Book I, Chapter XI, 9

In years of severe scarcity, admittedly, the bounty has generally been suspended. It must nevertheless have affected prices in many such years. By inducing exceptional exports during years of plenty, it must often prevent one year's abundance from offsetting the next year's scarcity.

Thus in years of plenty as well as scarcity, the bounty raises the price of corn above its natural level under the existing state of cultivation. If, then, the average price during the first sixty-four years of the present century was lower than during the last sixty-four years of the preceding one, it must, with cultivation unchanged, have been much lower still without the bounty.

It may be argued, however, that without the bounty cultivation would not have remained unchanged. When I treat bounties in particular, I shall try to explain what effects this institution may have had on the country's agriculture. For now I observe only that the rise in silver's value relative to corn was not peculiar to England. Three faithful, diligent, and painstaking collectors of corn prices—Mr Dupré de St Maur, Mr Messance, and the author of the Essay on the Police of Grain—found that it occurred in France during the same period, and in nearly the same proportion. Yet French law prohibited grain exports until 1764. It is hard to suppose that nearly the same fall in price occurred in one country despite such a prohibition, but was caused in the other by extraordinary encouragement of exports.

Perhaps it is better to regard this change in corn's average money price as the effect of a gradual rise in silver's real value on the European market, rather than a fall in corn's average real value. As already noted, corn measures value more accurately across distant periods than silver, or perhaps any other commodity. When corn rose to three or four times its former money price after the discovery of the abundant American mines, everyone attributed the change not to a rise in corn's real value but to a fall in silver's. If, then, corn's average money price during the first sixty-four years of the present century was somewhat below its level through most of the preceding century, we should likewise attribute the change not to a fall in corn's real value but to some rise in silver's real value on the European market.

The high price of corn over the past ten or twelve years has, admittedly, raised suspicions that silver's real value is still falling in the European market. Yet this high price seems plainly due to extraordinarily unfavorable seasons and should be treated as a temporary, occasional occurrence, not a lasting one. Seasons have been unfavorable throughout much of Europe for these ten or twelve years, while disturbances in Poland have greatly increased scarcity in all the countries that normally drew supplies from that market in expensive years. Such a prolonged succession of bad seasons is unusual but by no means unique; anyone who has studied the history of earlier corn prices will readily recall several comparable instances. Besides, ten years of extraordinary scarcity are no more surprising than ten years of extraordinary plenty. The low prices from 1741 to 1750, both inclusive, can well be set against the high prices of the last eight or ten years. According to the accounts of Eton college, a quarter of nine bushels of the best wheat at Windsor market averaged only £ 1:13:9 ⅘ from 1741 to 1750, nearly 6s.3d. below the average for the first sixty-four years of the present century. By this reckoning, a quarter of eight bushels of middle wheat averaged only £ 1:6:8 over those ten years.

Between 1741 and 1750, however, the bounty must have prevented domestic corn prices from falling as low as they naturally would have. The custom-house books show that no less than 8,029,156 quarters, one bushel, of grain of all kinds were exported during those ten years. Bounties paid on these exports amounted to £ 1,514,962:17:4 ½. Accordingly, in 1749 the then prime minister, Mr Pelham, observed to the house of commons that an extraordinary sum had been paid in bounties on corn exports during the preceding three years. He had good reason to say so, and in the following year would have had still more: in that single year bounties amounted to no less than £ 324,176:10:6. [See Tracts on the Corn Trade, Tract 3,] There is no need to explain how much these artificially induced exports must have raised corn prices above what they would otherwise have been in the domestic market.

In the accounts appended to this chapter, readers will find these ten years listed separately, along with the preceding ten years. The earlier period's average is also below the general average of the century's first sixty-four years, though by less. The year 1740, however, was exceptionally scarce. The twenty years preceding 1750 can readily be contrasted with the twenty preceding 1770. The first period was considerably below the century's general average despite one or two expensive years, while the second was considerably above it despite one or two cheap years, such as 1759. If the first period was not as far below the general average as the second was above it, the bounty is probably to blame. The change was plainly too sudden to be attributed to any change in silver's value, which always shifts slowly and gradually. Only a cause that can act suddenly—chance variations in the seasons—can explain the abrupt effect.

The money price of labor in Great Britain has indeed risen during the present century. This seems, however, to reflect not so much any decline in silver's value in the European market as increased demand for labor in Great Britain arising from the country's great and nearly universal prosperity. In France, a country not quite so prosperous, the money price of labor has been observed to decline gradually along with the average money price of corn since the middle of the last century. In both the last century and the present, the daily wages of ordinary labor there are said to have stayed fairly consistently at about one twentieth of the average price of a septier of wheat, a measure containing a little more than four Winchester bushels. In Great Britain, as already shown, labor's real reward—the actual quantities of life's necessities and conveniences given to the laborer—has increased considerably in the present century. The increase in its money price seems due not to falling silver values across the European market but to a rise in labor's real price in the British market, owing to the country's exceptionally favorable circumstances.

For some time after America's first discovery, silver would still have sold at its former price, or not far below it. Mining profits would for a while have been very large, well above their natural rate. But importers of silver into Europe would soon have discovered that they could not sell the entire annual import at this high price. Silver would gradually buy fewer and fewer goods. Its price would decline until it reached its natural level: just enough to pay, at their natural rates, the wages of labor, the profits of stock, and the rent of land incurred in bringing it from mine to market. In most Peruvian silver mines, as already observed, the Spanish king's tax of a tenth of the gross output absorbs the entire rent of the land. Originally this tax was half; soon it dropped to a third, then a fifth, and finally a tenth, the rate at which it remains. In most of Peru's silver mines this tenth seems to be all that remains after replacing the operator's stock and paying its ordinary profits. These profits, once very high, are now generally acknowledged to be as low as they can be while still permitting the mines to operate.

In 1504, the Spanish king's tax was reduced to a fifth of registered silver [Solorzano, vol, ii.], one-and-forty years before 1545, when the mines of Potosi were discovered. In the following ninety years, or before 1636, those mines, the richest in all America, had ample time to produce their full effect: to lower silver's value in the European market as far as it could fall while still paying this tax to the Spanish king. Ninety years suffices to bring any commodity not subject to a monopoly down to its natural price, the lowest price at which it can continue to be sold for a considerable time while paying a particular tax.

Silver's price on the European market might perhaps have fallen further, making it necessary either to cut its tax not merely to one-tenth, as in 1736, but to one twentieth, as with gold, or to abandon most of the American mines now worked. The gradual growth in demand for silver, or expansion of the market for the output of American silver mines, probably prevented this. It has not only sustained silver's value in the European market but perhaps raised it somewhat above its level around the middle of the last century.

Since America was first discovered, the market for the output of its silver mines has steadily expanded.

First, the European market has steadily expanded. Most of Europe has greatly improved since the discovery of America. England, Holland, France, and Germany, and even Sweden, Denmark, and Russia, have all made considerable advances in agriculture and manufacturing. Italy seems not to have gone backward: its decline preceded the conquest of Peru, and since then it seems rather to have recovered a little. Spain and Portugal, admittedly, are thought to have declined. But Portugal is only a small part of Europe, and Spain's decline may not be as great as is commonly imagined. At the beginning of the sixteenth century Spain was very poor, even beside France, which has improved so much since. Emperor Charles V., who frequently traveled through both countries, famously remarked that everything was plentiful in France and everything lacking in Spain. Europe's increasing agricultural and manufactured output necessarily required a growing quantity of silver coin to circulate it; growing numbers of wealthy people likewise required more silver plate and ornaments.

Secondly, America itself is a new market for the output of its own silver mines; and because its agriculture, industry, and population advance far faster than those of even Europe's most thriving countries, its demand must grow much faster as well. The English colonies form an entirely new market, requiring an ever-increasing supply of silver across a vast continent where previously there had been no demand for it, partly for coin and partly for plate. Most Spanish and Portuguese colonies are entirely new markets too. Before the Europeans discovered them, New Granada, the Yucatan, Paraguay, and the Brazils were inhabited by peoples who had neither arts nor agriculture. Both have now been introduced to a considerable degree throughout these regions. Even Mexico and Peru, though not entirely new markets, are certainly far more extensive markets than before. Despite all the marvelous stories published about their ancient splendor, anyone who reads the history of their discovery and conquest with sober judgment will see plainly that their people knew much less of the arts, agriculture, and commerce than the Tartars of the Ukraine know today. Even the Peruvians, the more civilized of the two peoples, used gold and silver for ornament but had no coined money of any sort. All their commerce was conducted by barter; hence there was scarcely any division of labor among them. Farmers had to build their own houses and make their own furniture, clothing, shoes, and farming tools. The few artisans among them are said to have been maintained entirely by the sovereign, nobles, and priests, whose servants or slaves they probably were. Not one of the ancient arts of Mexico and Peru has furnished a single manufactured product to Europe. Spanish armies, rarely exceeding five hundred men and often numbering fewer than half that, found it very difficult almost everywhere to obtain food. The famines they reportedly brought about almost everywhere they went, even in lands described as densely populated and well cultivated, adequately show that the stories of such population and cultivation are largely fabulous. Spanish colonial government is in many ways less favorable to agriculture, improvement, and population than English colonial government. Nevertheless, the Spanish colonies seem to be advancing in all three far faster than any European country. On fertile land in a favorable climate, the great abundance and low cost of land, common to all new colonies, seems an advantage large enough to make up for many defects in civil government. Frezier, visiting Peru in 1713, described Lima as having between twenty-five and twenty-eight thousand inhabitants. Ulloa, resident in the same country between 1740 and 1746, put its population at more than fifty thousand. Their estimates for several other principal towns of Chili and Peru differ by nearly the same proportion. As there seems no reason to doubt either man's information, the difference indicates growth scarcely less rapid than that of the English colonies. America is therefore a new market for the output of its own silver mines, where demand must grow much faster than in Europe's most thriving country.

In years of severe shortage, the bounty has usually been suspended. Even so, it must have affected prices in many of those years. By causing unusually large exports in abundant years, it must often prevent one year's abundance from making up for the next year's shortage.

So the bounty raises corn prices above what they would naturally be at the current level of cultivation, both in plentiful years and in scarce ones. If the average price during the first sixty-four years of the present century was lower than during the last sixty-four years of the previous century, it would have been much lower still, at the same level of cultivation, without the bounty.

One might argue that cultivation would not have reached the same level without the bounty. I will discuss its possible effects on the country's agriculture later, when I examine bounties specifically. For now, I will only note that this increase in silver's value relative to corn was not limited to England. Three careful and hardworking collectors of corn prices—Mr Dupré de St Maur, Mr Messance, and the author of the Essay on the Police of Grain—found that it happened in France over the same period, and at almost the same rate. But French law prohibited grain exports until 1764. It is hard to believe that the nearly identical fall in price in one country occurred despite a ban on exports, while in the other it was caused by exceptionally strong encouragement to export.

It may be better to attribute this change in corn's average money price to a gradual increase in silver's real value on the European market, rather than to a fall in corn's average real value. As already noted, across long periods corn is a more reliable measure of value than silver or perhaps any other good. After the discovery of America's rich mines, corn rose to three or four times its former money price. Everyone attributed that change not to a rise in corn's real value but to a fall in silver's. If corn's average money price in the first sixty-four years of the present century was somewhat lower than it had been for most of the last century, we should likewise attribute it not to a fall in corn's real value but to a rise in silver's real value on the European market.

Corn's high price over the past ten or twelve years has admittedly led some to suspect that silver is still losing real value on the European market. But the high price of corn clearly seems to result from exceptionally bad seasons. It should be treated as a temporary, occasional event, not a lasting change. The seasons have been bad across most of Europe for these ten or twelve years. Unrest in Poland has made shortages much worse in the countries that usually buy supplies from its market in expensive years. Such a long run of bad seasons is unusual but far from unique. Anyone familiar with the history of corn prices can recall several similar examples. Besides, ten unusually scarce years are no more remarkable than ten unusually plentiful ones. The low corn prices from 1741 to 1750, both inclusive, can be set against the high prices of the last eight or ten years. Eton college's accounts show that from 1741 to 1750, the average Windsor market price for a quarter of nine bushels of the best wheat was only £ 1:13:9 ⅘. That was nearly 6s.3d. below the average for the first sixty-four years of the present century. On those figures, the average price of a quarter of eight bushels of middle wheat during those ten years was only £ 1:6:8.

Between 1741 and 1750, however, the bounty must have kept domestic corn prices from falling as low as they otherwise would. Customs records show exports of all kinds of grain totaling no less than 8,029,156 quarters, one bushel, over those ten years. The bounty paid on these exports amounted to £ 1,514,962:17:4 ½. In 1749, Mr Pelham, then prime minister, told the house of commons that an unusually large sum had been paid in export bounties on corn during the previous three years. He had good reason to say so, and the next year gave him even more reason: the bounty paid in that year alone was no less than £ 324,176:10:6. [See Tracts on the Corn Trade, Tract 3,] Clearly these artificially encouraged exports must have raised domestic corn prices substantially above what they otherwise would have been.

At the end of the accounts attached to this chapter, readers will find the figures for those ten years listed separately. They will also find separate figures for the preceding ten years. Their average was also below the general average for the century's first sixty-four years, though by less. Yet 1740 was a year of unusual shortage. The twenty years before 1750 can fairly be compared with the twenty before 1770. The earlier twenty years were well below the century's general average despite one or two expensive years. The later twenty were well above it despite one or two cheap years, such as 1759. If the earlier period was not as far below the average as the later period was above it, the bounty is probably the reason. The change happened too suddenly to be explained by a change in silver's value, which is always slow and gradual. Only a cause that works suddenly—the chance variation in the seasons—can explain such a rapid effect.

The money price of labor in Great Britain has indeed risen during the present century. But this seems to result less from any fall in silver's value in the European market than from increased demand for labor in Great Britain, due to the country's great and nearly universal prosperity. In France, which is not quite so prosperous, observers have found that the money price of labor has gradually fallen since the middle of the last century along with the average money price of corn. Throughout both the last century and this one, ordinary daily wages there are said to have remained fairly steady at around one twentieth of the average price of a septier of wheat, a measure holding a little more than four Winchester bushels. In Great Britain, as already shown, workers' real compensation—the actual amounts of life's necessities and comforts they receive—has risen considerably during the present century. Its higher money price seems to reflect not a fall in silver's value across Europe but an increase in labor's real price in Great Britain, due to this country's especially favorable circumstances.

For some time after America was first discovered, silver would still have sold at its former price or not much below it. Mining profits would initially have been very high, far above their natural rate. But importers bringing silver into Europe would soon discover that they could not sell the entire annual import at this high price. Silver would gradually buy fewer and fewer goods. Its price would fall until it reached its natural price: just enough to pay, at normal rates, the wages of labor, the profits on stock, and the rent on land required to bring it from mine to market. As noted earlier, in most of Peru's silver mines the king of Spain's tax, amounting to a tenth of gross output, consumes the entire land rent. This tax began at a half. It soon fell to a third, then a fifth, and finally a tenth, the rate at which it still remains. In most Peruvian silver mines, it seems, that is all that is left after restoring the mining operator's stock and paying its normal profits. Everyone seems to agree that these profits, once very high, are now about as low as they can be while keeping the mines operating.

The king of Spain's tax was reduced to a fifth of registered silver in 1504 [Solorzano, vol, ii.], one-and-forty years before 1545, when the mines of Potosi were discovered. Over the next ninety years, or by 1636, those mines—the richest in all America—had enough time to exert their full effect. They could reduce silver's value in the European market as far as it could fall while still paying the Spanish king's tax. Ninety years is enough to bring any nonmonopolized good down to its natural price: the lowest price at which it can keep selling for a considerable period while paying a particular tax.

Silver's price on the European market might perhaps have fallen further. In that case, either its tax would have had to be cut not merely to one-tenth, as in 1736, but to one twentieth, as the tax on gold was, or most of the American mines now operating would have had to close. What probably prevented this was the gradually growing demand for silver, or the expansion of the market for silver from America's mines. This growth has not only maintained silver's value in Europe but perhaps raised it somewhat above its level around the middle of the last century.

Since America was first discovered, the market for its mines' silver has steadily grown.

First, the European market has steadily expanded. Since America's discovery, most of Europe has developed considerably. England, Holland, France, and Germany, and even Sweden, Denmark, and Russia, have all made substantial advances in agriculture and manufacturing. Italy does not appear to have regressed. Its decline came before the conquest of Peru, and since then it appears to have recovered a little. Spain and Portugal, admittedly, are thought to have regressed. But Portugal is a very small part of Europe, and Spain's decline may not be as great as people usually think. At the beginning of the sixteenth century, Spain was very poor even compared with France, which has developed so much since then. The emperor Charles V., who often traveled through both countries, famously remarked that France had plenty of everything while Spain lacked everything. Europe's growing agricultural and manufactured output must have required a steadily growing supply of silver coin for circulation. Its growing number of wealthy people must likewise have needed more silver plate and other ornaments.

Second, America itself is a new market for the silver produced by its mines. Its agriculture, industry, and population are growing much faster than those of even Europe's most prosperous countries, so its demand must rise much faster too. The English colonies are an entirely new market. Across a vast continent where there was once no such demand, they need a continually increasing silver supply for both coins and plate. Most of the Spanish and Portuguese colonies are also entirely new markets. Before Europeans discovered New Granada, the Yucatan, Paraguay, and the Brazils, these places were inhabited by peoples whom Europeans called savage, with neither crafts nor agriculture. Both have now been introduced to a considerable extent in all of them. Even Mexico and Peru, though not entirely new markets, are certainly much bigger markets than ever before. Many remarkable stories have been published about their splendor in ancient times. But anyone who reads the history of their first discovery and conquest with a cool head will see that their people knew much less about crafts, agriculture, and trade than the Tartars of the Ukraine do today. Even the Peruvians, the more developed of the two peoples, used gold and silver for ornaments but had no coins of any kind. All their trade was barter, and there was therefore hardly any division of labor. Farmers had to build their own houses and make their own household furniture, clothing, shoes, and farming tools. The few artisans among them are said to have been supported entirely by the ruler, nobles, and priests, and were probably their servants or slaves. Not one manufactured product from the ancient crafts of Mexico or Peru has reached Europe. Spanish armies, though they hardly ever numbered more than five hundred men and often had fewer than half that number, had great difficulty finding food almost everywhere. They are said to have caused famines nearly everywhere they went, even in places described as densely populated and well cultivated. This strongly suggests that the stories of their large populations and advanced cultivation are mostly fictional. In many respects the Spanish colonies have governments less favorable to agriculture, development, and population growth than the English colonies have. Even so, they seem to be advancing in all three far more quickly than any European country. Where the soil is fertile and the climate favorable, the plentiful and cheap land common to all new colonies seems such a major advantage that it offsets many faults of government. Frezier, who visited Peru in 1713, estimated Lima's population at between twenty-five and twenty-eight thousand. Ulloa, who lived there between 1740 and 1746, put it above fifty thousand. Their population estimates for several other major towns in Chili and Peru differ by nearly the same amount. Since both seem well informed, the differences indicate growth hardly slower than that of the English colonies. America, then, is a new market for its own silver mines, and its demand must grow much faster than demand in even Europe's most prosperous country.