Economics in One Lesson

“Stabilizing” Commodities
99
profits of farmers and millers will depend chiefly on their skill and
industry in farming or milling, and not on market fluctuations.
Actual experience shows that on the average the price of wheat and
other nonperishable crops remains the same all year round except for
an allowance for storage and insurance charges. In fact, some careful
investigations have shown that the average monthly rise after harvest
time has not been quite sufficient to pay such storage charges, so that
the speculators have actually subsidized the farmers. This, of course,
was not their intention: it has simply been the result of a persistent ten-
dency to overoptimism on the part of speculators. (This tendency
seems to affect entrepreneurs in most competitive pursuits: as a class
they are constantly, contrary to intention, subsidizing consumers. This
is particularly true wherever the prospects of big speculative gains exist.
Just as the subscribers to a lottery, considered as a unit, lose money
because each is unjustifiably hopeful of drawing one of the few spec-
tacular prizes, so it has been calculated that the total labor and capital
dumped into prospecting for gold or oil has exceeded the total value of
the gold or oil extracted.)
2
The case is different, however, when the State steps in and either
buys the farmers’ crops itself or lends them the money to hold the
crops off the market. This is sometimes done in the name of main-
taining what is plausibly called an “ever-normal granary.” But the his-
tory of prices and annual carryovers of crops shows that this func-
tion, as we have seen, is already being well performed by the privately
organized free markets. When the government steps in, the “ever-
normal granary” becomes in fact an ever-political granary. The
farmer is encouraged, with the taxpayers’ money, to withhold his
crops excessively. Because they wish to make sure of retaining the
farmer’s vote, the politicians who initiate the policy, or the bureaucrats
who carry it out, always place the so-called “fair” price for the farmer’s
product above the price that supply and demand conditions at the
time justify. This leads to a falling off in buyers. The “ever-normal
granary” therefore tends to become an ever-abnormal granary.
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Economics in One Lesson
Excessive stocks are held off the market. The effect of this is to
secure a higher price temporarily than would otherwise exist, but to
do so only by bringing about later on a much lower price than would
otherwise have existed. For the artificial shortage built up this year by
withholding part of a crop from the market means an artificial sur-
plus the next year.
It would carry us too far afield to describe in detail what actually
happened when this program was applied, for example, to American
cotton. We piled up an entire year’s crop in storage. We destroyed the
foreign market for our cotton. We stimulated enormously the growth
of cotton in other countries. Though these results had been predicted
by opponents of the restriction and loan policy, when they actually
happened the bureaucrats responsible for the result merely replied
that they would have happened anyway.
For the loan policy is usually accompanied by, or inevitably leads
to, a policy of restricting production—i.e., a policy of scarcity. In
nearly every effort to “stabilize” the price of a commodity, the inter-
ests of the producers have been put first. The real object is an imme-
diate boost of prices. To make this possible, a proportional restriction
of output is usually placed on each producer subject to the control.
This has several immediately bad effects. Assuming that the control
can be imposed on an international scale, it means that total world
production is cut. The world’s consumers are able to enjoy less of that
product than they would have enjoyed without restriction. The world
is just that much poorer. Because consumers are forced to pay higher
prices than otherwise for that product, they have just that much less
to spend on other products.
3
The restrictionists usually reply that this drop in output is what
happens anyway under a market economy. But there is a fundamental
difference, as we have seen in the preceding chapter. In a competitive
market economy, it is the high-cost producers, the