Louis 14th

Louis 14th wanted to restore the marine of France so he granted a bounty of 1 dollar per ton on every ship fitted out in France.

• His object was to train sailors.

So likewise when the bounty is the mere refunding of a duty previously exacted.

The bounty paid by Great Britain upon the export of refined sugar is nothing more than the reimbursement of the import duties upon muscovado and molasses.

When a bounty is paid, not at the moment of export, but at the commencement of productive creation, the home consumer participates with the foreigner in the advantage of the bounty; for, in that case, the article can be sold below cost price in the home as well as in the foreign market.

If, as is sometimes the case, the producer pockets the bounty, and yet keeps up the price of the commodity, the bounty is then a present of the government to the producer, over and above the ordinary profits of his industry.

Perhaps, too, it may be wise in a government to grant a premium on a particular product, which, though it make a loss in the outset, holds out a fair prospect of profit in a few years’ time.

Smith thinks otherwise= hear what he says on the subject.

“No regulation of commerce can increase the quantity of industry in any society, beyond what its capital can maintain.

It can only divert a part of it into a direction, into which it might not otherwise have gone; and it is by no means certain, that this artificial direction is likely to be more advantageous to the society, than that into which it would have gone of its own accord.

The statesman, who should attempt to direct private people in what manner they should employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority, which could safely be trusted, not only to no single person, but to no council or senate whatever; and which would nowhere be so dangerous, as in the bands of a man who had folly and presumption enough to fancy himself fit to exercise it.

Though for want of such regulations, the society should never acquire the proposed manufacture, it would no, upon that account necessarily be the poorer in any one period of its duration.

In every period of its duration, its whole capital and industry might still have been employed, though upon different objects, in the manner that was most advantageous at the time.” 171

When, by the means of a bounty, a product is raised either for home or foreign consumption, which would not have been raised without one, the effect is, an injurious production, one that costs more than it is worth. Suppose an article, when completely finished off, to be saleable for 5 dollars and no more, but its prime cost, including of course the profits of productive industry, to amount to 6 dollars, it is quite clear that nobody will volunteer the production, for fear of a loss of 1 dollar.

But, if the government, with a view to encourage this branch of industry, be willing to defray this loss in other words, if it offer a bounty of 1 dollar to the producer, the production can then go on, and the public revenue, that is to say, the nation at large, will be a loser of 1 dollar.

This is precisely the kind of advantage that a nation gains by encouraging a branch of production which cannot support itself it is in fact urging the prosecution of a losing concern, the produce of which is exchanged, not for other produce, but for the bounty given by the state.

Wherever there is any thing to be made by a particular employment of industry, it wants no encouragement; where there is nothing to be made, it deserves none. There is no truth in the argument, that perhaps the state may gain, though individuals cannot; for how can the state gain, except through the medium of individuals? Perhaps it may be said, that the state receives more in duties than it pays in bounties; but suppose it does, it merely receives with one hand and pays with the other: let the duties be lowered to the whole amount of the bounty, and production will stand precisely where it did before, with this difference in its favour, viz., that the state will save the whole charge of management of the bounties, and part of that of the duties.

Smith is certainly right, though perhaps there are circumstances that may form exceptions to the general rule, that every one is the best judge how to employ his industry and capital. Smith wrote at a period and in a country, where personal interest is well understood, and where any profitable mode of investing capital and industry is not likely to be long overlooked. But every nation is not so far advanced in intelligence. How many countries are there, where many of the best employments of capital are altogether excluded by prejudices that the government alone can remove! How many cities and provinces, where certain established investments of capital have prevailed from time immemorial! In one place, every body invests in landed property, in another, in houses, and in others still, in public offices or national funds.

Every unusual application of the power of capital is, in such places, contemplated with distrust or disdain; so that partial- ity shown to a profitable mode of employing industry or capital may possibly be productive of national advantage.

Moreover, a new channel of industry may ruin an unsupported speculator, though capable of yielding enormous profit, when the labourers shall have acquired practice, and the novelty has once been overcome. France at present contains the most beautiful manufactures of silk and of woollen in the world, and is probably indebted for them to the wise encouragement of Colbert’s administration.

He advanced to the manufacturers 2000 fr. for every loom at work; and, by the way, this species of encouragement has a very peculiar advantage. In ordinary cases, whatever the government levies upon the product of individual exertion is wholly lost to future production; but, in this instance, a part was employed in reproduction; a portion of individual revenues was thrown into the aggregate productive capital of the nation.

This was a degree of wisdom one could hardly have expected, even from personal self-interest.

It would be out of place here to inquire, how wide a field bounties open to peculation, partiality, and the whole tribe of abuses incident to the management of public affairs.

The most enlightened statesman is often obliged to abandon a scheme of evident public utility, by the unavoidable defects and abuses in the execution. Among these, one of the most frequent and prominent is, the risk of paying a premium, or granting a favour to the pretensions, not of merit, but of importunity.

In other respects, I have no fault to find with the honours, or even pecuniary rewards publicly given to artists or mechanics, in recompense of some extraordinary achievement of genius or address.

Rewards of this kind excite emulation, and enlarge the stock of general knowledge, without diverting industry or capital from their most beneficial channels.

Besides, they cost nothing in comparison of bounties of another description.

The bounty on the export of wheat has, by Smith’s account, cost England in some years as much as a million and a half of dollars. I do not believe that the British or any other government ever spent the fiftieth part of that sum upon agriculture in any one year.