David French | 12/09/2011 11:09:55 AM

This article was originally published as ‘Theories’ in The Morning Bulletin in September 2011.

Is the purchase of land by overseas countries from our farmers wrong? My fishing friend’s view is “yes”. Same with a Nyngan based farmer friend. No dills, one established and ran the legendary Northside Mobil (when a 2am run on the quarter mile was followed by a quarter pounder), and the other virtually established no-till farming and satellite harvesting into Australia.

Being an economist, my tools in analysing these claims are based in economic theories. Let’s start with the thought that armed with appropriate information, people can generally work out what is best for themselves. And if people are well informed, and they are allowed to act in their own interests, generally welfare is maximised. Arguing then, that the Chinese are at fault for purchasing land, implies that the farmers do not know what they are doing. I’m not so sure about that – look at the sale prices.

The Chinese do know what they are doing. Once fragmented, four or five companies now control much of the commodity market, making prices much less volatile. High prices are not evoking the supply response of times past, and therefore prices are remaining “stronger for longer”. Such an outcome is consistent with microeconomic theory - big consumers will want to bypass the problem by owning the resources directly. Not keen on economics? Watch the movie “Dune”.

While some might like to bag theoretical treatment of problems, we all construct theories to help us make sense of the world. I have some of my own. For example, the only obvious similarity between our dog Rufus and me is our absence of prejudice. Black, white or brindle, Rufus loves to love all comers. My racial theory concerns food however: Simply Anglos are already eating anything that’s good. The charred octopus of the Greeks is OK with me (not with my mum though), but the snails and frogs legs of the French (my ancestors) take it a bit far. Skunk and snake can only ever be thought of as subsistence living.

A more sensible theory is “the name of the game is to stay in the game”. Markets, relationships, health, all are uncertain. We should expect that. What we should also do is take measures that allow us to maximise the chance of recovery should things go wrong. Construct your investment portfolio well, laugh and nurture friendships and family. Find little wins…a week, then a month, then a year – eventually the sun will shine.

In the end theories are just well constructed thoughts. What is important about those thoughts is not that they are right, but they can be tested. Might be time for a hangi.

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