4.9 Agricultural Systems
Smith considers a reactionary school of philosophy - "if the rod be bent too much one way ... you must bend it very much the other." Under the ministers of Louis IV, the economy was tightly controlled, extraordinary restraints were placed on the agricultural sector to yield extraordinary privileges to manufacturing and commerce. As such, a group of French philosophers (Physiocrats) contemplated and advocated for the abandonment of mercantilism and the complete. While this system never was adopted by any nation, and the notion of foregoing the benefits of manufacturing are clearly such that the practice cannot be abandoned altogether, Smith nonetheless regards certain aspects of their system as being "very ingenious."
This system divided the population into three classes: the ruling class (who were proprietors of land), the productive class (agricultural labor) and the unproductive class (manufacturers and merchants).
The Productive Class
In addition to holding all land, the ruling class provided the "original expenses" of agriculture p the cost to clear and cultivate land and provide the seed or breeding stock that the productive class would then develop it to become a perpetual operation. After the first harvest, the producer would earn enough from the sale of his crop to cover the annual expenses necessary for the following year, at which point the operation would be economically self-sustaining.
While the ruling class may demand rent of their tenants, it can never be so much as to consume those funds necessary for the next year's operation, as to do so would make the operation untenable. And by reinvesting the rent in the cultivation of additional land, the system will spread and flourish, and as such the funds reinvested in an operation should be exempt from taxation, as the expansion of agriculture better promotes the economy and prosperity of a nation than any use to which a king might put those same funds.
The Unproductive Class
The "artificers and manufacturers" were meanwhile considered to be the unproductive class, because they disposed of the products of agriculture in a way that did not cause an increase in production and were not, in and of themselves, sustainable operations. The spinning, weaving, dying, and cutting of cotton produced clothing that would be worn for a time, then thrown away, and would result in not one more acre of cotton for their future needs.
The business of merchants is likewise considered "barren and unproductive" because it also does not result in an increase in productive capabilities. The merchant merely carries goods from one place to another, increasing the price of goods to his own profit, and thereby diminishes the prosperity of the productive class.
Cooperation Among Classes
While the manufacturing and merchant classes are seemingly castigated by their categorization as "unproductive," they do serve a useful purpose in society and should not be discouraged from doing so. However, since their function is not strictly necessary, it should never be given priority over the agricultural work of the productive class.
While the Physiocrats took a dim view of manufacturing, they did concede that it had some benefits - chiefly in keeping the productive workers focused on agricultural work by producing those needful things that they could likely make for themselves, but in an "awkward and unskillful manner" that would distract them from the business of farming. And inspite of the inherently parasitic nature of the merchants, it is conceded that they perform one useful function: it made available to the farmers those things that they could not produce for themselves, by bringing to them the produce and manufactures of remote areas.
It is not in the interest of the unproductive class to oppress the other two classes for their own benefit. Manufacturing depends upon the production of raw materials, so to strangle the profits of agriculture diminishes the supply of goods upon which manufacturers depend. Likewise, merchants are useless without something to sell, and the production of agricultural goods is the basis of their livelihood as well. The interests of all are best served by a system that is fair to each of the classes, enabling them to generate such level of profit as to fund the continuance of their operations and encourage them to maintain a high level of productivity. To deprive one is to the detriment of all.
The Negative Influence of Politics
It has been demonstrated, particularly in the case of Holland, that there can be a state that exists almost exclusively on the labor of the unproductive classes, but such states are inefficient and their prospects for the future are constantly tenuous.
In such states, the unproductive classes are kept "at a most inconvenient distance" from the productive (agricultural) classes that provide their materials and livelihood. There is the added expense and inconvenience of transportation, but of greater concern is that they are subjects of separate governments.
Princes of one state care nothing for the welfare of the subjects of their neighbors, and do not refrain from imposing high duties on foreign trade with the aim of increasing the prosperity of their kingdom to the impoverishment of foreigners. The establishment and perpetuation of such arrangements requires the state to undertake no small amount of effort to force men to act against their better judgment.
Moreover, the state that finds it has need of the goods produced or grown in other nations to such an extreme degree has "some defect in their policy" that has prevented industry from flourishing in locations proximate to production, and has by the treatment of its citizens driven manufacturing from their own lands - and rather than amend those laws that crippled domestic production, they seek by means of tariffs and trade regulations to inflict the same exploitation upon the producers abroad.
In a healthy state, the continual increase of the produce of the land would, in due time, create a greater prosperity than the funds that could be obtained immediately by looting it. The simple farmers recognize what their governments do not: that it is ultimately to his own devastation to sell his seed rather than to plant it.
Acts of Law to Promote Manufacturing
By the logic of the agricultural system, inhibition of foreign trade harms its own interests because the cost of all goods is paid from the product of its own lands. Whether a tariff is placed on foreign goods or monopoly granted to domestic manufactures, any artificial increase in the cost of goods reduces the value of agricultural products.
While the intention may be to increase the growth of its manufacturing sector, it is unnecessary to hasten such development. If manufacture is worthwhile, it will arise of its own accord, at such time as it is discovered to be more efficient than the import of foreign goods.
States are loath, and in many instances unable, to repeal laws in favor of manufacturing, as an industry that required additional support to establish will require additional support to maintain until such time as it becomes efficient enough to be self-sustaining, if ever that occurs. Given the support of the state, manufacturers have no interest in efficiency that would result in the repeal of laws in their favor.
Distribution of Wealth
In the agricultural system, as in any system, the sum total of the annual produce of the land is distributed among the three classes of its own accord. The produce of the agricultural worker is return in share to his landlord for use of the land, then to the manufacturers and merchants to the extent that his output exceeds his own need of it.
Smith refers to Quesnai's economic table, indication how the wealth of land is ideally proportioned:
- The farmer retains 40% of his product to himself, pays another 40% to his landlord in rent, and spends 20% on manufactured goods
- The landlord spends half his rent on agricultural goods and half on manufactured ones
- The manufacturer spends 60% on agricultural goods. 20% on the manufacture of others, and 20% on foreign goods
- The merchant spends his income on domestic goods to take out of the country to trade for foreign goods
(EN: This is originally expressed as a number of arbitrary "units" of food, crafts, etc.)
Production of the Nonproductive Class
While there is much about the physiocratic system Smith admires, he does feel that it is a "capital error" for the system to represent manufacturers and merchants as being altogether barren and unproductive, and makes a number of observations to demonstrate how this is incorrect:
First, the manufacturing classes produce annually the value of their own consumption. The produce traded to them by the agricultural workers are transformed by their labor into usable goods, the value of which should be considered by the utility they provide, rather than their mere cost, and is thus greater than the value of materials used to produce them. Were a good of less value, or merely equal in value, to that which must be given in exchange, no exchange would take place.
Second, as their work produces objects of value: the farmer gets something of greater value in exchange for the goods he provides. The good he produces may be consumed by the buyer, or sold again to another to regain the cost for which it was purchased. Smith considers very few professions to be utterly unproductive (generally ,services that are consumed as they are produced and have no value afterward, such as the performance of a musician).
Third, it is entirely incorrect to suggest manufacturers and merchants do not increase the real revenue pf society. While a given amount of agricultural produce is by their efforts transmuted into a given amount of other goods, the goods they produce are of greater value than the raw materials used to create them. The hide of an animal is of very little use to the farmer who produced it, but tanned and sewn into a pair of shoes or a bridle, it is of much greater value than the raw hide provided by the agricultural producer.
Fourth, there is a limited to the amount of labor an agricultural worker can contribute to making his land productive, and once this limit is achieved, his profit can be increased only by frugality, an increase in the number of hired workers, or an improvement in his productive powers. Productive powers are generally increased only by better tools or machinery, these being the product of manufacturing or trade.
Fifth, and last, there is without manufacturing or trade a limit to the amount of agricultural goods that can be consumed within a society. For agriculture to produce at this time results only in the production of unneeded goods that would go to waste. The work of the manufacturer may preserve some quantity of the surplus in a direct manner (grapes and hides rot, but wine and cured leather persist) or facilitate the diversion of surplus to crops that are of little use without manufacture (flax in its raw state serves little purpose until woven into linen), and merchants facilitate the trade of local surplus for goods that cannot be grown or gotten of local manufacture. The use of surplus in this manner must be considered to constitute value, for without it, surplus would be of no value at all.
In spite of this and other imperfections, Smith regards physiocracy as "the nearest approximation to the truth that has yet been published on the subject of political economy."
Practical Application
While the system of physiocracy has not been practiced exclusively in any nation, Smith asserts that the closer the system of a nation to it, the greater the welfare of its people.
The policy of China favors agriculture over other employments, and the ambition of every man is to get possession of land, either as property or as a lease, to farm. It ahs been reported that the condition of a farm laborer in China is "much superior" to that of a manufacturing worker in Europe. Meanwhile, the Chinese have little respect for trade and consider the profession of merchants to be among the most reprehensible. AS such, they practice very little foreign trade, only two of their ports will admit the ships of foreign nations.
The government of India also favors agriculture more than other employments. Some reference is made to the castes or tribes of men, in which sons adopt their father's trade. While the highest caste of society was priests and the second soldiers, the third was farmers and the fourth laborers, being held in esteem higher than the castes of artisans and merchants. In spite of a vast population, agricultural production is such that India ships great quantities of agricultural products to its neighbors.
The Egyptians, likewise, remained focused primarily on agriculture. Their religious forbid the followers to travel upon the ocean, which is prohibitive to most manufacture and commerce, they depended much on other nations to bring goods and manufactures to them. The same beliefs also prohibited lighting a fire, which is required for most forms of manufacturer, save the weaving of cloth. However, their competence at agriculture made Egypt the granary of the Roman empire.