Professor Nurkse and the Marketing Boards

rofessor Nurkse presented a compelling case against the pricestabilization policies of national marketing boards for primary productsbased on the fact that these policies may reduce the quantity of foreignrevenue accruing to the primary producing country [1], If they do, theymay act to restrict the rate of economic development. To maximize exportearnings, he proposed elimination of the marketing boards' function ofinsulating domestic producers of primary products from demandfluctuations on the world market. These demand fluctua¬tions wereconsidered to be the result of cyclical fluctuations within the advancedcountries, hence they were treated in a short-run context. To seeProfessor Nurkse's argument, consider a marketing board which has as itsobjective the stabilization of the price of a primary product, X, to thedomestic producers of X in country A by use of a buffer fund1. This willbe accomplished by the board, as a domestic monopsonist, if it fixes aprice for its purchases of the product, then sells on the world marketfor whatever it can get in light of world demand conditions. Assumingthat stabilization of price is its sole objective, it will select adomestic price which represents the anticipated weighted average of theworld 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 periodfrom these tax and subsidy operations. While the short run free marketsupply function, Sf (which we assume to be linear, of positive priceelasticity, stable, and responsive without lags), still exists, thestabilization of domestic price at p in Figure 1 will yield a supplyfunction to the world market, Sm, which is perfectly inelastic at thequantity, Q.