HomeLiterature Study GuidesThe Wealth Of NationsVolume 2 Book 4 Chapter 5 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 2, Book 4, Chapter 5 : Of Bounties | Summary

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Summary

Smith now turns his attentions to bounties, fees paid to exporters for shipping certain types of goods. In general he regards bounties as counterproductive and even dangerous. The long-standing bounty on grain, for example, drives people to export it in years of plenty, leaving none set aside for years of shortage. Sometimes, Smith admits, bounties can have favorable secondary effects, such as encouraging the development of a nation's merchant fleet. Still, the bounties enacted for this purpose are often much higher than would be necessary to attain those results. The bounty on herring, for example, is so high that people now go out to catch the bounty, not the fish.

The latter half of the chapter consists of a "Digression" on the Corn Laws, a set of statutes designed to regulate the buying, selling, importation, and exportation of grain. Historically, these laws have been both impractical and unjust, limiting the scope of the corn trade and making it harder for farmers to sell their crop. People are afraid merchants will buy up all the grain and then charge exorbitant prices for it later, which is why the laws for many years forbade the buying of corn for resale. Smith, however, sees this as an "absurd popular prejudice," similar to the belief in witchcraft. By charging high prices in years of scarcity, Smith says, the merchants actually do the public a favor by forcing them to be frugal, thus preventing the grain supply from running out mid-season. Likewise, the bounties on grain exportation and restraints on importation are impediments to the efficiency of free trade.

Analysis

Unlike most of the trade policies described in Book 4, exportation bounties are a potentially good idea, but one taken way too far under the present system. Smith readily acknowledges a role for bounties in building a "standing navy," since people who are paid to fish will build more fishing vessels to do so. In this case the bounty is a worthwhile tradeoff: the public pays a small amount of extra tax and the economy becomes a little less productive, but the ships get built and maintained.

The bounty on grain exportation, Smith argues, presents a similar tradeoff, except nothing is gained in return. Like any other kind of export bounty, the amount directly paid to exporters comes as a cost to the public, who are then "taxed" a second time when they must pay higher prices to buy grain for themselves. All this might be acceptable to Smith if the bounty accomplished its stated purpose of increasing tillage (i.e., the amount of cultivated land) in Great Britain. Smith finds no evidence, however, that the state of tillage is actually improved by the bounty.

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