Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 11m: Rent, Digression -- Gold vs Silver prices

Chapter 11l, Digression: Rent - Gold vs Silver prices

177 Before the discovery of the American mines, the ratio of the value of fine gold to fine silver was regulated by the European mints to 1:10 to 1:12. 178 In some English settlements, the great amounts of silver carried annually from Europe to India gradually reduced silver value relative to gold . 179 According to Nicolas Magens, the ratio of annual gold to silver imports into Europe is nearly 1:22.

180 But the ordinary proportion between the values of two commodities is not necessarily the same as the proportion between their quantities commonly in the market.

181 There is a bigger difference between the amounts of silver and gold in the market than the value of silver against gold. 182 Silver has always been and probably will always be much cheaper than gold. 183 The price of precious stones may be nearer to their lowest price than the price of gold. 184 A tax on luxury which creates a very important revenue, such as the tax on silver, will probably never be given up as long as it is possible to pay it. 185 These causes are equivalent to a growing scarcity of silver. 186 Such successive tax reductions must retard the rise of the value of silver in Europe. 187 Despite this reduction, I believe the value of silver began to rise in Europe during the 18th century.

188Whatever is the annual importation of gold and silver, there must be a certain period when their annual consumption will be equal that annual importation.

189 The consumption may exceed the importation for some time if the importation gradually diminishes after it becomes equal to the consumption.

Why people believe silver prices continues to decrease

190 People believe that the value of silver still continues to fall in Europe because of:

The increasing price of most rude produce may confirm them this opinion further.

191 I have shown that the increase in the amount of gold and silver from the increase of wealth does not reduce their value.

192 I have shown that all non-plant rude produce: cattle, poultry, game, fossil fuels, minerals, etc. naturally grow dearer as the society advances in wealth and improvement.

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