The Invisable Hand Helping Agriculture

the-invisible-hand-of-agriculture

Adam Smith, the famous 18th Century Scottish economist, was the first to recognise that improvements in agriculture is one of the founding drivers of economic growth. His theories which he outlined in The Wealth of Nations around self-interest, specialisation, trade and the invisible hand of the market, have been key to understanding the way the economic world works.

This view was rejected by another notable economist Carl Marx, who was also particularly interested in agriculture.  He wrote extensively about the harmful consequences of capitalist farming techniques, concluding that the family farm model quickly exhausts the soil in the interest of maximizing profits.  A view too often repeated today by uninformed politicians.

Fortunately, Marx was wrong, but it took the deaths of millions of people around the world from starvation under communist inspired collectivisation to prove that the theory did not work in practice. The lesson that state ownership of farm land leads to failed farms is still being learnt.  At best, governments can be absentee land lords, as we have in Western Australia with our 450 pastoral leases, but even then the outcomes as we have seen recently are not always good for the livestock.

Fortunately for the western world after communism emerged, another economist came along by the name of Maynard Keynes. His theory known as Keynesianism, developed during the great depression, identified the importance of government spending to stabilise the economic cycle. Unfortunately, government enthusiasm for this new economic model led to an enlargement of the role of the state in the economy and endless demands for ever higher taxes to fund spending.

It also saw farmers demand the establishment of government-backed quotas, minimum price schemes and marketing authorities to help save the family farm from the ravishes of the economic cycle. These schemes led to global farm protectionism on a mega scale as seen today in the United States and the European Union. Even Australia experimented with a range of protection measures including the Australian Wheat Board and the Australian Wool Corporation along with hundreds of other marketing schemes.

This wave of government intervention in the market ultimately led to yet another economic theory developed by the great American economist Milton Freedman known as Monetarism. Freedman was into free markets represented by the absolute minimal of government intervention and is famous for calling out the United States Agricultural Adjustments Act 1933, which offered temporary subsidies to farmers to reduce supply and therefore increase prices.  As he observed in the 1970s, ‘there is nothing so permanent as a temporary government program.’  Unfortunately, while Australian farmers have been weaned off government support they still suffer from the global consequences of temporary/permanent US and EU farm protection.

Locally we have had our own notable free market economist who has had a large impact on Western Australian agriculture. His name was Henry Schapper, responsible for founding the UWA school of agricultural economics and was dean of the Agriculture faculty in the 1970s and early 1980s. He became famous for telling WA farmers to ‘Get Big or Get Out’, which did not go down well with the local agrarian socialists who demanded ever greater government subsidies and supports to counter the downward march of global commodity prices.

Schapper was also a major influence on another local thinker – the self-taught economist, Doodlakine farmer and federal ALP finance minister in the Hawke government, Peter Walsh. His 1995 memoirs, Confessions of a Failed Finance Minister is rightly remembered as one of our best political autobiographies with tales of his fights with farming rent seekers and battles with the economically illiterate from both the left and right.

Between Smith, Marx, Keynes and Freedman, we have four influential international economists who have had a major impact on global government policy in relation to agriculture. Locally we have had Schapper and Walsh who have driven Western Australian agriculture towards what it is today – big, competitive and largely free of government involvement.

As Adam Smith stated in the ‘Wealth of Nations’ ‘The land constitutes by far the greatest, the most important, and the most durable part of the wealth of every extensive country”. As we move into our fourth, fifth and sixth generations of family farmers it is clear that this model is a key part of successful, sustainable Western Australian agriculture. What we don’t need is Australian governments to follow high taxing interventionist economic theories, or state governments thinking that leasehold is better than freehold.

A reading of the theoreticians and influencers of agricultural economics will always lead us back to Adam Smith’s theory of the power of self-interest and the invisible hand of the market.  As the biggest land holder in the state, maybe the state government should delve into the Wealth of Nations and concentrate on turning over well-watered parts of the pastoral estate into freehold land and let the self-interest of farmers and the invisible hand get to work developing more successful family farms.

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