Front Page Titles (by Subject) CHAP. IV: Effects of the Bounty on the Profits of the Farmer - Selected Economic Writings
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CHAP. IV: Effects of the Bounty on the Profits of the Farmer - James Mill, Selected Economic Writings 
Selected Economic Writings, ed. Donald Winch (Edinburgh: Oliver Boyd for the Scottish Economic Society, 1966).
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Effects of the Bounty on the Profits of the Farmer
We have already seen that the contract which the landlord has to make with the farmer necessarily reduces the profit of the farmer to the very lowest consistent with the nature of his business; whatever may be the price of the commodity which he raises. There is another circumstance which, independently of this contract, would speedily produce the same effect, and prevent any bounty whatever from contributing to the improvement of agriculture.
Those persons must be ignorant indeed, who need to be told that there is a balance of profits in all the different species of business carried on in any country. The per centage is not indeed exactly the same. Because some trades are less agreeable than others; some have more risk; and for those circumstances it is reasonable that a compensation should be made. But it is plain that reckoning all the agreeable, and all the disagreeable circumstances as profit or loss in every trade, there is an exact equality of profit in all the branches of free trade in any country. Any particular branch may obtain a temporary ascendency, but it is soon reduced by the influx of rivals in the trade, who naturally flock to the most gainful business.
According to this principle it is abundantly certain that the profits of the farmer must be upon this level before any bounty is applied in his favour, and must continue upon it, though no bounty were ever applied; and it is equally certain that no bounty can ever raise them above this level. Were they not upon this level, competitors would withdraw from the trade till they rose to it. Should they be raised ever so little above it, competitors would crowd into it till they brought them down.
Let us first suppose that a bounty is granted upon production. The farmer sold his corn before at the reasonable profit. If we suppose that he sells it at the same profit now, and gets the bounty over and above, his profit is raised much higher than that of all his countrymen in other trades. Some of them we may be assured will immediately endeavour to obtain a share of his high profits. New competitors cannot come into the same market without reducing the rate of profit; and this competition must continue till the rate of profit is brought down to the established and unalterable level. The business of agriculture is progressive during the period of this competition; but as soon as ever things are brought back to their natural state, and that is in a very short time, that business becomes stationary as before. To produce any permanent effects then by bounties on production, one bounty would not be sufficient; a new bounty would need to be imposed every four or five years; and by this progress we might increase the price of wheat as rapidly as we do the national debt. The absurdity of such a measure as this is sufficiently exposed by the very mention of it.
But the advocates for the bounty on exportation may say, that the case is not the same with this, as with the bounty on production. The foreign market they may represent as so extensive that all the competition which would be produced by the greatest increase of British corn, could have very little effect in reducing the price, and by consequence in reducing the profits of the British farmer.
Are we then to suppose it to be the opinion of those persons, that they can raise the profits of the farmer permanently above the profits of the other species of business in the country? They may as well undertake to procure for him sunshine and rain whenever each would be agreeable. Every removal of stock from the other kinds of business in the country to that of farming lessens the competition of capital in all those kinds of business, and thus raises the rate of profit.10 If the profit of the farmer does not fall by this increase of capital, more capital leaves the other trades of the country, and the profit in them rises till at last they are brought upon an equality with the business of the farmer. The only effectual method, therefore, the only method by which in the nature of things, the profits of the farmer can be raised above the profits in other trades, is to erect the farmers into an exclusive corporation, like the East India Company, and to limit both the number of persons, and the quantity of capital which shall be employed in the trade. I wonder, if the advocates for the bounty will recommend this as a scheme for improving agriculture! They might by this means undoubtedly raise the profits of the farmers; because they might give just as little as they pleased to the landlords as rent, and demand just as much as they please from the people for corn. Without this or any other artificial scheme, the profits of the farmer are, and ever must be on an exact level, subject to the trifling fluctuations which belong to this as to all trades, with the rate of profit in the other species of business in the country.
This is so necessarily and obviously true; that it is surely a matter of surprise to find a committee of the House of Commons talk of its being necessary to make a law, (see Report from the Committee on the Corn Trade, ordered to be printed on the 14th of May, 1804, p. 4.) ‘to secure a certain and uniform, fair and reasonable price to the farmer.’ Why did they not recommend a law ‘to secure to him the certain and uniform birth of a fair and reasonable number’ of calves and foals, from the number of cows and mares he employs as breeders? What insures the maker of knives and forks, or of ploughs and spades, a reasonable profit? Why, the market. Is not this sufficient to secure to every trader the profit which belongs to his business? Is it not absolutely necessary, by the very nature of things, that this should do so?
All those persons who are capable of estimating a statesman by the knowledge he displays of the genuine principles of national prosperity, will not forget the declaration of Mr Pitt in the House of Commons, on a day when the price of wheat in Mark-lane was 70s. the quarter, ‘that the price of corn was not nearly high enough.’ This declaration was founded on one of the most vulgar of all vulgar prejudices; ‘that a high price of corn is useful to encourage the raising of corn;’ a prejudice which we should suppose that, after a moment's reflection, no man of common sense could entertain. Who does not know that it is the profit of farming stock, which forms the encouragement of the farmer? And who does not know that the profit of farming stock may be as high, or higher, when corn is sold cheap as when it is sold dear? That therefore the encouragement of agriculture may be greater when the price of corn is low than when it is high? Is it found that the profit of other trades rises in proportion to the price of the article? So far from it, that the very reverse is in general found to be the case.
Mr Burke, from whom it were to be wished that many of those, who have so well learned antijacobinism from him, would learn something else, has admirably observed in that Tract to which we have already alluded, ‘That a greater and more ruinous mistake cannot be fallen into, than that the trades of agriculture and of grazing can be conducted upon any other than the common principles of commerce.’ ‘The balance between consumption and production,’ says he, ‘makes price. The market settles, and alone can settle that price. Nobody, I believe, has observed with any reflection what market is, without being astonished at the truth, the correctness, the celerity, the general equity with which the balance of things is settled.’ Talking of the profit of the farmer, he says, ‘Who are to judge what that profit and advantage ought to be? Certainly, no authority on earth. It is a matter of convention, dictated by the reciprocal conveniences of the parties, and indeed by their reciprocal necessities.’
[This, of course, is Smith's theory of profits, cf. Wealth of Nations, p. 87. In a review of Lord Sheffield in the Literary Journal (Jan. 1806, pp. 51-61) Mill drew this firm conclusion from Smith's theory of profits: ‘It is a fixed maxim in political economy that everything which tends to lower the general price of commodities by reducing the profits of stock is an advantage to the country.’ This doctrine remained ‘fixed’ for Mill until Ricardo advanced an alternative theory.]