Price Fixing into Famine

May 24, 1948

The principal cause of the present world economic crisis, with its chronic shortages of food, coal, steel, and dollars, has not been the physical destruction of the war, great as that was, but the worldwide mania for government economic controls. Striking confirmation of this in the realm of food appears in a forthcoming article by three agricultural economists (F.A. Pearson, W.I. Myers, and E.E. Vial) in the periodical Farm Economics published at Cornell University. The facts it presents speak for themselves:

The Argentine Government sells wheat for export at $5 or more a bushel in United States dollars. It pays the Argentine farmer the equivalent of $1.59 to $1.83 a bushel and pockets the difference. The Canadian farmer is allowed only $1.35 a bushel plus a “participation certificate” worth about 20 cents. The United States farmer gets a free market price of about $2.80 a bushel. (Prices cited are those prevailing when the article was written.)

What has been the consequence of these policies? In spite of the desperate world shortage of wheat, the 1947 acreage of wheat in Argentina was 22 percent below the 1935–39 level. In Canada the 1947 acreage of wheat was also 7 percent below prewar. Neither decrease can be blamed on the weather: in both countries the acreage for the two preceding years was also below the prewar level. In the United States, on the other hand, wheat acreage expanded as prices rose, and in 1947 was 29 percent above the prewar level. In brief, farmers in this hemisphere responded to price incentives or their absence rather than to verbal exhortations. The farmers obliged to take low wheat prices contracted their acreage; the farmers permitted high prices expanded it.

The article finds it “difficult to generalize about Europe with its divergent price policies, varying degrees of devastation, etc.” The only European country it specifically cites is bizonal Germany, in which the 1947 acreage of food grains was 20 percent below prewar level. I shall therefore add some supplementary material from other sources.

It is the official French doctrine that the disastrous shrinkage of the French wheat crop last year was caused solely by unprecedented frost and drought. Bad weather undoubtedly accounts for a great deal. But comparative statistics are instructive. Whereas in 1947 the French acreage harvested of the bread crops wheat and rye was 37 percent below average prewar levels, the acreage of the feed grains (barley, oats, corn, etc.) was only 14 percent below. It is hard to escape the suspicion that this contrast has something to do with the fact, pointed out by the French economist Jacques Rueff in the April issue of Foreign Affairs, that the official price of wheat in France is fixed relatively lower than that for other cereals, and that stricter measures are adopted to make the official price respected. In contrast to the government-controlled price of wheat in Canada, for example, the Winnipeg price of rye is free. On Dec. 30, 1947, rye was $4.05 a bushel, compared with the controlled wheat price of about $1.55. Result: The 1947 acreage of rye was 42 percent above the prewar level, while wheat acreage was 7 percent below.

Finally, as the economist Wilhelm Röpke writes from Switzerland in the April 29 issue of The Commercial and Financial Chronicle: In Germany “a lady’s hat may be freely sold at the equivalent of more than one ton of wheat. We can hardly expect the German farmer to sell his products forever at official prices which not only mean that he is practically giving them away, but also that he cannot go on producing them since he cannot buy with his paper money what he needs on his farm.”

In brief, the fantastic collectivist controls imposed by our own American bureaucracy in Germany have put a tremendous premium on not producing food. And in spite of its appalling results in bringing world food scarcity, President Truman insists on a restoration of price control here. That would complete the disaster.