and a substantial rise in prices in 1957, but the handwriting is on the wall for another slump in prices in 1958.

These huge variations in hog prices-from over $20 to $10 within 1 year were a consequence of unstable production. Consumer demand for pork was steady at a high level during all these years. The supply and price of corn have been a stabilizing influence on hog production at least up to the current year when corn price supports have been drastically lowered. So the ups and downs in hog production must have been caused almost entirely by farmers guessing wrong on prices.

Sensible Government price policy might do much to even out the flow of supplies and the movements of prices. A hog price guaranty of around $18 or $19 announced in 1952 for the year 1953 probably would have prevented such a sharp drop in pig production as occurred in 1952. With a stop-loss guaranty, farmers would have been more likely to maintain their usual production. Prices in 1953-54 would not have risen to $25 and higher, so the incentive to expand pig production in 1954-55 would not have been so great. And prices might not have fallen to such depths in 1955-56.

Forward price guaranties of this type on dairy products, meat animals, and perhaps some other commodities could help smooth the price swings. The authority for adjusting these guaranties, within wide limits, should be lodged in an independent price stabilization board, with a status something like that of the Federal Reserve Board in monetary policy. The Committee for Economic Development recommended such a board in a study of agricultural policy published in January 1956. The Secretary of Agriculture, as a political officer, probably would have difficulty in setting prices for stabilization purposes-especially when lower prices were called for. An independent, nonpartisan board, with proper insulation, might be able to do so. The direct payment technique might also be useful as a means of guiding and directing farm production to better fit consumer demand. For example, direct payments could be used to encourage production of meat-type hogs. The American consumer increasingly is demanding a lean type of pork. The consumer wants less fat in his fresh pork, in his ham and in his bacon. With a direct payment system for stabilizing hog prices, it would be possible to pay premiums for the best grade of meat-type hogs and thus stimulate production of that kind of animal and discourage production of the old lard type of hog. In Canada, all butcher hogs are sold on a rail grade or carcass grade basis. Carcasses are graded by Government inspectors, and farmers are paid on the basis of prices established each day and published by the Dominion Livestock Marketing Board. The Government pays a $2 premium for each carcass which meets grade-A standards for weight, length, shoulder-back fat and loin-back fat. It pays a $1 premium for carcasses which grade B. This Government premium for the desirable grades is paid in addition to the ordinary market price differentials.

The objective in a price-compensation program such as described here would be to improve on the ordinary free-market system, not to replace it. The free market obviously does not work very well in allocating production from year to year in the case of many of our farm commodities. Neither does it work very well in reflecting consumer demand for particular kinds and qualities of food products.

Direct payments could help improve the functioning of the market in these respects.

FARMER ATTITUDE ON PAYMENTS

One of the chief objections to direct payments for farmers. either the income support variety or the price stabilizing variety, has been that farmers don't want them. It is said that farmers want to receive their income through the market place and not via a Government check.

There is no evidence to indicate that more than a very small percentage of farmers have objected to the benefit payments in connection with acreage-control programs, conservation programs, or the soil bank. However, these payments have not been very large and they have not been considered major elements of the farm-income support programs. Whether farmers would object to receiving much larger payments, as a replacement for market price supports, is uncertain. A number of studies of farm opinion, however, indicate that most farmers are not opposed to the direct payment method in connection with stabilizing prices of perishable commodities.

A study in Michigan by Dale E. Hathaway and Lawrence W. Witt, of Michigan State University, indicated a high degree of favorable opinion for the direct-payment method. About the same percentage favored payments as favored purchase and diversion. In the case of potato producers, who have had experience with the weaknesses of the diversion method of supporting prices, 2 to 1 favored direct payments. A series of polls of Iowa farmer opinion by Wallaces' Farmer and Iowa Homestead, running from February 1953, to December 1956, showed fairly high percentages in favor of direct payments, with large majorities in favor of this method for hogs when hog prices were low in late 1955.

Here are the percentages showing Iowa farmers' attitudes on production payments versus Government buying to support hog and butter prices in recent years:

An opinion survey by the Des Moines Register and Tribune in November 1952, when hog prices were still relatively high, indicated about as many farmers in favor of direct payments as were in favor of the Government buying pork products to support the hog market. In short, there is no conclusive evidence to indicate that farmers are strongly opposed to Government checks as a method of protecting their prices and incomes.

DIRECT VERSUS INDIRECT SUBSIDIES

A number of prominent farm organization leaders oppose direct payments to farmers for stabilizing prices or for supporting income. One of their objections, perhaps the main one, is the fear that the cost would be too high and that Congress would not pay the bill. Also, these farm leaders fear that farmers would be dependent on Congress for appropriations each year. They believe that farmers would get less income help in the long run this way than through the production control and price support programs.

In theory, production control decreases the Federal Government outlay for a given level of income support by raising prices in the market place. In practice, however, as we have seen, production control does not work. So the Federal budget is not any lower over the long run than it would be with a payments system. We are now paying the cost, in the form of losses of the CCC in disposal programs overseas, for price support programs of several years back.

Perhaps this experience will make the general public more aware of the fact that an indirect or invisible subsidy is no less a subsidy than an open one.

The choice between the invisible subsidy of market price supports and the invisible subsidy of direct payments is not an either/or choice. We now have subsidies of both kinds. The choice is whether to move farther toward the direct subsidy method and away from the indirect subsidy method.

So far as method goes-without saying anything about the level of income support--the economic arguments strongly favor the directpayment method.

DIRECT PAYMENTS TO PRODUCERS

George K. Brinegar, University of Connecticut

I. INTRODUCTION

My comments on compensatory or direct payments are presented in four parts. Initially, some general remarks will be made concerning the uses of direct payments. Secondly, the costs of transferring income to agriculture are compared under price supports and direct-payments programs. Third, the secondary effects of price supports and direct payments are contrasted. Fourth, I turn briefly to an examination of past proposals for the use of direct payments. Lastly, some concluding remarks are presented.

II. GENERAL REMARKS

The salient economic difference between direct payments and price supports is both important and simple. Under price supports, a single set of prices is used to pay farmers for their products and to distribute them to consumers; while under direct payments, two sets of prices are used-one to pay farmers for the items they produce and a second to distribute these commodities among users. Thus, the direct-payments technique is a more powerful tool of program administration than is the price-support technique.

Direct payments provide an opportunity for implementing programs having a greater impact than do price supports. This impact may be either desirable or undesirable. Direct payments in themselves are neither good nor bad; the program they are used to implement determines whether the results are good or bad.

Direct payments can be used to reach many possible objectives. They can be used to transfer income to agriculture, to stabilize agricultural income, to raise and/or stabilize agricultural prices to producers, to lower food and fiber prices to consumers, to "solve" surplusdisposal problems, to promote international trade, to improve nutrition levels, to increase the level of employment, and to lower the Consumer Price Index.

The potential usefulness of direct or compensatory payments is high because they can be used along with almost all, and as a substitute for many, of the tools commonly used to implement agricultural policy. Direct payments can be used with price supports, credit programs, soil-conservation measures, soil banks, storage programs, surplus-disposal programs, consumer programs, export programs, acreage allotments, marketing agreements and quotas, classified pricing systems, etc. Additionally, direct payments can be used to replace many of these devices. The administrative problem of using direct payments in combination with other measures is not complex. The administrative problem may well be eased by using several

measures in combination, rather than by placing the entire burden of program implementation on a single or small number of techniques. At this point, to place the topic in perspective, note is taken that the choice to use a direct-payments technique or a price-support technique is not determining with reference to many important problems in agricultural policy. This choice does not necessarily govern (1) the average levels of prices farmers receive and pay, (2) the relative prices among agricultural commodities, (3) the flow of resources into agriculture, (4) the output of food and fiber, (5) the incomes. of farmers, or (6) the changes in the efficiency of agriculture. Farm incomes can be high or low under either technique, food can be over or under produced under either technique, resources can be wasted or efficiently employed under either technique and, perhaps most important, the rate of economic progress can be speeded or retarded under either technique.

The magnitudes of the problems associated with the use of price supports and direct payments appear to be similar, though the actual problems differ. One major difference is that under price supports, surplus disposal becomes a major problem-or more accurately a perpetual series of problems, domestic and foreign, requiring solution over and over again with results satisfying no one. Under direct payments this set of problems is avoided by placing all production. on the market. In this way all agricultural commodities are permitted to enter domestic and foreign trade through regular channels of commerce, and thus special Government dumping and barter deals are eliminated. Elimination of special Government dumping and barter deals would make a significant contribution to a freer flow of international trade as well as to more nearly make our actions consistent with our expressed trade policies.

On the other hand, under direct payments, the added variability that is introduced into the market prices, permitting all commodities to clear the market, generates secondary problems. The secondary problems that flow from this added price uncertainty affect both producers and consumers. One of the most difficult problems, common to both techniques, and one that affects total agricultural output and its composition, is that of fixing minimum prices for farm commodities. For example, what will farmers receive for wheat? Under either technique this price might be $1.50, $2, or $2.50 per bushel.

The major factors in determining the feasibility of employing these techniques, at the administration level, are largely dependent on the average level of minimum prices that are set or the amount of income to be transferred to agriculture, the number of commodities included under a program, and the specific provisions of the program that are not necessarily directly linked to the use of either price supports or direct payments. If minimum prices are set low, or to put it a different way, if a small amount of funds are to be transferred to farmers, either method can be administered with ease. Alternatively, if an attempt were made to double agricultural income and to include every agricultural commodity in the program, neither plan would work well.

In the past, the factors that seem to have determined the feasibility of using direct payments, at the national policy level rather than at the program administration level, center on the facts that Treasury costs of transferring a dollar of income to farmers are much higher under direct payments than under price supports; while, on the other side