Adam Smith’s Digression on Silver: the centerpiece of the Wealth of Nations


29 Pages Posted: 6 Apr 2022

Date Written: March 22, 2022


I suggest that Smith’s “Digression on Silver” should be read as his most powerful argument against mercantilism in the Wealth of Nations. For mercantilists money is wealth and they demonstrate this by showing that when money increased, prices increased, and wealth increased. But Smith instead shows that two things happened at the same time: a change in institutions that allowed wealth to grow, causing real prices to decrease, and simultaneously an increase in the quantity of silver that caused an increase in nominal prices. Overall, the nominal increase was larger than the real decrease in prices. Mercantilists focused on nominal prices, attributing a causal relation between the decrease in the value of silver and an increase in wealth. Smith shows that correlation is not causation, but just the coincidence of two simultaneous and independent events. The Digression on Silver leaves mercantilists with nothing: what seems to be is not what is. Money may seem to be wealth, but it is not: the ability to consume is.

Keywords: Adam Smith, Digression on Silver, Mercantilism, Causation and Correlation

JEL Classification: B12, E01

Suggested Citation

Paganelli, Maria Pia, Adam Smith’s Digression on Silver: the centerpiece of the Wealth of Nations (March 22, 2022). FORTHCOMING in CAMBRIDGE JOURNAL of ECONOMICS, Available at SSRN:

Maria Pia Paganelli (Contact Author)

Trinity University ( email )

Dept. of Economics
One Trinity Place
San Antonio, TX 78212
United States

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