Adam Smith's Simplified Wealth of Nations, Book 1, Chapter 11l: Rent, Digression -- Effect of demand on changes in silver prices
Chapter 11l, Digression: Rent - Effect of demand on changes in silver prices
163 Since the discovery of America, the market for its silver mines has been growing more extensive.
164 The European market has become more extensive.
Most of Europe has improved since the discovery of America.
England, Holland, France, Germany, Sweden, Denmark, and Russia, have all advanced in agriculture and manufactures.
Italy did not go backwards.
The fall of Italy preceded the conquest of Peru and has recovered a little since.
Spain and Portugal have gone backwards.
Portugal is a very small part of Europe.
Spain's decline is not as great as imagined.
In the start of the 16th century, Spain was a very poor country, even compared to France.
France has improved so much since then.
Emperor Charles V travelled frequently to Spain and France.
He said that everything abounded in France but everything was wanting in Spain.
The increasing produce of European agriculture and manufactures must have required a gradual increase in the amount of silver coin to circulate it.
The increasing number of wealthy people required the like increase in the amount of their plate and silver ornaments.
165 America itself is a new market for its own silver.
The advances of its agriculture, industry, and population are much more rapid than those of the most thriving European countries.
Its demand must increase much more rapidly.
The English colonies are a new market which requires a continual increase in silver supply for plate and coin, which it never needed before.
Most of the Spanish and Portuguese colonies are new markets.
Before their discovery, New Granada, the Yucatan, Paraguay, and Brazil were savage nations who had no arts or agriculture.
Arts and agriculture has now been introduced into all of them.
Even Mexico and Peru are markets which are much more extensive than before.
Their people were much more ignorant in arts, agriculture, and commerce than the present Tartars of Ukraine.
The Peruvians were more civilized than the Mexicans.
They had no coined money even though they had gold and silver ornaments.
Their commerce was done by barter.
There was scarce any division of labour among them.
Those who cultivated the ground built their own houses, made their own furniture, clothes, shoes, and instruments of agriculture.
The few artificers among them were all maintained by the sovereign, nobles, and priests, and were probably their slaves.
All the ancient arts of Mexico and Peru have never furnished a single manufacture to Europe.
The Spanish armies of 250-500 men found great difficulty in getting subsistence.
They caused famines almost wherever they went.
The populousness and cultivation of Mexico and Peru were exaggerated.
The government of the Spanish colonies are less favourable to agriculture, improvement, and population, than the government of the English colonies.
The Spanish colonies, however, are advancing in agriculture and improvement more rapidly than any European country.
The many defects of civil government of all new colonies were compensated by their fertile, cheap, abundant land, and happy climate.
Frezier visited Peru in 1713.
He said that Lima had between 25-28,000 people.
Ulloa lived in Peru between 1740 and 1746.
He said that Lima had more than 50,000.
The difference in their accounts of the populousness of other towns in Chile and Peru is the same.
Their information is credible.
The increase in population there is similar to the increase in the English colonies.
America is a new market for its own silver.
Silver demand in America must increase more rapidly than the demand of the most thriving European country.
166 The East Indies is another market for American silver.
Since the discovery of the American mines, the East Indies has continually been taking more silver.
Since that time, the direct trade between America and the East Indies via Acapulco ships has been continually increasing.
The indirect trade via Europe increased in a still greater proportion.
During the 16th century, the Portuguese were the only Europeans to regularly trade to the East Indies.
In the last years of the 16th century, the Dutch began to encroach on this monopoly.
In a few years, the Dutch expelled the Portuguese from their main settlements in India.
During the 17th century, those two nations divided the East India trade between them.
The Dutch trade continually increased while the Portuguese trade decreased.
The English and French traded with India in the 17th century.
It has greatly increased in this century.
The Swedes and the Danes traded with east India in the 18th century.
Even the Russians now trade regularly with China by caravans going through Siberia and Mongolia to Beijing.
The east India trade of these nations has been continually increasing, except the French trade which was destroyed by the last war.
The increasing consumption of east India goods in Europe is so great.
It affords a gradual increase of employment to them all.
Tea was a drug very little used in Europe before 1650.
Presently, the value of the tea annually imported by the English East India Company for local consumption is more than a £1.5 million.
Much more is being constantly smuggled from Holland, Gottenburg in Sweden, and from the French coast while the French East India Company was in prosperity.
The consumption of Chinese porcelain, Moluccas spices, Bengal piece goods, etc. has increased in a like proportion.
The tonnage of all the Europe-East India shipping during the last century, was not much greater than that of the English East India Company before the recent reduction of their shipping.
167 When Europeans first began to trade to China and India until today, the value of the precious metals in those countries was much higher than in Europe.
Rice countries grow more food than corn countries because rice yields two or three crops in the year with each crop being more plentiful than corn.
Rice countries are much more populous.
Their rich have a super-abundance of food and can command much more labour.
The retinue of a grandee in China or India is much more numerous and splendid than those of Europe.
Their super-abundance of food enables them to give more food for all those precious metals and stones, which are the great objects of the competition of the rich.
168 If the mines which supplied India was as abundant as the mines which supplied Europe, precious metals and stones would naturally exchange for more food in India than in Europe.
But the gold and silver mines which supplied India were less abundant and the precious stone mines which supplied India were much more abundant than those which supplied Europe.
Precious metals in India, therefore, would naturally exchange for more precious stones and food than in Europe.
The metal-money price of diamonds would be lower in India.
The metal-money price of food, the first of all necessaries, would also be much lower.
Chinese and Indian manufactures are not much inferior to European manufactures.
But in countries of equal art and industry, the money price of most manufactures will be proportional to the money price of labour.
The money price of labour is lower in China and India on a double account:
On account of the few food it will purchase
On account of the low price of that food
The money price of food is much lower in India than in Europe.
Labourer's wages in India will buy less food.
But the real price of labour is lower in the great Chinese and Indian markets than most of Europe.
The money price of most manufactures, will naturally be much lower in China and India than in Europe.
Through most of Europe, land transportation costs very much increase the real and nominal price of manufactures.
It costs more labour, and therefore more money, to bring raw materials than finished products to market.
In China and India, the extent and variety of inland navigations reduce the transportation costs.
It further reduces the real and nominal price of their manufactures.
On all these accounts, the precious metals are extremely advantageous to carry from Europe to India.
Only silver brings a better price in India or China.
It will command more labour and commodities in India than in Europe.
It is more advantageous to carry silver to China and India than gold.
Because in China and most of India, 10-12 fine silver is worth one fine gold.
But in Europe, it is 14-15 silver to one gold.
In China and most of India, 10-12 ounces of silver will purchase an ounce of gold.
In Europe, it requires 14-15 ounces.
Silver is one of the most valuable cargoes in European ships sailing to India.
It is the most valuable article in the Acapulco ships which sail to Manila.
The silver of America is one of the main commodities that connects the world through commerce.
168 To supply a very big global market, the amount of silver from the mines must be sufficient to:
support the continual increase of coin and plate needed in all thriving countries
repair that continual waste and consumption of silver in all countries where silver is used
169 The continual consumption of the precious metals is very sensible:
in coin by wearing
in plate both by wearing and cleaning
Such metals require a very great annual supply.
The consumption of those metals in manufactures is much more rapid and sensible though it may be less than this gradual consumption in coin and plate.
In Birmingham manufactures alone, the gold and silver annually employed in gilding and plating is more than £50,000 sterling.
We may from thence form a notion how great the annual global consumption must be:
in manufactures of the same kind as Birmingham or
in laces, embroideries, gold and silver stuffs, the gilding of books, furniture, etc.
A big amount too must be annually lost in transporting those metals by sea and land.
In most Asian governments, an added loss of precious metals is caused by the custom of concealing treasures underground.
It is then lost after the concealer dies.
170 The quantity of gold and silver imported and smuggled at Cadiz and Lisbon is £6 million sterling a year.
171 According to Nicolas Magens, the annual importation of the precious metals into Spain from 1748 to 1753 and into Portugal from 1747 to 1753 was:
1,101,107 pounds weight in silver and
It amounts to £3,413,431l. 10s., at 62 shillings the pound Troy.
49,940 pounds weight in gold
It amounts to £2,333,446l. 14s., at 44 guineas and a half the pound Troy.
Both together amount to £5,746,878l. 4s.
He assures us that the account is exact.
He gives us the detail of the places where the gold and silver were brought how much was transported from each place.
He also makes an allowance for the metals which may have been smuggled.
The great experience of this judicious merchant gives weight to his opinion.
172 Guillaume Thomas Raynal was the eloquent author of the Philosophical and Political History of the Commerce and Settlements of the Europeans in the two Indies.
Guillaume Thomas Raynal
According to him:
The annual importation of registered gold and silver into Spain from 1754 to 1764 was 13,984,185¾ piastres of 10 reals
The smuggled ones may have been 17 million piastres, at 4s. 6d. the piastre, is £3,825,000
He also wrote of the places where the gold and silver were brought and the quantities of each metal which each place afforded.
The tax of the king of Portugal on gold imports was 20%.
The quantity of gold annually imported from Brazil into Lisbon measured from this tax might be valued at 18 million cruzadoes or 45 million French livres, equal to £2 million.
The amount of smuggled metals is 1/8 more, or £250,000.
The whole amount is £2,250,000.
The whole annual importation of the precious metals into both Spain and Portugal is about £6,075,000.
173 Several other credible accounts agree with this amount.
174 The annual importation of the precious metals into Cadiz and Lisbon, is not equal to the total annual produce of the American mines.
Some is sent annually by the Acapulco ships to Manila.
Some is employed in the contraband trade of the Spanish colonies with other European nations.
Some remain in the country.
The American mines are not the only mines in the world.
The produce of all the other known mines is insignificant compared to them.
Most of their produce is annually imported into Cadiz and Lisbon.
But the consumption of Birmingham alone, at £50,000 a year, is equal to the 1/120 of this £6 million annual importation.
The global annual consumption of gold and silver may perhaps be nearly equal to the total annual produce.
The remainder may have fallen short due to the increasing demand of thriving countries, raising the price of those metals in Europe.
175 There is much more brass and iron annually brought from the mine than gold and silver.
Those coarse metals, however, will not likely multiply beyond the demand nor become gradually cheaper.
Why should we imagine that the precious metals are likely to do so?
The coarse metals are put to much harder uses.
They are less cared for as they have less value.
The precious metals are not as immortal.
They are also liable to be lost, wasted, and consumed in many ways.
176 The price of all metals varies less from year to year than almost any rude produce of land.
The price of the precious metals is less liable to sudden variations than the coarse ones.
The durability of metals is the foundation of this extraordinary steadiness of price.
All the corn brought to market last year will be consumed long before the end of this year.
But some of the iron brought from the mine 200-300 years ago, may be still used.
Gold from 2,000-3,000 years ago could also still be in use.
The global supply of corn will always be nearly in proportion to the produce of those different years.
But the proportion between the amount of iron used in two different years will be very little affected by any accidental difference in the produce of iron mines of those two years.
The proportion between the amount of gold will be still less affected by any difference in the produce of gold mines.
Even though the produce of most metallic mines, varies from year to year more than the produce of corn fields.
Those variations in supply do not affect the price of commodities as corn does.