Adam Smith's Doctrine on the Real Price of Corn

What will Smith’s proposition lead to?

Let us assume that the real price of corn is unchangeable.*

Superphysics Note

Here, Malthus falls for the same mistake as Ricardo who thought that the real price of corn is something physical or objective. In reality, Chapter 5 of the Wealth of Nations Book 1 explains that it is a metaphysical subjective measure for mental toil and trouble. Smith uses corn since everyone needs to eat to live, which then leads to all toil and trouble

It will follow that agriculture is immediately excluded from Smith’s principle which says that capital flows from one employment to another, according to the various and necessarily fluctuating wants of society.

It will follow, that the growth of corn:

has, at all times, and in all countries, proceeded with a uniform unvarying pace, occasioned only by the equable increase of agricultural capital
can never have been accelerated, or retarded, by variations of demand.

It will follow, that if a country were:

overstocked with corn, capital would still not be withdrawn from agriculture
understocked with corn, capital would not be added to agriculture in order to restore the balance

But these consequences, which would incontestably follow from the

Smith’s doctrine, that the price of corn immediately and entirely regulates the prices of labour and of all other commodities, is so directly contrary to all experience.

It itself cannot possibly be true.*

Superphysics Note

Smith’s unchanging corn values merely means that everyone will want to live ‘immediately and above anything else’, and life is determined by grains, whether those humans 1,000 years ago or 1,00 years from now. This desire for life will always be positive such as a number 1, as opposed to a genocidal species which has a -1 desire, or an non-eating species which has 0

Whatever influence the price of corn may have on other commodities, it is neither so immediate nor so complete, as to make this kind of produce an exception to all others.

Smith implies that no such exception exists with regard to corn.

Superphysics Note

Smith laid no exception because he assumes all humans want to live.

In consequence, he does not shift the question from the exchangeable value of corn to its physical properties. And so he:

speaks with an unusual lack of precision
qualifies his positions by the expressions much, and in any considerable degree.

Superphysics Note

This is because to Smith, value is subjective. A precise valuation by Tom for a supercar might be totally junk to Harry. But regardless, they will both want to live.

The rise of price caused by a bounty, on its first establishment, is nominal and not real.

A rise of corn prices caused by an export bounty or a ban on corn importation cannot be less real than a rise of price caused by:

bad seasons
population increase
the rapid progress of commercial wealth, or
any other natural cause

Dr Smith’s argument, with its qualifications, be valid for the purpose for which it is advanced, it applies equally to an increased price occasioned by a natural demand.

Let us suppose that an unusually prosperous foreign commerce leads to:

an increase in corn demand
an increase in the price of corn

According to the principles of supply and demand, and the general principles of the Wealth of nations, such an increase in the price of corn would give a decided stimulus to agriculture.

More capital would be laid out on the land. This actually happened in Britain during the last 20 years.

But according to the specific principle of Smith on the real price of corn, however, agriculture would get no such stimulus because the price of labor and commodities would go up immediately.

The farmer and landlord might have gotten 75 shillings a quarter for their corn instead of 60.

Yet the farmer would not have been enabled to cultivate better, nor the landlord to live better.

Thus it would appear that:

agriculture is exempt from this principle which distributes the capital of a nation according to the varying profits of stock in different employments
no increase of price can, at any time or in any country, materially accelerate the growth of corn, or determine a greater quantity of capital to agriculture.*

Superphysics Note

Smith principle does not lead to what Malthus is imagining. The increase in economy will still increase investments in agriculture. But the humans will still eat the same amount of bread or grains. If I eat 2 cups of rice at each meal as a normal person, I will still eat 2 cups of rice as a rich person. The difference is that I will eat a more expensive kind of rice when I am richer and cheaper broken rice when I am poorer. So the increase in economy will cause an increase in the planting of expensive rice such as Jasmine or Basmati. This is why Smith’s corn valuation is the basis of the invisible hand which is based on the fact that the human stomach is limited and cannot expand infinitely to gobble up all the desires of the abstract mind

The actual facts contradict this reasoning.

Smith was led into this train of argument, from his habit of considering labour as the standard measure of value, and corn as the measure of labour.

But, that corn is a very inaccurate measure of labour as proven by the history of our own country.

Labour, compared with corn, has experienced very great and striking variations, from year to year, but from century to century and for ten, twenty, and thirty years together.

One of the most incontrovertible doctrines of political economy is that neither labour nor any other commodity can be an accurate measure of real value in exchange*.

Superphysics Note

This is precisely why Smith used grains as the measure of unchanging value because the absolute measure of real value is life.

Making corn regulate the prices of all commodities is to erect it as a standard measure of real value in exchange.

If so then we must either:

deny the truth of Dr Smith’s argument, or
acknowledge that a given quantity of corn will at all times and in all countries, purchase the same quantity of labour and of the necessaries and conveniences of life.*

Superphysics Note

Smith’s principle proposes this: that life today will be as important as life tomorrow and in other countries.

Adam Smith's Doctrine on the Real Price of Corn

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