Meat and the Price System

November 29, 1948

A few weeks ago, in Texas, I visited the stockyards at Fort Worth. A close-up view of a great cattle market like this throws a brilliant light on the function of free markets in our economy.

The market in meat is as competitive as a market can get. Cattle are raised on 80 percent of the farms of this country. This means some 4,500,000 separate producers. This fact alone shows how silly were the leftist charges of a “producers’ strike” when meat ceilings were reimposed in the summer of 1946. And as meat in its finished form is bought by practically all the consumers of the nation, the frequent headlines about “buyers’ strikes” are equally silly.

There is virtually no possibility of collusive price fixing at either end, nor any evidence of monopolistic pricing in the middle. In 1947 the Big Four meat packers averaged only 1½ cents profit on every dollar of sales. The buyers for the big packers not only have to bid against each other and against the smaller packers, but against thousands of ranchmen and feed-lot owners. For only about half of the thousands of cattle that are poured into Fort Worth every day from motor trucks and freight cars are destined to go immediately to the slaughterhouse. A large part are bought for other ranges, and still another part for pen feeding and fattening.

And it is here that prices, and above all the relationships of prices to each other, play a most significant role. For whether steers are slaughtered or bought for further feeding, and whether for range feeding or pen feeding, depends on the relationship of the price obtainable for steers as meat to range costs and the price of feed. It is the present relative prices of meat in the butcher shops to meat on the hoof, of hogs to corn, of corn to hay and wheat, of hay and corn to steers, of steers to calves, hogs, and sheep, of the price of each of these to their expected future prices, and to the expected future prices of all the others—it is this incredibly intricate maze of relationships which determines how much corn and wheat will be planted, how many hogs will be raised, how many steers will be slaughtered now, how many held for further feeding, whether on ranges or in pens, for just how long, to just what weights, and so on.

It is not merely that the prices of corn and hogs and wheat and hay and steers are all tied to each other. The intimate connexity of prices run through the whole economy. It is the relation of the prices of thousands of different commodities to each other that determines the relative amounts produced of each of these commodities.

It is not surprising, in view of these intricate interrelationships, that government price fixing always upsets the balance of production. The real surprise would come if it did anything else. It takes, for example, about 10 bushels of corn to produce 100 pounds of hogs. Normally, in a free market, the prices of corn and hogs oscillate around a ratio at which (because of other costs) about 12 bushels of corn would buy 100 pounds of live hogs. The OPA price fixers forgot even this simple two-commodity ratio. If, through price-fixing, pork is underpriced in relation to corn, or beef in relation to corn or grazing costs, a shortage of meat soon develops.

Yet free markets solve these and enormously more complicated problems of balance quasi-automatically through the price system. Small wonder that Friedrich A. Hayek, in his new book Individualism and Economic Order,^* declares that if the free-market mechanism had been the result of deliberate human invention, it “would have been acclaimed as one of the greatest triumphs of the human mind.”

That meat prices are actually not too high in relation to the enlarged monetary income of the country is clearly shown by the fact that the per capita consumption of meat in 1947 was 155 pounds, compared with an average of 126 pounds from 1935 to 1939.

^*Individualism and Economic Order. By Friedrich A. Hayek (272 pages, University of Chicago Press, $5).