A distinguished pedigree

In January 1950 R.S. Porter published an article entitled ‘Buffer stocks and economic stability’ in the distinguished journal Oxford Economic Papers. Beginning with the remark that ‘the Chinese are said to have operated an “ever normal granary” system many hundreds of years before the birth of Christ,’ he moves on to the biblical story of Joseph and the granaries of Egypt. Joseph stores grain following the revelation in Pharaoh’s dream that there will be seven years of plenty followed by seven years of famine. As Porter rightly points out, we don’t have the aid of soothsayers today, and have to take the future as it comes. But the value of reducing price volatility by storing grain is made clear even when the precise nature of future harvests is open to the vagaries of Mother Nature.

Porter’s article goes back to the interwar years, during which economic recovery in western Europe was made more difficult by the lack of markets for its manufacturing exports. This in turn was a product of the problems faced by primary commodity producers in Africa, South America and Australasia, who were confronted by the problem of collapsing prices. This was one of the reasons for the very high levels of unemployment which remained in Western Europe after World War One, since the primary producers could not afford to buy exports from the West (the problem continued until the coming of the Great Depression made things even worse). Porter refers to an article by the great economist John Maynard Keynes written shortly before the outbreak of World War II (in September 1938). Entitled ‘The policy of government storage of foodstuffs and raw materials’, it begins by observing that ‘It is an outstanding fault of the competitive system that there is no sufficient incentive to the individual enterprise to store surplus stocks of materials, so as to maintain continuity of output and to average, as far as possible, periods of high and of low demand.’

Porter pointed out that problems of price fluctuation could be removed by the institution of an International Buffer Stock Agency. He adds that the League of Nations in its publication entitled “International Stability in the Post War World” gave a clear account of the idea.’ This would have been in the 1920s.

Both Porter and Keynes recognised that there would be difficulties in establishing a successful system of buffer stocks, though in principle they were in favour of one. Both articles repay close reading, but the point being made here concerns the distinguished pedigree of the effort to make buffer stocks work. This was not a bright idea thought up inside the European Commission in its early days and applied with mixed results in the formation of the Common Agricultural Policy. It has been a concern of economists for over a century – and some of the most distinguished economists have thought it an idea well worth exploring further.