According to reports, novel coronavirus pneumonia occurred in the United States, there was a surplus of milk in the United States, and Wisconsin farmers were forced to pour one hundred thousand gallons of milk. Wisconsin authorities are urging USDA to buy surplus goods and redistribute them to charity programs.
Indeed, middle school textbooks refer to “capitalists would rather pour milk out than give it to the poor”, but in fact, a series of milk pouring events happened in the 1930s during the great depression in the United States may not be the same as those described in the textbooks and as you think.
Having made it clear who “capitalist” is, let’s analyze why “capitalist” should pour milk. In the 1920s, with the development of technology, the output of American dairy industry gradually reached a very high level. In 1929, the United States produced 11.052 billion US gallons of milk. When the great depression began, the serious overproduction of dairy industry was inevitably exposed.
According to the law of supply and demand, when the demand is certain, the increase of commodity supply will reduce the price of products. That is to say, the more milk is supplied, the lower the price of milk should be when the demand for milk of the American people remains unchanged. During the depression, milk production, which was heavily oversupplied, greatly depressed the price of milk. In 1930-1933, the price per 100 pounds of milk was $3.48, and the price of milk purchased directly from dairy farmers was lower. According to records, the average purchase price of 3.5% milk fat content in New York state was $0.99 per 100 pounds in April 1933. What kind of concept is this? Yao’s weight is about 300 pounds. It was only $2.97 to buy a portion of Yao’s weight milk at that time.
In the market economy, participants always follow a simple rule, that is, when they carry out market activities, the benefits they get must be greater than the costs they pay. For farmers during the depression, as the price of milk fell, they gradually found that there was no need for milk trading.
In the market, the cost of completing a transaction is not only the cost of commodity production, but also the cost of transportation, information search, time and other costs. In economics, we call these costs for achieving an exchange as transaction costs. We will use this concept to explain the problem.
To be sure, milk has been produced and is not easy to store. If it can’t be sold, it will go bad. But that doesn’t mean dairy farmers can accept any price for milk. Because there are transaction costs in the process of transaction. Specifically, in the transaction of milk, the transportation cost of milk and the time spent by dairy farmers looking for purchasers can be included in the cost of completing the transaction of milk, and this cost is not fixed or once and for all, but the cost of each transaction.
Therefore, when the dairy farmers find that the income from selling all the milk is less than the cost of transporting the milk, the dairy farmers naturally lose the power of trading. In addition, the cow does not want to produce milk to produce milk. If it wants to stop producing milk, it will stop producing milk. When it reaches the point, the dairy farmer has to milk the cow, otherwise it will do harm to the body of the cow. And milk storage also needs to pay extra costs, so at this time, dairy farmers seem to have no other way than pouring milk. In January 1934, thousands of desperate dairy farmers in Chicago, Illinois blocked roads and dumped more than 100000 pounds of milk. Similar milk pouring events occurred in California during the same period.
So we can find that when the price of goods in the market is lower than the logistics cost of goods, the goods lose the significance of transaction for the producers. Because of the existence of transaction costs, it will lead to one side that the poor can’t afford milk, and the dairy farmers will pour the milk at the same time.