The Digression on the Value of Silver in Chapter 11 of Book 1 is one of the longest and most difficult chapters in Adam Smith’s The Wealth of Nations. I started publishing the simplified version of The Wealth of Nations from Book 3 instead of Book 1 simply because I knew that simplifying the Digression in Book 1 would require a lot more time and effort.
The first step is to organize the Digression which starts at Paragraph 96 and ends at Paragraph 239. For reference, I used both the ‘capitalist’ econlib version and the ‘socialist’ marxist.org version
The first step is to organize the digression into topics as below:
Digression
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Periods
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First Period
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Second Period
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Third Period
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Growth of Silver Demand
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Market of Europe
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Market of America
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Market of Asia
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Variations In Values Of Gold And Silver
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Grounds Of The Suspicion That The Value Of Silver Still Continues To Decrease
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Effects Of The Progress Of Improvement on Three Sorts Of Rude Produce
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First Sort
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Second Sort
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Third Sort
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Conclusion of Digression
The second step is to explain in a short way why Smith arranged his topics in that order:
Smith wanted to prove that gold and silver prices are not correlated to the wealth or poverty of society. Instead he wanted to prove that it is the money price of some rude produce relative to the main food grain (such as corn), which is the clearest indicator of a society’s wealth or poverty. To do this, he had to:
- talk about the price of wheat (rude produce) in three periods
- talk about the price of silver in the world and its ratio to gold
- talk about the nature of the price of rude produce
In the same way, we want to objectively prove that GDP (measured in dollars) is not a proof of the wealth of a country, so we follow Smith’s methodology in getting the ‘corn values’ of key rude produce to easily say whether the US or China or the EU is really wealthier and which country’s wealth is based more on real value, instead of fake or nominal value. Who wouldn’t want to live in a country that has more real value and is more resistant to economic crises?
Value of the Digression on Silver for SORAnomics
SORAnomics uses two measures combined to replace GDP as a measure of a country’s wealth. One is purchasing power and the other is the ratio between rude produce to grains, as stated in the Digression. Purchasing power alone indicates the revenue or demand of a person, while the price ratio of goods and produce to each other only indicates their supply.
The Big Mac index has some of the basic ideas of Smith’s commodity-based valuation system, explained in the Digression
Together, they can give a fairer measure of the wealth of a society, by objectively measuring how their supply matches their demand. This is better than GDP which only measures the dollar value of the sales or revenue of businesses or the merchant class. This is made worse by the fact that dollars are fiat or backed merely by trust or faith which is a metaphysical thing, and not a real or physical thing at all. This lack of a ‘real’ and solid base permits ‘arbitrage’ as profits of those who live by profits. This is why the basis of value has slowly shifted from barter & commodity trading (18th century), bimetallism (19th century), to the gold standard (20th century), to the current fiat system (21st century). According to this pattern, the fiat system must eventually crash, forcing the ‘economic’ system to revert to barter & commodity trading.
Smith’s best friend, David Hume, has fully explained the idea of ‘God’ and the nature of belief. We use this to predict how the belief that ‘money equals wealth’ must create a huge economic crash which will then create the chance for opposing beliefs to rise up, such as the increase in religious fundamentalism seen today. Rather than be alarmed by such changes, we rather expect them to happen as a natural effect of the shallowness of humans and their disregard of Enlightenment ideas.
The Digression is extremely important in our new economic science because it gives our system a robust model-replacement of GDP while giving it specific policy ‘settings’ for the backward, advancing, and advanced economic states. All of these can then be coded into software which will act as the ‘sovereign’ regulator which maintains economic freedom for ‘those who live by wages’, ‘those who live by profits’, and ‘those who live by rent’, by letting them trade through the ‘internet of things’ such as using their smart phones to pay for purchases or creating ‘smart contracts’ monitored by artificial intelligence. This software can then be packed and deployed into any human society to transform it from the rude state into the opulent state, even in future human colonies in Mars.
Mars is in a zero state of cultivation. Smith’s Digression can be applied in early human colonies there to properly measure its wealth as it evolves from the zero state to the rude state, since ‘GDP’ will be totally impotent or irrelevant.
