V.What Price Parity?

V. WHAT PRICE PARITY? In the Agricultural Adjustment Acts of 1933 and 1938, Congress decreed that the United States Government shall establish "parity" prices for farm products and "parity" incomes for farmers. To this end the Secretary of Agriculture was given power to control acreage planted and harvested, establish marketing quotas, levy processing taxes on farm products, buy or sell farm products, regulate and control the commodity exchanges, issue licenses for buying and selling farm products, inspect books and operations of farmers, make loans on farm products, make cash payments to farmers who obey orders. Under this authority a steadily growing bureaucracy has spread the tentacles of its control over American agriculture and related industries at a cost of from one to three billion dollars per annum to American taxpayers and consumers. The courts have ruled that the Federal Government may fine a man for growing wheat on his own land to feed to his own chickens.

Government purchases and holdings of "surplus" commodities give it control over prices and prosperity for every farmer in the United States and even in foreign nations. These purchases also affect living costs for every American consumer as well as for many citizens of foreign countries. Government payments to farmers for not producing deprive taxpayers of liberty as consumers, rob other producers of opportunity to produce the goods which these taxpayers otherwise would have bought, and compel consumers to pay for reducing the supply of things they may want to buy. Fines and imprisonment are provided for those who dare to impede the execution of the government's agricultural program. The corrosion of economic liberty in the United States under this program raises the question, "What price parity for agriculture?" The Parity Formula Parity prices are denned by law as prices which will give farm commodities a purchasing power, with respect to articles that farmers buy, equivalent to the purchasing power of such farm commodities in the base period.

34 DO WE WANT FREE ENTERPRISE? "Basic commodities" to be especially benefited by this program are defined by law as cotton, wheat, corn, tobacco and rice. This list does not include meats, which yield to farmers nearly as much money as all the so-called "basic" commodities put together. It does not include dairy products, which yield as much as any three "basic" commodities together. It does not include poultry, which is as important as tobacco and rice combined. It does not include fruits or vegetables, which likewise are more important than most of the crops officially declared to be "basic." Remedy of these omissions provides a golden opportunity for further expansion of the parity program. "Parity" income is that average farm income which has the same relation to non-farm incomes as existed in the base period. The base period for all commodities except tobacco is August 1909 to July 1914. For tobacco the base period is August 1919 to July 1929.

"Wholesale prices of farm products in the United States were relatively higher in 19091914 than in any period of equal length before, at least in a century." (Dr. Joseph S. Davis, Director of the Food Research Institute, Stanford University.) In the decade 1919-1929 average tobacco prices, however, were double those of 19091914 and were far above average prices for any previous decade in our history. The parity program for agriculture, therefore, assumes that the relation between farming and non-farm occupations at some time in the past was more equitable than it was later. This is a backward-looking theory, but it has been popular with farmers as long as the ideal or "base" period selected was a boom time for farmers. Farmers Work Harder and Get Less Why should not government restore boomtime price levels for farm commodities ? "For generations farmers have worked longer hours under harder conditions than city people. Their opportunities for amusement have been less varied. They have enjoyed less of the latest comforts and luxuries. They have little or no chance to become really wealthy. No one ever becomes a multimillionaire in farming.

"Yet without the farmer we should all starve. In fact, all wealth comes ultimately from the extractive industries, chief of which is farming.

WHAT PRICE PARITY? 35 "Farming requires as much intelligence, training and experience as any other occupation. Why should it not be paid accordingly? "The farmer is the backbone of the nation—economically, politically and morally. Yet the superior attractions and opportunities of city life and work are constantly depleting farm ranks. The very foundations of our nation are threatened by this drift." These arguments again raise the question, "What are prices for?" Why should coal sell for one cent per pound while diamonds cost many thousands of dollars per ounce? Why should any man be paid more than another? Why should a Babe Ruth get as much as the President of the United States and many times the pay of able and hardworking farmers, carpenters, schoolteachers and so on? Why should a bit of clever ventriloquism be paid so much more than the same time and energy put into baking bread? Why should a good farmer be paid more than a poor farmer ?

Trumpet Calls for Producers Differences in prices, salaries, wages, profits and so on, tell producers what things are scarce and what things are abundant relatively to consumer wants. They also encourage producers to increase output of the more desirable goods as compared with the less desirable. High average prices and high incomes in certain lines relatively to others act as trumpet calls to urge producers into lines where they are most needed. Relatively low prices and incomes in any line warn producers to improve their products and methods or to look for other employments. Adjustments to changing conditions of demand and supply are essential in a prosperous and progressive nation. They are essential to national life and growth. Horse-and-buggy industries must contract or disappear as new lines arise and expand. How could the United States have met the challenge of Japan and Germany if it had clung to the industries and methods of 19091914 while other countries forged ahead?

A free society can make these changes only through the aid of free exchange and a free price system. Vocational guidance experts and educators may help producers 36 DO WE WANT FREE ENTERPRISE? find work best suited to their talents. But they cannot tell producers what things are most in need of doing without the aid of a free price system. In a free economy buyers bid up the prices of goods and services which they want increased more than others. It is to the producers of these things that they offer higher rewards. Progress Increases Demand for Town Labor As a nation prospers the demand for town workers increases faster than the demand for farm workers. In 1790 about 90 per cent of our people were engaged in agriculture. Today, about 20 per cent are so employed. Yet the natural rate of increase by surplus of births over deaths has been much higher in the country. Had it not been for a continuous and rapid migration of people from the farms over the past several centuries our nation would be almost 100 per cent agricultural.

Towns and cities have been built only by the pull of higher incomes and more attractive conditions offered by urban life and urban occupations. The disparity between rural and urban living and working conditions is often exaggerated. 1. Comparisons of average money incomes fail to account for the fact that most farmers get part of their livelihood "in kind," including food raised on the farm and housing for which no cash is paid. 2. "Average farm income" also fails to include earnings of farmers from non-farm work. 3. Comparisons of working hours usually fail to mention the time spent in getting to and from work. This is usually greater for urban workers. 4. Farming as an occupation receives a backwash of submarginal workers from the towns and cities. These are persons who cannot meet urban standards of competition and who prefer the meager subsistence which they can produce for themselves on the farm to poor-relief handouts in towns. Many such cases are included in the 50 per cent of farmers who receive only 10 per cent of total farm income.

However, the fact that the balance of migration has been away from the farms for several centuries shows that urban conditions have been more attractive, all things considered.

WHAT PRICE PARITY? 37 Causes of this relatively greater increase in demand for urban labor are: 1. As nations prosper their peoples' incomes rise and they spend most of the increase, not on food, but on things produced mainly in towns and cities—manufactured goods, medical and dental services, books, education, travel, etc. 2. As people prosper they demand finer quality rather than increased quantity, e.g., in textiles and clothing. This calls mainly for increased urban labor applied to a given amount of raw materials. 3. As people prosper they demand more service with commodities —"free" delivery, attractive packaging and wrapping, bright lights and fine showcases in the stores, a chance to "shop around," privileges of exchange and the money back guarantee. These increase costs of "distribution" and raise the demand for urban workers. 4. Factory methods replace home production. Canning, candlemaking, soapmaking, baking, butchering, spinning and weaving used to be done in farm homes. Power-driven machinery now makes it possible to do them in the factories more cheaply and under better working conditions than in the homes.

5. Farm machinery, made in city factories, displaces farm labor. Power, once supplied by human labor and later by animals fed on farm-grown crops, is now supplied by oil and electricity. In 1850 the primary power on United States farms was about 6y2 million horsepower. In 1930 it was 70 million. In 1916 there were less than 30,000 tractors on United States farms. In 1925 there were over 470,000, in 1930 over 900,000, and in 1940 over 1,500,000. From 1920 to 1930 the replacement of work animals by other sources of farm power released for other uses 30 to 40 million acres of crop land formerly needed to produce feed for horses and mules. Supply of Farm Labor Outruns Demand The farm labor supply increases faster than the labor supply in urban occupations because rates of population increase are higher on farms than in towns and cities. This means that the supply of new apprentices is relatively greater for agriculture.

Until about 1750 A.D. people died faster than babies were born in all European and American cities. Consequently cities could maintain themselves or grow only by drawing people away from the farms. Even today in the United States, because of higher birth-rates on farms, there must be a net migration of about 150,000 people each year away from the farms into the cities in order to maintain the existing ratio of farmers to urban workers.

38 DO WE WANT FREE ENTERPRISE? In the next 20 years the labor force of the United States is expected to increase by 14^4 million. Of this increase, 7 million will come from farms, 4 million from villages and only 3^ million from cities.* What would be the results upon our standards of living if the Federal Government enforced a farm-parity policy which would keep the entire 7 million new farm workers in agriculture? Improved methods and equipment, furthermore, have increased per capita farm output. Therefore, less farm labor is necessary to produce a given amount of food and other materials. In 1800 from 35 to 50 hours of labor were necessary to harvest and thresh an acre of wheat with a yield of 15 bushels. Today, with a binder and stationary thresher, it takes 4 to 5 hours, and with a harvester-thresher combine only 45 minutes. By 1939 the labor time required to produce a bushel of wheat had been cut 60 per cent from levels of World War I. The cost, including cost of the machinery, had been cut in half. For corn the labor time was cut in half and the production cost by more than 40 per cent during the same period.

"Recent indications are that ... in agriculture the gains in efficiency have been greater from 1920 to 1930 than in any previous decade."** A study of a group of Minnesota dairy farms for 1929-1936 showed that the feed required to produce 100 pounds of hogs decreased during those 8 years by 10 per cent. Egg production per hen increased 35 per cent. There were marked improvements in the cropping system. Altogether, the output per worker increased by more than 20 per cent in those 8 years. Better breeding and culling of cows has increased butterfat production per cow in the United States from 160 pounds in 1920 to 187.5 pounds in 1941. Because of this increased agricultural efficiency and because of a slowing down in rate of population increase in the United States as a whole, it seems safe to say that a stationary farm population can take care of America's future needs for agricultural products. That is, it can if the enterprise and inventiveness of American farmers are given free play under competitive conditions.

To hold the farm population constant, however, about 350,000 persons must leave the farms each year over and above any entry of new labor into farming.*** •T. J. Woofter, Land Policy Review, March-April, 1940.**H. R. Tolley and A. P. Brodell, "The Role of Machinery in the Development in theUnited States," United States Department of Agriculture, 1934.***Every year many thousands of families move to the farms. Some of these areex-farmers who go back to farming after a try at city life. Others are newcomers tofarming. Some of the latter, finding that the poets have left out some of the less pleasantfacts about farm life, soon return to the cities.

WHAT PRICE PARITY? 39 How can this net migration from the farms be brought about in a free society except through the workings of a free price system? Or do we want bureaucratic agencies to tell us who shall go to work in the cities and who shall stay behind on the farms? As a result of extending price controls we are rapidly approaching such a condition. Do we wish to continue the trend? The Boom of the '20's Since 1914 various conditions and policies have aggravated the longterm farm problem: [a] by slowing down the rate of migration from the farms, [b] by encouraging over-expansion of credit to farmers, and [c] by increasing the instability of markets for farm products. 1. From 1910 to 1920 prices for farm products and farm lands rose rapidly due to: [a] heavy immigration into American cities from Europe, and [b] large food exports to Europe on account of the war. This led to over-expansion of agricultural credit, especially in wheat raising, and to an orgy of land speculation. In other words, farmers bought land and equipment "on margin" as millions of persons later bought securities "on margin."

From 1913 to 1920 the value of farm land per acre rose 70 pei cent while total farm mortgage indebtedness rose 90 per cent. 2. Our Federal Government and several state governments did not permit the liquidation of this unsound condition in 1920-1921 to work itself out as stock market speculation was liquidated in 1930-1931. Instead, these governments encouraged and aided farmers to refinance and continue their borrowings at lower rates of interest. From 1920 to 1923 farm lands lost half of their 1913-1920 rise, but farm mortgage debt rose another 27 per cent over 1920 levels (52 per cent of the 1913 total), and average interest rates were reduced from approximately 6l/2 per cent to 5% per cent. 3. At the same time the Tariff Act of 1922 was reducing the ability of foreign nations to buy American produce. 4. To offset the threatened reduction in our exports the United States government encouraged extensions of credit to foreign nations far beyond the capacity of these nations to repay the debts in view of our high-tariff policy. This weakened the private credit structure of the United States.

40 DO WE WANT FREE ENTERPRISE? 5. During the '20's world markets for many leading raw materials, including certain farm products, were artificially maintained by various price-rigging schemes. Typical of these was the price-rigging Stevenson plan for British East Indies rubber. The Canadian wheat pool, the United States Federal Farm Board operations and price-maintenance for copper by United States exporters working under the Webb Act of 1919 were other illustrations. Similar price-rigging was carried on for coffee, silk, tin, sugar, and other commodities. In most cases the price-rigging was supported by private or public credit. This enabled the operators to carry on longer but made the collapse more serious when it finally came. 6. Our Federal Government's cheap money policy, facilitated by heavy gold imports, encouraged widespread speculation in American real estate and in corporation securities. It also fostered a rapid expansion of consumer credit.

These policies led to financial breakdown and general depression, beginning in the autumn of 1929. The Depression of the '30's The depression of the '30's was prolonged and intensified by further attempts to restrict competition and prevent liquidation of unsound credit positions. (See below, pp. 44-46, 99-102.) These policies arose from the theory that the key to recovery lay in maintaining consumer purchasing power. According to this theory both government and business should at all costs maintain or increase payments to individuals through maintaining wagerates, salaries, dividends, expenditures for plant expansion, public works and public loans. The result has been continuous and rapid extension of government control over agriculture, labor, business and consumers. Bureaucratic dictation is rapidly replacing voluntary enterprise, with consequent loss of political integrity and economic efficiency.

Dictated Prices Produce a Dictated Economy This expansion of government control and restriction of private enterprise arose from increasing efforts to "manage" prices, including prices for services (wage rates) and prices for credit (interest rates). This attempt at price control began with the protective tariff. (See below, pp. 72-80.) WHAT PRICE PARITY? 41 It got its greatest impetus before 1933 from political exploitation of the Federal Reserve System, first, to finance World War I and secondly, to "stabilize" the general price level. After 1933 efforts to control prices spread through all sectors of the economy. Control of prices can only be made effective by control of production or consumption, or both. When this control of prices is centered in government hands, the control of production and consumption must be put in the same place. If government is to guarantee "parity" for agriculture it must restrict enterprise, not only for farmers but for all other producers and all consumers. This is part of the price we shall pay for "parity," but not all.

As bureaucracy grows political democracy declines. Deliberative bodies and representative bodies cannot manage a "managed economy." Therefore, loss of political liberty is added to the costs of a "parity" program and we get a form of Nazism under another name. But even this is not all. Experience has shown that considerations of political expediency and personal ambitions of the rulers dominate a "managed" economy, not economic considerations. The result is loss of economic efficiency, reduced prosperity and reduced national strength. These are also part of the price of a "parity" program undertaken by government on behalf of farmers, wageearners, or propertyowners. What then is the total cost of government "parity" programs? Loss of economic liberty. Loss of political liberty. Loss of prosperity. Loss of national security. Are we "paying too much for the whistle"? How to Help the Farmer Farmers want: 1. buying power, not money, 2. earned income, not handouts.

They can get these things by expanding markets for farm products. This means reducing costs and increasing output in urban occupations by: 42 DO WE WANT FREE ENTERPRISE? 1. attacking monopoly and restriction of output in urban employments ; 2. encouraging enterprisers to invest profits in ways which expand output and reduce prices of the goods farmers buy; 3. encouraging urban enterprisers to open new jobs for the hundreds of thousands of young men and women who each year should move from rural homes to urban life and work. An open door to talent in every line—this is the way of progress for the farmer and city worker alike.