Unleash the creative energy of innovative farmers

Prices continue to demand attention, from grain and gas to wages at Schiphol. Before long, interest rates will go up. These changing prices indicate that the economy is not very balanced. They also make it clear once again that the cost price of production does not determine the market price: it is determined by supply and demand. Only in a stable world without shocks and innovations are market prices and cost prices equal. That world only exists in the theoretical models of economists.

So the question is how we can bring the economy back into balance. From the bookcase I took the classic The Road to Serfdom by Friederich von Hayek. That is because it links a far-reaching consequence to the operation of prices: they help to find a new balance, the new natural order. Prices are not only signals that contain information about the desired products and services, but also a means by which the future structure of the economy is shaped. In this way, 'spontaneously' our reactions to prices create the apparently desired structure of society. From that point of view, it is therefore not only very unwise to intervene in prices, but also to try to bring things back into balance with central planning.

Harnessing creative energy
Von Hayek had nothing to do with top-down planning. This deprives man of his freedom and makes him or her a serf or slave of the planners, usually the government. It is more important, he wrote in his afterword, that we remove the obstacles that hinder people from channeling their creative energies than that we put our energy into rigging mechanisms to direct people and plan progress. It seems attractive, but in the end it deprives people of freedom and leads to coercion: forced choice of profession, compulsory jobs and then a totalitarian state must emerge.

Hayek (the Austrian "Von" disappeared into the background after his emigration to England) wrote his book in wartime (1943) and in doing so strongly opposed (national) socialism, corporatism and the continuation of war planning in peacetime. His advice was initially not much heeded, but he was awarded the Nobel Prize in Economics in 1974.

Just split off an ammonia right
I suspect that Hayek would not have liked the current approach to our environmental problems through area processes and the associated planning, apart from the fact that decentralization of decisions to the lowest possible level was essential for him - after all, there is more local expertise there than with the central planner. The approach to tradable milk quotas, phosphate and animal rights would have appealed to him more. Just split an ammonia right (and CO2 right) from the already existing rights, put in the law that a percentage lapses every year, prohibit trade to a concentration area, just like with animal rights and if necessary determine how many rights you can use per ha around nature areas and the government is done. The market takes care of the rest through mutual trade between farmers who stop, build a new low-emission barn or embrace nature-inclusive agriculture. In his view, this would be more efficient than planning and meeting, and in this way you elicit the creative energy of innovative farmers (and barn builders, cattle breeders and feed suppliers).

After his Nobel Prize, more attention was paid to Hayek's liberal ideas in politics. The story goes that the English Prime Minister Thatcher was very charmed by his oeuvre and during a cabinet meeting took a copy of a book by Hayek from her famous handbag, slammed it on the table and said in annoyance: "This is where we believe in". That world of handbags and liberal ideas seems to have disappeared from Dutch politics. Even in the liberal parties.

Krijn J. Poppe

Krijn Poppe worked for almost 40 years as an economist at LEI and Wageningen UR and now holds a number of advisory and management positions. For Boerenbusiness he dives into his bookcase and discusses current developments on the basis of studies that have become classic.

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