Simplified Wealth of Nations by Adam Smith, Book 4, Chapter 5b: The Money Price of Grains Regulates The Money Price of All Commodities

Chapter 5b: The Money Price of Grains Regulates The Money Price of All Commodities

11 The real effect of the bounty is not so much to raise the real value of wheat as to degrade the real value of silver.

12 The money price of wheat regulates the money price of labour.

13 The money price of wheat regulates the money price of all other rude produce of land.

14 By regulating the money price of all other rude produce of land, the money price of wheat regulates the materials of almost all manufactures. 15 Because of the bounty, the farmer can sell his wheat for 48 pence a bushel instead of 42 pence.
oct13_feature_gale_fig03
16 The degradation in the value of silver caused by the fertility of the mines has very little consequence to any country. 17 But that local degradation in the value of silver caused by a country's political institutions has a very great consequence which makes everybody really poorer. 18 This is the situation of Spain and Portugal. 19 Spain taxes the exportation of gold and silver while Portugal bans it.
220px-Bonneville_Dam_spillway_cross-section
20 The bounty on corn exportation operates exactly as this absurd policy of Spain and Portugal. 21 The bounty raises the nominal price of our corn in the home market more than its real value. 22 Perhaps only the corn merchant, the exporter and importer of corn, gain advantage from the bounty.

Grain Valuation

23 Our farmers seem to have imitated our manufacturers when they established the bounty. 24 Export bounties on any home-made commodity are liable to:
  1. The general objection made to all the expedients of the mercantile system
  1. The particular objection of forcing it into a channel that is actually disadvantageous
    • The trade which cannot be carried on without a bounty is a losing trade.
    • The bounty on corn exports is liable to this further objection.
      • It cannot promote the raising of a particular commodity.
    • When our farmers demanded the bounty, they imitated our merchants and manufacturers.
      • They did not completely comprehend their own interest as the merchants and manufacturers understood their own.
      • They:
        • loaded the public revenue with a very big expence,
        • imposed a very heavy tax on the people,
        • did not increase the real value of their own commodity,
        • somewhat discouraged the country's general industry by lowering the real value of silver, and
        • retarded the improvement of their own lands which depend on that industry.

Next: Chapter 5c: Production Bounties and Buss Herring