Adam Smith's Simplified Wealth of Nations, Book 4, Chapter 5d: Digression on the Wheat Trade

Chapter 5d: Digression on the wheat trade and wheat laws -- the domestic wheat market

40 The praises for the following are unmerited:

This is demonstrated by examining the nature of:

This is a very important subject, justified by this long digression.

41 The wheat merchant's trade is composed of four separate branches which can be done by the same person:

  1. The trade of the inland dealer
  2. The merchant importer for home consumption
  3. The merchant exporter of home produce for foreign consumption
  4. The merchant carrier or importer and re-exporter of wheat
  1. 42 The interest of the inland dealer is exactly the same with the people's interest even if it may appear opposite even in years of great scarcity.
The Wheat Merchant and The Invisible Hand of Svadharma

Without intending the people's interest, he is necessarily led by a regard to his own interest.

43 If one great merchant company got all of a country's crops, it might be its interest to destroy a big part of it to keep up the price of the rest.

  
 
 
44 Whoever examines the history of European dearths and famines from 16th century to the present will find that a dearth always arose from a real scarcity.   
 
 
45 In an extensive wheat country with free commerce and communication, the scarcity created by the most unfavourable seasons can never be so great as to produce a famine.  
 
 
46 When the government tries to to remedy a dearth by ordering all dealers to sell their wheat at a reasonable price, it: The unlimited, unrestrained freedom of the wheat trade is the only effective preventative of a famine.  
 
 
47 In years of scarcity, the lower classes impute their distress to the wheat merchant's avarice.

48 Europe's ancient policy authorized and encouraged this popular odium against the wheat trade, even if the wheat trade is so beneficial to the public.


49 The 5th and 6th of Edward VI cap. 14 enacted that anyone who buys any wheat or grain with intent to sell it again would be an unlawful engrosser.
 
50 Our ancestors imagined that people could buy their wheat cheaper from the farmer than from the wheat merchant.  

51 In this way, Europe's ancient policy tried to regulate agriculture by maxims different from those which regulated manufactures.  


Loss of Competitve Advantage From the Division of Capital

52 The manufacturer was allowed to keep a shop and sell his own goods by retail, but he could not have undersold the common shopkeeper.
 

53 The manufacturer was banned from dividing his capital into two employments.

54 The dealer who can employ his whole stock in one single business has the same advantage as the worker who can employ his whole labour in one single operation.  

Svadharma

55 The law, which banned the manufacturer from being a shopkeeper, forced this division in the employment of stock faster.
svadharma


  56 It obstructed: By obliging the farmer to do two trades, it forced him to divide his capital into two.

The Trade Between The Farmer and The wheat Merchant

57 After the farmer, the wheat merchant contributes the most to the raising of wheat, if his trade is properly protected and encouraged.  

58 The wholesale dealer affords a ready market to the manufacturer by taking the manufacturer's goods as fast as the manufacturer can make them. 59 The same intercourse universally established between farmers and wheat merchants would equally benefit the farmers. 60 The statute of Edward VI banned any middleman from coming between the grower and the consumer.   61 This law was softened by several subsequent statutes.
Next: Chapter 5e, Digression: Wheat import and export and Footnote