Several years ago, unexpected circumstances resulted in a threatened potato famine. The government made the mistake of interfering on the assumption that if it did not interfere the price of potatoes would shoot sky high and people of modest means could not buy them. It was considered “socially desirable” to peg the price of potatoes at a low level. But what happened? With a short supply and an unnatural, low price it was only a matter of a few weeks until the entire stock was exhausted and nobody could buy potatoes at any price. Here is why Socialism or human control of the economy stifles Capitalism and destroys the “natural” laws by which it has so successfully blessed mankind.
If the Government had left the market alone the price of potatoes would have gone up to that point where demand would have carried it. The higher price would have provided an “automatic” control of consumption and would have made the supply of potatoes last much longer because people would have considered it economically necessary to use fewer potatoes. They would have gradually begun to buy substitutes which were in surplus and therefore cheaper. By this means the price factor would have helped people limit their consumption of stocks which were scarce while increasing the consumption of stocks which were plentiful.
All this was turned topsy-turvy when the Government thought it would be “socially desirable” to peg potato prices.
It not only turned out to be unnatural but also impractical.
This brings us to our final comment on free enterprise.
Failure of an American Experiment with Socialism
One of the most impressive modern documents on American free enterprise in action is a dynamic little book by Ezra Taft Benson, former U.S. Secretary of Agriculture, entitled, Farmers at the Cross Roads. It verities with facts and figures the lesson our generation has learned from an experiment with Socialism through Government control of agriculture.
The Government attempted to control farm prices by direct control of farm practices. The so-called “basic crops” which were put under controls were wheat, cotton, corn, rice, tobacco and peanuts. The idea was to protect the farmer by guaranteeing him a certain minimum price. To do this it was necessary to control production. Farmers were therefore restricted as to the amount of acreage they could plant.
The results were amazing. Take wheat for example. More than 30 million acres were taken out of wheat production in an attempt to reduce the supply and thereby maintain a good price for wheat. Each wheat farmer received a Government check which paid him for not planting wheat on a certain percentage of his land. This is what happened:
The farmer used the money to buy better machinery, more fertilizer and additional help so that frequently he harvested as much or more wheat from his limited acreage than he had previously raised on his entire farm. In other words, curtailed acreage did not curtail production.
Furthermore, land taken out of wheat production could be used to raise other crops which resulted in an over-supply of feed grains. Feed grain prices went so low that farmers and ranchers were able to greatly increase their cattle and hog production. This pulled the rug out from under meat prices. The government tried to save the situation by purchasing large quantities of each product which was being overproduced, This, coupled with price supports, encouraged even more people to invest in farming with the result that vast areas of sub-marginal land were opened up for production. Many of these investors were not farmers at all, and these made a loud noise in favor of higher supports when they could not make their inefficiently operated farms pay off.
The Government’s support of artificial high prices also had another destructive influence. It encouraged customers to look around for substitute products or foreign imports. As a result, American farmers not only lost some of their domestic markets, but found they were unable to compete abroad.
What happened to wheat also happened to cotton and the other “basic crops.” They lost markets everywhere. In the case of cotton the government reduced acreage from 43 million acres to 17.4 million. Still the surplus quantities continued to climb. Before controls, U.S. cotton farmers exported 7 million bales of cotton per year. During 1955 they sold only 2 million bales abroad. Foreign cotton growers saw what was happening and doubled their sales because U.S. cotton brokers could not compete. So it was with all controlled areas of U.S. agriculture.
In contrast to this, we find that those areas of agriculture which resisted rigid price guarantees did better. Take soybean farming as an example. These producers used the Department of Agriculture to advise and counsel them but not to control. The Department of Agriculture conducted numerous experiments to reveal new uses for soybeans and encouraged producers to use cooperative associations for the exploring of new markets. Today, soybean farmers supply half the tonnage for high protein feeds—twice as much as that which comes from cottonseed meal. Soybeans have risen to fifth place as the farmer’s greatest source of farm income.
Secretary Benson closes with this significant comment: “A major difference between cotton and soybeans is the fact that cotton decided to fight its battles in the legislative halls, while soybeans decided to fight in the market place.” These are merely a few highlights from the lessons which America should have learned during the past twenty-five years of experimentation with socialized agriculture. There are many things which the Government can do to encourage the “general welfare” of all agriculture as it did with soybeans, but to try to control prices by Washington edicts rather than by supply and demand in the market place proves to be the kiss of death for the handsome goose that lays the golden eggs of American free enterprise prosperity.
It is time to sell ourselves on our own economic program so we can more effectively share it with the rest of the world. We have a great system which is operating with demonstrable efficiency. Here is a summary of what it is doing:
1. Capitalism is by far the best known system to provide for the physical needs of man.
2. Capitalism permits man to satisfy his spiritual needs.
3. Capitalism allows for variation as between individuals.
4. Capitalism is naturally self-expanding which tends to create strong economic ties between communities, states and nations.
5. Capitalism can permit everyone to participate in making a profit, thereby eliminating classes or castes which are inherent in so many other types of economies.
6. Capitalism promotes the “freedom to try.”
7. Capitalism allows the “freedom to sell.”
8. Capitalism allows the “freedom to buy.”
9. Capitalism preserves the greatest single force of human motivation—the risk of failing.
10. Capitalism tends to increase the wages of workers in relation to prices.
11. Capitalism tends to reduce the hours of work necessary to make a living.
12. Capitalism increases the workers’ share of the national income.
13. Capitalism increases the number of jobs faster than the growth of population.
14. Capitalism promotes rapid technological advances.
15. Capitalism is proving to be the most effective means mankind has yet discovered for “sharing the wealth.”
APPENDIX D