In the first book of The Wealth of Nations, Adam Smith discusses the Variations in the Proportion between the respective Values of Gold and Silver. Throughout history, these two metals have been regarded as mints of significant value. Before mines were found in America, the difference in value between silver and gold was usually seen as proportionate, where one ounce of fine gold was considered equivalent to anywhere from ten to twelve ounces of fine silver. More recently, the values have changed as much as one ounce of fine gold to be equal to as much as fourteen or fifteen ounces of fine silver. Over the years, it is said that both silver and gold have dropped in value, but the drop of silver has come more rapidly, therefore leading to the reason why gold has become proportionately even more valuable than in the past.
Smith does claim, however, that both the gold and silver mines of America exceeded in fertility all those which had ever been known before, the fertility of the silver mines had, it seems, been proportionally still greater than that of the gold ones. As a result of silver being more plentiful in comparison to gold, though it is considered less valuable it is certainly more important in many cases.Adam Smith says that it would be absurd to infer that because an ounce of gold will commonly purchase from fourteen to fifteen ounces silver, that there are commonly in the market only fourteen or fifteen ounces of silver for one ounce of gold. The amount of silver that can be found in the market is in all probability worth more in proportion to gold. Adam Smith feels that the cheaper of the two metals is f both more value and greatness due to the quantity that is accessible. He explains, There are so many more purchasers for the cheap than for the dear commodity that not only a greater quantity of it, but a greater value, can commonly be disposed of. The whole quantity, therefore, of the cheap commodity must commonly be greater in proportion to the whole quantity of the dear one than the value of a certain quantity of the dear one is to the value of an equal quantity of the cheap one.
Silver can be seen as more valuable in the sense that it is used more often and more common. Silver even outclasses gold in certain cases, for example in the French coin where silver preponderates. In another instance, it is said that silver plate is more of more worth than gold plates.
Another way in which Adam Smith shows the greater importance of silver is through the Spanish Market. Though he does admit that gold will always be more expensive, he feels that it is also cheaper in certain senses. He states that product is claimed cheap or expensive, not only according to the absolute greatness or smallness of its usual price, but according to the absolute greatness or smallness of its usual price, but according as that price is more or less above the lowest for which it is possible to bring it to market for any considerable time together. In Spain during this time, gold is closer to its lowest price than silver is because the tax put upon gold is five percent, whereas the tax put on silver is ten percent. Thus, miners for silver in this country are much more successful.
Silver understandably then still takes a big part in monetary system during this time and is more important than gold in many instances. Though the value may differ in favor of gold, other factors come into play which raise the importance of silver.In the European market silver has raised in value a bit because decline in the amount found. With silver becoming scarcer, it adds to the importance of the metal since it is not as available. Smith explains that as mass increases the value of gold and silver diminishes.
Smith says that anytime a metal is more used it is less cared for. Silver is a very important part of European monetary system during these times. The outright overall value can sometimes be very deceiving in comparing two precious metals. A rare gem is evidently going to be worth a lot, but silver would be much more handy in comparison. Silver during these times experienced some difficulties as far as price diminishment of a few occasions during the time of Adam Smith. He explains this by saying:The increase of expense must either, first, be compensated altogether by a proportionable increase in the price of the metal; or, secondly, it must be compensated altogether by a proportionable diminution of the tax upon silver; or, thirdly, it must be compensated partly by the one, and partly by the other of those two expedients.
This third event is very possible. As gold rose in its price in proportion to silver, notwithstanding a great diminution of the tax upon gold, so silver might rise in its price in proportion to labour and commodities, notwithstanding an equal diminution of the tax upon silver. Thus, a momentary drop in silvers value is not to define the eternal value of the metal by any means, and in fact, a raise in value is probable.Though gold is more expensive than silver, in many senses, silver carries more importance. It is said that, The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys.
The value of silver is elevated thanks to the big role it plays in many cases. Adam Smith explains, Though such commodities, therefore, come to exchange for a greater quantity of silver than before, it will not from thence follow that silver has become really cheaper, or will purchase less labour than before, but that such commodities have become really dearer, or will purchase more labour than before. He continues by clarifying, It is not their nominal price only, but their real price which rises in the progress of improvement.
The rise of their nominal price is the effect, not of any degradation of the value of silver, but of the rise in their real price. Silver has then equaled the worth of gold in many ways, and had become a fierce competitor of the other precious metal during this time. Thanks to these other factors that played a part in the increase in value of silver, silver has become closer is not equal to the price of gold.
Though the difference in literal price has not changed, the use and surplus of silver has made it more important, therefore more useful than gold. Adam Smith felt that silver was a very useful precious metal indeed.Smith, Adam. The Wealth of Nations. London; Penguin BooksBibliography: