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CHAPTER V.

Of Bounties.

BOUNTIES upon exportation are sometimes granted to the produce of particular branches of domestic industry. By means of them our merchants, it is pretended, will be enabled to sell their goods as cheap, or cheaper, than their rivals in the foreign market. A greater quantity will thus be exported, and the balance of trade turned more in favour of our own country. Bounties, it is allowed, ought to be given to those branches of trade only which cannot be carried on without them, or in which the merchant is obliged to sell his goods for less than they really cost him to send to market. The bounty is given to make up his loss, p. 79. The trades carried on by means of bounties are the only ones which can be carried on between two nations, for any considerable time, in such a manner as that one shall regularly lose, or sell its goods for less than it costs to send them to market. But if the bounty did not repay to the merchant what he would lose upon his goods, he would soon employ his stock in another way. The effect of bounties can only be to force the trade of a country into a channel less advantageous than that in which it would run of its own accord, pp. 79, 80.

Since the bounty upon the exportation of corn was first established, the price of the corn exported has exceeded that of the corn imported by a much greater sum than the amount of the whole bounties which have been paid during that period. This has been thought a proof that the forced corn trade is beneficial to the nation, without considering that the bounty is the smallest expense to the society. The capital of the

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farmer employed in raising it must be taken into the account. Unless the price of corn in the foreign market will pay the bounty, this capital, and the profits of stock, the society is a loser. The bounty supposes the price to be insufficient to do this, pp. 80, 81.

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The average price of corn has fallen since the establishment of the bounty. This must have happened in spite of the bounty, and is probably owing to the gradual rise in the real value of silver,2 p. 81. In years of plenty, the bounty keeps up the price of corn. years of scarcity, though the bounty is frequently suspended, yet the great exportation in years of plenty must hinder the plenty of one year from relieving the scarcity of another. It has been thought that it encourages tillage-(1) by opening a foreign market to the farmer, and (2) by securing to him a better price. But it is answered, that the extension of the foreign market by the bounty must be at the expense of the home market. The corn bounty imposes two different taxes upon the people (1) the tax in order to pay the bounty, and (2) that which arises from the advanced price of the commodity in the home market. The second is the heavier tax, since the quantity of wheat consumed at home much exceeds the quantity of wheat exported; and it must either reduce the subsistence of the labouring poor, or occasion some augmentation in their pecuniary wages. In the one case, it must tend to restrain the population of the country; in the other, it must tend to restrain the industry of the country.

Exportation of home-grown corn from Great Britain may be said to have completely ceased. But it is an entrepôt for corn on a great scale. It is manifest that the gain of the bounty, if any, was appropriated solely by the landowners.

2 There is no proof that any such rise took place. The true reasons for the low price of corn seem to have been (1) a rapid improvement in the art of agriculture during the 18th century (beginning at the close of the 17th), (2) a cycle of exceedingly favourable seasons from 1715 to 1765. See Rogers's note.

The final tendency of the bounty, therefore, is to diminish rather than to augment the market and the consumption of corn. This enhancement of the money price of corn, it has been thought, must encourage its production. But it is not the real but the nominal price of corn which is affected by the bounty. The effect of the bounty is not so much to raise the real value of corn as to degrade the real value of silver. For the money price of corn regulates the money price of labour, and also of all the other parts of the rude produce of land, consequently that of the materials of almost all manufactures. By regulating the money price of labour it regulates that of manufacturing art and industry, and consequently that of the complete manufacture, pp. 82-85.

That degradation in the value of silver which is the effect of the fertility of the mines, as it operates equally everywhere, is a matter of little consequence to any particular country; but that degradation in the value of silver which, being the effect of the political institutions of a particular country, takes places only in that country, and is a matter of very great consequence, and tends to make everybody poorer, p. 85.

Spain and Portugal are the distributors of gold and silver to all Europe: they should be somewhat cheaper in those countries than in any other part of Europe. Spain by taxing, and Portugal by prohibiting, the exportation of gold and silver, load the exportation with the expense of smuggling; they cannot detain a greater quantity of gold and silver than what they can afford to employ in coin, plate, &c. The higher the tax, the higher the penalties with which the prohibition is guarded, the greater must be the difference in the proportion of gold and silver to the annual produce of the land and labour of Spain and Portugal, and to that of

1 Not if the wages of the labourer be above the rate necessary to satisfy the barest necessaries of life. See Fawcett, 236.

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other countries. The cheapness of gold and silver discourages the agriculture and manufactures of Spain and Portugal, and enables foreign nations to supply them with many sorts of rude produce, and with almost all sorts of manufactures, for a smaller quantity of gold and silver than what they can either raise or make them for at home. The tax and prohibition operate in two ways (1) they lower the value of the precious metals in Spain and Portugal, and (2) they keep up the price in other countries above what it would otherwise be, and thereby give those countries a double advantage in their commerce with Spain and Portugal. Remove the tax and prohibition, and the value of those metals will soon come to a level in all countries. The loss which Spain and Portugal could sustain would be nominal and imaginary. The nominal value of their goods would fall, but their real value would be the same. The gold and silver which would go abroad would bring back an equal value of goods, the greater part of which would afford employment and maintenance for industrious people; a part of their dead stock would thus be turned into active stock, and the produce of their land and labour must increase, pp. 86-88.

The bounty upon the exportation of corn necessarily operates in the same way as this absurd policy of Spain and Portugal. It renders our corn dearer in the home market, and cheaper in the foreign; and the average price of corn regulates that of all other commodities; it lowers the value of silver in the one, and tends to raise it in the other. The bounty, as it raises in the home market not so much the real as the nominal price of corn, discourages our manufactures, without rendering real service to our farmers, pp. 88, 89.

1 The effect of such regulations cannot have been very great, although they may have produced much annoyance to particular persons. See Kogers's and M'Culloch's notes.

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The corn merchants are the only persons who essentially profit by this bounty: as in years of plenty it occasions a greater exportation, and by hindering the plenty of one year from relieving the scarcity of another, it occasions, in years of scarcity, a greater importation than there would otherwise be, which they can sell with a greater profit. In imposing the high duties on the importation of foreign coin, and in establishing the bounty, our country gentlemen imitated the conduct of our manufacturers. They did not attend to the essential difference which nature has established between corn and almost every other sort of goods, pp. 89, 90.

When, by monopoly or bounty, woollen or linen manufacturers are enabled to sell their goods for a better price than they could otherwise get for them, it is the real price which is raised, and they are enabled to live better themselves, and to employ a greater quantity of labour. But when, by like instructions, the money price of corn is raised, the real value is not raised. Nature has stamped a value upon corn which cannot be altered by altering the money price. That value is, in every place, equal to the quantity of labour which it can maintain, as labour is commonly maintained in that place. Woollen or linen cloth are not the only regulating commodities by which the real value of all other commodities must be determined; corn is a regulating commodity, pp. 90, 91.

Bounties upon the exportation of any home-made commodity are liable-(1) to the objection of forcing

No doubt the corn merchants, with the usual blindness of the greedy, were very clamorous for the bounty. But as their profits were made (when they exceeded the normal rate) at the expense of each other, and not at the expense of the general public, their interests were not really furthered by the bounty. But the interests of the country gentlemen were furthered for the time being, although even they would probably in the long-run have gained more had there been no artificial interference with the course of agriculture. See the Editor's Questions and Exercises in Political Economy, p. 29.