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• Preface
• Editorial Note
• I.: Biographical Sketch
• II.: Early Economic Writings: 1804-1808
• An Essay of the Impolicy of a Bounty On the Exportation of Grain
• Introduction
• Essay On the Corn Laws
• Chap. I: Of the History of the Corn Laws
• Chap. II: Influence of the Principle of Population Upon the Corn Trade
• Chap. III: Effects of the Bounty On the Rent of Land
• Chap. IV: Effects of the Bounty On the Profits of the Farmer
• Chap. V: Effects of the Bounty On the Value of Silver
• Chap. VI: Exportation
• Chap. VII: Importation
• Chap. VIII: Landlords, Farmers, and Corn-dealers
• Postscript to Essay On Impolicy
• Commerce Defended.
• Introduction
• Chapter I: On the Security Or Insecurity of the British Commerce
• Chapter II: On Land, As a Source of Wealth
• Chapter III: Of the Definition of the Terms Wealth and Prosperity
• Chapter IV: Of Manufactures
• Chapter V: Commerce
• Chapter VI: Consumption
• Chapter VII: Of the National Debt
• Chapter VIII: General Reflections
• Smith On Money and Exchange
• III.: James Mill and David Ricardo
• Elements of Political Economy,
• Preface
• Preface (to the 2nd Edn.)
• Introduction the Subject—its Limits—and Division
• Chapter I: Production
• Chapter II: Distribution
• Chapter III: Interchange
• Chapter IV: Consumption
• Mill On Scope and Method
• Whether Political Economy Is Useful London Review, Jan. 1836, Vol. Ii, Pp. 553–572.
• V.: James Mill and India
• Book Ii of the Hindus
• Chapter I: Chronology and Ancient History of the Hindus
• Chapter II: Classification and Distribution of the People
• Chapter III: The Form of Government
• Chapter IV: The Laws
• Chapter V: The Taxes
• Bibliography

CHAP. V

Effects of the Bounty on the Value of Silver

I have now shewn that there are two different circumstances; the power of the landlord to raise his rent, and the natural and unavoidable migration of capital; either of which is perfectly sufficient to prevent the profits of the farmer from ever being raised for any continuance of time, above the lowest consistent with the nature of the business; and that as the operation of both must be united against the bounty, its effects with regard to agriculture must soon be terminated. It is surely unnecessary to repeat the conclusion, that if the profits of the farmer are not raised by the bounty, it is impossible his encouragement to enlarge his business can be increased. What is the reason, according to the zealots of this sect, which renders the bounty necessary? Why, the insufficiency of the profits of the farmer. But the bounty, it is now apparent, cannot alter those profits. Therefore the bounty has no tendency to produce the effect proposed by the advocates for that measure.

But though the bounty produces no good effects, it is not altogether without effects. We must next advert to the view which Dr Smith has exhibited of this subject, a view which any one can affect to treat lightly only from not understanding it. No proposition is established more thoroughly to the conviction of those who have studied the scientific principles of political economy than this; that the money price of corn, regulates the money price of every thing else.11 The wages of the common labourer may in general be reckoned his maintenance. He must earn a sufficient quantity of corn to feed himself, otherwise he cannot exist. If he is paid in money, the sum of money he daily receives must always be equivalent to the quantity of corn he must use. If the price of the corn is high he must receive the greater sum of money, as his day's wages, to buy it with. This is so obviously necessary, that we need spend no more time in proving it. The money price of labour therefore is entirely regulated by the money price of corn.

Let us next see how the money price of corn affects that of every thing else. It is evident that it must regulate the price of all other products of the earth, as the culture of corn will encroach upon them till they become equally profitable with itself. ‘It regulates, for example,’ says Smith, ‘the money price of grass and hay, of butcher's meat, of horses, and the maintenance of horses, of land carriage consequently, or of the greater part of the inland commerce of the country.’

All the commodities of any country consist either of the rude produce of the land, or of manufactured goods. We have seen that the money price of the rude produce of land is altogether determined by the money price of corn. The price of manufactured goods may be resolved into three parts; 1st, The price of the raw material; 2d, The wages of labour; 3d, The profit of stock. The money price of the first two, we have already seen, is altogether regulated by that of corn.

The quantity of circulating stock in every manufacture is in proportion to the value of the raw material, and the wages of the manufacturer. But we have seen that the price both of the raw material, and the wages of the labourer in all manufactures, are raised in exact proportion to the price of corn. More circulating capital, therefore, is wanted in that proportion to carry on every manufacture, and the reasonable profit upon this additional capital must be added to the price of the manufactured commodity. Every one of the three constituent parts of the price of all manufactured commodities receives then an increase by every increase in the price of corn; and thus the price of all manufactured commodities must rise in a much greater proportion than the price of corn. The price therefore of labour, and of every thing which is the produce of land and labour, every exchangeable commodity which the country produces, is altogether determined by the price of corn.

Nothing then can be more incontrovertible than the proposition of Smith, that ‘the real effect of the bounty is not so much to raise the real value of corn, as to degrade the real value of silver; or to make an equal quantity of it exchange for a smaller quantity, not only of corn, but of all other commodities.’

Two conclusions, therefore, evidently follow;

The first is, that no ability whatever is by the bounty procured to the farmer of increasing the quantity of corn to be raised. ‘Though in consequence of the bounty,’ says Smith, ‘the farmer should be enabled to sell his corn for four shillings the bushel instead of three and sixpence, and to pay his landlord a money rent proportionable to this rise in the money price of his produce; yet, if in consequence of this rise in the price of corn, four shillings will purchase no more goods of any other kind than three and sixpence would have done before, neither the circumstances of the farmer, nor those of the landlord, will be in the smallest degree mended by this change. The farmer will not be able to cultivate better: the landlord will not be able to live better.’

The second conclusion is, that in a country situated as ours at present is, in which so many complaints have been lately heard of the depreciation of money, produced by various causes, it surpasses the common measure of folly to enact a law more powerful to produce the evil, than any other cause which exists. This is a point which deserves the most serious consideration of every thinking man, and more particularly of every commercial man in the country. We have heard Mr Pitt declare in the house of commons, when he was urging at the end of the last session of parliament an addition to the civil list money of the king, that the depreciation of money in this country had been not less than 60 or 70 per cent within the last 30 or 40 years. This is enormous. Nothing similar to this has happened in the rest of Europe. What a prodigious disadvantage must not this lay us under in our commerce with all other countries? If we are still able to send goods to those countries, how much more should we be able to send, were this prodigious burthen removed, and we were able to sell our goods 60 per cent cheaper? What is it that in such peculiar circumstances we think proper to do? Why, to add a new cause to increase the evil, a cause more fundamental and more powerful than any which previously existed. It behoves us to think a little what we are about. The burthen may be increased till our commerce can bear it no longer. Who knows how soon a favourable turn may be produced in the unhappy affairs of the continent of Europe, when we could not long support the burthens which we at present bear? At a time when our enormous taxation, the stoppage of payment at the bank, and the vast expenditure of a war are all operating to depreciate money in this country, to urge an act to grant a bounty on the exportation of corn, which must lead so powerfully to a still greater depreciation, betrays a criminal neglect or ignorance of the best interests of the country, which deserves the utmost reprobation of this age and of posterity.

We supposed that it was a proposition completely agreed upon by those who had studied the principles of national wealth, and a proposition which no one, bearing the name of a politician, was ignorant of, that one of the most favourable, and advantageous of all circumstances to a manufacturing country, was the cheapness of provisions. This determines the price of the raw material; it determines also the wages of the labourer; it determines therefore the price of the manufacture. When this costs little at home, it can be sold with great advantage abroad; it overcomes all competition; and the greatest quantity of it may be disposed of. When the price of corn on the other hand is high, this raises the price of the raw material of all manufactures, of the labour employed in them, and by consequence of the manufactured commodity; it must be sold dearer therefore abroad; and by consequence less of it can be disposed of. How wonderfully circumscribed the range of reflection which dictates the arguments of those who defend the bounty! They boast highly of the riches brought into the country by the annual exportation of a few hundred thousand quarters of corn, worth not so much as a million of money; while manufactures to the value of many millions are by that means prevented from being exported; while too the exportation of the corn has to be assisted by money which government pays, whereas the manufactures on the other hand would pay to government a large sum as duty; and while, at the same time, all the corn exported would be consumed at home at a full price, in the preparation of those additional manufactures; and by consequence the very same encouragement afforded to the farmer to prosecute his important business, as could have been by the exportation of his produce.

It is astonishing what a different course of reasoning men often pursue on subjects exactly similar, without being able to perceive their own inconsistency. On running over in one's mind some of the acts of the British legislature, how many cases does one find where it has acted on a principle directly the reverse of that on which it established the bounty law; cases which are as vehemently applauded by the common tribe of politicians, as the bounty law itself! Why should wool, for example, have been always subject to a system of laws, absolutely and immediately contradictory to the principle of the corn bounty? Why, if a bounty on the exportation of corn be so favourable to the production of corn, should not a bounty on the exportation of wool be favourable to the production of wool? Why, if the exportation of corn have such an effect to produce plenty of corn at home, should not the exportation of wool have an effect to produce plenty of wool at home? How has it been, that while the legislature has so often encouraged the exportation of corn, it has always prohibited the exportation of wool with so much anxiety, and punished it with so much severity? Why are such inconsistencies still allowed to disgrace the intellects of our law-givers? What difference can be pointed out between the case of wool and that of corn? If it be said that we have not wool enough to answer our occasions, neither have we corn enough. If it be said that wool is the material of one of our most important manufactures; corn is the most important material of all our manufactures. If it be of importance that the raw material of any of our manufactures should be got cheap, surely it is of importance that what is the great material of them all should be got cheap.

Why, if granting a bounty on exportation be so effectual a means of producing plenty and creating riches, do we not establish a bounty on the exportation of gold and silver? Why do we not grant a bounty on the exportation of sheep and oxen, butter and cheese, ale, porter, and spirits? Why not on tables and chairs, and all other articles of furniture? Nay, to go higher, why, in order to increase population, not grant a bounty on the exportation of men and women? Why not, especially, grant a bounty on the exportation of such classes as we have most need of, soldiers, for example, and sailors; As for politicians, we have such a supply of them, the very best in their kind, that we have no occasion for exportation, unless it be as a security against any decay in the numbers or breed.

We know of no person who has pretended to point out any defect in this argument of Dr Smith, except a Mr Mackie, who calls himself a farmer in East Lothian, in Scotland, and who has published two letters in the same volume with the performance of Mr Dirom. The gross ignorance which those letters betray of some of the most important, and best established principles of the important subject on which the author has treated, might have exempted me from the task of exposing the futility of his objections, if it did not appear that conclusions, similar to those of Mr Mackie, whether drawn from the same premises or not, are both adopted, and important regulations founded upon them for conducting the business of the nation. Let us hear to what extent Mr Mackie's objections reach. There are three different states in which Dr Smith says the affairs of all countries may be considered as placed, the declining, stationary, or advancing states. In the first two of these, Mr Mackie allows that the ideas of Dr Smith hold completely, but denies that they do so in the third. ‘I readily,’ says he, p. 219, ‘agree that the money price of corn may produce this effect (regulate the money price of all things) in a nation where the state of society is stationary or declining; such as China or Hindostan; but when applied to Britain, or any country advancing in wealth and population, the argument appears to me to be unfounded.’ Mr Mackie is one of that class of authors from whom you cannot get any precise account of the grounds of their opinions, who throw down a number of circumstances more or less remotely connected with the point in question, then assert the conclusion which they wish to draw, and leave you to find the connection between it and the premises the best way you can.

The most distinct statement of the reasons for his dissent from the conclusions of Smith, which I have found in the letter, is in these words, p. 221: ‘But in countries where industry, population, and wealth, going on in a progressive state of improvement, are constantly encreasing the national capital, and continually adding to the general consumption, these causes alone operate to raise the money price of labour and every other commodity, without being in the smallest degree affected by the money price of corn.’ What causes does the author mean? Does he mean an increasing state of industry, population, and wealth; or certain effects which he mentions of these increasing circumstances, namely, an augmentation of capital and an augmentation of consumption? As far as we can gather his meaning from his various details it is this last. An increase of industry, population and wealth produces an increase of capital and an increase of consumption; and an increase of capital and of consumption produces an increase in the price of labour and of commodities. In a country in this progressive state these causes alone he says produce this increase of wages and price, ‘without being in the smallest degree affected by the money price of corn.’ Here the grammatical construction of the author's language bears that the causes he mentions, the increase of capital and of consumption, are not in the smallest degree affected by the money price of corn; but as this is nonsense, or at least altogether foreign to the purpose, we may suppose he means to say, if he knew how to express himself, that it is the ‘price of labour and of every other commodity,’ which is not in the smallest degree affected by the money price of corn. Now if this be so; it is something very strange. When a country is in a declining or a stationary condition, two out of the three possible conditions, a rise in the price of corn, even according to this author himself, necessarily produces a rise in the price of labour, and of every other commodity, but as soon as ever a country begins to go forward a rise in the price of corn loses all this power; and the increase of capital and of consumption prevents it from having any effect whatever upon the price of labour and commodities. What a wonderful thing this increase of capital and of consumption must be? Why does not some adept in the science of political economy undertake to prove, (it would be a task admirably suitable to the talents of Mr Mackie,) that a rotation of crops is a thing very serviceable to increase the productive power of land in the declining and stationary states of a country, but loses all this efficacy in the advancing state?

I wonder if Mr Mackie means to assert that a rise in the price of corn has no effect in the advancing state of a country upon the other species of the rude produce of the earth; upon the price of potatoes, for example, or hay, or flax? Or if he supposes that a farmer, who knew he would make more by sowing corn in his field than any of those articles, would not sow corn instead of them, and every other farmer the same, till the quantity of those article would become so diminished as to raise their price to a level with that of corn. Because if Mr Mackie knows not this principle, or is incapable of perceiving its validity, I cannot descend to instruct him; I write for others than him. Here is one large class of articles then undoubtedly affected by the money price of corn; and raised in price in the same proportion exactly. There is another large class of articles of which those form the raw materials. So far therefore as the price of the raw material enters into the price of those articles, so far is their price also affected by that of corn. So far too as an increase in the price of the raw material requires an additional quantity of capital to carry on the same quantity of business, and by consequence an additional profit upon that additional capital, so far is the price of those articles still farther affected by the price of corn.

The absurdity of the assertion with regard to labour is almost equally obvious. When a country is stationary the wages of the labourer are sufficient to maintain him, and to preserve the number of labourers from decreasing, and no more. In this state of things the author allows, and it is very certain, whether he allows it or not, that every increase in the money price of the article by which the labourer is maintained must be accompanied by a correspondent rise in his wages. This rise however is merely nominal. The reward of his labour, the quantity of maintenance which he can command is the same as ever. It is the money price, therefore, Smith says, and not the real price which is affected by the money price of corn. When from this state a country begins to advance, the demand for labour increases; those who want to employ it bid against one another; and the wages of labour rise. This is an increase in the real price of labour, in the quantity of maintenance which the labourer can command. It is in general, however, a rise in the money price at the same time. The fluctuations in the value of money are in general slow, and the changes in the course of a few years are scarcely perceptible. If we suppose then that the prosperity of Great Britain, for example, and the demand for labour should increase so fast as to raise the price of labour one third in the course of five years, the value of money remaining all this while the same, the rise in the money price, and the rise in the real price of labour would be the same. The quantity of money which the labourer would receive would be one third greater; and the quantity of maintenance which he could command would likewise be one third greater. Now observe the proposition of Mr Mackie. This increasing demand for labour, he says, has a tendency to raise the money price labour only, not the real; a proposition than which a more senseless was probably never set down upon paper. Though the price of the labourer's maintenance, says he, be so raised during this time, that one third more of money will be able to purchase no more than might have been purchased by one third less at the beginning of that period the wages of the labourer will be only raised one third in money. They will not be raised in the smallest degree in reality. The quantity of maintenance which he can command will still be the same, that is the lowest capable of preserving the number of labourers from being reduced by starvation. But if any one is capable of supposing that a growing demand for labour, capable of raising the real price of labour one third, can be prevented from raising that price at all, only by a rise in the price of provisions I do not think it necessary to spend time to instruct him.

The whole of this miserable attempt has been produced by the incapacity of the author to attend to the distinction between the money price and the real price of labour. Whoever is capable of understanding the effects of prosperity, that is of a growing demand for labour upon the price of labour, must see that it produces effects upon the real price of labour, that is upon the quantity of maintenance which the labourer can command. If therefore the money price of that maintenance has risen one third while the rate of his wages has risen one third, the money price of his labour must have risen not one third only but two thirds; ‘nothing’ says Mr Burke (Thoughts and Details on Scarcity) ‘is such an enemy to accuracy of judgment as a coarse discrimination.’

It is unnecessary to pursue this subject any farther. It now appears that the money price of all the raw materials produced in the country, and also that the money price of labour are altogether determined by the money price of corn. I have already shewn in what manner a rise in the price of the material, and of the labour, requires an additional capital in every species of manufacture, and an additional profit upon that capital. The rise then on all the component parts, into which the price of commodities can be divided, is exactly the same in the advancing as in all the other states of society. It therefore clearly appears that universally the money price of corn regulates the money price of every thing else; and by consequence that ‘the real effect of the bounty,’ to repeat the language of Smith, ‘is not so much to raise the real value of corn, as to degrade the real value of silver, or to make an equal quantity of it exchange for a smaller quantity, not only of corn, but of all other commodities.’

I flatter myself that I have now fully proved that a bounty on the exportation of corn, never has had any effect, and never can have any, to encourage the cultivation of corn, or to increase the quantity of it produced. Every possible plea then for the policy of granting the bounty is taken away. I have proved, too, that the high price of corn to which the bounty is intended to give occasion, while it has no tendency whatever to encourage agriculture, has a necessary tendency to discourage every other species of industry, and to produce the greatest evils. I have therefore exhibited the strongest reasons for the speedy repeal of the corn law which was passed at the end of the last session of parliament. I am happy to understand that it is in the contemplation of many of the most respectable bodies of men in the kingdom, to petition parliament for the repeal of that law as soon after it meets as possible. They cannot attend to a concern which more strongly affects their own interest, as well as the interest of the nation at large; and it is eagerly to be hoped that they will be joined by all other bodies of a similar description. In that case no doubt whatever need be entertained of the immediate repeal of this statute. The British Parliament wants only the due information to be laid before it, in such a manner as to bear down the influence of ignorance and private interest. On its integrity and patriotism, as a body, the public relies, as it has every reason to rely, with the most perfect confidence.

In reading the different publications in which that measure is recommended, I have been struck, as I think every well informed person will be struck, with the total want of all general views, by which their authors are distinguished. They strongly betray a most limited acquaintance with the great principles of political philosophy. They take up a single particular; they are vehemently struck with one peculiar aspect which it shews; but are unable to extend their view to all the parts of the great subject with which it is connected; and are thus perpetually deceived in their reasonings and conclusions. The mistakes of such men might easily be overlooked, even their vanity and presumption might be pardoned, if we did not so often find that their partial, and contracted views adapt themselves to the understandings of men who have the power to carry their follies into execution, and thus become the principles upon which the affairs of nations are conducted, and by which the happiness of millions is determined.

[11][Wealth of Nation, pp. 476f. Mill was using the 1st or 2nd edition because in the 3rd edition Smith stated that ‘the money price of corn regulates that of all other home-made commodities’. This qualification is left out of all Mill's quotations from Smith in the following pages.]