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12/05/2012

Great Famines: Lessons from the Nineteenth Century


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Of all horsemen of the Apocalypse, Famine has the most connection with economics. The final death toll in most famines is mostly determined by another horseman, Pestilence, which follows famines through many obvious and less obvious channels. My purpose is a study of economic, not medical, history, so I’ll refer to “famine,” although most excess deaths can be attributed to epidemics.

When I started thinking of the topic of famine, India’s Great Famine of 1876–78 became uppermost in my mind. I soon realized that the story has universal significance and says much more about other branches of economic thought than one might imagine. This famine affected an area that had a population of 50 to 60 million, higher than the population of any contemporary Western European country; it resulted in 5 to 10 million deaths, comparable to the number of all military deaths in World War I (Kulkarni 1990). What really surprised me was how similar the accounts of different famines were. Sometimes, I rubbed my eyes in disbelief and checked and rechecked dates to see whether I was reading about the famine of 1876–78 or of 1896–1897.

Of all the accounts of famine available, I chose those of the nineteenth-century British Empire because those famines were among the best documented. I observed the following details in those accounts: First, the system of agricultural production and distribution in a given territory was already under strain, even in years of plenty. Second, no general shortage of food was observed, yet all famines correlated with high levels of food exports from the affected areas. Amartya Sen (1982), who received the Nobel Prize in Economic Sciences in 1998, observed this phenomenon, suggesting that famines can happen with little or no external stimuli. Sen’s FEE (failure of exchange entitlements) theory was as revolutionary in its description of famines as Milton Friedman’s analysis of the Great Depression was for the subsequent development of economic science (and dogma). Many criticisms of Sen’s approach have appeared, based on empirical data that suggest that particular famines were triggered by external shocks. Yet, his insights are still fundamental in welfare economics.

Third, in all of the cases that I studied, there was a significant yet poorly explained role of barter in starvation economics. Fourth, the callousness of the officials tasked with hunger relief, and the deceitful way in which they justified their behavior with bogus economic theories, transcend the imagination. Finally, disruptions in production and prices were minor in the years of plenty, but once famine had begun, it spread in an avalanche-like manner, with many economic connections severed almost simultaneously.

VULNERABILITY OF SUBSISTENCE AGRICULTURE

Let me start with the pertinent details of the Great Famine in Ireland. During the early stage of the crisis, Britain’s Corn Laws were in effect (corn, in contemporary parlance, meant every cereal). Adopted in 1815, when memories of the wartime scarcity due to Napoleon’s Continental System were still vivid, this was a sliding scale of price floors for foodstuffs, essentially prohibiting grain imports into the British Isles unless internal prices were very high (Clough and Cole 1952). This piece of legislation obviously favored landowners and punished everyone else.

Industrialists were unhappy with the high prices of agricultural supplies for their manufactures as well as the restrictions on trade imposed in retaliation by the continental powers. The colonies (Australia, Canada, India, and New Zealand) could not pay for British-finished products with anything but their agricultural exports, so they could not import enough British-made goods to satisfy their populations. The working and urban middle classes had to buy food at inflated prices.

Tenant farmers suffered harsh exploitation. The last, rather counterintuitive conclusion is a good exercise for students in microeconomics. Keep in mind the following considerations: first, farmers and landlords alike were price takers (prices on the London exchange were determined by farmers as far away as Kansas and Iowa and peasants in India). Second, exemplifying the rule of diminishing returns to labor, few tenant farmers could afford capital improvements in the short run, and might not have wanted them at all because their tenures could have been rescinded. Finally, there is the finite utility of free time. Many economic theories neglect free time, only optimizing monetary wealth. But the general logic runs as follows: to satisfy the landlords’ demands for production, which were much increased with respect to market equilibrium, tenant farmers had to put ever poorer lands under cultivation or apply more labor-intensive techniques. While their incomes increased somewhat, they had to work much more than they would have had to work under free-trade conditions.

The net result was the paradox of the nineteenth-century British Empire: the most productive economy and the most intensive agricultural system in the world left the population half starving. Then there was the ubiquitous phenomenon of subsistence agriculture: barter and noncash economy. Especially in Ireland, significant numbers of peasants grew food for themselves, directly exchanged surpluses for consumer goods, and only rarely went to the market. Consequently, large numbers of artisans—cobblers, cloth makers, carpenters, and blacksmiths—rarely went to the market and received most of their foodstuffs in direct exchange with the farmers. In another version of the story, farmers grew crude foods such as potatoes in Ireland and substandard varieties of rice in India, for their own consumption (for which there was no explicit market outside of their locality) and cash crops for sale.

Now it begins to get interesting. In business school, while I was taking an introductory finance course on “The Efficiency of the Capital Markets,” I said that I wanted to continue with a course called “And the Inefficiency of All the Others.” Naturally, this comment did not enamor me to some of my professors. Indeed, nobody buys stocks or bonds for the aesthetic quality of their certificates, but people buy houses precisely because of aesthetics. Regardless of the state of the real estate market, one can find shelter in one’s house. Therefore, in contrast to the business of financial securities, decisions to buy and sell real property (or consumables) can be substantially detached from the property’s monetary value.

In a subsistence agricultural economy, a high asymmetry with respect to risk exists between the growers—peasants who grow their own food (i.e., staples), peasants who grow cash crops (wheat in Ireland; cotton, indigo, and opium in nineteenth-century India for sale in China), and peasants who grow staples for their own consumption and cash crops for the market—and the artisans. One can patch worn clothes or repair agricultural implements, but one cannot postpone food consumption for very long. Artisanal work is largely independent of weather, and its products do not rot as rapidly as food. Subsistence staple growers might wish to keep food from the market in expectation of even higher prices, but faced with perishability they have to sell it very quickly. Thus, one feature of the subsistence agricultural economy is occasional large downward spikes in prices.

At the first sign of famine in Ireland, financial regulators in London instituted a system of price floors for grain prices. (I have relied heavily on Kelly [2012] for most of my descriptions of this famine.) They claimed that the Irish were starving not because many of them were largely outside of the monetary economy—eating homegrown potatoes, wearing homespun clothes, using homemade furniture, and venturing to the market only infrequently to buy glass and iron products—and unable to afford grain at any price, but because the downward price spikes discouraged investment. It would take too much space here to discuss all the conceptual errors of this thinking. It is sufficient to say that if the London policymakers intended to send a price signal, they should have sent it to farmers in Kansas and Iowa or the Kingdom of Hungary.

Supply-side economics grew out of the early-nineteenth-century writings of Jean-Baptiste Say, and the policymakers might well have been aware of Say’s work. Yet even without Say, they understood where the financial interests of the landowning class lay: the wealthy landlords (today we might say “job creators”) could not live another day being exposed to the vagaries of the market that was already heavily skewed by the Corn Laws.

In the midst of the Great Famine, British prime minister Sir Robert Peel suspended the Corn Laws. By this bold act he not only divided his Conservative Party, but also forced his own resignation. He was replaced by Whig PM John Russell, who significantly expanded the free-trade policies of the Peel cabinet and, in particular abolished the Corn Laws for good. However, with respect to Irish famine relief he was as ineffectual as his predecessors, and he commanded less respect in the country in general.

While eventually everyone benefitted from free trade in cereals, the timing was inopportune because bad weather and rains had decreased food supplies all over Europe. Thus, the benefits accrued through the abolition of the Corn Laws were not gained by the Irish peasants in more than a decade. By 1874, the population of Ireland had shrunk by 40% through excess deaths and immigration (Wikipedia, “Great Famine [Ireland]”).

Another vulnerability of the agricultural economy is that the switch between staples and cash crops is rather time consuming and not always possible. Staples and cash crops require different techniques, which can be quickly lost in illiterate societies, as well as irrigation. In India, crops were usually pledged in advance as collateral for loans. Peasants could not receive planting seed before they delivered a certain quantity of a cash crop to a landlord or usurer. In turn, nondeliveries immediately caused a spate of defaults propagating through the system. In the modern language of quantitative finance, this is called “credit contagion” (see, e.g., Gouriéroux and Jeanblanc 2009, in particular my chapter 15).

Hence, while peasants could significantly mitigate market (price) risks—for instance, by eating their own food—and operational risks (crop failures, rotting of food), they faced very significant credit risks. In several books, Amartya Sen pioneered the scientific study of microcredit, but I did not notice in popular renderings of his work his particular emphasis on the breakdown of the local credit markets. This idea occurred to me while I was rethinking the arguments of Kulkarni (1990) and Chakrabarti (2004).

For artisans, the risk profile is entirely different. While their operational risks are small, they bear the full brunt of market risk: if food prices rise with respect to shoes, for instance, the cobbler has little recourse.

The credit-risk scenario has an analogue in the recent US mortgage crisis. If, in a given neighborhood, a house is sold because the person has found a new job in another place—a frequent occurrence in the college town of Ithaca where I live—the supply moves up one unit. However, if the house is sold because the person loses a job, the whole demand curve might change because this sale provides additional information on the employment situation in the area. Normally, housing prices will find a new equilibrium because homeowners’ equity is usually positive. However, given that some homeowners take out loans on their equity—loans that originate later than the original mortgage—a credit crunch may occur as some of these homeowners default at the period of high housing prices (see Lerner 2008 and 2011). This situation can look very favorable to the mortgage bank stockholders because their return on investment skyrockets. What the stockholders usually don’t understand before their equity is wiped out is that stock prices were high not because the bank had sound policies, but because its loan portfolio was much riskier than it looked on paper.

Life for those in a subsistence agricultural economy is bearable when prices of staples and cash crops move in sync. When there is opposite movement, big dislocations ensue. This is essentially a swap, but a swap in which one part has only cash delivery (exported cotton), but the other has both cash and physical delivery (locally sold rice). If the price of rice rises with respect to cotton, cotton growers do not have enough food; if the price of cotton rises with respect to rice, exporters have their fill but staple farmers can afford fewer clothes. Thus, weavers and cloth makers have to reduce their food consumption drastically because subsistence farmers cannot afford imported clothes. Lord William Bentinck, who served as governor-general of India from 1828 to 1835, vividly illustrated this conclusion: “The bones of the cotton weavers are bleaching the plains of India” (quoted in Gomes 2003, 80). (Weavers played an important role because they were the largest group of nonagricultural workers in rural India at the time.)

Neoclassical economists would contend that all this is a case of market inefficiencies, which will be arbitraged by the market. This argument is taught in every business school. But apart from financial markets, it is never explained how this arbitrage could work in practice. One could argue that Indian merchants could have imported English machinery to make clothes from local cotton in order to compete with Manchester, but the British prohibited all exports of machinery until 1825 and severely inhibited it thereafter, especially with respect to the colonies (Kelly 2012). Even if we assume that Indian merchants were allowed to accumulate the necessary capital and buy the latest machines, how could they have exported their manufactures to effectuate the price arbitrage? Britain was not called the “Ruler of the Waves” for nothing: all exports to Britain had to be delivered by British commercial vessels (thanks to the Navigation Acts, abolished only in 1849 when Britain’s maritime domination was complete), and Britain’s will was imposed by the might of the Royal Navy. When China closed her ports to the most liquid Indian export—opium—Britain went to war (1839–1842 and 1856–1860). Moreover, the British built a large network of railroads in India to transport troops. Construction became increasingly hectic after the Indian Rebellion of 1857 (Lloyd 1997), but, once built, the railroads provided a boost for Indian exports of rice. Between 1871 and 1881, a starving India exported more than a million tons of rice (McAlpin 1983).

Here again is an example of market inefficiency, but not in a traditional sense. Had the railroads been built only with commercial purposes in mind, their building probably would have taken much longer and been geared toward transport among provinces and cities rather than among garrisons in the densely populated countryside and ports. Hence, the military expenditure provided a covert export subsidy, in the absence of which higher railroad tariffs would have discouraged exports. As it was, all the components of the disaster were put into place.

RESPONSES TO FAMINE

The most obvious relief strategy is to give food to starving populations for free or below market prices. This is what Sir Richard Temple, lieutenant-governor of Bengal Presidency, did during the Bihar famine of 1873–1874 (Wikipedia, “Great Famine of 1876–1878” and “Sir Richard Temple, 1st Baronet”). Instead of receiving a commendation for avoiding high mortality, however, he was reprimanded for interfering with the workings of the market. He would not make the same mistake again. In 1876, as famine commissioner for the Government of India, he assured his superiors that the main policy goal would be economy of government funds, not famine relief: “The task of saving life, irrespective of cost, is one which it is beyond our power to undertake. The embarrassment of debt and weight of taxation consequent on the expense thereby involved would soon become more fatal than the famine itself” (quoted in Loveday 1914, 57). In other words, correcting the moral deformity of “debt” and “taxation” should take precedence over saving human lives.

Direct food grants are often not the most effective policy. While they are relatively easy to set up, experience shows that they are also relatively easily taken over by gangs associated with profiteers and local officials. These unscrupulous people then resell the food aid at inflated prices. However, the most urgent concern of the ruling elites during famines was not starvation but the “demoralization” (dependence, in modern parlance) that the distribution of free food would allegedly cause among the poor. The traditional British way to alleviate poverty was to set up workhouses like those portrayed by Dickens.

Even a brief examination of the system of workhouses shows that their declared purpose was not to provide relief for poor people but to induce their moral reformation. The extreme concern of the rich for the supposed improvidence of the poor is still evident today (see, e.g., Murray 2012). The archbishop of the Anglican Church organized workhouses in Ireland along the following lines (Kelly 2012): first, they should be maintained exclusively out of the local budgets and by charitable donations, with the purpose of improving local administration and not wasting the empire’s money. (This sounds very American and modern: calls to “give it all to the states” imply that the states are more efficient or prudent than the federal government.) It is noteworthy that local contributions sometimes had to be extracted by cavalry. At the peak of the Great Famine, Queen Victoria gave ₤2,000 of her “personal” funds to famine relief to drive home the message of the strictly voluntary character of the aid.

Second, the inhabitants of the workhouses were strictly forbidden to grow their own food because they were supposed to be fed by means of the community’s alms and contemplate their moral “degeneracy.” Third, they were not supposed to learn any useful skills that would enable them to compete with workers in the future; rather, they were expected to do hard labor, such as cutting stones and digging ditches, for their own improvement. Finally, poor children were not given an education because, in the view of the archbishop, the Cabinet, and Parliament, it would be unfair if they received for free something for which other parents had to pay. In the midst of the Great Famine, these monstrous workhouses, which were feared more than prisons, housed more than 100,000 people. Another 400,000 people were sustained through other forms of public works. In the midst of India’s Great Famine of 1876–1878, viceroy Lord Bulwer-Lytton initially ruled out relief works on the grounds that “[m]ere distress is not a sufficient reason for opening a relief work” (quoted in Davis 2001, 52). The provincial government of Madras eventually increased rations to 1.25 pounds of grain and 1.5 ounces of protein per day (Wikipedia, “Great Famine of 1876¬–1878”). This, however, was insufficient to feed hard laborers in railroad construction, some with families.

Now, public works have their inefficiencies. Unlike direct food relief, they require a coherent social organization, something that usually collapses quickly during famine. Typically, they help only able-bodied men and do not reach women, children, and the elderly. They also may require concentrations of population, which can be dangerous from an epidemiological point of view. As such, public works like monetary grants to buy food at market prices (e.g., food stamps in the US) can be used as hunger prevention rather than relief.

In the name of free trade, Bulwer-Lytton also rejected the idea of temporarily closing the Indian ports to exports of grain. In the midst of one of the worst famines in human history, Indian rice and wheat exports continued to grow (McAlpin 1983). As I mentioned above, exports were enabled by the railroad system that had been established for military purposes. Another proposal also rejected on the grounds of free trade was the temporary suspension of imports of manufactured English clothing to allow weavers to earn enough money to buy food at market prices.

Short of being cartoon villains, the managers of the disaster were the cream of the British political and intellectual crop. In the midst of the Irish famine, Sir Charles Trevelyan—who was then assistant secretary to the Treasury, and who is credited as reforming the British Civil Service—wrote, “The judgement of God sent the calamity to teach the Irish a lesson, that calamity must not be too much mitigated.… The real evil with which we have to contend is not the physical evil of the Famine, but the moral evil of the selfish, perverse and turbulent character of the people” (quoted in O’Riordan 2012). PM John Russell was the uncle of Odo Russell, the famous diplomat, and grandfather of Bertrand Russell, the philosopher and social critic. Bulwer-Lytton was the son of novelist Edward Bulwer-Lytton and himself (writing as Owen Meredith) a poet admired by Oscar Wilde.

Public outcry led to the establishment of a commission led by Sir Richard Strachey and, in 1883, the adoption of a provisional famine code (Loveday 1914). This code established the definitions of “scarcity” and “famine,” which could be used by officials to plan relief measures (Wikipedia, “Indian Famine Codes”).

To the cash, food grants, and public works typical of famine relief in the nineteenth century, the twentieth century added soup kitchens—recall the poignant images of these kitchens in the Great Depression in the US—and direct rationing. Soup kitchens require more organization than food grants do but are less prone to abuse because they distribute food in a form unsuited to reselling. Finally, direct food rationing—partial or total suspension of the free market in food—removes incentives for farmers to grow more; therefore, they are intrinsically inefficient and should be used sparingly. Most of this rationing has occurred in undemocratic societies, but Britain demonstrated a relatively efficient form of rationing during both World Wars, augmented by American and Canadian grain, and Australian and New Zealand meat paid for by US credits (Kynaston 2008). Food rationing has usually succeeded when applied with an overarching national purpose and when limited in scope. For instance, a basket of staples can be given out or sold at nominal prices, while people can supplement their diets at prevailing market prices.

Both the Indian and Irish Great Famines had great political repercussions. Many Indian and British intellectuals found British rule so detrimental to local welfare that they started to organize movements toward independence. In particular, in 1885, the Indian National Congress was established to secure greater freedom for Indians, a more impartial administration, and a larger share for Indians in the management of their own affairs (Indian National Congress 2012). Violent resistance to British colonial rule in Ireland included the Easter Rebellion of 1916 and the Civil War of 1922–1923.

CONCLUSION

Nineteenth-century famines shared several characteristics:

  • The agricultural system was already under economic strain, even in years of plenty.
  • Famines spread like avalanches, in information-led contagions (see Gouriéroux and Jeanblanc 2009 for a definition of contagions in this sense), sometimes with little or no actual food shortages.
  • The ruling classes were not shy about tampering with the free markets when it served their purposes (e.g., they prohibited grain imports via the Corn Laws), but became unusually solicitous about the purity of market ideology when it came to helping the poor.
  • There was a vague but ubiquitous role of barter economy and incomplete substitutes / segregated markets (e.g., potato and wheat in Ireland, and high- and poor-quality rice in India).

To a list of modern features I would half seriously add “celebrity panic mongering,” the bane of the age of TV and the Internet. In situations like the war in Darfur, refugee camps swell with people who are lured by warlords and human traffickers with promises of aid and asylum in developed countries. In many cases, disaster victims would probably be better off staying where they are and waiting for professional aid to arrive.

We can help prevent famine by providing cash grants (food stamps) that allow the needy to buy food at market prices, and by creating public-works projects. Modern practices of famine relief include food grants or food sales at below-market prices, soup kitchens, and partial or total food rationing. Each of the above methods has its own range of applications and shortcomings; each represents intervention into the operation of the free market. Indeed, famine relief must take into account the reality that hungry, desperate people are unlikely to organize an exchange according to market rules. Finally, even egregious laws like the Corn Laws cannot be abolished without helping the most vulnerable populations adapt to a new system. Because food crises propagate with little or no warning—as do financial and technological catastrophes—sometimes only national governments have the resources to cope with the disaster.

The immensity of the nineteenth-century famines in the British Empire produced two narratives: the nationalist argument, especially prevalent in Ireland, that the Great Famines were deliberate genocides (see Kelly 2012), and the neo-Marxist view that free market capitalism was to blame for famine in India (Davis 2001). Regardless of the merits of these positions, it is clear that the British exhibited class and racial prejudices in the management of the crises. Mostly, they tried to manage a complex world economy as if it were an eighteenth-century country estate.

The contemporary world trade in foodstuffs has limited free markets, but not in the sense of direct export/import controls seen in the nineteenth-century British Empire. Because farming lobbies usually pack electoral weight well above their numbers and their importance for the economy, developed nations subsidize their agricultural production to the tune of hundreds of billion dollars a year. These subsidies not only reduce the competitiveness of the agricultural products of the developing world, but also spoil the environment by promoting the use of more fertilizer and pesticide than would be required for the sake of efficiency. Citizens of developed countries pay for agricultural overproduction through obesity and ill heath, with a typical diet full of harmful carbohydrates and fats. In many ways, the problems underlying the Great Famines are still with us.

REFERENCES

Chakrabarti, Malabika. 2004. The Famine of 1896–1897 in Bengal: Availability or Entitlement Crisis? Hyderabad, India: Orient Longman.

Clough, Shepard Bancroft, and Charles Woolsey Cole. 1952. Economic History of Europe. Boston, MA: D. C. Heath.

Davis, Mike. 2001. Late Victorian Holocausts: El Niño Famines and the Making of the Third World. London, England: Verso. Link.

Gomes, Leonard. 2003. The Economics and Ideology of Free Trade: A Historical Review. Cheltenham, England: Edward Elgar Publishing. http://books.google.com/books/about/The_Economics_and_Ideology_of_Free_Trade.html?id= cfOUDzQ_G0AC.

Gouriéroux, Christian, and Monique Jeanblanc. 2009. Financial Risks. Paris, France: Economica.

Indian National Congress. 2012. “Congress & the Freedom Movement.” Link.

Kelly, John. 2012. The Graves Are Walking: The Great Famine and the Saga of the Irish People. New York, NY: Henry Holt and Co.

Kulkarni, S. N. 1990. Famines, Droughts, and Scarcities in India. Allahabad, India: Chugh Publications.

Kynaston, David. 2008. Austerity Britain, 1945–1951. London, England: Bloomsbury Paperbacks.

Lerner, Peter. June 23, 2008. “Alternative View of the Current (2008) Crisis in the US Financial System.” Working paper.

Lerner, Peter. December 20, 2011. “Reflections on the FMA Annual Meeting.” The Finance Professionals’ Post. The New York Society of Security Analysts.

Loveday, Alexander. 1914. The History & Economics of Indian Famines. London, England: G. Bell and Sons.Link.

Lloyd, T. O. 1997. The British Empire 1558–1995. 2nd ed. New York, NY: Oxford University Press.

McAlpin, Michelle Burge. 1983. Subject to Famine: Food Crisis and Economic Change in Western India, 1860–1920. Princeton, NJ: Princeton University Press.

Murray, Charles. 2012. Coming Apart: The State of White America, 1960–2010. New York, NY: Crown Forum.

O’Riordan, Tomás. 2012. “Charles Edward Trevelyan.” Emancipation, Famine & Religion: Ireland under the Union, 1815–1870. Multitext Project in Irish History. University College Cork, Ireland. Link.

Sen, Amartya. 1982. Poverty and Famines: An Essay on Entitlement and Deprivation. New York, NY: Oxford University Press. Link.

– Peter Lerner, MBA, PhD, is a semi-retired financial researcher who lives in Ithaca, NY.


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