Hidden Hand

A few years ago my area suffered through a terrible drought.  My hay supply provided a great example of how a free market responds to extremes.  See, here in North Carolina we have been in drought for the last five years or so, and last year the drought was severe, and the drought coupled with a heat wave, lasting over two weeks of 110 degrees or above killed any chance of the local farmers getting in a second or third cutting of hay.  Coming along with the increases price of fuel, a modern farmer does not do a thing that does not require fuel, plowing, planting, fertilizing, cutting, tedding, bailing, and hauling to the barn all requires fuel. Fertilizer had also drastically increased and is still rising.  From these two factors along the cost of hay had gone from $10 a round bail to $20-25 a bail in the past five years or so.  The drought had led to a sharp increase in the cost of hay, if you could find it.  Putting the price of a round bail from $60 to $120 a bail, a 4x4 round bail has about 14 standards squire bails in it, before the drought they were selling for $3 to 5$ a bail, now they are $12 to $18 a bail.

Because of this increase a lot of the local cattle farmers have sold off their stock because of cost of feeding them.  This has led to a decreased price in beef in the stores because of the glut of beef on the market.  A farmer who raises and sell his stock will sell all but his breading stock in times like this, and fall back on whatever reserves and credit he may have to get through the hard times.  Some farmers, either because of poor decisions or bad luck, will go out of business.  Then when the drought is replaced with rain the farmers who are left reap the benefit of the high demand for a shrunken supply of beef for sell.

A horseman, like myself, who only has a few horses for his pleasure his elasticity for hay is limited by his reluctance to sell his horse, which are, in many cases, like a member of the family.  So money he was going to spend on trips to show his horses, go camping, and rides will be spent on hay instead.  So while the people who put on horse shows economy suffers, the people who grow and sell hay in distant areas, as well as the gas stations, oil companies, etc., benefit for out distress.  In truth it is an ill wind that blows no good.

The best price I could find locally was $90 for a round bail, and this was the hay that the State of North Carolina has bought from out of state to, supposedly, help North Carolina farmers out.  Here is the thing, hay was selling in Texas, Alabama, Georgia for $20 to $30 a round bail (was the state price gouging?), but that it the there price, not the here price.  The truckers want $1.50 a mile to haul it, a thousand mile trip for Texas hay adds $1,500 to the cost of 30 bails (what they can out on a truck), bringing the cost of $30 bail to $80 a bail.

At the time I could run my Dodge Ram for $0.25 a mile puling 16 bails, so I make an economic decision to go to George and haul my own hay.  This fuel cost added about $7 to the cost of a bail.  Now 16 bails, at my rate of consumption of ~ 1 bail a week will see me to the spring cutting.  And because we had had  an unusually wet winter there will be a spring cutting, I only needed to make one trip for my own needs.

However, because I have the means of production, i.e., a truck and 18 foot flat trailer, and lot of horse people around here have pick-ups and horse trailers (unsuitable for hauling round bails in), I decided to go into a little capitalist enterprising and make three trips.  Thus acquiring three times what I needed to tied me until spring.

I have placed an advertisement in the Ag News to sell the hay at $75 a bail, which give me profit over the cost of production of $1, 216.00.  How much of this is “surpluses –value”?  What about the risk I took going to get it, the truck could have broken down, and I might not be able to sell it, is that not worth a return on my time and effort? The government passes laws against price gouging (but it is okay if they do it) as they call it, supply and demand I call it.

So, yes, I deny that profit on rent and production is surpluses anything.  Profit is a return upon the capital, time, and risk involved in the operation.  If the owner of the capital were not to risk it there would be no profit.  Now tell me just why it is anyone but me should have a share of the profit from my hay-buying venture?

The reason a planned economy has never, and never will frill its society’s needs is because no planning board, dictator, or any other mechanism can replace this “hidden hand” that you so have so little faith in, is because that “hidden hand” is all these people I was telling you about making the best decisions they could to make their lives as best they can.  To spend money to buy hay, to see you stock, to sell your farm, to go out of town to buy hay, to buy more then you need to resell these are the hidden hand at work, and no other invention can replace it and work anywhere as well.

What would you suggest be put in place to have a stable hay market?  Should the truckers be forced to hall hay in cheaper, should the other state farmers be forced to put their hay on trains and send it to North Carolina?  Should owners of hobby animals, like me, be forced to give up our animals so the farmers could have the hay?  How would you decide the winners and losers in the hay market?

For a while the hay market in NC hay was booming but eventually, because of the high price a bail of hay is fetching, more and more people started hauling and growing their own hay until there is more hay then the buyers are willing to buy at the current prices, and the price have falling to the current $25-30 a round bail., and once again the supply and demand are in equilibrium, the hay market may even fall into a recession because so many people decided to sell hay, and the resulting glut of hay will make people like me happy for a while, until the next drought anyway,e.g. boom and bust cycle.

When the government get involved it get all screwed up, consider our own government and its decision that we would be better off if we sharply increased our production and use of ethanol.  They passed a law, for our own good, because we, the consumer and producers, are too dumb to see the need for it.  The government mandated that by a certain date all gasoline sold had to contain so much ethanol.  This decision of the government has had unforeseen, but so easy to see now, consequences.

Corn farmers, who were selling their corn to cattle, chicken, turkey, etc. farmers started selling their corn to the gasoline makers because of the higher prices they offered.  This forced the price of corn that was going for animal feed to go up, it turn the cost of just about everything had to go up, else the farmers would have to go out of business.  The end of this is not in sight.  A lot of farmers are going to decide which crop will give them a better return on their investment, corn or soybeans or hay, or beets, or lettuce, or just about any crop you can think of, and corn is going to be replacing it in the field in large part because of the higher price that can be realized from corn.

Do you think it could be better managed by forgetting the hidden hand which this is another example, or have the government tell each farmer what and how much he can grow”?  This is the Fascist economy modal, e.g., the individual own the means of production but the government dictates what and how much to produce.

Yes our economy goes through cycles of growth and recession, and some people gain more then others because of good decisions or plain luck.  Some people inherit their riches for the decisions their ancestors made; I would love to be able to leave my children rich.  I have absolutely no problem with some people getting rich; I wish I could become one of them.

However, most of the rich in America today are the novae-rich, the dot comers, the innovators, the sport stars, the move stars, the talk TV and radio stars, the owners of copywrites, etc, etc.  Would you have government tell these people, like Barbara Streisand how much money they can make from a song, how much a Rush Limbaugh can charge for his commercials?

If you take away the individual’s right to decided for himself and reap the rewords for his action why should he do anything he is not forced to do?  And if he is allowed his rewords for success why should he not also suffer the consequences of his failures?  Why should the successful person be requires to support the unsuccessful person by force?  If one person wishes to give to another, then by all means let them do it, our churches are full of examples of people dedicated to make life easer for people, for what ever reason, have fallen on hard times.

To use the government’s monopoly on force to make one his brother’s keeper is theft, pure and simple. Then it is the government who is deciding who is winners and looser.  The government would pick what kind of life we lived in lieu of deciding who gets what.  Who can drive this car, who can have a truck, who can live on a farm, who must live in a city, who must go to college, and who must work on cars.  All these things that are now directed by the hidden hand that are people’s desires and the decisions they make to realize those desires, and how they react to disappointments.

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