Book IV, Chapter IX, 5

The greatest and most important branch of any nation's commerce, as already observed, is the trade between town and country. The townspeople obtain from the country the raw produce that supplies both the materials for their work and the means of their subsistence; they pay for it by sending back a portion of that produce manufactured and made ready for immediate use. Trade between these two groups thus amounts, in the end, to exchanging a quantity of raw produce for a quantity of manufactured goods. The dearer the latter become, therefore, the cheaper the former become; and whatever raises the price of manufactured goods in a country lowers the price of the land's raw produce and thereby discourages agriculture. The less manufactured produce a given quantity of raw produce—or, equivalently, its price—can buy, the less that raw produce is worth in exchange, and the less incentive the landlord has to increase its quantity by improving the land, or the farmer by cultivating it. Moreover, anything that reduces a country's number of artisans and manufacturers diminishes the home market—the most important market of all—for the land's raw produce, and so discourages agriculture still further.

Systems that favor agriculture over every other occupation and, to promote it, restrain manufactures and foreign trade thus work against their own declared purpose: indirectly they discourage the very industry they intend to promote. In this respect they may be even less consistent than the mercantile system. By favoring manufactures and foreign trade over agriculture, that system diverts some of society's capital from supporting a more advantageous industry to supporting a less advantageous one. Yet in the end it really does encourage the industry it intends to promote. Agricultural systems, by contrast, ultimately discourage their own favored industry.

Thus any system that tries, by extraordinary incentives, to draw more of society's capital into a particular industry than would naturally go there—or, by extraordinary restraints, to drive away some capital that would otherwise be employed there—actually undermines the great purpose it means to advance. Instead of hastening society's progress toward real wealth and greatness, it delays it; instead of increasing the real value of the annual produce of its land and labor, it reduces it.

Once all systems of preference or restraint are thus completely removed, the obvious and simple system of natural liberty establishes itself of its own accord. Every person, so long as he does not violate the laws of justice, is entirely free to pursue his own interest in his own way and to bring both his industry and his capital into competition with those of any other person or group. The sovereign is relieved altogether of a duty in attempting which he must always be exposed to innumerable delusions, and for whose proper fulfillment no human wisdom or knowledge could ever suffice: supervising the industry of private people and directing it to the uses best suited to society's interests. Under the system of natural liberty, the sovereign has only three duties, important indeed, but plain and intelligible to ordinary minds: first, protecting society against the violence and invasion of other independent societies; second, protecting, as far as possible, every member of society against the injustice or oppression of every other member, or establishing an exact administration of justice; and third, building and maintaining certain public works and institutions that no individual, nor any small group of individuals, could ever find it in their interest to build and maintain, since the profit could never repay their expense, though it may often repay society as a whole far more than its expense.

The proper fulfillment of these several duties of the sovereign necessarily entails expense, which in turn requires revenue to support it. In the following book, therefore, I shall endeavor to explain, first, the necessary expenses of the sovereign or commonwealth, and which of them ought to be paid by a general contribution from all society and which by some particular part or particular members of it; second, the different ways in which society as a whole may be made to contribute toward its common expenses, and the principal advantages and disadvantages of each; and third, the reasons and causes that have led almost all modern governments to mortgage part of this revenue or to incur debts, and the effects of those debts upon real wealth—the annual produce of society's land and labor. The following book will therefore naturally fall into three chapters.

APPENDIX TO BOOK IV

The following two accounts are appended to illustrate and confirm what is said in the fifth chapter of the fourth book about the tonnage bounty for the white-herring fishery. I believe the reader may rely on the accuracy of both accounts.

An account of busses fitted out in Scotland for eleven years, showing the number of empty barrels carried out and barrels of herrings caught; also the average bounty on each barrel of sea-sticks and on each fully packed barrel.

Years Number of Empty Barrels Barrels of Her- Bounty paid on Busses carried out rings caught the Busses £. s. d. 1771 29 5,948 2,832 2,885 0 0 1772 168 41,316 22,237 11,055 7 6 1773 190 42,333 42,055 12,510 8 6 1774 240 59,303 56,365 26,932 2 6 1775 275 69,144 52,879 19,315 15 0 1776 294 76,329 51,863 21,290 7 6 1777 240 62,679 43,313 17,592 2 6 1778 220 56,390 40,958 16,316 2 6 1779 206 55,194 29,367 15,287 0 0 1780 181 48,315 19,885 13,445 12 6 1781 135 33,992 16,593 9,613 15 6

Totals 2,186 550,943 378,347 £165,463 14 0

Sea-sticks 378,347 Average bounty for each barrel of sea-sticks, £ 0 8 2¼ But since a barrel of sea-sticks is reckoned as only two thirds of a fully packed barrel, one third must be deducted; deducting ⅓ 126,115 brings the bounty to £ 0 12 3¾ Fully packed barrels 252,231

And if the herrings are exported, there is also a premium of £ 0 2 8 Thus the bounty paid in money by the government for each barrel is £ 0 14 11¾

But if the duty on the salt usually credited as used in curing each barrel is added—on average, one bushel and one-fourth of a bushel of foreign salt, at 10s. a bushel—namely 0 12 6 the bounty on each barrel amounts to £ 1 7 5¾

If the herrings are cured with British salt, the account stands thus: Bounty as before £ 0 14 11¾ But add the duty on two bushels of Scotch salt at 1s.6d. per bushel, assumed to be the average quantity used in curing each barrel, namely 0 3 0 The bounty on each barrel amounts to £ 0 17 11¾

And when buss herrings are entered for home consumption in Scotland and pay the duty of a shilling per barrel, the bounty stands thus, as before £ 0 12 3¾ From this deduct the shilling per barrel 0 1 0 £ 0 11 3¾

But to this add again the duty on the foreign salt used in curing a barrel of herring, namely 0 12 6 Thus the premium allowed for each barrel of herrings entered for home consumption is £ 1 3 9¾

If the herrings are cured in British salt, the account stands as follows: Bounty on each barrel brought in by the busses, as above £ 0 12 3¾ From this deduct 1s. per barrel, paid when they are entered for home consumption 0 1 0 £ 0 11 3¾

But add the duty on two bushels of Scotch salt at 1s.6d. per bushel, assumed to be the average quantity used in curing each barrel, namely 0 3 0 the premium for each barrel entered for home consumption is £ 1 14 3¾

Although the loss of duties on exported herrings cannot, perhaps, properly be called a bounty, the loss on herrings entered for home consumption certainly can.

An account of the quantity of foreign salt imported into Scotland, and of Scotch salt delivered duty-free from the works there for the fishery, from the 5th. of April 1771 to the 5th. of April 1782, with the yearly average of both.

Foreign Salt Scotch Salt delivered PERIOD imported from the Works Bushels Bushels

From 5th. April 1771 to 5th. April 1782 936,974 168,226 Average for one year 85,159½ 15,293¼

It should be noted that a bushel of foreign salt weighs 48lbs., while a bushel of British salt weighs only 56lbs.

As noted earlier, the largest and most important part of any nation's commerce is trade between town and country. Town residents get raw produce from the country. It supplies both the materials they work with and the food and other things they live on. They pay by sending some of that produce back to the country, made into goods ready to use. In the end, this trade exchanges a certain amount of raw produce for a certain amount of manufactured goods. So the more expensive manufactured goods are, the cheaper raw produce is in comparison. Anything that raises the price of manufactured goods in a country lowers the relative price of the land's raw produce and discourages agriculture. If a given amount of raw produce, or the money it sells for, buys fewer manufactured goods, that produce has less value in exchange. The landlord then has less reason to produce more by improving the land, and the farmer has less reason to produce more by cultivating it. Anything that reduces the number of craftspeople and manufacturers in a country also shrinks the domestic market for the land's raw produce. This is the most important market of all, so the loss further discourages agriculture.

Systems that put agriculture ahead of all other work, and restrict manufacturing and foreign trade to promote it, therefore work against their own goal. They indirectly discourage the very industry they mean to help. In that sense they may be even less consistent than the mercantile system. The mercantile system favors manufacturing and foreign trade over agriculture. It shifts some of society's capital away from a more beneficial kind of industry and into a less beneficial one. But it does, in the end, encourage the industries it sets out to promote. Those agricultural systems instead end up discouraging their own preferred industry.

The same is true of any system that uses special incentives to draw more of society's capital into a particular industry than would naturally go there. It is also true of a system that uses special restrictions to force capital away from an industry where it would otherwise be used. Such a system actually undermines the main goal it claims to advance. Instead of speeding society's progress toward real wealth and greatness, it slows that progress. Instead of raising the real value of the yearly produce of society's land and labor, it lowers it.

Once all systems of preference and restriction are removed, the simple and obvious system of natural liberty comes into being on its own. Every person is completely free to pursue their own interest in their own way, provided they do not break the laws of justice. They may use their labor and capital in competition with those of any other person or group. The sovereign is relieved of a duty that would always expose anyone who tried it to countless mistakes. No person's knowledge or wisdom could ever be enough to carry it out properly: supervising private people's industry and steering it toward the work best suited to society's interests. Under the system of natural liberty, the sovereign has only three duties. They are very important, but anyone can understand them. First, the sovereign must protect society against violence and invasion by other independent societies. Second, the sovereign must protect each member of society, as far as possible, against injustice or oppression by any other member. This means establishing a fair and precise administration of justice. Third, the sovereign must build and maintain certain public works and public institutions. No individual or small group would find it worthwhile to build and maintain them, since the profit would never cover their costs for that individual or small group, even though the benefits may more than cover the costs for society as a whole.

Carrying out these duties properly necessarily costs money, and those costs require revenue. In the following book I will explain three things. First, what expenses the sovereign or commonwealth must pay, which should be paid by contributions from society as a whole, and which should be paid by a particular part or particular members of society. Second, the different ways society as a whole can contribute toward expenses that belong to the whole society, and the main benefits and drawbacks of each way. Third, why almost all modern governments have pledged part of this revenue or taken on debts, and how those debts have affected real wealth—the yearly produce of society's land and labor. The following book will therefore have three chapters.

APPENDIX TO BOOK IV

The following two accounts are added to illustrate and support what the fifth chapter of the fourth book says about the tonnage bounty for the Whit-herring fishery. I believe the reader can rely on the accuracy of both accounts.

An account of fishing busses fitted out in Scotland for eleven years, showing the number of empty barrels taken out, the number of barrels of herrings caught, and the average bounty on each barrel of sea-sticks and on each fully packed barrel.

Years Number of Empty Barrels Barrels of Herrings Bounty paid on Busses carried out rings caught the Busses £. s. d. 1771 29 5,948 2,832 2,885 0 0 1772 168 41,316 22,237 11,055 7 6 1773 190 42,333 42,055 12,510 8 6 1774 240 59,303 56,365 26,932 2 6 1775 275 69,144 52,879 19,315 15 0 1776 294 76,329 51,863 21,290 7 6 1777 240 62,679 43,313 17,592 2 6 1778 220 56,390 40,958 16,316 2 6 1779 206 55,194 29,367 15,287 0 0 1780 181 48,315 19,885 13,445 12 6 1781 135 33,992 16,593 9,613 15 6

Totals 2,186 550,943 378,347 £165,463 14 0

Sea-sticks 378,347 Average bounty for each barrel of sea-sticks, £ 0 8 2¼ But a barrel of sea-sticks counts as only two thirds of a fully packed barrel. Deduct one third: ⅓ deducted 126,115 The bounty then comes to £ 0 12 3¾ Fully packed barrels 252,231

If the herrings are exported, there is also a premium of £ 0 2 8 So the government pays a cash bounty for each barrel of £ 0 14 11¾

Add the duty on the salt usually claimed as used to cure each barrel. The average quantity of foreign salt is one bushel and one-fourth of a bushel, at 10s. a bushel. This adds 0 12 6 The bounty on each barrel then comes to £ 1 7 5¾

If the herrings are cured with British salt, the figures are as follows. Bounty as before £ 0 14 11¾ Add the duty on two bushels of Scotch salt at 1s.6d. per bushel, the assumed average quantity used to cure each barrel 0 3 0 The bounty on each barrel comes to £ 0 17 11¾

When herrings caught by busses are entered for consumption at home in Scotland, and the duty of a shilling per barrel is paid, the bounty starts, as before, at £ 0 12 3¾ Deduct the shilling per barrel 0 1 0 £ 0 11 3¾

Then add back the duty on the foreign salt used to cure a barrel of herrings 0 12 6 The premium allowed for each barrel of herrings entered for home consumption is £ 1 3 9¾

If the herrings are cured with British salt, the figures are as follows. Bounty on each barrel brought in by the busses, as above £ 0 12 3¾ Deduct 1s. per barrel paid when they are entered for home consumption 0 1 0 £ 0 11 3¾

Then add the duty on two bushels of Scotch salt at 1s.6d. per bushel, the assumed average quantity used to cure each barrel 0 3 0 The premium for each barrel entered for home consumption will be £ 1 14 3¾

The loss of duties on exported herrings may not properly count as a bounty. But the loss of duties on herrings entered for home consumption certainly can.

An account of the amount of foreign salt imported into Scotland and Scotch salt supplied duty-free from the works there for the fishery, from the 5th. of April 1771 to the 5th. of April 1782, with the yearly average for both.

Foreign Salt Scotch Salt delivered PERIOD imported from the Works Bushels Bushels

From 5th. April 1771 to 5th. April 1782 936,974 168,226 Average for one year 85,159½ 15,293¼

Note that a bushel of foreign salt weighs 48lbs., while a bushel of British salt weighs 56lbs.