Adam Smith's Simplified Wealth of Nations, Book 4, Chapter 5f, Digression: The Carrying trade of wheat
Chapter 5f, Digression: The Carrying trade of wheat
73 In years of scarcity, the distress caused by the strict execution of those laws was probably very great.
But sometimes, its execution was suspended by temporary statutes which allowed wheat imports for a limited time.
The necessity of these temporary statutes demonstrates the impropriety of this general one.
74 These restraints on importation came before the bounty's establishment.
They were dictated by the same spirit and principles of those bounties.
No matter how hurtful the import restraints were, they became necessary because of the bounties.
If wheat prices rose around 576 pence the quarter, foreign wheat could be imported duty-free.
But the bounty would cause this wheat to be re-exported.
It would be a great loss of public revenue and the perversion of the entire institution.
The bounties would be used for extending the growth of foreign countries and not the market for home growth.
The Wheat Exporter
75 The wheat exporter only indirectly contributes to the home market's supply.
The growers will be careful never to grow more wheat unless the ordinary surplus can be exported.
The importers will never import more than what is needed at the home market.
That market will generally be understocked and very seldom be overstocked.
The wheat suppliers will be afraid that their wheat should be unsold.
The export ban limits the country's cultivation to what the local supply requires.
The freedom of exportation enables it to extend cultivation for the supply of foreign markets.
76 The 12th of Charles II. c. 4, allowed wheat exportation whenever wheat prices did not exceed 480 pence the quarter relative to other grains.
The 15th of Charles II extended this liberty until wheat prices exceeded 576 pence the quarter.
The 22nd of Charles II extended it to all higher prices.
A poundage tax was to be paid to the king on such exportation.
But all grain was rated so low in the book of rates that this poundage amounted only:
12 pence on wheat
4 pence on oats
6 pence the quarter on all other grain
The 1st of William and Mary was the act that established the bounty.
This act virtually removed this small duty whenever wheat prices did not exceed 576 pence the quarter.
The 11th and l2th of William III. c. 20 expressly removed this small duty at all higher prices.
77 In this way, the exporter's trade was encouraged by a bounty.
It became much freer than the inland dealer's trade.
The last of these statutes allowed wheat to be engrossed at any price for exportation.
But it could not be engrossed for inland sale except when the price did not exceed 576 pence the quarter.
However, the inland dealer's interest can never be opposite the people's interest.
The merchant exporter's interest may be opposite and sometimes is.
If his own country has a dearth while a neighbouring country has a famine, he might carry his country's wheat to the neighbouring country.
He might very much aggravate the dearth.
Those statutes did not aim for the plentiful supply of the home market.
It aimed to:
raise wheat's money price as high as possible, under the pretence of encouraging agriculture
create a constant dearth in the home market, as much as possible
By discouraging imports, the home market's supply was confined to the home growth, even during great scarcity.
By encouraging exportation, the home market was not allowed to enjoy all of that growth, even during scarcity.
The current system's impropriety is proven by frequency of temporary laws which:
remove import duties for a limited time
Had that system been good, Great Britain would not have needed to frequently change it.
Smith's Free Trade System
78 Were all nations to follow free exportation and importation, they would resemble the provinces of a great empire.
As the freedom of the inland trade is the best palliative of a dearth and the most effectual preventative of a famine, so is the freedom of the exportation and importation among the states of a great continent.
One part of the continent will be less exposed to calamities:
the larger the continent
the easier the land and water communication through it
The scarcity of one country would be relieved by the plenty of another.
But very few countries have entirely adopted this liberal system.
The freedom of the wheat trade is almost everywhere restrained.
In many countries it is confined by absurd regulations that frequently aggravate a dearth into a famine.
The wheat demand of such countries might become so great and urgent that a small nearby state, which was also under a dearth, would not be able to supply them without exposing itself to famine.
One country's very bad policy might render it dangerous to establish what would otherwise be the best policy in another country.
The unlimited freedom of exportation would be much less dangerous in great states where the growth is much greater.
Its supply could seldom be much affected by any amount of exported wheat.
In a Swiss canton, or in some little Italian states, it may be necessary to restrain wheat exportation.
In big countries such as France or England, export restraints can rarely be necessary.
To hinder the farmer from sending his goods at all times to the best market is to sacrifice justice for public utility or some state reasons.
This legislative authority should be exercised and pardoned only during the most urgent necessity.
The price at which wheat exportation is prohibited should always be a very high price.
79The laws concerning wheat may be compared to the laws concerning religion.
People feel so interested in their subsistence in this life or their happiness in the next life, that government must yield to their prejudices.
To preserve public peace, the government establishes systems which people approve of.
Perhaps it is because of this that we so seldom find a reasonable system for wheat or religion.
The Carrying Trade of wheat
80 The merchant carrier imports foreign wheat and re-exports it.
He contributes to the plentiful supply of the home market.
His direct purpose is not to sell wheat at home.
He will be willing to do so, even for much less money than in a foreign market, because he saves freight and insurance cost.
The country becomes the storehouse for other countries through the carrying trade.
Its people can very seldom be in want themselves.
The carrying trade might reduce the average money price of wheat in the home market.
It would not lower the real value of wheat.
It would only somewhat raise the real value of silver.
81 The carrying trade was banned in Great Britain on all ordinary occasions by high wheat import duties, without a drawback.
On extraordinary occasions, exportation was always banned.
The carrying trade was in effect banned on all occasions.
The Real Cause of Britain's Wealth
82 That system of laws connected with the bounty deserves no praise.
Great Britain's improvement and prosperity was often ascribed to those laws.
In reality, it may easily be attributed to other causes.
That security which British laws give to every man, that he shall enjoy the fruits of his own labour is alone sufficient to make any country flourish, despite the absurd regulations of commerce.
This security was perfected by the revolution about the same time the bounty was established.
The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle that it is alone capable of:
carrying society to wealth and prosperity
surmounting obstructions imposed by the folly of human laws.
These obstructions always:
encroaches on its freedom or
reduces its security
In Great Britain, industry is perfectly secure, though it is far from being perfectly free.
But it is freer than in any other part of Europe.
83 Great Britain's greatest prosperity was posterior to the laws connected with the bounty.
However, we must not impute it to those laws.
Prosperity was also posterior to the national debt.
But the national debt certainly was not the cause of the prosperity.
84The laws connected with the bounty has exactly the same tendency as the police of Spain and Portugal.
It lowers the value of the precious metals in the country where it is produced.
Yet Great Britain is one of the richest countries in Europe, while Spain and Portugal are among the poorest.
This difference may easily be attributed to two causes.
The following policies must more forcibly reduce the value of those metals in Spain and Portugal than the wheat laws can do in Great Britain:
The tax in Spain
The ban in Portugal of exporting gold and silver
The vigilant police which executes those laws
This bad policy is not counter-balanced by the liberty and security of the people in Spain and Portugal.
Industry is neither free nor secure there.
Their absurd and foolish civil and ecclesiastical governments would alone be sufficient to perpetuate their present state of poverty, even though their commercial regulations were wise.
85 The 13th of George III, c. 43, established a new system regarding the wheat laws, better than the ancient one.
However, it was perhaps not so good in one or two respects.
86 This statute removed the high import duties for home consumption when:
middling wheat prices rose to 576 pence the quarter
middling rye, peas or beans rose to 384 pence
barley rose to 288 pence
oats rose to 192 pence
A small duty of 6 pence was imposed on the quarter of wheat and other grains in proportion.
The home market is thus opened to foreign grain at much lower prices.
87 By the same statute:
The old bounty of 60 pence on wheat exports ceases as soon as its price rises to 528 pence the quarter, instead of 576 pence which was the price at which it ceased before.
The bounty of 30 pence on barley exports ceases as soon as its price rises to 264 pence instead of 288 pence.
The bounty of 30 pence on oatmeal exports ceases so soon as its price rises to 168 shillings, instead of 180.
The bounty on rye is reduced from 42 pence to 36 pence.
It ceases as soon as the price rises to 336 pence instead of 384.
The sooner export bounties cease and the lower they are, so much the better.
88 The same statute permits wheat imports at the lowest prices to be exported again duty free, as long as it was lodged in a warehouse in 25 British ports under the joint locks of the king and the importer.
Perhaps there are no proper warehouses in other British ports.
89 This law seems an improvement of the ancient system.
90 By the same law:
a bounty of 24 pence the quarter is given for oats exportation whenever its price does not exceed 168 pence.
No bounty had ever been given before for oats exports, no more than bounties for peas or beans.
91 wheat exportation is banned as soon as wheat prices rise to 528 pence the quarter.
rye exportation is banned as soon as it rises to 336 pence.
barley exportation is banned as soon as it rises to 264 pence.
oats exportation is banned as soon as it rises to 168 pence.
Those prices seem too low.
It seems improper to ban exportation at those precise prices at which that bounty, which was given to force it, is withdrawn:
the bounty should certainly be withdrawn at a much lower price or
exportation should be allowed at a much higher price.
92 So far, this law seems inferior to the ancient system.
With all its imperfections, we may say that it was like the laws of Solon.
Though not the best in itself, it is the best which the interests, prejudices, and temper of the times admitted.
It may perhaps prepare the way for a better law in due time.