Book IV, Chapter V, 4

If one great company of merchants could possess the entire crop of an extensive country, it might perhaps serve their interest to treat it as the Dutch are said to treat the spices of the Moluccas: destroy or throw away a substantial portion to keep up the price of the rest. But even the force of law can scarcely establish so extensive a monopoly of corn. Wherever the law leaves the trade free, corn is less liable than any other commodity to be cornered or monopolized through the power of a few large capitals buying up most of it. Its value far exceeds the purchasing power of a few private individuals; and even if they could afford to buy it, the way it is produced would make the purchase altogether impracticable. In every civilized country, more of it is consumed annually than of any other commodity, and therefore more industry is employed each year in producing corn than in producing any other commodity. At harvest it is also necessarily divided among more owners than any other commodity. These owners cannot be gathered in one place like independent manufacturers, but are scattered across every corner of the country. They either supply consumers in their own neighborhood directly or supply other inland dealers who do so. Inland corn dealers, including both farmers and bakers, must therefore be more numerous than dealers in any other commodity; their scattered locations make any general combination among them impossible. Consequently, if in a year of scarcity one dealer found he had considerably more corn on hand than he could hope to sell at the current price before the season ended, he would never preserve that price at his own expense for the sole benefit of his rivals. He would immediately lower it to dispose of his corn before the new harvest arrived. The same motives and interests governing one dealer’s conduct would govern every other’s, compelling them in general to sell at the price they judged best suited to the season’s scarcity or abundance.

Anyone who carefully examines the history of the dearths and famines that have afflicted parts of Europe during the present century or the two preceding it—several of which are fairly well documented—will find, I believe, that dearth has never resulted from a combination of inland corn dealers. It has arisen only from real scarcity, sometimes perhaps caused locally by the devastation of war, but in the great majority of cases by the failure of the seasons. Famine, in turn, has arisen only when government uses improper means to remedy the hardships of dearth.

In a large corn-growing country where trade and communication are free among all its regions, scarcity caused by even the least favorable seasons can never be severe enough to produce famine. Even the poorest harvest, managed frugally and economically, will sustain throughout the year the same number of people that an ordinary harvest feeds more generously. Excessive drought and excessive rain are the seasons most unfavorable to the crop. But corn grows on both high and low ground, on land prone to excessive wetness and land prone to excessive dryness. The drought or rain harmful to one part of the country benefits another. Although both a wet and a dry season produce considerably less than one with more moderate weather, the gains in one region partly compensate for the losses in another. The effects of drought are far more dismal in rice-growing countries, where the crop needs not only very moist soil but, at a certain stage of growth, must be submerged. Even there, however, drought is perhaps hardly ever so universal that it must cause famine if the government permits free trade. The drought in Bengal some years ago might well have produced a very severe dearth. Some ill-judged regulations and restrictions imposed on the rice trade by servants of the East India Company perhaps helped turn that dearth into famine.

When government tries to remedy a dearth by ordering all dealers to sell corn at what it deems a reasonable price, it either deters them from bringing corn to market—which can produce famine even at the season’s beginning—or, if they do bring it, enables and encourages people to consume it so quickly that famine must come before the season ends. Complete, unrestrained freedom of the corn trade is the only effective safeguard against the misery of famine and the best means of easing the hardships of dearth. Real scarcity cannot be remedied; its hardships can only be alleviated. No trade more deserves the law’s full protection, and no trade needs it more, because none is so exposed to public hatred.

In scarce years, the poorer ranks blame their distress on the corn merchant’s greed, and he becomes the object of their hatred and indignation. Far from making a profit at such times, he is often in danger of complete ruin, with his storehouses plundered and destroyed by their violence. Yet scarce years, when prices are high, are precisely when he expects to make his main profit. He generally contracts with farmers to supply him with a fixed quantity of corn at a fixed price for a number of years. The contract price is set by what is thought a moderate and reasonable price—that is, the usual or average price—which, before the recent years of scarcity, was commonly about 28s. per quarter of wheat, and proportionately for other grain. In scarce years, then, the merchant buys much of his corn at the ordinary price and sells it at a far higher one. Yet this extraordinary profit seems no more than enough to put his trade on a fair footing with other trades and compensate for the many losses he suffers at other times, both because corn is perishable and because its price fluctuates frequently and unexpectedly. One fact alone seems to show this: great fortunes are as seldom made in this trade as in any other. But the public hatred directed at it in scarce years—the only years when it can be very profitable—deters people of standing and wealth from entering it. The trade is left to a lower class of dealers. Millers, bakers, meal-men, meal-factors, and a number of wretched hucksters are almost the only intermediaries between grower and consumer in the home market.

The old policy of Europe, instead of discouraging this public hatred of a trade so useful to the public, seems to have sanctioned and encouraged it.

Under the 5th and 6th of Edward VI cap. 14, anyone buying corn or grain with the intention of reselling it was to be deemed an unlawful engrosser. For the first offense he was to suffer two months’ imprisonment and forfeit the value of the corn; for the second, six months’ imprisonment and twice its value; and for the third, the pillory, imprisonment for as long as the king pleased, and the forfeiture of all his goods and chattels. The old policy of most other European countries was no better than England’s.

Our ancestors seem to have imagined that people would buy corn more cheaply from a farmer than from a corn merchant, whom they feared would demand an exorbitant profit above what he had paid the farmer. So they attempted to abolish the merchant’s trade altogether. Indeed, they tried as far as possible to prevent any middleman from coming between grower and consumer. This was the purpose of their many restrictions on those called kidders, or corn carriers. No one could pursue that trade without a license certifying his qualifications as an honest and fair dealer. A statute of Edward VI required the authority of three justices of the peace to grant such a license. Later this restriction was thought insufficient, and a statute of Elizabeth confined the power to grant it to the quarter-sessions.

In this way, the old policy of Europe attempted to regulate agriculture, the great trade of the countryside, by principles quite different from those it applied to manufactures, the great trade of towns. By leaving a farmer no customers other than consumers or their immediate agents, the kidders and corn carriers, it tried to force him to practice not only farming but also the trade of a corn merchant or retailer. Conversely, in many cases it forbade manufacturers to act as shopkeepers or sell their goods at retail. The first law was intended to promote the country’s general interest by making corn cheap, though perhaps no one clearly understood how it would do so. The second was intended to promote the interests of one particular group, the shopkeepers, whose trade, it was supposed, would be ruined by manufacturers underselling them if manufacturers could retail at all.

Yet even if a manufacturer had been allowed to keep a shop and retail his own goods, he could not have undersold an ordinary shopkeeper. Any capital he put into his shop would have to be withdrawn from manufacture. To conduct both activities on the same footing as other people, he would need a manufacturer’s profit on one part of his capital and a shopkeeper’s profit on the other. Suppose, for instance, that ten per cent. was the ordinary profit on both manufacturing and shopkeeping stock in his town. He would then have to charge twenty per cent. profit on every piece of his own goods sold in his shop. Upon moving it from his workshop to his shop he would have to value it at the wholesale price he could obtain from a dealer or shopkeeper. Valuing it lower would cost him part of the profit on his manufacturing capital. When he sold it in his own shop, he would likewise lose some of the profit on his shopkeeping capital unless he received the same price a shopkeeper would charge. He might thus appear to make a double profit on one piece of goods; but since those goods successively formed part of two distinct capitals, he would make only a single profit on the whole capital employed in them. If he earned less than his proper profit, he lost money and did not employ his whole capital as advantageously as most of his neighbors.

What manufacturers were forbidden to do, farmers were to some extent required to do: divide their capital between two different employments. They had to keep one part in their granaries and stackyards to meet the market’s occasional demands, and employ the other in cultivating their land. But just as they could not afford to employ the latter at less than the ordinary profits of farming stock, they could not afford to employ the former at less than the ordinary profits of mercantile stock. Whether the stock actually carrying on the corn merchant’s business belonged to someone called a farmer or to someone called a corn merchant, it needed to earn the same profit. Only that profit would compensate its owner for employing it this way, place his business on a level with other trades, and remove his incentive to change occupations as soon as possible. Thus a farmer compelled to practice the corn merchant’s trade could not afford to sell his corn more cheaply than any other corn merchant facing free competition.

A dealer who can devote all his stock to a single branch of business has the same kind of advantage as a workman who can devote all his labor to a single operation. The workman develops skill that lets him do far more work with the same two hands; the dealer develops such ease and speed in conducting business, buying and disposing of goods, that he can handle far more business with the same capital. Just as the first can generally offer his work much more cheaply, the second can generally offer his goods somewhat more cheaply than if his stock and attention were divided among a greater variety of pursuits. Most manufacturers could not retail their own goods as cheaply as an alert and active shopkeeper whose sole business was buying wholesale and reselling retail. Still less could most farmers retail their own corn to supply a town whose inhabitants might live four or five miles from most of them as cheaply as an alert and active corn merchant whose sole business was buying corn wholesale, collecting it in a large storehouse, and reselling it retail.

The law forbidding a manufacturer to act as a shopkeeper attempted to force this division of stock among employments to proceed faster than it otherwise would. The law requiring a farmer to act as a corn merchant attempted to prevent it from proceeding so fast. Both laws plainly violated natural liberty and were therefore unjust; they were also as unwise as they were unjust. It is in every society’s interest that such developments should neither be forced nor obstructed. Someone who employs his labor or stock in more kinds of work than his circumstances require can never harm his neighbor by underselling him. He may harm himself, and usually does. As the proverb says, a jack-of-all-trades will never be rich. But the law should always trust people to look after their own interests, since their local circumstances generally enable them to judge those interests better than a legislature can. The law compelling the farmer to act as a corn merchant was, however, by far the more harmful of the two.

If one large company of merchants could somehow acquire the entire crop of a large country, it might benefit them to handle it the way the Dutch are said to handle the spices of the Moluccas. They could destroy or throw away a large part to maintain the price of the rest. But even the force of law can hardly establish a monopoly that broad over corn. Wherever the trade is free, corn is less likely than any other good to be bought up and monopolized with a few large sums of capital. For one thing, its value far exceeds what a few private people's stock can purchase. Even if they could afford it, the way corn is produced would make the purchase impossible in practice. In every civilized country, more corn is consumed each year than any other product. More labor is therefore devoted to producing it each year than to any other product. As soon as it comes out of the ground, it is divided among more owners than any other product. Those owners cannot all be brought together in one place, as independent manufacturers can; they are spread throughout the country. They either sell directly to nearby consumers or sell to other inland dealers who supply those consumers. Inland corn dealers, including farmers and bakers, must therefore be more numerous than dealers in any other product. Their scattered locations make a general agreement among them impossible. Suppose, then, that one of them had much more corn in a scarce year than he expected to sell at the going price before the season ended. He would not keep up that price at a loss to himself solely to benefit his competitors. He would immediately lower it to sell his corn before the new crop arrived. The same motives and interests governing one dealer would govern every other. In general, they would all have to sell at prices that, in their best judgment, suited the season's scarcity or plenty.

Anyone who closely studies the history of shortages and famines in Europe during this century or the two before it—several of which are fairly well documented—will find, I believe, that a shortage has never been caused by a combination of inland corn dealers. It has come only from a real lack of supply, caused perhaps in some places by the destruction of war but, in the great majority of cases, by bad weather. Famine, in turn, has come only from government violence: misguided attempts to remedy the problems caused by a shortage.

In a large corn-growing country where trade and travel are free between all its regions, even the worst weather cannot cause a shortage severe enough to produce famine. With careful management and thrift, even the smallest crop will feed through the year the same number of people who would normally eat more generously when the crop was moderately plentiful. The worst weather for crops is extreme drought or extreme rain. But corn grows on high and low ground alike, in places liable to be too wet and places liable to be too dry. Rain or drought that harms one region helps another. Although both a wet season and a dry one produce much smaller crops than a better-balanced season, gains in one region partly make up for losses elsewhere. In rice-growing countries the effect of drought is much worse. Rice needs very wet soil and must be under water during part of its growth. Even there, however, drought is perhaps hardly ever so widespread that famine must follow if the government allows free trade. A drought in Bengal a few years ago probably could have caused a very severe shortage. Some misguided rules and unwise restrictions that the East India Company's servants imposed on the rice trade may have helped turn that shortage into a famine.

When a government orders all dealers to sell corn at what it considers a reasonable price to ease a shortage, it either keeps corn from reaching the market—which can cause famine even at the start of the season—or, if dealers do bring corn to market, it allows and encourages people to consume it fast enough to cause famine before the season ends. Complete freedom of the corn trade is the only effective way to prevent the suffering caused by famine. It is also the best way to ease the problems caused by a shortage. A real lack of supply cannot be corrected; its effects can only be eased. No trade deserves the law's full protection more, and none needs it more, because no trade attracts so much public hatred.

In scarce years, poorer people blame their suffering on the corn merchant's greed. They hate and resent him. Instead of earning a profit, he often risks being ruined when they plunder and destroy his stores. Yet scarce years with high prices are the years in which he expects to make most of his profit. He commonly has a contract with farmers to supply him for a set number of years with a set quantity of corn at a set price. That contract price is based on what is considered moderate and reasonable: the usual or average price. Before the recent scarce years, this was commonly about 28s. per quarter of wheat, with other grains priced in proportion. So in scarce years the merchant buys much of his corn at the usual price and sells it for much more. Even so, this unusual profit appears only large enough to put his trade on an equal footing with other trades. It makes up for his many losses at other times, both because corn can spoil and because its price changes often and unexpectedly. One piece of evidence is that large fortunes are made as rarely in this trade as in any other. But the public hostility surrounding the trade in scarce years—the only years in which it can be very profitable—keeps respectable, wealthy people away. It is left to a lower class of dealers. Millers, bakers, meal-men, meal-factors, and many poor peddlers are almost the only middlemen between growers and consumers in the home market.

Instead of discouraging this public hostility toward a trade so useful to everyone, Europe's old laws seem to have approved and encouraged it.

The 5th and 6th of Edward VI cap. 14 declared anyone who bought corn or grain intending to sell it again an unlawful engrosser. For a first offense, the penalty was two months in prison and forfeiture of the corn's value; for a second, six months in prison and forfeiture of twice its value; and for a third, the pillory, prison for as long as the king pleased, and forfeiture of all his goods and property. Old laws in most other parts of Europe were no better than England's.

Our ancestors apparently thought people would buy corn more cheaply from farmers than from corn merchants. They feared merchants would demand excessive profits on top of what they paid farmers, so they tried to abolish the trade altogether. They also tried as far as possible to prevent any kind of middleman from coming between grower and consumer. This was the point of their many restrictions on the people called kidders, or corn carriers. No one could practice that trade without a license certifying that he was honest and dealt fairly. Under Edward VI's statute, three justices of the peace had to authorize the license. Even this restriction was later considered insufficient: an Elizabethan statute restricted the power to grant it to the quarter-sessions.

Europe's old laws thus tried to regulate agriculture, the country's main business, by principles quite different from those used for manufacturing, the towns' main business. By leaving a farmer no customers apart from consumers and their direct agents, the kidders and corn carriers, the law tried to force him to work not only as a farmer but also as a corn merchant or retailer. By contrast, it often prohibited a manufacturer from keeping a shop or selling his own goods at retail. The first law was supposed to promote the country's general interest by making corn cheap, though lawmakers may not have understood how it would do that. The other law was supposed to help a particular group, the shopkeepers. People assumed manufacturers would charge so much less than shopkeepers that allowing manufacturers to sell at retail would ruin shopkeepers' trade.

But even if a manufacturer had been allowed to run a shop and sell his own goods at retail, he could not have charged less than an ordinary shopkeeper. Any capital he put into the shop would have to come out of his manufacturing business. To run both businesses on equal terms with others, he would need a manufacturer's profit from the first and a shopkeeper's profit from the second. Suppose that in his town the usual profit on both manufacturing stock and shopkeeping stock was ten per cent. He would then have to charge a profit of twenty per cent. on each piece of his goods sold in his shop. When he moved a piece from his workshop to his shop, he would have to value it at the price he could have received from a dealer or shopkeeper buying wholesale. If he valued it lower, he would lose some of the profit on his manufacturing capital. When he sold it in his shop, he would likewise lose some of the profit on his shopkeeping capital unless he charged the same price another shopkeeper would. Thus he might appear to earn two profits on one piece of goods, but that piece passed through two separate uses of capital in turn. He earned only one profit on the total capital employed. If he earned less than his full profit, he lost out and used his total capital less advantageously than most of his neighbors.

The farmer was to some extent required to do what the manufacturer was forbidden to do: divide his capital between two businesses. He had to keep one part in granaries and the stack-yard to meet demand as it arose, while using the other to cultivate his land. But just as he could not afford to put the latter part to work for less than the ordinary profit on farming stock, he could not afford to use the former for less than the ordinary profit on trading stock. Whoever owned the stock used in the corn merchant's business—someone called a farmer or someone called a corn merchant—needed the same profit to make that investment worthwhile. He needed it to put the business on an equal footing with other trades and to avoid having a reason to move his capital elsewhere as soon as possible. So a farmer forced to act as a corn merchant could not afford to sell corn more cheaply than any other corn merchant would have to sell it under free competition.

A dealer who can devote all his stock to a single business has the same kind of advantage as a worker who can devote all his labor to a single task. The worker gains skill and can do far more with the same two hands. The dealer develops such a quick, efficient way of buying and selling goods that he can handle far more business with the same capital. Just as the worker can usually do his work much more cheaply, the dealer can usually sell his goods somewhat more cheaply than if he split his stock and attention among many things. Most manufacturers could not sell their own goods at retail as cheaply as an alert, energetic shopkeeper whose only work was buying wholesale and selling retail. Still fewer farmers could retail their own corn to a town's inhabitants, perhaps four or five miles from most of them, as cheaply as an alert, energetic corn merchant whose only work was buying corn wholesale, gathering it in a large storehouse, and reselling it at retail.

The law barring manufacturers from acting as shopkeepers tried to force this division of capital among businesses to happen faster than it otherwise would. The law requiring farmers to act as corn merchants tried to slow it down. Both laws plainly violated people's natural freedom and were therefore unjust. Both were also as bad in practice as they were unjust. Society benefits when this kind of change is neither forced nor obstructed. Someone who spreads his labor or stock across more activities than his circumstances require cannot harm his neighbor by charging less. He may harm himself, and usually does. A jack-of-all-trades will never be rich, as the saying goes. But the law should always let people look after their own interests. Given their local circumstances, they can usually judge those interests better than lawmakers can. Still, the law forcing farmers to act as corn merchants was by far the more harmful of the two.