Professor Nurkse and the Marketing Boards

rofessor Nurkse presented a compelling case against the price stabilization policies of national marketing boards for primary products based on the fact that these policies may reduce the quantity of foreign revenue accruing to the primary producing country [1], If they do, they may act to restrict the rate of economic development. To maximize export earnings, he proposed elimination of the marketing boards’ function of insulating domestic producers of primary products from demand fluctuations on the world market. These demand fluctua¬tions were considered to be the result of cyclical fluctuations within the advanced countries, hence they were treated in a short-run context. To see Professor Nurkse’s argument, consider a marketing board which has as its objective the stabilization of the price of a primary product, X, to the domestic producers of X in country A by use of a buffer fund1. This will be accomplished by the board, as a domestic monopsonist, if it fixes a price for its purchases of the product, then sells on the world market for whatever it can get in light of world demand conditions. Assuming that stabilization of price is its sole objective, it will select a domestic price which represents the anticipated weighted average of the world market price over some time period so that the board itself will, hopefully, show neither a profit nor a loss at the end of the period from these tax and subsidy operations. While the short run free market supply function, Sf (which we assume to be linear, of positive price elasticity, stable, and responsive without lags), still exists, the stabilization of domestic price at p in Figure 1 will yield a supply function to the world market, Sm, which is perfectly inelastic at the quantity, Q.