On The Side Of Freedom

Roy Douglas

[Reprinted from Land & Liberty, May, 1966]

Most people find it a good deal easier to argue the case for a free economy with producers of manufactured goods than they do with producers of primary commodities like food and minerals. Are there some special conditions obtaining in primary production but not in secondary production that vitiate all our arguments?

Sir Sydney Caine's booklet Prices for Primary Producers* is welcome for the way in which this distinguished economist (he is Director of the London School of Economics) faces up to these problems. He comes down firmly and decisively on the side of freedom.

The farmer who sows a field of wheat cannot possibly predict, outside the broadest limits, what the yield will be, or what the market price will be. Vagaries of the weather - not only in Britain, but in any other wheat-producing country - may utterly upset his calculations, even if the world demand for wheat remains stable. Far more serious are the problems of some other primary producers, who must plan for production many years ahead - by planting trees, for example, or by sinking mineshafts. In many under-developed countries the consequences of miscalculation are not just unemployment and poverty, but famine and death.

Sir Sydney gives examples of the violence of some of these fluctuations. In the six years 1947-53 the price of tin rose fourfold, and then sank to a little over one-third of the highest figure. The price of rubber in 1932 was well under one-twelfth of what it had been seven years earlier. To an extent, we may argue this away. As the author says, "A big cocoa crop in West Africa will normally be sold for a lower price than a small one, but the total receipts from it will obviously decline less and may indeed be higher. In long-term comparisons, Malaya does much better today by selling hundreds of thousands of tons of rubber at 2s. a pound than she did in 1911 by selling a few thousand tons at 12s. (even allowing for their being pre-1914 shillings!)"

Violent price fluctuations are bad from human considerations, but they are also bad from an economic point of view, for they make rational investment exceedingly difficult. True, there are some benefits which flow even from instability of this kind; but on balance we can hardly doubt that it is objectionable, at least to the producer, and often to the consumer as well.

Part of the trouble with price fluctuations is that one seldom knows whether they are only temporary, or whether they represent a long-term trend. But is it possible to grant real security to primary producers whose products are always in demand but for which the demand fluctuates violently over comparatively short periods? Or does any attempt to solve this problem entail throwing the baby out with the bath-water?

Voluntary action to reduce the effect of these fluctuations is generally unexceptionable. As Sir Sydney points out, crops may be sold in advance; or the producer may hedge by operating in another market as well; or groups of producers may advise various "buffering" schemes for their mutual security - with or without encouragement from their government. In the days before inflation, there was a valuable safeguard known as private saving. Again, governments or other organisations may supply economic information to assist the producer in his calculations.

But should the state intervene - either by itself, or in co-operation with other states, to enforce some system that guarantees either prices or incomes to primary producers - whether through imposing legal obligations on the primary producers themselves, or through taxing other people and applying the revenue produced as a form of public assistance?

There are innumerable devices by which the state may attempt to control this problem. Price guarantees; subsidies; marketing boards; international commodity agreements - these and other schemes have been applied to a wide range of products in various ways, and many of them are discussed specifically by the author. But his final conclusions are vital: -

"Basically, price stabilisation is too complex a matter to be tackled by any one device. Good results are most likely if approaches are made from several sides at once and if the maximum play is given to private action. Governments can help by facilitating and complementing such private action; by removing discriminatory measures that favour particular groups of producers at the expense of others; and by themselves refraining from political action of the type that has so frequently in the past caused major upheavals."

Of course, one may criticise this scholarly, readable and pervasive work. Perhaps the author does not discuss sufficiently the claims of the consumer; certainly he does not deal with land tenure and its repercussions on production. But this does not destroy the great value of this document. All who are concerned with the economics of primary production may read it with immense profit. It is indicative of a growing trend among professional economists to revert to the ideas of a free economy. The thinking of scholars like Sir Sydney Caine presages the actions of political leaders of the next generation just as certainly as the pernicious ideas of Laski and his associates presaged so many of the heresies of our own day.

REFERENCES

* Prices for Primary Producers by Sir Sydney Caine. Hobart Paper No. 24, Second Edition. The Institute of Economic Affairs Ltd.