Book I, Chapter X, 5

The government of incorporated towns lay entirely in the hands of traders and artisans. Each class had an obvious interest in preventing the market from being, as they commonly put it, overstocked with its particular kind of labor—which really meant keeping it perpetually understocked. Each was eager to establish rules for that purpose and, provided it could do so, was willing to let every other class do likewise. These rules did indeed force each class to buy the goods it needed from others in the town at somewhat higher prices than it might otherwise have paid. But in return each could sell its own goods for just as much more. Thus, as they say, one thing balanced the other: in dealings among the different classes within the town, none lost by these rules. In dealings with the country, however, all gained greatly; and it is trade with the country that wholly supports and enriches every town.

Every town draws all its subsistence and the materials for its industry from the country. It pays for them chiefly in two ways. First, it sends back some of those materials worked up into manufactured goods, whose price is increased by the workers’ wages and their masters’ or immediate employers’ profits. Second, it sends the country some of the raw and manufactured products of other countries or distant parts of the same country that have been brought into the town; these goods’ original price is likewise increased by the wages of carriers or sailors and the profits of the merchants who employ them. What is earned in the first kind of commerce is the town’s gain from manufacture; what is earned in the second is its gain from inland and foreign trade. Workers’ wages and their various employers’ profits make up the entire gain from both. Any regulations that raise these wages and profits above what they would otherwise be therefore enable the town to purchase the products of more country labor with the products of less of its own. They favor town traders and artisans over country landlords, farmers, and laborers, upsetting the natural equality that would otherwise prevail in their commerce. Society’s entire annual product of labor is divided each year between these two groups. Such regulations give the town inhabitants a greater share than they would otherwise receive, and the country inhabitants a smaller one.

The real price the town pays for the provisions and materials it imports each year is the quantity of manufactured and other goods it exports each year. The dearer its exports sell, the cheaper its imports are bought. Town industry becomes more advantageous, country industry less so.

We need no elaborate calculations to see that throughout Europe industry in towns is more advantageous than industry in the country. One simple and obvious observation will do. In every European country, for every one person who has made a great fortune from small beginnings by improving and cultivating land to raise raw produce, the industry proper to the country, we find at least a hundred who have done so through trade and manufacture, the industry proper to towns. Industry must therefore be better rewarded in the town than the country: the wages of labor and profits of stock must evidently be higher there. But stock and labor naturally seek the most advantageous employment. They therefore move to towns as far as they can and leave the country.

Town inhabitants, gathered in one place, can readily combine. Accordingly, even the least important town trades have been incorporated somewhere. Where they have not, the corporate spirit—the suspicion of outsiders, reluctance to take apprentices, and unwillingness to share the secrets of a trade—generally prevails nevertheless. Through voluntary associations and agreements it often teaches tradespeople to prevent the free competition that they cannot forbid by bylaw. Trades employing few hands combine most readily. Perhaps half a dozen wool combers are needed to keep a thousand spinners and weavers working. By agreeing not to take apprentices, they can not only monopolize their own work but subject the entire manufacture to a kind of servitude, raising the price of their labor far above what its nature warrants.

Country inhabitants, scattered far apart, cannot readily combine. Not only have they never been incorporated; the corporate spirit has never prevailed among them. No one has ever thought an apprenticeship necessary to qualify a person for farming, the country’s great trade. Yet apart from what are called the fine arts and the liberal professions, perhaps no trade requires such varied knowledge and experience. The countless volumes written on farming in every language show that even the wisest and most learned nations have never considered it easy to understand. And in all those volumes we shall look in vain for the knowledge of its varied and complex operations that even an ordinary farmer commonly possesses, however contemptuously the very contemptible authors of some of them sometimes affect to speak of him. By contrast, there is scarcely an ordinary mechanical trade whose every operation cannot be explained as completely and distinctly in a brief pamphlet as words aided by illustrations can explain it. Several are in fact explained this way in the history of the arts now being published by the French Academy of Sciences. Furthermore, directing work that must change with every change of weather and with many other accidents demands far more judgment and discretion than directing work that is always, or almost always, the same.

Not only farming itself, the general management of agricultural operations, but many lesser forms of country labor require much more skill and experience than most mechanical trades. A man who works brass and iron uses tools and materials whose qualities are always, or almost always, the same. But a man who plows the ground with a team of horses or oxen works with instruments whose health, strength, and temper vary greatly from one occasion to another. The condition of the material he works is as variable as that of his instruments, and both require considerable judgment and discretion in their management. Though commonly held up as a model of stupidity and ignorance, the ordinary plowman seldom lacks this judgment and discretion. He is, to be sure, less accustomed to social interaction than an urban mechanic. His voice and speech are rougher and harder for strangers to understand. Yet his mind, accustomed to attending to a wider variety of things, is generally much superior to that of the mechanic, whose attention from morning until night is usually confined to one or two very simple operations. How much the country’s lower ranks really surpass those of the town is well known to anyone who has conversed much with both, whether through business or curiosity. Accordingly, in China and Indostan both the standing and the wages of country laborers are said to exceed those of most artisans and manufacturers. They would probably do so everywhere, were it not for corporation laws and the corporate spirit.

The advantage enjoyed by town industry over country industry throughout Europe is not due solely to corporations and their laws. Many other regulations support it. Heavy duties on foreign manufactures and on all goods imported by foreign merchants serve the same purpose. Corporation laws allow town inhabitants to raise their prices without fear of being undercut by free competition from their own countrymen. These other regulations likewise protect them from foreign competitors. The higher prices produced by both are ultimately paid everywhere by the country’s landlords, farmers, and laborers, who have seldom opposed these monopolies. They commonly have neither the inclination nor the ability to organize together, and merchants and manufacturers readily persuade them with clamor and sophistry that the private interest of one part of society—and a subordinate part at that—is the general interest of all.

In Great Britain, the advantage of town industry over country industry seems to have been greater in the past than it is now. Country wages have come closer to manufacturing wages, and the profits of stock invested in agriculture closer to those of trading and manufacturing stock, than they are said to have been in the last century or at the beginning of the present one. This change may be seen as the necessary, though very late, result of the extraordinary encouragement given to town industry. Stocks amassed in towns eventually grow too great to be employed at the old rate of profit in the industries peculiar to them. Those industries have limits like every other; increasing stock increases competition and necessarily lowers profit. Falling town profits drive stock into the country, where it creates fresh demand for country labor and necessarily raises wages. It then spreads, if I may say so, over the face of the land; invested in agriculture, some of it returns to the country at whose expense it had largely been amassed in the town. I shall try to show later that the greatest agricultural improvements throughout Europe have resulted from such overflows of stock originally amassed in towns. I shall also show that although some countries have attained considerable wealth by this route, it is necessarily slow and uncertain, subject to disruption and interruption by countless accidents, and contrary in every respect to the order of nature and reason. I shall try to explain as fully and clearly as I can in the third and fourth books of this Inquiry the interests, prejudices, laws, and customs that brought it about.

People in the same trade rarely meet, even for amusement and recreation, without their conversation ending in a conspiracy against the public or some scheme to raise prices. Indeed, no law that could be enforced, or that would accord with liberty and justice, can prevent such meetings. But though the law cannot keep members of a trade from occasionally assembling, it should do nothing to make their assemblies easier, much less make them necessary.

A regulation requiring everyone in the same trade in a particular town to enter names and addresses in a public register makes such assemblies easier. It brings together people who might never otherwise have known one another and tells each member of the trade where to find every other.

A regulation permitting members of the same trade to tax themselves to provide for their poor, sick, widows, and orphans gives them a common interest to manage, making such assemblies necessary.

Incorporation not only makes the meetings necessary but binds everyone to the will of the majority. In a free trade, an effective combination can be established only by the unanimous consent of every trader, and lasts only as long as every one of them remains of the same mind. A corporation’s majority can enact a bylaw, backed by suitable penalties, that limits competition more effectively and lastingly than any voluntary combination.

The claim that corporations are needed for better governance of a trade has no foundation. The real, effective discipline imposed on a worker comes not from his corporation but from his customers. Fear of losing their business checks his fraud and corrects his negligence. An exclusive corporation necessarily weakens that discipline. Its particular group of workers must be employed whether they behave well or badly. This is why in many large incorporated towns one cannot find a tolerable worker even in some of the most necessary trades. If you want work done tolerably well, you must have it done in the suburbs, where workers have no exclusive privilege and depend solely on their reputation; then you must smuggle the finished work into town as best you can.

In this way European policy, by restricting competition in some employments to fewer people than would otherwise wish to enter them, produces a very important inequality in the sum of advantages and disadvantages of the different employments of labor and stock.

Second, by increasing competition in some employments beyond what it naturally would be, European policy produces another, opposite inequality in the sum of advantages and disadvantages of the different employments of labor and stock.

Traders and craftspeople had complete control of incorporated town governments. Each group plainly had an interest in keeping the market from being “overstocked,” as they put it, with the particular kind of work it did. In fact, they wanted to keep it short of supply. Each group was eager to make rules to achieve this and, if allowed to do so, was willing to let every other group make similar rules. Because of these rules, each group had to pay somewhat more than it otherwise would for the goods it needed from the other town groups. But it could charge just as much more for its own goods. In this respect, the extra cost and extra revenue balanced out. None of the groups lost when dealing with one another inside the town. They all gained greatly when dealing with the country, though. It is this latter trade that supports and enriches every town.

A town gets all its food and all the materials for its work from the country. It pays for them mainly in two ways. First, it sends some of those materials back to the country as finished goods. The workers’ wages and the profits of their masters or direct employers are then added to the materials’ price. Second, it sends the country some raw and manufactured goods brought into the town from other countries or distant parts of the same country. The wages of carriers or sailors and the profits of the merchants who hire them are then added to those goods’ original price. The town’s gain from manufacturing comes from the first kind of trade. Its gain from domestic and foreign trade comes from the second. Workers’ wages and their various employers’ profits make up the entire gain from both. So any rules that raise those wages and profits above what they otherwise would be let the town buy the product of more country labor with the product of less of its own labor. They give town traders and craftspeople an advantage over country landlords, farmers, and laborers. They destroy the natural equality that would otherwise exist in trade between the two groups. Each year the entire product of society’s labor is divided between them. Because of these rules, town residents receive a larger share than they otherwise would, and country residents receive a smaller one.

The real price the town pays for the food and materials it brings in each year is the quantity of manufactured and other goods it sends out each year. The more dearly it sells what it sends out, the more cheaply it buys what it brings in. Town work becomes more profitable, and country work less so.

We can see that work in towns is more profitable than work in the country throughout Europe without making any detailed calculations. In every European country, for at least a hundred people who have built large fortunes from small beginnings in trade and manufacturing—the work characteristic of towns—there is only one who has done so by producing raw goods through the improvement and cultivation of land, the work characteristic of the country. Work must therefore bring higher rewards in towns. The wages of labor and the profits of stock must clearly be higher there than in the country. But labor and stock naturally seek the most profitable use. They therefore move toward towns and away from the country as much as they can.

Town residents live close together and can easily make agreements with one another. Accordingly, even the least important town trades have been incorporated somewhere. And even where they have never been incorporated, the corporation mentality usually prevails. Traders distrust outsiders, dislike taking apprentices, and dislike sharing the secrets of their trades. Through voluntary associations and agreements, they often prevent competition that they cannot prohibit by formal rules. Trades employing few people form such agreements most easily. Perhaps half-a-dozen wool-combers are needed to keep a thousand spinners and weavers busy. If they agree not to take apprentices, they can monopolize the work. They can also bring the whole manufacture into a kind of dependence on themselves and raise their own wages far above what the nature of their work would justify.

Country residents are scattered across distant places and cannot easily make such agreements. They have never been incorporated, and the corporation mentality has never taken hold among them. No one has ever thought an apprenticeship necessary for farming, the country’s great trade. Yet apart from what are called the fine arts and the learned professions, perhaps no trade needs such a wide range of knowledge and experience. Countless books on farming have been written in every language. That alone shows that even the wisest and most educated nations have never considered it easy to understand. Yet those books cannot give us all the knowledge of its varied and complicated tasks that an ordinary farmer generally has, however much the contemptible authors of some books may pretend to look down on him. By contrast, the complete operations of almost any ordinary mechanical trade can be clearly explained in a pamphlet only a few pages long, as far as words and illustrations can explain anything. Several trades are actually explained this way in the history of the arts now being published by the French Academy of Sciences. Farm work must also be directed differently whenever the weather or many other circumstances change. Directing it requires much more judgment and care than directing work that is always, or nearly always, the same.

It is not just the farmer’s skill in directing the work of a farm that demands this knowledge. Many simpler kinds of country work require much more skill and experience than most mechanical trades. Someone working with brass and iron uses tools and materials whose condition is always the same, or nearly so. But someone plowing with a team of horses or oxen uses tools whose health, strength, and temperament change from one occasion to another. The condition of the ground he works on varies as much as that of his animals. Both require good judgment and careful handling. Though people commonly treat an ordinary plowman as a model of stupidity and ignorance, he seldom lacks that judgment or care. He has less experience of social conversation than a town craftsperson. His voice and speech are rougher and harder for people unused to them to understand. But he is used to thinking about a wider variety of things. His understanding is generally much better than that of the town worker, whose whole attention is usually spent on one or two very simple tasks from morning until night. Anyone who has talked extensively with both groups, whether for work or out of curiosity, knows how much more capable the lower ranks of country people really are than those of the town. Accordingly, in China and Indostan, both the social standing and wages of country laborers are said to be higher than those of most craftspeople and manufacturing workers. This would probably be true everywhere if corporation laws and the corporation mentality did not prevent it.

Corporations and their laws are not the only reasons that town work has an advantage over country work throughout Europe. Many other rules support that advantage. High duties on foreign manufactures and on all goods imported by foreign merchants have the same effect. Corporation laws allow townspeople to raise their prices without fear that fellow countrymen will compete freely and sell for less. The other rules give them the same protection against foreign competitors. Country landlords, farmers, and laborers ultimately pay the higher prices caused by both sets of rules. They have rarely opposed the creation of these monopolies. They usually have neither the desire nor the ability to form groups of their own. Merchants and manufacturers can easily convince them, with loud complaints and misleading arguments, that the private interest of one part of society—and a subordinate part at that—is the interest of society as a whole.

In Great Britain, town work seems to have had a greater advantage over country work in the past than it has now. Country wages are closer to manufacturing wages, and profits on stock invested in agriculture are closer to profits on trading and manufacturing stock, than they are said to have been in the last century or at the beginning of the present one. This change can be seen as an inevitable, though very delayed, result of the extraordinary encouragement given to town work. In time, the stock accumulated in towns grows too large to earn its former profits in the work particular to them. Like every other kind of work, it has its limits. Increasing stock increases competition and necessarily lowers profit. Lower town profits drive stock out into the country. There it creates new demand for country labor and necessarily raises wages. Stock then spreads, so to speak, across the land. When invested in agriculture, part of it returns to the country, at whose expense much of it was originally accumulated in the town. I will try to show later that throughout Europe the greatest improvements in the countryside have resulted from these flows of stock first accumulated in towns. I will also show that, although some countries have become fairly wealthy by this route, it is necessarily slow and uncertain. Countless events can disrupt or interrupt it, and it goes against the natural and reasonable order in every respect. In the third and fourth books of this Inquiry, I will try to explain as fully and clearly as I can the interests, prejudices, laws, and customs that have brought it about.

People in the same trade rarely meet, even to have fun, without their conversation ending in a scheme against the public or a plan to raise prices. No law that could be enforced, or that would respect freedom and justice, could prevent such meetings. But though the law cannot stop people in the same trade from meeting sometimes, it should do nothing to make such meetings easier, much less make them necessary.

A rule requiring everyone in a particular town trade to enter their names and addresses in a public register makes such meetings easier. It connects people who might never otherwise know each other and tells each member of the trade where to find all the others.

A rule allowing people in the same trade to tax themselves to support their poor, sick, widows, and orphans gives them a shared interest to manage. It makes such meetings necessary.

Incorporation not only makes meetings necessary but also makes the majority’s decision binding on everyone. In a trade open to all, an effective agreement to restrict competition needs the consent of every single trader. It lasts only as long as every one of them continues to agree. A corporation’s majority can pass a rule with penalties that restricts competition more effectively and for longer than any voluntary agreement could.

There is no basis for the claim that corporations are needed to manage a trade better. The real, effective control over a worker comes from his customers, not his corporation. Fear of losing their business prevents him from cheating and makes him correct careless work. An exclusive corporation necessarily weakens that control. Customers must employ a certain group of workers whether they do good work or bad. That is why in many large incorporated towns, it is impossible to find even tolerable workers in some of the most necessary trades. To get adequate work, you must have it done in the suburbs. Workers there have no exclusive privileges and depend entirely on their reputations. You must then get the finished work into town secretly as best you can.

In this way, European policy creates a very important inequality in the overall advantages and disadvantages of different uses of labor and stock. It does so by limiting competition in some occupations to fewer people than would otherwise wish to enter them.

Second, European policy creates another inequality of the opposite kind in the overall advantages and disadvantages of different uses of labor and stock. It does so by increasing competition in some occupations beyond its natural level.