Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 11k: Rent, Digression -- 2nd period (1570-1640) & 3rd period (1650-1700)
Chapter 11k, Digression: Rent - 2nd period (1570-1640) & 3rd period (1650-1700)
Second Period (1570-1640)
135 The opinion on the progress of silver value from 1570-1640 is unanimous.
136 From 1570 to 1640, the proportion of silver and corn values were opposite.
Silver sunk in its real value.
Corn rose in its nominal price.
Instead of 2 ounces of silver the quarter or 120 pence today, it was sold for 6 and 8 ounces of silver or 360-480 pence today.
137 The discovery of the abundant American mines was the sole cause of the reduction of silver value relative to corn.
This fact was never disputed.
During this period, most of Europe was advancing in industry and improvement.
Consequently, the demand for silver had been increasing.
But the increase of the supply exceeded the demand that silver value sunk considerably.
The discovery of American mines did not have any sensible effect on the prices of things in England until after 1570, even though the Potosi mines were discovered more than 20 years before.
138 From 1595 to 1620, the average price of the quarter of nine bushels of the best wheat at Windsor market was 498 pence from the accounts of Eton College.
The quarter of eight bushels was 442 pence.
The price of the middle wheat was 392 pence or 6.33 ounces of silver.
139 From 1621 to 1636, the average price of the best wheat at the same market was 360 pence.
The average price of the quarter of eight bushels of middle wheat was 474 pence or 7.66 ounces of silver.
Third Period (1650-1700)
140 Between 1630 and 1640, the discovery of American mines reduced the value of silver.
The value of silver never sunk lower than corn at that time.
It probably began to rise before the end of the 17th century.
141 From 1637 to 1700, the average price of the quarter of nine bushels of the best wheat at Windsor market was 612.33 pence.
This is only 12.33 pence dearer than it had been during the 16 years before.
In those 64 years, two events caused an unnatural corn scarcity.
142 The civil war, which:
raised corn prices unnaturally
affected the entire kingdom, especially London which was supplied from far away.
In 1648, the price of the best wheat at Windsor market, was 1,020 pence.
In 1649, it was 960 pence the quarter of nine bushels.
600 pence is the average price from 1621-1636 or 16 years.
The price above 600 pence for those 16 years in total is 780 pence.
If divided among the 64 last years of the 17th century, it will account for that small price enhancement. [780/64 = 12.2 pence, close to 12.33]
However, these are not the only high prices caused by civil wars.
143 The bounty on corn exportation granted in 1688.
The bounty was thought to have created more abundance by:
encouraging tillage and
decreasing corn prices at home.
Between 1688 and 1700, it produced no such effect.
It only raised the price of corn at home by encouraging the exportation of the surplus.
It hindered the abundance of one year from compensating the scarcity of another.
The scarcity in England from 1693 to 1699 was caused by the badness of the seasons which extended through Europe.
The scarcity must have been enhanced by the bounty.
In 1699, corn exportation was banned for nine months.
144 The great debasement of the silver coin by clipping and wearing.
It did not cause any corn scarcity.
This evil began in the reign of Charles II and continually increased until 1695.
Mr. Lowndes writes that the current silver coin was near 25% below its standard value.
The nominal market price of every commodity is regulated by the amount of silver actually in the coin and not so much by its nominal value.
Therefore, this nominal sum is higher when the coin is much debased by clipping and wearing.
145 In the present century, the silver coin was at its lowest standard weight than at present.
Though very much defaced, its value has been kept up by the value of the gold coin for which it is exchanged.
Before the recent re-coinage, the gold coin was much defaced too.
But it was less defaced than the silver coin.
On the contrary in 1695, the value of the silver coin was not kept up by the gold coin.
A guinea then exchanged for 30 shillings [360 pence] of the worn and clipt silver.
Before the recent gold re-coinage, the price of silver bullion was seldom higher than 67 pence an ounce.
The mint price is 62 pence.
But in 1695, the common price of silver bullion was 77 pence an ounce.
This is 15-pence above the mint price.
Even before the recent gold re-coinage, the gold and silver coins was not supposed to be more than 8% below the standard value of silver bullion.
In 1695, it was supposed to be near 25% below that value.
But immediately after the great re-coinage in King William's time, most of the current silver coin was nearer to its standard weight than at present.
There was no great public calamity in the present century to discourage tillage or interrupt commerce.
The bounty always unnaturally raises corn prices.
But it may lower or raise its price based on the principles of a system which I will explain hereafter.
From 1700-1764, the average price of the quarter of nine bushels of the best wheat at Windsor market was 486 pence from the accounts of Eton College.
It is 126 pence or more than 25% cheaper than from 1636 to 1700.
It was 114 pence cheaper than from 1619 to 1635 when the discovery of the American mines produced its full effect.
It was 12 pence cheaper than from 1594-1619, before that discovery produced its full effect.
The average price of middle wheat from 1700-1764 was 384 pence the quarter of eight bushels.
146 The value of silver rose in proportion to the value of corn during the present century.
It probably began to rise before the end of the last century.
147 In 1687, the price of the quarter of nine bushels of the best wheat at Windsor market was 302 pence
This price was its lowest price since 1595.
148 Mr. Gregory King was an expert on wheat prices.
In 1688, he estimated the average grower's price of wheat in years of moderate plenty to be 42 pence the bushel or 336 pence the quarter. [42 pence * 8]
The grower's price was called the contract price.
It was the price at which a farmer contracts for a certain number of years to deliver a certain quantity of corn to a dealer.
This saved the farmer the expense and trouble of marketing.
The contract price is generally lower than the average market price.
Mr. King judged 336 pence the quarter to be the ordinary contract price in years of moderate plenty.
This was also the ordinary contract price in all common years.
149 In 1688, the parliamentary bounty on corn exportation was granted.
Back then, there were more country gentlemen in the legislature than now.
They felt that the money price of corn was falling.
The bounty raised it artificially to the high price as in the times of Charles I and II or 576 pence the quarter.
This is 240 pence or 71.43% dearer than the contract price in times of moderate plenty [336 pence].
The price of 567 pence the quarter could only be expected in years of extraordinary scarcity.
But King William's government was not fully settled then.
It could not refuse the country gentlemen because King William was then soliciting the first establishment of the annual land-tax.
150 The value of silver probably rose before the end of the 17th century and continued to increase for most of the present 18th century.
The bounty must have hindered that rise from being sensible.
151 In plentiful years, the bounty:
creates extraordinary corn exportation and
raises corn prices.
The bounty's purpose was to encourage tillage by keeping up the price of corn even in the most plentiful years.
152 In years of great scarcity, the bounty was suspended.
It must have affected prices of many of those years.
The extraordinary exportation which it creates in years of plenty must hinder the plenty of one year from compensating the scarcity of another.
153 In years of plenty and scarcity, the bounty unnaturally raises corn prices.
If during the first 64 years of the 18th century, the average price was lower than the last 64 years of the 17th century, it must have been much more lower if there were no bounty.
154 But without the bounty, the state of tillage would not have been the same.
The effects of the bounty on agriculture will be explained later.
For now, I will explain that this rise in silver value, in proportion to corn value, was not peculiar to England.
It happened in France during the same period and nearly in the same proportion.
It was recorded by three very faithful, diligent, and laborious corn-price collectors:
Mr. Duprè de St. Maur
The author of the Essay on the police of grain
But in France until 1764, the exportation of grain was prohibited.
It is difficult to suppose that the reduction of price in one country was caused by the prohibition of exportation, while the reduction of price in another country was caused by the encouragement of exportation.
155 Instead, this variation in the average money price of corn is the effect of the gradual rise in the real value of silver in Europe, than of any fall in the real average value of corn.
At distant periods of time, corn is a more accurate measure of value than silver or any other commodity.
After the discovery of the abundant American mines, corn rose to 3-4 times its former money price,
This change was universally ascribed to a fall in the real value of silver.
If during the first 64 years of the 18th century, the average money price of corn fell below what it was during most of the 17th century, we should in the same way impute this change, not to any fall in the real value of corn, but to some rise in the real value of silver in Europe.
156 People suspected that the real value of silver still continues to fall in Europe because of the high price of corn during the past 10-12 years.
This high price of corn is the effect of the extraordinary unfavourableness of the seasons.
It is not permanent.
The seasons for the past 10-12 years was unfavourable through most of Europe.
The disorders in Poland increased the scarcity in all those countries it supplies.
Bad seasons are not a common nor a singular event.
Several examples of bad seasons can be inferred from the history corn prices.
10 years of extraordinary scarcity are not more wonderful than 10 years of extraordinary plenty.
Low corn prices from 1741 to 1750 may be set in opposition to its high price during these last 8-10 years.
From 1741 to 1750, the average price of the quarter of nine bushels of the best wheat at Windsor market was only 405 4/5 pence.
This is nearly 75 pence below the average price of the first 64 years of the 18th century.
During these 10 years, the average price of the quarter of eight bushels of middle wheat was only 320 pence.
157 Between 1741 and 1750, the bounty must have hindered the price of corn from naturally falling so low in the home market.
During these 10 years, the grain exported in the custom-house books was no less than 8,029,156 quarters one bushel.
The bounty paid was 1,514,962l. 17s. 4d.½.
In 1749, prime minister Mr. Pelham observed to the House of Commons that for the preceding three years, a very extraordinary sum was paid as bounty for corn exportation.
In that year, the bounty paid was no less than 324,176l. 10s. 6d.
It is unnecessary to observe how much this forced exportation must have raised the price of corn above natural in the home market.
158 An account of those 10 years is at the end of this chapter.
There is also an account of the preceding 10 years.
Its average was not so much below the general average of the first 64 years of the century.
The year 1740 was a year of extraordinary scarcity.
The years 1730-1749 were opposite those of 1750-1769.
1730-1749 were below the century's average, despite the dear years.
1751-1770 were above the century's average, despite the cheap ones (for example: 1759).
If 1730-1749 were not below the average, we should impute it to the bounty.
The change was too sudden to be ascribed to any change in the value of silver, which is always slow and gradual.
Only a sudden cause like the accidental variation of the seasons can produce a sudden effect.
159 The money price of labour in Great Britain rose during the 18th century.
It was caused by an increase in the demand for labour.
This demand was caused by the universal prosperity of Great Britain and not so much by any reduction in silver value in Europe.
France is less prosperous than Great Britain.
The money price of labour in France since the mid-17th century, sunk gradually with the average money price of corn.
In the 17th & 18th centuries, the day-wages of common labour in France were uniform at the 20th part of the average price of the septier of wheat.
It contains a little more than four Winchester bushels.
In Great Britain, the real recompence of labour increased considerably during the 18th century.
The rise in its money price was the effect of the rise in the real price of labour and not of any reduction of silver value.
160 After the first discovery of America, silver sold at its former price.
The profits of mining would for some time be very great, above their natural rate.
Those who imported silver into Europe found that it could not be disposed of at this high price.
Silver gradually exchanged for fewer goods.
Its price sank lower until it fell to its natural price.
In most of the silver mines of Peru, the tax of the king of Spain was 10% of the gross produce.
It ate up the whole rent of the land.
This tax was originally at 50%
Then it fell to 33%
Then to 20%
Finally, it fell to 10% as today.
In most of the silver mines of Peru, 10% was all that remained after paying the natural price.
The once-high profits are now at its lowest possible rate.
161 In 1504, the tax of the king of Spain was reduced to 20% of the silver registered.
This was 41 years before the discovery of the Potosi mines in 1545.
After 90 years or before 1636, these fertile mines produced their full effect.
They reduced the value of silver in the Europe as low as possible while paying this tax to the king of Spain.
90 years is sufficient time to reduce any non-monopolized commodity to its natural price.
Natural price is the lowest price a commodity can be sold for any considerable time.
162 The silver prices in Europe might have fallen still lower.
It might have become necessary to:
reduce its tax to 5% like the gold tax or
give up most of the American mines
This was probably prevented by:
the gradual increase in silver demand or
the gradual enlargement of the silver market
It kept up and even raised silver prices higher than its price in the middle of the last century.