Schizophrenia has something to do with the dopamine neurotransmitters within the brain, and one theory of genetics purports that the noise levels of neurons firing within the brain become so large that the actual signal which ought to be being transmitted across synapses and through dendrites become lost in translation. What I am alluding to is that when I was in my prodromal phase of schizophrenia (which lasted more than a decade) I saw many wondrous things about economics and social political structures which I would like to share with you now.
Firstly is the connection between what inflation is (a rise in the cost of living) and the propinquity of the spread and increase of unemployment within a society of people who are living within a wider economy. Well, all prices consist of the summation of their specific component part of the price at which such a product is sold. Components parts of price might be those of taxation, those of land leases or other forms of leases, licenses of the cost of permissions and permits; the rents of land or the rents of properties. Further, yet more components which constitute parts of the prices at which a commodity is brought to the marketplace, may be the cost of raw materials, the cost of intellectual properties, and the cost of labour; and the cost of energy of whatever form used so to bring such an industry of human endeavour forth from the imaginings of its initial incipience. Thus if the component parts of price at which any commodity is effectuated, increases, via unnatural economic controls which are the consequence of government (by constituting these component parts of prices); then, either the component part of price which is profit, must decrease, in order to bring such a commodity to market at the lower price; or, assuming people are living on the bread-line, the wages which people require to be paid in order to purchase the same thing at such an elevation, must be increased so to facilitate the purchasing of this thing, at the newer price, if it is absolutely desired. In the latter case, assuming these pay rises don't happen (which is that people can't afford to buy what they require), the economy stagnates because people are unable to acquire what they desire (and possibly require in order to subsist); and in the former case, (which is that the profit margin of any given enterprise suffers in order to sell a commodity at such a price which people can afford) smaller enterprises suffer and become no longer viable because the whole point of all enterprises is to generate profit in the self-interests of personal greed, which is indeed very much both human nature and into the interests and well-being of the public good. Larger enterprises pre-dominate, and can monopolistically elevate their profits due to this reduction in competition.
People in their ignorance refer to the Communist Republic of the Peoples of China; and also falsely believe that Britain has a capitalistic economy; but in reality the economic effects of the present system of governance within Britain results into an effect whereby the interests of personal gain and private endeavours are prevented; and the possibility of self-generated profit is made unviable. Nowhere within Adam Smith's writings was the word "capitalism" ever used. In reality the democratic countries have a system of State control and over-bearance onto the components parts of price which resembles far more of the types of State control found within 20th century Russia than any-one could possibly imagine. These pressing burdens upon me (that nobody outside of my unwell mind seemed to be able to perceive these things) was a great stressor upon me and my developing mental illness.
Okay, so if and when people cannot afford to buy what they want and need to effectuate their subsistences, this is because prices have risen over and above what they can afford to buy. This is what inflation is. And in order to bring commodities to market at a price that people can afford, the profits of such producers of these commodities suffers. In other words, profit margins suffer. In order to attempt to alleviate this, and to avoid making a loss, wages within this corporation become reduced. This results in even less money available to buy such a commodity within the economy at large. If people are paid less, they in turn have less money to invest within their own enterprises. Thus they too can employ fewer people because of the existing components parts of prices which would be encumbent upon their enterprises too. This is what unemployment is. Thus I have indicated a causal relationship between what is inflation, and what is unemployment. This cause and effect is crucial to understanding my view of economics. I don't want you to forget it. The uninformed might argue against its happening; but I believe this to be true and of paramount significance.
This brings me onto the subject of what is a trading subsidy, and why such a thing should never exist within a capitalistic economy. I will also explain how and why the economic policies within Europe have not achieved their desired goals over the past 50 years (prior to 2019), and I will specify an alternative agricultural and social policy of land utilisation that should be sought to be achieved. Longer-term benefits may include a return of home-building permissions and quotas from centralised authority, to local control and governance; an end to the absurdity of Economic Union farming tariffs paying people to grow nothing, which has the effect of increasing the cost of food by restricting its supply (which is inflationary); more power being granted to national government to support and implement workers' rights; and the power of courts to oversee the legality of domestic measures which are in the economic and environmental interests of this planet.
Okay. Where to begin?
Well, the over-riding fallacy of belief is that economic subsidies are somehow preventing unemployment in some way, and that they are somehow necessary in this respect to prevent poverty. But all this is false. A subsidy is a payment of money to a farmer to ensure that he or she won't grow something, or to ensure that the price at which it is brought to market becomes fixed, altered, or regulated by the State in some way. I will address the former case first, which is that a subsidy is a payment of money to a farmer to prevent his labour from producing the quantity of produce which the marketplace requires for purchase. The idea behind this is that market-place competition is vile and will lead to a break-down in civilisation if left unregulated. But such views are pernicious because Adam Smith pointed out that if and when the farmer's profits begin to suffer, then the game is not worth the candle, and he or she will naturally choose to employ his investments and resources into some other produce, or some other kinds of species of enterprise. People adapt. That is what defines the human characteristic. Okay. Do such subsidies exist? Well, yes they do and they are called the European Common Agricultural Policy, and they are harmful, both to the economic interests of each nation within the governing bloc; and also are not very effective as a way of letting land go fallow. A much more effective way to ensure that natural habitats persist, is to do something rather drastic and revolutionary, which would be to replace the concept and belief and law which is land ownership, by that of land utilisation. That way all land itself becomes publicly owned, and local and national governance decides what land shall be used for what purpose. This would be dynamic and responsive to environmental challenges and changes; and also would reduce the component part of price which is that of the purchase of land itself within any given enterprise of human endeavour. At the moment, urban decay happens because plots of land are divided up into physically smaller plots obliterating the larger grander and more refined structures which where there before, and which survived from the Victorian era. I believe that humans have a religious need built into their DNA to co-operate in the engineering of large structures, and when this genetic need is thwarted by the laws governing money, then all sorts of social craziness begins to happen, starting off as road rage and ending in vast spates of knife crime and other indirectly related social disorders. Please note that it is money itself which is the one factor connecting these phenomena. But money is not inherently bad. Neither is taxation. Done correctly it can be extremely socially progressive; but "correct" is a very arbitrary and ambiguously defined word, which I am presently trying to rectify in the grand scheme of things.
I was talking about the first point, which was that a subsidy is a payment of money to a farmer to prevent his labour from producing the quantity of produce which the marketplace requires for purchase. I have demonstrated that such subsidies do exist. The effect of such human behaviours of inter-monetary transaction is that the demand for produce becomes no longer regulated by the market-place (by capitalism) but by the State. This is wrong in terms of human behaviour. This is what 20th century Russia was all about. The effect of macro-scopically restricting the quantity which is brought to market is that the market price becomes artificially elevated. This is what inflation is; and as you already know, inflation causes unemployment. The fallacy of belief which is used to falsely justify the operation of such tariffs, is that erroneously it avoids waste, and such land can be left to nature. But this is false because the farmer would naturally avert his resources from producing more than the market desires, thus the farmer's enterprise and industry would prevent waste in a natural unregulated way. Such land is still privately owned under the present system, and thus cannot be publicly utilised without vaste sums of money being expended upon the purchase of this land. Such a system is not dynamically adaptive to changing environmental circumstances; and it is not a responsible way in which to behave. It causes what is called "the boom and bust economy". Within my prodomal phase of illness I saw a vision of plots of land being separated by a distance which was a co-efficient multiple of the greatest distance separating any two points within these plots of land. Thus, if you had a plot of land comprising a circle of 1 mile radius, the nearest plot of land would be more than this coefficient times 2 miles away. The idea is that by being able to ride a horse in a straight line in any direction, a farmer could reduce the carbon foot-print of transporting his live-stock, by walking them to their destination. Also I saw road lanes each separated by 50 feet from each other, for safety; these roads were built on mass-produced arch-ways so that livestock could pass under these lanes; and these lanes went in straight directions, like due north, which by Pythagoras's theorem, and the triangle inequality, would reduce the carbon foot-print of motor-transport.
So, on to point two, which was that a subsidy is something to ensure that the price at which it is brought to market becomes fixed, altered, or regulated by the State in some way.
Now, in modern language it is very important to discern and define the difference between a subsidy and what is called a welfare benefit. The latter, which is a welfare benefit, is an example of a person being granted some non-refundable money so to purchase some necessities which are vital for life. I will not be talking much about welfare benefits, because I see that the reason why they are so commonplace has to do with other factors which I here am discussing.
The form of State subsidy which I will be attacking is that of the State paying a loss-making enterprise to remain in existence in order to prevent ensuing job loss and hence an increase in unemployment. Whether or not this should happen is incidental to whether or not there should be such a tax as value added tax (VAT), which there should not be, because this contributes a component part of price at which a commodity is brought to market. So, where, might you ask, will the government actually be able to derive taxation from the wider populace? Well, that answer is very simple. There is a way to impose taxation which is not inflationary. This way is to tax personal expenditure, not income tax. This tax may be called personal expenditure tax (PET). It is up to future generations to decide what should be included and excluded from being a taxable resource. But it will work basically like this. However much income you earn is yours to keep, but if you wish to buy some expensive luxury then you transfer some of your income into your PE account. This is taxed as a percentage of your expenditure, not your income. So you might pay 30% tax on every £100 you transfer into this account from your income, leaving you £70 to spend. If, for example, the capital for a house is not a taxable resource and you wish to spend £100 on your house deposit, then all of the £100 which comes out of your income is used to pay for this. Simple dimple. Now you don't need to spend your entire adult talking about this and can spend more time focusing on things like science and the environmental impact of the human species on this planet instead.
I know what I need to talk about next. Licences. And after that I will be talking about council tax. The greatest fallacy is to believe that we are not all in the same boat: because we are all governed by the same laws which are enforced. A museum license is a permission from a local authority for a museum to exist and operate. A permission should be an evaluation of risk. It should never be used as a scam to derive money from a population to pay for services. If and when a mobile phone company wishes to receive a license to utilize public bandwidth this should not be granted to the highest bidder, nor any bidder at all, because as such this itself will constitute and contribute a significant component of price at which a commodity is brought to market. It is harmful because it is inflationary, and inflation causes unemployment. It leads to the windfall economy of boom and bust.
So what about council tax then? I suppose you are thinking, tell me why this should not exist then? Correct. Well, remember that I said that licences should not require the payment of money, but should be an evaluation of risk of behalf of the authority without a charge of money. Well, a dwelling licence is a scam because, well, it just is. Without it people would have lots of capital to invest or contribute towards egalitarian purposes like community-building charitable foundations. At present, people are unable to run within the hamster wheel because it simply turns faster the more that people expend their effort into turning it. Economists may call this the monetary equation, and state that it is necessary and beneficial: but such views are bunkum. Charity begins at home, and that can only happen if you have a home, and that can only happen if there is no such thing as public charge for the mere permission to dwell, and nothing more. Look. Money is only useful as an item for exchange if it can command the purchasing power of the combined efforts of organised human labour. What I am proposing is something different, and something new; because the present system of economic governance has not functioned correctly for a long time. A doctor, working for the national health service, does need a dwelling place; and to reduce the carbon foot-print, leading to more efficiency also, hopefully this dwelling place will not be too far from his or her place of work. Stage one complete. Stage two is that by increasing the purchasing power of money, the doctors wages are capable of purchasing a lot more than otherwise. This is where annulling VAT and council tax comes into play. Now the cost of a doctor is a lot less, and by enabling the doctor to pay his tax in one swoop, he needn't spend his life doing so, and can focus on his work instead. By replacing land ownership by land utilisation, people now huddle together more in connurbations, which are centres of trade; and so this doctor can more easily afford to get his nutrients and other comestibles from one central location without burning up the Earth's atmosphere by driving everywhere, causing congestion and carbon dioxide emissions. Even the sheep can walk up hill and down dale, so the farmers become happy. To every horse every field is a prison. Okay, I am not dreaming of Utopia, but proposing practical changes.
There really is one more subject which is extremely relevant but not immediately visible which I must address before bringing this article to close. This subject is the use of the Secretary of State in housing quotas. What are these? Well, in 1999 I researched whether the housing department of each local council has been given quotas laid down by a centralised authority pertaining to exactly how many applications for new-builds and alterations to existing houses are permitted to be made, and what I discovered was a 15-year plan (which sounds, and is, a bit similar to Stalin's 5-year plans). Some people have an instinct to disbelieve this because they seem to wish to believe that if something is not immediately visible to themselves then it either isn't relevant or does not exist. But it does, and it is extremely relevant to hindrance of the market price ever attaining its nominal price (which means that the supply is approximately matched by the demand in a dynamic equilibrium). Okay. Because the supply of houses is restricted by macro-economic controls we can infer that this is a domestic policy. A domestic policy is not the fault of an immigrant to this country. But the effect of such immigration under these unnatural conditions is to raise the demand for houses, thus raising the market price over and above its nominal level. Due to governmental institutions as land ownership (not land utilisation), and given quotas laid down by a centralised authority, this supply of houses can never ever possibly meet the demand for them. Thus they are held artificially high by the State, and people cannot afford to live, reside, and dwell. This has a devastating impact upon the lives and hopes of future generations, and young people. I hope you can see that there should be no such thing as these insidious quotas. What should happen instead is that local government should decide based upon land utilisation and not by land ownership. Thank you for listening to me. Oh, by the way, the way to level the playing field between internet businesses and the high street is to have no such thing as "business rates", which again must always form a component part of the price at which a commodity is brought to market, and therefore are inflationary, causing unemployment. A business rate is a charge for a permission to trade on the high street. It is a scam, and is detrimental to the provision of a health service because it elevates the price at which a doctor must get paid.
What about tax on cigarettes? Well, in this case the intention is to raise the market-price to such a level that people cannot afford to smoke copiously. So in this anomalous case a tax on cigarettes is permissible.
Imagine an hypothetical scenario in which there was amity between the Empires of Ancient Rome, and also of Carthage, and that they have become freely trading with each other. Now, "freely" means without impedances or hindrances. Let Rome be the home nation. Let's say Rome imports more produce and manufactured goods annually to Carthage than it exports. So gold and silver are owed by Rome to Carthage. Upon payment, the quantity of these precious metals falls in Rome and rises in Carthage. The price of gold increases in Rome and decreases in Carthage. The same for silver. In Carthage a quantity of gold and silver can purchase less premium corn than it can in Rome. (Corn is a generic term for all types cereals including wheat, oats, maize, rye, barley.) So merchants transport the gold from Carthage to Rome to buy stuff. These merchants might live in Rome, or Carthage, or neither of these two places. The point is that they go to the place where the purchasing power of their money is greatest in order to source products for commerce. This now increases the quantity of precious metals in Rome, lowering the gold's purchasing power, or its price. Thus the balance of trade has a built-in negative feedback mechanism. The result is to have undone the effect of the unfavourable balance of trade against Rome. The quantity of these precious metals does not actually fall in Rome; so the purchasing power of these in Rome does not tangibly change neither.
This truism requires amendment for the situation of the modern world: in which Rome might be paying in Euros, and Carthage U.S. dollars. The paper (or should we call it electronic?) money is now a non-forgeable unit of currency which will no longer pay the bearer upon demand, a corresponding quantity of gold or silver of sufficient purity. It is not, however, divorced from gold prices, because gold is a commodity, as are corn, and fuel, and steel; and these commodities have a price which can be paid for in Euros. Then the commodity can be sold into U.S. dollars.
Instead of the hassle and expence of physically moving from one seller to buyer a tonne of corn, say; a bill of exhange called a stock is bought and sold instead, be that at the stock market in Rome, or that in Carthage. So, you see, as long as trade is unimpeded (or as Smith would have said, not "embarrassed") this unhindered trade leads to a system of natural equilibrium. Circumstantial problems begin to emerge when in the name of "Rome first!" the leader in Rome bans or penalises importation of steel into Rome in an attempt to protect and bolster the Roman steel producers. Both taxations upon importation and those upon exportation have the effect of distorting and perturbing what is in most cases advantageous to preserve, which is the natural division and distribution of labour within the society. When this happens, industry goes pear-shaped, and people in their blind ignorance start blaming the feedom and lack of regulation of a most regulated market; and they demand and clamour for more regulations, which perverts the market from the most perfect system of natural liberty all the more. The problem becomes a psychological one, as every individual believes himself to be the most authoritative expert in how a government should spend money. That alternatives might be achieveable via more natural means becomes anathema to them: which they perceive quite erroneously to be the cause of environmental destruction. They have a one-stop obsessive solution involving taxing and spending on a governmental scale, with the only variation in policy being so minor as to be indiscernable in reality; yet they will engage in huge polemical discussions about this, usually involving perceived winners and losers in every debate. I see the modern mind to be impaired and damaged by its social and physical environment. They usually seek to tell me that I am wrong, because of the existence of social institutions, and because they cannot see further than tax and spend; and hence cannot understand more than a word I am saying. Hence they believe that what they don't understand doesn't make sense. Nevertheless, humanity is facing an environmental break-point; and if progress is to survive, a newer model must be attempted on a grand scale within the democratic parts of this world.
I will now quote Adam Smith, Wealth of Nations, book 4, chapter 2;
By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can in his local situation judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
or in other words:
In an unimpeded economy, every individual who seeks to maximize his profit promotes the interests of the society more effectively than by charity. Smith has never known much good done by people who were attempting to trade to better others. Merchants don't often do this, and you can't talk them into it.
Whatever type of business he invests his capital within, every individual, it is evident, can, where he is, be the judge of, much better than any Statesman or Member of Parliament would be able to do in his place. The M.P. who would attempt to direct people in what manner they ought to employ their capitals would not only put himself forward to the opprobrium of public feeling, but assume an authority which could never be trusted: not to a single person, nor to a council, nor a government. This ability to command how other people spend there money would be nowhere so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit for this position of public office.
Continuing in this vein, in the same chapter Smith says:
Taxes upon the necessaries of life have nearly the same effect upon the circumstances of the people as a poor soil and a bad climate. Provisions are thereby rendered dearer, in the same manner as if it required extraordinary labour and expense to raise them. As, in the natural scarcity arising from soil and climate, it would be absurd to direct the people in what manner they ought to employ their capitals and industry, so is it likewise in the artificial scarcity arising from such taxes. To be left to accommodate, as well as they could, their industry to their situation, and to find out those employments in which, notwithstanding their unfavourable circumstances, they might have some advantage either in the home or in the foreign market, is what, in both cases, would evidently be most for their advantage. To lay a new tax upon them, because they are already overburdened with taxes, and because they already pay too dear for the necessaries of life, to make them likewise pay too dear for the greater part of other commodities, is certainly a most absurd way of making amends.
Such taxes, when they have grown up to a certain height, are a curse equal to the barrenness of the earth, and the inclemency of the heavens, and yet it is in the richest and most industrious countries that they have been most generally imposed. No other countries could support so great a disorder. As the strongest bodies only can live and enjoy health under an unwholesome regimen, so the nations only, that in every sort of industry have the greatest natural and acquired advantages can subsist and prosper under such taxes.
Returning to the subject of international trade, this time from Wealth of Nations, book 4, chapter 1;
The importation of gold and silver is not the principal, much less the sole benefit, which a nation derives from its foreign trade. Between whatever places foreign trade is carried on, they all of them derive two distinct benefits from it. It carries out that surplus part of the produce of their land and labour for which there is no demand among them, and brings back in return for it something else for which there is a demand. It gives a value to their superfluities, by exchanging them for something else, which may satisfy a part of their wants, and increase their enjoyments. By means of it, the narrowness of the home market does not hinder the division of labour in any particular branch of art or manufacture from being carried to the highest perfection. By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to improve its productive powers, and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society. These great and important services foreign trade is continually occupied in performing to all the different countries between which it is carried on. They all derive great benefit from it, though that in which the merchant resides generally derives the greatest, as he is generally more employed in supplying the wants, and carrying out the superfluities of his own, than of any other particular country. To import the gold and silver which may be wanted into the countries which have no mines, is, no doubt, a part of the business of foreign commerce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account could scarce have occasion to freight a ship in a century.
Jumping back to Wealth of Nations, book 4, chapter 2;
The natural advantages which one country has over another, in producing particular commodities, are sometimes so great, that it is acknowledged by all the world to be in vain to struggle with them. By means of glasses, hot-beds, and hot-walls, very good grapes can be raised in Scotland, and very good wine, too, can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland? But if there would be a manifest absurdity in turning towards any employment thirty times more of the capital and industry of the country than would be necessary to purchase from foreign countries an equal quantity of the commodities wanted, there must be an absurdity, though not altogether so glaring, yet exactly of the same kind, in turning towards any such employment a thirtieth, or even a three hundredth part more of either. Whether the advantages which one country has over another be natural or acquired, is in this respect of no consequence. As long as the one country has those advantages, and the other wants them, it will always be more advantageous for the latter rather to buy of the former than to make. It is an acquired advantage only, which one artificer has over his neighbour, who exercises another trade; and yet they both find it more advantageous to buy of one another, than to make what does not belong to their particular trades.
Again in book 4, chapter 2;
Home is in this manner
Secondly, every individual who employs his capital in the support of domestic industry, necessarily endeavours so to direct that industry that its produce may be of the greatest possible value.
The produce of industry is what it adds to the subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs a capital in the support of industry; and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; ...
I have cut Smith off in his stride because I think I need to interpret this most recent quotation.
A "circulating capital" is all the stock in a warehouse, whence it is only by means of its circulation, or successive changes, that it can yield the proprietor any profit. His "fixed capital" is the warehouse machinery, the building itself, and other instruments of trade which yield a revenue or profit without changing ownership, or circulating any further.
The "home trade" involves purchasing and selling both within the same country, although a geographic distance, sometimes considerable, exist between. However, the home trade resources only domestically produced or manufactured items. Otherwise if foreign goods are purchased for home consumption, this is called "the foreign trade of consumption". The "carrying trade" involves British shipping transporting goods from Argentina to Japan: it carries the surplus produce of one to another.
Within the home trade, imagine that manufactured goods are being sent from Scotland to London, and English corn is being brought back to Edinburgh. The English corn is being swapped with Scotch (Smith used this word) manufactured goods. So both the capitals of corn and of Scotch goods are being replaced with each other. Two capitals are being replaced therefore, both of them being used in supporting the development of the performance of useful labour (which is called "industry").
However, the capital which involves the sending of British goods to Portugal, and brings back Portuguese goods to Great Britain, replaces, by every such operation, only one British capital. The other is a Portuguese one. In Book 2, Chapter 5, Smith makes note that if the foreign goods for home consumption have been purchased with, not domestically produced goods, but some other foreign goods, then the latter must either have been purchased with either the produce of domestic industry, or with something else that had been purchased by it. He called this a "round-about foreign trade of consumption". Now to talk about the carrying trade. Smith said:
That part of the capital of any country which is employed in the carrying trade is altogether withdrawn from supporting the productive labour of that particular country, to support that of some foreign countries. Though it may replace by every operation two distinct capitals, yet neither of them belongs to that particular country.
So, if a Dutch merchant is transporting Polish corn to Portugal, and bringing back fruits and wines, two capitals are being replaced by every operation: one in Poland, and the other in Portugal. Only the profits return to Holland, and constitute the whole addition which this trade necessarily makes to the annual produce of the land and labour of that country (Holland). It creates Dutch employment. The Dutch merchant may be using British-made ships, which promotes the ship-building industry by taking away the surplus ships: which are beyond the demand of British merchant shipping. With a flourishing ship-building industry, the maritime security by way of the British Navy is safe-guarded.
Smith also said, just before the most recent quotation:
To continue. When the profits in the carrying trade nearly equal those in the trade of foreign consumption, which nearly equal those in the home trade, every individual naturally inclines to use his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country.
Secondly, every individual who employs his capital in the support of domestic industry, necessarily endeavours so to direct that industry that its produce may be of the greatest possible value.
The result of the performance of useful labour is the additional value (of labour performed) which is contributed to whatever it is subject to, i.e. the tanning of leather to make leather in order to make shoes is an example of labour performed. The hide is subject to this leather having been performed onto it. This hide was the material upon which this industry was employed (used).
If a business owner has a lot of stock, he will make a larger profit upon this amount than if his stock was smaller. It is only for the sake of profit that any man uses his stock in the support of the performance of useful labour; and he will always, therefore, attempt to use it in the support of that industry within which the goods produced is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.
The annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is equal to the amount of gold or silver with the natural price of that exchangeable value. As every individual tries as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry such that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue (in labour performed ) of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it worse for the society that this end was no part of his intention.
The wheel has come full circle. Thou art a soul in bliss, but I am bound on a wheel of fire, that mine own tears do scald like molten lead.
What course of action to take in the event of a trade war? Fortunately for us, Smith advised about this also. But before I expand upon this I really feel inclined to put another nail in the coffin of the idea of a balance of trade. In Book 3, chapter 1, Smith says:
The greater the number and revenue of the inhabitants of the town, the more extensive is the market which it affords to those of the country; and the more extensive that market, it is always the more advantageous to a great number. The corn which grows within a mile of the town, sells there for the same price with that which comes from twenty miles distance. But the price of the latter must, generally, not only pay the expense of raising and bringing it to market, but afford, too, the ordinary profits of agriculture to the farmer. The proprietors and cultivators of the country, therefore, which lies in the neighbourhood of the town, over and above the ordinary profits of agriculture, gain, in the price of what they sell, the whole value of the carriage of the like produce that is brought from more distant parts; and they save, besides, the whole value of this carriage in the price of what they buy. Compare the cultivation of the lands in the neighbourhood of any considerable town, with that of those which lie at some distance from it, and you will easily satisfy yourself how much the country is benefited by the commerce of the town. Among all the absurd speculations that have been propagated concerning the balance of trade, it has never been pretended that either the country loses by its commerce with the town, or the town by that with the country which maintains it.
Immediately before this he says:
Modern economics is all about political arithmetic; and in book 4, chapter 5, Smith informs us:
I have no great faith in political arithmetic, and I mean not to warrant the exactness of either of these computations. I mention them only in order to show of how much less consequence, in the opinion of the most judicious and experienced persons, the foreign trade of corn is than the home trade.
In the event of a foreign nation imposing sanctions on the home nation, what does Smith advise? Within book 4, chapter 2, Smith says:
The case in which it may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain foreign goods, is, when some foreign nation restrains, by high duties or prohibitions, the importation of some of our manufactures into their country. Revenge, in this case, naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours. Nations, accordingly, seldom fail to retaliate in this manner. The French have been particularly forward to favour their own manufactures, by restraining the importation of such foreign goods as could come into competition with them. In this consisted a great part of the policy of Mr. Colbert, who, notwithstanding his great abilities, seems in this case to have been imposed upon by the sophistry of merchants and manufacturers, who are always demanding a monopoly against their countrymen. It is at present the opinion of the most intelligent men in France, that his operations of this kind have not been beneficial to his country. That minister, by the tariff of 1667, imposed very high duties upon a great number of foreign manufactures. Upon his refusing to moderate them in favour of the Dutch, they, in 1671, prohibited the importation of the wines, brandies, and manufactures of France. The war of 1672 seems to have been in part occasioned by this commercial dispute. The peace of Nimeguen put an end to it in 1678, by moderating some of those duties in favour of the Dutch, who in consequence took off their prohibition. It was about the same time that the French and English began mutually to oppress each other's industry, by the like duties and prohibitions, of which the French, however, seem to have set the first example. The spirit of hostility which has subsisted between the two nations ever since, has hitherto hindered them from being moderated on either side. In 1697, the English prohibited the importation of bone lace, the manufacture of Flanders. The government of that country, at that time under the dominion of Spain, prohibited, in return, the importation of English woollens. In 1700, the prohibition of importing bone lace into England was taken off upon condition that the importation of English woollens into Flanders should be put on the same footing as before.
There may be good policy in retaliations of this kind, when there is a probability that they
will procure the repeal of the high duties or prohibitions complained of. The recovery of a
great foreign market will generally more than compensate the transitory inconveniency of paying
dearer during a short time for some sorts of goods. To judge whether such retaliations are
likely to produce such an effect, does not, perhaps, belong so much to the science of a
legislator, whose deliberations ought to be governed by general principles which are
always the same, as to the skill of that insidious and crafty animal, vulgarly called a
statesman or politician, whose councils are directed by the momentary fluctuations of affairs.
When there is no probability that any such repeal can be procured, it seems a bad method of
compensating the injury done to certain classes of our people, to do another injury ourselves,
not only to those classes, but to almost all the other classes of them. When our neighbours
prohibit some manufacture of ours, we generally prohibit, not only the same, for that alone
would seldom affect them considerably, but some other manufacture of theirs. This may, no
doubt, give encouragement to some particular class of workmen among ourselves, and, by
excluding some of their
I disagree, politically, that it is a good idea to impose duties upon importation when you are seeking a foreign country to abandon its foreign duties upon its importations: it would be like heading north in order to achieve a southerly direction, and circuitous to the sort of leadership by example you are wanting to display.
As what has been described is rather complicated, perhaps an example to illustrate might help. Say France, for example, prohibits woollens from Britain in order to encourage the benefit of French knitters and sheep farmers. With less competition from Britain within the french market, French knitters can potentially make more profit as the natural price would be less reduced than before. In retaliation, Britain's foreign policy now becomes that to prohibit importation of both woollen goods, and also leather goods. Likewise this has the potential benefit of raising the profits of both woollen goods, and leather goods in the British home market. So everybody within Britain now has to pay more for purchasing their shoes in the home market because of the prohibition upon leather goods from France, as the British leather-workers may make more profit due to a reduction in competition. Note that the British traders who deal in wool have lost the export market to France, and that the demand for these domestically, within Britain, cannot be more than the absolute demand: which is what people have a need for, irrespective of what they can afford to purchase. The market in Britain plus the foreign one, in France, is greater than only the former. Fewer woollen goods can be manufactured in Britain, therefore, as the extent of the overall market which they are selling to has become reduced.
But there are further reasons not to impose duties upon importation even though foreign nations have imposed them upon you.
From book 4, chapter 2:
What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished, no more than that of the above-mentioned artificers; but only left to find out the way in which it can be employed with the greatest advantage. It is certainly not employed to the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make. The value of its annual produce is certainly more or less diminished, when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce. According to the supposition, that commodity could be purchased from foreign countries cheaper than it can be made at home. It could, therefore, have been purchased with a part only of the commodities, or, what is the same thing, with a part only of the price of the commodities, which the industry employed by an equal capital would have produced at home, had it been left to follow its natural course. The industry of the country, therefore, is thus turned away from a more, to a less advantageous employment, and the exchangeable value of its annual produce, instead of being increased, according to the intention of the lawgiver, must necessarily be diminished by every such regulation.
By means of such regulations, indeed, a particular manufacture may sometimes be acquired sooner than it could have been otherwise, and after a certain time may be made at home as cheap, or cheaper, than in the foreign country. But though the industry of the society may be thus carried with advantage into a particular channel sooner than it could have been otherwise, it will by no means follow that the sum total, either of its industry, or of its revenue, can ever be augmented by any such regulation. The industry of the society can augment only in proportion as its capital augments, and its capital can augment only in proportion to what can be gradually saved out of its revenue. But the immediate effect of every such regulation is to diminish its revenue; and what diminishes its revenue is certainly not very likely to augment its capital faster than it would have augmented of its own accord, had both capital and industry been left to find out their natural employments.
Though, for want of such regulations, the society should never acquire the proposed manufacture, it would not upon that account necessarily be the poorer in any one period of its duration. In every period of its duration its whole capital and industry might still have been employed, though upon different objects, in the manner that was most advantageous at the time. In every period its revenue might have been the greatest which its capital could afford, and both capital and revenue might have been augmented with the greatest possible rapidity.
Prior to this most recent quotation, Smith said:
To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.
Okay. I don't know how much of that requires interpreting. He is saying that if a foreign nation imposes sanctions, duties, tariffs, or trading prohibitions, then turning the other cheek, and to continue to purchase from the nation that has sanctioned you, is the best course action, because, by doing the contrary, you are forcing, via artificial means, capital into a species of industry that it would naturally fly away from: its owners finding more profitable and industrious investments. It will, however, result in that particular industry developing sooner within the home nation than it otherwise would, but the overall annual revenue (in terms of labour performed) is reduced by not purchasing from the nation which is sanctioning you. So the home nation is poorer by retaliating.
I am aiming for "the balance of annual produce and consumption", (which is an important one), and it will be necessary for myself to educate you about certain matters. At the risk of sounding condescending, I don't know how much of the readers' attention has been captivated by what I have written hereunto (so far). Part of the art of writing, I feel, is show-manship, as well as the expatiation of facts (which are not based upon feelings). I think what I shall do is to abandon quoting Smith until the next quotation, and simply paraphrase him: the reasons for this I hope will be becoming apparent as I progress. For people who are interested, the following is an interpretation of a lengthy passage from book 2, chapter 3.
In the opulent countries of Europe, there are great capitals, at present [during the 18th century], being used within trade and industry. Prior to the 10th century (Smith never defines when the "ancient state" is) the little trade that was happening, and the few rudimentary manufactures, like tanning and shoe-making, only required very small capitals. Recall that circulating capital is the amount of stuff that is bought and sold, while the fixed capital involves buildings, tools, and machinery.
People make profit. From that profit is taken funds. Let those funds be called that part of the revenue of the inhabitants which is derived from the profits of stock. The reason why that revenue of the inhabitants which is derived from the profits of stock, is always much greater in rich than in poor countries, is because the stock is much greater within the rich countries than the poor ones. In proportion to the stock, the profits in the rich countries are generally much less than in the poor countries. This is because the "increase of stock, by increasing the competition, necessarily reduces the profit" (from book 1, chapter 10, part 2). In book 1, chapter 7: "The price of monopoly is upon every occasion the highest that can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which it is supposed they will consent to give; the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business.".
As soon as produce comes from the ground, or manufactured goods leave the hands of productive labourers, part of this stuff, part of this produce, part of these goods, is destined for replacing a capital: that which was used renewing the provisions and materials in the farming, or in employing these productive labourers in the first place. The other part of this produce, constitutes a revenue to the owner of this capital (not necessarily the tenant farmer), as the profit of his stock; or to some other person, as the rent of his land. Thus, pertaining to the produce of land, one part of the produce replaces the capital of the farmer; the other part pays both the farmer's profit, and the rent of the landlord. This is assuming that the farmer owns his own stock and is allowed to freely profit by it in a untaxed way. The produce of the land "constitutes a revenue both to the owner of this capital, as the profits of his stock, and to some other person as the rent of his land". Of the goods produced by a factory, in the same manner, one part, always the largest, replaces the capital which is used by the factory owner; and the other part pays his profit, and thus constitutes a revenue to the owner of this capital. Smith called land owners idle people: those who do not labour at all, whom are still maintained by the annual produce of the land and labour of the country. I would agree with Smith's viewpoint about land owners. However, to preempt and silence the critics, I state that I do not think that factory owners are idle people. I think that they are great industrialists who take huge risk venturing capital upon speculative enterprises. To attack everybody who is not poor would reek of Marxist resentment and vitriol: which involved the theft of property of the rich, rather than the betterment of the poor. Besides, I will give you what I believe what was Smith's stance on land reform before the end of this article. "That part of the annual produce of the land and labour of any country which replaces a capital, never is immediately employed to maintain any but productive hands": it always constitutes an investment in industry, which is why trade itself should not be taxed: there should be no such taxation as corporation tax, value added tax, nor business rates. Has the entire social system become dangerously out of control, with no-one at the helm? "It [that part of the annual produce of the land and labour of any country which replaces a capital -- ed] pays the wages of productive labour only. That [part of the annual produce of the land and labour of any country which replaces a capital -- ed] which is immediately destined for constituting a revenue, either as profit or as rent, may maintain indifferently either productive or unproductive hands."
"Whatever part of his stock a man employs as a capital, he always expects it to be replaced to him with a profit. He employs it, therefore, in maintaining productive hands only; and after having served in the function of capital to him, it constitutes a revenue to them [the productive hands -- ed]" : this is where employment comes from; it is how jobs are created. In a Marxist economy everybody works as a tax-collector for the State. In such a scenario, their wages come from the public purse: and thus paying them more requires more revenue taxed by the sovereign. In Adam Smith's world, however, (book 1, chapter 9)
If, in the linen manufacture, for example, the wages of the different working people, the flax-dressers, the spinners, the weavers, etc. should all of them be advanced twopence a day, it would be necessary to heighten the price of a piece of linen only by a number of twopences equal to the number of people that had been employed about it, multiplied by the number of days during which they had been so employed. That part of the price of the commodity which resolved itself into the wages, would, through all the different stages of the manufacture, rise only in arithmetical proportion to this rise of wages.
So an arithmetic progression is something like 2 + 4 + 6 + 8 ... and so on. What Smith is talking about is the augmentation of a factor in a linear ratio. Where a is the number of people employed, and d is the number of days they emplyed over, if y is the wage of the working people in pennies, and z=y+2 is this wage advanced twopence a day, then zad = (y+2)ad = yad+2ad. This zad, is greater than yad by 2ad; and 2ad forms a component part of price in money which a product is sold for, where a and d are constant factors.
But if the profits of all the different employers of those working people should be raised five per cent. that part of the price of the commodity which resolved itself into profit would, through all the different stages of the manufacture, rise in geometrical proportion to this rise in profit. The employer of flax dressers would, in selling his flax, require an additional five per cent. upon the whole value of the materials and wages which he advances to his workmen. The employer of the spinners would require and additional five per cent. both upon the advanced price of the flax, and upon the wages of the spinners. And the employer of the weavers would require a like five per cent. both upon the advanced price of the linen-yarn, and upon the wages of the weavers. In raising the price of commodities, the rise of wages operates in the same manner as simple interest does in the accumulation of debt. The rise of profit operates like compound interest.
So, a compound interest is one in which x is multiplied by 1.2 for the first transaction, then by 1.2 by the second transaction, 1.2 by the third, and so on. It increases much more rapidly than a linear dependency upon the variable x, because here the variable x is raised to the power of some constant which is greater than 1. The price of any commodity which is untaxed naturally resolves itself into 3 components: the component parts of price of profit, those of wages, and that of rent. Let these be denoted by p,w,r and let c be the overall price of the commodity: thus c=p+w+r. If profit should increase by 5% at each stage of the supply chain, then the price will become elevated at each stage to become e=1.05p+w+r. Let a be the number of different employers, with this elevated profit, invloved in bringing the commodity to market. Thus flax growers are one, employers of flax dressers another, those of spinners are a third, and those of weavers are a fourth. Henceforth, e to the power a is greater than c to the power a by a geometric proportion. A tax on trade operates as a compound interest does. It is very inflationary. This is bad. Examples of tax on trade are such like VAT, business rates, fees for licences and other forms of permissions, applications for permissions, corporation tax, win-fall taxes, land tax, and even council tax: as this must be paid for out of wages, which constitutes a component part of the price of commodities. Even when an inheritance which was generated by trade, is taxed, by doing so the capital which is constitutes is reduced, and there will be less for descendants to invest in the private sector: the timing of this tax being delayed until after the progenitor has died. Returning to book 2, chapter 3:
"Unproductive labourers, and those who do not labour at all, are all maintained by revenue;". Here I will deviate from Smith's literal words to clarify a point. When Smith refers to "unproductive labourers" he is actually talking about doctors, nurses, the clergy, soldiers, the police, prison officers, employees of the navy, and people who work for the national health service. He says:
The labour of some of the most respectable orders in the society, is like that of menial servants, unproductive of any value, and does not fix or realise itself in any permanent subject, or vendible commodity, which endures after that labour is past, and for which an equal quantity of labour could afterwards be procured. The soverign, for example, with all the officers of both justice and war who serve under him, the whole army and navy, are unproductive labourers. They are servants of the public, and are maintained by part of the annual produce of the industry of other people. Their service, how honourable, how useful, or how necessary soever, produces nothing for which an equal quantity of service can afterwards be procured. The protection, security, and defence, of the commonwealth, the effect of their labour this year, will not purchase its protection, security, and defence, in the year to come. In the same class must be ranked, some both of the gravest and most important, and some of the most frivolous professions; churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers, opera-dancers, etc. The labour of the meanist of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour; and that of the noblest and most useful produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production.
Not only a rich idle landowner, but the common workman, if his wages are considerable, may maintain a menial servant; or he may sometimes go to a play or a puppet-show, and so contribute his share towards maintaining one set of unproductive labourers. But he only does this with the part of his revenue which is over and above that which is to be replacing his original investment of stock and capital. He may also use some of his profit to augment (to "grow") his circulating capital, and his fixed capital. Note that in this within this perfect system of natural liberty, in which everybody pays personal expenditure tax (PET), with NO other forms of taxation, he is not asking nor requiring a grant of money from the local council to invest in his fixed capital, because that is what Karl Marx was all about: the means of production having communal ownership. He was a twit. Our common workman has a right to be able to pull himself up by his bootstraps on a level playing field.
"The workman must have earned his wages by work done, before he can employ any part of them in this manner [going to a play or a puppet-show]". Even if he pays a small amount of PET tax, "in the payment of taxes, the greatness of their number may compensate, in some measure, the smallness of their contribution."
Though the rent of land is the principle source from which idle landowners derive their subsistence, if land ownership is abolished to be replaced by a more democratically instituted idea of land utilisation, then the priniciple source from which civil servants will derive their subsistence shall be the profits of stock. It is from this that both a circulating capital, and a fixed capital are augmented. It is from this that employment within the private sector can originate and flourish. It is only by the personal expenditure tax that people within the private sector pay, that the civil servants can be maintained without governmental borrowing.
Idle landowners have the ability to either invest their money wisely, in profitable enterprises,
or waste it away on helicopters and super-yachts. "They seem, however, to have some predilection
for the latter. The expence of a great lord feeds generally more idle than industrious people.
The rich merchant, though with his capital he maintains industrious people only, yet by his
expence, that is, by the employment
But anciently, during the prevalency of the feudal government, a very small portion of the
produce was sufficient to replace the capital employed in cultivation. It consisted commonly
in a few wretched cattle, maintained altogether by the spontaneous produce of uncultivated
land, and which might, therefore, be considered as a part of that spontaneous produce. It
generally, too, belonged to the landlord, and was by him advanced to the occupiers of the land.
All the rest of the produce properly belonged to him too, either as rent for his land, or as
profit upon this paltry capital. The occupiers of land were generally bondmen, whose persons
and effects were equally his property. Those who were not bondmen were tenants at will, and
though the rent which they paid was often nominally little more than a quit-rent, it really
amounted to the whole produce of the land. Their lord could at all times command their labour
in peace and their service in war. Though they lived at a distance from his house, they were
equally dependent upon him as his retainers [footmen, pages, servants -- ed] who lived in it. But the
whole produce of the land undoubtedly belongs to him, who can dispose of
A quit-rent released the freeholder from liability to perform services. Smith is saying that, in former times, in feudal times, pretty much everything was owned by the lord of the manor, and the methods of agriculture were not very productive, to say the least. The lord of the manor pretty much stole, or claimed, everything that his workers grew. But in the 10th century what the land produced was not much in comparison to agriculture in the 18th century. From the land-lord's point of view, in this case, 100% of a little in the 10th century was much less than 25% or 33.3% of a lot in the 18th century. Imagine a 3 acre by 3 acre plot of land in the 10th century: which comprises 9 acres. The land-lord would take 100% of the produce of the land. Now, in the 18th century, this same 9 acres of land produces the same amount that 81 acres of land would have produced during the 10th century. Though, in the 18th century, the rent the land-lord charges has fallen from 100% of the whole produce to 33.3%, the land-lord now receives produce of one third of the land, which is equivalent to 27 acres of arable land during the 10th century. From 9 acres, this is an increase of three-fold, or 18 acres. The landowner is quids in; but also by the 18th century, with land-lords, instead of feudal lords, progress had happened for the farmer in comparison to the even more abject poverty that existed prior. He is selling 6 times the quantity of produce than what the feudal lord took off him, and 66.6% of a lot, is a lot more than 0% of a little. So now, in Smith's present state of Europe, the food production has increased manifoldly in comparison to 8 centuries earlier. In the former times, the share of the produce that was demanded by the lord was 3 or 4 times greater than presently: and comprised all of it. The rent of arable land (which is in proportion to whatever produce it yields), is during the 18th century, 3 to 4 times greater. The land, in the 18th century, is between 3 to 4 times more productive than in feudal times. So although the rent has increased by 3 to 4 times, and you will have to pay 3 or 4 times more to utilise the surface of the Earth (which should never be considered personal property nor charged) a plot of land in the 18th century produced 3 to 4 times more agriculture than it did erstwhile in the feudal days. On a patch of land in the 18th century, at most one third of the produce is presently given to the land-lord, leaving two thirds for the farmer to sell. The land may be 4 times as dear to utilise, but as it yields at least 3 times as much produce, the revenue for the land-owner will be between 2.25 and 4 times greater in the 18th century than during the 10th: the former figure corresponding to the land being 3 times more productive, whilst the rent is a quarter; and the latter figure corresponding to the land being 4 times more productive whilst the rent is one third of its value in the 10th century.
It is now that I will really start para-phrasing and interpreting Adam Smith.
Consider that part of the annual produce which constitutes the revenue of the inhabitants which is derived from the profits of stock; and also consider that part of annual produce which comes from the hands of productive labourers. Consider that both of these revenues added, are now considered as one: which we shall call the national revenue derived from the profits of stock. This national revenue is split into two parts: one part is the funds which are immediately destined for replacing a capital; the other part is the funds destined for constituting a revenue either as rent or profit. There is a ratio between these two funds. Not only is the national revenue derived from the profits of stock much greater in rich countries than poor ones (because the total stock within the nation is much greater within the rich countries than the poor ones), but this ratio between the two funds is greater also. The ratio between the funds immediately destined for replacing a capital, and the funds destined for constituting a revenue either as rent or profit, is much greater in rich countries than in poor ones. Smith says that the people receiving the rent or profit (i.e. the landowners and monopolists) could have invested their money wisely in profit-making enterprises employing productive hands, but prefer to employ lots of servants on their super-yachts instead.
The proportion between funds which are immediately destined for replacing a capital, and the funds destined for constituting a revenue either as rent or profit, therefore, seems everywhere to regulate the proportion between industry and idleness. Wherever funds which are immediately destined for replacing a capital, predominates, industry prevails; wherever funds destined for constituting a revenue either as rent or profit, predominates, idleness prevails. This is why a farmer should be his own proprietor, and not pay "rent" nor the "price" of land to anybody. Also a rigged marketplace in which the playing field is unlevel due to taxation upon business and profits is a very bad thing, because it leads to monopolies, and big businesses swallowing up the smaller ones.
Capitals are increased by parsimony, and diminished by prodigality and misconduct.
In the 18th century, the word "misconduct" meant incompetence, or misadventure, not corruption.
Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.
"Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, provides the subject which parsimony accumulates." i.e. parsimony increases industry, so industry is subject to parsimony. "But whatever industry might acquire, if parsimony did not save and store up, the capital would never be greater.". Industry (the performance of productive useful labour) is the work-horse which gains the national revenue derived from the profits of stock. But from this national revenue derived from the profits of stock, only parsimony can save up and store, else the circulated and fixed capital would never be the greater: there would be no investment in business and industry. Parsimony "tends, therefore, to increase the exchangeable value of the annual produce of the land and labour of the country. It puts into motion an additional quantity of industry, which gives an additional value to the annual produce." Smith continues,
What is annually saved, is as regularly consumed as
Okay. Smith is noting there is a difference between spending and investing. The latter happens when an industrialist saves. This requires explaining. By spending his money upon his guests and servants, the monopolist, or landowner, does not invest. By saving the same amount, an industrialist might put this money into the bank: whereby the banking system ensures that his saved money is invested upon somebody else's workers in a factory. Alternatively, the industrialist may choose to lend his money to a fellow industrialist, in which case the effect would be the same. In either scenario, the money itself does not sit idly.
By what a frugal man annually saves, he not only affords maintenance to an additional
number of productive hands, for that of the ensuing year, but, like the founder of a public
workhouse, he establishes as it were a perpetual fund for the maintenance of an equal number
The word "positive" does not mean optimistic or sanguine. That meaning, I believe, came from the discovery of the voltaic cell, and the addition to the English language of the word "positive" which corresponds the the electro-motive force on an anode, much later in the latter part of the 19th century. I believe the word "electron" comes from the ancient Greek, to describe static electricity: hence the word electicity. So if our meaning of the word "positive" is anachronistic to the 18th century, what does the word "positive" mean in the 18th century? Well, I believe it means "to posit", as in, to posit an argument. I "posit" that Argentina field a better footballing side than the German team at the moment. A positive law is one which puts something in its place, or says you must do this, or you must destine and allot those funds in a specfic way. A mortmain (does this mean "dead-hand" in French?) means that lands, or other funds, are held inalienably by an organisation, or corporation: like the funds destined for the Nobel prize have been inalienably designated by its founder, Nobel.
The prodigal perverts it
Though the expense of the prodigal should be altogether in home-made, and no part of it in foreign commodities, its effect upon the productive funds of the society would still be the same. Every year there would still be a certain quantity of food and clothing, which ought to have maintained productive, employed in maintaining unproductive hands. Every year, therefore, there would still be some diminution in what would otherwise have been the value of the annual produce of the land and labour of the country.
He is saying that even if the prodigal spends all his money on domestically made goods, and no part of it upon importations, its effect upon the national revenue would still be the same. Recall that the national revenue is derived from the profits of stock, and stock is circulating capital. The national revenue derived from the profits of stock can only happen if you have circulating capital within the country. The national revenue is split into that part which maintains productive hands, whom perform labour (within the private sector) which produces some vendible commodity; and also that part which maintains the crew and entourage of the prodigal's super-yacht. Every year there would still be a certain quantity of food and clothing maintaining the servants which ought to have been maintaining the private sector workers of a productive and profitable investment. Every year, therefore, there would still be some reduction in what would otherwise have been the value of the annual produce of the land and labour of the country.
This expense, it may be said, indeed, not being in foreign goods, and not occasioning any exportation of gold and silver, the same quantity of money would remain in the country as before. But if the quantity of food and clothing, which were thus consumed by unproductive, had been distributed among productive hands, they would have reproduced, together with a profit, the full value of their consumption. The same quantity of money would, in this case, equally have remained in the country, and there would, besides, have been a reproduction of an equal value of consumable goods. There would have been two values instead of one.
This expense of the prodigal maintaining his crew of his super-yacht, does not occasion any money to leave the country whenever domestic people are employed and domestically grown produce and goods are garnered. But if the quantity of food and clothing, which were thus consumed by unproductive, had been distributed among productive hands, they would have reproduced, together with a profit, the full value of their consumption. As money spent on productive hands is an investment, the business returns capital on this investment, hopefully with profit. This money spent on productive hands which still remains within the country (by purchasing domestically sourced goods in the home trade) has the same effect as the prodigal purchasing these same consumable goods for unproductive hands. But in the case of productive hands, we have an additional value: the return on the industrialist's business investment. "There would have been two values instead of one.".
The same quantity of money, besides, cannot long remain in any country in which the value
of the annual produce diminishes. The sole use of money is to circulate consumable goods.
By means of it, provisions, materials, and finished work, are bought and sold, and distributed
to their proper consumers. The quantity of money, therefore, which can be annually employed in
any country must be determined by the value of the consumable goods annually circulated within
The quantity of money, on the contrary, must in every country naturally increase as the value of the annual produce increases. The value of the consumable goods annually circulated within the society being greater will require a greater quantity of money to circulate them. A part of the increased produce, therefore, will naturally be employed in purchasing, wherever it is to be had, the additional quantity of gold and silver necessary for circulating the rest. The increase of those metals will in this case be the effect, not the cause, of the public prosperity. Gold and silver are purchased everywhere in the same manner. The food, clothing, and lodging, the revenue and maintenance of all those whose labour or stock is employed in bringing them from the mine to the market, is the price paid for them in Peru as well as in England. The country which has this price to pay will never be long without the quantity of those metals which it has occasion for; and no country will ever long retain a quantity which it has no occasion for.
Whatever, therefore, we may imagine the real wealth and revenue of a country to consist in, whether in the value of the annual produce of its land and labour, as plain reason seems to dictate; or in the quantity of the precious metals which circulate within it, as vulgar prejudices suppose; in either view of the matter, every prodigal appears to be a public enemy, and every frugal man a public benefactor.
The effects of misconduct
A loss making enterprise won't suffice.
It can seldom happen, indeed, that the circumstances of a great nation can be much
affected either by the prodigality or misconduct of individuals; the profusion
With regard to profusion, the principle which prompts to expense is the passion for present enjoyment; which, though sometimes violent and very difficult to be restrained, is in general only momentary and occasional. But the principle which prompts to save, is the desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates those two moments, there is scarce, perhaps, a single instance, in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement of any kind. An augmentation of fortune is the means by which the greater part of men propose and wish to better their condition. It is the means the most vulgar and the most obvious; and the most likely way of augmenting their fortune is to save and accumulate some part of what they acquire, either regularly and annually, or upon some extraordinary occasion. Though the principle of expense, therefore, prevails in almost all men upon some occasions, and in some men upon almost all occasions; yet in the greater part of men, taking the whole course of their life at an average, the principle of frugality seems not only to predominate, but to predominate very greatly.
With regard to misconduct, the number of prudent and successful undertakings is everywhere much greater than that of injudicious and unsuccessful ones. After all our complaints of the frequency of bankruptcies, the unhappy men who fall into this misfortune, make but a very small part of the whole number engaged in trade, and all other sorts of business; not much more perhaps than one in a thousand. Bankruptcy is, perhaps, the greatest and most humiliating calamity which can befall an innocent man. The greater part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it; as some do not avoid the gallows.
Great nations are never impoverished by private, though they sometimes are by public
prodigality and misconduct. The whole, or almost the whole public revenue, is, in most
countries employed in maintaining unproductive hands
We are now at the place I have been aiming for. At the end of book 4, chapter 3, Smith says:
There is another balance, indeed, which has already been explained, very different from the balance of trade, and which, according as it happens to be either favourable or unfavourable, necessarily occasions the prosperity or decay of every nation. This is the balance of the annual produce and consumption. If the exchangeable value of the annual produce, it has already been observed, exceeds that of the annual consumption, the capital of the society must annually increase in proportion to this excess. The society in this case lives within its revenue; and what is annually saved out of its revenue, is naturally added to its capital, and employed so as to increase still further the annual produce. If the exchangeable value of the annual produce, on the contrary, fall short of the annual consumption, the capital of the society must annually decay in proportion to this deficiency. The expense of the society in this case exceeds its revenue, and necessarily encroaches upon its capital. Its capital, therefore, must necessarily decay, and, together with it the exchangeable value of the annual produce of its industry.
This balance of produce and consumption is entirely different from what is called the balance of trade. It might take place in a nation which had no foreign trade, but which was entirely separated from all the world. It may take place in the whole globe of the earth, of which the wealth, population, and improvement may be either gradually increasing or gradually decaying.
The balance of produce and consumption may be constantly in favour of a nation, though what is called the balance of trade be generally against it. A nation may import to a greater value than it exports for half a century, perhaps, together; the gold and silver which comes into it during an this time may be all immediately sent out of it; its circulating coin may gradually decay, different sorts of paper money being substituted in its place, and even the debts, too, which it contracts in the principal nations with whom it deals, may be gradually increasing; and yet its real wealth, the exchangeable value of the annual produce of its lands and labour, may, during the same period, have been increasing in a much greater proportion.
Returning to book 2, chapter 3, where we left off. Smith was talking about the effects of people's frugality countering those of public prodigality and misadventure.
This frugality and good conduct, however, is upon most occasions, it appears from experience, sufficient to compensate, not only the private prodigality and misconduct of individuals, but the public extravagance of government. The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things towards improvement, in spite both of the extravagance of government and of the greatest errors of administration. Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite, not only of the disease, but of the absurd prescriptions of the doctor.
The annual produce of the land and labour of any nation can be increased in its value
by no other means but by increasing either the number of its productive labourers, or
the productive powers of those labourers who had before been employed. The number of its
productive labourers, it is evident, can never be much increased, but
The annual produce of the land and labour of England, for example, is certainly much greater
than it was, a little more than a century ago, at the restoration of Charles II. Though at
present, few people, I believe, doubt of this, yet during this period, five years have seldom
passed away in which some book or pamphlet has not been published, written, too, with such
abilities as to gain some authority with the public, and pretending to demonstrate that the
wealth of the nation was fast declining; that the country was depopulated, agriculture
neglected, manufactures decaying, and trade undone. Nor have these publications been all
party pamphlets, the wretched offspring of falsehood and venality
Speaking of which, there was this fellow by the name of John Maynard Keynes, who in a footnote on page 1 of chapter 1 of The general theory of employment, interest and money said,
'The classical economists' was a name invented by Marx to cover Ricardo and James Mill and their predecessors, that is to say for the founders of the theory which culminated in the Ricardian economics. I have become accustomed, perhaps perpetrating a solecism, to include in 'the classical school' the followers of Ricardo, those, that is to say, who adopted and perfected the theory of Ricardian economics, including (for example) J. S. Mill, Marshall, Edgeworth and Prof. Pigou.
So I looked up David Ricardo and selected a random place within his work, On The Principles of Political Economy and Taxation, chapter 21, which is called "Effects of Accumulation on Profit and Interest". Please bear in mind that at this time of writing I know nothing about him, nor his doctrines.
FROM the account which has been given of the profits of stock, it will appear, that no accumulation of capital will permanently lower profits, unless there be some permanent cause for the rise of wages.
I am afraid this is wrong because the "increase of stock, by increasing the competition, necessarily reduces the profit" (from Smith, book 1, chapter 10, part 2). Ricardo again:
If the funds for the maintenance of labour were doubled, trebled, or quadrupled, there would not long be any difficulty in procuring the requisite number of hands, to be employed by those funds; but owing to the increasing difficulty of making constant additions to the food of the country, funds of the same value would probably not maintain the same quantity of labour.
Okay. Stop. The wages of labour constitute a component part of the price of a commodity. If, with no change to the nominal price (in money) of the commodity, they rise, then the either the component part of price of profit must fall to compensate, or the component part of price of rent must fall to compensate. I am assuming unhindered (i.e. free) trade in which the component part of price of taxation does not exist. When Ricardo refers to "the increasing difficulty of making constant additions to the food of the country" is he saying that as the population increases, national agriculture can't supply that newer demand? In that case, of a dearth, the price of food would be elevated because demand exceeds supply, in which case the wages of labour in agriculture may become elevated. Poor people, potentially those outside of the agricultural industry, being unable to afford food, would starve. Ricardo:
If the necessaries of the workman could be constantly increased with the same facility, there could be no permanent alteration in the rate of profits or wages, to whatever amount capital might be accumulated.
Stop again. I don't know why Ricardo keeps on using the word, "constantly". He seems to mean to say, "successively". So Ricardo seems to be saying if the ease with which capital becomes accumulated could be matched with the increase in the number of possessions of the workman, then the component part of price of wages, and profit would be unaltered. What bunkum is this? Why is any of that ever the case? It simply is not true. Ricardo continues:
Adam Smith, however, uniformly ascribes the fall of profits to accumulation of capital, and to the competition which will result from it, without ever adverting to the increasing difficulty of providing food for the additional number of labourers which the additional capital will employ. 'The increase of stock,' he says, 'which raises wages, tends to lower profit. When the stocks of many rich merchants are turned into the same trade, their mutual competition naturally tends to lower its profit; and when there is a like increase of stock in all the different trades carried on in the same society, the same competition must produce the same effect in all.' Adam Smith speaks here of a rise of wages, but it is of a temporary rise, proceeding from increased funds before the population is increased;
Owners of capital oversee where it is invested. Thus if there is a shortage of food, the owners of capitals will invest in farming capital: both fixed captials like tractors, and circulating capitals like grain to be planted. The supply of food will increase to meet the demand: at least this is the case in a world which I am proposing in which this feedback mechanism would be unimpeded and natural. Ricardo again:
Capital consists of circulating capital, and fixed capital. Work is performed on the circulating capital by human beings performing industrial labour. The capital is required for work to be effectuated. In book 5, chapter 2, part 2, article 2, Smith says "Stock cultivates land; stock employs labour". Ricardo:
M. Say has, however, most satisfactorily shewn, that there is no amount of capital which may not be employed in a country, because demand is only limited by production.
This is utter rubbish. In book 4, chapter 1, Smith said:
The quantity of every commodity which human industry can either purchase or produce, naturally regulates itself in every country according to the effectual demand, or according to the demand of those who are willing to pay the whole rent, labour, and profits, which must be paid in order to bring it to market.
According to M. Say a merchant, or vendor, would be able to sell sand to the Arabs. There is no absolute demand for sand in the desert. M. Say has got his concepts in reverse: in actuality production is limited by demand. Ricardo continues:
No man produces, but with a view to consume or sell, and he never sells, but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person. It is not to be supposed that he should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view, namely, the possession of other goods; and, therefore, it is not probable that he will continually produce a commodity for which there is no demand.
Okay. This is true, but this contradicts what M. Say has incorrectly hypothesized above. Has Ricardo noticed the contradiction; or is he just putting words together in a discombobulated fashion, trying to make a picture out of his own personal jigsaw?
So what was Smith's view's on land reform?
To understand this, it is first necessary to note that during the 18th century, no such political change would have been possible pertaining to land reform. Heck. Smith had a difficult enough a time suggesting that slavery might be inefficient and not progressive. There was not a democratic system of one person one vote, and voting rights were excluded to women, and the working class. But if we read deeper into his writings we see little suggestive snippets, invoking little glimmers of hope that he would agree with my policies on land reform today. In book 1, chapter 6, he says:
In that early and rude state of society which precedes the appropriation of land...
In the same chapter:
As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities makes a third component part.
In book 1, chapter 8:
But this original state of things, in which the labourer enjoyed the whole produce of his own labour, could not last beyond the first introduction of the appropriation of land and the accumulation of stock. It was at an end, therefore, long before the most considerable improvements were made in the productive powers of labour; and it would be to no purpose to trace further what might have been its effects its effects upon the recompense or wages of labour.
I find this passage to be suggestive evidence that Smith would have been in favour of replacing land ownership by land usage. Smith advertently states that it would be to no purpose (politically), and lacking expedience, to imagine a hypothetical scenario of what would be the effects the labourer, enjoying the whole produce of his own labour, without this being subject to the appropriation of land. Or in other words, Smith considered it futile to talk to the ruling class about such revolutionary ideas as a farmer not being a tenant of a landowner. It would have been deemed a preposterous suggestion. Nevertheless these words are there, within Smith's dictum.
Again within book 1, chapter 8:
In that original state of things which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him.
Had this state continued, the wages of labour would have augmented with all those improvements in its productive powers, to which the division of labour gives occasion. All things would gradually have become cheaper. They would have been produced by a smaller quantity of labour; and as the commodities produced by equal quantities of labour would naturally in this state of things be exchanged for one another, they would have been purchased likewise with the produce of a smaller quantity.
I suppose I need to say something here. I think this passage speaks for itself. Although Smith would never go so far as to advocate the abolition of land ownership, he speculates that within a Universe without such systems of belief, the consequence would be jolly good. In book 3, chapter 4:
The small quantity of land, therefore, which is brought to market, and the high price of what is brought thither, prevents a great number of capitals from being employed in its cultivation and improvement, which would otherwise have taken that direction.
Within book 3, chapter 2:
The farmer, compared with the proprietor, is as a merchant who
trades with borrowed money compared with one who trades with his own. The stock of both
may improve; but that of the one, with only equal good conduct, must always improve more
slowly than that of the other, on account of the large share of the profits which is consumed
by the interest of the loan. The lands cultivated by the farmer must, in the same manner
Bingo. Here he states outright that had the farmer been proprietor, the land would have been improved better.
In book 4, chapter 7, part 2, he says:
But, in a new colony, a great uncultivated estate is likely to be much
more speedily divided by alienation than by succession. The plenty and cheapness of good land,
it has already been observed, are the principal causes of the rapid prosperity of new colonies.
The engrossing of land, in effect, destroys this plenty and cheapness. The engrossing of
uncultivated land, besides, is the greatest obstruction to its improvement. But the labour
that is employed in the improvement and cultivation of land affords the greatest and most
valuable produce to the society. The produce of labour, in this case, pays not only its own
wages, and the profit of the stock which employs it, but the rent of the land too upon which
it is employed. The labour of the English colonists, therefore, being more employed in the
improvement and cultivation of land, is likely to afford a greater and more valuable produce
than that of any of the other three nations
Alienation is the transfer of of property from one owner to another. The land, by alienation, may be broken into smaller plots. Likewise, by sucession, several heirs may inherit plots individually smaller than the totality of the estate which they inherit from. An engrosser is a person who buys low and sells for a higher price. In book 1, chapter 11, part 3, Smith says:
In 1885, J.R. Mcculloch, for the publisher Ward, Lock, and co. commented,
This is a most erroneous position. Profit is much higher in the United States than in England or France; but will any one be bold enough to say that they are going fast to ruin? The very reverse of what Smith has stated is true.
Oh dear. In the 19th century, both in the United States and within England and France, a smaller profit was made on a larger stock, as opposed to the 20th century, within said countries, whence larger individual profits were made on a smaller stock concentrated into fewer people's hands. That is, the stock itself had fewer, monopolistic, owners during the 20th century. Indeed, the sum total of all the profits during the 19th century might have been greater than those of the 20th century, because the amount of stock was lesser during the 20th century in comparison with the 19th century. Note that profit here is being measured as a percentage of revenue, not in absolute units of money, which vary with inflation. During the 19th century, as land was cheaper in the United States, in comparison with France and England, the component part of price of rent was reduced (declined) in the United States, in comparison. This would have afforded, within the States, the greater component parts of price of wages and profit. This is a good thing: it leads to an increase in stock, an increase in prosperity, and thus an increase of competition, which lowers individual profits, which is what Smith is talking about. Smith continues,
The interest of this third order
I wish to shy away from the idea that the general interest of society is connected with the interest of those who live by rent, i.e. the indolent land-owners. To do justice to Smith, his conclusion was that as technology (a word not from the 18th century) develops, this tends towards the creation of farming machinery like tractors, which increase the amount of labour performed. The share of the produce which is the land-lord's increases, as does the ability of the land-owner to hire farm-hands, as does the ability of the land-owner to purchase the produce of the labour of other people, like tables, and chairs, and grand pianos.
As more industrialised machinery becomes used in the rearing and feeding of live-stock, the real price (in labour) of cattle increases, and also fewer farm-hands need be employed to operate this machinery. Both the overall amount of produce increases, and the proportion of the landlord's share increases: the latter because these fewer farm-hands are performing work more effectively than before.
Whenever technology is used in manufacturing, the real price (the amount of labour performed)
increases by fewer workers using more machinery.
Merchants and master manufacturers are, in this order,
the two classes of people who commonly employ the largest capitals, and who by their wealth
draw to themselves the greatest share of the public consideration. As during their whole
lives they are engaged in plans and projects, they have frequently more acuteness of
understanding than the greater part of country gentlemen. As their thoughts, however, are
commonly exercised rather about the interest of their own particular branch of business, than
about that of the society, their judgment, even when given with the greatest candour (which
it has not been upon every occasion) is much more to be depended upon with regard to the
former of those two objects
I believe the same phenomenon is happening in modern-day economic theory: the wide-eyed gullible economists and social policy makers are naively persuaded that high profits are a sign of a healthy economy; but they aren't. They are quite symptomatic of a societal disease. Smith continued,
The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
Here Smith uses the word, "tax", in an 18th century way, to mean something which is taxing, a stressor: the tax he is referring to, is the elevated profits themselves.
The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
In book 4, chapter 7, part 3, Smith said,
Without pretending, therefore, that they
In book 4, chapter 7, part 2,
The parts of Europe which lie south of Cape Finisterre, are not manufacturing countries, and we were less jealous of the colony ships carrying home from them any manufactures which could interfere with our own.
Within book 4, chapter 7, part 3, again:
The monopoly of the colony trade, besides, by forcing towards it a much greater proportion of the capital of Great Britain than what would naturally have gone to it, seems to have broken altogether that natural balance which would otherwise have taken place among all the different branches of British industry. The industry of Great Britain, instead of being accommodated to a great number of small markets, has been principally suited to one great market. Her commerce, instead of running in a great number of small channels, has been taught to run principally in one great channel. But the whole system of her industry and commerce has thereby been rendered less secure, the whole state of her body politic less healthful than it otherwise would have been. In her present condition, Great Britain resembles one of those unwholesome bodies in which some of the vital parts are overgrown, and which, upon that account, are liable to many dangerous disorders scarce incident to those in which all the parts are more properly proportioned.
The 20th century concept of the European Common market has been fundamentally flawed since its initial incipience. Apart from the travesty and absurdity of the agricultural policy of tariffs, quotas, and subsidies, the idea has been that each country within the bloc, channel its labour performed into one great market. This is not good. Each country within the European Union (E.U.) is treated as a colony of the European central market; and there are high barriers to trade, which inhibit lesser enterpreneurs (adventurers) from entering into competition in the trade between countries within the bloc. Those barriers are VAT, the cost of land, the governmental taxes upon profits, business, and enterprise, and the effects of trading quotas and subsidies; all of which fines lead to what Smith would have called a "regulated company": which is a kind of monopoly of trade imposed upon it by the central governing body, whom actually believed they were creating jobs and prosperity. The E.U. is currently represented as the same manifestation as Great Britain was represented as, in respect of its colonies during the 18th century.
Smith said (in book 4, chapter 7, part 3),
We must carefully distinguish between the effects of the colony trade and those of the monopoly of that trade. The former are always and necessarily beneficial; the latter always and necessarily hurtful.
Immediately before this, he also said,
In book 4, chapter 7, part 2,
Some nations have given up the whole commerce of their colonies to an exclusive company,
of whom the colonists were obliged to buy all such European goods as they wanted, and to
whom they were obliged to sell the whole of their own surplus produce. It was the interest
of the company, therefore, not only to sell the former
When Smith here, uses the word, "value", he implies the nominal price (the price in money) of a commodity, multiplied by the quantity brought to market. Here he is talking of the value of the surplus produce brought to market. Thus, he says that not only did the monopoly seek to buy from the colony as cheaply as possible, but they did not wish to meet the demand of the home market for whatever sugars, or molasses, or spices, or tobacco they were buying; because, in order to sell at as high a price as possible in the home market, it was necessary that the supply of these items, should fall short of the demand for them. So, it was in the interests of the profits of the exclusive company to discourage and keep down the natural increase of the quantities of production of these items.
Within book 5, chapter 1, part 3, article 1, Smith says,
The constant view of such companies is always to raise the rate of their own profit as high as they can; to keep the market, both for the goods which they export, and for those which they import, as much understocked as they can; which can be done only by restraining the competition, or by discouraging new adventurers from entering into the trade.
Within book 4, chapter 7, part 3, this time,
The monopoly, indeed, raises the rate of mercantile profit, and thereby augments somewhat the gain of our merchants. But as it obstructs the natural increase of capital, it tends rather to diminish than to increase the sum total of the revenue which the inhabitants of the country derive from the profits of stock; a small profit upon a great capital generally affording a greater revenue than a great profit upon a small one. The monopoly raises the rate of profit, but it hinders the sum of profit from rising so high as it otherwise would do.
A page before this, he says,
The monopoly hinders the capital of that country, whatever may at any particular time be the extent of that capital, from maintaining so great a quantity of productive labour as it would otherwise maintain, and from affording so great a revenue to the industrious inhabitants as it would otherwise afford. But as capital can be increased only by savings from revenue, the monopoly, by hindering it from affording so great a revenue as it would otherwise afford, necessarily hinders it from increasing so fast as it would otherwise increase, and consequently from maintaining a still greater quantity of productive labour, and affording a still greater revenue to the industrious inhabitants of that country. One great original source of revenue, therefore, the wages of labour, the monopoly must necessarily have rendered at all times less abundant than it otherwise would have been.
Is your concentration waning? Are you still paying attention? Smith is saying that because the monopoly exports from the home market less than the surplus that is brought to the home market, a lesser quantity of productive labour happens domestically, even if their exists, domestically, sufficient capital to maintain a greater quantity of productive labour. So any country that contains a body of people whom seek to monopolise to themselves their whole exportation trade, will deprive the other citizens from exporting the surplus goods and produce which they bring to market, and this will prevent so great a revenue to the industrious inhabitants as the sufficient capital would otherwise afford. But as capital can be increased only by savings from revenue, the monopoly, by hindering the sufficient capital from affording so great a revenue as this capital would otherwise afford, necessarily hinders it from increasing so fast as it would otherwise increase. This is what poverty is. This is how jobs don't become created. This monopoly is an impedance to the increase of capital, which necessarily hinders this capital from increasing so fast as it would otherwise increase, and consequently from maintaining a still greater quantity of productive labour, and affording a still greater revenue to the industrious inhabitants of that country. Oh, and because the national revenue (in terms of labour performed and also the profits of stock) is not increased, national capital is not increased: the increase of which is saved out of the profits that this capital has generated. The word, "revenue", means, "that which is coming back". Recall that the national revenue derived from the profits of stock is equal to the revenue of the inhabitants derived from the profits of stock plus that part of the annual produce which comes from the hands of productive labourers such as those within agriculture and manufacturing. When less produce and manufactured goods is exported, fewer farmers can remain in business than otherwise, and this non-increased national revenue cannot support a lot of smaller profits in a greater number of farmers hands (such as would be the case with unrestricted exports). As fewer farm-hands are being employed than otherwise, their wages of labour (one great original source of revenue) must necessarily have been rendered, as a national total, at all times, less abundant than these wages otherwise would have been; and this must necessarily have happened because of the monopoly. I hope you understood this: it is very relevant to the quotation after the next one.
One paragraph previous to the last quotation is:
The monopoly of the colony trade, therefore, like all the other mean and malignant expedients of the mercantile system, depresses the industry of all other countries, but chiefly that of the colonies, without in the least increasing, but on the contrary diminishing that of the country in whose favour it is established.
The afore-mentioned quotation is from book 2, chapter 5,
Were the Americans, either by combination, or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard, instead of accelerating, the further increase in the value of their annual produce, and would obstruct, instead of promoting, the progress of their country towards real wealth and greatness. This would be still more the case were they to attempt, in the same manner, to monopolize to themselves their whole exportation trade.
He held before me the book of wisdom. Strange that I should have grown so suddenly blind. Back again to book 4, chapter 7, part 3:
The monopoly, it has been supposed, indeed, by increasing the private revenue of the
people of Great Britain, and thereby enabling them to pay greater taxes, compensates the
deficiency of the public revenue of the colonies. But this monopoly, I have endeavoured to
show, though a very grievous tax upon the colonies, and though it may increase the revenue
of a particular order of men in Great Britain, diminishes instead of increasing that of the
great body of the people; and consequently diminishes instead of increasing the ability of
the great body of the people to pay taxes. The men, too, whose revenue the monopoly
increases, constitute a particular order, which it is both absolutely impossible to tax
beyond the proportion of other orders, and extremely impolitic even to attempt to tax
beyond that proportion, as I shall endeavour to show in the following book
Okay. He says that a small amount of tax upon a greater number of people leads to a greater revenue for the exchequer, than trying to tax the super-rich monopolists, who can't be taxed anyway, because they will just move their money into off-shore tax-havens; or threaten to leave the country taking their money with them, if they perceive that they are being taxed too much. The monopoly decreases the revenue acquired by the greater body of people, thus diminishing their ability to pay personal expenditure tax.
To conclude these points made: in Book 5, chapter 1, part 3, article 1, Smith says,
By a perpetual monopoly, all the other subjects of the state are taxed very absurdly in two different ways: first, by the high price of goods, which, in the case of free trade, they could buy much cheaper; and secondly, by their total exclusion from a branch of business which it might be both convenient and profitable for many of them to carry on.
As a bit of light relief at this point, I will include a bit of history about war, and the smuggling of contraband.
The Spanish war, which began in 1739 was principally a colony quarrel. Its principal object was to prevent the search of the colony ships which carried on a contraband trade with the Spanish Main. This whole expense is, in reality, a bounty which has been given in order to support a monopoly. The pretended purpose of it was to encourage the manufactures, and to increase the commerce of Great Britain. But its real effect has been to raise the rate of mercantile profit, and to enable our merchants to turn into a branch of trade, of which the returns are more slow and distant than those of the greater part of other trades, a greater proportion of their capital than they otherwise would have done; two events which, if a bounty could have prevented, it might perhaps have been very well worth while to give such a bounty.
A bounty is the spending of tax-payers' money on something, often to encourage the exportation of a commodity, although only indirectly in the example just quoted. A bounty involves raising from the tax-payers, which is an expense to them. But far more expensive to them is the effect to them. A bounty is the payment of money to a merchant, from the exchequer, to export something, like wheat. The merchant finds it more profitable, because of this payment, to export, rather than to sell domestically. The supply of wheat in the home market, now falls short of the demand, so its nominal price (in money) becomes elevated. Hence people now pay considerably more for wheat. It costs them dear, and over as long as this bounty is operational, this regulatory control, holds the price of wheat at an elevated level. The farmers, instead of primarily supplying the home market, find it more profitable, because of the bounty, to primarily sell to the merchant to export. Now the home market becomes the over-flow for surplus produce. It should be the other way around.
Smith has just said that the British objective of the Spanish war, which began in 1739, was to prevent Spanish authorities inspecting British ships trading with Spain. The British crown wanted to encourage smuggling of contraband to Spain. This was to enable British merchants to profit in the contraband trade of smuggling. The war cost the British crown much expense, which was in effect spent on encouraging this trade. The price of goods smuggled to Spain was considerably higher than those same goods being traded with Britain, from British colonies, because of the scarcity of these goods in Spain, and the extraordinary risk of forfeiture of these goods, and subsequent penalty, if the Spanish authorities caught the smugglers. The merchants, instead of importing sugars, and tobacco, into Britain, began smuggling it to Spain. The price of these commodities rose within Britain as the supply of them became reduced. So the people in the home market suffered as the natural price of these commodities never became attained. Of course, a bounty can never prevent the monopoly of a merchant; neither can it effect that capital won't be diverted to a more inflationary, yet more profitable, circuitous trade. In fact, the bounty in question, caused both of these two phenomenon.
As a finale at this stage, I would like to talk about what would happen if the government increases the number of pounds stirling that exist. This does happen. Besides observing that the quantities of money in public coffers are drastically augmented in the year 2020, in comparison with the year 1970; these policies and actions are often adulated, as was what was called, "quantitative easing", near to the year 2012; and also I heard that the government printed (created more) money to pay people during the COVID-19 pandemic during the year 2020. Within book 2, chapter 4, Smith said:
An increase in the quantity of silver, while that of the commodities circulated by means
of it remained the same, could have no other effect than to diminish the value of that
metal. The nominal value
He is saying that within an economy which is representative of the most perfect system of natural liberty, with fair, impartial, disinterested justice; if the prices go up, most likely wages will increase to match this inflation. However, we don't live within such a a system at the moment. At the moment, we live under a Marxist Utopia, where everybody is, more or less, an employee of, or some type of a subsidiary of, the State: and audaciously, people, so-called learned economists, have the ignorance to call this system a "capitalist" one . It is unclear what they mean by using such language, and I doubt they know what they mean themselves. Smith continues,
The funds for maintaining productive labour
I don't wish to talk about the interest upon money lent, though Smith did write about this. Life is too short; and I am wishing to see the growth of capital being more widely distributed within a society which is doing less ecological harm to its environment. Essentially, Smith is saying a prospective lender seeks to find out what can be made profitably on any venture, and the higher the risk to his investment, the greater the agreeable rate of interest upon lending, presumably for the promise of high returns of profit to the borrower of this money. "What can commonly be made", refers to successful ventures, and this regulates what is a usual rate of interest for borrowers. Smith continues,
Any increase in the quantity of commodities annually circulated within the country, while
that of the money which circulated them remained the same, would, on the contrary, produce
many other important effects, besides that of raising the value of the money. The capital of
the country, though it might nominally
Do you know what your problem is? Your problem is, you have never seen a miracle. He is talking about elevating the wealth and living standards of the poor; not stealing from the rich.
At this point in this course of study, I really must present a discourse about what is called the "national debt" --- or "public debts", as Smith would put it. To remind the reader, my proposal is to have only one taxation, upon personal expenditure, not income. I have been deliberately vague about what may be considered a basic non-taxable allowance, if such a thing should exist at all, because I do not want my words to become sacrosanct, and revered above what dynamic, and necessary, changes may become required. The idea is that money is transferred from your capital account to your expenditure account, whence then, and only then, is the taxed amount deducted from the taxable amount. I posit that this method of taxation is exclusively not inflationary, as it does not reduce the generation of capital which can be invested in agricultural ventures, or those of manufacturing: here we are taxing funds for personal consumption in a way which does not constitute a component part of the price of the item which is being consumed; and hence does not increase the price of the consumed item. Neither does this system of taxation naturally have to infer that capital spent on a house (which is a basic necessary provision) would automatically come out of your personal expenditure account. People within the whole society naturally benefit from and enjoy looking at ornate and luxurious houses. In Smith's time, Smith advocated taxing land-ownership pretty toughly. I advocate abandoning the system of belief of land ownership, because a system of belief is what a religion is, and such should not be associated with the payment of large sums of money. The supply of land always remains fixed: it can never be generated, nor manufactured. But the demand for land indefinitely grows. So its price must be always increasing, except in the event of a huge plague, or a nuclear hollocaust: of which, in both cases, the price of land would decrease, due to a sheer drop in the demand for it, due to a seriously curtailed population. In book 5, chapter 3, Smith warned,
The proprietor of land is interested, for the sake of his own revenue, to keep his estate in as good condition as he can, by building and repairing his tenants' houses, by making and maintaining the necessary drains and enclosures, and all those other expensive improvements which it properly belongs to the landlord to make and maintain. But by different land-taxes the revenue of the landlord may be so much diminished, and by different duties upon the necessaries and conveniences of life, that diminished revenue may be rendered of so little real value, that he may find himself altogether unable to make or maintain those expensive improvements. When the landlord, however, ceases to do his part, it is altogether impossible that the tenant should continue to do his. As the distress of the landlord increases, the agriculture of the country must necessarily decline.
Seven paragraphs before this he said,
The public funds of the different indebted nations of Europe, particularly those of England, have by one author been represented as the accumulation of a great capital, superadded to the other capital of the country, by means of which its trade is extended, its manufactures multiplied, and its lands cultivated and improved much beyond what they could have been by means of that other capital only.
This purview (which is contrary to Smith's and mine) sounds remarkably familiar by (returning to) those of the so-called experts in economic theory, of the 20th, and early 21st century. To save space and time I will paraphrase how Smith continued, because the language he uses pertaining to "productive" and "unproductive" labourers, people in the modern world may find insulting, or offensive, to describe a doctor, or social worker, as such. He was using the word literally, as it was possible to do back then, to imply that what is "produced", either stems from agriculture, or manufacturing, or fisheries, or mining; whilst jobs in the public service-sector usually don't produce a vendible commodity, profitably, as such. So here goes. The author Smith is talking about, does not consider that the capital, which the initial creditors of the public advanced to the government, was, from the moment in which they advanced it, a certain portion of the annual produce turned away from serving in the function of capital, to serve in that of revenue, i.e. from maintaining jobs in the private sector to maintaining jos in the public one. That is to say, the money lent from the private sector to the government cannot, in the mean-time, until it is paid back, be invested in the private sector in the form of capital, because this capital itself has now become the revenue of the government. Had it remained within the private sector, it would have been invested, and there would have been a return upon that investment. The investment would have maintained the wages of labourers within agriculture, manufacturing, mining, or fisheries. Thus when it would have been spent, domestically, there would have been two capitals within the country: one for maintaining the wages of the labourers, and the other a return with profit upon this investment. So, until this capital borrowed from the private sector is paid back, it will be maintaining labourers within the public sector, who usually don't produce any vendible commodity, instead of it (the capital) being two capitals within the private sector: one which maintains labourers who produce a vendiible commodity. The capital within the public sector cannot reproduce itself: it will need to be found again next year; while within the private sector this capital reproduces itself with profit. Also, when borrowed, this capital will need to be paid back with interest. When this capital with interest, is replaced (repayed) into the hands of those private creditors who originally furnished it to the government, it is often repayed in the form of a yearly amount called an annuity, which enables those creditors either to sell this debt they are owed to another investor, or borrow from other investors upon the credit of these repayments with (which receive) interest. These annuities may extend over a person's life-time, or over the life-time of several generations. When the original investor either sells this annuity, or borrows upon its credit, he obtains a new capital, which is new to him, but is not new to the country, as it must have existed within private investors' hands, and would have been employed as capital within the private sector if the original lender had never advanced capital to the government in the first place. It (the new capital) would have been two portions of the annual produce, maintaining the generation of vendible commodities in a manner which would have led to future reproduction. Instead, the new capital has been juggled from Peter to Paul: from one species of industry to another; effectively borrowed from another industry, so that the original lender can maintain a bigger share, at the expense of the public purse, of whatever industry within which he chooses to invest his now augmented capital. This is not sustainable, because exactly the same set of problems of the need to spend upon civil government and public institutions will exist the following year. In book 5, chapter 3, Smith said,
The progress of the enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform.
To recap. Taxes upon commodities, in proportion to what they bring into the public treasury of the state, always take out, or keep out, of the pockets of the people, more than almost any other taxes. From book 5, chapter 2, part 2, article 4,
So far as the free (unrestricted and untaxed) importation of commodities would reduce their average money price in the home market, this would reduce the money price of labour, but without reducing in any respect its payment in labour. Where the concept of value is the real price (the price in labour) multiplied by how much labour is performed in bringing a commodity to market, the value of money is in proportion to the quantity of commodities it will purchase. The value of the commodities is altogether independent of the quantity of money which can be had for them. The reduction in the money price of labour would make labour a lot more viable in the home manufactures, which would thereby make them more advantaged within all foreign markets. Still further, the nominal price (the price in money) of some manufactures would be reduced in a still greater proportion, by the free importation of the raw materials.
Taxes upon commodities, by raising their price, requires wages to be greater to compensate. This necessarily raises the price of all manufactures, and when people can no longer afford to buy what they wish to buy, the extent of the sale of these manufactures is diminished. Taxes upon commodities are often called excise duties, and taxes upon their importation or exportation are called customs. If people understood their own interest, they ought always to oppose taxes upon commodities, as well as taxes upon the wages of labour, like income tax, and national insurance contributions. Everything can be paid for by PET, whatever rate future people may decide it to be. I am talking about money working for people, not people being controlled by it. If it becomes worthless, as it has done, and is continuing to become, then the tool as money is no longer viable and should be emended and repaired.
When those companies
Regulated companies resemble, in every respect, the corporations of trades so common in the cities and towns of all the different countries of Europe; and are a sort of enlarged monopolies of the same kind. As no inhabitant of a town can exercise an incorporated trade without first obtaining his freedom in the corporation, so, in most cases no subject of the state can lawfully carry on any branch of foreign trade, for which a regulated company is established, without first becoming a member of that company. The monopoly is more or less strict according as the terms of admission are more or less difficult, and according as the directors of the company have more or less authority, or have it more or less in their power to manage in such a manner as to confine the greater part of the trade to themselves and their particular friends.
He also said,
The object, besides, of the greater part of the bye-laws of all regulated companies, as well as of all other corporations, is not so much to oppress those who are already members, as to discourage others from becoming so; which may be done, not only by a high fine, but by many other contrivances. The constant view of such companies is always to raise the rate of their own profit as high as they can; to keep the market, both for the goods which they export, and for those which they import, as much understocked as they can: which can be done only by restraining the competition, or by discouraging new adventurers from entering into the trade.
When a government sells to the higgest bidder the priviledge of utilizing frequency bands of radio waves for mobile telephony, or public broadcasts, the effect is the same as granting an exclusive priviledge to an organisation or corporation. If the co-ordination between different competitors was done by government without any payment of money, the effect would be to enhance competition rather than trying to impose it via a "positive" law, i.e. a law which specifies that other competitors may use the infrastructure of one competitor specifically. Further, this winfall tax (which is improper) is in effect what Smith would have called a high fine; the end result of which being that it falls upon the consumers in the elevated price of mobile telephony, which is inflationary, as it raises the cost of living. Smith said,
In all trades, the regular established traders, even though not incorporated, naturally combine to raise profits, which are noway so likely to be kept, at all times, down to their proper level, as by the occasional competition of speculative adventurers.
Within book 5, chapter 2, part 2, article 2,
When a tax is imposed upon the profits of stock in a particular branch of trade, the traders are all careful to bring no more goods to market than what they can sell at a price sufficient to reimburse them for advancing the tax. Some of them withdraw a part of their stocks from the trade, and the market is more sparingly supplied than before. The price of the goods rises, and the final payment of the tax falls upon the consumer. But when a tax is imposed upon the profits of stock employed in agriculture, it is not the interest of the farmers to withdraw any part of their stock from that employment.
In such a scenario, if each farmer would make a profit upon his stock, he would pay tax upon this profit. Recall that his fixed capital is his buildings and farming machinery, and his circulating capital is the grain he sows, and other similars. I am not proposing that profits upon his stock be taxed. I am telling you what Smith said would happen in such a scenario. In my world, if the farmer makes excessive profit upon his produce, then either there has been an increase in demand to cause such; or the farmers have combined to raise profits by under-stocking the market, by restraining the competition. Regarding the first scenario, if there was an increase in demand for his produce, then in book 5, chapter 1, part 3, article 1, Smith said,
The increase of demand, besides, though in the beginning it may sometimes raise the price of goods, never fails to lower it in the long-run. It encourages production, and thereby increases the competition of the producers, who, in order to undersell one another, have recourse to new divisions of labour and new improvements of art which might never otherwise have been thought of.
In the latter scenario (where the farmers have combined so as to under-stock the market), Smith said that for the proper cultivation of land, a certain quantity of stock is necessary; and if he would withdraw any part of this necessary quantity, the farmer is not likely to be more able to pay either the rent (to the land-owner), or the tax. Recall that the rent, in the 18th century, was typically not more that one third of the produce of this land. In order to pay this rent, and tax, upon his profits of stock (which is a percentage of them) it can never be in his interest to diminish the quantity of his produce, nor consequently to supply the market more sparingly than before, because by withdrawing part of the quantity of stock which was necessary to pay this rent and tax, he will receive the same fraction of a smaller whole. This amount he receives will be less than before, if he does this, so reducing the quantity of produce would result in him being poorer. Because the market price won't increase without such a reduction in supply, the tax upon the profits of stock will never enable him to raise the nominal price (in money) of his produce so as to re-imburse himself by throwing the final payment upon the consumer. This is because the rent of land is taken as a percentage of the total produce, and the tax upon the profits of his stock is likewise a percentage of them. A fixed fraction of something is only larger if the whole is larger, and his remainder after tax is a fixed fraction. Smith says,
The farmer, however, must have his reasonable profit as well as every other dealer, otherwise he must give up the trade. After the imposition of a tax of this kind, he can get this reasonable profit only by paying less rent to the landlord. The more he is obliged to pay in the way of tax the less he can afford to pay in the way of rent. A tax of this kind, imposed during the currency of a lease may, no doubt, distress or ruin the farmer. Upon the renewal of the lease it must always fall upon the landlord.
Here I think Smith was trying to hit land-owners hard, and to an extent I think he did. But hind-sight is a wonderful thing. What subsequently happened, was that tenant farmers became abjectly poor, and lacking disposable income, as they had little choice other than to undertake an occupation which would yield them little or no profit. This was not what Smith has intended. Note that Smith's hands were tied in the sort of social and political changes he could propose back then; and note also that there were no social safety nets like welfare payments to people on, or below the poverty line, during both the 18th and 19th centuries. He (perhaps incorrectly) foresaw that land owners would not be as greedy and rapacious as they were: demanding their own revenue upon the land, over and above the reasonable profit Smith says the farmer must have.
If, in today's world, the farmers would combine to form a corporation which sought to embargo the market by reducing supply to fall short of the the demand, then for a start this is illegal in today's world, with considerable penalties and punishments for attempting to do this. Secondly, it would be pretty noticeable that fields were not being made use of, or that agricultural stock was mysteriously disappearing; and thirdly, as land is not being owned, but merely is being utilized or borrowed from society, without a payment or a fee, a new adventurer, a farmer, could request to use this land if the current farmers were not making appropriate and maximally productive use of it. Quite who in the community should have the permission to farm it is a matter for local government, of which there is plenty.
Before, I was talking about why there should not be a tax upon the wages of labour. Within book 5, chapter 2, part 2, article 3, Smith said,
If direct taxes upon the wages of labour have not always occasioned a proportionable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour. The declension of industry, the decrease of employment for the poor, the diminution of the annual produce of the land and labour of the country, have generally been the effects of such taxes. In consequence of them, however, the price of labour must always be higher than it otherwise would have been in the actual state of the demand; and this enhancement of price, together with the profit of those who advance it, must always be finally paid by the landlords and consumers.
What Smith describes, and is warning against, is exactly what we have in the world we exist in today.
A direct tax upon the wages of labour, therefore, though the labourer might perhaps pay it out of his hand, could not properly be said to be even advanced by him; at least if the demand for labour and the average price of provisions remained the same after the tax as before it. In all such cases, not only the tax, but something more than the tax, would in reality be advanced by the person who immediately employed him.
The rise which such a tax might occasion in the wages of manufacturing labour would be advanced by the master manufacturer, who would both be entitled and obliged to charge it, with a profit, upon the price of his goods. The final payment of this rise of wages, therefore, together with the additional profit of the master manufacturer, would fall upon the consumer.
In book 3, chapter 2,
The ancient lords, though extremely unwilling to grant, themselves, any pecuniary aid
to their sovereign, easily allowed him to tallage
In book 5, chapter 2, part 2, article 2, Smith wrote,
In the disorderly state of Europe, during the prevalence of the feudal government, the sovereign was obliged to content himself with taxing those who were too weak to refuse to pay taxes. The great lords, though willing to assist him upon particular emergencies, refused to subject themselves to any constant tax, and he was not strong enough to force them. The occupiers of land all over Europe were, the greater part of them, originally bond-men. Through the greater part of Europe, they were gradually emancipated. Some of them acquired the property of landed estates, which they held by some base or ignoble tenure, sometimes under the king, and sometimes under some other great lord, like the ancient copy-holders of England. Others, without acquiring the property, obtained leases for terms of years, of the lands which they occupied under their lord, and thus became less dependent upon him. The great lords seem to have beheld the degree of prosperity and independency, which this inferior order of men had thus come to enjoy, with a malignant and contemptuous indignation, and willingly consented that the sovereign should tax them. In some countries this tax was confined to the lands which were held in property by an ignoble tenure; and, in this case, the taille was said to be real.
In other countries, the tax was laid upon the supposed profits of all those who held, in farm or lease, lands belonging to other people, whatever might be the tenure by which the proprietor held them; and in this case the taille was said to be personal. In the greater part of those provinces of France which are called the countries of elections, the taille is of this kind. The real taille, as it is imposed only upon a part of the lands of the country, is necessarily an unequal, but it is not always an arbitrary tax, though it is so upon some occasions. The personal taille, as it is intended to be proportioned to the profits of a certain class of people which can only be guessed at, is necessarily both arbitrary and unequal.
Prior to Smith's time, an equivalent to council tax was either capitation tax, or that of poll-tax. I will quote from book 5, chapter 2, part 2, article 4.
In the different poll-taxes which took place in England during the reign of William III, the contributors were, the greater part of them, assessed according to the degree of their rank; as dukes, marquises, earls, viscounts, barons, esquires, gentlemen, the eldest and youngest sons of peers, etc. All shopkeepers and tradesmen worth more than three hundred pounds, that is, the better sort of them, were subject to the same assessment, how great soever might be the difference in their fortunes. Their rank was more considered than their fortune. Several of those who in the first poll-tax were rated according to their supposed fortune were afterwards rated according to their rank. Serjeants, attorneys, and proctors at law, who, in the first poll-tax were assessed at three shillings in the pound of their supposed income, were afterwards assessed as gentlemen. In the assessment of a tax which was not very heavy, a considerable degree of inequality had been found less insupportable than any degree of uncertainty.
The uncertainty Smith refers to would be like saying, we will tax you, but won't let you know in advance how much you will pay, because we will tell you, somewhat arbitrarily, on the day, as it is subject to change. Smith said,
Capitation taxes, if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man's fortune varies from day to day; and without an inquisition more intolerable than any tax, and renewed at least once every year, can only be guessed at. His assessment, therefore, must in most cases depend upon the good or bad humour of his assessors, and must, therefore, be altogether arbitrary and uncertain.
Capitation taxes, if they are proportioned, not to the supposed fortune, but to the rank of each contributor, become altogether unequal; the degrees of fortune being frequently unequal in the same degree of rank.
Such taxes, therefore, if it is attempted to render them equal, become altogether arbitrary and uncertain; and if it is attempted to render them certain and not arbitrary, become altogether unequal. Let the tax be light or heavy, uncertainty is always a great grievance. In a light tax, a considerable degree of inequality may be supported; in a heavy one it is altogether intolerable.
Also, he said,
In the capitation which has been levied in France without any interruption since the beginning of the present century, the highest orders of people are rated according to their rank by an invariable tariff; the lower orders of people, according to what is supposed to be their fortune, by an assessment which varies from year to year. The officers of the king's court, the judges, and other officers in the superior courts of justice, the officers of the troops, etc. are assessed in the first manner. The inferior ranks of people in the provinces are assessed in the second. In France, the great easily submit to a considerable degree of inequality in a tax which, so far as it affects them, is not a very heavy one, but could not brook the arbitrary assessment of an intendant. The inferior ranks of people must, in that country, suffer patiently the usage which their superiors think proper to give them.
In the capitation of the provinces, it is observed by the perfectly well-informed author of the Memoires upon the Impositions in France, the proportion which falls upon the nobility, and upon those whose privileges exempt them from the taille, is the least considerable. The largest falls upon those subject to the taille, who are assessed to the capitation at so much a pound of what they pay to that other tax.
Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labour, and are attended with all the inconveniences of such taxes.
As council tax is charged more upon a bigger house in a less disadvantaged neighbourhood, perhaps it would be instructive to talk about houses, and where they come from. Within Smith's time, and until today's year of 2022, this was made all the more difficult by land ownership. From book 5, part 2, article 1,
The rent of a house may be distinguished into two parts, of which the one may very properly be called the building-rent; the other is commonly called the ground-rent.
The building-rent is the interest or profit of the capital expended in building the house. In order to put the trade of a builder upon a level with other trades, it is necessary that this rent should be sufficient, first, to pay him the same interest which he would have got for his capital if he had lent it upon good security; and, secondly, to keep the house in constant repair, or, what comes to the same thing, to replace, within a certain term of years, the capital which had been employed in building it. The building-rent, or the ordinary profit of building, is, therefore, everywhere regulated by the ordinary interest of money. Where the market rate of interest is four per cent. the rent of a house, which, over and above paying the ground-rent, affords six or six and a half per cent. upon the whole expense of building, may perhaps afford a sufficient profit to the builder. Where the market rate of interest is five per cent. it may perhaps require seven or seven and a half per cent. If, in proportion to the interest of money, the trade of the builders affords at any time a much greater profit than this, it will soon draw so much capital from other trades as will reduce the profit to its proper level. If it affords at any time much less than this, other trades will soon draw so much capital from it as will again raise that profit.
Whatever part of the whole rent of a house is over and above what is sufficient for affording this reasonable profit, naturally goes to the ground-rent; and where the owner of the ground and the owner of the building are two different persons, is, in most cases, completely paid to the former. This surplus rent is the price which the inhabitant of the house pays for some real or supposed advantage of the situation. In country houses at a distance from any great town, where there is plenty of ground to chuse upon, the ground-rent is scarce anything, or no more than what the ground which the house stands upon would pay if employed in agriculture. In country villas, in the neighborhood of some great town, it is sometimes a good deal higher; and the peculiar conveniency or beauty of situation is there frequently very well paid for. Ground-rents are generally highest in the capital, and in those particular parts of it where there happens to be the greatest demand for houses, whatever be the reason of that demand, whether for trade and business, for pleasure and society, or for mere vanity and fashion.
A tax upon house-rent, payable by the tenant and proportioned to the whole rent of each house, could not, for any considerable time at least, affect the building-rent. If the builder did not get his reasonable profit, he would be obliged to quit the trade; which, by raising the demand for building, would in a short time bring back his profit to its proper level with that of other trades.
Of course, it can't happen in today's (British) economy that the supply of houses can meet the demand for them. This is partly due to the institution of land ownership: because as the price of land increases, this makes it exorbitantly expensive to build the house in the first instance. Secondly, the price of houses is held artificially high by the secretary of state, who dictates to local government how many builds are permitted in the foreseeable year, in accordance with some misconceived "15-year plan" for urban regeneration. Smith said,
The rent of houses, though it in some respects resembles the rent of land, is in one respect essentially different from it. The rent of land is paid for the use of a productive subject. The land which pays it produces it. The rent of houses is paid for the use of an unproductive subject. Neither the house nor the ground which it stands upon produce anything. The person who pays the rent, therefore, must draw it from some other source of revenue, distinct from and independent of this subject. A tax upon the rent of houses, so far as it falls upon the inhabitants, must be drawn from the same source as the rent itself, and must be paid from their revenue, whether derived from the wages of labour, the profits of stock, or the rent of land. So far as it falls upon the inhabitants, it is one of those taxes which fall, not upon one only, but indifferently upon all the three different sources of revenue; and is in every respect of the same nature as a tax upon any other sort of consumable commodities.
In book 5, chapter 2, part 2, article 2, Smith said,
In some countries, extraordinary taxes are imposed upon the profits of stock; sometimes when employed in particular branches of trade, and sometimes when employed in agriculture.
And he also continued,
A tax, however, upon the profits of stock employed in any particular branch of trade, can never fall finally upon the dealers (who must in all ordinary cases have their reasonable profit, and, where the competition is free can seldom have more than that profit), but always upon the consumers, who must be obliged to pay in the price of the goods the tax which the dealer advances; and generally with some overcharge.
A tax of this kind, when it is proportioned to the trade of the dealer, is finally paid by the consumer, and occasions no oppression to the dealer. When it is not so proportioned, but is the same upon all dealers, though in this case, too, it is finally paid by the consumer, yet it favours the great, and occasions some oppression to the small dealer.
Here Smith is explaining the cause of an observation, which I believe Karl Marx had made, during the 19th century, about larger monopolistic enterprises absorbing or out-competing the small. To confess, I have never read Marx as of yet, but I believe I am correct based upon my memory of a lecture by Ken Todd I attended at university, on this subject, which set me off along the path of the subject matter as political economy, which I had never been introduced to until this point, but which had formed some kind of basis of my thoughts.
I believe Karl Marx thought it was a natural and inevitable progression such that big businesses buy out their smaller competitors, or compete them out of existence. I posit that this does not happen in a natural way, but because of taxes upon the profits of stock, such as business rates, VAT, corporation tax, and payments for licenses. The primary reason why supermarkets out-compete smaller shop-keepers is because, in the words of Smith,
If the tax had been considerable, it would have oppressed the small, and forced almost the whole retail trade into the hands of the great dealers. The competition of the former being taken away, the latter would have enjoyed a monopoly of the trade; and like all other monopolists would soon have combined to raise their profits much beyond what was necessary for the payment of the tax. The final payment, instead of falling upon the shopkeeper, would have fallen upon the consumer, with a considerable overcharge to the profit of the shopkeeper.
In other words, the small shop-keeper cannot make profit viably because of the taxation which has been imposed upon him. This is not a desirable state of affairs, because people within the society require to buy things from shops, instead of travelling far to buy things from supermarkets.
Much earlier in this work, a quotation of Smith referred to the impossibility of taxing the super-rich; and therefore it would be advantageous to the public revenue that the most perfect system of natural liberty would ensure a larger capital distributed into more people's hands (wealth generation) in order to produce more personal expenditure tax, than a lesser amount of capital (within the country) among fewer peoples hands (the very rich). In book 5, chapter 3, Smith said,
When, by different taxes upon the necessaries and conveniences of life, the owners and employers of capital stock find, that whatever revenue they derive from it will not, in a particular country, purchase the same quantity of those necessaries and conveniences which an equal revenue would in almost any other, they will be disposed to remove to some other. And when, in order to raise those taxes, all or the greater part of merchants and manufacturers, that is, all or the greater part of the employers of great capitals, come to be continually exposed to the mortifying and vexatious visits of the tax-gatherers, this disposition to remove will soon be changed into an actual removing. The industry of the country will necessarily fall with the removal of the capital which supported it, and the ruin of trade and manufactures will follow the declension of agriculture.
I will now talk about taxation upon the interest of money. The following is taken from book 5, chapter 2, part 2, article 1,
The revenue or profit arising from stock naturally divides itself into two parts; that which pays the interest, and which belongs to the owner of the stock, and that surplus part which is over and above what is necessary for paying the interest.
If a leather tanner owns the leather he provides to a shoe-maker, in order that the latter can manufacture shoes, he (the leather tanner) expects to receive a sum of money in return equal to the value in money of that leather, plus whatever rate of interest is agreed. The owner of the stock is the leather tanner in this case. Likewise, the owner of the stock might have been a leather merchant, agreeing exactly the same deal with the cobbler. As an alternative to actual leather, paper money, or gold, might have been lent instead, with the same rate of interest to be repaid. The aim of the cobbler is to make a profit, which is over and above what is necessary for paying that interest. The payment of the interest may happen while the agreed value of the stock is being repaid. Smith continued,
This latter part of profit is evidently a subject not taxable directly. It is the compensation, and in most cases it is no more than a very moderate compensation, for the risk and trouble of employing the stock. The employer must have this compensation, otherwise he cannot, consistently with his own interest, continue the employment. If he was taxed directly, therefore, in proportion to the whole profit, he would be obliged either to raise the rate of his profit, or to charge the tax upon the interest of money; that is, to pay less interest.
This last quotation is informative. Smith correctly infers that if tax is charged upon interest, then in order for the debtor to accomodate this, the agreed rate of interest must be lower; this is the case in the scenario where the debtor could not raise the rate of his profit upon the stock borrowed. Where he could raise the rate of his profit, Smith tells us that this profit, although paid (advanced) by him,
would be finally paid by one or other of two different sets of people, according to the different ways in which he might employ the stock of which he had the management.
If this stock would be invested in agricultural stock, in the cultivation of land, he (the debtor) would need to retain a greater portion of the produce of the land to pay this elevated rate of profit (which was due to taxation upon the interest of money). I say that because of the institution of land-ownership, he would become unable to pay the rate of rent which the greedy and rapacious land-lord charges; and thus not affording this rent, crushing penury would ruin him. Even though he would be visibly turning over a lot of farming stock, he would not be afforded a viable profit. Smith says, the debtor would be less able to afford the rent to the land-lord, and so this rent would become reduced as the land-lord would not be able to charge such a high rent. But hind-sight is a wonderful thing, and as I have previously mentioned, the decline of agrarian occupations has been the effect of the fallable belief in the institution of land onwership.
Alternatively, for the person borrowing the capital upon which taxation was charged upon its interest, Smith says,
If the rate of profit becomes raised, the final payment rests upon the consumer; so, in this case, taxation upon interest is inflationary. In the alternative, if, to compensate for this tax, a lower rate of interest is agrered, then rich people, who have lots of capital, or stock, to lend, may readily remove this from such a country, to lend it for a giher rate of interest in countries elsewhere. Smith said,
Or in other words, the lender can't be bothered with all the onerous burdesome paperwork, and inquisition, from the tax-man: the bureaucracy of which is burdensome to the state, anyway, as a large number of tax-men, and civil servants, will need to be employed to investigate this taxation upon interest. This is in addition to it being a bad deal for the lender due to the reduction in the rate of interest, anyway.
As an example of how distorted and twisted the putative wisdom of economic theory has become, since Adam Smith, I consider problem 1.5.10 from Block V, Unit 1, of the M101 Mathematics Foundation Course, from the Open University, from the year 1989.
Economic theory contains many examples of functions which we are fairly sure must increase (or decrease) but about which little else is known. For example, if the price of some product goes up (relative to the general level of prices), then we expect people to buy less, but unless the price actually does go up there is no way of discovering how much less. The graph of the relation between the price and the amount bought per year, assuming that all other prices and all incomes stay fixed, is called the demand curve for the product in question. Sketch a typical demand curve, and indicate the number of points on it that can be fixed by measurement if no prices change.
Okay. This question is hopelessly conceptually flawed. There is no, or ought to be no such thing as a demand curve; because the demand does not respond to the price of a commodity. In book 1, chapter 7, Smith said,
The actual price at which any commodity is commonly sold, is called its market price. It may either be above, or below, or exactly the same with its natural price.
The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid in order to bring it thither. Such people may be called the effectual demanders, and their demand the effectual demand; since it may be sufficient to effectuate the bringing of the commodity to market. It is different from the absolute demand. A very poor man may be said in some sense, to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to market in order to satisfy it.
When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither, cannot be supplied with the quantity which they want. Rather than want it altogether, some of them will be willing to give more. A competition will immediately begin among them, and the market price will rise more or less above the natural price, according as either the greatness of the deficiency, or the wealth and wanton luxury of the competitors, happen to animate more or less the eagerness of the competition. Among competitors of equal wealth and luxury the same deficiency will generally occasion a more or less eager competition, according as the acquisition of the commodity happens to be of more or less importance to them. Hence the exorbitant price of the necessaries of life during the blockade of a town or in a famine.
When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither. Some part must be sold to those who are willing to pay less, and the low price which they give for it must reduce the price of the whole. The market price will sink more or less below the natural price, according as the greatness of the excess increases more or less the competition of the sellers, or according as it happens to be more or less important to them to get immediately rid of the commodity. The same excess in the importation of perishable, will occasion a much greater competition than in that of durable commodities; in the importation of oranges, for example, than in that of old iron.
When the quantity brought to market is just sufficient to supply the effectual demand, and no more, the market price naturally comes to be either exactly, or as nearly as can be judged of, the same with the natural price. The whole quantity upon hand can be disposed of for this price, and cannot be disposed of for more. The competition of the different dealers obliges them all to accept of this price, but does not oblige them to accept of less.
The quantity of every commodity brought to market naturally suits itself to the effectual demand. It is the interest of all those who employ their land, labour, or stock, in bringing any commodity to market, that the quantity never should exceed the effectual demand; and it is the interest of all other people that it never should fall short of that demand.
If at any time it exceeds the effectual demand, some of the component parts of its price must be paid below their natural rate. If it is rent, the interest of the landlords will immediately prompt them to withdraw a part of their land; and if it is wages or profit, the interest of the labourers in the one case, and of their employers in the other, will prompt them to withdraw a part of their labour or stock from this employment. The quantity brought to market will soon be no more than sufficient to supply the effectual demand. All the different parts of its price will rise to their natural rate, and the whole price to its natural price.
If, on the contrary, the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate. If it is rent, the interest of all other landlords will naturally prompt them to prepare more land for the raising of this commodity; if it is wages or profit, the interest of all other labourers and dealers will soon prompt them to employ more labour and stock in preparing and bringing it to market. The quantity brought thither will soon be sufficient to supply the effectual demand. All the different parts of its price will soon sink to their natural rate, and the whole price to its natural price.
The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this centre of repose and continuance, they are constantly tending towards it.
The whole quantity of industry annually employed in order to bring any commodity to market naturally suits itself in this manner to the effectual demand. It naturally aims at bringing always that precise quantity thither which may be sufficient to supply, and no more than supply, that demand.
Well, that was a long quotation. In all these words of the last quotation, the modern misconception is to ascribe all the above words to one word, and that word is "elasticity". The material as elastic, had not been invented in Smith's day. To addle, and mislead, matters further, I believe the modern delusion is to call elasticity, elaticity of demand. In the question quoted they seem to be inferring that the demand is a response to the price of a commodity, It isn't. The price responds to the demand transitorily until enterprise ensures that more capital is employed (used) in the supply of such a commodity. Then the temporarily elevated market price would fall to its natural one.
The only set of circumstances in which any phenomenon indicated in the question would be remotely actual, would be if, within the society, the effectual demand of people was permanently held below their absolute demand: that is, within the society, being a society of paupers, nobody would afford to buy what he or she had a requirement for. Within book 1 chapter 8, Smith said,
...the wages of labour do not, in Great Britain, fluctuate with the price of provisions.
These vary everywhere from year to year, frequently from month to month. But in many places
the money price of labour remains uniformly the same, sometimes for half a century together.
If, in these places, therefore, the labouring poor can maintain their families in dear
years, they must be at their ease in times of moderate plenty, and in affluence in those
of extraordinary cheapness. The high price of provisions during these ten years past, has
not, in many parts of the kingdom, been accompanied with any sensible
So during some years, the demand for labour was increased, but this was not related to the price of provisions. During years when the demand for labour was greater, the money price of labour was higher. I mention this as a digression, because within a nation of paupers, their indigency would be alleviated slightly by an increase in their wages. So would their purchasing power increase during years in which the demand for their labour was greater. But these circumstances of a nation of paupers is a singular set of cirumstances. It is something which should not be, and an indication that there is something amiss afoot.
Ultimately, I would like to contribute my two-bit's worth in the debate surrounding the right to bear arms having been written into the American Constitution. In book 5, chapter 2, part 2, article 1, Smith said,
But though empires, like all the other works of men, have all hitherto proved mortal, yet every empire aims at immortality. Every constitution, therefore, which it is meant should be as permanent as the empire itself, ought to be convenient, not in certain circumstances only, but in all circumstances; or ought to be suited, not to those circumstances which are transitory, occasional, or accidental, but to those which are necessary and therefore always the same.
In praise of the American Constitution, it was not possible for Donald Trump to remain in office, as president, due to his unsubstantiated claims of electoral fraud, when he narrowly lost against Joe Biden, in the year 2020. This was largely due to a structural framework which gave people within positions of civil authority clear instructions and mandates to ensure that Donald Trump could not become a dictator. But the right to bear arms is surely only relevant in a transitory set of circumstances; namely to rid oneself of English rule by bloody war.
During the acute phase of my schizophrenia, when I was experiencing what psychiatrists call "positive" symptoms as hallucinations, and grandiose delusions, the concept of a gun featured strongly within my visions and delusions, even though I have never in my life held a gun, and live in a society where these are extremely restricted. Fortunately, I had zero access to guns, and that is fortunate for you too if you like to live in an egalitarian world.
People think that whatever they are born into is normal, and if guns are culturally prevalent, and socially acceptable objects (which they are in the U.S.A.) then it takes huge guts to look in the mirror and say, "Actually maybe I am a little distorted because everyone around me always was".