Book IV, Chapter V, 3

Despite these favorable arguments, the following considerations lead me to believe that, in granting at least one of these bounties, the legislature has been grossly deceived:

First, the herring-buss bounty seems too large.

From the beginning of winter fishing in 1771 to its end in 1781, the tonnage bounty for herring-buss fishing was thirty shillings per ton. During these eleven years, the Scottish herring-buss fishery caught a total of 378,347 barrels. Herrings caught and cured at sea are called sea-sticks. To make them what are called merchantable herrings, they must be repacked with additional salt; it is reckoned that three barrels of sea-sticks generally make two barrels of merchantable herrings. Thus, on this reckoning, only 252,231¼ barrels of merchantable herrings were caught during these eleven years. The tonnage bounties paid in that period totaled £155,463:11s., or 8s:2¼d. per barrel of sea-sticks and 12s:3¾d. per barrel of merchantable herrings.

These herrings are cured sometimes with Scotch salt and sometimes with foreign salt, both supplied to fish-curers free of all excise duty. The excise duty on Scotch salt is currently 1s:6d. per bushel; on foreign salt, 10s. A barrel of herrings supposedly requires about one and one-fourth bushels of foreign salt, or an average of two bushels of Scotch salt. When herrings are entered for export, none of this duty is paid; when entered for domestic consumption, only one shilling per barrel is paid, whether Scotch or foreign salt was used. This was the old Scotch duty on a bushel of salt, the amount that a low estimate had assumed necessary to cure a barrel of herrings. In Scotland foreign salt has little use other than curing fish. Yet between the 5th April 1771 and the 5th April 1782, 936,974 bushels of foreign salt were imported, at eighty-four pounds per bushel, while only 168,226 bushels of Scotch salt, at fifty-six pounds per bushel, were supplied from the works to fish-curers. Foreign salt, then, appears to be used principally in the fisheries. In addition, each barrel of herrings exported receives a bounty of 2s:8d., and more than two-thirds of the herrings caught by busses are exported. Taken together, these figures show that during those eleven years every exported barrel of buss-caught herrings cured with Scotch salt cost the government 17s:11¾d., and every such barrel entered for domestic consumption 14s:3¾d.; each exported barrel cured with foreign salt cost £1:7:5¾d., and each such barrel entered for domestic consumption £1:3:9¾d. A barrel of good merchantable herrings sells for anywhere from seventeen and eighteen to four and five-and-twenty shillings, about a guinea on average. [See the accounts at the end of this Book.]

Secondly, the bounty for the white-herring fishery is a tonnage bounty, proportioned to the ship’s burden rather than her diligence or success in fishing. I fear it has been all too common for vessels to fit out solely to catch, not fish, but the bounty. In 1759, when the bounty was fifty shillings a ton, the entire Scottish buss fishery brought in only four barrels of sea-sticks. That year, each barrel of sea-sticks cost the government £113:15s. in bounties alone; each barrel of merchantable herrings, £159:7:6.

Thirdly, the method of fishing subsidized by this tonnage bounty for white herrings—busses, or decked vessels of twenty to eighty tons burden—appears less suited to Scotland than to Holland, whose practice it seems to have copied. Holland is far from the seas where herrings chiefly gather, and therefore can pursue this fishery only with decked vessels carrying enough water and provisions for a voyage to distant waters. But the Hebrides, or Western Islands, the Shetland islands, and the northern and northwestern coasts of Scotland—the regions around which the herring fishery principally takes place—are everywhere cut by arms of the sea extending far inland, called sea-lochs in local speech. Herrings chiefly enter these sea-lochs during the seasons when they visit these waters; their visits, and those of many other kinds of fish, I am assured, are not perfectly regular or constant. Fishing by boat therefore seems best adapted to Scotland’s particular situation: fishers bring their herrings ashore as soon as they are caught, to be cured or eaten fresh. But the powerful encouragement that a bounty of 30s. a ton gives to buss fishing necessarily discourages boat fishing. Without a comparable bounty, the boat fishery cannot bring its cured fish to market on the same terms. Before the buss bounty was established, boat fishing was very substantial and is said to have employed no fewer sailors than buss fishing employs today. It has now fallen into almost complete decay. I must admit, however, that I cannot speak very precisely about the former extent of this now ruined and abandoned fishery. Because no bounty was paid for fitting out boats, the customs and salt-duty officers kept no account of it.

Fourthly, during certain seasons herrings form a significant part of the ordinary people’s food in many parts of Scotland. A bounty that lowered their price in the home market might greatly relieve many of our fellow subjects, who are far from prosperous. But the herring-buss bounty serves no such purpose. It has ruined boat fishing, by far the method best suited to supplying the home market; and the additional export bounty of 2s:8d. a barrel sends most of the buss fishery’s produce—more than two-thirds—abroad. I have been assured that between thirty and forty years ago, before the buss bounty, the usual price of white herrings was 16s. a barrel. Between ten and fifteen years ago, before boat fishing was entirely ruined, it reportedly ranged from seventeen to twenty shillings a barrel. For the past five years the average has been twenty-five shillings a barrel. This high price may, however, be due to a real scarcity of herrings off Scotland’s coast. I must also note that since the American war began, the cask or barrel, usually sold with the herrings and included in all the prices given above, has risen to about twice its former price, from about 3s. to about 6s. Moreover, the accounts I have received of earlier prices have been far from consistent: an old man of great accuracy and experience has assured me that more than fifty years ago a guinea was the usual price of a barrel of good merchantable herrings. This, I think, may still be taken as the average price. But all accounts, I believe, agree that the buss bounty has not lowered the home-market price.

When fishing operators, despite such generous bounties, continue to sell at the same price as before, or even a higher one, we might expect their profits to be very great; perhaps those of some individuals have been. In general, however, I have every reason to believe the contrary. Such bounties usually encourage rash operators to venture into a business they do not understand; their negligence and ignorance cost them more than the utmost generosity of government can give them. In 1750, the act that first awarded 30s. a ton to encourage the white-herring fishery (the 23d Geo. II. chap. 24) also established a joint-stock company with a capital of £500,000. Beyond all other inducements—the tonnage bounty already mentioned, the export bounty of 2s:8d. a barrel, and the duty-free supply of both British and foreign salt—subscribers who paid money into the company’s stock were entitled, for fourteen years, to three pounds a year for every hundred pounds subscribed, payable by the receiver-general of customs in equal half-yearly installments. In addition to this great company, whose governor and directors were to reside in London, separate fishing chambers could legally be established at every out-port in the kingdom, provided at least £10,000 was subscribed to each chamber’s capital. Each would operate at its own risk, for its own profit or loss. The trade of these smaller chambers received the same annuity and every other inducement given to the great company. The great company’s subscription was soon filled, and several chambers were established in the kingdom’s various out-ports. Despite all these incentives, nearly all the companies, large and small, lost all or most of their capital. Hardly a trace of any remains, and the white-herring fishery is now conducted entirely, or almost entirely, by private adventurers.

If a particular manufacture were necessary for society’s defense, it might indeed not always be prudent to rely on our neighbors for its supply. If it could not otherwise be supported at home, taxing all other branches of industry to support it might not be unreasonable. The bounties on exports of British-made sailcloth and British-made gunpowder might perhaps be defended on this ground.

Though taxing the industry of the great body of the people to support a particular class of manufacturers can very rarely be reasonable, prosperity may tempt a public with more revenue than it knows how to spend to give such bounties to favorite manufactures, just as it might incur any other idle expense. In public as in private expenditure, great wealth may often excuse great folly. But continuing such extravagance in a time of general hardship and distress must surely be absurd beyond the ordinary.

What is called a bounty is sometimes merely a drawback, and therefore not open to the objections properly directed against bounties. For example, the bounty on exports of refined sugar may be regarded as a drawback of duties on the brown and Muscovado sugars from which it is made; the bounty on wrought-silk exports, as a drawback of duties on imported raw and thrown silk; and the bounty on exported gunpowder, as a drawback of duties on imported brimstone and saltpeter. In customs terminology, only allowances on goods exported in the same form in which they were imported are called drawbacks. If manufacture changes their form enough to give them a new name, the allowances are called bounties.

Public prizes awarded to artists and manufacturers who excel at their respective occupations are not subject to the same objections as bounties. By encouraging exceptional skill and ingenuity, they sustain competition among workmen already employed in those occupations, yet are too small to divert into any one of them more of the country’s capital than would naturally go there. They tend not to overturn the natural balance of employments but to make the work done in each as perfect and complete as possible. Moreover, the cost of prizes is trifling, while that of bounties is immense. The corn bounty alone has sometimes cost the public more than £300,000 in a single year.

Bounties are sometimes called prizes, just as drawbacks are sometimes called bounties. In every case we must look to the nature of the thing, not its name.

Digression concerning the Corn Trade and Corn Laws.

I cannot end this chapter on bounties without observing that the praise bestowed on the law establishing the corn-export bounty, and on its associated system of regulations, is entirely undeserved. A closer examination of the corn trade and the chief British laws concerning it will sufficiently demonstrate this claim. The great importance of the subject must excuse the length of the digression.

The corn merchant’s trade has four branches. Though one person may sometimes undertake all four, they are by their nature distinct trades: first, that of the inland dealer; secondly, that of the importer for domestic consumption; thirdly, that of the exporter of domestic produce for foreign consumption; and fourthly, that of the carrying merchant, who imports corn in order to export it again.

I. The interest of the inland dealer and the interest of the people at large, however opposed they may initially appear, coincide exactly even in years of the greatest scarcity. It is in his interest to raise the price of his corn as high as the season’s actual scarcity requires, but never higher. By raising it he discourages consumption, obliging everyone to practice thrift and careful management to some degree, especially the poorer ranks. If he raises it so high that the season’s supply is likely to outlast the season’s consumption and remain when the next harvest begins, he risks both losing a substantial portion of his corn through natural causes and having to sell the rest for far less than he could have obtained several months earlier. If he fails to raise it enough, so that consumption is discouraged too little and the season’s supply will run short, he both forfeits some of the profit he could otherwise have made and exposes the people, before the season ends, not merely to the hardships of dearth but to the dreadful horrors of famine. The people’s interest is to make daily, weekly, and monthly consumption correspond as closely as possible to the season’s supply. The inland dealer’s interest is the same. By supplying them in this proportion as nearly as he can judge, he is likely to sell all his corn at the highest price and greatest profit. His knowledge of the harvest and his daily, weekly, and monthly sales enables him to estimate, with some accuracy, whether they are indeed being supplied in this way. Without seeking to serve the people’s interest, his own interest necessarily leads him, even in years of scarcity, to treat them much as a prudent ship’s master must sometimes treat his crew. When the master foresees a shortage of provisions, he puts the crew on reduced rations. If excess caution sometimes makes him do so needlessly, the discomfort they suffer is insignificant compared with the danger, misery, and ruin to which less foresight might expose them. Similarly, even if excessive avarice sometimes makes the inland merchant raise corn prices somewhat beyond what the season’s scarcity requires, the inconveniences the people suffer under a policy that effectively protects them from famine at the season’s end are insignificant beside what more liberal dealing at its beginning might bring upon them. The merchant himself is likely to suffer most from this excessive avarice: not only from the indignation it commonly arouses against him, but, even if he escapes its effects, from the corn it necessarily leaves on his hands at the season’s end. If the next season is favorable, he must sell that corn for far less than he otherwise could have obtained.

Despite these arguments in their favor, the following points lead me to believe that lawmakers were badly misled when they granted at least one of these bounties:

First, the bounty for herring busses appears too large.

From the start of the winter fishing season of 1771 to the end of the winter season of 1781, the tonnage bounty for the herring-buss fishery was thirty shillings per ton. During those eleven years, Scotland's herring busses caught a total of 378,347 barrels. Herrings caught and cured at sea are called sea-sticks. To turn these into what are called merchantable herrings, fish-curers must repack them with more salt. By the usual reckoning, three barrels of sea-sticks become two barrels of merchantable herrings. So the catch over those eleven years amounted, on this calculation, to only 252,231¼ barrels of merchantable herrings. The tonnage bounties paid in that period amounted to £155,463:11s., or 8s:2¼d. per barrel of sea-sticks and 12s:3¾d. per barrel of merchantable herrings.

These herrings are cured with either Scotch or foreign salt, both of which are supplied to fish-curers free of excise duty. At present that duty is 1s:6d. per bushel of Scotch salt and 10s. per bushel of foreign salt. A barrel of herrings is thought to need about one and one-fourth bushels of foreign salt, or an average of two bushels of Scotch salt. If the herrings are registered for export, none of the duty is paid. If they are registered for domestic consumption, only one shilling per barrel is paid, whether they were cured with foreign or Scotch salt. This was the old Scotch duty on one bushel of salt, the amount once thought necessary to cure a barrel of herrings even on a low estimate. In Scotland, foreign salt has very little use apart from curing fish. Yet from the 5th April 1771 to the 5th April 1782, imports of foreign salt came to 936,974 bushels, at eighty-four pounds per bushel. Scotch salt delivered from the salt works to fish-curers amounted to only 168,226 bushels, at just fifty-six pounds per bushel. It seems, then, that the fisheries chiefly use foreign salt. There is also a bounty of 2s:8d. on every barrel of herrings exported, and more than two-thirds of the herrings caught by busses are exported. Add all this together: during those eleven years, each exported barrel of buss-caught herrings cured with Scotch salt cost the government 17s:11¾d.; each barrel for domestic consumption cost 14s:3¾d. Each exported barrel cured with foreign salt cost the government £1:7:5¾d.; each barrel for domestic consumption cost £1:3:9¾d. A barrel of good merchantable herrings sells for anything from seventeen or eighteen to four or five-and-twenty shillings, averaging about a guinea. [See the accounts at the end of this Book.]

Second, the white-herring bounty is paid by the ton. It depends on the size of the ship, not on how hard or successfully its crew fishes. I fear it has been all too common to outfit ships to catch the bounty rather than the fish. In 1759, when the bounty was fifty shillings per ton, Scotland's entire buss fishery brought in only four barrels of sea-sticks. That year each barrel of sea-sticks cost the government £113:15s. in bounties alone; each barrel of merchantable herrings cost £159:7:6.

Third, the fishing method supported by this white-herring tonnage bounty—busses, or decked vessels carrying twenty to eighty tons—seems less suited to Scotland than to Holland, whose practice it apparently copies. Holland lies far from the seas where herrings are chiefly found. It must therefore use decked vessels that can carry enough water and provisions for a distant voyage. But the Hebrides, or Western Islands, the islands of Shetland, and Scotland's northern and northwestern coasts are the areas near which most herring fishing takes place. Arms of the sea run a long way into the land throughout these areas. Locally, they are called sea-lochs. Herrings chiefly enter these sea-lochs during the seasons when they visit these waters, though their visits, like those of many other kinds of fish, are not entirely regular or constant. Boat fishing therefore seems best suited to Scotland's particular geography. Fishers can bring each catch ashore immediately to be cured or eaten fresh. But the strong encouragement given to buss fishing by a bounty of 30s. per ton necessarily puts boat fishing at a disadvantage. With no such bounty, boat fishers cannot sell cured fish on the same terms as buss fishers. Accordingly, boat fishing was substantial before the buss bounty was established and is said to have employed at least as many sailors as buss fishing employs now. It has since declined almost to nothing. I must admit, though, that I cannot give a very precise account of its former size. Since no bounty was paid for outfitting boat fisheries, customs and salt-duty officers kept no records of them.

Fourth, at certain times of year, herrings form a substantial part of ordinary people's food in many parts of Scotland. A bounty that reduced their home-market price could greatly help many fellow subjects who are far from wealthy. But the herring-buss bounty does no such good. It has ruined boat fishing, the method best suited to supplying the home market. And the extra export bounty of 2s:8d. per barrel sends abroad most of the buss catch—more than two-thirds of it. I have been told that thirty to forty years ago, before the buss bounty began, the usual price of white herrings was 16s. per barrel. Ten to fifteen years ago, before boat fishing was entirely ruined, the price reportedly ranged from seventeen to twenty shillings per barrel. Over the last five years it has averaged twenty-five shillings per barrel. This high price might, however, reflect a real shortage of herrings off Scotland's coast. I must also note that the cask or barrel, normally sold with the herrings and included in every price just quoted, has risen since the start of the American war from about 3s. to about 6s.—roughly double its old price. Also, the accounts I have received of earlier prices are not entirely consistent. An old man of great accuracy and experience has assured me that more than fifty years ago, a barrel of good merchantable herrings usually cost a guinea. I think that can still be taken as the average price. All the accounts agree, however, as far as I can tell, that the buss bounty has not lowered the home-market price.

When fishing entrepreneurs receive such generous bounties yet keep selling fish at the same price as before, or even a higher one, we might expect very large profits. Some individuals may indeed have made them. In general, though, I have every reason to believe the opposite. Such bounties commonly tempt reckless people to enter businesses they do not understand. Their losses through carelessness and ignorance more than offset everything they gain from the government's generosity. In 1750, the same act that first gave the white-herring fishery a bounty of 30s. per ton (the 23d Geo. II. chap. 24) also created a joint-stock company with capital of £500,000. For fourteen years, its subscribers were entitled to three pounds a year for every hundred pounds they subscribed and paid into the company's stock, in addition to all the other benefits: the tonnage bounty, the export bounty of 2s:8d. per barrel, and British and foreign salt free of duty. The receiver-general of customs was to pay this amount in equal installments every six months. Besides this large company, whose governor and directors were to live in London, the act allowed separate fishing chambers in the kingdom's different out-ports. Each had to raise at least £10,000 of capital and operate at its own risk, keeping its own profits or bearing its own losses. These smaller chambers received the same annual payment and every other benefit given to the large company. Subscriptions soon filled the large company's capital requirement, and several fishing chambers were established in the out-ports. Despite all the incentives, nearly all the companies, large and small, lost all or most of their capital. Hardly a trace of any remains. Private entrepreneurs now conduct all, or nearly all, of the white-herring fishery.

If a particular manufacture were necessary for the country's defense, it might indeed be unwise to rely entirely on neighboring countries for its supply. If that manufacture could not survive at home otherwise, it might be reasonable to tax all other branches of industry to support it. On this ground, perhaps the export bounties for British-made sailcloth and British-made gunpowder can both be defended.

But it can very rarely be reasonable to tax the industry of most people to support a particular group of manufacturers. Still, when prosperity is so great that the public has more revenue than it knows how to spend, giving bounties to favored manufactures might seem as natural as any other wasteful expense. In public spending as in private spending, great wealth may often be accepted as an excuse for great foolishness. Yet continuing such extravagance in times of general hardship and distress must surely be unusually absurd.

Something called a bounty is sometimes simply a drawback—a refund of a tax—and is then not open to the same objections as a genuine bounty. For example, the payment on exported refined sugar can be regarded as a refund of duties on the brown and Muscovado sugars used to make it. The payment on exported wrought silk can be seen as a refund of duties on imported raw and thrown silk. The payment on exported gunpowder can be seen as a refund of duties on imported brimstone and saltpeter. In customs terminology, only payments on goods exported in the same form in which they were imported are called drawbacks. If manufacturing changes their form enough to give them a new name, the payments are called bounties.

Public prizes for artists and manufacturers who excel at their work do not face the same objections as bounties. By rewarding exceptional skill and ingenuity, they encourage competition among the workers already doing those jobs. They are not big enough to draw more of the country's capital into any one trade than would naturally go there. Rather than upsetting the natural balance among occupations, they encourage workers in each to do their work as well and thoroughly as possible. Prizes also cost very little, while bounties cost a great deal. The corn bounty alone has sometimes cost the public more than £300,000 in one year.

Bounties are sometimes called prizes, just as drawbacks are sometimes called bounties. We must always look at what a payment really is, not what it is called.

Digression on the Corn Trade and Corn Laws.

I cannot finish this chapter on bounties without pointing out that the law granting a bounty on corn exports, and the related system of regulations, do not deserve the praise they have received. A closer look at the corn trade and the main British laws governing it will show why. The subject is important enough to justify a long digression.

The corn merchant's business has four branches. One person may sometimes conduct all four, but they are separate trades by nature. They are, first, dealing inland; second, importing corn for domestic use; third, exporting domestically grown corn for foreign use; and fourth, carrying corn through the country by importing it for re-export.

I. The interests of the inland dealer and the public are exactly the same, even in the worst years of scarcity, however opposed they may seem at first. It benefits the dealer to raise his price as high as the season's actual shortage requires, but never higher. A higher price reduces consumption and pushes everyone, especially poorer people, to save and manage carefully. Suppose he raises the price so high that consumption falls enough for the season's supply to outlast the season and remain when the next harvest starts. Some of his corn may naturally spoil, and he may have to sell what remains for much less than he could have got months earlier. Suppose instead that he does not raise the price enough to reduce consumption, and the season's supply runs out before the season ends. He loses some profit he could have made, and the people face not just the hardships of shortage but the terrible horrors of famine before the season ends. The people need their daily, weekly, and monthly consumption to match the season's supply as closely as possible. The inland corn dealer needs the same thing. If he supplies them in that proportion, as best he can judge it, he will likely sell all his corn at the highest price and greatest profit. His knowledge of the harvest and of his daily, weekly, and monthly sales lets him judge, more or less accurately, whether supply is being spread in that way. Even without intending to help the public, his own interest leads him to treat people in scarce years much as a careful ship's captain sometimes has to treat his crew. When the captain sees that provisions may run short, he rations them. He may sometimes do so needlessly out of excessive caution. But the inconvenience this causes is small compared with the danger, suffering, and ruin his crew might face if he took less care. Likewise, a corn merchant's excessive greed may sometimes lead him to charge somewhat more than the season's shortage requires. But the inconvenience to the people from this course, which protects them from famine at the season's end, is small compared with the danger they might face if he sold more freely at its beginning. The merchant himself is likely to suffer most from that excessive greed. People will usually be angry at him; and even if he escapes the effects of their anger, he will have corn left at the end of the season. If the next season is favorable, he must sell it for much less than he could otherwise have received.