Transformation of Ever-Normal Granary in Modern Times: From Chen Huan-Chang to Benjamin Graham

Due to the great economic depression in the Western world during the 1920s and 30s, and the ensuing spread of governmental macro-level interventions, the ancient Chinese price-stabilizing mechanism of Ever-normal Granary found new life in the new era. The exposure of Ever-normal Granary to the West is largely due to a significant work, The Economic Principles of Confucius and His School written by the Chinese scholar Chen Huan-Chang, which introduced the ancient Chinese economic traditions to the west. The discussion of the Ever-normal Granary inspired Henry A. Wallace, the U.S. Secretary of Agriculture (1933-1940) during the Franklin D. Roosevelt administration. Wallace advocated effective governmental intervention to buffer price volatility and end the damage to the U.S. economy caused by laissez-faire policies in agriculture. Wallace promoted the enactment of two “Agricultural Adjustment Acts” (AAA) and implementation of relevant reforms in the 1930s, achieving a historical transformation of ancient Chinese Ever-normal Granary system. The Ever-normal Granary reform in agriculture in the 1930s, i.e. supporting the ever-normal development of agriculture with both the government and the market, symbolized the maturing of the American agricultural economy. Inspired by the success of Henry A. Wallace, Benjamin Graham, an influential American investor known as the “Father of Value Investing”, proposed the “Modern Ever-normal Granary”, a buffer stock scheme based on a “basket” of widely-used commodities including industrial and agricultural products, hence the creation of the Commodity Reserve Currency system which coexists with the gold standard system. The Modern Ever-normal Granary proposed by Graham, is actually the application, in an industrialized society, of the “equalization policy” (pingzhunfa) (or Multiple Buffer Stock) of Ever-normal Granary in broad sense, a policy implemented in ancient agricultural China. Graham extended its application to the modern world, and the “Modern Ever-normal Granary” was later updated to the “World Ever-normal Granary”. The ancient Chinese Ever-normal Granary found its resurrection and new development in the U.S. with its creative transformation in the new era.