Agricultural Supply and Prices in the United States During
the Great Depression: A Paradox?
By Paul Richard Sharp
An agricultural worker’s family: Rural California during the Great Depression.
Source: http://pembrokesc.vic.edu.au/kla_sose/gd/photo1.htm
A Paper for Economic Seminar: Asset Prices, Economic Cycles and Depressions
with Jakob Brøchner Madsen
“Opponents”: Simon Høgsbo and Torbjørn Lange
To be presented on September 17, 2004
Institute of Economics, University of Copenhagen
September 2004
Contents
Introduction...................................................................................................................2
Why look at this problem?.............................................................................................3
The “Farm Problem” of the 1920s .................................................................................5
How bad was the Depression for Farmers? ....................................................................6
Government action ........................................................................................................7
Agricultural Marketing Act .......................................................................................8
Hawley-Smoot ..........................................................................................................9
Was there a “paradox”? .................................................................................................9
From Depression to New Deal.....................................................................................12
Conclusion ..................................................................................................................13
References ..................................................................................................................14
Appendix A.................................................................................................................16
Appendix B.................................................................................................................19
1
Introduction
The inspiration for this paper was a short conversation with Gunnar Persson. He
suggested that it was worth investigating an apparent paradox in the years immediately
following the Wall Street Crash. During this period the supply of agricultural produce
increased in the United States at
Wheat price and supply 1927-1933 (1927=100)
the same time as prices were
falling (see graph).
A fairly large amount of
literature has been devoted to
the subject of whether farmers
respond
rationally
to
price
100
80
60
signals. Wilfred Malenbaum,
for example, in a study of the
factors
influencing
40
wheat
acreage, concluded that “while
20
1927
short-run acreage movements
may be influenced by the
1928
1929
Wheat supply
Wheat price
1930
1931
1932
1933
Source: NBER Macrohistory
Database
changing price situation, long-run tendencies have other causes, different in parts of world in
different circumstances, and little related, if at all, to the price structure.” (Malembaum 1953,
p. 109). Other economists have disputed this1, although the debate continues to some extent in
the field of development economics in relation to the supply response of peasant farmers2.
Whether or not farmers are “rational, the fact remains that, for some reason, agricultural
supply rose in the years following the onset of the Great Depression whilst prices fell, both in
real and nominal terms. This paper attempts to provide an understanding of this phenomenon.
First, I motivate this study. Second, I provide a brief synopsis of the years leading up to
1929 – in particular of the so-called “farm problem” of the 1920s. Third, I look at the
apparent paradox: what do the data tell us? Fourth, I discuss possible explanations for the
price/supply patterns seen. Finally, a short section is devoted to the years following 1933 (in
particular Roosevelt’s “New Deal”, about which much has been written elsewhere).
1
See for example Cooley and DeCanio (1977).
2
See Thirlwall (1999), p. 133.
2
Why look at this problem?
Here, one can do no better than quote Ben S. Bernanke: “To understand the Great
Depression is the Holy Grail of macroeconomics” (Bernanke 1995, p. 1) On this basis alone,
the analysis of one aspect of the Great Depression in the United States is of great importance.
What role though, if any, does agriculture play? In order to answer this question, it is
necessary to delve into the reasons for the Depression about which there is a considerable
amount of literature, worthy of a paper for itself. A short summary of the various arguments
put forward will suffice.
Economists looking at the Depression can easily observe that money supply, output and
prices all fell heavily. What is not so easy is finding the causal link between these. Keynes, in
his General Theory, published in 1936, blamed the Depression on a loss of business
confidence that undermined investment spending. However, probably a more influential
explanation was put forward by Friedman and Schwartz, in A Monetary History of the United
States, 1867-1960, published in 1963, which placed much of the blame with the Federal
Reserve and the role of banking crises leading to a reduction in the supply of money. NeoAustrians blame the Federal Reserve for the opposite reasons: it did too much, and hindered
the workings of the free market and the restoration of equilibrium. In 1976, Peter Temin
attacked the view that monetary factors were of paramount importance, writing in Did
Monetary Forces Cause the Great Depression? that the it was due to an unanticipated and
unexplained decline in consumption expenditures. (Atack and Passell 1994, p. 592) Recently,
however, there seems to be a consensus that monetary factors were important. In particular
following Eichengreen3, much of the blame has been placed on the workings of the interwar
gold standard. The new understanding has been the result of considering more countries than
just the United States. It was found that countries, such as Britain, which went back on to the
gold standard at the pre-war parity, but having experienced inflation during the war years,
were required to deflate their economies with uncomfortable real economic effects. Other
countries, such as France, devalued their currencies and were relatively unscathed during the
early years of the Depression. This view contrasts strongly with the findings of Nurske in his
1944 League of Nations report4, who placed the blame on countries not adhering strictly
3
For example, Eichengreen, B. (1992), Golden Fetters: The Gold Standard and the Great Depression
1919-1939. Oxford: Oxford University Press.
4
Nurske, Ragnar (1944), International Currency Experience: Lesson of the Inter-War Period. Geneva:
League of Nations.
3
enough to the gold standard “rules of the game”, which certainly precluded devaluation. This
was to be a dominant argument in favour of the ill-fated Bretton Woods system of the postSecond World War world. (Feinstein et al 1997)
None of these theories, however, seem to present a central role for agriculture in the
Depression. Some have even claimed that the depression in agriculture was somehow
independent from the financial crisis and the Wall Street crash.5 But the usual view, until
recently, was that the depression in agriculture was simply a consequence of the worldwide
depression. (Kindleberger 1986, p. 71)
However, recent research gives added impetus to focus on agricultural aspects. Madsen
2001a argues that the agricultural crises themselves had important nominal and real effects,
and that they were an important factor in the international transmission of the Depression.
Madsen looks at the years 1929 to 1932 to provide evidence that monetary policies alone
cannot be the sole explanation. In particular, he argues that an average increase in currency in
circulation of 2.1 per cent and a decrease in money plus deposits of 1.9 per cent in the highincome countries cannot alone have been responsible for the 25 per cent contraction in
nominal income. And since gold stocks actually increased in the rest of the world, monetary
shocks cannot be responsible for the transmission of the Depression from the United States, as
suggested by Friedman and Schwartz. (Madsen 2001a, p. 327)
Agriculture, forestry and fishing employed over 10 million people in the US in 1930,
alongside the manufacturing industry, the most important employer. (Mitchell 1983, p. 154)
In other countries it was even more significant. Agriculture was hit at a particularly difficult
time after a long period of decline during the 1920s (on which more later). Madsen notes
three factors by which agricultural decline worsened the Depression. First, the marginal
propensity to spend of those who lost income was greater than that of those who gained,
leading to a decline in consumption. Second, the redistribution of income resulted in falling
real prices of farmland and increased borrowing costs for farmers, which negatively impacted
on investment and consumption. Third, since farmers were increasingly unable to honour their
debts, this helped lead to the bank crises which so typified this period.
The means by which the decline in agricultural prices transmitted the Depression was
through prices determined on world markets in a common currency. This meant that the first
5
It has for example been claimed that a bumper crop of rice in 1928, combined with the wheat surplus,
caused prices to fall in agricultural countries, thus leading to the agricultural depression.
4
countries to leave gold experienced a recovery in the prices of their agricultural products, and
were the first to recover from the Depression. (Madsen 2001a, p. 328)
There is, therefore, plenty of evidence to suggest that the study of agriculture during the
Great Depression could greatly contribute to our understanding. However, before we start
looking at the years after the Wall Street Crash, it is first necessary to consider the
background to the agricultural crises.
The “Farm Problem” of the 1920s
What came to be known as the “farm problem” was in fact not a new phenomenon.
After the Napoleonic and Civil wars, American agriculture found itself lagging behind the rest
of the economy and again, after First World War, there was a farming crisis. (Faulkner 1954,
p. 625) The only difference this time, was that the government decided to take action.
There are two main reasons for the crisis of the 1920s. First, during the war agricultural
supply had increased in the United States as a response to demand from Europe. After the war
agricultural supply began to return to normal in Europe, while it did not fall rapidly enough in
America. This was exacerbated by improved agricultural machinery, particularly the
development of the tractor. Labour productivity increased by about 1.4 per cent per annum
from 1920-33. E.G. Nourse, in 1927, wrote, “Stated as a paradox, the outlook for agricultural
production is so good that the outlook for agricultural prosperity is distinctly bad”.6
The second problem was the general fall in world prices after the war. Deflation always
impacts raw materials and agriculture particularly hard, since wages and retail prices are
“sticky”, leaving the former to bear the brunt of any adjustment.
Other problems facing farmers were increasing taxes (despite falling income) and
policies restricting immigration, which kept wages high. Freight rates and handling costs
remained stubbornly high, and changing diets meant a switch in demand from meats and
cereals to vegetables and fruit. (Faulkner 1954, p. 626) Even though it would have been
possible, in the longer term, for farmers to adjust production to compensate for the latter
problem, at least, in 1929 a worldwide depression of perhaps unprecedented severity removed
any hopes of recovery.
6
Nourse, E.G. (1927), “The outlook for agriculture”, Journal of Farm Economics 9, pp. 21-32.
5
How bad was the Depression for Farmers?
The answer to this question can be given in just one word: terrible. Consider the table
reproduced in Appendix A from Faulkner (1954), p. 627.
The wartime prosperity can be seen clearly, as can the way that agricultural prices failed
to keep pace with costs during the 1920s. Although there is general deflation from the mid1920s, the most noticeable thing is the dramatic decline in agricultural prices from 1929. The
situation was dire; for example, the price of wheat fell by almost 50 per cent between 1929
and 1931. (Ingersent and Rayner 1999, p. 72) European importing countries, such as France
and Germany, reacted by raising tariffs and non-tariff barriers, such as requiring a “milling
ratio” of foreign to domestic wheat. Even Britain abandoned its long-standing commitment to
free trade in agriculture, and as a result, European producers were protected from the fall in
prices. Not so the Americans. They were hit both by the protectionist measures and the
general dearth of demand in depressed Europe. US exports of wheat and pig meat were
particularly badly hit. Demand fell as surplus stocks built up. (Ingersent and Rayner 1999, p.
72). In addition, many farmers were in debt, a situation worsened in real terms by deflation.
Credit was often unavailable, since banks were in difficulties and could ill afford to lend to
crisis-struck farmers. (Fearon 1987, p. 103)
Between 1930 and 1933 farm prices fell by more than 50 per cent, whilst the costs of
goods and services purchased by farmers fell by 32 per cent. The ratio of farm to non-farm
prices with 1910-14 = 100 fell from nearly 100 in 1929 to around 60 in 1932. The gross
income of American agriculture was halved between 1929 and 1932 and land prices fell some
30 per cent. Nearly a million farmers were dispossessed between 1930 and 1934. (Ingersent
and Rayner 1999, p. 72) Many of these would have had to accept a loss of status from
independent farmer to agricultural labourer or even homeless unemployed – reversing a trend
of increasing self-ownership of land, which had been a part of American history, and indeed
an important part of the American psyche, almost since colonization.
Despite all this, farmers kept up production. The cotton crop in 1931 was close to an alltime record, although prices had fallen from 17 cents per lb in 1929 to 6 cents per lb in 1931.
Acreage did not fall significantly the following year, although stocks of cotton were high.
Wheat fell in price from 67 cents per bushel to 39 cents per bushel during the same period;
indeed, it was so cheap that farmers substituted from maize to wheat in livestock feed (Atack
and Passell 1994, p. 594) - but production increased. Stocks were three times higher than in
the late 1920s. Moreover, the number of farms was actually increasing: from 6,546,000 in
6
1930, to 6,608,000 in 1931, 6,687,000 in 1932 with a peak of 6,814,000 in 1935. (Fearon
1987)
Government action
As has been previously noted, an important feature of our period is not that farmers
were complaining – this was certainly nothing new – but that the government started
listening. There had been other initiatives during the 1920s7, but these are relatively minor as
compared to the acts we are to consider here: first, the famous Hawley-Smoot bill of 1930;
second, the not-so-well-known Agricultural Marketing Act of 1929. Despite a general upturn
in agricultural prosperity over the period 1924-1928, mainly due to internal economic growth,
the notion of “Equality for Agriculture” had a strong influence on the Presidential election of
1928, which was won by Hoover – and the subsequent legislation reflects this.
We shall see here that government actions were ultimately unsuccessful. However, the
importance of this period is that it sees the growth of a belief that protection of agriculture is
desirable on other than purely economic grounds. The need to protect agriculture as “a way of
life” was an important reason for the agricultural programmes of the 1920s and 1930s.
(Malenbaum 1953, p. 32) It remains so today. Agricultural leaders, however, stressed the
importance of raising farm prices relative to non-farm prices and debt relief as a means of
restoring demand for industrial goods and reviving industrial activity. The idea that strong
agriculture was necessary for a strong economy gained wide political support. However, it
should be noted that buying power could also have been increased through re-employment
and an increase in industrial production. If this could be achieved then there would have been
little need of a reduction in farm output. That the latter was emphasised reflects the fact that
the farmer is naturally more aware of price movements of the products he sells than of overall
economic fundamentals. (Benedict 1955, p. 12)
Earlier depressions had sometimes ended in government action but, because of a
prevailing laissez-faire attitude, most action came after the event. By 1929, however,
revolutions had occurred throughout the world – most importantly in Russia, establishing the
Soviet Union – so the government did not really have much choice other than to be seen to be
7
Notably the emergency tariff and the revival of the War Finance Corporation in 1921, the Fordney-
McCumber tariff in 1922, and the Agricultural Credits Act of 1923. Legislation which actually attempted to
increase prices, suggested in the McNary-Haugen bills, and passed in 1927 and 1928 by Congress, was twice
vetoed by President Coolidge.
7
doing something. After the Wall Street crash, a multitude of measures were passed, despite
the fact that President Hoover was a proponent of “rugged individualism”. However, the first
major measure was passed before October 1929: the Agricultural Marketing Act.
Agricultural Marketing Act
President Hoover signed the Agricultural Marketing Act on June 15, 1929. Its stated
goal was “to promote the effective merchandising of agricultural commodities in interstate
and foreign commerce, so that the industry of agriculture will be placed on a basis of
economic equality with other industries.”8
Ironically, Hoover anticipated that the act would mark the end of government
intervention in agriculture. He believed strongly in the principles of self-regulation and
cooperation, and thought that, with the assistance of the Federal Farm Board, this would
happen. Farmers would cooperate to cut production, and the “farm problem” would finally be
solved. In fact, farm journals and farm organizations had been advising farmers to restrict
production throughout the 1920s, but attempts to organize crop-withholding movements had
led to violence against those who failed to cooperate. (Rasmussen and Porter 1972, p. 122) As
historians have noted, Hoover was making “almost utopian demands … of farmers”.
(Hamilton 1991, p. 7)
Of course, it is easy to judge the Agricultural Marketing Act with hindsight. The
Federal Farm Board was established just four months before the Stock Market crash of
October 1929. Although national cooperatives were set up in 1929/30, offering loan and
storage facilities, the financial burden was too much and the Federal Farm Board was forced
to take on direct responsibility through the Grain Stabilisation Corporation and the Cotton
Stabilisation Corporation. These purchased heavily in the two commodities and in futures. For
a time this strategy succeeded in keeping price levels at a higher level than world market
averages. Almost half a billion dollars were spent supporting prices. Wheat was sold
internationally below the domestic price, thus adding to the global problem of oversupply,
and cotton was stockpiled. There were, however, insufficient funds, and the Federal Farm
Board halted attempts at market stabilisation in 1932 leaving a net loss of around
$148,000,000 for the taxpayer to pay. (Faulkner 1960, p. 650) And this despite Hoover’s
earnest words to a special session of Congress in 1929: “No governmental agency should
8
See Appendix B for specific details.
8
engage in the buying and selling and price fixing of products, for such courses can lead only
to bureaucracy and domination.” (Hamilton 1991, p. 66)
Hawley-Smoot
The ill-fated steel tariffs of March 2002, which were withdrawn in December 2003, are
just one of the most recent developments in the long tradition in American politics of
pacifying lobbyists by introducing protectionist legislation. Hawley-Smoot was one such
occasion.
The Hawley-Smoot Tariff Act was passed in 1930. President Hoover considered it to be
“a limited revision of tariffs aiding agriculture in particular” (Ingersent and Rayner 1999, p.
71). Tariffs were raised on both agricultural and non-agricultural goods, but these were
already high after the Fordney-McCumber Act of 1922. Since many tariffs were specific and
fixed in nominal values, the deflation made them even more severe. However, even at the
time there were those who could see the folly of “helping” an export industry by imposing
tariffs. They also led to retaliation and “beggar thy neighbour” policies. There was a steep
decline in farm exports, but the decrease in value was more significant than the reduction in
volume. International prices of farm products fell considerably between 1929 and 1931. For
example, wheat fell by 50 per cent. It is unlikely that Hawley-Smoot helped the American
farmer. (Fearon 1987, p. 106) Indeed, recent research suggests that the increase in trade
barriers contributed as much to the collapse of trade from 1929 to 1932, and thus the
worsening of the depression, as diminishing nominal income. (Madsen 2001b, p. 848)
Besides, it has been argued that tariffs were probably an ineffective means of protection,
because farmers were willing to offload their stocks at any price, so an increase in tariffs
would simply lead to a fall in world prices. (Tracey 1972, p. 96)
Was there a “paradox”?
First, it is necessary to say something about the nature of farming at this time: farmers
were very vulnerable to economic shocks. Since demand for most staple goods is inelastic,
bumper crops could cause large price falls. Farming is characterized by small unit size. This
meant that individual farmers could not affect prices, or control production. Productivity
increases required large-scale investment in land and capital, which left farmers with large
debts and dependent on loans, increasing their vulnerability during periods of downturn.
(Hamilton 1991, p. 9)
9
Thus it was that the idea of forming cooperatives to limit production, promoted
especially by Aaron Sapiro, who saw such ideas as a modern form of Victorian “self-help”,
began to be influential during the 1920s. As has been noted, these attempts were
unsuccessful9, and it was felt that government sponsorship was needed to coordinate on a
national scale. Contemporary economists and politicians complained regularly about the
“debilitating individualism of farmers and their irrational refusal to help themselves”.
(Hamilton 1991, p. 15)
In fact, the actions of individual farmers were very much understandable, and indeed
rational. The stabilization of prices can be seen as a public good, benefiting all farmers,
whether or not they participated actively in the process through a cooperative. However,
“outsiders” did not have to take on any of the risks or costs involved. An “insider”, on the
other hand, was in effect paying to support prices for non-cooperating farmers. This is of
course the well-known “free rider” problem. Farmers would rationally supply more as long as
their marginal benefits of doing so were greater than the marginal costs. Since the latter were
very low, in comparison to very large fixed costs, it was rational to increase supply.
As we have seen, attempts at government intervention to solve this problem ultimately
met with failure due to lack of resources and the onset of the Great Depression. It is, however,
interesting to consider whether limiting production was rational on a national scale if this had
have been possible. There are reasons for thinking that it was not so.
If we consider, for example, the case of an individual country, even the United States, it
is clear that that country is only a minor contributor to world agricultural supply. Thus if even
all the farmers in the United States were to reduce output, they would have little discernable
impact on the world price, and their slice of world production would simply be smaller. The
price decline was a global phenomenon and required international solutions. The world of the
1930s, with the growth of European fascism and belief in economic autarky, was hardly one
that could support this.
However, if prices were expected to rise, then increased production would be rational.
To investigate this, Hamilton (1992) looks at the futures market, which he shows to be a good
indicator of expected inflation “as the market’s best guess as to the future spot price of that
9
It should be noted that one example of a successful cooperative inspired for Sapiro, but this was outside
the US: the Canadian Wheat Pool. Many attribute its success to a tradition of cooperation and favourable
conditions for Canadian high-quality wheat. (Hamilton 1991, p. 17)
10
commodity”. (Hamilton 1992, p. 158) His results, given in his table 110 for the years 1930-32,
are remarkable. For wheat, for example, an expected inflation of +16.3 contrasts with the
actual deflation of –8.0. What could possibly justify these extraordinary findings?
One suggestion is that people couldn’t possibly have known “that these three years were
going to be different from anything seen before or since”. (Hamilton 1992, p. 160) But the
difference between actual and expected deflation seem to large for this to be the only reason,
and besides, deflation was hardly an unknown phenomenon at the time – the gold standard
years prior to the First World War saw long periods of deflation.
Checchetti (1992) disputes Hamilton’s findings. In particular, he notes the government
intervention in the futures market, which we have already touched on. For example, in
Minneapolis, the Federal Farm Board owned 93 per cent of the open interest in wheat futures
during 1931. By the same year, the government owned more than 250 million bushels of
wheat, three quarters of the total produced during the 1930-1931 crop year. He concludes that,
“given the nature and magnitude of government intervention in the commodity futures
markets between 1929 and 1933, it is difficult to see how prices in these markets can be used
to infer the beliefs of private agents in the economy at the time.” (Cecchetti 1992, p. 153)
The futures market was also heavily influenced by erroneous forecasts by the Bureau of
Agricultural Economics and other market analysts, who in 1929 were predicting “that
American prices would improve and possibly even rise to their highest point in several years.”
The impact on futures can be seen by the fact that as soon as crop estimates became known,
“prices of cash and futures wheat rose several cents a bushel”. (Hamilton 1991, p. 68)
Economists blamed the fall in prices on temporary factors such as oversupply from India and
Argentina, leading them to conclude that cooperatives should stockpile in order to reap the
benefit of higher prices in the future. When prices failed to rise, the Farm board was left in a
dilemma as to whether to stay out of the market, and risk a meltdown, or whether to intervene
and risk huge losses. In the end, of course, they chose to intervene. Prices were sustained at a
level higher than the world price (some 2 to 3 cents for wheat), but still fell heavily.
(Hamilton 1991, p. 78) However, the Board continued to forecast higher prices at the end of
1930, due to a belief that the economic crisis was nearing its end, and because of a severe
drought in the Summer of that year. Futures rose by as much as 16 cents. (Hamilton 1991, p.
91) Dumping on world markets meant that the price decline continued, however. The 1931
crop was the largest in history. (Hamilton 1991, p. 109)
10
Reproduced in Appendix A.
11
The entire history of this period, described in great detail by Hamilton (1991) is one of
misguided economic forecasts, sporadic government intervention and surprise shocks. It is no
wonder that the futures markets were in turmoil. Another factor influencing expectations of
higher prices might have been the imposition of tariffs: farmers could not know that all
countries would do the same11. Expectations almost certainly swung wildly from week to
week, and it seems unlikely that any clear pattern of expectations can be found. In the midst
of this uncertainty, it seems fairly logical that a farmer would simply try to do the best he
could for himself and his family – increase production.
The increase in farms during this period has been touched on previously and can be at
least partly explained by a change in the traditional pattern of migration from rural to urban
areas. Life was not easy in the country, but the lack of opportunities in the city meant that
there was simply no incentive to leave the farm. In fact, by 1933 there was a net movement of
population towards the farm. The so-called “back-to-the-land” movement encouraged people
to return to the country in an attempt at least to be able to grow enough food for themselves.
These unfortunate people typically moved to abandoned farmhouses on land, which had been
left because it was relatively infertile. These farmers strove for self-sufficiency and, although
the movement was welcomed by some (especially in New England) as a solution to urban
unemployment, they were in reality just an extra burden on farm communities. (Fearon 1987,
p. 105) Prices would have been negatively affected, whilst supply increased.
In conclusion, it should also be noted that, although this paper focuses on secondary
literature, this relies on primary literature which is of poor quality. For example, many of the
Federal Farm Board Papers did not survive. (Hamilton 1991, p. 313) Since there are reasons
to believe that this body played an important role in distorting the market during its few years
of operation, a true answer to the “paradox” may never be known.
From Depression to New Deal
Given the catastrophic state of American agriculture, there was a need for new policies.
These were presented during the Presidential campaign of 1932, when Roosevelt promised a
“New Deal”. By the time he entered the White House, in 1933, farm income had collapsed,
foreclosures were commonplace and rural banks and farm suppliers were in great difficulties.
The Federal Farm Board of the 1929 Agricultural Marketing Act filed its last report in 1932.
11
Although this would presumably eventually become common knowledge. Farmers were very well
informed during this period, thanks to the information supplied by the Federal Farm Board.
12
In it the board recommended that “no measure for improving the price of farm products other
than increasing the demand of consumers can be effective over a period of years unless it
provides a more definite control of production than has been achieved so far.” (Quoted in
Ingersent and Rayner 1999, p. 71) The message was understood. An Agricultural Adjustment
Act was passed on May 12. This aimed to raise the prices of seven “basic” commodities
through production controls. Prices were guaranteed through “nonrecourse loans” secured by
commodities stored with a Commodity Credit Corporation. If prices fell then the farmer could
choose to lose the commodities and keep the loan. If prices rose then he could take back the
produce and repay the loan. Despite drastic measures, such as the unpopular ploughing up of
wheat and the slaughter of piglets and pregnant sows while millions remained unemployed
and many went hungry, it is unclear whether the Act had any great impact. It was difficult to
keep on top of the huge amount of information necessary to control farmers who had plenty of
incentives to commit fraud by, for example, overstating production. (Olmstead and Rhode
2000, p. 732) The problems are rather reminiscent of experiences with the modern day
Common Agricultural Policy in the European Union, but this, and indeed the “New Deal” has
been extensively examined in other literature.
Conclusion
This paper is in large part a survey of the literature on American agriculture from 19291931. Mostly, this is from historian and the articles, which have been written by economists
would benefit from a deeper understanding of the politics and history of the period. In short,
there is considerable scope here for future research and I have attempted to give an idea of
where this might be relevant. Certainly, the analysis of the futures market needs to be more
closely tied together with the wealth of information given in Hamilton (1991) and the primary
sources he has looked at.
It does not seem possible to reach a definite conclusion about Persson’s Paradox given
the limited resources available to a student. I hope, however, that I have demonstrated that
there are reasons for thinking that the increase in supply was rational in the face of falling
prices: both on an individual and national level. The analysis of an early example of heavy
government intervention in agriculture may provide valuable lessons for today’s world of
heavy agricultural support. The behaviour of farmers in an economic downturn can perhaps
provide useful information for poor countries that do not share the West’s capacity for
financial support. Indeed, as the photograph on the title page demonstrates, the situation of
farmers in the United States during this period was reminiscent of today’s Third World.
13
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15
(ed.) (1972). The Great Depression
Appendix A
From Malembaum (1953):
16
From Faulkner (1954):
17
From Hamilton (1992):
18
Appendix B
Specifically, the Act gave four different ways of achieving its goals:
1. By minimizing speculation;
2.
By preventing inefficient and wasteful methods of distribution;
3. By encouraging the organization of producers into effective associations or
corporations under their own control for greater unity of effort in marketing and by
promoting the establishment and financing of a farm marketing system of producerowned and producer-controlled cooperative associations and other agencies;
4. By aiding in preventing and controlling surpluses in any agricultural commodity,
through orderly production and distribution, so as to maintain advantageous
domestic markets and prevent such surpluses from causing undue and excessive
fluctuations or depressions in prices for the commodity.
A Federal Farm Board of eight members appointed by the President was established.
They were to represent the main commodities with the secretary of agriculture as an ex officio
member. The board was to encourage the formation of cooperatives and provide the
information necessary, so that these could function efficiently. Funds were available for loans.
(Hamilton 1991, p. 48)
19