Paarlberg, Don

English

Research Papers in Economics

VALUES,  BELIEFS AND  MYTHS  IN
AGRICULTURAL  AND  RURAL POLICY
Don Paarlberg
Professor Emeritus, Purdue University
The elements common  among values,  beliefs and myths are  their
subjective  nature, the absence  of rigor and the fact that all can  em-
brace enough truth to make them credible and enough error to make
them dangerous.  I shall therefore  overlook any differences  and treat
them essentially  as one.
Economics  professes to be value free, objective  in its approach and
rigorous in method. Our discipline thus strives to be the antithesis of
value, belief and myth.  In our analyses we attempt  to abstract from
these unwieldy matters.
How much of the real world  are we economists leaving out by set-
ting aside those aspects of life that are not amenable to our method?
Maybe  most  of it.  At last year's National  Public  Policy Conference
there  was general  agreement that Congress  paid little attention to
economic  analyses  when  developing  the Food Security  Act  of 1985.
John  Maynard  Keynes  attributed  less  importance  to  objective  fact
than to ideas.  "Indeed"  said he of ideas, "the world is ruled by little
else."
Myths Provide Consensus
The body of proven and established factual economic truth is insuf-
ficient  of itself to provide  the  basis  for  a  successfully  functioning
economic,  social  and political system.  Myths  are  needed to  provide
the consensus necessary for collective action.
Because  this family  of unproven tenets is so different from the for-
mat of the economics  profession,  we tend to reject all myths  as bad.
But this is a great error.  I list a number  of beliefs, values or myths,
all outside the realm of rigor or proof, that contribute  greatly to the
well-being of the Republic.
One  is a commitment  to honesty, truth, trust and belief in  some-
thing beyond  ourselves which, while  certainly  not universal  among
us, is nevertheless  sufficiently  widespread to permit the  successful
111functioning of the society.  Belief in these values makes them valid;
disbelief would make them worthless.
Another  is  belief in the efficacy  of representative  government,  a
self-fulfilling  idea  that,  if eroded,  would  lead  to  anarchy.  We  ap-
proached that during the 1960s when the myth was weakened.
Yet another  is the money illusion that expresses faith-sometimes
unfounded-that a dollar borrowed  can be repaid at some later time
with a dollar of comparable worth. During the 1930s the expectation
of an increase in the purchasing  power of the  dollar shattered this
myth with disastrous results.  During the '70s  the anticipation  of a
decrease in the purchasing  power  of the dollar weakened the myth,
also with hurtful  consequences.  The nation has a great stake in per-
petuating the money illusion.
Worst-case scenarios, if widely propagated, can be  self-fulfilling be-
cause they erode the trust, the confidence, the myths, if you will, that
permit society to function successfully.
An Agricultural Myth
A myth that explains much agricultural legislation is agrarianism
or agricultural  fundamentalism,  or the  agricultural  creed,  or com-
mitment to the  family  farm,  call  it what you  will.  This  idea came
from  the French  physiocrats  of 250 years  ago,  led by  Quesnay,  who
taught that land  is the sole  source  of new wealth and that farmers
were therefore the most worthy of citizens.  The  idea was powerfully
advocated in the United  States by Thomas  Jefferson and took deep
root in this country  which had an abundance  of land, a burgeoning
population intent on settling the West,  and a belief in entrepreneur-
ship. The most crude form of this belief is that propagated during the
'40s and '50s by Carl Wilkin of the upper midwest who taught that a
dollar originating in or supplied to agriculture  would multiply itself
seven times as it worked its way through the economy.
Agricultural  fundamentalism,  in  my  judgment,  was  the  prime
mover  behind the Food Security Act of 1985.  The  myth is embraced
by  many nonfarm people as well as by farmers,  and,  in my estima-
tion,  agriculture's  legislative  gains  are not so  much  prizes won  by
political power as benefits conferred by an indulgent state.
This myth is eroding gradually as agriculture loses its uniqueness
and enters the mainstream of economic, social and political life. But
it is still powerful.
Ten Economic  Myths
I come  now to myths, beliefs and values, most of which are clearly
in the economic field and have been demonstrated to be fallacious by
reputable  empirical  studies  as well as by  economic  theory.  Each of
112these has an ingredient of truth sufficient to give it longevity.  I list
ten of these, a number that is not exhaustive but that has taken on
certain status ever since the time of Moses.  You will note that some
of these myths  are embraced  by the political  left  and some  by the
political right, but I have not tried to categorize them so.
1.  The  myth  that economic life is a zero-sum game  According  to
this myth, utility,  like matter, can neither be created nor destroyed.
There  is just so much  of it and if one person is better  off,  someone
else  must be  worse  off.  If a middleman  is seen to  prosper, he  must
have exploited either the farmer, the consumer or both. By this myth
all forms of trade are robbery.  Belief in this myth leads to regulating
virtually all forms of trade.
2.  The belief that to  reward  people equally is to treat them fairly.
Farm legislation generally endorses this myth because it makes ad-
ministration less difficult. There are various kinds of wheat: hard red
winter, hard spring, soft red winter, western white and durum. They
have different  uses. In total they may be in surplus but there may be
a tight supply for one. Nevertheless  we cut all acreages by the same
percentage  in  accordance  with  the  myth  that  to treat  the  wheat
growers equally is to treat them fairly. It may be equal, but it is not
equitable.
If we pass out $1,000  each in deficiency payments to two farmers,
we profess to have treated them equally in spite of the fact that it is
the marginal  amount  that keeps one  solvent while  to the other  it
goes, unspent, into a certificate  of deposit.
One may recall Aesop's fable about the fox who invited the stork to
dinner and served soup in a shallow plate. He could lap it up but the
stork could only  dip in the tip of his long bill. The two were  served
equally but not fairly.
We economists contribute to the myth by failing to apply to income
the principle of diminishing utility.
As professors we often fail to recognize the individual attributes of
utility. Small wonder, then, that the laity should be confused.  Equal-
ity, the political  watchword,  is the invention  of administrators  who
are unable  to distinguish between the differing utilities of individ-
uals.  The distinction is easily made in the market.
If rewards were equal, incentives would be abolished and the main-
spring of the economy would  be broken. Equality,  if pursued gener-
ally, would result in a dysfunctional  economy.
3.  Myths  about the  supply and demand curves.  A popular  myth
holds that price  can be set at any level without effect on the supply
offered or taken.  By this myth the support price  can be high or low
with  no  other  consideration  than whether  the  legislator  favors  or
opposes  farmers.  Diagrammed  in  economic  terms,  the  supply  and
113demand curves are superimposed on one another and are perpendicu-
lar to the base.
A related myth says the positions of these two curves are the same
in the long run as in the short run and that analyses based on short-
run behavior  can be applied in the long run.
The grandfather  of analytical  errors is that mythical  acrobat, the
backward-bending  supply curve.  According to this idea, if the price is
low farmers will produce more to maintain their incomes. There may
be  a few individual  farmers,  with unused resources  and no alterna-
tives, who behave this way, but as a generalization  it is wholly false,
unsupported by any professional empirical research.  It is human na-
ture to observe  and generalize  from the unusual.
The  myth has wondrous  flexibility.  If supplies  are abundant, the
clamor is for higher prices  so farmers won't need to produce so much.
If supplies are  short,  the demand  is for higher prices  to encourage
farmers to produce  more.
4.  The fallacy of composition. The error here is the idea that what
applies for the individual  necessarily  applies for the  group.  We  en-
courage the individual farmer to adopt new methods,  thereby lower-
ing his costs  and  increasing  his profits.  This  is all  well and  good.
What is forgotten by many people in research and extension is that if
many farmers  do this, the supply curve moves to the right, the price
falls and the anticipated profits do not occur.  Willard Cochrane calls
this the treadmill,  which it is. Legislators, who  perceive this anom-
aly,  support  both  horns  of the  dilemma,  simultaneously  voting  for
programs that increase farm production and those that decrease  it.
Saving is prudent for the individual. But if all save,  and save exces-
sively,  the  country  will be  plunged  into  depression,  as we  learned
during the 1930s.  Paul Samuelson  calls this "the paradox of thrift,"
an apt and truthful phrase.
Adam Smith, the founder of our faith, gave oxygen to the fallacy of
composition  when  he wrote:  "What  is prudence  in  the  conduct  of
every private  family  can scarcely  be  folly  in that of a great  King-
dom." With such  prestige, this is a very durable  myth.
5.  The myth that what follows is the result of what preceded. This
myth has such status that logicians have labeled it a classical fallacy.
The  phrase  is post hoc,  ergo propter hoc (after  this and,  therefore,
because  of this). If one  of the political parties takes  power from the
other and farm prices fall thereafter, the disaster is attributed to the
change. The Agricultural Acts of 1970 and 1973 were widely believed
to be  accountable  for the  farm prosperity  of the decade.  In reality
that experience was primarily the result of other causes.
This myth is so flimsy that an analyst feels uncomfortable focusing
on it. But it is one of the most powerful and persistent of all the farm
myths.
1146.  The egocentric myth. Preoccupation  of farm people with matters
close  at  hand  has  led many  to explain  all  events that affect  farm
people  as having originated within agriculture.  Macroeconomic  fac-
tors are ignored.  The myth is that the supply of farm products is the
all-dominating  force that determines price.
The  price-support  production-control  legislation  of the  past  half
century  is  a  manifestation  of this  myth  and  has  strengthened  it
mightily. This is really a retrogression.  The farm policy people of the
late  19th century  did  not consider  agriculture  to be self-contained.
They were  of the opinion that the prices they received  were in part
the result of monetary  policies,  which  was the  case,  and they took
positions on such issues.  The most potent events that have  affected
agriculture  during the past sixty years-the Great Depression of the
'30s, the euphoria of the '70s and the financial  crunch of the '80s-
were  all primarily macro  in nature.  Macroeconomic  affairs  are the
blind spot of agricultural  policy. It was not always so.
7.  The  myth  that  the  economic  system  is  perverse as  regards
farmers. A sense of martyrdom is a precious possession.  People will
reach out for  evidence  to sustain it and will resent being  deprived
of it.
Many  farm  people  think that the economic  system  is prejudiced
against them. They think the system provides a chronic tendency to
overproduce.  They think they, as helpless individuals, confront  con-
centrated economic power in the hands of those from whom they buy
and to whom they sell. There is, as in most myths, a degree of truth
in this belief, assiduously cultivated by farm leaders and legislators.
Cited in support of this belief is the fact that farm people, on average,
have lower incomes than do nonfarmers.  Overlooked is the fact that
per capita net worth  of farm people is about  four times  as great as
that of nonfarm people.
The  chronic  tendency  to  overproduce  is  more  the result of  high
price supports and deficiency payments than of some malfunction of
the economic system. And farmer cooperatives, intended to offset the
concentrated  power  of  those  with  whom  the  farmers  deal,  have
achieved  only modest gains.  The middleman's profit must not be  so
great.
8.  The  myth that the legislative forum is  better than the market.
This is the idea that wealthy,  powerful forces dominate the market
and there the poor person  counts for little. Dollars  are decisive  and
they are possessed unequally,  but in the legislative forum  each per-
son  has a vote and  so purportedly  all  are  equal.  According  to this
idea, moving an enterprise into the lawmaking forum means an aug-
mentation  of power for those who are weak.
Certainly there is an element  of truth in this belief.  I believe that
the regulation  of commodity  futures trading  has redressed  the im-
115balance of power between the wealthy speculator and the local eleva-
tor. But close scrutiny does not permit generalization.
For half a century, the pro-government perception  has been one of
the most persuasive of the agricultural myths. Now it is experiencing
the trauma  of being demythologized.  The  huge payments  going  to
large farming corporations, the disemployment of hired farm workers
resulting from acreage cuts, the rigging of farm programs to the ad-
vantage of wealthy landowners and the disadvantage  of tenants, the
increased price of food to the urban poor and the short shrift given to
rural development  all demonstrate that the agricultural elite are at
least as well able to obtain advantage in the public forum as in the
market.
Presently  those  farm  enterprises  that  have  remained  market-
oriented-cattle,  hogs,  poultry,  fruits,  vegetables-are  doing  better
than those that sought and obtained help in the halls of Congress.
9.  The myth that the economy can be self-regulating. Lest we  be-
come overly persuaded by the argument that the market is the better
forum,  consider  the  myth  advanced  by  the  zealots  for  free
enterprise-that  the  market  is capable  of governing  itself without
public  interference,  with  no  government-administered  grades,  no
standards,  no  market  reporting,  no  surveillance  of trading.  This
myth is embraced by a vocal few.  Excesses resulting from the indul-
gence of this myth led to sweeping mistrust of the market from which
we are beginning to recover.
10.  A myth of our own: That the models we build are representative
of the real world First of all, of necessity  our models  omit all  non-
quantifiable  variables,  some  of which  are  decisive  for agricultural
behavior.  The  myth  states that  if you  can't  measure  it,  it doesn't
exist.  Many  models assume  linear relationships  when most  are, in
fact,  curvilinear.  Beyond  that,  many  of our  models  abstract  from
changes  in  the  price  level,  changes  in  consumer  behavior  and
changes in production in other countries.  They  frequently  presume
the continuation  of relationships that prevailed in the past, which is
unlikely to be true in a dynamic economy.  They endeavor to impound
important variables  in ceteris paribus, or they  disdain  any concern
for them, labeling them externalities  or side effects. They  often pre-
sume  that  technology  is  value  neutral  and  structurally  neutral,
thereby ignoring the profound changes in rural America that result
from the agricultural revolution we are experiencing.
This is not an argument to forego the use of models; it is a plea to
be more circumspect  in building them and more  modest in what we
claim in their behalf. It is a proposal that we examine the predictive
experience of past models and that when we make, with the help of a
model,  some  projection  regarding  the  future,  we  make  not just  a
point projection but also supply confidence limits that give a range of
probability.  With  modern  statistical  methods,  such  limits  can  be
116drawn from the data used in the projection. This would add greatly to
our modesty and would reduce the myth to more reasonable  propor-
tions. It would permit us to catch up with the skepticism about pro-
jections that already justifiably exists in the public mind.
Conclusion
The relationship between myth and policy is complex.  In some ar-
eas useful myth supports successful governance.  In another and very
large  area,  economic  doctrine strives to hold the lid on a Pandora's
box filled with  a warring  assortment  of values,  beliefs  and myths.
The service done  society by this policing action is very great.
Many a farm leader continues to quote, in support of his position,
myths he knows to be untrue. He would perhaps prefer not to do so.
But to forego weapons useful to his cause would be akin to engaging
in unilateral disarmament; there is no assurance that his rival would
follow suit.  If we  were to jettison all the  myths that pull us in one
direction  and  leave  intact  all those  that  pull us in the  other,  our
balanced strength would be lost. There are myths of "the right" and
of "the left." It is better that both sets survive than that one should
be destroyed. The preferred event, of course, is the gradual erosion of
both bodies of mythology through the process of economic education,
which is the work of this conference.
But let us beware lest, in our zeal for total truth, we overthrow the
myths we need for a workable  society.
117

VALUES, BELIEFS AND MYTHS IN AGRICULTURAL AND RURAL POLICY

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Research Papers in Economics