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July 2002, Volume 20, Number 7

Farm Bill Folly

by Christopher Mayer

Emerson once observed that nature is a never-ending combination and repetition of a few laws that create countless variations in different times and places. He called it the "unity of cause, the variety of appearance."

Emerson's observation could well apply to political and economic follies as well, which are repeated time and time again in different garb but always of the same underlying character. The new farm bill stitched together by House and Senate negotiators is more evidence of this, as it appears that farm subsidies will be greatly expanded once again. 

The new bill would add $50 billion to agricultural subsidies over the next decade. Such largesse is a testament to the power of the farm lobby, even though the number of full-time commercial farmers continues to dwindle. The Washington Post reported that "With world and domestic farm prices often fluctuating, the lobby has argued that hefty government payments remain essential to a wide range of rural interests."

The fact that prices fluctuate is a poor argument for such bailouts. Prices for many products and commodities fluctuate constantly in a market economy, as they should. They respond to a variety of factors influencing them—namely consumer demand. Prices that do not change are like lifeless fish floating in polluted water—hardly evidence of a healthy situation. The lobby might as well blame its constituents' difficulties on the fact that the weather changes without their consent. In short, it is absurd.

Nonetheless, the Post quoted Senator Tom Harkin (D-IA), who triumphantly declared, "We've done it. I hope this stems the tide of those going out of farming." Of course, people have been going out of farming since the dawn of the Republic. In 1870, about half of the population was engaged in agriculture. By 1930 that number was down to about one-fifth. During the 1990s, less than 3 percent of the population was employed in agriculture. Farmers have been receiving aid for decades as well, so it's hard to see how Harkin and his ilk hope to stem a tide as powerful as this one. There are good sound economic reasons why this decrease in farm labor is happening, but more on that shortly.

Harkin also noted that the bill gave farmers a strong safety net. Indeed, those who work the soil would enjoy quite a windfall in federal money under the new bill. Peanut growers alone would bag $4 billion and corn support prices would increase to $1.98 a bushel from $1.89. The price of milk would be supported at $16.94 per 100 pounds.

Presumably, the market prices of these products would be less than the support prices if the market process were free to discover them. So, the natural question to ask is, what impact these higher prices will have. The most obvious is that the American consumer will be paying more for these products than he would without the government's price supports. It also means that more people will continue to grow crops that would not be profitable to produce otherwise, thereby preserving the inefficient growers and creating economic waste.

There are undoubtedly a thousand other details of the bill, but the flavor of its contents should be readily apparent from this small tasting.  There is nothing that is really new here; the notion of price supports and subsidies is very old, and always the same justifications are rolled out to back it. Hence, Emerson's observation.

In fact, as Carl Snyder discusses in his book Capitalism the Creator, agricultural aid began with the early colonial settlements. The first proposal for a bank was as an aid to agriculture in the Massachusetts Bay Colony. Snyder also discusses the colony of North Carolina, which fixed the price of tobacco to maintain a higher price in the face of increasing production. The colony also fixed the prices of 15 other commodities. Snyder concludes "agriculture has always been the ward of government, the spoiled child of our economic order."

One comes to appreciate this fact even more after reading Garet Garrett's essay "The Political Curse of the Farm Problem," which originally appeared in the Saturday Evening Post on August, 22, 1936, and has been republished in a collection titled Salvos Against the New Deal. It is almost as if Garrett's essay could be reprinted in full today, for its arguments and the problem it addresses are so essentially similar to today's farm problem.

Garrett's target in those days was the New Deal, which not only greatly expanded federal aid and price supports to farmers, but also fueled the growth of government in nearly every aspect of American life. 

Garrett, who was a farmer himself for a time, recognized the long struggle of the farmer to keep pace with industrial society in terms of generating wealth. Even in Garrett's time, the farmers' share of the pie was shrinking, though that pie was still growing. As Garrett notes, "The farmer does not compare his absolute condition with what it was 25 years ago; he compares it with what it ought to be now." In absolute terms, the farmer was better off in terms of convenience, comforts, and efficiency than his predecessors decades before. 

Garrett notes, too, the tendency to take the farmers' difficulties and "treat it as evidence that others have been taking unfair advantage of him," and then "propose to seize it from others and give it back to him." Here, then is the moral quandary of the farm problem. Since the farmers are unable to keep up in the realm of voluntary exchange, they resort to the powers of Congress to aid them in life's struggle. So Congress allocates funds that it did not earn in any sense, and decides to put that money in the farmers' pockets. In this way, vote getters have always curried favor with select groups. It is doubtful that Americans would voluntarily contribute $50 billion to farmers over the next 10 years. What propels the American farmer then might be simple greed and envy. As Garrett writes, "Let us not fool ourselves about what the farm problem is. It is a problem of relation. The simple difficulties of sustaining life on the soil have not increased, they have lessened."

Evidence of this is found in the declining prices of food over the years, which has been well-documented by Julian Simon in his great work The Ultimate Resource 2. He writes that this "all important historical trend toward cheaper food" has persisted since the early days of the republic. Simon concludes, "Food has tended in the long-run to become cheaper decade after decade, whether measured relative to the price of labor or even relative to consumer goods prices."

Why have food prices fallen?

Here we come to the real fundamental "problem" of agriculture. As Garrett writes, "What happened to agriculture was modern industry."

The fact is that efficiency and productivity have driven people out of agriculture. More and more food can be produced using fewer and fewer people. This is a wonderful benefit to all consumers of agricultural products. Productivity and efficiency will continue to advance as new methods are employed and the science of agriculture continues to improve. There is nothing that can be done to stop this progress. As Garrett writes, "These are not political facts. They are not such facts as may be changed by passing a law. For more than 50 years the Congress has been passing laws to destroy the imaginary dragons devouring the prosperity of agriculture. . . . There is no law that can be passed to solve it. No political party can say what the farm problem is, for if it did, the idea of solving it by act of Congress would be too absurd."

Congressional leaders can't come out and say that, in fact, what they are fighting is productivity and efficiency in agriculture. Too many people would finally figure out that they are being fleeced with these endless farm bills. For too long, as Garrett notes, "The farm problem has come to have a kind of specious oratorical reality that removes it entirely from the realm of economic reasoning."

It is time to recognize that food prices will likely continue to fall over the long term, and that the number of commercial farmers will continue to diminish and to recognize the benefits such a trend confers upon society. It should also be made apparent that to continue to fight this trend is futile, and that it is a waste of time and money—not to mention the outright theft involved in seizing money from one group only to give it to another. 

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Christopher Mayer is a commercial lender in Maryland (cwmayer@provbank.com).

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