Adam Smith wrote in The Wealth of Nations: Once the division of labor in society was fully established, a man's own labor could satisfy only the smallest part of his desires. Most of his desires had to be satisfied by exchanging the surplus products of his labor that he could not consume for the products of other people's labor that he needed. Thus, everything depended on exchange for survival, or rather, to a certain extent, everyone could become a merchant.
Bounties were divided into exportation bounties and production bounties. Exportation bounties were paid to foreign merchants, while production bounties were issued to domestic producers.
Bounties were sometimes called subsidies, and tax rebates were sometimes called bounties as well. For example, if a foreign woman bought goods in Britain that the British government encouraged for export, she could receive a tax rebate when she left Britain, even if she was not a merchant by profession.
The purpose of exportation bounties was to make British goods cheaper when resold, thereby defeating competitors priced at roughly the same level. In theory, it seemed feasible. If two products both cost five francs, why would she not buy the cheaper one when she could receive a tax rebate?
The grain trade differed from other industries. In The Wealth of Nations, Adam Smith also recorded an implementation of the 1688 Corn Exportation Bounty Act. By ordinary reasoning, such bounties would encourage cultivation and, over the years, increase grain output, thus lowering grain prices in the domestic market. Yet exportation bounties not only failed to lower grain prices; they drove them higher.
Adam Smith believed that because the bounty had increased exports after the previous year's abundant harvest, the exports could not be made up for by the following year's poor harvest, thus raising food prices in