Mixed Economy: The Raisin Reserve

Sep 3, 2013 • Demand, Supply, and Markets, Economic History, Regulation • 378 Views    No Comments

The supply of raisins is controlled in the United States.

During World War II, the US government sent GIs raisins. When the war ended, the armed forces no longer needed all of those raisins. As a result there was a glut.

Rather than let the market respond to less demand with lower prices, the US government decided to create the raisin reserve. You can see what that did (below). Withdrawing raisins from the market, they diminished supply. Less supply meant preserving elevated prices. It also meant government supplied raisins in schools, for cows, and in foreign markets.

Raisin farmers might not be paid for raisins they gave to the reserve. But they would receive a targeted market price.

Fast forward to 2002. Refusing to acquiesce, Marvin Horne would not send 1.2 million pounds of his raisins to the reserve nor would he pay a $650,000 fine. His quotes say it all. “If I knew we were going to go through all of this, I would have pulled the grapes out and put in almond trees…It’s robbery. It’s socialism. It’s feudalism…”

Is it?

The US Supreme Court said maybe yes. In a 2013 decision that is still unfolding, they sent the case back to a lower court to reconsider a decision that essentially preserved the reserve.

Here is the impact of a mixed economy–of government shaping the market for raisins–on demand and supply:

Mixed economy for raisins

Mixed economy raisins 3

Sources and Reserves: An NPR Planet Money podcast, a Washington Post article and a US Supreme Court document together convey the facts behind the raisin reserve.

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