Growing Toyotas, Manufacturing Soybeans; G. North

This fall he planted Toyotas. "We rotate the crops, of course. In fall, we plant Toyotas. In spring, it's Nissans. In summer, we usually plant Isuzus, mostly for ground cover. It works out well most years, al though a drought three summers ago wiped out half our Isuzus." When asked about models and colors, he says he's betting on red winter Toyotas. "Pretty hardy crop. Withstands cold weather better than the metallic blue vari ety. Good crop for Iowa. 'Course, if any thing comes of this global warming business, we may have to switch. No signs of it yet, though. " (NAGOYA, JAPAN)-Toshiro Uda, director of the Tanaka Soybean Works, is guardedly optimistic about prospects for soybean sales this year. "Demand remains high. But why not? This is Japan, after all. Our main concern is with supply. The whole industry has been adding plant capacity. The new robots have really streamlined production. "

Gary North is president of the Institute for Christian Economics. Mr. Uda pointed with obvious pride to the main floor of his spotlessly clean factory. Only three men were visible, sitting in front of computer screens, monitoring every as pect of the soybean production process, from the "just in time" deliveries at the front end of the factory to the robot controlled packaging as the newly canned beans headed to the-docking area. "Nothing else like it in the industry," he said. Who Buys What? These two news reports sound like some thing out of a bizarre science fiction short story about some future era where nano technology-manufacturing at the molecu lar level-has become a reality. Economi cally, however, both reports are the essence of a modern economy. Sometimes it takes a little surrealism to make economics clear to people. The farmer in Iowa who plants soybeans or any other crop aimed at the market has no intention of personally eating his crop certainly not soybeans. In the United States, soybeans are eaten mostly by house hold pets and certain health food devotees.

Most of the soybean crop is exported, and a significant portion winds up in Japan. The goal of farmer Jones is not to con30 sume soybeans. He plans to buy something else. He wants money. He will sell the crop to the highest bidder, but agricultural crops being what they are, a uniform price will confront all soybean farmers, adjusted for transportation costs and other minor differ ences. In the bidding war, the Japanese importers of soybeans usually win. They buy the lion's share of the crop. Soybean oil is used for many products. Fido and kitty get most of whatever remains. Although I find it difficult to imagine, I suppose the rest goes into soybean burgers. Similarly, the goal of Mr. Uda is not to drive a fleet of Toyotas. He plans to buy something else. He wants money. He will sell the Toyotas to the highest bidder, but car sales being what they are, a lot of non-price competition exists: models, col ors, and features. In the bidding war, the Americans will buy, if not the lion's share, then at least a good-sized black bear's share.

Taken as an individual, farmer Jones may or may not buy a Toyota or feed his house hold pets soybeans. Mr. Uda mayor may not eat more soybeans or buy a new Toyota this year. But taken as nations, a lot of Joneses will buy Toyotas, and a lot of Udas will buy soybeans. The economic question is: What is the least expensive way for the Joneses to buy their Toyotas, and for the Udas to buy their soybeans? Getting the Money to Buy To buy a Toyota produced in Japan, Mr. Jones will need some Japanese yen. To buy some soybeans, Mr. Uda will need some dollars. But neither Mr. Jones nor Mr. Uda normally handles the currency of the other nation. So, intermediaries in both countries (or maybe in a third country) intervene to make it possible for both Jones and Uda to buy what they want. They sell dollars to the Japanese importer who wants to import soybeans. They sell dollars for yen. They sell yen to the American importer who wants a shipment of Toyotas. They sell yen for dollars. Back and forth, back and forth: the currency traders are always in search of 31 a lower price for the currency they plan to buy next. The importers then sell their newly imported products to buyers in their respective nations.

How do the soybean farmers get the dollars to pay the importers of Toyotas? They grow soybeans. How do the Toyota manufacturers get the yen to buy the soy beans? They manufacture Toyotas. So far, so good. The Iowa farmer is uniquely equipped to grow soybeans. He has a tremendous ad vantage here. The Japanese manufacturer is not uniquely equipped to manufacture Toy otas. Land costs in Japan are high: too high for growing soybeans-low value per square foot-but not too high for manufacturing Toyotas. It would be a lot more expensive for the Iowa farmer to shift production to Japan than it would be for the _Toyota manufacturer to build a Toyota factory in Iowa. The economic reality is this: the soybeans will move from Iowa to Japan for as long as the high bidders for soybeans are in Japan. Meanwhile, Toyotas will move from Nagoya to America for as long as the higher bidders are in America and the overall costs of production plus export remain lower in Nagoya.

Giving a Good Account I would rather drive a Toyota than eat soybeans. There are Japanese who would rather dine on soybeans-presumably a great deal of soybeans-than drive a Toy ota. As always, there is no accounting for taste. There is, however, accounting for cost of production. Accountants on both sides of the Pacific Ocean are fluent in a strange and arcane language: double-entry bookkeeping. The discovery and development of double-entry accounting was one of the greatest discov eries of all time. It allows specialists in accounting to inform a producer regarding the success or failure of his efforts. The market provides the numbers: income vs. expenditures. The accountants inform the producers: "keep up the good work" vs.

32 THE FREEMAN • JANUARY 1993 "shut the whole thing down until you figure out a cheaper way." When the producers listen to their accountants, an amazing thing happens: soybeans get grown in Iowa, and Toyotas get built in Nagoya. Well, maybe this is not so amazing. But explaining to people how this happens is more difficult than you might imagine. Peo ple really do not understand the whole process. This is why politicians can fre quently persuade voters to erect barriers to imports. Politicians rarely campaign on a platform of "Let's pay more for the things we enjoy!" but they often campaign on a platform of "unfair competition. " They get elected, too. The Economists' Disadvantage Economists have discovered a way for drivers and diners to fulfill their respective desires with the least expenditure of money. It is called free trade. Each producer spe cializes in what he does best, that is, does with the least expenditure of scarce eco nomic resources. Each consumer is there fore able to take advantage of the cost effective production methods of the least wasteful producers. The trouble is, econo mists have not always been as successful in explaining this as the politicians have been in persuading voters to go along with tariff increases and import quotas. It is not easy to persuade voters in either country that Iowa farmers are really growing Toyotas, while Nagoya workers are really producing soybeans. It is not easy for most voters to grasp the fact that the laws of physics and biology are different from the laws of economics: specifically, the law of comparative advan tage.

The politician looks at the short run. "Look at all the jobs that these imports are destroying." The economist looks at the long run: "Look at all the choices each individual can make." Voters see unem ployed workers, or read about them. They have a lot more trouble relating their in creased number of affordable choices to the decrease of restraints on trade. People fre quently vote in terms of short-run issues, especially visible ones. So, the politician has long enjoyed an advantage over the econo mist in persuading people to support re straints on trade. It takes a very good economist to make the case for long-term personal advantage for many consumers vs. short-term advantages of reduced competi tion for specific unemployed workers. Adam Smith was a very good economist; he made a persuasive case. But not many people read Adam Smith these days. Not being Adam Smith, I have taken a shorter path to economic understanding: a bit of surrealism to make my point. So, I recommend that the next time you test drive a Toyota, think about that Iowa farmer and how hard he works to make your test drive economically possible. But remember: you are skipping the joys of eating several soy bean burgers in order to make your test drive possible. D Frank Chodorov W herever two boys swap tops for marbles, that is the market place. The simple barter is in terms of human happiness no different from a trade transaction involving banking operations, insurance, ships, railroads, wholesale and retail establishments; for in any case the effect and purpose of trade is to make up a lack of satisfactions. . . . In like manner, the Detroit worker who has helped to pile up a heap of automobiles in the warehouse is none the better off for his efforts until the product has been shipped to Brazil in exchange for his morning cup of coffee. Trade is nothing but the release of what one has in abundance in order to obtain some other thing he wants.

IDEAS ON LIBERTY $ PaulJohnson rescuesthe 19808 from the liberals Ronald Reagan was barely out of the office beforethe liberalsgot busy. The 80s are now remembered~ not as the longest period of growth in our nation's history, but as the sleazy "DecadeofGreed." Enter historianJohnson.In abrandnewfinal sectionthatcouldstandaloneas asmallbook, he puts the 80s into perspective: .. Two conservativesdominate the decade. How Reagan and Thatchermanaged the impossiblefeat in a liberalworld • EvangelicalChristianity,oftenpronounced dead, revivesand takes on liberalism • Desert51000: successor failure? .. Militanthomosexuals:howfarwilltheygo? .. The real secretsof the Japanesecomeback .. Brave new world? The major threat in Americanlife today - and tomorrow Reviewersraved over the earlieredition - becauseit's the historythey ENJOYED reading "Wide-rangingand quirky ... A latter day Mencken,Johnsonis witty,grittyand compulsively readable." -Foreign "Hiscentralthemesarethe bankruptcyof Affairs moral relativism,social engineering,and totalitarian regimes ... a fascinating , .......... , "Remarkable ... powerful, lively, com-book. Johnson's range is vast, his cita- / I"l \ pelling and provocative."- Times tions are impressive,and he has aknack Ow to LiterarySupplement(London) for the apposite quotation." - Library I this cr-get, I I Extraordinary." -AmericanSpectator Journal 880.. 'll'3S; "Marvelouslyincisiveand synthesizing." "A trUly distinguishedwork of history." \ "0,:1198 I -Commentary -Robert Nisbet, New York Times \ ~R~~e I ***********************************~~--~~**** How the Club Works ftl Every 4 weeks (13 times a year) you get a free copy of the Oub Bulletinwhich offersyou CONSERVATIVE _BOOKCWB the FeaturedSelectionplus a good choiceof Alternates-all of interestto conservatives. ON N Y 528* If you want the FeaturedSelection,do nothing; it will come automatically.* If you 15 OAKLANDAVENUE• HARRIS , . . 10 don't want the FeaturedSelection,or you do want an Alternate,indicateyour wishes on Please accept my membership in the Qub and send FREE and the handy card enclosed with your Bulletin and return it by the deadline date. * The postpaid the Revised, Updated Edition of Paul Johnson's $35 majority of Oub books will be offered at 11>-50010 discounts, plus a charge for shipping masterpiece, Modem Times. I agree to buy 3 additional booksand handling. * & soon as you buy and pay for 3 books at regular Oub prices, your membershipmay be ended at any time, either by you or by the Oub. * If you ever at regular Oub prices over the next 18 months. I also agree to receivea FeaturedSelectionwithouthavinghad 10 days to decideif you want it, you may the Qub rules spelled out in this coupon. F R E ·1 return it at Oub expensefor run credit. *Good service.No computers!*The Oubwill Name offer regular Superbargains,mostly at 70-~01o discounts plus shipping and handling.Superbargainsdo Nor count towardfulfillingyour Oub obligation,but do enableyou to Address _ buy fine books at giveaway prices. *Only one membershipper household. City State __Zip _ A REVIEWER'S NOTEBOOK GOVERNMENT RACKET by John Chamberlain I n the course of assembling material for his book, Government Racket: Washington Wastefrom A to Z (Bantam Books, 270 pp., $7.95 paperback), Martin Gross has had to have recourse to the twenty-six letters of the alphabet. It's all a manner of speaking, of course. Gross needs a double and triple alphabet. He has had to use the letter C at least a score of times (C for Consultants, C for Congressional Committees, C for Chief Executive, etc., etc.).