Creating Wealth Page 17
Hunter-gatherer societies had to work together in order to have a successful hunt, and once the hunt was over, cooperation was required to drag dinner back to camp and skin, clean and cook or cure it. Sharing in the bounty made good sense, especially before refrigeration. The introduction of agriculture tended to change this, as food then became a product of private property. Food could be hoarded and stored, particularly by large landowners or those with the means to buy and store grain, including city-states, which sought to insure survival during drought and famine. In fact, some of the earliest forms of money can be traced to the storage of agricultural products.
Food and water are basic human needs, and depending upon the systems that drive our society, we see them either as critical for our individual survival or our collective survival. But, in truth, our individual survival is very much linked to the collective in the end. Until recently, water has been considered a public resource. Through our governance systems we have developed ways to share it with each other. Over the last 20 years, however, water is becoming increasingly privatized as companies purchase water supplies and systems and profit from the sale of water. What will the impact of this change be? We might ask, thinking about the !Kung people, whether the privatization of water might be the modern equivalent of the privatization of food? Perhaps in our distant history — too early for written documents to record — food was also a community product, shared for the common good?
From Subsistence to Surplus
As first mentioned in Chapter 4, there were two different kinds of money in Dynastic Egypt, the precious metals that were used for long-distance trade (including with other countries) and a different currency used for local exchange. The local currency was actually based on ostraka (singular ostrakon), shards of pottery used as inventory receipts, where dates and quantities were inscribed when farmers put their excess production in collective storage places attached to temples. The Egyptians charged a modest fee for the storage, and so the value of these shards of pottery declined over time.
This storage fee served as a negative interest rate, or demurrage fee, on the local money. Since the shards were used for local exchanges, it was in the best interest of the person holding it to spend it as quickly as possible (to avoid its inevitable penalty over time), which added more quantity and velocity to the local economic exchanges. The abundance of economic exchanges, driven in part by this money that did not serve as a store of value, helped make Dynastic Egyptian society a prosperous one for thousands of years.2
In the time since Dynastic Egypt, food has played many roles in society. Surplus has been stored and traded everywhere, in all agrarian societies throughout history. Yet regular and reliable food surpluses are for the most part historical anomaly. Until the 1950s, a majority of people on Earth did their own subsistence farming, which meant that at least on the family level, food was a shared resource.
Yet the dramatic reduction in family and subsistence farming, and subsequent urbanization brought on by an unprecedented migration to cities in the late 20th century, has changed all this. Today, over ½ the world’s population lives in cities, compared with only 13% a century ago.3 This has changed our relationship to food as dramatically as it has changed the landscape. Most people no longer grow or raise their own food and are forced instead to buy it from a market that is mediated by a single form of currency — national money. So when food prices go up, people go hungry because they no longer have the ability to stock their own larder.
In the US through the 1800s, over 80% of people lived on a farm. The farm may have been enough to feed their own family, or might have been large enough so that there were products to trade, but farm life was the country’s core economic activity. Subsistence agriculture is fairly simple — people grow food based on the amount of land, labor, animals and seeds they have. The harvest reflects the inputs, with the vagaries of weather and pests added in to complicate things. When the food is harvested, the amount available to consume is somewhat dependent on the processing and storage capacity available. The health and welfare of the people who consume the food will also partly determine the inputs the following year. As shown in Figure 1, the whole process can be described as a simple positive feedback system.
FIGURE 12.1. A Subsistence Agriculture Feedback System
There are problems when subsistence agriculture is the dominant form of agriculture. Food can spoil, and so finding ways to insure that the harvest can be preserved is an important strategy. Land is hard to obtain (unless you inherit it), and so good land is in high demand.
In the modern world we are no longer at the mercy of plague and famine, but we are at the mercy of the market. In the 1970s, inflation of the US dollar led to rising food prices, which led to a political crisis for the Nixon administration. Nixon responded by imposing wage and price controls in August 1971 at the same time he decoupled the dollar from the gold standard, which was designed to help check the inevitable rise in prices that resulted from the lower dollar value on the international market. He imposed price controls again in 1973, but they failed dramatically. Farmers drowned their chickens rather than selling them at the prevailing low prices.
But Nixon took further steps, appointing Earl Butz (who had until then been on boards of several agribusiness firms) as Secretary of Agriculture. Nixon told Butz to do everything in his power to increase food production, and Butz did. He dismantled the New Deal policies that were designed to protect farmers and consumers by regulating both price and the overuse of land — measures aimed at preventing another dust bowl. He provided generous new subsidies for large agribusiness concerns, whereas before this, the legacy of Franklin Delano Roosevelt protected small farmers from the consolidating force of corporate farms.
In addition to the subsidies provided by government for agribusiness, the large corporate farms found other allies in their expansive drive — the bankers themselves. Seeing it as a way to finally loosen the shackles of a system that limited the banks to specific states, big banks like Citicorp moved in to provide financing for the agribusiness firms. By 1985, the financial links between the big banks and corporate farms led to a landmark court case where interstate banking was declared constitutional by the US Supreme Court, overturning the limits which had been effectively imposed by Roosevelt-era restrictions. In his opinion on the case, Chief Justice Rehnquist specifically cited the fact that Citicorp was providing financing on a national scale. “Citicorp offers financial services to consumers and businesses nationally through its bank and nonbank subsidiaries.”4
The Hidden Cost of Cheap Food
In the 1980s, a combination of the overproduction and lower prices brought on by these new policies and a spike in interest rates hit farmers like a one-two punch, and thousands of small farms went out of business. “Throughout the Grain Belt, abandoned farmhouses were burned to the ground, cleared, and incorporated into ever larger corn and soy fields.”5 Mass agricultural production by larger and larger corporations became the rule, rather than the exception, and the few remaining small farms had a hard time competing. Many of these farms were in areas where large-scale agriculture was almost impossible — rough terrain and poor soils in the Northeast meant that small farms either stayed small or sold out to subdivision developers.
Even in the Northeast, the federal government encouraged the consolidation and loss of family farms by instituting the dairy herd buy-out program in 1985. The Northeast farmers fought back and got the US Congress to pass the Northeast Dairy Compact, which imposed a surcharge on milk coming into the region, paying farmers in New England a new subsidy that helped keep them in business despite the competition from large farms out west. This program was eventually challenged by Canada, who threatened to challenge the Compact at the World Trade Organization. The Compact no longer exists.
Today, the cheap food policies of the last 40 years have created a globally integrated food system that routinely uses ten calories of fossil fuel to bring one calorie of food to supermarket shelves. By contrast, a
s recently as 1940, for every calorie of fossil fuel used in the US, 2.3 calories of food were produced. The unchecked overproduction of the agribusiness firms has led commodity prices on a race to the bottom worldwide, forcing 200 million of the world’s 400 million farmers to live below the poverty line.
The subsidies driving the agribusiness expansion represent one of the largest corporate welfare programs in the world. In the years 2003, 2004 and 2005, subsidies for corn producers in the US were over $20.5 billion, fully 26% of their market revenue.6 In the 2008 Farm Bill, corn, soy, wheat, rice and cotton were slated to receive $7.5 billion. Three cotton farms in California were promised the equivalent of the entire US budget for organic food research and extension. Five corn farmers in the Midwest were allocated the equivalent of the entire US budget for farmers’ markets.7
Cheap commodities are routinely dumped on foreign countries in the name of international assistance, which is how the overproduction in the US affects poverty elsewhere. The US provides 60% of international food aid, spending billions of dollars on it every year. To a casual observer, this might seem generous and charitable, but a closer examination shows the self-serving nature of the aid. Virtually all of the money spent is used to purchase surplus commodities from US agribusiness firms. Rather than supporting the production of food in countries where food has become scarce, it undermines local production because farmers can’t compete with food that is free. In contrast, Canada implemented a policy whereby at least 50% of its food aid would be used to purchase locally produced food because of their recognition that this is a more effective form of assistance.
A September 2005 report, The Development Effectiveness of Food Aid, produced by the Paris-based Organization for Economic Cooperation and Development concluded that foreign assistance shipped in the form of food often arrives late, disrupts local markets, and costs up to 50% more to deliver than cash. Edward Clay, author of the report and a fellow at the Overseas Development Institute, points out that U.S. food aid being shipped to famine-struck Niger will likely coincide with a bumper harvest in the region, thereby competing directly with area farmers.8
This same phenomenon occurs within the United States as well. In the name of inexpensive school lunches, the Department of Agriculture ships commodities to schools around the country. In New Jersey alone, this program provides 30 million pounds of food, valued at nearly $20 million, to 700 participating school districts, adult daycare centers, summer food programs, camps and charitable institutions.9 While this helps schools afford to serve free and reduced lunches to low-income students, it serves as an additional subsidy for unsustainable agricultural practices and makes it difficult for schools to cooperate with local farmers.
The glut of low quality calories has produced another unanticipated result for people across the United States — an obesity epidemic that brings with it an unprecedented burden of health problems. Adult onset, or type 2 diabetes, is now being found in children and adolescents, a problem which the US Centers for Disease Control has characterized as “sizable and growing,” saying that “approval of oral hypoglycemic agents (to lower blood sugar) is urgently required for children and adolescents.”10 This recommendation appears to ignore the obvious link between diet and health — seeing the problem as something requiring more drugs rather than sweeping nutritional changes.
The global food industry provides clear examples of the problems that arise from the vortex of centralization and sole emphasis on efficiency. Where once food was a shared community resource, then a shared family resource, now it is primarily a commodity sold in markets which are systematically distorted by national subsidies and monopoly pricing. Food has traveled the distance from being produced in a primarily cooperative system to one that is competitive at the extreme and in which the largest and strongest actors eliminate their smaller and weaker opponents. The corner store is all but gone in most places, replaced by a corporate store that looks the same as the one 500 miles away.
Despite the overwhelming crush of big food, many people are trying to turn the tide. The localvore (after herbivore or omnivore) movement, which champions locally grown food as the main dietary staple, has taken on national significance in the US. In Europe, the Slow Food Movement, first championed by an Italian farmer named Carlo Petrini, has become popular. Slow Food found a financial champion in Woody Tasch, the Chairman of the Investors Circle, who has written a book about slow money, in which he acknowledges the role that finance plays in the food system, but stops short of looking at the structure of money itself.11
As we have seen, the nature of money, and particularly bank-debt money, played an important role in the consolidation of the modern food industry in the 1980s. It linked the shared interests of the banks and those of agribusiness, allowing their growth at the expense of the family farm, which faced the dual challenge of the bank’s high interest rates and the undercutting of market prices by big agribusiness farms. Indebtedness and high interest rates were the direct cause of thousands of farms with traditional family ownership being lost during that same period. Not coincidentally, this was also the period in which the savings and loan crisis drove many local banks out of business, allowing the large interstate banks to consolidate their control of banking nationwide. The resulting control of land, food and money has given large corporations an inordinate amount of power and systematically robbed local communities of their ability to create their own food.
Although this discussion has touched on one aspect of the global food industry — food production on farms — it is only a part of the power puzzle. When you consider the comprehensive reach of vertically integrated food processing and distribution, the full impact of food consolidation overwhelms the imagination. The costs of this consolidation — to our health, our wealth and our future — have been incremental and largely hidden from public view. We are like the proverbial frog in the pot — the heat was turned up slowly over time so that we didn’t notice the change. The brittleness of this hyper-efficient food system will become obvious with the first onslaughts of climate change. Then we may be fully cooked, like the processed food that lines the shelves of the supermarket and constitutes so much of our modern diet.
The Expanding Role of Debt
FIGURE 12.2 Debt’s Place in Advanced Agriculture
As agriculture evolved over millennia, its variables — the inputs, the harvest, the processing and storage capacity — were subject to “improvements.” People looked for ways to grow more food, harvest more, transport it further and make it last longer. On the small scale of subsistence agriculture, investing in improvements is fairly simple. Advanced agriculture, however, requires a sophisticated monetary system to fund its expansion of machinery and investment in technology.
Farmers borrowed money to buy machines to increase the planting and speed up the harvest. Companies developed products to control pests, to fertilize soil, to process and store food — to do all the hard work of farming. Agricultural production increased. . . and kept increasing. Food in some regions exceeded the demand for food, and prices fell. Falling prices meant that farmers had two choices — to reduce costs and/ or to expand production — in order to stay profitable. So they bought larger machines, larger storage and processing capacities, resulting in even more production and lower prices. A major study done by the Sustainability Institute in 2003 characterized this trend in agricultural commodities as a “race to the bottom,” documented by rising production and falling prices in every commodities market worldwide.12
In most production processes, falling prices and increased production force producers out of the market. Yet with improved transportation and standardization, the surpluses in one region could be exported to another region. Governments intervened in food pricing and production — curtailing production of some products, controlling prices, limiting entry into the food business, buying surplus, shipping food outside the country, subsidizing farm expansion, creating new markets for all the food being produced. All these “im
provements” have created a colossal new system in which the Sustainability Institute identified three outcomes as “traps:” resource depletion, environmental pollution and community decline. Abundant food leaves most farmers impoverished, soils and water supplies are being depleted at alarming rates and the environmental impacts are too numerous to list here — one significant statistic is that, in the US, food production accounts for up to 40% of our carbon emissions.13
The role that money plays is pivotal. As mentioned earlier, it was no coincidence that banks and agriculture expanded dramatically during the 1970s in the United States. As Nixon changed the food production system, the banking system was modified to accommodate the enormous agribusiness firms that emerged from the consolidation. All of the investment in debt-based money drove agriculture out of a system that was largely dependent on local production capacity into a system that was truly global in scope and impact.
Food Currencies
Food-based currencies are obviously not new. We have already described dynastic Egypt’s sophisticated Egyptian food currency earlier in this chapter. Similarly, at the beginning of the 17th century, Japan did a thorough inventory of all the rice it produced and measured it in koku, one koku being equal to the amount needed to feed one person for one year (which turns out to be approximately five bushels, or 48 gallons of rice). From this inventory, they determined that the country’s wealth was equivalent to 28,000,000 kokus. Large landowners in Japan issued notes for the rice and maintained storehouses so that the note bearers could redeem the rice at harvest time. They soon discovered that all the rice wasn’t being redeemed. Just as was the case with goldsmiths inventing the fractional reserve system, the landowners also started issuing notes above the amount of rice they actually had, causing inflation in the currency. By 1760, abuse of rice currency was widespread and the government banned the practice of issuing excess notes.14