Farm Prices Are Made in Washington; D. Parrlberg

The only advice I can offer the now thoroughly confused Christian is that he avoid hasty judgment and that he think with his head as well as with his heart. He must learn what he can from positive economics and carefully examine precisely what values are imposed upon him by the fact that he is a Christian. In the meantime, he can draw some comfort from the knowl edge that the professional econo mists and the ministers of the Christian churches are but little less confused than he. ~ GREAT MYTHS OF AGRICULTURAL POLICY: NO.1 Reprinted from Successful Farming magazine, Augttst 1965. DON PAARLBERG THE ELEMENTof truth which gives this myth its appeal is the simple, observable fact that the govern ment can legislate and administer a price for wheat or cotton which is different from the price that would otherwise prevail in the market. In fact, it has done so. The price of wheat has been dropped, through Washington ac tion, from $2 to $1.40 per bushel.

To the degree that farm prices are Dr. Paarlberg is Hillenbrand Professor of Ag riculturalEconomics at Purdue University. made in Washington they are un made at the same address. The element of untrubh which makes the myth dangerous is the belief, implicit in the statement, that a government sympathetic to agriculture could establish any price it wished. It infers that Washington is responsible for \vhatever level of prosperity or dif ficulty agriculture is experiencing. This untruth is greater than the fragment of fact which the state ment contains.

1965 "FARM PRICES ARE MADE IN WASHINGTON" 17 If one accepts and repeats the myth that farm prices are made in Washington, he reveals his belief that decision-making has been transferred from the individual to his government and' that central ized authority has replaced the market system. In short, he has written off the competitive econ omy and replaced it, in his mind, \vith a regimented society. For if Washington is to take over the job of establishing the price, Washing ton n1ust also take over the jobs that price does. That is, Washing ton must regulate production, reg iment the marketing process, su pervise consumption, and take re sponsibility for the level of income. A more accurate statement is: "Prices of certain farm products are influenced, within limits, by legislation enacted in Washing ton." But what this statement gains in truth, it loses in simplic ity. As is so often true, the myth has more appeal than the fact.

What makes price? If prices are not made in Washington, how are they made? Supply and Demand To find out, you must know eco nomic lesson No. 1. It's so basic that if you understand it, all else in economics becomes comprehen sible. It concerns the laws of de mand, supply, and price. The law of demand is this: Other things equal, the quantity purchased will move in the oppo site direction from price. Thus, if the price is raised and other things remain the same, a smaller quan tity will be purchased. And in versely: People win clean out a grocer's steaks if he lowers them from 98¢ to 28¢ a pound. The law of supply is this: Other things equal, the quantity offered for sale will vary directly with the price. Thus, if the price of soy beans goes up and other things re main the same, you'll try to pro duce more and the supply will be larger. When supply and demand inter act in a competitive market, price becomes established to equalize the two. Supply equals demand and the market clears. There is no "surplus" or "shortage." The price may be high or low, depending upon the respective levels of de mand and supply.

If the price is low, the market is telling farmers to produce less and telling consumers to buy more. If the price'is high, the opposite signal is being given. This is the mechanism by which the people jointly determine how land and labor and capital should be used. It is a remarkably orderly process, and functions effectively for the most part. True, government may stimu late demand, as, for example, 18 THE FREEMAN December through Public Law 480. And it may retard supply by land retire ment programs. These operations may and do affect prices. But the range within which price may thus be manipulated is not as wide as many think. Unhappiness Prevails No one is completely happy with the market system. Farmers wish the price was higher. The stand ard definition of a fair price, as the farmer defines it, is "10 per cent more." Conversely, the consumer's definition of a fair price is "10 per cent less."

So the subject of prices is con troversial. It always has been, and it always will be, because produc ers and consumers contend. with one another. If the market is com petitive, they contend in the mar ket place. If the price is legislated, they contend in the halls of Con gress. If one says "farm prices are made in Washington," he is really saying that the competitive mar ket has disappeared and that we now have a government-made market. This is a gross exaggera tion. Prices of livestock, poultry, most fruits, and vegetables are made competitively in the market place. These products bring in roughly 50 per cent of the farm income. Commodities whose prices are, to a degree, "made in Washing ton" bring in only about half of the farm income. And even for those commodities whose price is "made in Washington," the limits within which Washington can set the price are rather narrow. An Administration and a Congress dedicated to high price supports has had to reduce support levels for tobacco, wheat, cotton, and others. The market forces are powerful.

But the myth persists. Like an old Greek myth, it is more a re flection of a state of mind than an accurate portrayal of the real world. • ©Meredith Publishing Company, 1965. All rights reserved. The Price of Pig The price of pig Is something big; Because its corn, you'll understand, Is high-priced, too; Because it grew Upon the high-priced farming land. If you'd know why That land is high, Consider this; its price is big Because it pays Thereon to raise The costly corn, the high-priced pig! Quoted in Economics of Enterprise by H. J. D A V E N PO R T 15. Remaking the Minds of Men CLARENCE B. CARSON In the third place, the administrator . .. will realize that public education is essentially education of the public: di1'ectly, through teachers and students in the school; indirectly, through communicating to others his own ideals and standards, inspiring others with the enthusiasm of himself and his staff for the function of intelligence and character in the transformation of society.