Adam Smith is generally regarded as the Father of Economics, even though many wrote on economic topics before him. Was he also the Father of Wine Economics?
The case for Smith’s paternity is made in the most obvious (and least likely) of places, The Wealth of Nation (1776), his most famous work. It is the obvious source because Smith wrote about everything in Wealth of Nations: history, theory, policy, even provided practical advice. It is the least likely place to look, however, because it is so little read (really read, if you know what I mean) and because people only remember the book for two thing: the Invisible Hand and the Pin Factory example of the division of labor. But there is a lot more to be found, including an early treatise on wine economics.
Adam Smith wrote a good deal about wine. This was partly because he traveled in France and learned about wine markets first hand. But it was also a fact that Britain was for centuries a wine-drinking country, as John Nye’s fine book explains, just as it is so today, with a practical interest in wine market concerns.
The foundation of Smith’s wine economics is laid out early in Wealth of Nations, Book One, Chapter 11: Of the Rent of Land. Here Smith tries to explain why some kinds of land earn more than other lands. Land suitable for viticulture earns higher rent, Smith said, and has long done so.
That the vineyard, when properly planted and brought to perfection, was the most valuable part of the farm, seems to have been an undoubted maxim in the ancient agriculture as it is in the modern through all the wine countries
But viticultural profits were constantly threatened, Smith argued. Not by nature, although this could cause bad crops, and not by high taxes, although he argued against them. The chief threat (or perceived threat) to viticultural earnings was expansion to new lands. Old vineyards, as he called them, were threatened by New Vineyards — and would seek protection from them or to prevent their development. This section reads very well today if you change Old Vineyards to Old World wine and New Vineyards to New World Wine. Certainly New World Wines (and their vineyard, cellar and marketing practices) are seen by many Old World producers as a threat to their livelihood. Adam Smith understood why Old would seek by any means to prevent development of the New. You don’t have to have a Ph.D. in economics to already know that he did not approve.
Smith wrote about terroir, too. I can’t really say that Adam Smith invented terroir, the idea of a special taste of place that winemakers strive for, but I can say that he understood its economic value. Smith wrote that
The vine is more affected by the difference in soils than any other fruit tree. From some it derives a flavour which no culture or management can equal, it is supposed, upon any other. This flavour, real or imaginary, is sometimes peculiar to the produce of a few vineyards; sometimes it extends through the greater part of a small district and sometimes through a considerable part of a large province.
I note with interest that Smith recognized terroir and doubted the reality of its existence in the same sentence (“real or imagined”). It isn’t terroir that really matters to a wine economist, I suppose, it is only that people think there is terroir. Smith wrote at length about the economics of these special wines and, because of their limited quantities, the premium prices they could command. Any modern winemaker, upon reading this section, would immediately try to create an A.V.A. to cash in on the possibility of terroir by limiting supply.
The whole quantity of such wines that is brought to market falls short of the effectual demand, or the demand of those who would be willing to pay … The whole quantity, therefore, can be disposed of to those who are willing to pay more, which necessarily raises the price above that of common wine.
A small part of this higher price … is sufficient to pay the wages of the extraordinary wages bestowed upon their cultivation, and the profits of the extraordinary stock which puts this labor in motion.
Smith’s treatment of wine is not complete – there is no discussion of cork versus screw-cap, for example, and no treatment of en primeur wine futures, but what he does say shows pretty clearly how well he understood the political economy of wine.
So, to answer the question that started this entry, is Adam Smith the Father of Wine Economics? Probably not, is my answer. His analysis in Wealth of Nations is certainly very good, but I am pretty sure that earlier economists did not ignore the wine market. The reason: because wine was so very important to economy and society from the earliest days.