An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader with highlighter txt) 📖

thither, though the whole duties

were retained. The drawback, therefore, may frequently be pure

loss to the revenue of excise and customs, without altering the

state of the trade, or rendering it in any respect more

extensive. How far such drawbacks can be justified as a proper

encouragement to the industry of our colonies, or how far it is

advantageous to the mother country that they should be exempted

from taxes which are paid by all the rest of their

fellow-subjects, will appear hereafter, when I come to treat of

colonies.

 

Drawbacks, however, it must always be understood, are useful only

in those cases in which the goods, for the exportation of which

they are given, are really exported to some foreign country, and

not clandestinely re-imported into our own. That some drawbacks,

particularly those upon tobacco, have frequently been abused in

this manner, and have given occasion to many frauds, equally

hurtful both to the revenue and to the fair trader, is well

known.

 

CHAPTER V.

 

OF BOUNTIES.

 

Bounties upon exportation are, in Great Britain, frequently

petitioned for, and sometimes granted, to the produce of

particular branches of domestic industry. By means of them, our

merchants and manufacturers, it is pretended, will be enabled to

sell their goods as cheap or cheaper than their rivals in the

foreign market. A greater quantity, it is said, will thus be

exported, and the balance of trade consequently turned more in

favour of our own country. We cannot give our workmen a monopoly

in the foreign, as we have done in the home market. We cannot

force foreigners to buy their goods, as we have done our own

countrymen. The next best expedient, it has been thought,

therefore, is to pay them for buying. It is in this manner that

the mercantile system proposes to enrich the whole country, and

to put money into all our pockets, by means of the balance of

trade.

 

Bounties, it is allowed, ought to be given to those branches of

trade only which cannot be carried on without them. But every

branch of trade in which the merchant can sell his goods for a

price which replaces to him, with the ordinary profits of stock,

the whole capital employed in preparing and sending them to

market, can be carried on without a bounty. Every such branch is

evidently upon a level with all the other branches of trade which

are carried on without bounties, and cannot, therefore, require

one more than they. Those trades only require bounties, in which

the merchant is obliged to sell his goods for a price which does

not replace to him his capital, together with the ordinary

profit, or in which he is obliged to sell them for less than it

really cost him to send them to market. The bounty is given in

order to make up this loss, and to encourage him to continue, or,

perhaps, to begin a trade, of which the expense is supposed to be

greater than the returns, of which every operation eats up a part

of the capital employed in it, and which is of such a nature,

that if all other trades resembled it, there would soon be no

capital left in the country.

 

The trades, it is to be observed, which are carried on by means

of bounties, are the only ones which can be carried on between

two nations for any considerable time together, in such a manner

as that one of them shall alway’s and regularly lose, or sell its

goods for less than it really cost to send them to market. But if

the bounty did not repay to the merchant what he would otherwise

lose upon the price of his goods, his own interest would soon

oblige him to employ his stock in another way, or to find out a

trade in which the price of the goods would replace to him, with

the ordinary profit, the capital employed in sending them to

market. The effect of bounties, like that of all the other

expedients of the mercantile system, can only be to force the

trade of a country into a channel much less advantageous than

that in which it would naturally run of its own accord.

 

The ingenious and well-informed author of the Tracts upon the

Corn Trade has shown very clearly, that since the bounty upon the

exportation of corn was first established, the price of the corn

exported, valued moderately enough, has exceeded that of the corn

imported, valued very high, by a much greater sum than the amount

of the whole bounties which have been paid during that period.

This, he imagines, upon the true principles of the mercantile

system, is a clear proof that this forced corn trade is

beneficial to the nation, the value of the exportation exceeding

that of the importation by a much greater sum than the whole

extraordinary expense which the public has been at in order to

get it exported. He does not consider that this extraordinary

expense, or the bounty, is the smallest part of the expense which

the exportation of corn really costs the society. The capital

which the farmer employed in raising it must likewise be taken

into the account. Unless the price of the corn, when sold in the

foreign markets, replaces not only the bounty, but this capital,

together with the ordinary profits of stock, the society is a

loser by the difference, or the national stock is so much

diminished. But the very reason for which it has been thought

necessary to grant a bounty, is the supposed insufficiency of the

price to do this.

 

The average price of corn, it has been said, has fallen

considerably since the establishment of the bounty. That the

average price of corn began to fall somewhat towards the end of

the last century, and has continued to do so during the course of

the sixty-four first years of the present, I have already

endeavoured to show. But this event, supposing it to be real, as

I believe it to be, must have happened in spite of the bounty,

and cannot possibly have happened in consequence of it. It has

happened in France, as well as in England, though in France there

was not only no bounty, but, till 1764, the exportation of corn

was subjected to a general prohibition. This gradual fall in the

average price of grain, it is probable, therefore, is ultimately

owing neither to the one regulation nor to the other, but to that

gradual and insensible rise in the real value of silver, which,

in the first book of this discourse, I have endeavoured to show,

has taken place in the general market of Europe during the course

of the present century. It seems to be altogether impossible that

the bounty could ever contribute to lower the price of grain.

 

In years of plenty, it has already been observed, the bounty, by

occasioning an extraordinary exportation, necessarily keeps up

the price of corn in the home market above what it would

naturally fall to. To do so was the avowed purpose of the

institution. In years of scarcity, though the bounty is

frequently suspended, yet the great exportation which it

occasions in years of plenty, must frequently hinder, more or

less, the plenty of one year from relieving the scarcity of

another. Both in years of plenty and in years of scarcity,

therefore, the bounty necessarily tends to raise the money price

of corn somewhat higher than it otherwise would be in the home

market.

 

That in the actual state of tillage the bounty must necessarily

have this tendency, will not, I apprehend, be disputed by any

reasonable person. But it has been thought by many people, that

it tends to encourage tillage, and that in two different ways ;

first, by opening a more extensive foreign market to the corn of

the farmer, it tends, they imagine, to increase the demand for,

and consequently the production of, that commodity; and, secondly

by securing to him a better price than he could otherwise expect

in the actual state of tillage, it tends, they suppose, to

encourage tillage. This double encouragement must they imagine,

in a long period of years, occasion such an increase in the

production of corn, as may lower its price in the home market,

much more than the bounty can raise it in the actual state which

tillage may, at the end of that period, happen to be in.

 

I answer, that whatever extension of the foreign market can be

occasioned by the bounty must, in every particular year, be

altogether at the expense of the home market ; as every bushel of

corn, which is exported by means of the bounty, and which would

not have been exported without the bounty, would have remained in

the home market to increase the consumption, and to lower the

price of that commodity. The corn bounty, it is to be observed,

as well as every other bounty upon exportation, imposes two

different taxes upon the people; first, the tax which they are

obliged to contribute, in order to pay the bounty ; and,

secondly, the tax which arises from the advanced price of the

commodity in the home market, and which, as the whole body of the

people are purchasers of corn, must, in this particular

commodity, be paid by the whole body of the people. In this

particular commodity, therefore, this second tax is by much the

heaviest of the two. Let us suppose that, taking one year with

another, the bounty of 5s. upon the exportation of the quarter of

wheat raises the price of that commodity in the home market only

6d. the bushel, or 4s. the quarter higher than it otherwise would

have been in the actual state of the crop. Even upon this very

moderate supposition, the great body of the people, over and

above contributing the tax which pays the bounty of 5s. upon

every quarter of wheat exported, must pay another of 4s. upon

every quarter which they themselves consume. But according to the

very well informed author of the Tracts upon the Corn Trade, the

average proportion of the corn exported to that consumed at home,

is not more than that of one to thirty-one. For every 5s.

therefore, which they contribute to the payment of the first tax,

they must contribute �6:4s. to the payment of the second. So very

heavy a tax upon the first necessary of life-must either reduce

the subsistence of the labouring poor, or it must occasion some

augmentation in their pecuniary wages, proportionable to that in

the pecuniary price of their subsistence. So far as it operates

in the one way, it must reduce the ability of the labouring poor

to educate and bring up their children, and must, so far, tend to

restrain the population of the country. So far as it operate’s in

the other, it must reduce the ability of the employers of the

poor, to employ so great a number as they otherwise might do, and

must so far tend to restrain the industry of the country. The

extraordinary exportation of corn, therefore occasioned by the

bounty, not only in every particular year diminishes the home,

just as much as it extends the foreign market and consumption,

but, by restraining the population and industry of the country,

its final tendency is to stint and restrain the gradual extension

of the home market ; and thereby, in the long-run, rather to

diminish than to augment the whole market and consumption of

corn.

 

This enhancement of the money price of corn, however, it has been

thought, by rendering that commodity more profitable to the

farmer, must necessarily encourage its production.

 

I answer, that this might be the case, if the effect of the

bounty was to raise the real price of