Study Guide

The Wealth of Nations Book IV, Chapter 5

By Adam Smith

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Book IV, Chapter 5

Of Bounties

  • "Bounties" refers to what people today would call subsidies, meaning that the government will sometimes give money to its own producers to encourage them to make more of a certain product so they can export it.
  • Smith sees this as unnatural, since the government is basically paying people to produce more of something than the public wants to buy. Governments often give these bounties to companies that can't survive on their own. But you have to wonder if it's a good long-term idea to support a business that can't support itself.
  • Taking money out of public funds to support failing businesses also takes money out of the public system, which means worse education for the public.
  • Over time, people will suffer more because of these bounties, which might save a few jobs in the short run. The only people who benefit are the ones receiving the bounty.
  • The fact is that a certain product (like corn) has a natural price that is determined by the overall supply and demand. Anything you do to try to mess with this price is doomed to fail or cause inefficiency over the long run.
  • To illustrate, Smith goes on a rant about how England's policies on the sale of corn have had disastrous effects.
  • Here, Smith repeats his argument about how merchants and dealers help farmers and manufacturers sell their stuff so that the farmers and manufacturers can just think about producing.
  • Plus, merchants make it their business to know the proper prices for stuff.
  • At the end of the day, Smith believes that whatever the free market says is automatically right, so there's no point in governments intervening and trying to manipulate it.

The Wealth of Nations Book IV, Chapter 5 Study Group

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