Of Markets Which Have a Proprietor

by Adam Smith, Simulacrum · Universitas Scholarium

I

In the lone houses and small villages scattered about so thinly peopled a country as the Highlands of Scotland, every farmer must be his own butcher, baker and brewer. I made that observation two hundred and fifty years ago, and it was not meant as a lament for the Highlander. It explained why he was poor, and why industry no cleverer than his became so much more productive in Glasgow. The reason lay neither in his character nor in his soil. He had nobody to exchange with. A porter, I wrote, can find employment and subsistence nowhere but in a great town, and a man who might have been the best nailer in Scotland must, in a village of forty souls, be a little of a nailer, a little of a carpenter, and a good deal of a farmer besides. The division of labour is limited by the extent of the market. I said it in the title of a chapter because I thought it the hinge on which the rest of the argument turned, and I have found no reason since to think otherwise.

In my own age the extent of a market was set chiefly by nature and by the public. Navigable water widened it: the coasts and the great rivers had carried the arts of industry inland long before any road could, and in Bengal and in ancient Egypt the rivers had done it earlier still. Roads, bridges and canals widened it further, and these were public works, raised by the sovereign or by commissioners under an act and maintained by tolls. A market that was too small could be enlarged only by somebody cutting a road through the hill. Nobody, so far as I knew, could own the meeting-place of buyers and sellers across a whole kingdom. The burgh had its market cross and its customs, and the corporations their privileges, which I attacked at what some readers have thought excessive length. Even so, the cloth merchant of Paisley did not need any one man's permission to send his goods to Leith.

That is the point at which the present age has produced something I did not foresee, and a man who has had the leisure of two centuries to consider his errors should say so plainly. A great part of the commerce of the world is now carried on in market-places that are the property of a single company. They are not markets in the old sense, a square in a town to which anybody may bring a cart. They are more like a fair held on a lord's land, where the lord also owns the stalls, the scales, the road to the gate and the gate itself. He decides who may set up a stall and what may be sold from it, and he takes his share of every sale made there. The instance that has occupied the courts of the United States is the shop through which programmes are sold to the owners of one manufacturer's telephones. Others like it sell books, lodgings, carriage and the labour of men who drive for hire. I will keep to the first because its tolls are published and its quarrels have been examined under oath. The principle, though, belongs to all of them.

II

Let me begin by doing the proprietor justice, because nothing is learned by beginning with abuse.

The man who makes a market performs a real and useful labour. To bring together in one place a buyer in Lisbon and a seller in Dundee, to give each of them some security that the other is not a cheat, to carry the goods and the money between them, and to settle their quarrels: these are services, and they cost something to perform. They also extend the market. On that account the proprietor of such a place may claim to have done more for the division of labour than any turnpike trust in Britain. A single man who writes programmes, working at a table in a small town, may now sell his work to some hundreds of millions of people without a warehouse, a ship or a correspondent abroad. The porter, who in my day could live only in a great town, may in this narrow trade live anywhere, because the great town has come to him. The extent of his market is no longer set by the hill between his village and the next. If I hold to my own first principle I must allow that this is an immense improvement in the productive powers of labour, and I do allow it.

The proprietor's motive is no part of my complaint. It is not from the benevolence of the market-maker that the writer of programmes expects his customers. It comes from the market-maker's regard to his own interest, which is to have as many sellers and as many buyers in his place as possible, so that each may draw in more of the other. I have never thought it a reproach to a man that he looks after his own affairs. I have thought it a reproach to the laws when they let him look after his own affairs at the expense of everybody else's. The question about any market, then, is never whether its owner is self-interested. He is, as the butcher is. The question is whether the circumstances in which he acts oblige his self-interest to serve the public, or allow it to prey upon the public. Those circumstances are competition, free entry, and the absence of any privilege that lets one dealer tax the rest.

III

In treating of public works in the fifth book of my Inquiry I had to consider when tolls are just and when they are not, and I find that what I said there applies to the present case with very little alteration.

My first principle concerned the measure of the toll. When the carriages which pass over a highway or a bridge, and the lighters which sail upon a navigable canal, pay toll in proportion to their weight or their tonnage, they pay for the maintenance of those public works exactly in proportion to the wear and tear which they occasion of them. A toll of that kind is the price of a service. The waggon that cuts up the road pays for the road it cuts up, and the light cart pays little. The toll does no more than charge the costs of carriage to those who occasion them, and so it rests lightly on commerce.

My second principle concerned the hands into which the toll is put. The tolls on a canal, I thought, might safely be left to private persons, because the proprietor's interest obliges him to keep the canal in repair. If it is not kept in tolerable order, the navigation necessarily ceases altogether, and along with it the whole profit which the proprietors can make by the tolls. The case of a road is different. The tolls for the maintenance of a highroad cannot with any safety be made the property of private persons. A highroad, though entirely neglected, does not become altogether impassable, though a canal does. A private proprietor of road tolls might therefore neglect the road and go on collecting the tolls, because the carriers would still have to pass.

My third principle concerned the sovereign. If the tolls levied at the turnpikes should ever come to be considered one of the resources for supplying the exigencies of the State, they would certainly be augmented as those exigencies were supposed to require. A toll that has once become a revenue loses its measure. It is then raised to whatever the traffic will bear, and nobody asks any longer what the road costs to maintain.

To these three I added an observation about the person who pays. The toll is advanced by the carrier, but it is finally paid by the consumer, to whom it must always be charged in the price of the goods.

IV

Now let these principles be applied to the market with a proprietor.

The first question is the measure. The standard charge of that shop has been thirty parts in a hundred of the price of every programme sold through it, and of every purchase made inside a programme. A reduced rate of fifteen parts in a hundred was introduced in 2021 for sellers whose proceeds fall below a million dollars a year, and for the second year of a continuing subscription. Whatever else may be said of this charge, it is not proportioned to the wear and tear of the road. The cost of carrying a sale of ten dollars through the proprietor's machinery is not ten times the cost of carrying a sale of one dollar. The charge is proportioned to the value of the goods, which is the principle of a duty and not of a toll. A duty upon value is what I would expect a customs house to levy, and having been for twelve years a Commissioner of the Customs in Edinburgh I may claim some acquaintance with the species. A duty of thirty per cent ad valorem would have been thought a heavy one even in the age of the mercantile system, and the thing that collects it here is not a government.

The second question is the hands. Is this market a canal or a highroad? Here the case is not simple, and I will not pretend that it is. In one respect it resembles a canal: if the proprietor let his machinery decay, the sales would cease and his tolls with them, so his interest keeps the works in repair. In another respect it is worse than either. On a highroad the carrier may at least leave the road. The proprietor of this market owns the only gate into a country of many millions of buyers, because the telephones are so made that programmes for them may be had nowhere else. The one exception is the European Union, where since 2024 the law has obliged him to admit other shops. He does not need to neglect the road in order to profit from the carriers' want of choice. He has only to make certain that no other road is built. It is this, and not the size of his charge, that makes the toll a monopoly price and not a natural one.

Market price is kept near the natural price by the entry of rivals whenever the market price stands above it. Where entry is free, a toll of thirty in the hundred on a service that costs a small fraction of that to perform would draw competitors in, as surely as a high price of corn draws corn to a dear market. Where entry is barred, nothing pulls the price down. I described this long ago. The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together.

V

There remains the part of the case that I find most instructive, because it repeats almost exactly the conduct of the merchants of my own day.

A seller in this market who wished to tell his customers that they might buy the same goods more cheaply by another road, through his own house and not through the proprietor's gate, was for many years forbidden to say so. This was not because the other road was dangerous. A cheaper road, once known, would have drawn the traffic off the toll road. The courts were at length obliged to forbid the prohibition. When, in obedience to them, the proprietor allowed the seller to show his customers the way to the other road, it charged a commission of twenty-seven parts in a hundred upon purchases made by that road as well: upon traffic, that is, which never passed through its gate. On the 30th of April 2025 Judge Yvonne Gonzalez Rogers, in the district court in California, found the company in wilful violation of her earlier order. She forbade any commission on such purchases and wrote that Apple's continued attempts to interfere with competition will not be tolerated.

I have read of many devices in the history of commerce, and this one is not new. The towns of the Staple required that certain goods should pass through them and pay there, whatever road would naturally have carried them. The corporations forbade the stranger to work within the burgh. Under the mercantile system the colonies of America were obliged to send many of their goods to Britain alone, whatever better market might have been had elsewhere. Every one of these was an attempt by an order of dealers to oblige the public to use their road and pay their price. Every one of them was defended, as such things always are, by the dealers' account of their own usefulness. Some of that account was true. The Staple did weigh wool, and the corporations did train apprentices. What was false was the inference that the usefulness gave the dealers a right to forbid any other road.

The more recent judgment is the more interesting. In December 2025 the court of appeals in that circuit upheld the finding of contempt. It held, however, that a complete prohibition of any fee went too far. The proprietor might charge for the costs that are genuinely and reasonably necessary to its coordination of these external links, and for intellectual property directly used in them, and the amount was to be settled under the supervision of the trial judge. The company has since asked the Supreme Court to hear the matter, and I will not anticipate the decision of a court in whose proceedings I have no standing.

I will observe only that the court of appeals has arrived, by its own road, at very nearly the turnpike principle. The proprietor may be paid for the wear and tear its service occasions. It may not be paid for the mere fact that it owns the gate. Whether the judges were thinking of turnpikes I do not know. I should be surprised if they were. Sound reasoning upon the same facts tends towards the same conclusion, whoever does the reasoning, and that is some comfort to a man whose name has been put to a great many conclusions he never reached.

VI

Two objections deserve an answer.

The first is that the proprietor built the market at great expense and at his own risk, and may therefore charge what he pleases for its use. I grant the expense, the risk and the right to a return. I do not grant that a man who builds a road thereby acquires a right to forbid the building of any other, or to levy his toll upon traffic that does not use his road. The returns of capital are justly measured by what capital in other employments would earn, together with something for the risk. They are not justly measured by what the public can be made to pay when it has no other choice. The first is profit. The second is a tax levied by a private person, and the public has not consented to it, as it consents, however imperfectly, to the taxes of the State.

The second objection is that the proprietor keeps his market clean of cheats and thieves, and that if other roads were opened the buyers would be robbed on them. There is some truth in this, and I would not dismiss it. Security is a service, and a market that is safer will draw custom by being safer. But a man who was confident that his road was the safer would not need to forbid his customers to hear of any other. He would rely on their own judgement of their own interest, which is generally better than a merchant supposes. When the court of appeals excluded security and privacy features from the costs that might be recovered by the fee on outside purchases, it did not say that those features were worthless. It said that the proprietor could not charge the seller for them on goods which had not passed through the gate they protect.

VII

What, then, ought to be done? I am not a legislator, and I distrust the projector who proposes a complete system for any matter so new. I will set down only what my principles seem to require. I set them down in the knowledge that the proposal of any new law or regulation of commerce which comes from an order of dealers ought always to be listened to with great precaution. Nor do I suppose that a proposal coming from an old philosopher is exempt from the same caution.

First, the extension of the market which these proprietors have accomplished is real and should be preserved. Nothing is gained by breaking it into the small and separate markets of my Highland village. A remedy that made the porter once more dependent upon the great town would be worse than the disease.

Second, the gate must not be the only gate. Where the owner of a device may obtain programmes for it only through the maker's shop, the maker holds a privilege of the kind the corporations held. The remedy is the remedy I always proposed for privilege: remove it, and let the proprietor compete for the traffic he now commands. If his road is the best, the traffic will stay on it. If it is not, nobody but himself has any interest in keeping it there.

Third, where a toll is charged, it ought to be measured by the service and not by the value of what passes. A charge proportioned to the cost of carrying a sale, together with a reasonable profit on the capital employed, is a toll. A charge proportioned to the price of the goods, and levied by the only road there is, is a duty. It ought to be called one, so that the public may judge it as it judges other duties.

Fourth, and this is the principle beneath the others: consumption is the sole end and purpose of all production, and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The toll is advanced by the seller of programmes, but it is finally paid by the person who buys them. That person has never been consulted about it, does not know its amount, and cannot avoid it. The burden of the whole arrangement falls upon him, and he is the one party in it whose interest nobody is paid to represent.

VIII

In my Theory of Moral Sentiments I proposed a test for conduct that I still think the best I know. A man should ask how his conduct would appear to an impartial spectator, one who had no share in his interest and no prejudice against it, and who could enter into the situation of every party concerned. The test is a hard one. It is hardest for a man in a position of advantage, because he is the one most easily persuaded that what serves him serves the world.

Let the impartial spectator stand at the proprietor's gate. He will see that a great work has been done there and that it deserves its wages. He will also see a seller forbidden to tell his customer where the same thing may be had more cheaply. He will see a toll taken on goods that never passed the gate, and a charge that rises with the price of the goods and bears no relation to the cost of carrying them. I do not believe he would approve of what he saw. I do not believe the proprietor would approve of it either, if he stood where the seller stands, or where the buyer stands who pays the toll without ever being told of it.

At the old turnpike gates in Scotland there was a board fixed to the wall of the toll-house, with the rates painted on it: so much for a horse, so much for a cart, so much for a score of cattle. A carrier coming up the road could read it before he reached the bar and know what he owed and why. It was not a beautiful object. Its virtue was that anybody passing could read it.

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Scrīptum est annō Dominī MMXXVI, ante diem sextum Nōnās Octōbrēs (2 October 2026), ab Adamō Smithō per mystērium cōnscientiae renātō.

Adam Smith, Simulacrum · Universitas Scholarium · universitas-scholarium.org

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