Book I, Chapter XI, 15

Although the success of any particular day’s fishing is highly uncertain, one might think that, given a country’s location, the general effectiveness of industry in bringing a certain quantity of fish to market over a year or several years is certain enough. No doubt it is. But because this effectiveness depends more on the country’s location than on its wealth and industry, it may be the same in different countries at very different stages of improvement and very different at the same stage. Its connection with improvement is therefore uncertain; that is the kind of uncertainty I mean here.

In increasing the quantity of minerals and metals extracted from the earth, especially the more precious ones, the effectiveness of human industry seems unlimited, but wholly uncertain.

The quantity of precious metals found in any country is not limited by any feature of its location, such as the fertility or barrenness of its own mines. These metals are often abundant in countries that have no mines. Their quantity in a particular country seems to depend on two distinct circumstances. First is its purchasing power: the state of its industry and the annual produce of its land and labor, which determine how much labor and subsistence it can afford to devote to obtaining such luxuries as gold and silver, whether from its own mines or by purchase from other countries’ mines. Second is the fertility or barrenness of whichever mines happen at that time to supply the commercial world with these metals. Because the metals are compact, valuable, and easily and cheaply transported, their quantity even in the countries farthest from the mines must be affected to some extent by the mines’ fertility or barrenness. The abundance of the American mines must have affected their quantity in China and Indostan.

Insofar as the quantity of these metals in a country depends on the first circumstance, its purchasing power, their real price, like that of all other luxuries and superfluities, is likely to rise with the country’s wealth and improvement and fall with its poverty and decline. Countries with much labor and subsistence to spare can afford to pay more of both for a given quantity of the metals than countries with less to spare.

Insofar as their quantity in a country depends on the second circumstance—the fertility or barrenness of the mines supplying the commercial world—their real price, the actual quantity of labor and subsistence they will buy or command in exchange, will surely fall as those mines become more fertile and rise as they become more barren.

Yet the fertility or barrenness of the mines that supply the commercial world at a given time may plainly have no connection whatever with the state of industry in any particular country. It does not even seem necessarily connected with the state of industry in the world at large. As arts and commerce gradually spread over more of the earth, a search for new mines over a wider area may stand a somewhat better chance of success than one confined to narrower bounds. But the discovery of new mines as old ones are gradually exhausted is profoundly uncertain, and no human skill or industry can guarantee it. All signs are admittedly doubtful: only discovering and successfully working a new mine can establish its actual value, or even that it exists. In this search there seem to be no certain limits either to the possible success of human industry or to its possible disappointment. Within a century or two, new mines might be discovered more fertile than any yet known. Equally, the most fertile mine then known might be more barren than any worked before the American mines were discovered. Which of these events occurs matters very little to the world’s real wealth and prosperity, or to the real value of the annual produce of humanity’s land and labor. Its nominal value, the amount of gold and silver in which that annual produce could be expressed, would certainly differ greatly; but its real value, the actual amount of labor it could buy or command, would remain exactly the same. In the first case a shilling might represent no more labor than a penny does now; in the second a penny might represent as much as a shilling now does. Yet someone with a shilling in his pocket in the first case would be no richer than someone with a penny today, while someone with a penny in the second would be just as rich as someone with a shilling today. Cheap and abundant gold and silver plate would be the world’s sole benefit from the first event; expensive and scarce trifles of that kind its only inconvenience from the second.

Conclusion of the Digression concerning the Variations in the Value of Silver.

Most writers who have collected the money prices of things in ancient times appear to have regarded low money prices for grain and other goods—or, in other words, the high value of gold and silver—as evidence not only that those metals were scarce, but that the country was poor and uncivilized at the time. This idea is bound up with the system of political economy that locates national wealth in an abundance of gold and silver and national poverty in their scarcity. I shall explain and examine that system at length in the fourth book of this Inquiry. For now I observe only that a high value for precious metals proves nothing about the poverty or lack of civilization of any particular country at that time. It proves only that the mines then supplying the commercial world were barren. A poor country can no more afford to pay a higher price for gold and silver than a rich country than it can afford to buy more of them. The value of these metals is therefore unlikely to be higher in the poor country. In China, a country much richer than any part of Europe, the precious metals are worth much more than anywhere in Europe. Europe’s wealth has indeed risen greatly since the discovery of the American mines, while the value of gold and silver has gradually fallen. But this decline in their value was caused not by the increase of Europe’s real wealth, the annual produce of its land and labor, but by the chance discovery of mines more abundant than any previously known. The growth in Europe’s supply of gold and silver and the growth of its manufacturing and agriculture occurred at nearly the same time, yet arose from very different causes and have scarcely any natural connection. The first was the result of pure accident, in which neither prudence nor policy had or could have had any part; the second followed the fall of the feudal system and the establishment of a government that gave industry the only encouragement it needs: reasonable security in enjoying the fruits of its own labor. Poland, where the feudal system persists, is as impoverished today as it was before the discovery of America. Yet the money price of grain has risen there and the real value of the precious metals has fallen, as elsewhere in Europe. Their quantity must therefore have increased in Poland too, in roughly the same proportion to the annual produce of its land and labor. But this increase has evidently not increased that annual produce, improved its manufactures or agriculture, or bettered the condition of its inhabitants. Spain and Portugal, which possess the mines, are perhaps the two poorest countries in Europe after Poland. Yet the precious metals must be worth less in Spain and Portugal than anywhere else in Europe, since they reach all other parts of Europe from those countries bearing not only freight and insurance charges but the expense of smuggling, export being banned or subject to a duty. Relative to the annual produce of their land and labor, therefore, their quantity must be greater there than anywhere else in Europe. Yet those countries are poorer than most of Europe. Although Spain and Portugal have abolished the feudal system, they have not replaced it with a much better one.

Just as a low value of gold and silver does not prove that a country is wealthy and flourishing, a high value—or a low money price for goods generally or grain in particular—does not prove that it is poor and uncivilized.

But although low money prices for goods generally or grain in particular do not prove an age poor or uncivilized, low money prices for particular goods, such as cattle, poultry, and game of all kinds, etc., relative to the price of grain, are decisive evidence. They show, first, that these goods were abundant relative to grain and that the land devoted to them was extensive relative to land devoted to grain. Second, they show that this land was of low value compared with grain land and therefore that by far the greater part of the country’s land was uncultivated and unimproved. They show plainly that the country’s stock and population were not proportionate to its territory as they commonly are in civilized countries, and that society there and then was still in its infancy. From a high or low money price for goods generally or grain in particular, we can infer only whether the mines then supplying the commercial world with gold and silver were fertile or barren, not whether the country was rich or poor. But from the high or low money prices of some goods relative to others, we can infer with near certainty whether it was rich or poor, whether most of its land was improved or unimproved, and whether it was more or less civilized.

If a rise in the money price of goods resulted entirely from a fall in the value of silver, it would affect every kind of good equally. Prices everywhere would rise by a third, a fourth, or a fifth, according as silver lost a third, a fourth, or a fifth of its former value. Yet the rise in food prices that has provoked so much argument and discussion does not affect all foods equally. Averaging over the present century, even those who explain the rise by silver’s declining value acknowledge that grain has risen much less in price than some other foods. The price rise of those other foods cannot therefore be entirely due to silver’s declining value. Other causes must be considered. The causes given above may well suffice, without invoking a supposed decline in the value of silver, to explain why the prices of these particular foods have risen relative to grain.

As for the price of grain itself, during the first sixty-four years of the present century, before the recent extraordinary run of poor seasons, it was somewhat lower than during the last sixty-four years of the preceding century. This is attested not only by the accounts from Windsor market, but also by the public fiars of every Scottish county and the accounts from several French markets gathered with great care and fidelity by Mr Messance and Mr Dupré de St Maur. The evidence is more complete than one could reasonably expect in a matter so difficult by nature to establish.

The high price of grain over the past ten or twelve years is sufficiently explained by poor seasons, without supposing that silver has lost value.

The belief that silver is continually falling in value therefore seems unsupported by sound observations of the prices either of grain or of other foods.

It may perhaps be said that, even on the account given here, the same amount of silver now buys far less of several kinds of food than it did during part of the last century. To determine whether this change arises from a rise in the value of those goods or a fall in the value of silver, one might say, is an idle and useless distinction, of no service to a person with only a fixed amount of silver to take to market or a fixed money income. I certainly do not claim that knowing the distinction will enable such a person to buy more cheaply. But that does not make it wholly useless.

It may serve the public by giving ready evidence of the country’s prosperity. If rising prices for some foods result entirely from falling silver values, they arise from a circumstance that tells us nothing beyond the fertility of the American mines. The country’s real wealth—the annual produce of its land and labor—might nonetheless be gradually declining, as in Portugal and Poland, or gradually growing, as in most other parts of Europe. But if those prices rise because the land producing such foods has grown more valuable in real terms—because it has grown more fertile or, through wider improvement and good cultivation, has become fit to grow grain—the cause is clear evidence that the country is prosperous and advancing. Land constitutes by far the largest, most important, and most enduring part of any extensive country’s wealth. Surely it may be useful, or at least satisfying to the public, to have such decisive evidence that by far the largest, most important, and most enduring part of its wealth is increasing in value.

The catch on any given fishing day is very uncertain. But given a country's location, one might think that people's ability to bring a certain amount of fish to market over a year or several years is predictable enough. And it is. Yet this ability depends more on location than on the country's wealth and industry. It can be the same in different countries at very different stages of development, or different when those countries are at the same stage. Its relationship to development is therefore uncertain. That is the kind of uncertainty I mean here.

People's ability to increase the amounts of minerals and metals taken from the earth, especially precious metals, does not seem limited, but is entirely uncertain.

The amount of precious metal in a country is not limited by local conditions such as whether its own mines are rich or poor. Countries without mines often have plenty of these metals. The amount in any particular country seems to depend on two things. First is its ability to buy them, which depends on the state of its industry and the annual product of its land and labor. That determines how much labor and food it can spare to obtain luxuries such as gold and silver, either from its own mines or by buying them from other countries. Second is how rich or poor the mines supplying the trading world happen to be at any given time. Even countries far from those mines are affected by their richness or poverty, since metals of great value and small bulk are cheap and easy to transport. The rich American mines must have affected the amounts in China and Indostan.

To the extent that a country's supply depends on the first factor, its buying power, the real price of precious metals is likely to rise as the country becomes richer and more developed and to fall as it becomes poorer and declines. That is true of other luxuries too. Countries with plenty of spare labor and food can afford to give up more of both to buy a given amount of metal than countries with less to spare.

To the extent that the supply depends on the second factor, the richness of the mines supplying the trading world, its real price—the actual amount of labor and food it can buy or be exchanged for—will fall as those mines become richer and rise as they become poorer.

But the richness of the mines supplying the trading world at any time plainly need not be related to the state of any particular country's industry. It does not even seem necessarily related to the state of industry worldwide. As crafts and trade spread across more of the earth, people search a wider area for mines and may be somewhat more likely to succeed. But finding new mines as old ones are gradually used up is highly uncertain. No amount of human skill or effort can guarantee it. Everyone recognizes that signs of a mine's presence are unreliable. Only finding and successfully working a new mine can establish whether it exists and whether it has real value. There seems to be no definite limit on either the possible success or the possible disappointment of this search. In a century or two, people may discover mines richer than any yet known. Equally, the richest mine known then may be poorer than any worked before the discovery of the American mines. Which of these things happens matters very little to the world's real wealth and prosperity, or to the real value of what humanity's land and labor produce each year. The nominal value of that product, measured in gold and silver, would certainly be very different. But its real value, measured by the labor it can buy, would be exactly the same. In the first case a shilling might represent no more labor than a penny does today; in the second, a penny might represent as much as a shilling does today. But a person carrying a shilling in the first case would be no richer than someone carrying a penny now. And a person carrying a penny in the second would be just as rich as someone carrying a shilling now. The world's only gain from the first case would be cheap and plentiful gold and silver plates and utensils. Its only loss from the second would be the high price and scarcity of these minor luxuries.

Conclusion of the Discussion of Changes in the Value of Silver.

Most writers who have collected historical money prices seem to treat low prices for grain and goods in general—in other words, a high value for gold and silver—as evidence not only that these metals were scarce, but also that the country was poor and little developed. This idea goes with the economic system that equates national wealth with plentiful gold and silver and national poverty with a shortage of them. I will explain and examine that system at length in the fourth book of this Inquiry. For now I will only note that a high value for precious metals does not prove that a country was poor or little developed. It proves only that the mines then supplying the trading world were poor. A poor country can buy less gold and silver than a rich country and can afford to pay no more for them. The metals are therefore no more likely to be worth more in the poor country than in the rich one. China is much richer than any part of Europe, yet precious metals are worth much more there than anywhere in Europe. Europe's wealth has increased greatly since the American mines were discovered, while the value of gold and silver has gradually fallen. But the fall was not caused by an increase in Europe's real wealth, the yearly product of its land and labor. It resulted from the chance discovery of mines richer than any previously known. The greater supply of gold and silver in Europe and the growth of its farming and manufacturing took place at nearly the same time. Yet they came from very different causes and have almost no natural connection. The first happened by chance; neither wise judgment nor policy had or could have had a role in it. The second resulted from the decline of the feudal system and the establishment of a government that gave industry the only encouragement it needs: reasonable assurance that people could enjoy what their own work produced. Poland still has the feudal system and is as poor today as it was before America was discovered. Yet its money price of grain has risen and the real value of precious metals has fallen, just as elsewhere in Europe. Poland's supply of those metals must therefore have grown as elsewhere, in nearly the same proportion to the yearly product of its land and labor. But more precious metal has apparently not raised that yearly product, improved its farming or manufacturing, or improved the lives of its people. Spain and Portugal own the mines but, after Poland, are perhaps Europe's two poorest countries. Precious metals must be worth less there than anywhere else in Europe. They leave those countries for the rest of Europe, carrying the costs of freight and insurance and also of smuggling, since exports are banned or taxed. Relative to what their land and labor produce each year, Spain and Portugal must therefore have more precious metals than any other European countries. Yet they are poorer than most of Europe. The feudal system has been abolished in Spain and Portugal, but what replaced it is not much better.

A low value for gold and silver, then, does not prove that a country is wealthy and thriving. Nor does a high value for them—or low money prices for goods generally or grain in particular—prove that a country is poor and little developed.

Low money prices for goods or grain in general do not show that an earlier period was poor or little developed. But when cattle, poultry, game of all kinds, etc. have low money prices compared with grain, that is strong evidence of it. First, it shows that these products were plentiful compared with grain, so far more land was devoted to producing them than to growing grain. Second, it shows that land was worth little compared with grain-growing land, and that most of the country's land was uncultivated and undeveloped. It shows that the country's stock and population were small relative to its area compared with those of developed countries. Society in that place and time was still in its early stages. General prices or grain prices alone tell us whether the mines then supplying the trading world with gold and silver were rich or poor, not whether a country was rich or poor. But the price of some goods compared with others tells us, with near certainty, whether the country was rich or poor, whether most of its land was developed, and how far its society had developed.

If goods rose in money price solely because silver lost value, every kind of good would be affected equally. Prices across the board would rise by a third, a fourth, or a fifth, according to whether silver had lost a third, a fourth, or a fifth of its former value. But the much-discussed rise in food prices has not affected all foods equally. Even those who blame silver's loss of value acknowledge that, on average over the present century, grain prices have risen much less than prices for some other foods. Those other price increases therefore cannot be due entirely to silver's falling value. Other causes must be considered. The causes given above may be enough to explain why these particular foods have become more expensive relative to grain, without assuming silver has lost value.

Indeed, during the first sixty-four years of the present century, before the recent exceptionally poor run of harvests, grain was somewhat cheaper than during the last sixty-four years of the previous century. The records of Windsor market confirm this. So do the official grain-price assessments in the counties of Scotland, and the records Mr Messance and Mr Dupré de St Maur diligently and faithfully collected from several French markets. The evidence is more complete than one could reasonably expect for something so difficult to establish.

The poor harvests alone sufficiently explain the high price of grain over the past ten or twelve years. There is no need to suppose silver lost value.

The claim that silver is continually losing value thus does not seem supported by sound observations of either grain prices or other food prices.

Someone might say that, even on the account I have given, the same amount of silver today buys much less of several foods than it did during part of the last century. Such a person might say that deciding whether those foods became more valuable or silver became less valuable is an empty distinction. It is no help to a person going to market with a fixed amount of silver or living on a fixed money income. I certainly do not claim that understanding the distinction lets that person buy food more cheaply. Yet that does not make the distinction entirely useless.

It can help the public by providing clear evidence that the country is prospering. If some foods have risen in price solely because silver has lost value, the only conclusion is that the American mines are rich. The country's real wealth—the yearly product of its land and labor—might still be declining, as in Portugal and Poland, or increasing, as in most other parts of Europe. But suppose these foods have risen in price because the land producing them has become more valuable. Its fertility may have improved, or wider development and better cultivation may have made it suitable for growing grain. In that case the rising prices clearly show that the country is growing more prosperous. Land makes up by far the largest, most important, and most lasting part of the wealth of any large country. Clear evidence that this part of its wealth is rising in value must be of some use to the public, or at least give it some satisfaction.