Farm Surplus Solution

November 30, 1959

In Newsweek of Dec. 19, 1955, encouraged by an open invitation from Secretary Benson, this department proposed a simple two-point farm program. In a book just published, The Great Farm Problem (Regnery. $5), Prof. William H. Peterson of New York University refers to this proposal sympathetically. But as it was not adopted, and as, in consequence, the farm surplus crisis has grown much worse, I venture to repeat my proposal with some additional details.

The first point may sound less startlingly novel than it did four years ago. This is that Congress stop all price guarantees and all promises of support-buying of any kind on any crop not yet planted.

At one stroke this would stop any further accumulation of farm surpluses. These “surpluses” are created by price supports, and by nothing else. When any product whatever is priced above the real market, there is bound to be an unsold surplus. The test of a free market price is precisely that it “clears the market.”

A score of other problems would also be solved by ending price supports. Farmers would cease to be encouraged to overplant, overfertilize, overproduce. Marginal farmers would be forced to turn to occupations where they would be more productive. All need for government acreage controls or marketing quotas, with their huge attendant bureaucracy, would end. We would cease to impair our foreign economic relations.

SELL AT A BARGAIN

The one problem that this would not solve is the huge farm surpluses in which the government has already invested $9 billion. This brings us to the second point of my program. The government should sell its existing surpluses back to the farmers themselves.

Each farmer would be allowed to buy, say, an amount proportionate to that of his own relative production of a surplus commodity in preceding years. To assure sale, the government would set a price both below the existing free world price and below the average farm-cost of production. Each farmer would be free to dispose of what he bought as he saw fit. He could immediately sell through the speculative markets, or store at his own expense. The difference between what he paid and what he could sell for would assure him a profit-roughly equal, say, to what he would have made by planting a new crop. His ability to buy the commodity at less than his cost of production would discourage him from planting a new crop and adding to the surplus again.

NO DOWN PAYMENT

The plan could be set up so that the purchasing farmer would not even need cash. The government could give him a negotiable certificate, say, entitling either him or the bearer to buy his allotted quota at the specified price. Suppose the world price of wheat was $1.50, and Farmer Jones was allotted a certificate entitling him to buy from the government 10,000 bushels at $1 a bushel. Jones could simply sell this “right” on the market for, say, $5,000.

It is true that this solution would not instantly bring economic paradise. Individual farmers would for a year or two be paid, in effect, for not raising crops in which surpluses existed. Fertilizer and farm-machinery interests might be temporarily hurt. Some farm labor would have to spend a year or two doing something else. The government would take a big loss (on paper) in selling the surpluses back to the farmers. But most of this loss is inevitable anyway. At least the government would get back, instead of paying out, billions in real cash. If such a proposal had been adopted four or five years ago, some $20 billion might have been saved.

The farm surplus crisis has reached a point where no timid compromise program can avert collapse. Secretary Benson’s new proposal for support payments based on average market prices in the preceding three years is of course not as preposterous as the present “parity” formula based on the years 1910–14. But any support price whatever above the market must simply pile up new surpluses. The government already has $9 billion tied up in surpluses, including a two and a half year supply of wheat. It is costing $1.5 million a day just to store the stuff. How insane can our policy get?