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1.17 The Effect of Government Regulation

Every act of government has some influence on production and commerce - so to clarify, Say intends to consider those acts that are specifically intended to have an influence on them. He will also leave consideration of legislation of the monetary system, loans, and taxes to be considered separately.

The object of governments in their attempt to influence production is to encourage or discourage the production of goods that they imagine to be preferable to others, whether the subject of legislation is the goods themselves or interference in the tasks necessary to produce them.

It has been said that those who are in possession of capital are the best and most cautious judges as to how it should be used. Government acts in violation of this principle, figuring the common rabble to be incapable. In essence, a legislator consider the farmer to be less intelligent than himself in making a prudent decision about his crops and the business of farming, and must be compelled by force to do what is most productive.

Regulating the Nature of Products

The economic system has no need of control or instruction by disinterested observers. Consumers are aware of their own needs and desires and are by nature driven to seek products to fill them; producers seek to apply their skills and resources to supply what is wanted; and investors seek to fund ventures that are profitable because they effectively and efficiently match products to the demand for them.

When authority interferes in the natural course of an economy, in invariably interferes with the effectiveness of the system: consumers are prevented from getting the products that fulfill their needs, producers are prevented from producing the products they are most capable of producing with the greatest efficiency, and investors are prevented fro directing their capital to support the most profitable ventures.

Say speaks of a widespread problem in France, around 1794, where producers were persecuted and punished for converting their farmland into pasture. These individuals responded to the needs of the market, a greater need for cattle than for wheat as evidenced by the lack of demand for additional wheat and the greater demand for meat. The government had other ideas, based on their own imagination of what would be best for society.

This returns to the principle that those who are possessed of capital seek to make the best use of it. They are more familiar with the capabilities of their land and the skills of their laborers, and they are more in touch with the demand of the marketplace. They can make a more informed decision that an autocrat who has no first-hand knowledge of either.

It is ridiculous to argue, as some have, that a cultivator knows only the demand of the present day and does not think to the future wants of the people. In every profession, especially agriculture, success means predicting the future wants: the simple farmer recognizes that he will not sell his crop the day his seed is sown, but months in the future when it is harvested, and predicts the need that will exist at that time.

A similar mischief was perpetrated by government in insisting that farmers produce beets and woad in lieu of grain. Regulators desired for them to produce sugar and dye domestically rather than import them. The farmers realized that these crops would not thrive in Europe, and the quantity and quality of product produced domestically would be far inferior to that which could cheaply be imported - the very reason that they decided not to sow these crops in the first place. Both farmers and the customers were "victims of absurdity" that they had the knowledge to avoid, were they permitted to follow their own knowledge and experience.

"It is the very acme of skill to turn the powers of nature to best account, and the height of madness to contend against them." This principle applies equally to manufacturing as to agriculture.

In terms of imported or domestic goods, it is held as a principle that it is better to pay more for inferior products of domestic origin than to purchase better products more cheaply from foreign suppliers. No-one seems to raise the questions "whom does it benefit?" and "How?" Consumer, producer, and investor are all injured by this notion. A government who accepts this maxim without considering these questions stands to do considerable damage to the welfare of his subjects.

(EN: The answer to those questions deals not with the welfare of all people, but merely of the most inept producers. If the import of foreign sugar is prohibited, the domestic producer whose methods are inefficient and whose product is inferior benefits a great deal by being able to sell his product. In a democracy, many votes can be purchased in this very fashion.)

"Personal interest is, in all cases, the best judge of the extent of the sacrifice, and of the indemnity we may expect for it; and, although this guide may sometimes mislead us, it is the safest in the long-run."

On the scale of a society, personal interest remains a safe criterion, but only on the condition that individual interests are left to counteract and control one another. If an individual involved in an exchange can bring to bear authority to compel the other party to accept unfavorable terms, the benefit is undone.

The legislative body is constantly importuned for demands for privileges, in which one party or group of people seeks force to compel others to accept its terms.

For example, when cotton manufacturing was first introduced in France, there was great outcry on the part of wool manufactures that it would be devastating to the industry of the towns and regions, and they sough assistance in preventing competition on the grounds that it would be devastating to the national economy.

No such privilege was granted, and the producers were left to their own discretion, those that found it advantageous to produce cotton did so. The entirety of the wool industry was not eradicated, but its output was decreased. Meanwhile, many hands were shifted from the production of one to the other, at greater profit to themselves and greater benefit to the consumers, as more people could afford cloth. After fifty years, the towns that once produced wool almost exclusively remain active in trade and do not appear less industrious than they were fifty years ago, and a few have enjoyed even greater prosperity.

Whether the autocracy of despots, or the timid rule of elected officials that yield to public outcry, the arbitrary interference of government into industry has never been seen to do any long-term good to the producers and consumers of goods, but instead have wrought significant harm upon the general welfare.

Digression: The Balance of Trade

The author means to return to his investigation of the effect of regulation of industry, but wishes to digress a while upon a cause that was common in his day: the actions undertaken by governments to pursue a balance of trade.

Government clings to the inexplicable notion that the welfare of a nation is best served in a situation where its imports and exports absolutely coincide - which would be absolutely coincidental. If imports exceed exports, they proclaim that the nation is being robbed of the gold exchanged for foreign goods; but when exports exceed imports, they proclaim the nation is being robbed of its goods in exchange for foreign gold. As a result, they are perpetually alarmed and constantly passing legislation detrimental to the welfare of their citizens.

The notion of the balance of trade is unique to government. No individual involved in trade is the least concerned. That is:

The natural proclivity of all parties in the process of exchange is to act in the most logical manner to derive the benefit they seek. That is, each person (producer, merchant, and consumer) has something he wants and something he is willing to give in exchange for it, and seeks to strike the best bargain he can find.

For the individual, his consent to a bargain, where trade is conducted freely, is an indication he has given and received equal value. For a nation, the situation is much the same: in any exchange of gold for goods, the consent of each party indicates they have assess the values as equal. That is, where England trades a quantity of silver for a quantity of cloth, it is because the cloth gained is equal (or greater) in value than the silver paid for it.

The obsession over money, or precious metals, is illogical. If you consider the benefit to be derived from a silver, it offers very little: it can be made into a plates and cutlery, a watch-case, a ring, a coffee pot, a picture frame, or the like. Aside of a certain glimmer, it is of no greater use than pewter.

Value in circulation is not lost. The example is given of a manufacturer who purchases cloth. The money he has given for it passes in due course to those whose work has produced the materials (cotton and dye) and performed the services (raising cotton, spinning it, weaving it, dying it, raising indigo, making dye, and all ancillary services). When he sells the cloth, he buys more, feeding the entire system of production.

In this process, money passes from hand to hand, but is not consumed - but flows in the opposite direction: the consumer pays the merchant, who pays the retailer, who pays the producer, who pays his suppliers. Should a supplier hire a laborer, who uses his wages to buy cloth from the merchant, the coin (perhaps the very same coin) is returned to the system.

The primary value of money as a token of exchange - its value is delivered when it is exchanged for a useful object of which the holder has greater need. A man who has only silver will starve for want of food, as will a village or nation that produces only silver find itself in need of many other things. The only value silver holds is its ability to be exchanged for other things. There is little sense and great suffering in thinking otherwise.

To bring forward a topic that will be considered in a later chapter, money serves as a medium of exchange. In the present market, people do not barter goods for goods, but instead exchange goods for silver. The farmer must change his crop into money before he can spend that money on the items he requires. In any market, there is a much higher value of goods than there is of money, coin being used repeatedly to turn one thing into another.

It's also noted that metal, like any other good, takes on a value because of its scarcity. In a market that is has little silver, more goods or every kind will be given for fewer coins, making prices seem cheap. If a market is flush with silver, the value of each coin is decreased and prices seem higher. It is only by ignoring the coinage that the comparative value of goods can be assessed: a man trades a pound of sugar for a single coin he uses to purchase five pounds of wheat. He is no better off if he trades the same pound of sugar for ten or a hundred coins if he must spend the same amount to purchase five pounds of wheat.

It is conceded that money is considered to be of greater value that commodities in that it is easier to exchange for other goods. An individual possessed of a commodity must locate a buyer in need of it to make an exchange, whereas a person possessed of money will find many who will accept it - and for precisely the same reason: they can then exchange it for the items they desire. This is true of money whether it is gold, silver, beads, or clam-shells.

The profession with the most accurate perspective regarding money is the merchant: his profession is to exchange goods for money with the various producers and consumers of goods. An ordinary person, or a government, tends to regard money as a value unto itself and seek to hoard it. To the merchant, money is merely a token of exchange and his profession encourages him to have as little of it in inventory as possible, as it generates no income when it lies idle.

Because money can be stored, it has the ability to transport value through time. A farmer who sells his goods in the fall can spend the profit until the next harvest. Should he have an excellent season, he can store the profit to sustain himself through a poor season, the next year or ten years later. But even at that, money is a temporary convenience - to deliver value, it must eventually be exchanged for goods.

Back to the scale of nations: there remains the notion that the wealth of a nation consists in the accumulation of a horde of wealth. This has all the same issues as an individual horde of wealth, but compounds them further:

A nation that hordes capital profits no more from it than does an individual who does the same. By stopping the emigration of precious metals, a government prevents its people from obtaining the goods they cannot fabricate for themselves. The previous example of the disastrous attempt of the French government to force the domestic production of beets and dye demonstrates that it is the nature of things, not the will of men, that make certain nations less capable of production than others.

One "real ground of apprehension" is that money in domestic circulation funds the ongoing production of its citizens, whereas money spent on foreign goods does not. The goods purchased from other sources are merely consumed, and while the value of the money given is rewarded with equal value of goods enjoyed, it is not preserved in the economic system.

But it can also be said that the goods purchased stimulate the production of existing goods. An individual who wishes to purchase a foreign good must find a way to earn the money to pay for it, and this drives him to engage in productive activity. In a general sense, no-one seeks to earn money if they have no need to spend it, or nothing to spend it on. The availability of foreign goods gives motivation to be productive. In their absence, there is little point in producing any measure other than that which can be spent on domestic goods.

The existence of any imported good identifies an opportunity for an domestic producer. If it is at all possible to create a good domestically that is presently imported, the domestic producer can underprice foreign competition (whose price must compensate for the risk and cost of transport) and capture the domestic market. Until such time as this occurs, the domestic market can rely upon the foreign suppliers. If it were not so, the domestic market would become accustomed to the absence of a good, and do without its value.

It is also alleged that exporting goods abroad to bring coin into a country is better than the opposite arrangement. From a perspective of utility, this is absurd. Precious metals deliver no benefit of use to the holder: a man may eat food, but he cannot eat his coin. In that way, when a nation exports a quantity of wheat for a quantity of precious metal, it is ridding itself of an item that has a practical benefit for the sake of accumulating another item that has none. Recall the example of a starving man who sits on a hoard of silver.

Trade among nations is likened to trade among men: each contributes a useful product to the market, exchanges it for coin, and uses to coin to by the product of another. To refuse to trade with others means to do without their products, or take upon oneself the necessity of producing a good at which one has no advantage and must expend greater effort to produce a good of inferior quality.

There is some use in a nation for a given quantity of precious metals - the fabrication of ornaments and minting coin for use in trade - but to amass metal beyond the demand for it offers no benefit. Say illustrates this by suggesting we take a similar perspective on any other commodity: if a nation has need of only 1,000 carriages per year to replace those that are annually destroyed by wear and tear, there's little point in importing 1,500 - the unnecessary 500 will lie dormant in storage and provide no benefit.

Precious metals, it is said, may procure anything, and this is their value. It is also the limitation of their value: metal must be traded for something useful in order to render any benefit. As such, a nation with horde of gold gains no benefit from it until it can be exchanged for something useful - and if domestic production provides nothing useful to purchase with it, the void is filled by goods produced elsewhere. To forbid citizens from purchasing these goods is to deprive them of the benefit of the labor they expended in producing goods for trade.

In all, there is no benefit to the regulation of trade among nations: let each produce what it can produce most efficiently, and trade among one another just as men do in any market. To do otherwise is "childish and absurd."

Trade Restricitons

Having examined the theory of the balance of trade and found it to render no benefit, the author now means to consider the measures taken by government in regulating trade with an eye toward their actual effect of the welfare of producers and consumers.

Prohibiting the import of a foreign good gives great advantages to domestic producers who cannot provide it more cheaply, but at a disadvantage to the domestic consumer who cannot have it more cheaply. Some cannot afford the product at all, and even those who can must give more of their income to have it, and are thus deprived of other things.

Even if it is not prohibition, but merely an import duty, the same remains true. Domestic producers, who seek to gain the most income from selling their goods, have no incentive to price their goods below foreign articles. And in this instance, consumers are still the poorer, though the profit is split between domestic sellers and the tax collector, as duties on foreign merchandise are ultimately paid by the consumer.

Removal of competition itself is detrimental to the employment and improvement of our productive powers. The consumer is best served when each producer seeks to produce the item at which he is most skilled and efficient. To lay a tariff upon any good is to enable producers to fashion goods at which they are not as skilled and efficient as foreign producers, and gives producers no incentive to improve their skill and efficiency.

Another analogy is domestic taxation on specific goods. To levy an exorbitant tax on the sale of shoes interferes with the business of the cobbler, and encourages people to fashion their own shoes. The problem is that most people have no skill at shoe-making, and spend an inordinate amount of time in producing inferior shoes - or go barefoot. They would be better served by applying themselves to those employments at which they are most skilled and trading for the better and cheaper products fashioned by others who have expertise.

Those producers who petition their government for protection from foreign goods are concerned for their welfare, and haven't the least interest in the welfare of the public. They will speak to the employment they provide to their workers, the business they give to their sellers, their contribution to charity, and support of other merchants in the community. All of this "good" is extorted from customers who are compelled to purchase their overpriced goods. Any thief might make the same claim, and hope that others might ignore the source of his income.

Little attention is paid to the "serious mischief of raising prices," as it is most often accomplished piecemeal and in small degrees. A little tax is placed on this good, a little tax on that, a bit more on the first, and another small tax on a third. It is like a swarm of termites, each of which consumes but a little, but collectively destroy a house.

To the consumer, it makes little difference whether taxation is placed on foreign goods or domestic - ultimately, he must give more of his own product to obtain the product of others, the difference being consumed by taxation. To the producer, there is a similar detriment: taxation and tariffs reduce the budget of all consumers, meaning fewer can afford to purchase his products.

Say further belabors the point that every purchase of goods is an exchange. That is, when we purchase goods, we do so by exchanging the goods we have produced. By this reasoning, no man can trade with another unless he has a product to offer in exchange: to be a consumer, one must also be a manufacturer. Neither can one nation trade with another unless it has product to offer in exchange, and if it pays for foreign goods in coin, it must earn the coin by its own production.

Say considers the ability of nations where there is a low rate of interest to make goods more profitably: the manufacturer who borrows to purchase equipment and materials must pay less for the rent of money, and need not recover as much by increasing the price of his goods. This overlooks the interest of the banker and capitalist, which is to make as much interest as possible by loaning money. Where capital is more dear in the domestic market, the investor has choice to loan to foreign producers and earn a small return or invest in domestic producers and earn a greater return tends to keep capital at home, and attracts investment in industry from foreign nations. So while the foreign producer can find funding at a lower rate, the domestic producer can find funding more easily.

Some products can only be had from foreign sources because the domestic environment lacks the materials (some nations have no copper mines) or is unfavorable to their production (palm trees will not grow in many parts of Europe). Other products can for various reasons only be had from the local market: it is not feasible to transport fresh vegetables and meat across an ocean. The same may be said of immaterial products: one cannot hire a barber in England to provide a haircut in Spain. (While it is technically possible to transport him there and back, the cost would be immense.)

Aside of protecting the income of domestic producers, trade restrictions are often wielded with the notion that it will be punitive to another nation - that if we deny them out goods, they will not be able to obtain them from any other source. Phillip II of Portugal learned otherwise when he banned all trade with the Dutch, whom he detested. The Dutch found other sources for the goods they desired, chiefly India, and developed the means to trade directly. As a result, the Portuguese suffered from the lack of trade and crippled their own economy; meanwhile the Dutch improved their economy and the competence of their merchants and flourished in the decades that followed.

Say concedes that there are instances in which nations have continued to thrive under trade restrictions, but he suggests that these nations had the strength to succeed in spite of the restrictions, not because of them. He makes an analogy to health: a strong man may survive grievous injury, but it is not the injury that made him strong in the first place.

Following that line, there is much insistence of the bureaucrats of his time that the considerable meddling of government in business is to be credited for the rapid increase of European wealth. They conveniently ignore the advances of the last three centuries that had little to do with their intrusion: the exploration of the globe and industrialization have given rise to a great abundance of raw materials and more efficient means of converting them into usable goods. These are such tremendous positive influences that the negative impact of bad government is overcome.

Returning to the subject of trade: the majority of concern is over citizens purchasing goods, but there are instances in which government seeks to prohibit citizens from selling their own products abroad. The net result is clearly to discourage domestic production beyond the demand of the domestic market or, when a specific nation is the target of the ban, to cause producers to ignore areas of the greatest demand and seek to compete in areas where demand is less, incurring greater expense and earning less profit.

Say takes the example of Napoleon, who sought to ruin Britain by prohibiting woolen goods from being exported to the French market. Strictly speaking, this was impossible: he could not blockage the channel to prevent direct trade. Had he succeeded, it would have made it less profitable to the British producers and more expensive to the French consumer. As part of the same strategy, he removed many existing trade barriers between France and other nations, facilitating continental trade, the consequences of which were of benefit to all of Europe, which undermined his primary intent (French consumers bought British wool more easily from the Dutch) and facilitated greater trade of all goods.

Say acknowledges that he has omitted to mention that restrictions on trade creates a new class of crime: smuggling. It's of little concern to economics, and injurious to no one. Were it not for the folly of government to place arbitrary restrictions on trade, the "crime" of smuggling would merely be "shipping."

Adam Smith is generally against trade restrictions, but suggests there are two circumstances where it is useful:

  1. When a particular branch of industry is necessary to public security and external supply is uncertain. For example, if a nation depends on import of gunpowder, it will find itself disarmed in time of war, and it is therefore worthwhile to support inefficient domestic production so that capacity will be available when it is needed.
  2. When the same good is being produced domestically, and the foreign power uses trade restrictions and incentives to its producers with the intent of undercutting domestic providers. This is, as a defensive maneuver against economic aggression targeted at domestic producers.

Say concedes that there is some logic to Smith's thinking, as these actions support the stated goals. However, Smith fails to consider the impact to the consumer, which is always detrimental. Ultimately, the two must be considered, and Say reckons that taken all in all, the benefit a government grants to a producer of goods, under any pretext, is always surpassed by the damage to the public welfare.

Say asserts that commercial treaties are "good for nothing but to protect industry and capital diverted into improper channels by the blunders of legislation." In a healthy state, which occurs naturally when people have liberty to choose for themselves, industry is applied where it has the greatest benefit. The intrusion of government can only interfere and damage.

The only useful protection government can provide its citizens in their commercial activities is to protect them against fraud or violence.

The use of trade sanctions as a means for retaliation is childish behavior: I seek to obstruct you in retaliation for your obstructing me. And as a result, we are both injured by ever-increasing levels of obstruction so long as we stubbornly refuse to cooperate and work out our differences so that we may arrive at a solution.

Retaliation does as much injury to you as it does to your rival, and much time and effort is wasted in pursuit of conflict rather than some more productive endeavor. It is especially true of economics, in which the citizens of a nation are deprived of the goods or profit they might have had were it not for the bickering of their governments, not to mention the taxes they must pay to support the army of customs officers and trade officials whose profession is necessitated by such conflict.

Trade Bounties

Governments also engage in stimulation of production by means of offering bounties for the production and exportation of goods. By paying a sum to a producer or merchant, they reduce the price of goods to make them more appealing to markets. This may be done to stimulate growth in a nation or as an act of aggression in exporting goods abroad, to bring back foreign gold and undercut the production of other nations.

Bounties have been used by the British government to the extent that their producers can profitably manufacture goods that destroy value rather than create it (the finished good is worth less than the cost of producing it), yet still count a profit from the bounty they collect.

It is only by misdirection that the folly remains concealed: if the manufacturers of cloth were taxed to pay for the bounty they received, cent for cent, the absurdity would be obvious.

If the tax is collected from the consumer and paid to the manufacturer, it is more difficult to perceive the direct connection - but ultimately, the consumer is paying the full price of the goods, the tax equaling the discount they receive - though given cost of administration, the tax will exceed the discount received.

Where a bounty is placed exclusively on export, it is a tax collected from the citizens of a nation that is used to pay foreigners for buying their products. This is a very good deal for the foreign consumer, but a very bad deal for the citizen.

Bounties also interfere with the efficiency of an economy: by making a good artificially cheap, demand for it is artificially stimulated - productive resources are then diverted to its manufacture, rather than to pursuits that, under normal circumstances, would be more profitable.

If the bounty is removed, the price of the good would rise to its normal level, demand would fall, and the resources created to manufacture it would be wasted. The acreage of land, the factories, and the workers that are all specialized to its production, and ill-suited to any other purpose, all prove to be useless without it.

Consider the bounty paid by Louis XIV for the manufacture of ships, with the intent of increasing the merchant fleet and training up sailors for his navy. Given that his citizens did not need as many goods as these new ships could carry, the ships were purchased (cheaply) by foreign nations - where they increased the merchant fleet and trained up sailors of the very nations over whom he intended to gain an advantage.

"Perhaps" trade bounties make sense in the development of industry within a nation. Given that nurturing a new industry is costly, and it may take several years for producers to become efficient, it can be argued that some temporary assistance is beneficial in getting it off the ground.

The primary problem, as Smith pointed out, is that new industry cannot be created except by diverting resources from existing industry. That is, we encourage engagement in new pursuits at which producers are ineffective by removing them, and the factors of production they command, to less productive pursuits. The net result is a loss of productivity to the nation until the new venture becomes more advantageous than the old.

It should be added that it would be more accurate to state that the productivity is destroyed unless, rather than until, the new venture becomes more advantageous. There is no guarantee that it will do so. If there was great confidence that a given industry would eventually become highly profitable, no further encouragement would be needed to attract voluntary investment - and it is only when there is little confidence that government must compel the public to invest in an ill-conceived enterprise.

(EN: A second problem occurs to me, and I don't believe Say addresses it. Temporary measures have a way of becoming permanent. I could likely go on at some length investigating the reasons, but it's simple enough to considered the volume of government subsidies that are still being supplied to certain industries after a century or more.)

Regulating the Manner of Production

Bounties and tariffs are largely directed at the disposal of manufactured goods or, indirectly, with the motivation to manufacture them at all. There is a separate species of regulation that does not concern itself with these things, but instead insists on meddling in the manner in which goods are produced.

Left to their own devices, manufacturers will naturally seek the most efficient method to produce goods. It profits them to do so, and they need no artificial encouragement to seek the most advantageous methods of production. The only natural discouragement to this is feasibility: the weaver who cannot afford an engine-powered loom must make due with a manual loom until he can afford to upgrade his equipment or find an investor who will loan him the money to obtain it.

"Arbitrary regulations are extremely flattering to the vanity of men in power." Their authority is confirmed by obedience, and obedience itself gives them a false sense of their own wisdom and intelligence. That is, they feel that they are better men than those who are subject to their will, and claim credit for the accomplishments that are made in spite of their interference. It is by election to public office that a man with no experience or knowledge of weaving can command the obedience of more experienced men, and command it in a way that is contrary to reason and logic - for if an idea is reasonable and logical, those of greater experience would adopt it voluntarily.

Say speaks for a time on government regulation of apprenticeships, that forbid individuals from practicing their trade until they have spend a fixed number of years in service to a more accomplished practitioner. Such an arbitrary duration prevents competent workers from applying their skills when they are able.

The quality of workmanship is evident in the quality of product. It can be witnessed that talented apprentices gain mastery of their craft in a very short time, and the quality of their product surpasses that of more experienced masters. And ultimately, the assessment of quality is in the product itself, regardless of the experience of its maker.

Smith points out that, especially in an industrialized economy, apprenticeship is an antiquated concept. It may take years to train a weaver to use a hand-loom, but the operation of a machine loom is composed of simple tasks that an entirely inexperienced person can learn in a few weeks or even a few days.

In certain instances, Say concedes the need to certify the skills of professionals as a means to establish their credentials. Consider the damage that can be done buy a person who represents himself as a physician, surgeon, or apothecary to the patients who entrust their lives to unskilled hands. But even in such instances, limiting access to a profession or requiring a period of internship is not a fair or accurate test of skill.

(EN: There's also the case to be made that certifying skill is not the province of government, and is better done by industry associations - the role of government is merely to protect the validity of certification by punishing, as a perpetrator of fraud, any professional who claims credentials he has not earned.)

It is with some irony that there is no requirement of apprenticeship for the politicians, who insist that it is necessary of other professions. A minister of trade who will impose his will upon every weaver in the nation has no requirement to know the first thing about weaving, or even about government. His appointment or election requires him to have no skill at anything, nor is he subjected to a required apprenticeship or an examination of any time.

Regulation is "useful and proper" when it is aimed at punishment of fraud or contrivance. A manufacturer who sells brass as gold has defrauded his customers as well as robbed the opportunity of others manufacturers who offer legitimate goods. Likewise, a merchant who sells counterfeit goods is defrauding customers and harming the reputation and business of legitimate manufacturers. However, the prevention of fraud requires only a reactive stance - to react to the complaint of a victim of fraud - not to interfere in the process production as a method of preventing it.

He also considers it to be a just function of government to protect the creator of a new product or process against those who would copy his invention. The outlay of capital and effort to discover and effect an invention is rewarded by a premium in price for its manufacture. He feels that "no one can reasonably object to" this protection, nor does it harm any branch of industry whose operations are no worse off for the absence of something that would not have existed had the inventor not undertaken the effort to create it.

He does concede that such patents do become damaging if they are granted in perpetuity. They are especially harmful if the invention is used or produced in foreign markets, as government has no authority to prevent foreign copyists. This effectively forces citizens to import goods that could more cheaply be made domestically if producers were not forbidden to do so.

As such, he remarks it is "wise" that England and France have assigned a limit to the duration of patent rights, after which time anyone many avail themselves of an invention. A patent can also be revoked if the invention is discovered and adopted by foreign providers, or if the government can make a case that the owner of the patent can do without it, or if they can make the case that the holder of the patent is using it to prevent manufacture at all.

Privileged Trading Companies

In the author's time, it was not uncommon for government to grant privileges to individual merchants or a collection of investors, such as the exclusive privilege over a given article (such as tobacco) or trafficking with a particular country (such as India). Sometimes, the privileges also included additional advantages such as freedom from tariffs and taxes imposed on other merchants.

The immediate consequence of such privilege is interference in the free market: by preventing competition or granting advantages to one company, competition is discouraged and the company can maintain prices above the level that would be demanded under free and competitive trade.

Some justification is given for companies that undertake new ventures, much in the manner of a patent, in that the cost of exploring a new market or starting a new industry is exorbitant and those who undertake the effort must be compensated for their losses by such advantages. Another plea, especially for foreign trade, is based on the need for companies to provide for themselves certain services that government provides for domestic manufacturers - that is, the soldiers and forts necessary to safeguard their operations in the midst of hostile natives.

In this instance, the author finds such arguments unconvincing. As previously mentioned, if there is potential for profit in a new venture, it will find no shortage of investors. It is only the wild and improbably schemes that require government support. And as to the cost of maintaining forts and soldiers, this is a natural cost of doing business. A merchant sailor cannot expect the government to pay for his ship so that he may import goods from foreign lands: the profit he derives from trade must finance the ship, or it is an unprofitable venture.

He also finds it difficult to accept that government sponsorship delivers value to the people of a given country: three-quarters of European nations have never sent a single ship to China, yet their citizens seem to enjoy goods of Chinese manufacture "very abundantly ... at a very cheap rate," and their enjoyment of these goods can only have been financed by taxes collected o citizens of nations that established companies to trade with China.

(EN: Say continues to point to the various problems created by trading companies, but I find it difficult to take much interest. It is essentially no different to subsidizing any domestic industry, which has already been discussed, and the particular details seem academic and historical.)

Regulations Affecting the Grain Trade

To concretize the general ideas the author has discussed, he looks to speak of the regulation of a specific commodity: grain. As "the staple article of human subsistence," grain has great significance to the welfare of a people and merits more particular notice than items that are less necessary and more dispensable.

As an agricultural product, grain depends on factors beyond human control and its supply fluctuates with the seasons. On account of the weather, a given year's crop may provide a surplus or shortage of food for people in the immediate vicinity, and its scarcity creates an intense crisis for which people look to their government for a swift remedy. "Delay is death to a part of the population at least."

Also, demand for grain is immediate and the ability to set aside surplus in years of plenty for consumption in years of scarcity is limited. It requires significant facilities to protect grain against decay, and to safeguard siloes against angry mobs in times of dire need when hunger overwhelms their respect for property rights. In some communities, grain is stockpiled in public granaries and has been useful in smoothing out prices under normal fluctuations in supply, but sudden, prolonged, and dire need has never been sufficiently addressed by storage.

Trade is taken for granted as a remedy, but its availability depends on the coincidence of an external surplus - that is, it is assumed that foreign producers will happen to have grain to sell when the domestic product does not satisfy the needs of the people. This often works out, but is not necessarily so, and if a broad weather pattern affects all producers in nearby markets, their product will be needed in their own country. And because it is a staple good, no amount of any other item (luxury or gold) will coax food from a starving nation.

Strictly speaking, there is no safe method of providing or obtaining an adequate supply of grain in a situation of widespread scarcity. Nor can farmers plow their fields at any time of year to sow a fresh crop in a shorter amount of time than it normally takes grain to grow. The most "abundant and advantageous supply" of grain is ongoing production.

A suspicious and accusatory eye is cast on those who speculate in the grain trade by attempting to predict fluctuations in supply and profit by buying low and selling high. Great scorn his their reward when they profit by accurate predictions, and they gain little sympathy when their fortunes are ruined by inaccurate ones.

The charge against them is that they collectively raise the cost of grain when supply is short, or even create shortages of supply by withdrawing grain from the market to keep it in store. Little credit is given to them of mitigating misery when they release their inventories in time of need.

The social benefit of grain speculation is the maintenance of a store of grain that is done by a few individuals who have the means, rather than the necessity of each consumer to undertake the expense to maintain his own granary. There is also considerable value in this smoothing of supply. Aside of making it easier to predict the price of necessities (the consumer's grocery bill does not fluctuate, and his wages generally supply his needs), food is a special case because it has been proven that excess food results in an increase in population - and an increase in population cannot be easily or ethically reversed in the following year when food becomes scarce.

In all, the public consternation against grain speculators is a consideration of their desires with little regard for the welfare of those whose profession is to satisfy those same desires. When these views embodied themselves in laws, regulations, and ordinances, the net result is to harm the public welfare by eliminating the motive and discouraging the practice of storing grain for future use, and the social benefits are lost. Such is the consequence of appeasing the irrational and covetous perspective of the consumer.

The author also seems to obliquely address the notion of speculators acting in concert to control the whole of the grain supply and artificially increase the price. This is possible, though highly improbable, as they are in competition with one another as well as other factors over which they have no control: should they raise the price too high, farmers will increase production in the following season and traders will bring in grain from external markets as soon as they are able. A cartel of speculators may have the ability to effect a short-term fluctuation in their favor, but only under certain specific and unlikely conditions. They have no ability, thus, to have ongoing control of supply and compel any buyer to pay more than he is willing.

When government attempts to supply the population by becoming a dealer, "it is sure to fail in satisfying the national wants." The supply and demand of grain is not controlled by whim or command, and lacking the knowledge of a speculator, it is even more likely to withhold grain when it is most needed and release stores on a market that is sufficiently supplied, resulting in even greater fluctuations in price.

People in want of anything wish the price to be cheaper - and the more necessary it is, the more they proclaim it should be affordable. In practice, this is exceedingly dangerous. The cheaper the price, the less the profit, and the less incentive to supply the market - an compelling producers to supply at an unprofitable price leads to their refusal to supply at all, or to the bankruptcy of their operations.

If the government means to keep grain cheap by absorbing some of the excess cost when supply is short, the difference is paid by the consumers in taxes all the same. Moreover, by keeping prices low, the government removes encouragement for farmers to plant additional grain to meet future demand, prolonging what should be a temporary fluctuation. In all, the people would fare better by struggling through one bad season that for the situation to be prolonged by ill-conceived attempts to effect short-term improvements.

Nor is government assistance necessary to encourage external sources to provide goods to a market - encouragement of imports having already been discussed. If there is demand, and demand raises price, the imports will be attracted by the potential for profit.

Say also notes that nations are most subject to famine when they specialize in a single product for subsistence. A deficiency of rice in India causes widespread famine, as there is no other good. A deficiency of grain in Europe also has widespread effects because the diet is not much varied. In nations where the diet consists of many articles, a shortage of one is of no great consequences. It is only by allowing producers to freely decide what to produce that leads them to produce different things.

He speaks briefly of the advances in the art of preserving food, which will likely make fluctuations less severe in future generations. Preserved foods can be stored for longer periods of time and withstand transportation over great distances, which overcomes some of the shortcomings of grain.

(EN: In the author's time, preservation was a fledgling technology, and I don't recall reading an economic study. It's likely reasonable to assume that preservation, refrigeration, and transportation have done much to alleviate mass starvation in the modern world, as well as to stabilize prices and ensure availability. But I tend to think that efficiency of production and variety of diet is still more to credit - shortages are rare, raise prices but a little, and many alternatives exist.)

The concern over grain is most often focused on the want of it, but Say recounts the problem in England when imports of cheap foreign grain also had detrimental effects when grain from foreign sources was available abundantly and cheaply due to import bounties, which made taxation extremely high and collapsed the domestic growers, resulting in much unemployment and leaving England dependent for its subsistence upon foreign sources. While the author maintains the principle that goods should be produced where it is most efficient to do so, meddling in the economy in a manner that makes domestic production entirely unprofitable seems a dangerous proposition.

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