|CERES No. 072 (FAO Ceres, 1979, 50 p.)|
Even Adam Smith recognized the social forces involved in the grain trade
by Pierre Spitz
The role of the state in building up and controlling grain reserves is nowhere better illustrated than in ancient Morocco, where the same word - makhzen - was used for both granary and government. This word, taken from the Arabic khazana, meaning "to store," is the root of the French magasin and the Spanish almacen. On the one hand was the bled el makhzen, the country of the plains under strictly hierarchical government, and on the other, the independent country of the mountain communities - bled es siba or, literally, the country of insolence. These communities were organized around the djema'a, the democratic assembly of the village, district or tribe, often idealized nowadays as a model of equal participation in political and economic affairs, and a model of self-reliance. The centralized state was organized around the granaries, accumulating the taxes paid in grain, symbol and instrument of its strength.
Why has the state, throughout the ages, thought it appropriate to intervene in the control of grain wherever it holds sway? Why has it not left the feeding of its armies and its towns to the grain merchants? The reply varies according to the society or historical period under consideration, but one point remains unchanged: grain is not a commodity like all the others. It can be bought and sold, object of speculation, a means of making profit, like any other commodity. With this difference: people have to eat every day, and the harvest is only once, or twice, or at the absolute maximum, three times a year. The volume of the harvest is variable: good and bad years follow each other without any foreseeable order. If the town, the seat of government, cannot find all its grain resources in its own hinterland and his to rely heavily on supplies from far away, other causes of uncertainty arise. Thus, the need to eat every day involves definite needs, which are met by unstable resources.
The fear of going without the commodities necessary for living is proportionate to the income level of each family, the nature of such income, the family's stability and its economic reserves. For the poor, whose resources are uncertain and whose reserves are nil, this fear tends to become a daily anguish. This anguish benefits those who appear to be the nearest and most easily identifiable controllers of the shortages: the grain traders.
What was pardonable
Indeed, the grain trade held the power of life and death. In Greece in the fourth century B.C., it was, unlike other trades, governed by special laws and supervised by special magistrates. The latter, unlike the officials who controlled the sale of all other commodities in Athens, were subject to the death sentence for serious faults in the exercise of their office. What was pardonable for metals, textiles and even oil was not so for wheat. In 386 B.C., some wheat traders who had bought from importers more than their authorized quota were brought before the Council of Athens. Lysias demanded that they be condemned to death, and his speech is a classic accusation of the wheat traders by the people:
"When do they make the biggest profits? When the news of a
disaster enables them to sell at high prices. Your misfortunes are so welcome to
them that sometimes they hear of them before
anyone else, sometimes they invent them (...) And their hostility goes to the extent that, in critical periods, they conspire against you, exactly like your enemies. When wheat is most in demand, they buy it up and refuse to sell it, so that there will be no discussion on the price - we shall be only too happy to buy it, however high the rate, rather than return home empty-handed; sometimes, even in peacetime, it is as though we were besieged by them."
All grain-consuming civilizations have left written evidence of intervention by the state (if there was one) in the grain trade, at least during a serious shortage which, in the towns, threatened the power of the state itself. The individual anguish of urban consumers quickly fans the flames of revolt. From the fifth century B.C., the Roman republic distributed wheat in times of famine to avoid popular uprisings. But the population of Rome continued to grow more quickly than the job opportunities. Tiberius Gracchus, elected tribune in 133 B.C., exclaimed, "Wild beasts have their den, while those who are willing to die for the defence of Italy have no other heritage than the air they breathe. They wander with their women and children without a roof above their heads; they are supposed to be the masters of the world, and they have not even a patch of earth to call their own." In April 133 B.C., he promulgated an agrarian reform law that fixed a ceiling on landholdings, annulled illegal occupation and redistributed the surplus of land thus made available. The reaction of the big landowners was not slow in coming: Tiberius was assassinated two months later.
Confronted with this determination, the popular party decided that if the people could not have land, they should at least cease to live in anxiety for the next day. The State should therefore build up grain stocks and guarantee its citizens a fixed quantity of wheat per month at a fixed price. Ten years after the agrarian reform of his brother Tiberius, Caius Gracchus carried through the Sempronia law of July 123 B.C. for wheat reform. Thenceforth, the State organized the monthly distribution of a fixed quantity of wheat at a fixed price to those citizens holding freedom of the city; that is, all Romans who were not senators, patricians, slaves or foreigners. The poorest were not necessarily beneficiaries of these distributions. The big landowners rose up against this measure, denouncing it as demagogic. Two years later, Caius Gracchus, like his brother, met his death for having defied the rich. However, the latter began to understand that this law helped to guarantee their own security. Also, there were many who freed their slaves so that they could be fed at the State's expense.
In 58 B.C. wheat was distributed free of charge. Twelve years
later, Caesar introduced a radical reform arbitrarily fixing the number of those
entitled at 150 000 (whereas the population of Rome
already certainly exceeded one million). They were a privileged group: retired soldiers, militiamen, small-time officials, grateful for their political patronage, they became the pillar of the Republic and later of the Empire. The poor people in the country, and most of the poor in the towns, were excluded from this distribution. Thus, in Rome, the State controlled the granaries for more than six centuries (and, from the beginning of the fourth century, the bakeries, free bread having replaced free wheat) and drew freely from its treasury to buy internal security.
The first of eight responsibilities
Although these granaries were considerable, their management was simple. Monthly demand was fixed, sale price was fixed or nil. Administrative and military pressure in Egypt, North Africa and Sicily provided the bulk of wheat resources. The Italian landowners also supplied a small quota of wheat. But they found more opportunities to increase their fortunes by living in Rome near the seat of power than by taking care of their wheat production - which is somewhat reminiscent of certain situations today. The rest was supplied by private grain traders, with whom the State negotiated and who, grouped into a corporation, gradually became a real public service. Augustus reimbursed the traders for losses by shipwreck, and in periods of food crisis the Emperor fixed the price at which the merchants could sell. The power of the Emperor, the wealth of the public treasury fuelled by plundering armies, and the vastness of his private fortune exempted him from establishing a tight information system on the geographic distribution of quantities and the price of grain in his Empire.
The same idea of the state selling grains at a fixed price existed very early in ancient China. The annals of Chinese history relate that in a far distant period, fixed by some people at 2000 B.C., the first famine led the legendary Emperor Shun to nominate a minister of agriculture ranking first among other ministers. His primary task was to control the production and distribution of grain. In Confucius' Great Model of the Canon of History, subsistence foods were considered as the first of the eight responsibilities of government and were sharply separated from other commodities, which came in second place. Famines and public granaries are familiar themes in ancient Chinese history.
"When the year is disastrous or prosperous, grain is consequently expensive or cheap (...) If the ruler does not take charge of the situation, traders who have amassed considerable reserves take advantage of the people's need: they sell at prices which bring them one hundred times their original investment."
Such was the view of Kuang Chung, prime minister of Duke Huan in the kingdom of Ch'i, in the seventh century B.C. He therefore recommended the strengthening of the public granaries system. Li K'uei, counsellor of Duke Wen de Wei (about 400 B.C.) did the same, saying: "If grain is very expensive, consumers suffer and their families are scattered and emigrate; if grain is very cheap, the producers suffer and the state is impoverished. Whether the price is very high or very low, the prosperity of the state suffers."
This conflict between producers and consumers was no problem for the Roman Empire in view of its particular method of extracting supplies from colonies under military domination, and also the ability of the public treasury to shoulder the losses. In ancient China, however, the conflict was inescapable. It could not, according to Li K'uei, be resolved except by the establishment of public granaries, which would maintain a stable price satisfactory to both parties, and thus prevent speculation by traders.
Officials of public granaries should, according to him, classify harvests by reference to a seven-year scale: one average, three good and three bad. In considering the range from the worst to the best of these seven years, the scale of harvest varied from 1 to 20. For every good year, Li K'uei indicated what should be stored, consumed and sold. In a bad year, the government should release stocks to the extent necessary to bring prices and consumer levels back to their average figures.
In an even older document, relating to the western Chou dynasty, prior to the eighth century B.C., groups of good years are studied and given names. A nine-year period when it was possible to store enough grain for three years' consumption was called a "period of maturity" (teng). A period of eighteen years (two ten") providing for six years of reserve was called a "period of peace" (p'ing). Three successive teng periods, accumulating enough grain for nine years, constituted a "period of great peace" (t'ai-p'ing).
This was the principle behind the stable-price granary. A student of Confucius at the University of Columbia in New York gave the outlines in a work published in 1911 and dedicated to the economic principles of Confucius and his school. Henry A. Wallace, who became Secretary of Agriculture of the United States in 1933, was very much struck by it. During 1926-27, he wrote several articles in the periodical Wallace's Farmer about the Chinese granary, calling it the Ever Normal Granary (ENG).
"There is more government science in this principle than in the vast majority of plans suggested to put American agriculture on the right track. (...) This plan would involve a certain dose of government interference, which our citizens are perhaps not yet ready to accept. However, it should be remembered that the government intervenes continuously in agriculture and that its interventions are largely responsible for the present surplus of agricultural products, because of the experiments it has conducted, of which the results have been made widely known by its extension services."
The first Agriculture Adjustment Act of 1933 tried to reduce the surplus without foreseeing downward fluctuations. After the severe drought of 1934, Wallace again took up his favourite theme of ENG, coupled with the classical biblical example and a reference to the storage practices of the Mormons of Utah. From 1938 and for several years afterwards, the ENG idea appeared in official documents of the Department of Agriculture. In January 1942, Wallace again had recourse to ENG but on a worldwide basis this time. The proposal by Lord Boyd Orr, first Director-General of FAO, to establish a World Food Board was described to the American public - notably in a series of articles in the New York Times in August 1946 - as an international extension of the ENG preached by Wallace. However, in the varied fortunes of this suggestion, up to the World Food Conference of 1974, no further reference was made to the ancient Chinese policy of price stabilization.
Modern economists interested in grain prices in the less
industrialized countries and refusing to acknowledge that these prices have
anything to do with power relationships, preach private enterprise and
laissez-faire. They persist in trying to prove that the grain traders are not
making excessive profits, and are preferable to incompetent, nonmotivated and
probably corrupt officials. Supposing that the operations of all the middlemen
in the grain trade, of the credit and usury systems and the landowner
relationships were absolutely clear to an investigator gifted with persuasion
and second sight; supposing that traditional economic reasoning showed, with the
aid of these facts, that, on the whole, everybody's profits were normal and
that, as Adam Smith wrote, "freedom of the grain trade is the best protection
against famine"; it would still be difficult to convince those suffering from
hunger and famine of the "normal" character of the grain-trading operations of
the businessmen, big or small. This "normality" is perceived in the abstract, on
assumption that grain is a commodity like any other, whereas in fact the life or death of the weak depend upon it.
To placate the people
In his book Legislation et le commerce des grains published in 1775, Necker, future minister of Louis XVI of France, wrote:
"The Landowner sees wheat merely as the fruit of his labours and the product of the land belonging to him; he wants to treat it like any other income. (...) The Trader sees nothing more in this commodity than an item that is bought and sold; he wants to be able to acquire it and resell it as he pleases. The People (...) think of wheat as an element necessary for their survival. They are in the world and they want to live there. They want to be able to ensure their subsistence by their own work. (...) The Landlord invokes the rights of property; the Merchant, those of freedom; the People, those of humanity. (...) Within this continual clash of interests, principles and opinions, the Legislator must seek out the truth."
The state represented by Necker's "legislator" is the emanation of the most powerful interests in the nation. But this state, which functions mainly for the benefit of the ruling classes, must not only ensure its security vis-a-vis the classes that could be rendered dangerous by extreme poverty, but must also permanently ensure its legitimacy - that is to say, its pretension to represent the whole of society. When a speech calculated to placate the people is not enough, it must take concrete measures in the area most important to the underprivileged classes. In the examples selected from ancient history, and in most of the less industrialized countries today, that area is food.
However, the measures taken by the state must not disturb its social basis. According to the nature of that basis, the state has, theoretically, the choice of different types and degrees of agrarian reform and intervention in the food distribution system. The political situation considerably reduces the field of possibilities. It may however be observed that it is often less costly politically for the state to denounce the excesses of the grain traders, who are, together with the moneylenders, the protagonists of private enterprise in the poor countries, and possibly to take a series of measures limiting their power, than to allow a fundamental agrarian reform to be organized. Particularly since trade can be more easily condemned on the basis of moral or religious principles than on the basis of ownership.
The price of grain
Economists who refuse to see any social or political factors in the price of grain forget, or pretend to forget, that Adam Smith wrote that any new set of rules proposed by traders should be examined "with extremely suspicious interest," since it emanates from "a type of men (...) who usually intend to cheat and even oppress the people and who have, consequently, on many occasions both cheated and oppressed them. To condemn state intervention in the control of trade in subsistence commodities is to ignore the contradictory character of the social forces on which the state relies for support, and is, despite declaration of intent, to join the side of the powerful."