An Essay on the Principle of Population
Book III, Chapter XI
Of Corn-Laws. Bounties upon Exportation.
It has been observed that some countries, with great resources in land, and an evident power of supporting a greatly increased population from their own soil, have yet been in the habit of importing large quantities of foreign corn, and have become dependent upon other states for a great part of their supplies.
The causes which may lend to this state of things seem to be chiefly the following:
First; any obstacles which the laws, constitution and customs of a country present to the accumulation of capital on the land, which do not apply with equal force to the increasing employment of capital in commerce and manufactures.
In every state in which the feudal system has prevailed, there are laws and customs of this kind, which prevent the free division and alienation of land like other property, and render the preparations for an extension of cultivation often both very difficult and very expensive. Improvements in such countries are chiefly carried on by tenants, a large part of whom have not leases, or at least leases of any length; and though their wealth and respectability have of late years very greatly increased, yet it is not possible to put them on a footing with enterprising owners, and to give them the same independence, and the same encouragement to employ their capitals with spirit, as merchants and manufacturers.
Secondly; a system of direct or indirect taxation, of such a nature as to throw a weight upon the agriculture of a country, which is either unequal, or, from peculiar circumstances, can be better borne by commerce and manufactures.
It is universally allowed that a direct tax on corn grown at home, if not counterbalanced by a corresponding tax on the importation of it, might be such as to destroy at once the cultivation of grain, and make a country import the whole of its consumption; and a partial effect of the same kind would follow, if, by a system of indirect taxation, the general price of labour were raised and yet by means of drawbacks on home and foreign commodities, by an abundance of colonial produce, and by those peculiar articles,*39 the demand for which abroad would not be much affected by the increase of price, the value of the whole of the exports, though not the quantity, might admit of increase.
Thirdly; improved machinery, combined with extensive capital and a very advantageous division of labour.
If in any country, by means of capital and machinery, one man be enabled to do the work of ten, it is quite obvious that before the same advantages are extended to other countries, a rise in the price of labour will but very little interfere with the power of selling those sorts of commodities, in the production of which the capital and machinery are so effectively applied. It is quite true that an advance in the necessary wages of labour, which increases the expense of raising corn, may have the same effect upon many commodities besides corn; and if there were no others, no encouragement would be given to the importation of foreign grain, as there might be no means by which it could be purchased cheaper abroad. But a large class of the exportable commodities of a commercial country are of a different description. They are either articles in a considerable degree peculiar to the country and its dependencies, or such as have been produced by superior capital and machinery, the prices of which are determined rather by domestic than foreign competition. All commodities of this kind will evidently be able to support without essential injury an advance in the price of labour, some permanently, and others for a considerable time. The rise in the price of the commodity so occasioned, or rather the prevention of that fall which would otherwise have taken place, may always indeed have the effect of decreasing in some degree the quantity of the commodity exported; but it by no means follows that it will diminish the whole of its bullion value in the foreign country, which is precisely what determines the bullion value, and generally the quantity of the returns. If cottons in this country were now to fall to half their present price, we should undoubtedly export a greater quantity than we do at present; but I very much doubt whether we should export double the quantity, at least for many years, and yet we must do this to enable us to command as much foreign produce as before. In this case, as in numerous others of the same kind, quantity and value go together to a certain point, though not at an equal pace; but, beyond this point, a further increase of quantity only diminishes the whole value produced, and the amount of the returns that can be obtained for it.
It is obvious then that a country, notwithstanding a high comparative price of labour and of materials, may easily stand a competition with foreigners in those commodities to which it can apply a superior capital and machinery with great effect; although such a price of labour and materials might give an undisputed advantage to foreigners in agriculture and some other sorts of produce, where the same saving of labour cannot take place. Consequently such a country may find it cheaper to purchase a considerable part of its supplies of grain from abroad with its manufactures and peculiar products, than to grow the whole at home.
If, from all or any of these causes, a nation becomes habitually dependent on foreign countries for the support of a considerable portion of its population, it must evidently be subjected, while such dependence lasts, to some of those evils which belong to a nation purely manufacturing and commercial. In one respect, indeed, it will still continue to have a great superiority. It will possess resources in land, which may be resorted to when its manufactures and commerce, either from foreign competition, or any other causes, begin to fail. But, to balance this advantage, it will be subjected, during the time that large importations are necessary, to much greater fluctuations in its supplies of corn, than countries wholly manufacturing and commercial. The demands of Holland and Hamburgh may be known with considerable accuracy by the merchants who supply them. If they increase, they increase gradually; and, not being subject from year to year to any great and sudden variations, it might be safe and practicable to make regular contracts for the average quantity wanted. But it is otherwise with such countries as England and Spain. Their wants are necessarily very variable, from the variableness of the seasons; and if the merchants were to contract with exporting countries for the quantity required in average years, two or three abundant seasons might ruin them. They must necessarily wait to see the state of the crops in each year, in order safely to regulate their proceedings; and though it is certainly true that it is only the deficiency from the average crop, and not the whole deficiency, which may be considered altogether in the light of a new demand in Europe; yet the largeness and previous uncertainty of this whole deficiency, the danger of making contracts for a stated quantity annually, and the greater chance of hostile combinations against large and warlike states, must greatly aggravate the difficulties of procuring a steady supply; and if it be true that unfavourable seasons are not unfrequently general, it is impossible to conceive that they should not occasionally be subject to great variations of price.
It has been sometimes stated that scarcities are partial, not general, and that a deficiency in one country is always compensated by a plentiful supply in others. But this seems to be quite an unfounded supposition. In the evidence brought before the Committee of the House of Commons in 1814, relating to the corn-laws, one of the corn merchants being asked whether it frequently happened that crops in the country bordering upon the Baltic failed, when they failed here, replied, "When crops are unfavourable in one part of Europe, it generally happens that they are more or less so in another."*40 If any person will take the trouble to examine the contemporaneous prices of corn in the different countries of Europe for some length of time, he will be convinced that the answer here given is perfectly just. In the last hundred and fifty years, above twenty will be found in which the rise of prices is common to France and England, although there was seldom much intercourse between them in the trade of corn: and Spain and the Baltic nations, as far as their prices have been collected, appear frequently to have shared in the same general deficiency. Even within the last five years, two have occurred, the years 1811-12, and 1816-1817, in which, with extraordinary high prices in this country, the imports have been comparatively inconsiderable; which can only have arisen from those scarcities having been general over the greatest part of Europe.
Under these circumstances let us suppose that two million quarters of foreign grain were the average quantity annually wanted in this country, and suppose, at the same time, that a million quarters were deficient from a bad season; the whole deficiency to be supplied would then be three millions.
If the scarcity were general in Europe, it may fairly be concluded, that some states would prohibit the export of their corn entirely, and others tax it very highly; and if we could obtain a million or fifteen hundred thousand quarters, it is probably as much as we could reasonably expect. We should then, however, be two millions or fifteen hundred thousand quarters deficient. On the other hand, if we had habitually grown our own consumption, and were deficient a million of quarters from a bad season, it is scarcely probable that, notwithstanding a general scarcity, we should not be able to obtain three or four hundred thousand quarters in consequence of our advanced prices; particularly if the usual prices of our corn and labour were higher than in the rest of Europe. And in this case the sum of our whole deficiency would only be six or seven hundred thousand quarters, instead of fifteen hundred thousand or two millions of quarters. If the present year (1816-17) had found us in a state in which our growth of corn had been habitually far short of our consumption, the distresses of the country would have been dreadfully aggravated.
To provide against accidents of this kind, and to secure a more abundant and, at the time, a more steady supply of grain, a system of corn-laws has been recommended, the object of which is to discourage by duties or prohibitions the importation of foreign corn, and encourage by bounties the exportion of corn of home growth.
A system of this kind was completed in our own country in 1688,*41 the policy of which has been treated of at some length by Adam Smith.
In whatever way the general question may be finally decided, it must be allowed by all those who acknowledge the efficacy of the great principle of supply and demand that the line of argument taken by the auther of the Wealth of Nations against the system is essentially erroneous.
He first states 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.*42
In this observation he evidently misapplies the term market. Because, by selling a commodity lower, it is easy to get rid of a greater quantity of it, in any particular market, than would have gone off otherwise, it cannot justly be said that by this process such a market is proportionally extended. Though the removal of the two taxes mentioned by Adam Smith as paid on account of the bounty would certainly increase the power of the lower classes to purchase, yet in each particular year the consumption must ultimately be limited by the population, and the increase of consumption from the removal of these taxes would by no means be sufficient to give the same encouragement to cultivation as the addition of the foreign demand. If the price of British corn in the home market rise in consequence of the bounty, before the price of production is increased, (and an immediate rise is distinctly acknowledged by Adam Smith,) it is an unanswerable proof that the effectual demand for British corn is extended by it; and that the diminution of demand at home, whatever it may be, is more than counterbalanced by the extension of demand abroad.
Adam Smith goes on to say that the two taxes paid by the people on account of the bounty, namely, the one to the government to pay this bounty, and the other paid in the advanced price of the commodity, must either reduce the subsistence of the labouring poor, or occasion an augmentation in their pecuniary wages proportioned 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 operates 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.
It will be readily allowed that the tax occasioned by the bounty will have the one or the other of the effects here contemplated; but it cannot be allowed that it will have both. Yet it is observed, that though the tax, which that institution imposes upon the whole body of the people, be very burdensome to those who pay it, it is of very little advantage to those who receive it. This is surely a contradiction. If the price of labour rise in proportion to the price of wheat, as it subsequently asserted, how is the labourer rendered less competent to support a family? If the price of labour do not rise in proportion to the price of wheat, how is it possible to maintain that the landlords and farmers are not able to employ more labourers on their land? Yet in this contradiction the author of the Wealth of Nations has had respectable followers; and some of those who have agreed with him in his opinion that corn regulates the prices of labour, and of all other commodities, still insist on the injury done to the labouring classes of society by a rise in the price of corn, and the benefit they would derive from a fall.
The main argument however which Adam Smith adduces against the bounty is, that as the money price of corn regulates that of all other home-made commodities, the advantage to the proprietor from the increase of money price is merely apparent, and not real; since what he gains in his sales he must lose in his purchases.
This position, though true to a certain extent, is by no means true to the extent of preventing the movement of capital to or from the land, which is the precise point in question. The money price of corn in a particular country is undoubtedly by far the most powerful ingredient in regulating the price of labour, and of all other commodities; but it is not enough for Adam Smith's position that it should be the most powerful ingredient; it must be shewn that, other causes remaining the same, the price of every article will rise and fall exactly in proportion to the price of corn, and this is very far from being the case. Adam Smith himself excepts all foreign commodities; but when we reflect upon the vast amount of our imports, and the quantity of foreign articles used in our manufactures, this exception alone is of the greatest importance. Wool and raw hides, two most important materials of home growth, do not, according to Adam Smith's own reasonings, (Book I. c. xi. p. 363, et seq. [pars. 209-222—Ed.] depend much upon the price of corn and the rent of land; and the prices of flax, tallow, and leather, are of course greatly influenced by the quantity we import. But woollen cloths, cotton and linen goods, leather, soap, candles, tea, sugar, &c. which are comprehended in the above-named articles, form almost the whole of the clothing and luxuries of the industrious classes of society.
It should be further observed that in all countries, the industry of which is greatly assisted by fixed capital, the part of the price of the wrought commodity which pays the profits of such capital will not necessarily rise in consequence of an advance in the price of corn, except as it requires gradual renovation; and the advantage derived from machinery which has been constructed before the advance in the price of labour will naturally last for some years.
In the case also of great and numerous taxes on consumption, a rise or fall in the price of corn, though it would increase or decrease that part of the wages of labour which resolves itself into food, evidently would not increase or decrease that part which is destined for the payment of taxes.
It cannot then be admitted as a general position that the money price of corn in any country is a just measure of the real value of silver in that country. But all these considerations, though of great weight to the owners of land, will not influence the farmers beyond the present leases. At the expiration of a lease, any particular advantage which a farmer had received from a favourable proportion between the price of corn and of labour would be taken from him, and any disadvantage from an unfavourable proportion be made up to him. The sole cause which would determine the proportion of capital employed in agriculture, would be the extent of the effectual demand for corn; and if the bounty had really enlarged this demand, which it certainly would have done, it is impossible to suppose that more capital would not be employed than upon the land.
When Adam Smith says that the nature of things has stamped upon corn a real value, which cannot be altered by merely altering the money price, and that no bounty upon exportation, no monopoly of the home market, can raise that value, nor the freest competition lower it, it is obvious that he changes the question from the profits of the growers of corn, or of the proprietors of the land, to the physical value of corn itself. I certainly do not mean to say that the bounty alters the physical value of corn, and makes a bushel of it support equally well a greater number of labourers than it did before; but I certainly do mean to say that the bounty to the British cultivator does, in the actual state of things, really increase the demand for British corn, and thus encourage him to sow more that he otherwise would do, and enables him in consequence to employ more bushels of corn in the maintenance of a greater number of labourers.
If Adam Smith's theory were true, and what he calls the real price of corn were unchangeable, or not capable of experiencing a relative increase or decrease of value compared with labour and other commodities, agriculture would indeed be in an unfortunate situation. It would be at once excluded from the operation of that principle so beautifully explained in the Wealth of Nations, by which capital flows from one employment to another, according to the various and necessarily fluctuating wants of society. But surely we cannot doubt that the real price of corn varies, though it may not vary so much as the real price of other commodities; and that there are periods when all wrought commodities are cheaper, and periods when they are dearer, in proportion to the price of corn; and in the one case capital flows from manufactures to agriculture, and in the other from agriculture to manufactures. To overlook these periods or consider them of slight importance, is not allowable; because in every branch of trade these periods form the grand encouragement to an increase of supply. Undoubtedly the profits of trade in any particular branch of industry can never long remain higher than in others; but how are they lowered except by the influx of capital occasioned by these high profits? It never can be a national object permanently to increase the profits of any particular set of dealers. The national object is the increase of supply; but this object cannot be attained except by previously increasing the profits of these dealers, and thus determining a greater quantity of capital to this particular employment. The ship-owners and sailors of Great Britain do not make greater profits now than they did before the Navigation Act; but the object of the nation was not to increase the profits of ship-owners and sailors, but the quantity of shipping and seamen; and this could not be done but by a law, which, by increasing the demand for them, raised the profits of the capital before employed in this way, and determined a greater quantity to flow into the same channel. The object of a nation in the establishment of a bounty is, not to increase the profits of the farmers, or the rents of the landlords, but to determine a greater quantity of the national capital to the land, and consequently to increase supply; and though, in the case of an advance in the price of corn from an increased demand, the rise of wages, the rise of rents, and the fall of silver tend, in some degree, to obscure our view of the subject; yet we cannot refuse to acknowledge that the real price of corn varies during periods sufficiently long to affect the determination of capital, or we shall be reduced to the dilemma of owning that no possible degree of demand can encourage the growth of corn.
It must be allowed then that the peculiar argument relating to the nature of corn brought forward by Adam Smith upon this occasion cannot be maintained, and that a bounty upon the exportation of corn must enlarge the demand for it and encourage its production in the same manner, if not in the same degree, as a bounty upon the exportation of any other commodity.
But it has been urged further, that this increased production of corn must necessarily occasion permanent cheapness; and a period of considerable length, during the first 64 years of the last century, while a bounty was in full operation in this country, has been advanced as a proof of it. In this conclusion, however, it may be reasonably suspected, that an effect, in its nature temporary, though it may be of some duration, has been mistaken for one which is permanent.
According to the theory of demand and supply, the bounty might be expected to operate, in the following manner:
It is frequently stated in the Wealth of Nations that a great demand is followed by a great supply; a great scarcity by a great plenty; an unusual dearness by an unusual cheapness. A great and indefinite demand is indeed generally found to produce a supply more than proportioned to it. This supply as naturally occasions unusual cheapness; but this cheapness, when it comes, must in its turn check the production of the commodity; and this check, upon the same principle, is apt to continue longer than necessary, and again to occasion a return to high prices.
This appears to be the manner in which a bounty upon the exportation of corn, if granted under circumstances favourable to its efficiency, might be expected to operate, and this seems to have been the manner in which it really did operate in the only instance where it has been fairly tried.
Without meaning to deny the concurrence of other causes, or attempting to estimate the relative efficiency of the bounty, it is impossible not to acknowledge that, when the growing price of corn was, according to Adam Smith, only 28 shillings a quarter, and the corn-markets of England were as low as those of the continent, a premium of five shillings a quarter upon exportation must have occasioned an increase of real price, and given encouragement to the cultivation of grain. But the changes produced in the direction of capital to or from the land will always be slow. Those who have been in the habit of employing their stock in mercantile concerns do not readily turn it into the channel of agriculture; and it is a still more difficult and slower operation to withdraw capital from the soil, to employ it in commerce. For the first 25 years after the establishment of the bounty in this country the price of corn rose 2 or 3 shillings in the quarter; but owing probably to the wars of William and Anne, to bad seasons, and a scarcity of money, capital seems to have accumulated slowly on the land, and no great surplus growth was effected. It was not till after the peace of Utrecht that the capital of the country began in a marked manner to increase; and it is impossible that the bounty should not gradually have directed a larger portion of this accumulation to the land than would otherwise have gone to it. A surplus growth, and a fall of price for thirty or forty years, followed.
It will be said that this period of low prices was too long to be occasioned by a bounty, even according to the theory just laid down. This is perhaps true, and in all probability the period would have been shorter if the bounty alone had operated; but in this case other causes powerfully combined with it.
The fall in the price of British corn was accompanied by a fall of prices on the continent. Whatever were the general causes which produced this effect in foreign countries, it is probable that they were not wholly inoperative in England. At all events nothing could be so powerfully calculated to produce cheapness, and to occasion a slow return to high prices, as a considerable surplus growth, which was unwillingly received, and only at low prices, by other nations. When such a surplus growth had been obtained, some time would necessarily be required to destroy it by cheapness, particularly as the moral stimulus of the bounty would probably continue to act long after the fall of prices had commenced. If to these causes we add that a marked fall in the rate of interest, about the same time, evinced an abundance of capital, and a consequent difficulty of finding a profitable employment for it; and consider further the natural obstacles to the moving of capital from the land; we shall see sufficient reason why even a long period might elapse without any essential alteration in the comparative abundance and cheapness of corn.
Adam Smith attributes this cheapness to a rise in the value of silver. The fall in the price of corn which took place in France and some other countries about the same time might give some countenance to the conjecture. But the accounts we have lately had of the produce of the mines during the period in question does not sufficiently support it; and it is much more probable that it arose from the comparative state of peace in which Europe was placed after the termination of the wars of Louis XIV., which facilitated the accumulation of capital on the land, and encouraged agricultural improvements.
With regard to this country, indeed, it is observed by Adam Smith himself, that labour*43 and other articles were rising; a fact very unfavourable to the supposition of an increased value of the precious metals. Not only the money price of corn fell, but its value relative to other articles was lowered, and this fall of relative value, together with great exportations, clearly pointed to a relative abundance of corn, in whatever way it might be occasioned, as the main cause of the facts observed, rather than a scarcity of silver. This great fall in the British corn-market, particularly during the ten years from 1740 to 1750, accompanied by a great fall in the continental markets, owing in some degree perhaps to the great exportations of British corn, especially during the years 1748, 1749, and 1750, must necessarily have given some check to its cultivation, while the increase of the real price of labour must at the same time have given a stimulus to the increase of population. The united operation of these two causes is exactly calculated first to diminish, and ultimately to destroy a surplus of corn; and as, after 1764, the wealth and manufacturing population of Great Britain increased more rapidly than those of her neighbours, the returning stimulus to agriculture, considerable as it was, arising almost exclusively from a home demand, was incapable of producing a surplus; and not being confined, as before, to British cultivation, owing to the alteration in the corn-laws, was inadequate even to effect an independent supply. Had the old corn-laws remained in full force, we should still probably have lost our surplus growth, owing to the causes above mentioned, although, from their restrictive clauses, we should certainly have been nearer the growth of an independent supply immediately previous to the scarcity of 1800.
It is not therefore necessary, in order to object to the bounty, to say with Adam Smith that the fall in the price of corn which took place during the first half of the last century must have happened in spite of the bounty, and could not possibly have happened in consequence of it. We may allow, on the contrary, what I think we ought to allow according to all general principles, that the bounty, when granted under favourable circumstances, is really calculated, after going through a period of dearness, to produce the surplus and the cheapness which its advocates promise;*44 but according to the same general principles we must allow that this surplus and cheapness, from their operating at once as a check to produce, and an encouragement to population, cannot be for any great length of time maintained.
The objection then to a bounty on corn, independently of the objections to bounties in general, is, that when imposed under the most favourable circumstances it cannot produce permanent cheapness: and if it be imposed under unfavourable circumstances; that is, if an attempt be made to force exportation by an adequate bounty at a time when the country does not fully grow its own consumption; it is obvious not only that the tax necessary for the purpose must be a very heavy one, but that the effect will be absolutely prejudicial to the population, and the surplus growth will be purchased by a sacrifice very far beyond its worth.
But notwithstanding the strong objections to bounties on general grounds, and their inapplicability in cases which are not unfrequent, it must be acknowledged that, while they are operative, that is, while they produce an exportation which would not otherwise have taken place, they unquestionably encourage an increased growth of corn in the countries in which they are established, or maintain it at a point to which it would not otherwise have attained.
Under peculiar and favourable circumstances a country might maintain a considerable surplus growth for a great length of time, with an inconsiderable increase of the growing price of corn; and perhaps little or no increase of the average price, including years of scarcity.*45 If from any period during the last century, when an average excess of growth for exportation had been obtained by the stimulus of a bounty, the foreign demand for our corn had increased at the same rate as the domestic demand, our surplus growth might have become permanent. After the bounty had ceased to stimulate to fresh exertions, its influence would by no means be lost. For some years it would have given the British grower an absolute advantage over the foreign grower. This advantage would of course gradually diminish; because it is the nature of all effectual demand to be ultimately supplied, and oblige the producers to sell at the lowest price they can afford consistently with the general rate of profits. But, after having experienced a period of decided encouragement, the British grower would find himself in the habit of supplying a larger market than his own upon equal terms with his competitors. And if the foreign and British markets continued to extend themselves equally, he would continue to proportion his supplies to both; because, unless a particular increase of demand were to take place at home, he could never withdraw his foreign supply without lowering the price of his whole crop; and the nation would thus be in possession of a constant store for years of scarcity.
But even supposing that, by a bounty, combined with the most favourable state of prices in other countries, a particular state could maintain permanently an average excess of growth for exportation, it must not of course be imagined that its population would not still be checked by the difficulty of procuring subsistence. It would indeed be less exposed to the particular pressure arising from years of scarcity; but in other respects it would be subject to the same checks as those already described in the preceding chapters; and whether there was an habitual exportation or not, the population would be regulated by the real wages of labour, and would come to a stand when the necessaries which these wages could command were not sufficient, under the actual habits of the people, to encourage an increase of numbers.
Notes for this chapter
A rise in the price of labour in China would certainly increase the returns which it receives for its teas.
Report, p. 93.
Though the object here stated may not have been the specific object of the law of 1688, it is certainly the object for which the system has been subsequently recommended.
Vol. ii. b. iv. c. 5.
It is certainly a very remarkable fact, that although Adam Smith repeatedly states, in the most distinct manner, that labour alone is the true measure of the value of silver and of all other commodities, he should suppose that silver was rising at the very time when he says the money price of labour was rising. There cannot be a more decided contradiction.
As far as the bounty might tend to force the cultivation of poorer land, so far no doubt it would have a tendency to raise the price of corn; but we know from experience that the rise of price naturally occasioned in this way is continually counteracted by improvements in agriculture. A, a matter of fact it must be allowed, that, during the period of the last century when corn was falling, more land must have been taken into cultivation.
The average price is different from the growing price. Years of scarcity, which must occasionally occur, essentially affect the average price; and the growth of a surplus quantity of corn, which tends to present scarcity, will tend to lower this average, and make it approach nearer to the growing price. .
End of Notes
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