Socialist Action /January 1999
Farmers Ruined as Hog Prices Collapse:
More Evidence of the Developing Global Economic Crisis
By NAT WEINSTEIN
A report by David Barboza appeared in the Dec. 13 New York Times under
the headline "Farmers Are in Crisis As Hog Prices Collapse."
Barboza reports on the drastic decline in the prices farmers are now
getting for hogs raised for the market. His report partly explains how it
came to be. And, whether intentionally or not, it illustrates the current
trend toward a generalized global collapse in the prices of all commodities.
Since the dollar and other currencies vary in value and price, like any
other commodity, they too will fall in value.
However, the effect of a fall in the value of money (deflation) has hidden
in large part the real rate of inflation. This seemingly contradictory phenomenon-deflation
and inflation occurring simultaneously (see box)-has already broken out
of control in Southeast Asia and Russia and will soon hit Japan and inevitably
become generalized globally in the period ahead.
The Times reporter notes that the going price for hogs has not
slipped so low since 1971, and "with inflation factored in," Barboza
writes, "hog prices stand at their lowest level since the Depression."
He explains its devastating effect on thousands of farmers who have staked
their lives on hog raising to make a living and, in part, how it happened:
After years of spectacular growth and soaring demand for pork products
around the globe, the nation's hog farms-many of which are now huge corporate
operations-produced the equivalent of a bumper crop of pigs, a supply so
huge and unwieldy that slaughterhouses this fall are overflowing.
As a result, meat packers are no longer bidding up [more accurately,
are bidding down], the prices of hogs and farmers-who have plowed great
sums into new hog operations-are facing devastating losses and the prospect
of financial ruin. [F]armers are beginning to talk of shooting pigs that
are too costly to feed and too undervalued to sell.
It would be easy, but one-sided, and thus false, to dismiss the crisis
facing farmers as due to an irrational expansion of pig production motivated
by greed. This is irrational, of course, since production driven by
blind market forces. To call it greed reduces the anti-social mechanism
of the market-driven economic system to a matter of morality.
Whether the farmer, or other producer of commodities for the market,
is "highly moral" or not is irrelevant. If you are in the business
of producing commodities for the market, you must be competitive or your
business will go under. Consequently, it is the market-driven economic
system that is amoral, and that is the root of all the evils increasingly
plaguing the world today.
Large corporate farms
The Times reporter points to the heart of society's problem. After
describing the plight of a middle-aged pig farmer in Iowa who had sold 230
hogs to a meat packer that morning-at a loss to him of more than $14,000-he
reports:
There is a sense among some farmers that something bigger is amiss; the
National Farmers Union thinks that the advent of large corporate farms is
squeezing smaller farmers out and many find it disturbing that meat packers
and retailers are ringing up huge profits while producers face collapse.
This sums up in one sentence the two factors at work, both of which are
arousing the anger of farmers. First is the uninterrupted, irresistible,
process by which large, highly-mechanized corporate agricultural entities
are displacing working family farmers-the number of hog farmers have declined
from three million in the 1950s to 138,000 today. But despite the massive
decline in the work force, the industry will produce a record 19 billion
pounds of pork this year.
(The same capitalist mechanism afflicts-in different forms, but no less
harmfully-all those who must work to make a living.)
And second, while prices paid to producers have collapsed, prices to
the consumer have remained essentially unchanged. The irrationality of this
bizarre and contradictory movement of prices serves to magnify the sense
of injustice felt by farmers facing severe financial loss-and for many of
them, facing their life's work going down the drain.
What is only implied in this New York Times report, however, is
how the system compelled farmers to go ever deeper into debt to buy more
productive equipment in a losing race with their billionaire corporate competitors
for shrinking markets.
This race for higher rates of productivity is what led to the glutting
of the market for hogs-and bankruptcy for the smaller and least capitalized
farmers. It is a glaring example of the intrinsic tendency toward crises
of overproduction in every sphere of world capitalist economy.
Busts must always follow booms
A glance back at the evolution of agriculture will put the current plight
of farmers in perspective:
In 1930, the total of working farmers in the United States was 10.3 million,
representing some 17.4 percent of the total work force. That was one year
after the Great Depression began. By 1990, the number of farm workers declined
to 2.4 million, representing some 2.4 percent of the U.S. work force.
Meanwhile, the production of an abundance of agricultural and other commodities
has been skyrocketing. And the declining number of working farmers, which
has continued uninterruptedly to this day, is now entering a period of even
more rapid decline.
Agricultural production, like any other sector of the world capitalist
economy, starts out with hordes of private enterprises in competition for
finite markets. The history of capitalist production shows that the least
efficient enterprises are gradually eliminated or absorbed by the more efficient
producers.
Today, even billion-dollar corporate empires-national and multi-national-are
being driven into bankruptcy or gobbled up by their more efficient competitors.
("Efficiency" is largely dependent on the quantity of capital
available to the given enterprise. Access to capital enables an enterprise
to buy the latest and most productive machinery. Thus more of a given commodity
can be produced at a lower unit cost. This, in turn, allows the more efficient
enterprise to undersell its competitors and drive them from the marketplace-resulting
in a larger share of the market won for the victor.)
Whereas small-scale manufacturers (blacksmiths, iron-mongers and other
small industrial enterprises) were among the first to be eliminated or absorbed
by large-scale productive enterprises, agriculture lagged behind, allowing
relatively small-scale, family-owned farms to persist somewhat longer than
in the industrial sectors.
But to compete, these family farmers are compelled to mortgage their
farms to buy more productive machinery. And when prices periodically collapse,
as is now the case, such farmers are compelled to draw on their savings
to stay afloat. That's when family farmers can lose everything-their land,
their farms, and their life savings!
Postponing the inevitable
Karl Marx foresaw 150 years ago, at the dawning of the globalization
of capitalism, what we are witnessing today. In one of history's most prescient
documents-the "Communist Manifesto"-Marx and his closest collaborator,
Frederick Engels, wrote:
The need of a constantly expanding market for its products chases the
bourgeoisie over the whole surface of the globe. It must nestle everywhere,
settle everywhere, establish connections everywhere. ... Modern bourgeois
society, ... [which] has conjured up such gigantic means of production and
of exchange, is like the sorcerer, who is no longer able to control the
powers of the nether world whom he has called up by his spells....
It is enough to mention the commercial crises that by their periodical
return put on its trial, each time more threateningly, the existence of
the entire bourgeois society.... [A]nd why? Because there is too much civilization,
too much means of subsistence, too much industry, too much commerce.
To be sure, the current global economic crisis is still in its earliest
stages. But the most decisive indicator of the coming economic storms is
being registered by the collapse of basic commodity prices. The rest of
the world of commodities, and their producers in the developed industrial
countries, only seem unaffected by the first manifestations of an upcoming
deflationary storm.
And while capitalist economic commentators have done their best to avoid
calling the currently unfolding crisis by its right name, the most perspicacious
of them know and have begun to acknowledge the impending crisis.
Nevertheless, they are ever hopeful that they can find a way out before
the entire economic applecart of global capitalism tips over. While there
may always be a way to postpone the inevitable, however, the longer it is
postponed, the more destructive will be the system's collapse.
Value, Price and Trade Wars
"Deflation" describes the falling price of commodities,
which reflects a fall in their value (price and value are related,
of course, but are not the same thing).
Commodities can express their value most reliably in other commodities.
Historically, the tendency is for one commodity-with special qualities-to
be singled out from the world of commodities to function as the measure
of value of all commodities-a sort of a scale "weighing"
(i.e., measuring) the values of all other commodities-what Marx called a
"universal equivalent."
Gold and other precious metals have mostly served as the money commodities
throughout the history of commodity exchange. Gold and silver have served
as the preferred money commodities because, among other things, these metals
don't lose their value in use or in exchange by oxidation and are easily
divided and recombined at relatively low temperatures.
However, starting in the closing days of World War II, by agreement between
the soon-to-be victor nations, gold has gradually been replaced by paper
money not backed by any commodity selected by the objective laws of commodity
exchange to serve as the universal equivalent. Thus, each country "arbitrarily"
sets the relative price of a country's currency (paper money)-but in reality
measuring its value in the prices of one or several of the world's currencies.
Consequently, since there is no objective universal equivalent (like
gold or silver) whose value is determined by its cost of production, all
currencies "float" against each other-that is, they measure their
values in the price of other currencies.
Thus, there is no way to know the real value of currencies and commodities
since there are many artificial mechanisms to momentarily raise or lower
the price of a country's currency. That explains the many unpredictable
and anomalous small and large economic crises.
No one, for instance, foresaw the collapse of the Asian economies because
there is no objective measuring stick by which these countries' monetary,
financial, and economic health could be determined.
But how else explain the over 200 percent rise in basic commodity prices
in Indonesia since December 1997-while the value of the country's currency
and exported goods has plummeted?
This explains, too, why the deflationary manifestation of the unfolding
crisis of overproduction has already begun to precipitate a worldwide wave
of protectionism. Each capitalist state is erecting tariffs to keep out
imports that it claims are being dumped in its domestic market by other
states.
Thus, the U.S. steel industry's demand for protectionist tariffs on foreign
steel is only the beginning of what is certain to be the mother of all trade
wars.
The imminent commercial war has just been symbolically advanced by the
Clinton administration's threat to slap 100 percent tariffs on $500 million
worth of European goods. The pretext was Europe's alleged refusal to open
up its market to bananas shipped by two American companies, Dole Food and
Chiquita Brands International.
Unfortunately, it can only get a whole lot worse before it can get better!
Socialist Action /January 1999 |