A lot of terrible economic policies came out of the 1930s: subsidies, price controls, various efforts to prop up wages, public works and other make-work projects, trade restrictions. They were economically counterproductive, oftentimes serving narrow special interests, and thus ended up prolonging the Great Depression – all in the name of “doing something” or helping the poor, of course. Regrettably, many of those policies are still around today.
Among these insidious and anti-productive programs are various forms of agricultural price supports, including “marketing orders,” which establish revenue pooling for producers and set minimum prices for commodities. Federal marketing orders cover milk and dairy products and a variety of fruits, nuts, vegetables and specialty products.
California has its own marketing order for milk and dairy products, but dairy farmers are not happy with the state’s program, and are appealing to the U.S. Department of Agriculture to be federally regulated. At issue are the different prices set by the state and federal programs, particularly for cheese production, which has seen higher minimum prices under the federal program over the past several years due to differences in how the state and federal programs value whey. The proposal issued by the California dairy farmers calls for an all-milk price nearly 7 percent higher than the current price – and would increase annual producer revenue by $700 million a year, according to the USDA.
This does not sit well with the milk processors who produce cheese and other dairy products and who stand to pay more under the proposal. And it will not sit well with consumers when those price increases are passed along to them.
Such government intervention in price competition was not always tolerated, but in its 1934 Nebbia v. New York ruling, the U.S. Supreme Court upheld, 5-4, a state law used to convict a grocer of selling two bottles of milk for less than the minimum 9 cents per quart, as determined by the state’s Milk Control Board.
In a scathing dissent, Justice James C. McReynolds wrote: “The Legislature cannot lawfully destroy guaranteed rights of one man with the prime purpose of enriching another, even if for the moment this may seem advantageous to the public. And the adoption of any ‘concept of jurisprudence’ which permits facile disregard of the Constitution as long interpreted and respected will inevitably lead to its destruction. Then, all rights will be subject to the caprice of the hour; government by stable laws will pass.”
Those who have attempted to buck the system are quickly put down. Hein Hettinga became a very successful dairy farmer by producing and bottling his own milk, essentially cutting out the middleman used by farmers in the marketing program.
The Agricultural Marketing Agreement Act of 1937 had carved out an exemption for milk handlers, primarily to preserve mom-and-pop dairies. Hettinga, however, became so successful that he began supplying retailers like Sam’s Club and Costco, which were able to sell the milk at up to a 50 percent discount, compared with places supplied with milk at the federally mandated prices. When he challenged the market share of the larger dairies, however, the hammer came down swiftly, and the large dairy interests got Congress to pass the Milk Regulatory Equity Act of 2005, intended specifically to prevent Hettinga from offering his milk for cheaper prices.
We still like to think of the United States as a capitalist, free-market nation. But the truth is that the legacy of the New Deal, and numerous other market interventions since then, has taken us far down the road to fascism or socialism.
Most consumers do not realize how much more they pay for a gallon of milk or a cup of yogurt because of government interventions. The Nebbia and Hettinga cases remind us, however, how capitalism rewards both the consumer and the innovative or efficient producer – if only we will throw off the chains of government intrusions.
