The Wealth of Nations Book IV, Chapter 9
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Book IV, Chapter 9
Of the Agricultural Systems, or of those Systems of Political Economy, which Represent the Produce of Land as Either the Sole or the Principal Source of the Revenue and Wealth of Every Country
- The other major way of organizing an economy is to put agriculture in a place of privilege. Smith can't think of any country that has ever made agriculture its only form of production, but some have come close.
- In Smith's view, agriculture is a form of pure production—a way of making something out of nothing. Manufactured goods are nice and all, but in Smith's opinion they don't add to the raw value of what gets pulled out of the land.
- Next, Smith talks about the importance of what he calls "neat produce," or what we today call "net produce." Net produce is different from gross produce, so let's talk about what we mean by these terms.
- Your gross produce is everything that you produce—all the crops and everything that you create. Your neat (net) produce is what you have left after you've paid for your expenses.
- So let's say you grow $100,000 worth of potatoes. You pay $20,000 to rent your farmland and another $20,000 to run your machines and pay your pickers. That leaves you with a neat produce of $60,000 worth of potatoes. For Smith, we must always look at neat produce when figuring out whether a country's wealth is growing or shrinking.
- But while farmers are the ones who produce the most value, Smith isn't ready to do away with merchants or manufacturers altogether. He admits that they actually increase productivity by tending to farmers' needs and giving them extra time to grow food.
- Even though Smith prefers agriculture, he doesn't want the government giving subsidies to farmers in order to make them produce more. He still believes the free market should decide these things.
- In a free society, the government only has three things to do: 1) protect the society from violence from outside (with an army), 2) protect it from violence from inside (with police), and 3) create certain public institutions (like schools) that couldn't do their job as well if they were private.
- The continued role of the government means that there will always be taxes and there will always be some institutions of the public good that can't become private.
The Wealth of Nations Book IV, Chapter 9 Study Group
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