Government Handouts and Market Manipulation — The Wealth of Nations

Smith attacks export bounties, public payments meant to let British goods undersell foreign rivals abroad and turn the balance of trade. Unable to monopolize foreign markets as at home, the mercantile system would pay foreigners for buying British goods instead. We cannot force foreigners to buy their goods, as we have done our own countrymen; the next best expedient, it has been thought, is to pay them for buying. Bounties should go only to trades that cannot survive without them, yet every branch where the merchant recovers capital and ordinary profit on export needs no subsidy and stands level with other employments.

Drawbacks refund duties already paid on goods re-exported; bounties add fresh public expense while claiming to fill every pocket through a favourable balance. The corn bounty imposes two taxes on the people: the levy that funds the payment and the higher home price every consumer pays when grain is dear. With exports only about one thirty-first of consumption, each five shillings of bounty can cost consumers more than six pounds in dearer bread while foreigners may eat cheaper than British subjects. Export bounties encourage shipping grain abroad in plentiful years and aggravate scarcity at home, chiefly benefiting corn merchants and exporters rather than farmers, whose money rents rise only slowly with transient price spikes.

The herring buss bounty ruins the boat fishery best suited to feed Britain while sending more than two-thirds of buss-caught white herrings abroad under export premiums that depressed home prices before the boat trade was ruined. Linen drawbacks and silk export premiums illustrate narrow manufacturing exceptions; gunpowder may be vindicated only where defence requires it. Production bounties are rarer because policy favors export over production and fears fraud. Spain and Portugal show how export bias can flood countries with silver without enriching them, because real wealth is annual produce, not plate hoarded in houses. Bounties on manufactured exports enable merchants to sell cheaper abroad only by spreading the subsidy across the nation, not by creating new productive capacity.

Tonnage bounties to distant fisheries may resemble encouragement to production of ships and men, yet still risk the same diversion of stock toward politically favored channels. White herring and whale tonnage bounties share the mercantile obsession with export over domestic plenty. Smith treats each petitioned bounty as a claim that ordinary profit is insufficient when the real aim is to sell abroad at prices competitors cannot match without taxpayer help. The balance-of-trade rhetoric fills every pocket in theory while draining the treasury and, in corn's case, the baker's customer in practice.

Drawbacks differ in principle: they return duties already collected on goods that leave the kingdom, whereas bounties create new expense from general revenue. Yet both serve the same mercantile fiction that export volume equals national gain. Smith's repeated question is whether the trade would survive on ordinary profit alone. If yes, the bounty is a gift to merchants; if no, it is a tax on everyone else to sustain an employment that the market rejects. Neither case justifies the popular claim that bounties enrich the nation as a whole.