Cotton and Inflation
The price of cotton has tripled over the past year, and the textile industryÛªs shrieks of anguish and despair grow steadily more audible. The sudden, shocking leap in cotton prices is owed partly to the Agriculture DepartmentÛªs misguided decision last winter to reduce acreage allotments to keep prices from falling. It is also partly owed to a massive and unprecedented flow of exports that, it turns out, the Treasury Department is subsidizing. The case of cotton sharply illustrates the obsolete policies and official evasions that are grievously aggravating J;he inflation in farm products.</br></br>The price of cotton was 27 cents a pound a year ago. It had sunk a bit over the course of the summer, and the Agriculture Department decided to cut this yearÛªs acreage. Perhaps the department was also trying to save a little money. It had promised the White House to cut down the farm subsidy outlays, as its contribution to reducing Mr. MixonÛªs budget deficit. In any event, the acreage planted in cotton last spring was well below the 1972 level.</br></br>Then the export boom got under way, led by tremendous purchases from Japan. In early September, Sen. Herman Talmadge (D-Ga.) called on the administration to impose export controls on cotton. In response, that invaluable organization,' Tax Analysts and Advocates, pointed out that the Treasury Department is actually subsidizing the cotton exports under a provision that, in the very different circumstances of previous years. Senator Talmadge himself had forced upon it. The subsidy operates through a device known as the Domestic International Sales Corporation (DISC) which, to put it briefly, is a tax dodge intended to induce manufacturers not to move their factories abroad. Applying DISC to agriculture is, of course, ludicrous. When did you last hear of a runaway cotton field being shipped to Taiwan?</br></br>The farmers who sell cotton are not, at the moment, complaining. But it is another matter for the manufacturers who buy it. The textile industryÛªs trade association bitterly denounces the shortages and warns that ÛÏthe enormous raw material cost increases, unless moderated, inevitably will result in hundreds of millions of dollars of price increases to consumers.Û The latest Wholesale Price Index, published a few days ago, shows that from August to September the prices of cotton textiles and</br></br>The sudden export boom is related to the turmoil in the worldÛªs monetary system which, as the Wholesale Price Index suggests, has a certain relevance to the way things are going here at home. In the days when the United States kept the value of the dollar artificially high and Japan kept the yen artificially low, a huge amounUof dollars accumulated in Tokyo banks. By the time the dollar was devalued in late 1971, JapanÛªs dollar reserves were larger than the U.S. governmentÛªs. The then Secretary of the Treasury, John Connally, declared that those reserves could not be converted into gold and, in his customary engaging manner, told the rest of the world that they could like it or lump it. Tile Japanese, it develops, did neither. Like most other holders of dollars abroad, they began converting their dollars into such commodities as cotton. The world is now off the gold standard and on what you might call the cotton-soybean-copper standard. If we could design a mechanism to protect the commodities against sudden speculative swoops and pounces, it would be quite a good system.