#WealthofTweets: Book 4.9
Of the Agricultural Systems, or of those Systems of Political Oeconomy, which Represent the Produce of Land
Remember how #AdamSmith was going to explain the Mercantile and Agricultural systems? After 230 pages on the Mercantile system it’s finally time for the Agricultural!
...which gets 25 pages. (IV.ix) #WealthOfTweets #SmithTweets
He’s got a pretty good reason for keeping this brief: A national political economy based entirely on agriculture has never existed except in the minds of French philosophers. Why spend a lot of time on it? (IV.ix.1–2) #WealthOfTweets #SmithTweets
The French philosophers were 😍 with the idea of a purely agricultural system because of the favoritism shown to a purely mercantile system under Louis XIV and his minister Colbert. But both systems were out of balance.(IV.ix.3–4) #WealthOfTweets #SmithTweets
An agricultural economy comprises three groups of people: Landowners; Cultivators and Farmers; Manufacturers and Merchants. (IV.ix.5) #WealthOfTweets #SmithTweets
Landowners contribute by improving their land with drains, fences, etc. That enables farmers to produce more and to pay more rent. That increase in rent is the profit landowners earn on their improvements (IV.ix.6) #WealthOfTweets #SmithTweets
Farmers contribute by buying everything they need to run their farms. (That’s...not what we expected. We thought maybe they’d contribute by producing food, but, okay, we’re listening.) (IV.ix.7) #WealthOfTweets #SmithTweets
Some of these expenses are initial one-time outlays (ploughs, etc) and others are annual expenses (seeds). After paying rent farmers should have enough left make payments on the one-time outlays and to keep up with annual expenses.(IV.ix.7) #WealthOfTweets #SmithTweets
Because farmers produce enough to pay the rent and the expenses and have stuff leftover to sell, the agricultural system calls them the productive class. Land improvements by landlords are also called productive. (IV.ix.7–9) #WealthOfTweets #SmithTweets
What isn’t called productive is commerce. In this system that’s called “barren and unproductive.” (And NOW we all get who Smith is arguing with way back in Book 2, ch. 3. He’s really very annoyed at merchants being called unproductive.) (IV.ix.9–10) #WealthOfTweets #SmithTweets
Smith is (still) trying to debunk the idea that merchants simply pass the things they sell onto the buyer and at no point improve them or increase their value. (IV.ix.11) #WealthOfTweets #SmithTweets
The agricultural system dismisses more obviously added value (e.g., turning thread into lace) by saying the manufacturer only adds enough value to pay for the labor. That’s why artisans are so poor, according to this system. (IV.ix.12) #WealthOfTweets #SmithTweets
And that's why advocates of the agricultural system think that merchants and manufacturers can only improve the nation or themselves by parsimony or privation. (IV.ix.13) #WealthOfTweets #SmithTweets
That’s why agricultural nations (like France) are warm and friendly and mercantile nations (like Hamburg) are cold and hostile. (IV.ix.13) #WealthOfTweets #SmithTweets
In this system, merchants, manufacturers, and artisans are thought of as an expense maintained by landowners and farmers. (IV.ix.14) #WealthOfTweets #SmithTweets
As in Smith's conception of 'productive' vs 'unproductive', the unproductive merchants and manufacturers are stil *useful* in the agricultural system. They don't create wealth; they provide services that let farmers get on with farmin'. (IV.ix15–17) #WealthOfTweets #SmithTweets
Through this way, merchants and manufacturers contribute indirectly, and so the landlords and farmers will support them. The only way to ensure all three classes of people prosper? Perfect justice and perfect liberty. (IV.ix15–17) #WealthOfTweets #SmithTweets
Agricultural nations will never develop their own merchant and manufacturing trade by hampering mercantile nations (like Holland) with high taxes on trade. Free trade will create the wealth to support domestic 'unproductive' work. (IV.ix.18–21) #WealthOfTweets #SmithTweets
So, even under a system where all the value comes from land, you need free trade to support the wealth of everyone, including merchants and manufacturers.
(ICYMI Smith <3 Free Trade.) (IV.ix.18–21) #WealthOfTweets #SmithTweets
You can’t create wealth by oppressing trade. You can only push it to where it's less productive.
Even if you are a French philosopher. (IV.ix.25–26) #WealthOfTweets #SmithTweets
And you can’t do it with mathematical models that claim to make everything balance. If a nation can’t prosper with free trade, no regulation can force it to prosper. (IV.ix.27–28) #WealthOfTweets #SmithTweets
That's the agricultural system.
Now, Smith will enumerate its failings. First, re: the assumption that artificers, manufacturers, and merchants are unproductive. They produce enough to replace what they’ve used *and generate a profit*. (IV.ix.28–30) #WealthOfTweets #SmithTweets
Second, unlike menial servants, they are self-sustaining. (IV.ix.31) #WealthOfTweets #SmithTweets
Third, they absolutely increase the value of the goods they deal with as a direct consequence of their dealings. (IV.ix.32) #WealthOfTweets #SmithTweets
Fourth, farmers have just as much need for parsimony as merchants. It’s not the garden of Eden, kids! (IV.ix.34) #WealthOfTweets #SmithTweets
And fifth, trade reveals that manufactured goods *must* generate wealth independent of agriculture, all the way down to towns and countries. A small quantity of manufactured good can purchase a lot of rude produce. (IV.ix.37) #WealthOfTweets #SmithTweets
But no matter how wrong this system gets it, it gets one really important thing right: Wealth is about the consumable goods annually produced by a society. It’s not about stockpiles of gold and silver. (IV.ix.38) #WealthOfTweets #SmithTweets
This system also really values liberty and justice. (And while we all know French ideals of liberty and justice are going to end up somewhere pretty dark in a few more years, Smith doesn’t know that yet.) (IV.ix.38) #WealthOfTweets #SmithTweets
And that's why Smith was a great big softie for the physiocrats. (IV.ix.38) #WealthOfTweets #SmithTweets
Smith is writing when China isn’t a huge factor in world trade. They can afford to have an economy based on agriculture, says Smith, because their internal market is so enormous. NOT because agriculture is the only source of wealth. (IV.ix.40–41) #WealthOfTweets #SmithTweets
Ancient Egypt and India are also nations he thinks of favoring agriculture rather than commercial employments.
And in ancient Greece and Rome, trade and manufacturing were for slaves. (IV.ix.43–47) #WealthOfTweets #SmithTweets
We all know (even the physiocrats?) that the most important trade in any nation is the trade between the city and the country (III.i). So it should be more obvious that restraining trade to support agriculture will not work! (IV.ix.48–49) #WealthOfTweets #SmithTweets
Any system that prefers or restrains one part of the economy in order to give preference to another is interfering with liberty and with justice. AND it makes us poorer than we have to be! (IV.ix.51) #WealthOfTweets #SmithTweets
That's why sovereigns should quit interfering and stick to their job description. (IV.ix.51) #WealthOfTweets #SmithTweets
Job Description—Sovereign:
- Protect nation against invasion.
- Protect citizens against other (meaner) citizens.
- Build some roads, public works, aqueducts, whatever.
Yes, okay, to do those three things, and ONLY those three things, you’ll probably need some tax revenue.
And that brings us to Book Five! (IV.ix.52) #WealthOfTweets #SmithTweets
Which means that we are DONE with Book IV. What'd we learn? (Other than learning that oeconomists love trade?) #WealthOfTweets #SmithTweets
- Gold: Still not wealth.
- Monopolies: Still bad.
- Trade restrictions: Attempted monopolies.
- Colonies: Attempted monopolies.
- Monopolies: Still bad.
- Agriculture: Not the only source of wealth.
Also, yarn pirates.
See you tomorrow for Book Five!
