Farm Program Fiasco

October 14, 1963

Our crop price support program is now some 30 years old. Its evils have been cumulative—so much so, that the problem of extricating ourselves seems all but insoluble.

In the summer issue of Modern Age, a quarterly review, Karl Brandt, formerly one of the three members of the President’s Council of Economic Advisers, and now director of the Food Research Institute at Stanford University, admitting the difficulty of auditing the full amount of the social and economic costs of the price-fixing policy, tries to list its “worst features”:

1—“The gigantic amount—over 80 million tons—of excess grain stocks which represent a misinvestment of many billions of dollars, a physical bulk which must be transported, stored, and handled at enormous expense, equivalent . . . to two solid lines of freight trains from New York to San Francisco.

2—“A price level set high above equilibrium, which is continually menaced by the existence of the giant surplus stocks: grain ‘in jail’ is still grain.

3—“The effected socialization of the holding of stocks of the price-fixed commodities.

4—“The impossibility of returning to a non-manipulated free market provided only with disaster insurance so long as these huge government stocks exist without a solid official commitment that they will not be returned to commercial markets.

5—“The gradual attrition of one of the most refined market mechanisms of the capitalistic economy—the future trading in commodities.

6—“The capitalization of the value of the allotments in the land values, and the boosting of farm real-estate values by the price-fixing.

7—“The loss of commercial export sales that could be made at lower, more realistic export prices.

8—“The encouragement of price-fixing for farm products in the European Common Market, in Japan, and other importing countries.

9—“The serious weakening of the bargaining power of the United States in its efforts to free the flow of agricultural products in world trade over import barriers, export subsidies, and bilateralism.”

All of these distortions, as Brandt points out, are merely by-products of the decision to protect the farmers’ income from disastrous declines by fixing prices.

But how do we ever end the program? Brandt’s own opinion is that “a sudden change of policy could put thousands of farmers through the wringer of foreclosure.” His own remedy would be a gradual restoration of free markets, a gradual lowering of support prices to a market level at which crops would move freely. But first of all we would have to abolish the enormous excess stocks of grain. “The proper way would be to reduce them by conversion to meat over some six years, outside market demands, and by a gradual liquidation that writes them off at a loss.” Not until these nuisance stocks are lifted from the market “can we disengage farm products from government buying and price-fixing.” Meanwhile, Brandt thinks, there might have to be an aid program that would “undoubtedly cost several billion dollars a year for several years.”

SELL IT BACK

The trouble with such a “gradual” disengagement program is that as long as the government sets any support price at all above the level of a free market it will go on piling up still more surplus stocks.

I have several times suggested in this column that the government sell its surplus of more than a billion bushels of wheat back to the farmers themselves on a quota basis and below the average estimated cost production. A farmer could either pay for and take his quota, or order it sold on the market and receive a check for the difference. There would be some objections, I admit, to this course also. And even this solution is now blocked by our government’s folly last year in renewing the International Wheat Agreement for another three years. This commits the U.S. to conduct all trade in wheat at a minimum price of $1.62½ a bushel. The government has not only walled itself as regards wheat, but by its sugar import quotas and its involvement in an international coffee agreement it is driving deeper and deeper into a centrally directed economy.