ON THE COMPARATIVE VALUE OF GOLD, CORN, AND LABOUR, IN RICH AND IN POOR
COUNTRIES.
"Gold and silver, like all other commodities," says Adam Smith,
"naturally seek the market where the best price is given for them; and
the best price is commonly given for every thing in the country which
can best afford it. Labour, it must be remembered, is the ultimate price
which is paid for every thing; and in countries where labour is equally
well rewarded, the money price of labour will be in proportion to that
of the subsistence of the labourer. But gold and silver will naturally
exchange for a greater quantity of subsistence in a rich than in a poor
country; in a country which abounds with subsistence, than in one which
is but indifferently supplied with it."
But corn is a commodity, as well as gold, silver, and other things; if
all commodities, therefore, have a high exchangeable value in a rich
country, corn must not be excepted; and hence we might correctly say,
that corn exchanged for a great deal of money, because it was dear, and
that money too exchanged for a great deal of corn, because that also was
dear; which is to assert that corn is dear and cheap at the same time.
No point in political economy can be better established, than that a
rich country is prevented from increasing in population, in the same
ratio as a poor country, by the progressive difficulty of providing
food. That difficulty must necessarily raise the relative price of food,
and give encouragement to its importation. How then can money, or gold
and silver, exchange for more corn in rich, than in poor countries? It
is only in rich countries, where corn is dear, that landholders induce
the legislature to prohibit the importation of corn. Who ever heard of a
law to prevent the importation of raw produce in America or
Poland?--Nature has effectually precluded its importation by the
comparative facility of its production in those countries.
How then can it be true, that "if you except corn, and such other
vegetables, as are raised altogether by human industry, all other sorts
of rude produce--cattle, poultry, game of all kinds, the useful fossils
and minerals of the earth, &c., naturally grow dearer as the society
advances." Why should corn and vegetables alone be excepted? Dr. Smith's
error throughout his whole work, lies in supposing that the value of
corn is constant; that though the value of all other things may, the
value of corn never can be raised. Corn, according to him, is always of
the same value, because it will always feed the same number of people.
In the same manner it might be said, that cloth is always of the same
value, because it will always make the same number of coats. What can
value have to do with the power of feeding and clothing?
Corn, like every other commodity, has in every country its natural
price, viz. that price which is necessary to its production, and without
which it could not be cultivated: it is this price which governs its
market price, and which determines the expediency of exporting it to
foreign countries. If the importation of corn were prohibited in
England, its natural price might rise to 6_l._ per quarter in England,
whilst it was only at half that price in France. If at this time, the
prohibition of importation were removed, corn would fall in the English
market, not to a price between 6_l._ and 3_l._, but ultimately and
permanently to the natural price of France, the price at which it could
be furnished to the English market, and afford the usual and ordinary
profits of stock in France; and it would remain at this price, whether
England consumed a hundred thousand, or a million of quarters. If the
demand of England were for the latter quantity, it is probable that,
owing to the necessity under which France would be, of having recourse
to land of a worse quality, to furnish this large supply, the natural
price would rise in France; and this would of course affect also the
price of corn in England. All that I contend for is, that it is the
natural price of commodities in the exporting country, which ultimately
regulates the prices at which they shall be sold, if they are not the
objects of monopoly, in the importing country.
But Dr. Smith, who has so ably supported the doctrine of the natural
price of commodities ultimately regulating their market price, has
supposed a case in which he thinks that the market price would not be
regulated either by the natural price of the exporting or of the
importing country. "Diminish the real opulence either of Holland, or the
territory of Genoa," he says, "while the number of their inhabitants
remains the same; diminish their power of supplying themselves from
distant countries, and the price of corn, instead of sinking with that
diminution in the quantity of their silver which must necessarily
accompany this declension, either as its cause or as its effect, will
rise to the price of a famine."
To me it appears, that the very reverse would take place: the diminished
power of the Dutch or Genoese to purchase generally, might depress the
price of corn for a time below its natural price in the country from
which it was exported, as well as in the countries in which it was
imported, but it is quite impossible that it could ever raise it above
that price. It is only by increasing the opulence of the Dutch or
Genoese, that you could increase the demand, and raise the price of corn
above its former price; and that would take place only for a very
limited time, unless new difficulties should arise in obtaining the
supply.
Dr. Smith further observes on this subject: "When we are in want of
necessaries, we must part with all superfluities, of which the value, as
it rises in times of opulence and prosperity, so it sinks in times of
poverty and distress." This is undoubtedly true; but he continues, "it
is otherwise with necessaries. Their real price, the quantity of labour
which they can purchase or command, rises in times of poverty and
distress, and sinks in times of opulence and prosperity, which are
always times of great abundance, for they could not otherwise be times
of opulence and prosperity. Corn is a necessary, silver is only a
superfluity."
Two propositions are here advanced, which have no connexion with each
other; one, that under the circumstances supposed, corn would command
more labour, which is not disputed; the other, that corn would sell at
a higher money price, that it would exchange for more silver; this I
contend to be erroneous. It might be true, if corn were at the same time
scarce, if the usual supply had not been furnished. But in this case it
is abundant, it is not pretended that a less quantity than usual is
imported, or that more is required. To purchase corn, the Dutch or
Genoese want money, and to obtain this money, they are obliged to sell
their superfluities. It is the market value and price of these
superfluities which falls, and money appears to rise as compared with
them. But this will not tend to increase the demand for corn, nor to
lower the value of money, the only two causes which can raise the price
of corn. Money, from a want of credit, and from other causes, may be in
great demand, and consequently dear, comparatively with corn; but on no
just principle can it be maintained, that under such circumstances money
would be cheap, and therefore, that the price of corn would rise.
When we speak of the high or low value of gold, silver, or any other
commodity in different countries, we should always mention some medium
in which we are estimating them, or no idea can be attached to the
proposition. Thus, when gold is said to be dearer in England than in
Spain, if no commodity is mentioned, what notion does the assertion
convey? If corn, olives, oil, wine, and wool, be at a cheaper price in
Spain than in England; estimated in those commodities, gold is dearer in
Spain. If again, hardware, sugar, cloth, &c. be at a lower price in
England than in Spain, then, estimated in those commodities, gold is
dearer in England. Thus gold appears dearer or cheaper in Spain, as the
fancy of the observer may fix on the medium by which he estimates its
value. Adam Smith, having stamped corn and labour as an universal
measure of value, would naturally estimate the comparative value of gold
by the quantity of those two objects for which it would exchange: and,
accordingly, when he speaks of the comparative value of gold in two
countries, I understand him to mean its value estimated in corn and
labour.
But we have seen, that, estimated in corn, gold may be of very different
value in two countries. I have endeavoured to shew that it will be low
in rich countries, and high in poor countries; Adam Smith is of a
different opinion: he thinks that the value of gold estimated in corn is
highest in rich countries. But without further examining which of these
opinions is correct, either of them is sufficient to shew, that gold
will not necessarily be lower in those countries which are in possession
of the mines, though this is a proposition maintained by Adam Smith.
Suppose England to be possessed of the mines, and Adam Smith's opinion,
that gold is of the greatest value in rich countries, to be correct:
although gold would naturally flow from England to all other countries
in exchange for their _goods_, it would not follow that gold was
necessarily lower in England, as compared with corn and labour, than in
those countries. In another place, however, Adam Smith speaks of the
precious metals being necessarily lower in Spain and Portugal, than in
other parts of Europe, because those countries happen to be almost the
exclusive possessors of the mines which produce them. "Poland, where the
feudal system still continues to take place at this day as beggarly a
country as it was before the discovery of America. _The money price of
corn, however, has risen_; THE REAL VALUE OF THE PRECIOUS METALS HAS
FALLEN in Poland, in the same manner as in other parts of Europe. Their
quantity, therefore, must have increased there as in other places, _and
nearly in the same proportion to the annual produce of the land and
labour_. This increase of the quantity of those metals, however, has
not, it seems, increased that annual produce, has neither improved the
manufactures and agriculture of the country, nor mended the
circumstances of its inhabitants. Spain and Portugal, the countries
which possess the mines, are, after Poland, perhaps, the two most
beggarly countries in Europe. The value of the precious metals, however,
_must be lower in Spain and Portugal_ than in any other parts of Europe,
loaded, not only with a freight and insurance, but with the expense of
smuggling, their exportation being either prohibited, or subjected to a
duty. _In proportion to the annual produce of the land and labour,
therefore, their quantity must be greater in_ those countries than in
any other part of Europe: those countries, however, are poorer than the
greater part of Europe. Though the feudal system has been abolished in
Spain and Portugal, it has not been succeeded by a much better."
Dr. Smith's argument appears to me to be this:--Gold, when estimated in
corn, is cheaper in Spain than in other countries, and the proof of this
is, not that corn is given by other countries to Spain for gold, but
that cloth, sugar, hardware, are by those countries given in exchange
for that metal.