DOWN WITH FARM SUBSIDIES?
Oh hum! There's another Farm Bill worming its way through Congress. The Farm Bill of 1995. It'll probably be law by the time this commentary plods off to press. Very few Americans take an interest in Farm Bills or agricultural matters these days. All most people know is that rich farmers are subsidized by tax money, and they feel that this obscenity should come to an end. "Let's cut farm subsidies" says the deficit-conscious Congressional leadership. "Yes indeed!" echoes the public, "Let the farmers earn their living the old fashioned way!"
Comprising only about two or three percent of the population, farmers seem hardly worth considering anymore, yet farm subsidies cost us billions of dollars annually. Outrageous! Why should the taxpayer support farmers? Haven't such subsidies become a luxury we can ill afford? Isn't it time to stop this madness and balance the budget? Why not let farmers function in the free market of supply and demand like everybody else? If they can't hack it, let them get a regular job.
The lack of interest in the Farm Bill and public hostility toward farm subsidies, while not surprising, is a little strange when you think about it awhile. A hundred percent of the population eat, or otherwise consume, agricultural products to live. Everybody knows that without food, we'd all whither away—and everybody also knows that farmers are the ones who produce it. So it would seem that the Farm Bill could possibly be important, and ought to be of interest to just about everybody. But the public attitude is, "Who cares?—as long as the supermarkets are full." This attitude, of course, is understandable in the unnatural situation where 98% of the population is nonagricultural.
Agriculture is the foundation of every viable national economy, and the family farm is the most basic free-enterprise economic unit. Without farm-produced food and fiber, nobody could live, much less go to work to earn a living. Without the production of agricultural raw materials no other raw materials could be fished, pumped, mined, or refined. Without the products of agriculture, no industrial activity could take place, service industries would implode, government itself would starve—and no new workers could be raised up.
All real wealth starts from the ground up. Raw materials—that is, all new wealth—come from the earth. The most essential raw material is food, which is the infinitely renewable gift of the sun and soil, harvested by the labor and capital of the farmer. (Or, in the case of fish, the sea harvested through the labor of fishermen.) Raw food production, is the nearest thing we have to getting something for nothing—nothing more than the skill and hard work of the farmer that is. The farmer prepares a seedbed and plants little seeds. He nurtures them for a growing season, and, if the Lord is willing, (and He usually is—most famines having been man-made affairs) those seeds multiply a thousand fold! Human existence and all activity hinges on this one most invaluable human occupation.
At least one basic truth is indisputable: People have to eat in order to live and be productive. Only if agriculture does its job, can anything else be accomplished.
So why do farmers need subsidies? The answer is so simple as to be painful, yet the public is blissfully unaware of the problem. Because farmers are short-changed at the market-place for their production. Very few farmers are rich. This false public perception is born of a perverse tax system that has caused a lot of wealthy professional people, (doctors, lawyers, news anchormen, etc.) to buy farms, and hire dispossessed farmers to operate them, (usually at a loss in spite of government subsidies) for tax benefits. (And it is indeed true that the lion's share of subsidy dollars go to the "rich" and large corporate farmers rather than the family farmer they were originally intended for.) Agricultural commodity prices have been stagnant since the WWII era. In fact, many have declined as everything else, including the costs of agricultural production, has increased many fold. The farmer, the linchpin of food production industry, gets a very small and continually shrinking fraction of the food dollar. But the traders, processors, wholesalers, financiers, and retailers have enjoyed a continually increasing percentage. The farmer doesn't control his markets. Others do. He cannot set prices, and never knows whether he is going to make a profit or take a loss.
The vast majority of the population is comprised of financially pinched non-farmers who buy their groceries at the supermarket for prices they consider too high. They resent high prices, high taxes, and farm subsidies. Thus they are at the throat of the even more financially pinched farmer. They believe he is rich. But if the public had any understanding of the farm problem at all, it would have a very different view of the farmer.
There's no free market for the farmer, observes Charles Walters, Jr., publisher of Acres U.S.A., "the free market system doesn't function for the farmers—or any other sector of the economy—due to the concentration of power of raw material marketing conglomerates." the farmer doesn't get paid anything like his fair share at the supermarket.
Under-pricing of agricultural commodities has become the national norm of and by cartel controlled commodity trading, dominated by huge food and industrial conglomerates, global markets, and the free-trade agenda. Government agricultural policy, under the guidance of the great colleges of agriculture, (land grant colleges) funded and directed by great tax-exempt foundations, fossil fuels and chemical industries, has naturally favored the cartels. Farm prices are not set at a national parity compatible with other domestic industries, but are rather based on the global bottom-line, at prices set by international commodity traders. The American farmer has long been rewarded for his labor at Third World rates.
The major agricultural commodity traders, far removed from the farms, control the global markets. Our government's cheap food policy and its "feed the world" ambitions have been made possible only by short-changing the home agricultural producer. Under this regimen total collapse of agriculture has only been prevented by government subsidy programs. These policies are designed to allow time for the take-over of most of our agricultural lands and production by the big boys. It has kept an ever-decreasing number of farmers only a hair's breadth ahead of foreclosure, as he is increasingly forced to consume his own capital by agonizing degrees.
Few in the general public have the foggiest idea what "parity" means. Simply stated, it means fair pricing for agricultural products on a pare, or in balance, with the rest of the economy—and the costs the farmer incurs in production. The farmers have never wanted subsidies. All farmers have ever wanted is fair prices for their production. In other words, agricultural commodity prices should have gone up along with industrial wages and prices, so farmers could have shared in the prosperity the rest of the nation enjoyed.
Commodity prices have been kept low, and subsidies substituted for the resultant short-fall in farm earnings. Like every other industry, farmers have had to cover rising costs of production, but they've been unable to make up for those higher costs in higher sales returns. Contrary to the general public perception, farmers as a whole have not been counted in on our national prosperity. They've literally been counted out. Over five and a half million family farms have ceased to do business since World War II!
Spectacular increases in efficiency through mechanization during the same period have not paid dividends for the farmer as it has for industrial labor. The farmer is the only one who has been penalized for increased efficiency. The industrial workers' wage has increased several fold, widely out-pacing increasing food prices at the supermarket, but the farmer's share of the pie has continually decreased. With the progression of time, his numbers have decreased to the point of near extinction.
It is of more than just passing interest to note that prior to the mid-50's there was prosperity throughout the economy, including millions of relatively small family farms, of from forty to 160 acres in size, and the thousands of rural communities they supported. Today 500 to 1000 acres or more are required to support one farm family, and that only with subsidies. Rural communities across the nation have withered and died. The cities have become boiling cauldrons of unemployment, unrest, crime, and institutionalized poverty. The question has been asked, (by Ferdinand Lindbergh, in his book, The Rich and the Super-Rich) "How has this process been contrived of stripping threadbare most of the populace, which once at least owned small patches of virgin land?"
Government farm policy has decreed that agriculture be collectivized. For decades the message to the farmer has been "get big or get out of the business." But when the surviving farmers get bigger, with the more successful gobbling up their failed and distressed neighbors, and become more efficient, cost always exceed returns on investment. The farmer fell victim to skyrocketing machinery and other capital costs, and became dependent on hybrid seeds; imported oil; export markets; soil destroying, environment poisoning, toxic chemical agricultural practices—and the inevitable debt required for his bare survival.
The family farmer is nearly extinct in this country because the only viable solution to low agricultural commodity prices has always been the elimination of more farmers and increase the size of remaining farms. Misguided farm policy has insured continuation of this trend. Small family farmers, owning their own land, are simply too independent. Millions of relatively self-reliant family farms, representing broad-based land ownership and wealth distribution, posed an unacceptable threat to collectivist federal planning and the new international economic order.
Yet the few remaining farmers, the most productive in the world, and the most valuable of all producers to any society and its economy, are literally forced to survive on federal relief payments—farm subsidies. When those subsidies go, many of the remaining successful farmers will be pushed over the edge—from approaching insolvency into bankruptcy. The result? Fewer farmers, and ever-bigger corporate-type farms. The government has made this goal appear beneficial to the public by playing the city against the country, using the deceptive carrot of cheap food, and pitting the consumer against the producer.
This process has cost us more dearly than most people imagine, and we are only now beginning to pay the piper and see the chickens come home to roost. Proposed solutions currently on the table will merely exacerbate and multiply the problems.
Our "cheap food policies" have been anything but cheap. The cost of cheap food at home, and free food around the globe, has been agricultural subsidies and higher taxes for all consumers. We don't pay the farmer at the elevator or supermarket, therefore we pay him on April 15th. The accumulated cost over several decades approximates the national debt and the mortgage it places on all future income. The farmer doesn't even get his rightful share of his alleged subsidy dollar, but he gets more than his rightful share of the debt burden. By this process we have all been robbed blind, but we mis-identify the robbers, and blame the primary victim of the plunderers.
Perhaps the largest agricultural subsidy is the food stamp program, but the farmer doesn't get his rightful share of that. The traders, processors, financiers, and merchants do—they get their share and most of the farmers' share, subsidized by the tax-payer. Welfare itself is largely a subsidy for people whose parents and grandparents were once productive farmers, whether freeholder or sharecropper, forced from the land and into the cities by perverse agricultural policy. In spite of subsidies, and because of the short-sighted policies that have made them necessary, the family farmer is nearly extinct.
Collectivization of agriculture and the demise of the family farm is as destructive under the capitalist system as it is under communism. The family farm is society's most fundamental and important free-enterprise economic unit. It is the key to general economic prosperity and equitable distribution of real wealth, and an insurance policy for the nation in times of adversity. It is a principle bulwark of freedom. X million family farm units once represented broad spectrum distribution of land and wealth. Demise of this invaluable grass-roots infrastructure since WWII, and the gutting of thousands of small farming communities it once supported, has led to the institutionalized poverty we see today in the cities and countryside alike.
Simple common sense tells us that the more farmers wedded to the land, the stronger the national insurance policy to protect our food supply and economy as a whole.
If 25% of the population were on the land engaged in farming, the other 75% could easily be fed even in the event of catastrophic events such as economic collapse, war, or other calamity. Simply put, the farmer's three kids could go home to the farm, if necessary, and ride out hard times as many did during the great depression. One farmer could easily feed himself and three others, even if he had to go back to horse-based farming. But with only 2% of the population on the land producing food for the other 98%, an awful lot depends on a very few. And that very few depends on the smooth functioning of the rest of the economy. Ninety-eight kids can't simply go home to the farm to ride out hard times. The farm may be big enough, but the house isn't. Two farmers would be hard pressed to feed themselves and ninety-eight others, if the industrial, transportation, trade, and financial institutions faltered. The corporate farm doesn't hack it either, because, like the over-big family farm, it's success rides entirely upon the uninterrupted functioning of the rest of the corporate and financial world.
In today's circumstances, in the event of catastrophic developments, such as an economic crash, a government take-over of agricultural production, and forced collective labor on large plantations, will be necessary to prevent wide-scale starvation.
But the situation is acutely serious even if no catastrophe strikes, and the kids can stay on welfare or at their jobs in the city. It is here that the public and the government are totally striking out no matter what happens. This is basic economics of the variety seldom taught these days. This demonstrates the perverse implications of current government farm policy.
Everybody ought to know that all new real wealth comes from the land. Raw materials are grown, fished, or mined by labor, and other labor converts raw materials to useful commodities, processed foods, clothing, and manufactured goods. These raw materials are there for the taking, with the expenditure of some labor, compliments of earth and sun. Food, fiber, and minerals. Food is needed to raise, nurture, and sustain the work force that then turn other raw materials into valuable products through labor.
Nobody, except an occasional economist, banker, politician, or bureaucrat, can question these three hard and simple facts: (1) All real wealth is rooted in raw materials; (2) Food, from agricultural raw materials and fisheries, is the most important resource of all, enabling the use of all other raw materials. (3) All other non-wealth producing human activities depend upon the previous two factors.
It isn't strictly coincidental that the period from the end of WWII through 1953 saw the last years of government supported farm parity pricing and true economic prosperity. Since then we have gone from real prosperity to a false prosperity and the current maladjustments in our economy. This has been manifested in growing federal budget deficits and the economy-wide debt explosion, paralleled by loss of the family farm system, and more recently, loss of manufacturing industries and jobs. Our last balanced budgets were in 1947-1949, and 1951. There has only been one balanced budget since 1952.
Nor is it coincidental that this period coincides with the beginning of the hard-sell of current free-trade policy. GATT was born in 1948—a child of the United Nations.
Since the mid-century mark, several graphs can be charted with varying lines going up, and others going down. Gross National (domestic) Product; foreign trade; corporate profits; public debt; trade deficits; the service economy; mega-sized food and retail chains; farm sizes; prices; taxes; size and cost of government; government subsidies; unemployment; institutional poverty; etc., all going up. The value of the dollar; number of farmers; our once proud merchant marine; raw material prices relative to manufactured goods; public morality; the rural economy; mom and pop businesses; educational standards; etc., all going down. Other lines went up for awhile, leveled off, and then started going down. Wages; job fringe benefits; living standards; our once unassailable industrial base; agricultural land values; public pride and confidence in government and the economy; etc., for example.
Just a whole lot of this doesn't seem to make any sense at all. We seem to be prospering on national decay. To get a handle on the whys and wherefores, look at the key elements of economics. The relationships between raw materials prices, the root of all new real wealth, and all other prices are grossly out of balance. Non-productive economic activities have come to totally overshadow the basics—even industrial production. The service economy, international trade, financial and monetary manipulation and speculation, and mushrooming government bureaucracy, have replaced productive enterprise as the alleged engines of wealth creation.
The advent of a recent alleged "jobless economic recovery" ought to be taken as a leading economic indicator that something is fundamentally amiss in our economy. But it isn't. It's taken as evidence of basic economic health. The economy is said to be booming and corporate profits are up even as labor is told to expect more cuts. The stock-market is breaking new records as large corporations continue to down-size and cannibalize. The old ways of doing business, we are told, no longer apply in the new global economy. There was a four-decade long shake-out in agriculture—now it is industrial labor's turn. The focus has gone from a premium on cheap raw materials to a premium on the economic desirability of cheap labor and foreign markets. Hard production industries are moving to the Third World, and they won't return until American labor accepts Third World wages. In the mean time, prosperity is expected to continue.
All real wealth starts as raw materials. Raw materials under-priced at the source of production short-change the whole economic system. This seems contrary to reason at first glance. And that's why it is so easy for the government to successfully push perverse and destructive national economic policies. It would seem that cheap food and fiber, and raw materials in general, should make everything else cheaper, and therefore must be a good thing. But this is where our educational system has failed us miserably. If cheap food, raw materials, and cheap labor policy where the key to prosperity, Soviet Russia would have become the most prosperous nation on earth.
Agriculture feeds and clothes us, and comprises about 70% of all raw materials used for sustenance and production. Thus it is undeniably by far the largest and most important industry. Because everybody must eat and be dressed before they can do anything else, there can be little argument to refute this. Literally everything else is secondary to agriculture, even if only 2% of the population is actively tilling the soil.
If you look at the results current policy has produced in terms of wealth distribution in the United States, a polarization of wealth is very evident, with the poor getting poorer and more numerous while the richest few percent get very much richer. Who would dispute, however, that as the gross domestic product, (national income) increases, everybody ought to be getting richer, not just the few? But this isn't happening, because the real wealth production sectors of the economy are institutionally shorted in favor of non-wealth producing sectors. Flim flam out-rates real work and real production.
If raw materials are the basis of true wealth, then under-pricing their value at the source of initial production under-cuts the very basis of wealth as it is multiplied throughout the economy. If there is no raw material dollar, there is no labor or profit dollar. How can this be true, if we can look about us and see that labor and capital interests are literally swimming in dollars and profits? One need only look at the size of the combined public and private debt to see where all those dollars came from. They obviously come from credit and debt expansion—they are debt dollars, with debilitating interest in tow.
Prerequisite to the tremendous debt expansion required to sustain our current false prosperity, while shorting real wealth production, was the total debauchery of the currency. This was finally accomplished by stages from 1944 through circa 1970. Of course, the process was in motion long before that, facilitated by such things as the National Banking Act (1863), and Federal Reserve Act (1913) and others. (Agriculture has been directly attacked by several other Acts and farm bills, all of which were designed to help the farmer out [of business].)
If money itself is not bottomed on real wealth, then it is of necessity bottomed on credit and debt with a price tag called interest. If the production of real wealth isn't broad-based, then labor and capital are paid by debt dollars rather than commodity dollars based in real wealth. When credit and debt are substituted for real wealth producing enterprise, costs are compounded with the debt, and real income, shorted at the source of real wealth production, is largely illusory. This results in an economic house of cards.
There is a trade turn, or multiplier effect, a factor of approximately seven, as raw materials course their way through processing, manufactory, toward final consumption. In other words, a bushel of wheat that brings $1.00 at the farm level, provides the basis for another $6.00 of added value and trade dollars, as it works its way through the economy, paying labor, capital costs, and profits on its way. One raw material dollar at the source provides the basis for seven dollars of national income. Production, times price, equals income. By the same token, $.50 wheat only supports $3.50 in national income. To maintain prosperity, the $3.50 loss to the economy must be made up through debt expansion. But debt expansion results in the added cost of interest, which accrues not to the producer, but to financiers and the smart-money class. Then the taxpayer gets the bill in the guise of a multitude of subsidy programs and blames the farmer.
This is true of all raw materials. Production, times price, equals income at every stage of production, from the soil up. Short the value of raw materials at the beginning of the cycle, and the entire economy suffers a compounding short-fall of real income. But labor and capital costs must still be paid. The shortfall is met by debt expansion posing as income, and any prosperity becomes a very fragile affair. That's the kind of prosperity we have seen in recent decades.
"It can be seen that when cost factors go up in relation to profits, then national income is short and politically debilitating unemployment can be avoided only be expanding public and private debt. The difference between parity national income and actual national income is expanded debt... The chief cause of national income sliding away from full employment/stability norm is a shortfall in raw material prices." says Charles Walters, Jr., author of Raw Materials Economics, and publisher of Acres U.S.A., an eco-agricultural newspaper.
This year's Farm Bill will tend to remove relief payments from remaining farmers, yet will not replace the subsidy system with a fair pricing structure for farm products. This is like removing welfare from the welfare class without first insuring that job opportunities exist. But there is a striking difference. The farmer is not a parasite on the economic body. Not only is he the most valuable and hardest working segment of the population, but also the most efficient and productive. His labor literally feeds the nation and much of the world. He feeds himself, productive labor, and the non-producing majority alike. What should be his just return on labor and capital investment, largely goes to predatory capital interests that control and prey on the system.
There have long been minimum wage laws to protect unskilled labor from exploitation. Parity for agriculture would simply amount to a minimum wage law for agriculture through parity, or fair, pricing. Official parity would keep the economy in balance and prevent the "trades" and traders from stealing from agriculture its rightful share of the value of its production. Such a system has been law in the past, and in such case, general economy-wide prosperity has been the result. 1942 through 1952 was such a period. Just why real prosperity has been intentionally undermined by our own government is a matter of considerable wonderment.
Of course, there has to be parity and structural balance throughout the economy. This balance can only be defined in this country, of course, by American standards. Thus the importance of national boundaries, tariff walls, and a reasonable degree of protectionism. Tear them down through the deception of free-trade-is-good, and national economic standards go into a tail-spin. Our economic standard should not be dictated by the lowest common world standard. Our vast natural wealth could and should lead the rest of the world toward real prosperity for all.
Agriculture has been suffering since about 1950, (and it had suffered before that, of course) but now the rest of the population is beginning to feel the effects of the process. Agriculture has been the whipping boy of the economy for over four decades. Now, with free-trade taking its inevitable toll in the manufacturing sectors, the working class as a whole is feeling threatened. Unfortunately, adding insult to injury, the farmer is again being made the scape-goat.
Only a very perverse government policy can force a prosperous nation such as ours to exist by borrowing and placing a mortgage on future income. It forces the inflationary issue of debt money. Since the public doesn't understand this, it allows agriculture to continue to be treated as a punching bag, and even cheers from the sidelines, as government policy compounds the public and private debt, to our national shame. The ultimate result can only be financial and economic chaos.
In our headlong plunge toward the wonderful new world, international free trade is said to be one of the most wonderful things since cotton candy. It utilizes the price differentials between nations like smoke and mirrors to deceive the consumer into believing he is getting an uncommonly good deal. But in the fullness of time, it will "so reduce the purchasing power of the American people that they can no longer even approximately consume their own productions." (The Breakdown of Money, by Christopher Hollis, a British historian who came to be at Notre Dame University during the 1930's.)
Everybody should know what Henry Ford did for the purchasing power and the standard of living of America's industrial workers when he raised production-line wages to the unheard of rate of $5.00 per day in 1914. He did this so his workers could afford to purchase and enjoy the products of their own labor. The result was a new industrial revolution in which labor attained an unprecedented level of dignity and affluence. It literally put the lie to anti-capitalistic Marxist doctrine and ultimately doomed the international communist movement. It proved that capital and labor can indeed be true and equal partners in industry under capitalism. We owe the heights to which our standard of living ultimately attained to the likes of Henry Ford.
But it didn't take long for a reversal to set in. It's toll is only today becoming manifest. Hollis further wrote, quite prophetically:
"As long as that purchasing power was adequate, the American manufacturer was indifferent to foreign markets. But with domestic purchasing power reduced, foreign markets become essential to him. And, the more that he could be persuaded to look abroad for this market, the easier it would be to change his whole attitude toward wages. At present he is in favor of high tariffs and high wages, for he looks on the working man as his customer. But, if he can be induced to look abroad for his markets, then wages become merely an item of costs and it is to the manufacturer's interest to reduce them as low as possible. If they are reduced—and the odium for reducing them of course, allowed to fall on the manufacturer—the American industry becomes at once a much more profitable investment for the financier, while the foreign goods can flow into free trade America to pay the interest on the foreign loans." (Quoted from Raw Materials Economics, by Charles Walters, Jr.)
Had the prices of agricultural commodities and other raw materials kept pace with prices in the rest of the economy, (in other words, had labor been fairly and consistently rewarded for bringing new wealth into the economy) depression, unemployment, the national debt, and hunger would never have become major factors in the American economy. What has prevented farm prices and other raw material prices from keeping pace has been the conventional wisdom and policies known as free trade, promoted by the powers that be both in and out of government, aided and abetted by the media and a woefully inadequate educational system.
The value of the primary wealth of the United States, (the products of our soil) is no longer dictated by American standards, but by international lowest denominators. The equation now includes cheap foreign labor, and thus is short-changing our economy at every level and pulling us toward an economic upheaval of unprecedented proportions. American labor can't compete in global markets except by accepting lower wage and living standards.
The same process which has destroyed the family farm is now destroying our manufacturing industries and moving them south, or elsewhere. Fundamental to the process are union busting, wage and benefits reductions, and reduction of living standards. Yet this is, by some perverse kind of reasoning, considered not only good, but imperative! The cure for any inconveniences caused is more of the same—more free trade, more imports and more exports—and becoming more competitive in international markets. GATT, 1948, through the 1994 GATT/WTO agreements, and NAFTA 1994, are still being packaged and sold to the American public as panaceas rather than the pariahs they are.
This is the new international order folks—a global plan we are told doesn't exist, except in the warped minds of paranoid conspiracy theorists.
Camden
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