The Wealth of Nations · Chapter
Variations in the Proportion Between the Respective Values of Gold and Silver explained
This chapter examines the changing ratio between gold and silver values, particularly after the discovery of American mines.
What happens
This chapter examines the changing ratio between gold and silver values, particularly after the discovery of American mines. Smith discusses how taxes, mining costs, and trade with India affect the relative prices of these metals, and argues that the quantity of a cheap commodity in the market is typically greater in both amount and value than that of a dear one.
Themes in this chapter
Wealth and Money
Explores the relative values of gold and silver as measures of wealth and the factors influencing their market prices.
Free Trade and Market Competition
Discusses how taxes and trade flows (e.g., silver sent to India) affect the natural proportion of metal values.
Characters to notice
- Mr. Meggens
Cited for his account of the annual import ratio of gold to silver (1:22).
- Silver
Discussed as a cheap commodity relative to gold, with its value affected by taxes and mining costs.
Key passages
“The proportion between their values, he seems to think, must necessarily be the same as that between their quantities, and would therefore be as one to twenty-two, were it not for this greater exportation of silver.”
Mr. Meggens believes that the value ratio of gold to silver would match their quantity ratio (1:22) if not for the large export of silver to the East Indies.
Smith critiques the assumption that value ratio equals quantity ratio.
“The whole quantity of a cheap commodity brought to market, is commonly not only greater, but of greater value, than the whole quantity of a dear one.”
Cheap goods are sold in larger amounts and generate more total value than expensive ones.
Smith uses this principle to explain why silver's total market value exceeds gold's despite gold's higher per-unit price.