Farm parity is a little discussed and poorly understood feature of our economy, yet it is crucial for achieving an economy that works for everyone. Once farm parity and its role in the national income equation is understood, it becomes clear that the value of our money can be regulated only by maintaining structural balance in the economy, which requires that approximately 1/3 of national income, as defined by Nobel prize winner Simon Kuznets in the 1930s, (also see quick overview) comes from business operations such as farming and manufacturing while approximately 2/3's of national income comes from "costs" such as wages. In other words, if we are to maintain a NATIONAL income sufficient enough to allow the nation to pay its own bills, then the revenue (or income side of the national income equation) must be in balance with the "cost" side at a ratio of 1/3 "revenue" - or income - to 2/3 "cost." (See first slide presentation linked below).
This mathematically proven "structural" balance can only be achieved when agriculture receives a fair (or parity) price, which the historical record shows has not occurred in the U.S. except during limited and widely separated periods. This lack of parity results in unnecessary losses in national income and an agricultural system that of necessity abuses the land and short-changes the consumer in terms of food quality and environmental degradation. Within this flawed economic system, escalating debt becomes a necessary and ever-present feature of the economy.
Parity, in simple terms, is just a measuring device that puts the value of raw commodities at a level that equals all the costs of production, including labor costs and capital costs. Ensuring parity for agriculture then results in a more balanced and inclusive economy and a national income sufficient enough to allow the nation to pay its own bills.
We must begin to question why it is that we are funneling ever-increasing amounts of money to the medical system, when we could save ourselves a lot of grief, and money, by simply paying the farmer to keep us, and our beautiful planet, healthy. In so doing not only would we be far healthier but we would gain a far more inclusive economy. A win-win all the way around!
Our previous page provides a fuller, more contextualized discussion of the concept known as "parity for agriculture" and its importance to the national income, with selected sources listed at the end.
The page you are on now provides an abbreviated discussion of farm parity, why it is important to the national income and how it can be protected in every country - rich and poor alike - via what we are calling "Equitable" trade.
First up is a short slide Presentation entitled Parity and the National Income with some embedded links
Next is a double-sided flyer prepared for the 14th Annual conference of the American Monetary Institute.
And another must-see double-sided flyer entitled "What Parity Is/What Parity Isn't" prepared for the 15th Annual conference of the American Monetary Conference.
Last is a VERY short slide presentation on Equitable Trade which is an inseparable component of farm parity and a par exchange economy.
THEN, to add some additional context to the above, you might want to review the terms "Comparative Advantage" and its counterpart "Competitive Advantage" using sample excerpts below. With the concept of "Equitable Trade" as described above in mind, consider the following excerpts particularly as they relate to how a nation's own domestic workers, producers and resources may be affected.
Comparative advantage is when a company can produce goods at a lower opportunity cost than its competitors. Opportunity cost is the cost that must be endured when selecting one option over the other. Competitive advantage represents any benefits and advantages that a company may have over its competitors. This could include things like having a low cost structure, low cost of labor, better access to raw materials, etc.
Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book “Principles of Political Economy and Taxation” in 1817, although it is likely that Ricardo's mentor James Mill originated the analysis. . . It is also a foundational principle in the theory of international trade.
Most of the credit for the (Comparative Advantage) theory is attributed to David Ricardo, although it had been mentioned a couple years earlier by Robert Torrens. . . The assumptions are that there are no or low transaction costs, that there are no negative externalities to more production, and that there are some restrictions on the flow of capital. Comparative advantage is a critical concept for free trade proponents. . . Comparative advantage works as long as the above assumptions hold and the entities have different production costs. In other words, if it costs both Countries A and B the same amount of wheat to produce an additional TV, then trade would not benefit them. (Put another way, labor as a key production cost needs to be lower in one country than another in order for the trade to be of benefit. Just who benefits in such a trade is an important related question.)
According to the online Library of Economics and Liberty, "currents of Adam Smith run through the works published by David Ricardo and Karl Marx in the 19th century and by John Maynard Keynes and Milton Friedman in the 20th." Although Smith was a philosopher and NOT an economist, his book Wealth of Nations "launched a succession of free-trade economists and paved the way for David Ricardo's and John Stuart Mill's theories of Comparative Advantage a generation later."
Investopedia says that Wealth of Nations "marked the birth of modern capitalism as well as economics." Thus Smith is often identified as the father of modern capitalism, but arguably, he could just as accurately be identified as the father of modern "free" trade. As Investopedia says: "Smith's insight into the idea of the invisible hand was one of the most important in the history of economics and remains one of the chief justifications for free market ideologies." Unfortunately for modern man, economist Friedrich List's National System of Political Economy remains the classic, yet little known, answer to Adam Smith’s Wealth of Nations. Similarly American economist Henry Carey, who served as Abraham Lincoln's economic advisor during the Civil War, similarly penned the little known Harmony of Interests: Agricultural, Manufacturing and Commercial in 1851 as an answer to the free trade ideology.
By 1944, while WWII was still on-going, discussion at a luxury hotel in Bretton Woods, NH was underway. Its purpose was to create "a new international monetary order". Out of this came what is known as the Bretton Woods Agreement, described as "the landmark system for monetary and exchange rate management. Two international monetary and financial institutions were created: the International Monetary Fund (or IMF), was meant to stabilize exchange rates between currencies and to serve as a country's lender of last resort, and the International Bank for Reconstruction and Development (or World Bank Group) was created to finance post-war reconstruction.
By October of 1947 the General Agreement on Tariffs and Trade (or GATT) was signed at an international conference in Geneva. At the same conference a draft charter for the International Trade Organization (or ITO) was created and by March of 1948 representatives of 53 countries signed the finished charter. The U.S. Congress refused to approve and so the GATT governed postwar trade relations, until the creation of the WTO in 1995.
Suggested read: Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang. Also the online American Babylon, especially Chapter 5: The Triumph of the Merchants.
Suggested website: Clarity on Parity website by George and Pattie Naylor, with blog
Suggested blog: Brad Wilson at ZWriter
Wrap it all up with this short history of how "free" trade and our monetary system can be used to manipulate prices and wages.