Wheat and World Trade
APRIL 01, 1956 by PAUL DE HERESY
Mr. Paul de Heresy, economist and former member of the Wheat Advisory Committee, London, is the author of World Wheat Planning. Oxford University Press, 1940.
Though agriculture is the very foundation of all human activity, it constitutes only one part of man’s economic life. It should therefore be brought into conformity with the general economic system. The question is whether this system should be based on the free decisions of private property owners, engaged in competitive enterprise, or on public ownership of the means of production and distribution and in consequence, on central planning and price-fixing.
The American farm policy, with its parity prices, its legally enforced restriction of acreage, and, as it is now proposed, its payment for crops not grown—that is, for acreage left fallow—does not provide a true solution. The evil results of this unprincipled policy are already manifest.
Though the farmers of Europe and of the United States are heavily subsidized, yet they bitterly complain that their incomes are steadily diminishing. Meanwhile, food prices are everywhere rising. Small wonder that the taxpayer complains that he must both provide for high agricultural subsidies and pay high food prices. Coming presidential elections in the United States will be contested on the agricultural issue. Other countries are confronted with similar problems.
An important element, not only in agriculture but in the general economy of the world, is the price of wheat; for it decisively influences the prices of other grains, which in turn influence those of meat and of many other foodstuffs, and these ultimately determine the agricultural price-level itself.
There are commodities, like oil and cotton, which enter into international trade in larger quantities than wheat; but none of them has so powerful an impact as wheat on general economic and social conditions.
The United States and Canada apprehensively harvested their grain crops of 1955, which were abundant at a time when the accumulated surpluses in North America were larger than ever before. These surpluses would never have accumulated if planning governments had not interfered with free and open markets and maintained arbitrary prices.
Much of that governmental interference with respect to wheat marketing has been concentrated under the International Wheat Agreement. This is a kind of many-sided treaty between national governments representing net exporters and net importers of wheat. The theory was that these nations could fix a price that would please everyone. But in practice, if the fixed price is too high the importers will not accept delivery, and if too low the exporters will not deliver. And the result is that wheat is not moving under this controlled agreement.
The most formidable monopoly in the world is that of the principal wheat-exporting countries, which maintain artificially high prices for wheat and, through its effect on other farm prices, for all other foodstuffs.
The traditional exporting countries now hold surplus wheat in store corresponding to two years import requirements of the whole world. And traditional wheat importing countries still prefer, in spite of their high costs of production, to grow as much wheat as they can. Productive resources are thus being devoted to wheat production, which might be better utilized for other purposes.
The present world wheat situation affords a striking proof of the impotence of the Agreement, from which the United Kingdom wisely holds aloof. It is to be hoped that its government will, as a matter of principle, stand firm against all pressure to accede to the Agreement which expires in July 1956.
If the Americans were not to interfere with farm prices—if they were to allow the varying pressure of supply and demand to effect the reciprocal adjustment of pricesfood throughout the world would in all probability become less expensive than it now is. Nobody would be so ungrateful as to impugn the incomparable generosity of the United States; but a sound American agricultural policy would be of greater value to the world than all their loans and gifts.
Since the United Kingdom does not export foodstuffs, its agricultural policy has little influence on world food prices; but the competitive position of its industry would be improved if it were to buy all its food from the cheapest source. Moreover, the economic policies of the United Kingdom and the United States are closely watched and are often imitated by other countries.
In the United Kingdom there are about one million acres where the composition of the soil and the incidence of the rainfall are such that wheat of fairly good quality can be grown at a competitive cost. But the present policy of sowing wheat on two million acres makes it impossible to establish a price satisfactory alike for the farmer and the consumer. The price for millable wheat received by the British farmer averages at present about $2.25 a bushel for wheat which is being sold to the millers at $1.57 a bushel. A subsidy of 68¢ a bushel has to be met out of the pocket of the British taxpayer.
Meanwhile, United States taxpayers are subsidizing wheat exports at a rate varying between 44¢ and 70¢ a bushel, and are paying a storage bill of $1,000,000 a day on wheat and other farm products arbitrarily withheld from the channels of trade.
Suppose that the total world requirement could be satisfied with wheat costing not more than say, $1.40 a bushel to produce. In this case, if economic freedom prevails, most individual farmers, wherever they may farm, whose cost of production is higher than $1.40,would go out of wheat-production—in any case, out of wheat export. Quality and distance also would have some effect on prices; but the average world wheat price could then be neither much lower nor much higher than $1.40 a bushel.
The enemies of economic freedom contend that the prices of farm products, if not fixed, are subject to violent fluctuations. But there is no reason to assume that, if economic freedom were to prevail, either world demand or world supply in the principal farm products would vary much from year to year. Consequently, the prices of these products would not vary much either.
It should be borne in mind that the average world yield per acre of those crops which are grown in all parts of the world hardly varies, and that, in consequence, their total volume almost entirely depends on their total acreage. The smaller the territory investigated, the larger the variations in yield; the larger the territory investigated, the smaller the variations in yield.
The problem of wheat, and indeed of all major world crops, can be solved internationally on the basis of world-wide free trade. Market forces on the one hand and modern transport on the other could succeed in distributing all products throughout the world, especially if the poorer countries, thanks to a more liberal policy in international trade and investments, will take the opportunity of exporting their own products and thus of acquiring the purchasing power necessary to import foodstuffs and other goods from abroad.
If excess or scarcity is to be avoided and prices are to be neither too high nor too low, nothing but supply and demand should regulate production and prices. If this policy is to succeed, it will be necessary that governments refrain from blocking the channels of national and international competition.
In the long run, the choice must be made between economic competition and dictation. There can be no doubt which of the two systems would lead to a better future for mankind. But if the competitive system—in other words, private capitalism—is to prevail, the relations of all prices of all commodities to each other, demonstrating the impact of peaceful competitive forces, must be left to operate without restraint. These price relations are far too important to be left to the whims of sectional interest or even of national governments. They should depend on the voluntary market decisions of all consumers and all producers of all commodities throughout the world.
Who—individual committee, or government would dare to suggest that he or they can judge better than the totality of producers and consumers what can and should be produced? And who would dare to judge not only what the people wish to consume, but also the measure of sacrifice that they are willing and able to make for acquiring some of these commodities in preference to others?
Those who, by subsidizing single groups of producers, throw the quantitative and qualitative production of goods out of balance and keep it so; those who, aided by tariffs and import licenses, discriminate against goods according to their origin; those who, desirous of protecting their home producers, resort to the discreditable expedient of raising tariffs and import quotas, thus weakening the urge to greater efficiency as a means of lower prices; those who reject the cheapest tenders on the mere ground that they are submitted by foreign contractors; those who impede the movement of capital and labor; and those who, protected by international commodity agreements, maintain prices above or below their economic level and force supplies into artificial channels, thus preventing the consumer from buying in the cheapest markets—all are responsible for dearness in general and for dear food in particular.
The control of prices of agricultural products, and indeed of any product, is not only harmful in its quantitative effects, but also inconsistent with the peacetime activities of democratic nations. For the free and open market provides an international exchange with unlimited potentialities for human progress. Prices thus maintained, raised, or lowered regulate both production and consumption. Free and open market prices express individual preferences—in sharp contrast to the controlled production and distribution of the dictatorial system.
Survival of the capitalist system depends on vigorous competition both in production and in marketing; for this is the only way to produce goods of the highest qualities at the lowest costs and to sell them at the lowest prices.
This policy can be fulfilled only by promoting a free world market, convertible currencies, the suppression of monopolies, and the conduct of all trade by independent merchants whose experience and competence present a reassuring contrast to the ineptitude of public functionaries unwisely vested with mercantile powers.
1880 Henry Louis Mencken 1956
The average man, whatever his errors otherwise, at least sees clearly that government is something lying outside him and outside the generality of his fellow men—that it is a separate, independent and often hostile power, only partly under his control, and capable of doing him great harm. In his romantic moments, he may think of it as a benevolent father or even as a sort of jinn or god, but he never thinks of it as part of himself. In time of trouble he looks to it to perform miracles for his benefit; at other times he sees it as an enemy with which he must do constant battle.
From A Mencken Chrestomathy