Book I, Chapter XI, 10

Thirdly, the East Indies form another market for the output of America's silver mines, one that has absorbed ever greater quantities of silver since the mines were first discovered. Direct trade between America and the East Indies, conducted by the Acapulco ships, has grown steadily since then, while indirect trade through Europe has grown still faster. In the sixteenth century the Portuguese alone among European nations traded regularly with the East Indies. In that century's final years the Dutch began to challenge their monopoly, and within a few years drove them from their principal Indian settlements. For most of the last century these two nations shared the greater part of the East India trade; Dutch trade grew at an even faster rate than Portuguese trade declined. The English and French did some trade with India in the last century, but greatly expanded it in the present one. Swedish and Danish trade with the East Indies began in the present century. Even the Muscovites now trade regularly with China by caravans traveling overland through Siberia and Tartary to Pekin. The East India trade of all these nations has grown almost continuously, apart from that of the French, which the last war nearly destroyed. European consumption of East Indian goods has evidently increased enough to provide steadily more business for all of them. Tea, for example, was scarcely used in Europe before the middle of the last century. Now the English East India company imports tea worth more than a million and a half a year for its own countrymen; even this is not enough, and far more is constantly smuggled in from Dutch ports, from Gottenburgh in Sweden, and also from the French coast so long as the French East India company prospered. Consumption of Chinese porcelain, Moluccan spices, Bengal piece goods, and countless other articles has grown in nearly the same proportion. Accordingly, the tonnage of all European vessels engaged in East India trade at any one time in the last century may not have been much greater than that of the English East India company before the recent reduction of its fleet.

In the East Indies, however, especially China and Indostan, the precious metals were worth much more than in Europe when Europeans first began to trade there, and remain so. Lands growing rice generally yield two and sometimes three harvests a year, each more plentiful than an ordinary corn harvest. The food supply in such lands must thus be far greater than in corn-growing lands of equal size; their populations are correspondingly larger. Their wealthy inhabitants, too, have more surplus food beyond their own needs and can therefore purchase much more of other people's labor. By every account, the household of a grandee in China or Indostan is consequently much larger and more splendid than that of Europe's richest subjects. This same surplus food at their disposal enables them to offer more for the rare and singular things nature supplies only in small quantities—precious metals and precious stones, the great objects of competition among the rich. Thus even if the mines supplying the Indian market had been as rich as those supplying Europe, these goods would naturally exchange for more food in India. Yet the mines supplying India with precious metals seem considerably less productive than Europe's suppliers, while its sources of precious stones seem considerably more productive. Precious metals would therefore naturally exchange in India for somewhat more precious stones and far more food than in Europe. Diamonds, the greatest of all luxuries, would have a somewhat lower money price there, while food, the foremost necessity, would have a much lower one. But, as already observed, labor's real price—the actual quantity of life's necessities received by the laborer—is lower in China and Indostan, India's two great markets, than in most of Europe. Laborers' wages there buy less food; and because food also has a much lower money price in India than in Europe, labor's money price is lower for two reasons: the small quantity of food wages buy, and the low price of that food. In countries equally skilled and industrious, most manufactured goods have money prices proportional to labor's money price. China and Indostan seem not much behind any European region in manufacturing skill and industry, even if somewhat inferior. Thus the money price of most manufactures must naturally be much lower in those great empires than anywhere in Europe. Across much of Europe, overland transport greatly increases both the real and nominal price of most manufactures. First the materials and then the finished goods cost more labor, hence more money, to bring to market. China's and Indostan's extensive and varied inland waterways save most of that labor and money, further reducing both the real and nominal price of most of their manufactures. For all these reasons, carrying precious metals from Europe to India has always been, and remains, extremely profitable. Hardly any commodity brings a better price there, or buys more Indian labor and goods relative to the labor and goods it costs in Europe. Transporting silver there is more profitable than transporting gold, since in China and most other Indian markets the ratio of fine silver to fine gold is only ten, or at most twelve to one, while in Europe it is fourteen or fifteen to one. In China and most other Indian markets, ten or at most twelve ounces of silver buy one ounce of gold; in Europe fourteen to fifteen ounces are required. Silver has therefore generally been among the most valuable goods aboard most European ships bound for India. It is the most valuable article carried by the Acapulco ships sailing to Manilla. In this way the silver of the new continent seems to be one of the principal commodities sustaining trade between the two ends of the old one, and it is largely through silver that those distant parts of the world are connected.

To supply such a vast market, the silver brought from the mines each year must suffice not only for the continual increase in coin and plate required by all thriving countries, but also to replace the continuous loss and consumption of silver wherever the metal is used.

Wear steadily consumes precious metals in coin, and both wear and cleaning consume them in plate. This loss is considerable and, given how widely those articles are used, would itself require a very large annual supply. Consumption of these metals in particular manufactures may not be greater overall than this gradual attrition, but it is more noticeable because much faster. The gold and silver used every year for gilding and plating in Birmingham's manufactures alone, and thus rendered incapable of ever again appearing as those metals, are said to be worth more than fifty thousand pounds sterling. From that we can form some idea of the annual consumption around the world in manufactures like Birmingham's, or in lace, embroidery, gold and silver fabrics, gilded books and furniture, etc. A considerable quantity, too, must be lost each year when the metals are transported by sea or land. Moreover, in most Asian governments the nearly universal custom of burying treasure, the location of which often dies with the person who hid it, must cause still greater losses.

According to the best accounts, the gold and silver imported into Cadiz and Lisbon together, including registered shipments and estimated contraband, amount to about six millions sterling a-year.

According to Mr Meggens [Postscript to the Universal Merchant p. 15 and 16. This postscript was not printed till 1756, three years after the publication of the book, which has never had a second edition. The postscript is, therefore, to be found in few copies; it corrects several errors in the book.], the average annual imports of precious metals into Spain over six years, from 1748 to 1753, both inclusive, and into Portugal over seven years, from 1747 to 1753, both inclusive, were 1,101,107 pounds weight of silver and 49,940 pounds weight of gold. At sixty two shillings per troy pound, the silver amounts to £ 3,413,431:10s. sterling; at forty-four guineas and a half per troy pound, the gold amounts to £ 2,333,446:14s. sterling. Together they total £ 5,746,878:4s. sterling. He assures us that his account of registered imports is exact. He specifies the places from which gold and silver came and the quantities of each metal each place supplied according to the register. He also makes an allowance for the quantities of each metal he supposes were smuggled. This discerning merchant's extensive experience gives his opinion considerable weight.

According to the eloquent and sometimes well-informed author of the Philosophical and Political History of the Establishment of the Europeans in the two Indies, registered gold and silver imports into Spain averaged 13,984,185 ⅗ piastres of ten reals a year over eleven years, from 1754 to 1764, both inclusive. Allowing for smuggling, however, he supposes total annual imports may have reached seventeen millions of piastres, equivalent at 4s. 6d. a piastre to £ 3,825,000 sterling. He likewise details the places the metals came from and the registered quantities of each metal supplied by each. He further tells us that if we estimated annual gold imports from the Brazils into Lisbon by the tax paid to the Portuguese king—apparently one-fifth of the standard metal—we might put them at eighteen millions of cruzadoes, or forty-five millions of French livres, equal to about twenty millions sterling. But to allow for possible smuggling we may safely add, he says, another eighth, or £ 250,000 sterling, bringing the whole to £ 2,250,000 sterling. On this account, then, annual precious-metal imports into Spain and Portugal together reach about £ 6,075,000 sterling.

I have been assured that several other reliable, though unpublished, accounts likewise put the total annual import at an average of about six millions sterling, sometimes a little above and sometimes a little below.

Annual precious-metal imports into Cadiz and Lisbon, however, do not equal the entire annual output of America's mines. Some silver goes each year to Manilla aboard the Acapulco ships; some supports the contraband trade between Spanish colonies and the colonies of other European nations; and some doubtless stays in America. Nor are American mines the world's only gold and silver mines. They are, however, by far the richest. Everyone agrees that the output of all other known mines is negligible beside theirs, and that by far the greater part of the American output is imported annually into Cadiz and Lisbon. Yet Birmingham's consumption alone, at fifty thousand pounds a-year, equals a hundred-and-twentieth of annual imports reckoned at six millions a-year. The total yearly consumption of gold and silver across all countries using those metals may therefore nearly equal their total yearly output. What remains may barely suffice to meet the growing demand of all thriving countries. It may even have fallen far enough short of that demand to raise the metals' price somewhat in the European market.

Far more brass and iron than gold and silver are brought from mines to market each year. We do not, however, imagine for that reason that these common metals will multiply beyond demand and grow steadily cheaper. Why imagine the precious metals will do so? Though harder, common metals are put to far harsher uses, and because they are worth less, less effort is devoted to preserving them. Yet precious metals are no more indestructible: they too can be lost, wasted, and consumed in many ways.

Although the prices of all metals undergo slow and gradual change, they vary less from year to year than the prices of nearly any other raw product of the land; precious-metal prices are even less subject to sudden shifts than those of common metals. Metals' durability underlies this remarkable stability. All or nearly all the corn brought to market last year will be consumed well before this year ends. But some iron mined two or three hundred years ago may still be in use, and perhaps some gold mined two or three thousand years ago as well. The quantities of corn available to feed the world in different years will always be nearly proportional to those years' respective harvests. By contrast, a chance difference between two years' iron-mine outputs will scarcely affect the relative quantities of iron in use in those years; such a difference in gold-mine outputs will have even less effect on the relative quantities of gold. Though the output of most metal mines may vary more from year to year than that of most cornfields, those fluctuations do not affect the prices of the two kinds of goods in the same way.

Variations in the Proportion between the respective Values of Gold and Silver.

Third, the East Indies provide another market for silver from America's mines. Since those mines were first discovered, this market has taken ever more silver. Direct trade between America and the East Indies, carried by the Acapulco ships, has steadily grown since then. Indirect trade through Europe has grown even faster. In the sixteenth century, the Portuguese were the only Europeans who traded regularly with the East Indies. Near that century's end, the Dutch began challenging their monopoly and within a few years drove them out of their main settlements in India. For most of the last century, those two nations divided most of the East India trade between them. Dutch trade grew even faster than Portuguese trade declined. The English and French conducted some Indian trade in the last century, but it has grown greatly in the present one. Swedish and Danish East India trade began in the present century. Even the Muscovites now trade regularly with China by caravans crossing Siberia and Tartary overland to Pekin. The East India trade of all these nations has grown almost continuously, apart from the French trade, which the last war nearly destroyed. Growing European demand for East India goods seems large enough to provide steadily more business for all of them. For example, Europeans used very little tea before the middle of the last century. Now the English East India company brings in more than a million and a half a year in tea for its countrymen, and that is still not enough. Much more is continually smuggled in from Dutch ports, from Gottenburgh in Sweden, and also from the French coast while the French East India company prospered. Consumption of Chinese porcelain, Moluccan spices, Bengal piece goods, and countless other products has grown at nearly the same rate. In fact, all the European ships working in the East India trade at any one time in the last century perhaps had little more combined tonnage than the English East India company alone had before its recent reduction in shipping.

But when Europeans first began trading with the East Indies, precious metals had a much higher value there, especially in China and Indostan, than in Europe. They still do. Rice-growing countries usually produce two crops a year, and sometimes three. Each crop is larger than an ordinary corn crop, so a given area can provide far more food than the same area in a corn-growing country. Such countries consequently have much larger populations. Their rich people also have much more surplus food than they can eat and can therefore buy much more of other people's labor. According to every account, a grandee in China or Indostan has a larger and more impressive household staff than Europe's richest subjects. The rich can also offer more of their surplus food for rare things that nature provides only in small amounts, including precious metals and gems, which wealthy people compete to acquire. Even if mines supplying India were as rich as those supplying Europe, these rare goods would naturally buy more food in India. But the mines supplying India's precious metals seem much less rich, while those supplying its gems seem much richer, than Europe's suppliers. So precious metals would naturally buy somewhat more gems and much more food in India than in Europe. Diamonds, the greatest luxury of all, would cost somewhat less money in India, and food, the most essential necessity, would cost much less. Yet as noted earlier, workers in China and Indostan, India's two great markets, receive less food and other necessities as their real wages than workers in most of Europe. Their wages buy less food. Since food also costs much less money in India than in Europe, labor's money price is lower for two reasons: workers buy less food, and that food is cheaper. In countries with equal manufacturing skill and industry, the money price of most manufactured goods will be proportional to the money price of labor. China and Indostan seem somewhat less advanced than Europe in manufacturing skill and industry, but not much less. Thus most manufactured goods naturally cost much less money in those great empires than anywhere in Europe. In most of Europe, overland transport also greatly increases both the real and money prices of manufactured goods. Bringing materials to a workshop, and then bringing finished products to market, takes more labor and therefore costs more money. China and Indostan have extensive and varied inland waterways that save most of this labor and cost. That makes both the real and money prices of most manufactured goods even lower. For all these reasons, shipping precious metals from Europe to India has always been, and remains, extremely profitable. Hardly any other good fetches a better price there, or buys more labor and goods in India relative to the labor and goods it costs in Europe. Shipping silver there is more profitable than shipping gold. In China and most other Indian markets, the ratio of pure silver to pure gold is only ten to one, or at most twelve to one. In Europe it is fourteen or fifteen to one. In China and most other Indian markets, ten, or at most twelve ounces of silver buy an ounce of gold; in Europe it takes fourteen to fifteen ounces. Silver has therefore generally been among the most valuable cargo on most European ships bound for India. It is the most valuable cargo on the Acapulco ships bound for Manilla. Thus silver from the new continent seems to be one of the principal goods enabling trade between the two far ends of the old continent. It helps connect those distant regions to one another.

To supply such a widespread market, the annual output of silver mines must do more than provide the continual growth in coins and plate needed in all prosperous countries. It must also replace silver that is continually lost or used up wherever the metal is used.

Coins wear down, and plate wears down and loses metal in cleaning. This ongoing loss of precious metals is noticeable and, because they are so widely used, requires a very large annual supply on its own. Particular manufacturing processes also consume these metals. This consumption may not be greater overall than gradual wear, but it is much more noticeable because it happens faster. In Birmingham's factories alone, the gold and silver used each year in gilding and plating, and thus made unable ever to reappear as those metals, is said to be worth more than fifty thousand pounds sterling. This gives us some idea of the annual consumption worldwide in similar manufacturing, as well as in lace, embroidery, gold and silver fabrics, the gilding of books and furniture, etc. Considerable amounts must also be lost each year while the metals are transported by sea and land. In most Asian states, people also commonly hide treasure underground. When the person who hid it dies without telling anyone where it is, still more of the metal must be lost.

The best accounts put the gold and silver imported annually through Cadiz and Lisbon at about six millions sterling a-year. That includes both registered imports and estimated smuggled imports.

According to Mr Meggens [Postscript to the Universal Merchant p. 15 and 16. This postscript was not printed till 1756, three years after the publication of the book, which has never had a second edition. The postscript is, therefore, to be found in few copies; it corrects several errors in the book.], average annual imports of precious metals into Spain over six years, from 1748 to 1753, both inclusive, and into Portugal over seven years, from 1747 to 1753, both inclusive, were 1,101,107 pounds weight of silver and 49,940 pounds weight of gold. At sixty two shillings per pound troy, the silver was worth £ 3,413,431:10s. sterling. At forty-four guineas and a half per pound troy, the gold was worth £ 2,333,446:14s. sterling. Together they were worth £ 5,746,878:4s. sterling. He assures us that his figures for registered imports are exact. He specifies the places the metals came from and how much of each metal each place supplied according to the registers. He also estimates the quantities of each metal smuggled in. As an experienced and sensible merchant, his opinion carries considerable weight.

According to the eloquent and sometimes well-informed author of the Philosophical and Political History of the Establishment of the Europeans in the two Indies, Spain's registered gold and silver imports averaged 13,984,185 ⅗ piastres of ten reals annually over eleven years, from 1754 to 1764, both inclusive. Allowing for smuggling, he estimates total annual imports at seventeen millions of piastres. At 4s. 6d. a piastre, that equals £ 3,825,000 sterling. He too gives the places the metals came from and the registered amount of each metal supplied by each place. He also says we could estimate annual gold imports from the Brazils into Lisbon from the tax paid to the king of Portugal, apparently one-fifth of the standard metal. On that basis the imports would be worth eighteen millions of cruzadoes, or forty-five millions of French livres, equal to about twenty millions sterling. But to account for smuggling, he says we can safely add an eighth to that sum, or £ 250,000 sterling, bringing the total to £ 2,250,000 sterling. On this account, annual precious-metal imports into Spain and Portugal together come to about £ 6,075,000 sterling.

I have been told that several other reliable, though unpublished, accounts agree that these annual imports average about six millions sterling, sometimes a little more and sometimes a little less.

The gold and silver imported annually into Cadiz and Lisbon do not, of course, make up the entire annual output of America's mines. Some goes each year to Manilla on the Acapulco ships; some goes into illegal trade between Spanish colonies and colonies belonging to other European nations; and some doubtless stays in America. Nor are America's mines the world's only gold and silver mines. But they are by far its most productive. Everyone agrees that the output of all other known mines is insignificant by comparison, and that by far the greatest part of America's output is imported into Cadiz and Lisbon each year. Yet Birmingham's consumption alone, at fifty thousand pounds a-year, equals one hundred-and-twentieth of annual imports of six millions a-year. Annual gold and silver consumption in all countries where these metals are used may therefore nearly equal total annual output. What is left over may only just meet growing demand in prosperous countries. It may even fall short enough to raise the metals' price somewhat in the European market.

The amounts of brass and iron brought from mines to market each year are vastly greater than the amounts of gold and silver. Yet we do not assume these common metals will grow more abundant than demand requires, or keep getting cheaper. Why assume that of precious metals? Though the common metals are harder, they undergo much harder use. They are also worth less, so people take less care to preserve them. But precious metals do not last forever either. They too can be lost, wasted, and used up in many ways.

All metal prices can change slowly and gradually, but they change less from year to year than the prices of almost any other raw product of the land. Precious-metal prices are even less likely to change suddenly than common-metal prices. Metals' durability is the reason their prices are unusually steady. All or nearly all the corn brought to market last year will be consumed long before this year ends. But some iron mined two or three hundred years ago may still be in use, and perhaps some gold mined two or three thousand years ago is too. The amount of corn available to feed the world in any year will closely reflect that year's harvest. In contrast, the amounts of iron in use in two different years will differ very little because of any chance difference in iron-mine output between those years. The amounts of gold in circulation will differ even less because of any such difference in gold-mine output. So although the output of most metal mines may vary even more from year to year than that of most cornfields, those variations do not affect metal prices in the way harvest changes affect corn prices.

Changes in the Ratio between the Values of Gold and Silver.