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SCI LIBRARY

Fixing the Price of Wheat

Benjamin W. Burger



[Reprinted from Land and Freedom, May-June, 1933]


It has just cost the American people some 184 million dollars to learn two simple economic truths. First, that you cannot fix the domestic price of any commodity which is produced by the entire world; secondly, that the Law of Supply and Demand is still working.

The purpose of the Federal Farm Board Act passed in 1929 was to "peg" the price of wheat and certain other commodities so that the American farmer could be guaranteed "reasonable" profits. The Farm Board, during its stormy career, purchased about 908 million bushels of wheat at about ninety cents a bushel and attempted to hold it off the market to create an artificial scarcity nd boost prices to the American consumer. The carry- charges on this wheat, at one time, were estimated four million dollars a month. Thus were our farmers be enriched at the expense of our entire population!

That forgotten man, ex-President Hoover, described the law creating the Farm Board as "The most important measure ever passed by Congress in aid (sic) of a single industry."

The price of wheat in June, 1929, when the law was passed was $1.22 a bushel; the price in April 1933, when the Farm Board, thoroughly discredited, ceased its activities had descended to 25 cents a bushel or about one half the cost of production.

This was not the first attempt by Congress to fix the price of a commodity. In 1890 it sought to "peg" the price of silver by buying and hoarding vast quantities of that metal. That experiment helped to bring on the panic of 1893.

Is it any wonder that the Senate of the State of Texas on January 12 last:

"Resolved, that we implore our Representatives and Senators in Congress to desist from further attempting to interfere with natural economic laws and further meddlesome efforts to control production and price- fixing and urge especially upon Congressmen and Senators to oppose the passage of this bill and take from the neck of the producers of this nation the yoke of governmental control and dictation."

Between 1900 and 1914 the world produced an average of three and one-half billion bushels of wheat annually. The Great War virtually ended the production in Europe, particularly in Russia. Prices shot up, stimulating production everywhere. Canada doubled its production in five years; the United States increased its wheat crop about 100 per cent, from 522 million in 1900 to one billion bushels in 1915. Argentine and Australia likewise multiplied their wheat acreage. In short, in all nations marginal land was brought into intense cultivation.

With the termination of the War in November, 1918, the Central Powers and Russia again began to raise wheat. But these newer countries which had profited enormously when wheat was relatively scarce and selling around $2.00 a bushel, could not, overnight, cease producing wheat. As a result, production continued to soar. In 1930 for example, it reached almost 5 billion bushels.

Demand, on the other hand, progressively declined. This was due to two causes, namely, that during the war years the world had been forced to use substitutes, and to the inability of 35 milllion unemployed men to buy the wheat they so sadly needed.

Countries not producing sufficient wheat for their own needs raised their tariffs to encourage home production and shut out competition from the United States and other great wheat-exporting nations. These duties amount, in the case of Italy, to $1.07 a bushel, France, $1.71; Germany, $1.60. Moreover each of these countries limits imports to specific quotas. The countries just named, for example, forbid the importation of more than three per cent of their domestic requirements and stimulate production of the remaining ninety-seven per cent by their own farmers. Norway, Sweden, Belgium, Spain and other countries, where comparatively little grain is grown, followed in the footsteps of the larger nations. The consequence was that the unnatural high prices prevailing within the restricted countries unduly stimulated production of wheat within those countries and inevitably led to price crashes.

In the face of increasing "surpluses" all over the world the American farmer kept on producing more and more wheat, being encouraged in the belief that through the Farm Board, the Government, somehow, would rescue him from the consequences of the inevitable "surplus." (We know of course that there is no real "surplus" so long as millions lack wheat, as they do).

Prices in the United States tumbled, as I have said, from $2.20 to 25 cents a bushel, the lowest since the days of Queen Elizabeth, over four hundred years ago. Canada, Australia, Argentine, and the United States, on December 1 last "carried over" 745 million bushels surplus for export. Of this vast quantity the United States, alone, held 416 million bushels where normally we carry only one-quarter of that amount.

Despite mounting surpluses the Federal Farm Board attempted to lift prices by absorbing the conparatively small domestic surplus. When its attempts to regulate price failed, Congress learned, what any economist worth his salt could have told it in the beginning, that not even the United States Treasury was strong enough, to hold up artifically, the price of a single commodity.

The Federal Farm Board .Act will go down in history as the monumental blunder of our generation in attempting to fix price.

Have we learned anything from this experience? I doubt it.

With a sublime faith in the perfection of its own theories of economics, Congress on May 12 last passed another law designed to lift the price of nine commodities, namely, wheat, corn, cotton, oats, hogs, tobacco, rice, milk and milk products. Under the new plan the Secretary of Agriculture will fix "quotas" for production of these "basic" commodities, and sell or lease lands for withdrawal from production in order to reduce marketable quantities of these commodities. In short, we are to get rich by decreasing wealth!

Alongside the new Law, the old Farm Relief Act was simplicity itself. Alongside the 184 million dollars lost in attempting to regulate the price of wheat, the losses to be incurred under the new Act will be ten times that amount.