Parity: The Key to Economic Sovereignty

Those who don't learn from history are doomed to repeat it

“I think Cargill’s view is much like the European view, or the Japanese view. They generally regard the United States as a grain colony.”
– Bob Bergland, former US Secretary of Agriculture (quoted from Ralph Nader’s The Big Boys)

It was no accident that Franklin Roosevelt’s proposed “second bill of rights” contained within it’s short list of particulars:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living; and
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.

A key component of the transition from pre-war depression to post-war prosperity had nothing to do with the war, but with the now little-known “Steagall Amendment” attached to a 1941 defense act.

The amendment established the first “parity price” for basic agricultural commodities. In effect, this meant that the price a farmer received for his produce was based not on the going market price, but the cost of production. For the first time in decades, parity gave farmers the stability to plan next years’ harvest, and the profitability to pay off debts and invest in the future.

Carl Wilken, whose work is explored in depth in the late Acres, USA editor Charles Walters’ Unforgiven, showed with historical data that farm income has a natural price relationship (~1:7) with earned national income. When farmers receive their due, as in the period of 1946-1950, they invest in machinery, labor and efficiency. Every dollar of farm income circulates through the economy as the credit that provides seven dollars of wages, profits and capital investment. When farmers are underpaid, the real economy contracts accordingly, and debt takes its place.

*All data from Unforgiven by Charles Walters

Various parity rates, all near 100%, were enacted throughout the 1940s, and officially ended in 1953 under Eisenhower. Data on farm income, national income and debt shows the 1950s and 60s in America not as a true boom time for earned income, but a hangover from the protectionist 1940s, beneath an ever-expanding debt bubble that finally burst in the 1970s, giving way to financial speculation, free trade and globalization.

The Agricultural Cartel

The “amber waves of grain” sweeping across America’s oceanic plains account for nearly half the world’s grain exports, much of the world’s livestock feed, a huge domestic market and a growing bioethanol industry. Atop this harvest sits a small cartel of grain traders, dominated by Minneapolis-based Cargill.

Cargill is America’s largest private corporation, dominates global grain trading, and is a key player in shipping, milling and other integrated services. The company and its activities are notoriously opaque. It was profiled in some depth in Dan Morgan’s excellent Merchants of Grain and has been connected by Executive Intelligence Review to the British oligarchy’s larger network of natural resource cartels.

Cargill’s business model is typical of the “free market,” and can be seen in the oil and mineral cartels. The company does not produce grain, but purchases it from “independent” farmers through futures contracts. By dominating on-the-ground intelligence (which is protected by its status as a private corporation) about global grain planting, harvest and logistics, it profits by keeping purchase prices low, bidding up the value of its purchase or betting against itself in the futures markets, and skimming off currency exchange rates as it flash-trades the harvest among a network of front companies located in offshore tax havens.

The effect of Cargill on the economy is to keep the farmer uncertain, on the edge of bankruptcy, and dependent on cash payments from the US farm bill, which should be seen not as a bailout of farmers, but of the grain cartel.

This cartel model in agriculture was set back during the decade of parity, and regained strength as “free trade” grew to dominate nations during the second half of the 20th century.

How to kill the grain cartel and Monsanto, put 2 million farmers back on the land and stabilize the national economy with a one-page law

The basic model of the Steagall amendment can be reinstated immediately, using interest-free credit from either a new national bank, or from the politically weakened Federal Reserve, as Roosevelt had done. It should be stressed that none of this is possible in a deflationary system like the gold standard.

1. Calculate average production costs (parity) for key commodities like corn, wheat, potatoes, oils, etc.

As I have found myself, searching the USDA and IRS figures for production and price is no small task or great help. Unforgiven chronicles the efforts of Carl Wilken and others over many decades just to assemble good data. Former federal agencies like the customs bureau and USDA have long been turned into rubber stamps for corporate interest.

2. Guarantee the purchase of those commodities at rates at or above 100% of parity.

3. Purchase, as needed, and re-market, with any needed subsidies, those commodities.

These commodities would be re-sold into market auctions, stored as much-needed grain reserves, issued as direct foreign aid to places like subsaharan Africa, and/or used to balance foreign trade with nations like China.

I have not found or assembled data to suggest how the price-to-consumer would change before and after parity. Because food prices are so heavily affected by market manipulation, a new parity law would have to err on the side of caution (ie 110% of cost estimates) and settle in over the course of several years. I assume that selling (for example) fairly-priced organic potatoes through a nationalized grain marketing facility would require some initial subsidy to prevent McDonald’s fries from increasing in price. The added national debt would eventually be canceled by the increased economic activity and tax income from adding more and less-concentrated farms to provide this production.

A parity law could:

  • Kill GMOs. Simply add standards that will only purchase non-GMO grain. This will in fact be necessary to use these subsidized commodities for trade with nations that ban or label GMO food.
  • Restore family-scale farms. Under the parity period of the 1940s, midwestern farms averaged about 40 acres, typically with a grain cash crop, and integrated hay, meat and/or produce sales. Today, 2,000 acre industrial-scale operations proliferate – with such low prices, this is the only scale able to produce cheaply enough for the market. Imagine the impact of having 50 independent farm families tomorrow for every one today.
  • Promote sustainable agriculture. Any sane agronomist, ecologist or farmer will admit that organic methods are better for the farm, the farmer and the consumer, and that we have long passed the point of diminishing returns for scale and efficiency. But beyond a small, privileged class of consumers, the market demand for organic food is not high enough to grow the farm economy. Organic food will never be widely grown or consumed by the general public until it is subsidized. Simply set parity accordingly higher for organic grain, and preferably reinstate a program like FDR’s Civilian Conservation Corps to help bring state-of-the-art agronomic methods to America’s countryside. We need to bring the cost of organic production down and create more opportunities for the virtual slave labor farmworkers, even in organics, to start their own family farms.
  • Return investment capital to the real economy. Parity will fatally weaken the grain cartel and commodities futures markets, which is why it has been effectively swept under the rug of history. Imagine putting $tens of billions back into the hands of farmers who will establish local credit unions, small-town economies, privately owned commodity storage and processing facilities, and who will create an explosion of demand for small tractors, pumps, fencing and other capital equipment.

Parity today, prosperity tomorrow

It’s admittedly difficult to imagine many of our current elected officials voting for a law to take power from a global cartel and give it to family farmers. But what are the grounds for opposing parity for farms and other areas of the economy? It doesn’t raise costs to the consumer, it liquidates its own debt, creates millions of jobs, improves food quality and grows the economy. Parity price is not based on technocratic projections, but on a simple yearly balance sheet. As efficiency improves, prices drop. Parity is a “free market” within a protected price. The only losers are Cargill, Monsanto and commodity speculators, all of whom are parasites on the real economy.

To quote Benjamin Franklin:

“There seem to be but three ways for a nation to acquire wealth. The first is by war, as the Romans did, in plundering their conquered neighbors. This is robbery. The second by commerce, which is generally cheating. The third by agriculture, the only honest way, wherein man receives a real increase of the seed thrown into the ground, in a kind of continual miracle, wrought by the hand of God in his favor, as a reward for his innocent life and his virtuous industry.”

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8 thoughts on “Parity: The Key to Economic Sovereignty

  1. I’d have to argue against Franklin’s quote, and suspect if he were alive today he’d agree with me. Material wealth is the by-product of the human-mind. Thus, if you want to increase wealth then the goal should be to increase the powers of the human-mind.

    Excellent article!

    • deadeyeblog says:

      Thanks Kenneth,

      Yeah – I’d basically agree with that, and I suppose Franklin would. Two caveats:

      1. The human mind has material prerequisites (food first and foremost).

      2. Material progress requires economic exchange, which begins with production of basic raw materials (“all new wealth begins in the soil”). What’s the incentive for a farmer to toil from dusk til dawn unless he can exchange that labor for shelter, some material comforts, healthcare, his kids’ education, retirement, etc.?

      I don’t think an economic system should try to put people on a treadmill for the benefit of society (quite the contrary – I think the point over time should be to increase average wealth while reducing average work). But I don’t agree with schemes like zeitgeist or social credit that expect production to just happen without some need or incentive for producers. If you gave me a million bucks, I’d probably spend my time reading and painting 🙂

      • Excellent, and I completely agree.

      • if people should be on a treadmill, it should be producing honest things, like grain, or producing what people want from others, rather than engaging in the industries of theft or whatever they would prefer to be doing.

        i believe a citizen dividend should be funded, but not as a generalized social credit, though social credit would provide a certain amount of economic justice for an unjust economic system which does not even try to be honest.

        i would rather the citizen dividend be a justified dividend funded by justified sources where agrarian and monetary justice is being achieved, rather than an undirected and blind sweep of social justice, which would likely miss in providing economic justice since it doesn’t address the fundamental injustice.

        the free market should be respected to make sure supply and demand meet but not at the expense of ignoring fundamental things like title to land and declaration of a legal tender being state intervention in free markets and how to address that intervention where it does not violate natural right.

        “Wherever, in any country, there are idle lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right.” — Thomas Jefferson

  2. economic injustice and financial juggery exists and will persist despite our best attempts to create a perfect political economy. pragmatic solutions to poverty are justified, especially in regards to financial juggery being used to interfere in free markets, land use, and agrarian issues, as long as the problems are made better rather than worse, as “charity is false, poisonous, and futile as a substitute for economic injustice,” meaning the solution should be directed with reason.

    funding a citizen dividend would help compensate for injustice even though it might seem undirected. the universal and flat nature of a citizen dividend is reasoned to be directed in that it is not directed to favor one person or situation over another. complexities of reality are difficult to grasp and understand. one must have good reason and respect of free markets and fundamental principles to determine what would help and what would not help.

    i’m not sure of the principle of parity, of the state setting prices according to cost to produce and whether giving away excess grain is the best organization of markets, though it could be argued that guaranteeing everyone is fed is good oversight of land use and markets, along the lines of the reasoning of franklin and fdr, whether it creates a state of dependence or a excessive allotment of labor towards producing food. the primary concern would be whether land would be made more unaffordable if land for housing and other fundamental industries is over-capitalized for production of agrarian products since profits are guaranteed. financial capitalists would invest in agriculture like they invest in treasury bonds, in that interest is guaranteed. the upside is that we would eat well even if it is under a bridge being used by a farm.

    • land value taxation and debt-free money would reduce the costs and risks of land value and interest. people would be able to grow their own food, especially if combined with a citizen dividend. as far as other nations, charity should remain charity and the state should serve as an example as a way to guarantee that the profits of the earth is for all. if landed wealth of the nation should be excessive, the profits of the nation could be shared with others. if the farmer is not able to secure a profit, they should be able to secure a meal and home on land made virtually free by land value taxation, especially if the land is made effectively absolutely free by funding a citizen dividend with collected land rents, to be given to all citizens.

      i’m not completely against the idea of an excess production of food. i’m just not sure of the means. banning or regulating financial juggery would be an option. perhaps farmers should be provided a public option in agriculture insurance to manage the risks of market prices not meeting the cost to produce due to excess production. perhaps allowing the government to purchase up to a certain amount in excess supply and give it away would be necessary as part of that agriculture insurance with premiums paid by farmers perhaps as part of their agrarian justice, their land value taxation and citizen dividend.

      • deadeyeblog says:

        Good thoughts. A couple of my own:

        1. The only thing now preventing global famine is the US farm bill. Because the costs paid for grain are so low, debt and welfare are the only things keeping farmers going. (There have been some up years recently because of ethanol and derivatives, but prices have been as low as 10% of parity.)

        You could argue that just getting rid of the welfare would create new market forces to drive the price back up, but too bad if everyone goes out of business and dies in the process. Plus, the grain cartel came into existence only because they provide a hedge against uncertainty. Take away the uncertainty by stabilizing price, and the cartel disappears.

        As for insurance, the USDA does sell crop insurance (for losses due to weather and disaster). I’m not too sure on the details (http://www.rma.usda.gov/policies/), but I think a “public option” program for that, if that’s not what this is, would be a good idea.

        2. Parity would tend to reduce the average size of a farm (as it did here in the 40s), but probably wouldn’t increase total acreage too much (like I suggested, surplus isn’t a huge problem). To prevent speculation, you’d probably need some new reforms to prevent absentee landowners, to limit the total acreage a person can own, etc. I’m not too sure on how those issues were dealt with in the 30s and 40s, but both the US and Germany instituted parity prices to great effect. I would strongly encourage you to check out Charles Walters’ “Unforgiven” or see what you can dig up at normeconomics.com

        As for profits being “guaranteed,” they’re only guaranteed if the farmer beats the average production cost. A person can’t just decide to become a corn farmer tomorrow or next year and have any hope of success. Plus, I don’t think everyone wants to do that, and prosperous farmers need other people to build tractors, fences, hoop houses, schools for their kids, washing machines, etc.

        3. I grow a fair amount of my own food (produce anyway), and have to chuckle at the idea that people should all just grow their own food and be self-sufficient. Gardening is a fine hobby, but we’ve got frigging robots landing on Mars and people are looking to Cuba and Bulgaria for answers. A bit of technological efficiency is a good thing. Certainly we’ve gone too far, but we’re all screwed if plan B is for everyone to spend 5 hours a day tending to the potato patch.

  3. […] prevent the former from polluting the latter. The “liberty” of futures traders and the grain cartel, for example, must not supercede the right of farmers to make a fair […]

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