Over long periods of economic improvement there are only three possible relationships between silver… — Adam Smith

Over long periods of economic improvement there are only three possible relationships between silver supply and demand, each with distinct implications for the average money price of corn: if demand grows faster than supply, silver rises in value and corn becomes cheaper in money; if supply grows faster than demand, silver falls in value and corn becomes dearer in money; and if supply and demand grow proportionally, silver’s value relative to corn remains roughly constant and corn’s average money price is nearly unchanged.

By Adam Smith, from La Richesse des nations

Key Arguments

Smith specifies that 'If, by the general progress of improvement, the demand' for silver in its great market 'should increase, while, at the same time, the supply did not increase in the same proportion, the value of silver would gradually rise in proportion to that of corn,' so a given quantity of silver 'would exchange for a greater and a greater quantity of corn' and 'the average money price of corn would gradually become cheaper and cheaper.'
Conversely, 'If, on the contrary, the supply, by some accident, should increase, for many years together, in a greater proportion than the demand, that metal would gradually become cheaper and cheaper; or, in other words, the average money price of corn would, in spite of all improvements, gradually become dearer and dearer.'
He then considers the balanced case: 'if, on the other hand, the supply of that metal should increase nearly in the same proportion as the demand, it would continue to purchase or exchange for nearly the same quantity of corn; and the average money price of corn would, in spite of all improvements. continue very nearly the same.'
He summarizes: 'These three seem to exhaust all the possible combinations of events which can happen in the progress of improvement,' and then claims that over the four centuries before his own time, each of these three combinations 'seems to have taken place in the European market, and nearly in the same order' in which he has set them down, implying this is not merely hypothetical but empirically instantiated.

Source Quotes

The great market for silver is the commercial and civilized part of the world. If, by the general progress of improvement, the demand of this market should increase, while, at the same time, the supply did not increase in the same proportion, the value of silver would gradually rise in proportion to that of corn. Any given quantity of silver would exchange for a greater and a greater quantity of corn; or, in other words, the average money price of corn would gradually become cheaper and cheaper.

If, by the general progress of improvement, the demand of this market should increase, while, at the same time, the supply did not increase in the same proportion, the value of silver would gradually rise in proportion to that of corn. Any given quantity of silver would exchange for a greater and a greater quantity of corn; or, in other words, the average money price of corn would gradually become cheaper and cheaper. If, on the contrary, the supply, by some accident, should increase, for many years together, in a greater proportion than the demand, that metal would gradually become cheaper and cheaper; or, in other words, the average money price of corn would, in spite of all improvements, gradually become dearer and dearer.

Any given quantity of silver would exchange for a greater and a greater quantity of corn; or, in other words, the average money price of corn would gradually become cheaper and cheaper. If, on the contrary, the supply, by some accident, should increase, for many years together, in a greater proportion than the demand, that metal would gradually become cheaper and cheaper; or, in other words, the average money price of corn would, in spite of all improvements, gradually become dearer and dearer. But if, on the other hand, the supply of that metal should increase nearly in the same proportion as the demand, it would continue to purchase or exchange for nearly the same quantity of corn; and the average money price of corn would, in spite of all improvements. continue very nearly the same.

If, on the contrary, the supply, by some accident, should increase, for many years together, in a greater proportion than the demand, that metal would gradually become cheaper and cheaper; or, in other words, the average money price of corn would, in spite of all improvements, gradually become dearer and dearer. But if, on the other hand, the supply of that metal should increase nearly in the same proportion as the demand, it would continue to purchase or exchange for nearly the same quantity of corn; and the average money price of corn would, in spite of all improvements. continue very nearly the same. These three seem to exhaust all the possible combinations of events which can happen in the progress of improvement; and during the course of the four centuries preceding the present, if we may judge by what has happened both in France and Great Britain, each of those three different combinations seems to have taken place in the European market, and nearly in the same order, too, in which I have here set them down.

But if, on the other hand, the supply of that metal should increase nearly in the same proportion as the demand, it would continue to purchase or exchange for nearly the same quantity of corn; and the average money price of corn would, in spite of all improvements. continue very nearly the same. These three seem to exhaust all the possible combinations of events which can happen in the progress of improvement; and during the course of the four centuries preceding the present, if we may judge by what has happened both in France and Great Britain, each of those three different combinations seems to have taken place in the European market, and nearly in the same order, too, in which I have here set them down. First Period.—In 1350, and for some time before, the average price of the quarter of wheat in England seems not to have been estimated lower than four ounces of silver, Tower weight, equal to about twenty shillings of our present money.

Key Concepts

If, by the general progress of improvement, the demand of this market should increase, while, at the same time, the supply did not increase in the same proportion, the value of silver would gradually rise in proportion to that of corn.
Any given quantity of silver would exchange for a greater and a greater quantity of corn; or, in other words, the average money price of corn would gradually become cheaper and cheaper.
If, on the contrary, the supply, by some accident, should increase, for many years together, in a greater proportion than the demand, that metal would gradually become cheaper and cheaper; or, in other words, the average money price of corn would, in spite of all improvements, gradually become dearer and dearer.
But if, on the other hand, the supply of that metal should increase nearly in the same proportion as the demand, it would continue to purchase or exchange for nearly the same quantity of corn; and the average money price of corn would, in spite of all improvements. continue very nearly the same.
These three seem to exhaust all the possible combinations of events which can happen in the progress of improvement; and during the course of the four centuries preceding the present, if we may judge by what has happened both in France and Great Britain, each of those three different combinations seems to have taken place in the European market, and nearly in the same order, too, in which I have here set them down.

Context

Still in Part III, Smith formalizes a three-case schema for how changes in silver’s supply and demand, relative to corn, determine long-run movements in the money price of corn, and he prefaces his ensuing historical 'periods' analysis for Europe.