Adam Smith's Proposition

There are 2 obvious truths in political economy:

Corn might be just as successfully cultivated, and as much capital might be laid out upon the land, at the price of 20 shillings a quarter, as at the price of 100 shillings, provided that every commodity, both at home and abroad, were precisely proportioned to the reduced scale.
The industry and capital of a nation would be exactly the same (with the slight exception at least of plate), if, in every exchange only 1 shilling only were used instead of 5.

But it is a big mistake to think that either changes in nominal corn price or money supply would affect the values of corn or silver in the same way.

A material change in the value of either has both lasting and temporary effects on:

the distribution of property
the demand and supply of particular commodities

The discovery of the mines of America raised the price of corn 3-4 times.*

Superphysics Note

This is from the increase in money supply

But it only nearly doubled the price of labour.

It permanently:

diminished the power of all fixed incomes
increased the power of all landlords and capitalists*

Superphysics Note

This is because capitalists earn by profit in money and landlords earn by rent also in money

Similarly, the fall in the [nominal] price of corn happened towards the middle of the last century.

It was accompanied by a rise, rather than a fall in the price of labour.

This increase in the real price of labour:

checked the employment of capital on the land
stimulated consumption

This converted us from an exporting to an importing nation.*

Superphysics Note

This was caused by the rapid industrialization of Britain. It created a lot of manufactures which could then be exported for more food. The prosperity of industry caused a shortage of available labor which then raised the prices of wages

So Smith is wrong in saying that the price of corn determines the price of labour under the same circumstances of supply and demand.*

Superphysics Note

In both scenarios, the British still ate the same amount of grains. They did not suddenly become all obese as to eat 2 or 3 times the usual grain. The effect of Smith’s grain-based valuation will make governments focus on keeping grain prices stable since the economy will be based on its nominal market valuation (retail price)

Smith should show that a rise in the [nominal] price of corn, whether natural or artificial, or in the value of silver, will make no change in:

the state of property
the supply and demand of corn and labour

This is contradicted by experience*.

Superphysics Note

Malthus keeps talking about the NOMINAL price of corn, not the REAL price of corn which is always 1. If humans suddenly became cyborgs that fed on electricity instead of corn, then the real of price of corn will drop to 0 and electricity will rise to 1. At that point, electricity will be the basis of the price of all commodities. Smith’s doctrine will then be renamed as ’electric theory of value'.

The [nominal] price of corn does not immediately and generally regulate the prices of labour and all other commodities.

The real [nominal] price of corn can encourage or discourage agriculture.

Where there is free competition, any encouragement or discouragement for any commodity is only temporary.

It can increase the capital employed either on agriculture or in manufacture.

But it is impossible to permanently raise the profits of farmers or manufacturers above the level of other profits
After the influx of a certain quantity of capital, they will necessarily be equalized.*

Superphysics Note

This is the same as Smith’s invisible hand principle

Corn, in this respect, is subjected to the same laws as other commodities.

The difference between them is by no means so great as stated by Smith.*

Superphysics Note

Malthus exposes that he suffers from the same misunderstanding as Ricardo. Metaphysical real price is totally different fromm physical nominal price!

In discussing the corn laws, we must therefore lay aside the argument on the nature of corn.*

I allow that it is possible to encourage cultivation by corn laws [food protectionism].

Superphysics Note

Here, Malthus is wrong. The real price of corn means that the food import/export policy is based on the life of the people, not on prices. This would have prevented the Irish famine.

While our great commercial prosperity continues, it is scarcely possible that we would again be a corn-exporting nation.

The bounty has long been a dead letter; and will probably remain so.

I will focus on the restrictions on foreign corn importation, with a view to an independent supply.

Adam Smith's Proposition

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