Follow the Corn to Serfdom

agrarianAdam Smith in his, Wealth of Nations, declared that, “Agriculture, the Produce of the Land, is the SOLE or the PRINCIPAL Source of the Revenue and Wealth of every Country.”

Smith divides participants in societal economies as Farmers – Merchants – Manufacturers.  “We should not call a marriage barren or unproductive though it produced only a son and a daughter, to replace the father and mother, and though it did not increase the number of the human species, but only continued it as it was before. Farmers and country laborers, indeed, over and above the stock which maintains and employs them, reproduce annually a net produce, a free rent to the landlord. As a marriage which affords three children is certainly more productive than one which affords only two; so the labor of farmers and country laborers is certainly more productive than that of merchants, and manufacturers. The superior produce of the one class, however, does not render the other barren or unproductive.

Both in ancient Egypt and India the whole body of the people was divided into different castes or tribes, each of which was confined, from father to son, to a particular employment or class of employments. The son of a priest was necessarily a priest; the son of a soldier, a soldier; the son of a laborer, a laborer; the son of a weaver, a weaver; the son of a tailor, a tailor; &c. In both countries, the caste of the priests held the highest rank, and that of the soldiers the next; and in both countries, the caste of the farmers and laborers was superior to the castes of merchants and manufacturers.

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“The Great Commerce of every Civilized Society is that carried on between the Inhabitants of the Town and those of the Country.– Adam Smith’s Wealth of Nations, 1776, (pg. 473)

The profits of manufacturing stock are not, like the rent of land, a net produce which remains after completely repaying the whole expense which must be laid out in order to obtain them. The stock of the farmer yields him a profit as well as that of the master manufacturer; and it yields a rent likewise to another person, which that of the master manufacturer does not. The expense, therefore, laid out in employing and maintaining artificers and manufacturers does no more than continue, if one may say so, the existence of its own value, and does not produce any new value. It is therefore altogether a barren and unproductive expense. The expense, on the contrary, laid out in employing farmers and country laborers, over and above continuing the existence of its own value, produces a new value, the rent of the landlord. It is therefore a productive expense

In other words, the farmer produces food, sells it for a profit, buys stuff from the merchants and manufacturers, pays his mortgage and as long as maintains and improves the soil, repeats the cycle again next year. When the farmer can’t make money, he can’t buy stuff and can’t pay back the banks. The Merchants stop buying Manufactured goods and the economy goes to hell. Merchant and Manufacturer families can’t make babies. They can design, manufacture and sell Barbie Dolls but if the farmer’s family has no disposable income they will eat at home.

Adam Smith, the father of Capitalism, stressed the importance of the individuals’ efforts to freely pursue their own self-interest. Farmers, Merchants and Manufacturers were all equal  but the economic fate of society depended on the Farmer being more equal than Merchants and Manufacturers.

Smith describes four factors that destroy and degrade “agriculture, the sole source of wealth and revenue of every nation.”

Soil Management “the neglect of cultivation and improvement”

Subsidies & Tariffs “the fall in the real price of any part of the rude produce of land”

Equipment, Seeds & Fertilizer the rise in the real price of manufactures”

Devalued Dollar, the declension of the real wealth of the society

 all tend to lower the real rent of land, to reduce the real wealth of the landlord, to diminish his power of purchasing either the labor, or the produce of the labor of other people.

The only time that the American farmer made money was between the end of the Civil War and WWI, between the end of slavery and the beginning of industrialized agriculture.

Abe USDA

Abraham Lincoln the Farmers’ Friend

Lincoln was a frontier farm boy through and through. From a one-room log cabin in Illinois, first on Sinking Springs Farm and then Knob Creek Farm, he ending up transforming the American agricultural system with the founding of the Department of Agriculture, establishment of the Land Grant system,  signing the Pacific Railroad Act and passing of the Homestead Act.

booth abe

After John Wilkes Booth shot the Farmer’s best friend, America’s Farmers, Merchants and Manufacturers spent the next twenty years sorting it all out.

The Civil War left agricultural development in a mess, with powerful implications for the nation’s economy caused by the wartime devastation visited on the South. The war had been mostly fought in the South and much of its wealth had been destroyed. In South Carolina before the war, for instance, there were 965,000 hogs. After the surrender of the Confederate Army in 1865 at Appomattox, the hog population in South Carolina had dropped to 150,000. Confederate bonds and currency were now worthless, depriving the region of a great proportion of its wealth. Emancipation of the slaves also destroyed a large part of the South’s capital, as well as creating the need for a new labor system. (The slaves accounted for the lion’s share of capital investment in the South, more expensive than the very land.) The war had destroyed virtually all the banks in the South. There was little capital available to finance reconstruction.

poor white cropper

Sharecropping came into wide use in the Southern United States during the Reconstruction era (1865–1877). The South had been devastated by war; planters had ample land but little money for wages or taxes. At the same time, most of the former slaves had labor but no money and no land; they rejected the kind of gang labor that typified slavery. A solution was the sharecropping system focused on cotton, which was the only crop that could generate cash for the croppers, landowners, merchants and the tax collector. Poor white farmers, who previously had done little cotton farming, needed cash as well and became sharecroppers.

Soil Management “the neglect of cultivation and improvement”

The sharecropping system that replaced slavery had few incentives for soil conservation, innovation or the cultivation of new crops. Sharecropping had benefits and costs for both the owners and the tenant. It encouraged the cropper to remain on the land, solving the harvest rush problem. At the same time, since the cropper paid in shares of his harvest, owners and croppers shared the risks of harvests being large or small and of prices being high or low. Because tenants benefited from larger harvests, they had an incentive to work harder and invest in better methods than in a slave plantation system.

However, by dividing the working force into many individual workers, large farms no longer benefited from economies of scale. On the whole, sharecropping was not as economically efficient as the gang agriculture of slave plantations. In the U.S. “tenant” farmers own their own mules and equipment, and “sharecroppers” do not, and thus sharecroppers are poorer and of lower status.

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Subsidies & Tariffs “the fall in the real price of any part of the rude produce of land”

The Morrill Tariff of 1861 was an increased import tariff in the United States, adopted on March 2, 1861, during the administration of President James Buchanan, a Democrat. It was the twelfth of seventeen planks in the platform of the incoming Republican Party, which had not yet been inaugurated, and it appealed to industrialists and factory workers as a way to foster rapid industrial growth. Even Honest Abe, the Farmers’ best friend, supported the tariff in order to appeal to the Yankee voters in Pennsylvania.

grange

The Grange, founded after the Civil War in 1867, is the oldest American agricultural advocacy group with a national scope. The Granger movement succeeded in regulating the railroads and grain warehouses. The births of the Cooperative Extension Service, Rural Free Delivery, and the Farm Credit System were due largely to Grange lobbying.

Department of Agriculture Lincoln’s appointed head of the Department of Agriculture, Isaac Newton, (He is best remembered as one of the founders of the National Grange) outlined objectives for the Department. These were: (1) Collecting, arranging, and publishing statistical and other useful agricultural information; (2) Introducing valuable plants and animals; (3) Answering inquiries of farmers regarding agriculture; (4) Testing agricultural implements; (5) Conducting chemical analyses of soils, grains, fruits, plants, vegetables, and manures; (6) Establishing a professorship of botany and entomology; and (7) Establishing an agricultural library and museum.

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Land Grant system The Morrill Land Grant College Act, donating public land to the States for colleges of agriculture and the mechanical arts, became law on July 2, 1862. Every State accepted the terms of the act and established one or more such institutions.

 

ALABAMA Alabama A&M University
Auburn University
Tuskegee University
ALASKA University of Alaska, Fairbanks
ARIZONA University of Arizona
ARKANSAS University of Arkansas
University of Arkansas Pine Bluff

CALIFORNIA University of California
COLORADO Colorado State University
CONNECTICUT University of Connecticut
DELAWARE Delaware State College
University of Delaware
DISTRICT OF COLUMBIA University of the District of Columbia
FLORIDA Florida A&M University
University of Florida
GEORGIA Fort Valley State College
University of Georgia
GUAM University of Guam
HAWAII University of Hawaii
IDAHO University of Idaho
ILLINOIS University of Illinois
INDIANA Purdue University
IOWA Iowa State University
KANSAS Kansas State University
KENTUCKY Kentucky State University
University of Kentucky
LOUISANA Louisana State University
Southern University
MAINE University of Maine
MARYLAND University of Maryland
University of Maryland, College Park
MASSACHUSETTS Massachusetts Institute of Technology
University of Massachusetts

MICHIGAN Michigan State University
MINNESOTA University of Minnesota
MISSISSIPPI Alcorn State University
Mississippi State University
MISSOURI Lincoln University
University of Missouri
MONTANA Montana State University-Bozeman
NATIVE AMERICAN TRIBAL COLLEGES    (click here)
NEBRASKA University of Nebraska
NEVADA University of Nevada, Reno
NEW HAMPSHIRE University of New Hampshire
NEW JERSEY Rutgers – the State University of New Jersey
NEW MEXICO New Mexico State University
NEW YORK Cornell University
NORTH CAROLINA North Carolina A&T State University
North Carolina State University
NORTH DAKOTA North Dakota State University
OHIO Ohio State University
OKLAHOMA Langston University
Oklahoma State University
OREGON Oregon State University
PENNSYLVANIA Pennsylvania State University
PUERTO RICO University of Puerto Rico
RHODE ISLAND University of Rhode Island
SOUTH CAROLINA Clemson University
South Carolina State University
SOUTH DAKOTA South Dakota State University
TENNESSEE Tennessee State University
University of Tennessee
TEXAS Prairie View A&M University
Texas A&M University
UTAH Utah State University
VERMONT University of Vermont
VIRGIN ISLANDS University of the Virgin Islands
VIRGINIA Virginia Polytechnic Institute & State University
Virginia State University

WASHINGTON Washington State University
WEST VIRGINIA West Virginia University
West Virginia State College
WISCONSIN University of Wisconsin-Madison
WYOMING University of Wyoming

landrushHomestead Act Signed into law by President Abraham Lincoln on May 20,1862, the Homestead Act encouraged Western migration by providing settlers 160 acres of public land. In exchange, homesteaders paid a small filing fee and were required to complete five years of continuous residence before receiving ownership of the land. Free land drew European immigrant families to the West making America an agrarian powerhouse.

homestead“whatever tends in any country to raise the price of manufactured produce, tends to lower that of the rude produce of the land, and thereby to discourage agriculture.” pg. 873, The Wealth of Nations, by Adam Smith

Subsidies & Tariffs “the fall in the real price of any part of the rude produce of land”

The Pacific Railroad Act of 1862

Prior to the Pacific Railway Act, the railroads had regarded construction of rail lines in the west as economically unjustifiable. The sparse population and difficult terrain simply made no sense economically. This however, did not fit with the federal government’s plans, and so it responded by essentially bribing the railroads to engage in activities that they would have otherwise avoided.

This government intervention had predictable consequences. Government intervention invariably distorts markets, as it causes individuals to act differently than they would without the intervention. The most obvious examples are those involving prohibitions—these directly prevent individuals from acting according to their own judgment. Less obvious, and perhaps more insidious, are interventions that involve incentives. This was the case in regard to the railroads.

The railroads had concluded that they could not make money building lines in the west, and so they did what any prudent business would do—they didn’t build. But federal subsidies suddenly made such construction feasible, even though other market conditions—such as an adequate market for profitable operations—had not changed. In other words, federal intervention provided incentives to act in a manner that was previously regarded as irrational.

All of the companies who received federal aid eventually went bankrupt. The small, isolated markets and great distances to travel simply could not support the railroads. In short the railroads had been correct—the market did not justify building in the west.

A further consequence of the intervention, and one that would soon have a significant impact on American politics, were the rates charged by the railroads. In an attempt to attain profitability, they charged high rates. For the western farmers, who had no other options for getting their crops to market, these rates were devastating. Neither the farmers nor the railroads could operate profitably.

Without the government’s intervention in encouraging the construction of western rail lines, this issue would not have arisen. Western expansion would have occurred when it was deemed prudent. Railroads would have built when it made financial sense to do so.

The Pacific Railway Act essentially created a demand where none existed. It provided the railroads with an incentive to build, not because of market conditions, but because of government policies. Government intervention distorted the market, and when problems arose, further intervention—the Interstate Commerce Act—was advocated as the solution.

buffaloSoil Management “the neglect of cultivation and improvement”

An unintended consequence of railroad expansion developed when the Atkinson, Topeka and Santa Fe reached Abilene and Dodge City.  The Texas cowboys drove their cattle herds from San Antonio to the Kansas rail heads, over grazing the high plains to the nub. The prairie ecosystem had been maintained by 30 million Buffalo  and approximately 75,000 Apache,  Comanche, Cheyenne, Arapaho, Pawnee,  and Sioux. by the end of the 19th century there were only a few hundred Buffalo and more white settlers than Indians. Cattle ranchers fought with the sheep herders over grazing rights but together their livestock chomped and nibbled the prairie platter clean.

slc_1905_70thbirthday1250x850The Gilded Age in United States history is the late 19th century, from the 1870s to about 1900. The term for this period came into use in the 1920s and 30s and was derived from writer Mark Twain‘s 1873 The Gilded Age: A Tale of Today, which satirized an era of serious social problems masked by a thin gold gilding.

coinThe Coinage Act of 1873 was introduced and this changed the United States silver policy. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to a ‘de facto’ gold standard, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins.

Devalued Dollar, the declension of the real wealth of the society

The Act had the immediate effect of depressing silver prices. This hurt Western mining interests, who labeled the Act “The Crime of ’73 But the coinage law also reduced the domestic money supply, which raised interest rates, thereby hurting farmers and anyone else who normally carried heavy debt loads. 

1877 compromise“The Compromise of 1877 is arguably the most devastating act against black people in America.” -Minister Louis Farrakhan.

The Compromise of 1877 which ended Reconstruction solidified Northern control of Congress. This control led to ever higher tariffs, reaching an average of 57 percent with the Dingle Tariff of 1897, over the life of the tariff, the rate averaged at around 47%, and a continuation of government subsidies for railroad expansion.

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Hayes and the Republicans sold out to the Southern Democrats in order to win the 1876 Election. This ended Reconstruction and in essence reestablished the Confederacy. In Adam Smith terminology this political act favored the Yankee Merchants and Manufacturers at the great expense of the Southern Farmers, especially the black farmer. Blacks no longer had physical safety, voting power, educational opportunities or land ownership.  Farrakhan was right “The Compromise of 1877 was the most devastating act against black people in America.”

Equipment, Seeds & Fertilizer: “the rise in the real price of manufactures”

Behind the protective wall of these tariffs U.S. industry grew and agriculture expanded ever westward to feed the growing populations of the industrial cities. Northern and Midwestern populations grew much faster than that of the South and the expansion of the nation’s railroad system tied the two regions ever more closely together. A large part of the industrial expansion of the immediate post-Civil War years was based on connecting the industrial northeast with the farm and grazing area of the Midwest and plains states and completing the transcontinental railroads.

Infrastructure Development: The North and Midwest attracted growing numbers of immigrants, drawn by the promise of economic opportunity and inexpensive land. The growing population spurred construction of housing and infrastructure, which in turn attracted more immigrants in a circular process that continued until the Panic of 1893, which slowed the economy. The economy after the Civil War was initially driven by the construction of railroads connecting the industrial communities of the northeast and the agricultural regions of the Midwest and plains.

1907_Panic_cropThe Panic of 1893: The Sherman Silver Purchase Act of 1890, perhaps along with the protectionist McKinley Tariff of that year, has been partially blamed for the panic. One of the causes for the panic of 1893 can be traced back to Argentina. Investment was encouraged by the Argentine agent bank, Baring Brothers. However, the failure of the 1890 wheat crop and a coup in Buenos Aires ended further investments. Because European investors were concerned that these problems might spread, they started a run on gold in the U.S. Treasury, since it was comparatively simple for them to cash in their dollar investments for exportable gold.[2] During the Gilded Age of the 1870s and 1880s, the United States had experienced economic growth and expansion, but much of this expansion depended on high international commodity prices and in 1893 wheat prices crashed.[3]

Devalued Dollar, the declension of the real wealth of the society

As a result of the panic, stock prices declined. 500 banks closed, 15,000 businesses failed, and numerous farms ceased operation. The unemployment rate hit 25% in Pennsylvania, 35% in New York, and 43% in Michigan. Soup kitchens were opened to help feed the destitute. Facing starvation, people chopped wood, broke rocks, and sewed in exchange for food. In some cases, women resorted to prostitution to feed their families. To help the people of Detroit, Mayor Hazen Pingree started “Pingree’s Potato Patch” which were community gardens for farming

jp morganThe Panic of 1907 –also known as the 1907 Bankers’ Panic or Knickerbocker Crisis[1] – was a United States crisis that took place over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies.

Devalued Dollar, the declension of the real wealth of the society

 

Devalued Dollarthe declension of the real wealth of the society

 

ProductionFarmall

d big debts even before the Great Depression began

Milling and Grain Storage

Throughout its history, the Sunflower State has been known for producing wheat, corn and other grains.  For most of the 20th century, wheat has been the lead product in the state’s agricultural economy.  All this grain required grinding before it could be used, however, so early on small Kansas grain/grist mills were built to serve the needs of local communities.  By the mid-1880s flour and feed milling had become the state’s leading industry, and grain storage facilities (such as grain elevators) dotted the Kansas landscape, becoming a symbol of the state’s abundant harvest and agricultural vitality.

The rise of corn started in the late-nineteenth century, when impoverished western farmers agitated for a system in which they could store crops, rather than sell them in a weak market. This idea grew until the Depression,

U.S. Farmers During the Great Depression

The Great Depression that caused so much trouble in the world during the 1930s ended only with the boom caused by World War II. For American farmers however, the downturn began shortly after World War I ended, continuing mostly unabated for two decades.

During the Great War, agricultural production was way down in the European countries where the fighting was taking place, demand for food was high and prices paid for grain rose dramatically. In 1913, U.S. farmers harvested more than 50 million acres of wheat (with an average yield of 15.2 bushels per acre), and got $0.79.9 per bushel for the crop. At the peak in 1919, 75.7 million acres were harvested with a somewhat diminished yield of 12.8 bushels per acre, but the high price of $2.14.9 per bushel.

All during the war, Food Administrator Herbert Hoover exhorted farmers in this country to increase production. As the prices realized for their products rose, farmers began to borrow money to buy more acres and new machinery, especially farm tractors since labor costs were sky high. Farm mortgages doubled between 1910 and 1920, from $3.3 billion to $6.7 billion ($74.4 billion today). Then after the war, as a recovering Europe and Russia began to feed themselves (and, in the case of Russia, even finding grain to export), the bottom dropped out. In 1921, the price of wheat dropped to $0.92.6 per bushel, and heavily indebted farmers couldn’t make the payments on all those new acres and tractors.

As a result, during the “Roaring Twenties” farmers weren’t doing much roaring, but credit was still easy and they limped along, falling further and further behind the rest of the country. Even though grain prices were low because of world over-production, American farmers had to keep planting large acreages in the hope of getting enough cash to pay off debts. Wheat prices bobbed along at a few cents over a dollar for most of the 1920s. Some farmers survived. Those who didn’t had to sell out and become tenant farmers or find work in town.

HOOVER: Two issues in particular took center stage during Hoover’s first nine months as President: improving the economic health of the nation’s agricultural sector and tariff reform. Upon entering office, Hoover called Congress into a special session to address these challenges.

American farmers suffered greatly in the 1920s as their incomes shrunk to only one-third the national average. The chief problem was overproduction. American farmers benefited from new technologies that increased their productivity, but the glut of product, along with overseas competition, caused prices at market to drop precipitously. Many farmers were demanding federal government subsidies (known as McNary-Hauganism for the congressional sponsors of such legislation) to boost farm incomes. Secretary of Commerce Hoover rejected this solution.

By the time Hoover became President in early 1929, the agricultural sector was still reeling. The President, nevertheless, still opposed subsidies; along with his congressional allies, Hoover instead supported a bill that created a Federal Farm Board. With a $500 million budget, the Federal Farm Board would loan money to farmers to create and strengthen farm cooperatives in the hope that these entities would control production and bring crops to market more efficiently. Hoover saw the Board as a shining example how voluntarism and cooperation among competitors could produce a more efficient economy without the government intervention that subsidies represented. The farm bloc in Congress, however, still vigorously supported subsidies. A political deadlock ensued, as factions in Congress battled over farm policy and Hoover did little to break the impasse. Finally, in June 1929, Congress passed the Agricultural Marketing Act, replete with a Federal Farm Board and no subsidies for farmers. Hoover got his desired agricultural program but not without significant political costs. By the fall of 1929, the Federal Farm Board was up and running.

Tariff policy, the other early challenge facing Hoover, had long been a flashpoint in American politics. Hoover was not a supporter of high tariffs but he did believe that farmers deserved some sort of protection, a position that aligned the President with progressive Republicans from the Midwest, such as powerful Idaho senator William Borah. The House of Representatives largely acceded to Hoover’s request for high tariffs on agricultural products alone, but senators from eastern states passed a tariff bill that raised rates on industrial and manufactured products. Borah and his allies were understandably very angry. Hoover, privately and discretely, supported insertion of a codicil into the legislation creating a non-partisan Tariff Commission that could raise or lower rates; he reasoned that the Commission would lower excessive rates after the tariff bill passed. The proposed commission, though, had little support among either protectionists or free-traders in either party and thus was defeated in the fall of 1929. After months of discussion, tariff reform remained at a standstill.

In both the tariff and agriculture debates, President Hoover demonstrated questionable political acumen. The “Great Engineer” had proven as ineffective a politician as he was an effective organizer of exploratory commissions and committees. Instead of convincing Congress that his proposals were sound, Hoover chose to limit his involvement and let Congress legislate. The result, though, was policy stalemate and political tension between the President and Republicans, especially progressives like Borah, who might have been among Hoover’s stronger supporters. It was a performance that did not bode well for the future, when Hoover’s skills would be put to the test as the nation confronted its greatest crisis since the Civil War: the Great Depression.

 

Causes of the Great Depression

The American economy of the 1920s, while prosperous, was fundamentally unsound. The economic collapse that defined the Great Depression did not occur all at once, nor for one particular reason. Historians have identified four interwoven and reinforcing causes of the nation’s most severe economic crisis: structural weaknesses in both American agriculture and industry; the frailty of the international economy in the late 1920s and the early 1930s; and the overly speculative and unstable foundations of the American financial sector.

As discussed previously, the nation’s agricultural sector during the 1920s was unhealthy, a condition that was due largely to overproduction. But if the economic outlook looked bleak from the nation’s fields, they appeared just as dreary from its factory floors. While industrial productivity and profits increased during the decade, wages remained stagnant. These profits, more often than not, were placed in the stock market or in speculative schemes rather than re-invested in new factories or used to fund new businesses, both of which (theoretically) would have created new jobs. The combination of agricultural woes and industrial stagnation conspired to grind America’s economy to a halt.

The world economy also suffered from a general slowdown in the late 1920s. The Treaty of Versailles that ended the Great War required Germany to pay reparations to France and Britain, countries which owed money to American banks. The German economy, wrecked by the war, could not sustain these payments, and the German government looked to the United States for cash. Europe’s economic health, then, was built on a web of financial arrangements and hinged on a robust American economy.

Finally, America’s financial sector was a house of cards. During the 1920s, American businesses were increasingly raising capital either by soliciting private investment or by selling stock. Over two million Americans poured their savings into the stock market and many more into investment schemes. But there was little or no regulation of these companies and supposed investment opportunities, nor much oversight of the process. Too often, Americans put their money into “get rich quick” schemes which had no chance of long-term financial return, or into companies that made no real profits—and sometimes no actual products! The stock market was particularly volatile during the 1920s. It soared during the second half of the decade, with the New York Times index of industrial stocks growing from 159 points in 1925 to 452 points in September 1929. Investors bought stocks “on margin,” meaning they produced only a small down-payment and borrowed the rest from their broker or bank. As long as the stock increased in value, all was well. The investor would later sell the stock, repay the broker or the bank, and pocket the profit.

Each of these factors helped create and sustain a severely unequal distribution of wealth in the United States, where a tiny minority possessed incredible riches. In 1929, five percent of the populace held nearly a third of the money and property; over 80 percent of Americans held no savings at all. In addition, the stagnation in wages, the collapse of agricultural markets, and rising unemployment (all of which led to the growing gap between rich and poor), meant that most Americans could not buy the products that made the economy hum. Wealthier Americans, moreover, failed to spend their money, choosing instead to invest it. In short, the American economy was a consumer economy in which few consumed.

As the economy began to slow in 1929—with fewer purchases, creeping unemployment, and higher interest rates—stock owners tried to sell but found no buyers; the market tumbled. Two days in particular, October 24 (“Black Thursday”) and October 29 (“Black Tuesday”), saw investors desperately trying to dump stocks. On that Tuesday alone, brokers sold over 16 million shares. The market slide continued for more than two years, with one estimate claiming that investors lost nearly $75 billion. “The Great Crash,” as it came to be known, was only one cause of the economic Depression that followed, but it brought home to many Americans in stunning fashion the harsh reality of the American economic landscape.

The nation’s economic woes deepened considerably in the months and years after the stock market crash. With American farmers earning less, they could not pay their bills and mortgages. Rural banks failed without these payments, placing more pressure on a banking system already shaky from the shocks that hit Wall Street. After 1932, drought conditions plagued the Midwest, further compounding existing agricultural problems. As industries failed, factories closed and stores shuttered. Between 1929 and 1933, 5,000 American banks collapsed, one in four farms went into foreclosure, and an average of 100,000 jobs vanished each week. By 1932, over 12 million Americans—nearly one-quarter of the workforce—were unemployed. Statistics alone, however, do not tell the story of the “Great Depression.” For tens of millions, it was a time of panic and poverty, hunger and hopelessness. The national will sagged and its future seemed, at least to some, in doubt.

 

Hoover and the Great Depression

The collapse of the stock market and the Great Depression did not catch Hoover completely unaware, although he surely—like the vast majority of Americans—was utterly surprised by the severity of these developments. As secretary of commerce, Hoover had worried about speculation in the stock market, even asking for new government regulation of banks and stock exchanges to prevent “insider trading” and the dangerous practice of “margin buying.” He had also called on the Federal Reserve Board to raise interest rates, but the board lowered them instead, thus fueling a stock market boom in the two years prior to his presidency.

During his first eight months in the White House, Hoover and his advisers continued to voice their concerns about the shape and future of the economy. Hoover supported the Agricultural Marketing Act because he believed it would shore up a weak agricultural sector. Suspicious of stock speculation, he approved of efforts by the Federal Reserve System to convince the New York Federal Reserve Bank to halt the practice of giving discounts to smaller banks, a practice that many experts believed fueled stock speculation. Hoover was dubious, however, of the wisdom of the Federal Reserve Board asking its member banks to tighten the money supply to halt speculative loans. Moreover, as the historian Martin Fausold explains, no one in government or the financial sector could agree upon the exact role that the Federal Reserve should play in monitoring and overseeing the financial sector.

Hoover reacted to the October 24 (“Black Thursday”) stock market crash by stating that “the fundamental business of the country, that is production and distribution, is on a sound and prosperous basis.” But shielded from public view, he and his administration worked hard to counter what they worried might be the beginning of a cyclical economic downturn. Hoover’s advisers drew up proposals to stimulate the economy with reductions in taxes, a plan for the Federal Reserve to loosen its credit policies, and more public works spending. Hoover also called openly for local and state governments to expand public works projects, and organized a series of conferences in November 1929 which brought together leaders of industry, labor, and government to discuss the economy. Hoover asked for and received pledges from industry not to cut jobs or wages, and from labor not to press for higher wages.

The President’s actions in the wake of the stock market crash were premised on his belief that the economy faced a mere downturn rather than the prospect of complete collapse. Likewise, Hoover’s actions accorded with his faith in voluntarism, cooperation, the value of expertise and statistics, and the effectiveness of limited government measures to counteract economic cycles. He urged cooperation among and between industry and labor. He also ordered the Departments of Labor and Commerce to compile precise and accurate economic statistics. Unfortunately for Hoover, those statistics showed that in the week-and-a-half before Christmas 1929, one million Americans lost their jobs. The nation’s economic slide would only continue.

 

Battles over the Tariff and the Supreme Court

Nonetheless, during the first half of 1930, issues other than the nation’s economic problems consumed much of Hoover’s time. The death of Supreme Court Justice Edward Sanford left a vacancy on the Court that Hoover needed to fill. The President chose John J. Parker, a highly regarded judge on the Fourth Circuit Court of Appeals. Parker’s nomination initially won wide support, but labor groups and the National Association for the Advancement of Colored People (NAACP) argued that the judge’s record was hostile toward unions and African-Americans. At Parker’s Senate confirmation hearings, organized labor and the NAACP attacked the nomination; Progressive Republicans like Senator Borah, who already had a testy relationship with the President because of farm policy and the tariff, took the criticisms seriously. As a vote neared in the full Senate, some rank-and-file Republicans began to rethink their support for Parker. Hoover compounded the problem by failing to give Parker a strong public show of support and by refusing to let the judge appear before Senators to explain his civil rights and labor positions. The Senate killed the Parker nomination in early May 1930 by a tally of 41 to 39, with ten Republicans voting “nay.”The other domestic issue Hoover addressed in the first half of 1930 was the tariff, which lay unresolved after the failure of legislation one year earlier. As the Seventy-first Congress convened in December 1929, Borah and other progressive Republicans still opposed both higher tariffs on industrial products and a tariff commission that could adjust rates; instead, they supported a plan—called export debenture—in which the government would compensate farmers who sold their products overseas at a loss. Politicians from industrial states unsurprisingly favored higher tariffs on industrial and manufacturing imports. Hoover, meanwhile, still supported the commission and opposed export debentures just as strongly. The President, however, refused to interfere in the congressional deliberations, though he did finally make his preferences known. Six months of legislative wrangling produced the Smoot-Hawley tariff bill in June 1930 that raised rates on both agricultural and industrial products to historic levels, provided for a commission, and rejected export debentures. Hoover quickly signed the legislation.

In subsequent years, some Democrats argued that the tariff caused the Great Depression. This charge was politically motivated and historically inaccurate; the Depression was well underway by time of Smoot-Hawley’s passage. Nonetheless, higher tariff rates, most economists and historians agree, did little to help the American economy as it swooned in the early 1930s. Instead, protectionism further weakened the international economy by suffocating world trade, which in turn made it more difficult for the U.S. economy to recover. Just as important, the battles over Judge Parker’s nomination and the tariff worsened Hoover’s relations with the more progressive elements of the Republican Party.

The Hoover administration continued throughout 1930 to battle the nation’s economic problems. To a remarkable degree, state and local governments, as well as leading industries, followed through on Hoover’s requests. The President’s proposals for increased government and private-sector spending were outlined at conferences that brought together business, labor, and political leaders in the wake of the market crash. Hoover pressed Congress in 1930 to pass bills that would spur infrastructure construction, even while he asked executive departments to hold the line on spending so as not to increase the federal budget deficit.

By March 1930, the Labor and Commerce Departments told Hoover that the worst of the crisis had passed, news that the President happily passed on to the public. Other observers—both in and out of government—were not so sure. Hoover ignored these pessimistic forecasts and rejected calls for more aggressive government actions (like relief bills or bond sales to fund unemployment benefits) to combat the nation’s economic problems. Instead, he formed the President’s Emergency Committee on Employment (PECE) in the fall of 1930 to coordinate private organizations’ efforts to help the unemployed. Even Hoover’s own appointee to head PECE, though, warned the President that greater government spending was needed to combat unemployment.

Hoover dismissed this suggestion, although unemployment had climbed to 8.7 percent of the workforce by the end of 1930, meaning that more than 4 million Americans were out of a job. Other indicators were just as dreary. Industrial production in 1930 fell by one-quarter; roughly 1,350 banks failed that year as well, more than twice as many as in 1929. As American economic problems grew—and his anti-Depression efforts floundered—Hoover frequently advanced the argument that a global economic slowdown was primarily to blame for the dismal economic circumstances at home. This assessment indicated that Hoover would likely pair his domestic anti-Depression measures with increased efforts in the international arena.

1931: Into the Vortex

By 1931, members of Congress—especially Democrats and Midwestern progressive Republicans—began to call even more vociferously for decisive government action to combat the effects of the Depression. They were particularly desirous of relief bills for farmers and the unemployed. Most of these bills failed, largely because progressives and liberals were a distinct minority in Congress. Increasingly, however, other members of Congress gave credence to these requests. While not a relief measure per se, Congress did pass (over Hoover’s veto) the Bonus Bill in the winter of 1931. The bill allowed veterans to borrow up to one-half the value of life insurance policies that Congress had purchased in 1924; with the policies set to mature in 1945, early access to these funds came to be regarded as a “bonus.” Likewise, Senator Robert Wagner of New York, perhaps the Senate’s most prominent liberal, won passage of bills providing for the collection of unemployment statistics and the systematic planning of public works. A third Wagner bill related to unemployment, which would have set up a system of employment agencies at the state level, was vetoed by Hoover.

By the spring of 1931, as he had a year earlier, Hoover still clung to the notion that the worst had passed. The President had not taken leave of his senses; other respected observers offered similar prognostications. Unfortunately, those assumptions proved wrong. By June, more than one-quarter of the factory work force was unemployed, along with 15 percent (more than eight million people) of the total work force. Bank failures continued to rise, with more than 2,200 banks folding in 1931 alone. Personal income, industrial production, and stock prices all began precipitous slides in the spring of 1931 after showing a burst of recovery in the preceding months. Social workers and labor leaders, who worked closely with communities bearing the brunt of the Depression, called attention to the inability of private relief to ameliorate the suffering and pleaded for more substantive government action.

Even as the crisis deepened in 1931, Hoover held fast to his course. He reiterated that the nation’s economic woes were largely the result of depressed world economic conditions. He also made clear that he opposed federal intervention in the economy or the construction of a welfare state. Instead, Hoover maintained that voluntarism and individual effort would solve the country’s economic woes. His administration’s policies throughout 1931 reflected these approaches. To stabilize the international financial and economic situation, Hoover called in June 1931 for a one-year moratorium on intergovernmental debts. In August, PECE morphed into a new agency, the President’s Organization for Unemployment Relief (POUR), which essentially carried on its predecessor’s mission of mobilizing private assistance. POUR did assume more of an advisory role than PECE, suggesting federal public works programs and strategies to fight unemployment; it did not, however, push for federal relief programs. In the early fall of 1931, Hoover convinced leading bankers to voluntarily organize the National Credit Corporation, which would use a $500 million reserve to aid small, insolvent banks. Bankers, though, extracted a pledge from the President that if the non-governmental, voluntary effort failed, he would support a similar federal effort. Despite these maneuvers, the economy showed no signs of recovery. Indeed, the crisis only deepened.

Hoover’s New Approach

In late 1931, Hoover changed his approach to fighting the Depression. He justified his call for more federal assistance by noting that “We used such emergency powers to win the war; we can use them to fight the Depression, the misery, and suffering from which are equally great.” This new approach embraced a number of initiatives. Unfortunately for the President, none proved especially effective. Just as important, with the presidential election approaching, the political heat generated by the Great Depression and the failure of Hoover’s policies grew only more withering.

The National Credit Corporation quickly proved insufficient, largely because its private-sector leaders were too tight-fisted and reluctant to bail-out smaller banks. As the NCC floundered, the Hoover administration drafted legislation for the Reconstruction Finance Corporation (RFC). The RFC, which would be government-run and funded, was designed to stabilize the nation’s financial structures by providing credit to banks weak and strong, as well as to other entities like railroads and agricultural organizations; Hoover hoped that by improving the nation’s financial health, public confidence would grow and that both employment opportunities and international trade would expand. Congress created the RFC in early 1932. While the RFC, like the NCC, often failed to help smaller banks, historians and economists now sing its praises for saving many of the nation’s larger financial institutions from ruin. The RFC, however, did not fulfill Hoover’s hopes by cutting into unemployment.

Hoover also bowed to growing public and congressional pressure for emergency federal relief. In the summer of 1932, he signed the Emergency Relief Construction Act, which provided $2 billion for public works projects and $300 million for direct relief programs run by state governments. While the bill only appropriated a pittance for direct relief and placed many restrictions on how the $300 million could be used, its endorsement by Hoover testified, at least partially, to the failure of voluntarism and private relief. Hoover, however, saw the act as a temporary measure to provide emergency relief; he remained resolutely opposed to large-scale and permanent government expenditures on relief and welfare.

Finally, in March 1932, Hoover signed the Norris-La Guardia Anti-injunction Act. The law accomplished three important objectives supported by organized labor. First, it severely curbed the use of “yellow dog” contracts in which employers hired replacement workers to break strikes. Second, it strongly curtailed the ability of federal judges to issue sweeping injunctions against strikes. Finally, it encouraged and confirmed the right of laborers to organize. Norris-LaGuardia was an important forerunner of pro-labor legislation, like the 1935 Wagner Act, and a personal victory for Hoover, who had made clear since the 1920s his opposition to the use of injunctions.

Despite the creation of the RFC and the passage of the Emergency Relief and Construction Act, Hoover (and those under his command) committed two blunders in 1932 that greatly damaged his political standing. First, the President became embroiled in a political spat with Congress over taxes. Committed to keeping the United States on the gold standard, Hoover wanted to close the federal government’s budget deficit, which had grown during his presidency, by raising taxes. The key issue was how to allocate the increased tax burden among Americans. Hoover and his advisers did not want to raise taxes so much that wealthy Americans and businesses were discouraged from investing–an activity that, theoretically, created jobs. Hoover’s original tax plan, then, was to spread tax increases among different economic sectors and between rich and poor Americans. In Congress, conservative southern Democrats countered with a plan in which half of the new tax revenues would come from a sales tax on manufactured goods.

Hoover agreed to support the sales tax—after receiving assurances that it would not affect the prices of “staple food or cheaper clothing”—but progressive Republicans and liberal Democrats rebelled at what they saw as an attempt to pass the tax burden on to those who could least afford to pay it. The issue became a political firestorm. Opponents of the sales tax aggressively attacked Hoover, portraying him as a retrograde conservative. Meanwhile, each party’s leaders tried to keep the maverick sales tax opponents in line. They failed, however, and the Revenue Act of 1932 passed in the late spring of 1932 without a sales tax. Hoover signed the measure, but the political damage had been done.

In late July 1932, the President’s political fortunes took another precipitous dip, only a few weeks after Republicans had re-nominated Hoover as their candidate for that year’s presidential election. Unemployed American veterans of World War I, suffering from the hardships of the Depression, marched along with their families to Washington, D.C., to demand immediate full payment of their bonuses, which, by law, were payable in 1945. Hoover joined Congress in rejecting the demands of the “Bonus Army” marchers, though he did support their right to demonstrate and quietly made available to them shelter and supplies. While in Washington, some in the Bonus Army took up quarters in unoccupied federal building scheduled for demolition. After Congress refused to grant the Bonus Army’s demands, most of the protesters left Washington. Some, however, remained in the abandoned buildings, in nearby camps, and in hovels on the shores of the Anacostia River.

The administration decided to remove the members of the Bonus Army occupying the condemned buildings. Hoover gave precise instructions to the military to peacefully escort the protestors to nearby camps. Secretary of War Patrick Hurley, who feared the Bonus Army might riot, exceeded Hoover’s instructions and ordered General Douglas MacArthur to relocate the marchers from Washington’s political and business district to the Anacostia River flats. MacArthur, in turn, exceeded his orders and decided to drive the Bonus Army from Washington, D.C., altogether. The military attacked the veterans with tanks, tear gas, bayonets, and guns, burned the camps in Anacostia, and killed one Bonus Army member; MacArthur repeatedly ignored orders from superiors to halt the rampage. Americans from around the nation saw the horrific images of the attack in their newspapers. When MacArthur and Hurley obstinately refused to take responsibility for the melee, Hoover did so. The President’s standing with the public only sank further. With the 1932 election fast approaching, Hoover’s chance of winning another four years in the White House were nearly extinct.

 

Farm foreclosures

Then, in October 1929, the whole financial house of cards that was the U.S. economy collapsed, triggered by the stock market crash. Although then President Hoover dubbed the disaster a “Depression,” as that seemed to him to sound better than the term “Panic” that had been used in the past, that’s what occurred: panic. The banks looked shaky and depositors wanted their money, making them shakier still, and in time many were forced to close. Factories and businesses got rid of large numbers of employees or closed down altogether.
The malaise spread across much of the industrialized world, and soon there was no money to buy the farmer’s products or anything else. Desperate bankers called in their loans, but farmers had no money to pay them and foreclosures and bankruptcy sales became daily events.

These sales sometimes brought out the best in neighbors, as in a 1931 bank foreclosure auction for the property of a family in Madison County, Neb. Some 150 neighboring farmers showed up and when the auctioneer tried to get a bid on the first piece of machinery, someone bid 5 cents. The farmers crowding around the auctioneer prevented anyone else from bidding on that item and the auctioneer had no choice but to hammer it sold. This process continued throughout the sale, resulting in a grand total of $5.35, which the bank was expected to accept as full payment for the debt.

Another auction tells of a proud farmer forced into a humiliating bankruptcy sale. The auctioneer started his pitch on a work mare and no one bid. Finally, the farmer himself made a token bid, the auctioneer kept trying, and soon someone in the crowd said insistently, “Sell ’er!” The rest of the machinery and livestock went the same way – no one bid except the original owner, who got all his stuff back at a very low price. Nevertheless, some 750,000 farms were lost between 1930 and 1935 through bankruptcy and foreclosure.

Desperate times

It got so bad that when the price of corn dropped to 5 or 10 cents a bushel – coal cost more – many corn farmers burned their corn for heat. A man tells of doing repair work for a farmer and being paid with 300 pounds of potatoes. There was virtually no cash money available. Still, the farmer, especially if he could stay on his farm, was immeasurably better off than the unemployed town dweller. The farmer could raise his own vegetables and fruit and grind his corn for cornmeal. A few cows provided milk and butter, as well as beef, while hogs and chickens were available for meat and eggs. He and his family were lucky; about the only things they had to buy or barter for were flour, sugar and salt; pins and needles; and shoes, thread and maybe some cloth (although many a farm kid went to school in a dress, shirt or even underpants made of flour sacks printed with a flowered pattern).

Campaign Speech

Franklin D. Roosevelt

Atlanta, Ga.

October 24, 1932

The first principle of my agricultural program I have already mentioned. It consists of lifting from the back of the farmer some of the crushing burden of taxation that he is carrying.

Farm Foreclosures: The second also I have already mentioned. It relates to the farmer’s burden of debt. One of the basic planks in my farm platform is that the situation with regards to farm mortgages be improved to the advantage of the farmer who is struggling to ward off foreclosure and ejectment from his home.

Crop Subsidies: A basic purpose of my farm program is to raise prices on certain agricultural products by some form of what the farmers in this country know as a tariff benefit.

The great manufacturing and business centers of our country have commenced to realize that their own prosperity depends on the prosperity of the agricultural centers of the country, and the purchasing power of its people.

Adam Smith on Subsidies and Tariffs

Adam Smith didn’t think much of government subsidies or tariffs, which he called bounties.

Bounties upon the exportation of any home-made commodity are liable, first to that general objection which may be made to all the different expedients of the mercantile system; the objection of forcing some part of the industry of the country into a channel less advantageous than that in which it would run of its own accord: and, secondly, to the particular objection of forcing it, not only into a channel that is less advantageous, but into one that is actually disadvantageous; the trade which cannot be carried on but by means of a bounty being necessarily a losing trade. Wealth of Nations, IV.5.24

Let us suppose that, taking one year with another, the bounty of five shillings upon the exportation of the quarter of wheat raises the price of that commodity in the home market only sixpence the bushel, or four shillings the quarter, higher than it otherwise would have been in the actual state of the crop. Even upon this very moderate supposition, the great body of the people, over and above contributing the tax which pays the bounty of five shillings upon every quarter of wheat exported, must pay another of four shillings upon every quarter which they themselves consume. But, according to the very well informed author of the tracts upon the corn trade, the average proportion of the corn exported to that consumed at home is not more than that of one to thirty-oneFor every five shillings, therefore, which they contribute to the payment of the first tax, they must contribute six pounds four shillings to the payment of the second. Wealth of Nations, IV.5.8

Another example, when the ethanol subsidy went into effect in 2005, all my row crop neighbors dropped cotton, rice and soy for corn. The historic price of $2.00 per bushel went to $10.00. Wow! Those farmers must be getting rich? No, they only got to divvy up the first tax of $35 billion around $5 billion (five shillings) a year, we pay the second tax of $155 billion (six pounds four shillings) when we buy a $5 box of Kellogg’s corn flakes.

 

 

The American farmer couldn’t compete with the southern plantation owner until Lincoln freed the slaves. Farming is a labor intensive activity and slaves work cheap. After farmers started plowing their land using tractors they experienced boom and bust cycles depending on the weather. After WWI Europe had no money to buy our goods causing the first price supports to come into being. FDR ramped up programs to pay farmers not to grow or buy the produce and store it at government expense.

Toxic topic

Advocates of freer trade have always known that some lose out even as the great majority benefit. In moving for repeal of the Corn Laws in 1846 (a campaign which this newspaper (The Economist) was founded to support), Sir Robert Peel acknowledged concerns about the harm this might do to agricultural laborers. “I wish it were possible to make any change in any great system of law without subjecting some persons to distress,” he said. Yet he also argued, correctly, that no one suffered more from tariffs on corn than the poorest farm workers.

 

F.D.R.’s Disastrous Experiment NYT 2010

If the newly elected Republican congressmen and senators are really serious about their desire for limited government, they should move swiftly to curtail the huge farm subsidy program. It has been a failure right from its start in 1933 under President Franklin Roosevelt. F.D.R.’s Agricultural Adjustment Act sought to cure the problem of overproduction of crops, and low prices for those crops, by paying farmers not to produce. If farmers were paid not to produce on part of their land, they would harvest smaller crops and that would in turn raise prices of those crops.

What happened when we paid farmers not to produce? First, Americans had to pay more for bread, corn and cotton shirts. The higher prices for farmers meant price increases for customers buying farm products.

The Depression-era farm system has survived not because it worked well, but because farmers lobbied to keep it.

Second, because farmers were growing smaller crops, we used up more quickly the food being grown, and soon had to import the very crops we were paying farmers not to produce. In 1935, the U.S. imported 36 million pounds of cotton, 13 million bushels of wheat, and 34 million bushels of corn.

In other words, we paid farmers not to produce what we were paying foreigners to send us from overseas. All of this during a Great Depression, when 10 million Americans were unemployed and needed the cheap food the U.S. government was refusing to allow farmers to produce.

Why did such a strange farm subsidy system survive and persist? Not because it worked well, but because farmers lobbied to keep it. They enjoyed the extra income from being paid to set aside part of their land. Subsidies beat the whims of a free market. Since our farmers are the best equipped farmers in the world, why not drop the subsidies and let them grow what they can, and let the U.S. export food to the rest of the world.

 

Reforestation: it is common sense, and not fantasy, to invest money in tree crops just as much as to grow annual agricultural crops. The return on the investment is just as certain in the case of growing trees as it is in the case of growing potatoes, or cotton, or wheat, or corn–and judging by present-day fluctuations in the prices of agricultural crops the tree crop is often a safer investment.

Because we are a young nation–because apparently limitless forests have stood at our door, we have declined up to now to think of the future. Other nations whose primeval forests were cut off a thousand years ago have been growing tree crops for many hundreds of years.

It is common sense, and not fantasy, to invest money in tree crops just as much as to grow annual agricultural crops. The return on the investment is just as certain in the case of growing trees as it is in the case of growing potatoes, or cotton, or wheat, or corn–and judging by present-day fluctuations in the prices of agricultural crops the tree crop is often a safer investment.

Because we are a young nation–because apparently limitless forests have stood at our door, we have declined up to now to think of the future. Other nations whose primeval forests were cut off a thousand years ago have been growing tree crops for many hundreds of years.

AG Economics 101: ’The basic economic interest, agriculture, which includes forestry, is prostrated, carrying with it the superstructure of finance and industry; but far more than these is the destruction of human values–those human values which in reality are the spirit of America–the reason for the vision of its founders.

Results are the expression of causes. When there is starvation of spirit and body in a land of abundant natural resources, a land of plenty, no further evidence is needed of failure of the powers entrusted with control of government.’

Restoration of Prosperity: During these weeks I have made it abundantly clear that I propose a national agricultural policy which will direct itself not only to the better use of our hundreds of millions of acres of every type of land in the United States, but also to the rehabilitation of that half of our population which is living on or directly concerned with the products of the soil.

Our object must be the rebuilding of the rural civilization of America. Our object must be all-inclusive–a constructive program attacking the enemy on every front.

Now, my friends, let me make clear in as emphatic words as I can find, the fundamental issue in this campaign. Mr. Hoover believes that farmers and workers must wait for general recovery, until some miracle occurs by which the factory wheels revolve again. No one knows the formula of this miracle. I, on the other hand, am saying over and over that I believe that we can restore prosperity here in this country by re-establishing the purchasing power of half of the people of the country, that when this gigantic market of 50,000,000 people is able to purchase goods, industry will start to turn, and the millions of men and women now walking the streets will be employed.

I am, moreover, enough of an American to believe that such a restoration of prosperity in this country will do more to effectuate world recovery than all of the promotional schemes of lending money to backward and crippled countries could do in generations. In this respect I am for America first.

This doctrine I set forth when my campaign really began back in April. I said in a speech then that we had forgotten this potential market of the agricultural population, and that the true interest of this country was to return to this forgotten market. We have, as in the old story of the Holy Grail, looked beyond the seas for the riches that were lying unnoticed at our very feet.

When we come to recognize this simple fact, when we get back to plain common sense, when we stop worshipping false gods and chasing rainbows, happiness and prosperity will come to American workers and farmers and businessmen–to the American people.

When we stop listening to the apology that ’things might have been worse’ and give our whole-hearted support to those who preach the gospel that through action they are going to make things better, then and only then will America resume her march to a better day.”

FDR: This idea grew until the Depression, when, under FDR, the government began to regulate production, paying farmers to keep land fallow and offering loans to tide farmers over bad market periods. The restriction of corn production managed to keep prices high enough to keep farmers from starving, but it did make food prices susceptible to sudden rises, a volatility that could be a terrible political liability for presidents.

“The nation that destroys its soil destroys itself” (Roosevelt 1937)

Then, to add to the misery in the Midwest, in 1934 the heat started – and kept on and kept on – with central Nebraska suffering through more than 20 days of temperatures higher than 100 degrees. All those acres that had been plowed up turned to dust and crops burnt up, and that was just the beginning.

Weather History: 1935 Black Sunday Dust Storm https://youtu.be/1OdDieuD1OA

In 1935 the dust storms started. All that dusty soil rose high into the air and blew into every nook and cranny, piling up like drifted snow – except it didn’t melt away come spring. Cattle and crops and even people died; folks who had hung on finally gave up. The tragic story of the Dust Bowl is too much to tell here. For an excellent account of those folk’s suffering and fortitude, I recommend The Worst Hard Time by Timothy Egan. For much more on the Great Depression itself, read The Hungry Years by T.H. Watkins or The Great Depression – America, 1929 – 1941 by Robert S. McElvaine.

FDR’s FIRST HUNDRED DAYS

The next day, the new president declared a four-day bank holiday to stop people from withdrawing their money from shaky banks. On March 9, Congress passed Roosevelt’s Emergency Banking Act, which reorganized the banks and closed the ones that were insolvent. In his first “fireside chat” three days later, the president urged Americans to put their savings back in the banks, and by the end of the month almost three quarters of them had reopened.

Roosevelt’s quest to end the Great Depression was just beginning. Next, he asked Congress to take the first step toward ending Prohibition—one of the more divisive issues of the 1920s—by making it legal once again for Americans to buy beer. (At the end of the year, Congress ratified the 21st Amendment and ended Prohibition for good.) In May, he signed the Tennessee Valley Authority Act into law, enabling the federal government to build dams along the Tennessee River that controlled flooding and generated inexpensive hydroelectric power for the people in the region. That same month, Congress passed a bill that paid commodity farmers (farmers who produced things like wheat, dairy products, tobacco and corn) to leave their fields fallow in order to end agricultural surpluses and boost prices. June’s National Industrial Recovery Act guaranteed that workers would have the right to unionize and bargain collectively for higher wages and better working conditions; it also suspended some antitrust laws and established a federally funded Public Works Administration.

In addition to the Agricultural Adjustment Act, the Tennessee Valley Authority Act, and the National Industrial Recovery Act, Roosevelt had won passage of 12 other major laws, including the Glass-Steagall Banking Bill and the Home Owners’ Loan Act, in his first 100 days in office. Almost every American found something to be pleased about and something to complain about in this motley collection of bills, but it was clear to all that FDR was taking the “direct, vigorous” action that he’d promised in his inaugural address.

THE SECOND NEW DEAL

Despite the best efforts of President Roosevelt and his cabinet, however, the Great Depression continued–the nation’s economy continued to wheeze; unemployment persisted; and people grew angrier and more desperate. So, in the spring of 1935, Roosevelt launched a second, more aggressive series of federal programs, sometimes called the Second New Deal. In April, he created the Works Progress Administration (WPA) to provide jobs for unemployed people. WPA projects weren’t allowed to compete with private industry, so they focused on building things like post offices, bridges, schools, highways and parks. The WPA also gave work to artists, writers, theater directors and musicians. In July 1935, the National Labor Relations Act, also known as the Wagner Act, created the National Labor Relations Board to supervise union elections and prevent businesses from treating their workers unfairly. In August, FDR signed the Social Security Act of 1935, which guaranteed pensions to millions of Americans, set up a system of unemployment insurance and stipulated that the federal government would help care for dependent children and the disabled.

 

In 1936, while campaigning for a second term, FDR told a roaring crowd at Madison Square Garden that “The forces of ‘organized money’ are unanimous in their hate for me—and I welcome their hatred.” He went on: “I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match, [and] I should like to have it said of my second Administration that in it these forces have met their master.” This FDR had come a long way from his earlier repudiation of class-based politics and was promising a much more aggressive fight against the people who were profiting from the Depression-era troubles of ordinary Americans. He won the election by a landslide.

 

Still, the Great Depression dragged on. Workers grew more militant: In December 1936, for example, the United Auto Workers started a sit-down strike at a GM plant in Flint, Michigan that lasted for 44 days and spread to some 150,000 autoworkers in 35 cities. By 1937, to the dismay of most corporate leaders, some 8 million workers had joined unions and were loudly demanding their rights.

 

On December 7, 1941, the Japanese bombed Pearl Harbor and the United States entered World War II. The war effort stimulated American industry and, as a result, effectively ended the Great Depression.

 

THE GREAT DEPRESSION AND AMERICAN POLITICS

From 1933 until 1941, President Roosevelt’s programs and policies did more than just adjust interest rates, tinker with farm subsidies and create short-term make-work programs. They created a brand-new, if tenuous, political coalition that included white working people, African Americans and left-wing intellectuals. These people rarely shared the same interests–at least, they rarely thought they did–but they did share a powerful belief that an interventionist government was good for their families, the economy and the nation. Their coalition has splintered over time, but many of the New Deal programs that bound them together–Social Security, unemployment insurance and federal agricultural subsidies, for instance–are still with us today.

 

 

 

Federal regulation of production managed the corn crop until 1972, when the sale of 30 million tons of corn to Russia combined with a bad harvest to make domestic corn prices spike. This meant that animal feed prices rose, too, and higher prices found their way to the supermarket. By 1973, food prices were so high that meat became a luxury and middle-class mothers worried about feeding their children. President Nixon well understood the political power of a restive middle class, and he launched a new program to make sure that food prices fell quickly.

Nixon’s second Secretary of Agriculture, Earl Butz, dramatically changed government support for corn. No longer would the government support prices by managing the crop. After the carefully-named Agricultural and Consumer Protection Act of 1973 (aka the Farm Act of 1973), the government urged as much production as possible, and guaranteed farmers a target price for their corn. Rather than limiting production, the government made direct payments to farmers for every bushel of corn they produced. Under the new system, production climbed into billions of bushels.

Production got another boost after 2005, when that year’s Energy Policy Act required increasing amounts of ethanol—made from corn—to be mixed with gasoline. Two years later, President George W. Bush launched an initiative to turn even more dramatically to ethanol to reduce the nation’s dependence on oil by 20% by 2017. The scientific journal Nature immediately warned that this initiative would actually move the development of biofuels backward, rather than forward, since corn is inefficient as fuel, but corn farmers loved the proposal. Corn production leaped even higher. Today more than a quarter of that production goes to produce ethanol.

The flood of cheap corn had a number of dramatic effects.

It has involved the government deeply in agricultural production. As the price of corn dropped, the only way for farmers to survive was to plant more and more, so they could collect more subsidy money. Farm subsidies now run over $12 billion a year. Government statistics don’t easily reveal how much of that money goes to corn growers, but, according to the USDA, 97% of the farms that grow grain collect subsidies, and 90% of grain growers produce corn.

It has cemented the power of agribusiness. More than 60% of subsidy money goes to big growers. The push for production favors agribusiness, which can exercise huge economies of scale. (Nixon and Butz not only foresaw this move, but encouraged it because they believed it would keep prices down.)

Cheap corn has also changed the way we eat. It finds its way into most of the foods in American supermarkets, as high fructose corn syrup (HFCS) into soda and processed foods, of course, but also into less obvious places like beef, since corn was so cheap cattle growers began to use it to feed animals that had always fattened on grass. The raft of organizations concerned about America’s obesity epidemic have pointed to the ubiquity of cheap corn as a key ingredient in our increasing health problems.

It has also most likely changed recent demographics. Researchers speculate that heavily subsidized US corn has combined with NAFTA to disrupt rural Mexico, where small farmers can’t compete with cheap US corn. They have left rural regions to move to cities in Mexico, and while no research has been conducted on cross-border migration, it seems likely that displaced farmers are making their way to US farm operations to find work.

And it will soon become a factor in politics. The Great Plains states that decry big government and demand a smaller federal budget depend on agricultural subsidies. According to the Department of Commerce, subsidies provide up to 40% of personal income in counties across the Great Plains. In the current drive to slash the budget, it’s hard to see how the $12 billion price tag of agricultural subsidies cannot be on the table for cuts, but it’s also hard to believe that Plains voters will support such cuts. How this will play out is anyone’s guess, but it will certainly be a factor in the political debates of the next few years. http://histsociety.blogspot.com/2010/11/corn-and-united-states.html