Financial History Issue 132 (Winter 2020) | Page 28

the United States and directed it to either
domestic mills or for export abroad. In
similar fashion, the Board of Grain Super-
visors set the price of and distributed Cana-
dian wheat. With private grain markets
disabled, these two governmental agencies
set North American wheat prices for the
1917 and 1918 North American wheat crops.
Both governments sought to achieve
so-called parity prices, which advocates
loosely defined as wheat prices with the
domestic purchasing power of (market-
clearing) prices that prevailed in the United
States from 1910 to 1914. Generally speak-
ing, industry stakeholders—including
farmers—and government officials viewed
the purchasing power of these seemingly
arbitrary parity prices as a “suitable goal
to strive for.” Parity prices did not convey
the real-time information needed to direct
resources in the wheat industry; so, it had
to be nationalized. To be sure, the decision
to nationalize the grain trade—and, thus,
the decision to implement a comprehen-
sive, if temporary, agricultural policy—was
pragmatic and collaborative: governments
and grain exchanges agreed that, given the
exigencies of wartime, “a futures market
could not be operated successfully.” Mean-
while, the monopsony power of Britain’s
Royal Commission on Wheat Supplies
“offered one of the strongest arguments for
establishing some measure of unified sell-
ing control.”
However pragmatic, wartime national-
ization generally reshaped thinking in the
United States (and, ultimately, Canada)
about the appropriate role of government
in the agricultural industry. By the end of
World War I, the notion that government
should set—or, at the very least, support—
grain prices and, in doing so, ensure con-
sistently ample supplies of foodstuffs (by
effectively guaranteeing farm incomes),
had grown more popular in Congress. Evi-
dence of this normative shift first appeared
six weeks before the Armistice, in Septem-
ber 1918, when President Woodrow Wil-
son, on the advice of his Agricultural Advi-
sory Committee comprised “of farmers
and farm representatives,” set a so-called
fair-price guarantee of $2.26 per bushel for
the 1919 wheat crop; the committee had
advised a fair-price guarantee of $2.46.
Not surprisingly, the Wilson adminis-
tration justified the guarantee on the basis
of national security, as the Food Control
Act required; even though, by the sum-
mer of 1918, “all indications pointed to an
1920s cartoon showing a farmer suffering while industry prospers.
increase [in planted acreage] in the next
year regardless of the guarantee.” In con-
trast, the Canadian government sought
to resume futures trading on the Win-
nipeg Grain Exchange in July 1919. The
effort was unsuccessful, however. With
private grain marketing suspended in the
United States, thin markets and volatile
prices led the Canadian government to
suspend trading within a week, establish-
ing instead the first incarnation of the
Canadian Wheat Board—a single selling
agency that paid Canadian farmers a mini-
mum (though not a parity or otherwise
fair) price for their grain.
The structure of the US economy
afforded the US government the means to
guarantee “fair” prices in ways the Cana-
dian government could not do. This is, in
part, because the share of US grain pro-
duction used domestically was relatively
26    FINANCIAL HISTORY  |  Winter 2020  | www.MoAF.org
large. For example, between 1915 and 1919,
foreign users absorbed only 25% of wheat
produced in the United States; the com-
parable figure for Canada was 61%. These
foreign-use shares ultimately shaped agri-
cultural policy, including the role of futures
markets in the North American grain trade.
A grain-price guarantee—which sets
a floor above the effectively immutable
market-clearing world price—transfers
economic surplus from domestic users
to domestic producers. Thus, the guaran-
tee’s economic burden per bushel of grain
used domestically is inversely propor-
tional to the share of grain used domesti-
cally. Essentially, according to a fair-price
guarantee, farmers receive a transfer equal
to the difference between the fair price
and the market-clearing world price for
every bushel of grain they produce; and,
because each country is a price taker in