seasons.

Parliament introduced the bounty on corn exports in 1688. Landowning gentlemen then held an even larger share of seats in the legislature than they do now. They had noticed that the money price of corn was falling. The bounty was a way of artificially raising it to the high levels often reached under Charles I. and II. It would therefore continue until wheat reached fortyeight shillings a quarter. That was twenty shillings, or 5-7ths, above the grower's price Mr King had estimated that very year for moderately abundant times. If his widely respected calculations have any merit, eight-and-forty shillings a quarter was a price that could not then be expected without a measure like the bounty, except in unusually scarce years. But King William's government was not yet firmly established. It could not refuse the landowning gentlemen anything while asking them to establish the first annual land-tax.

Silver's value relative to corn had therefore probably risen somewhat before the last century ended and seems to have continued rising through most of the present century. The bounty's inevitable effect must have made that rise less noticeable than it would otherwise have been at the current level of cultivation.

In plentiful years, the bounty encourages unusually large exports and necessarily raises corn prices above what they otherwise would be in those years. Its stated purpose was to encourage cultivation by keeping corn prices up even in the most plentiful years.