As the Obama administration wreaks further havoc on health care, many people expect the politicians to recognize their follies and relent. However, history indicates that rulers will continue seizing new power regardless of how much wreckage results. The farm policy of Franklin Roosevelt exemplifies how politicians “double down” on their most brazen follies.
Roosevelt’s Brain Trust agricultural planners had unlimited faith in their capacity as benevolent despots. His Agricultural Adjustment Act (AAA) was launched in 1933 at the same time as the National Industrial Recovery Act, which restricted working hours, restrained industrial output, and allowed businesses to form committees to dictate restraints on competition. (One industrial code limited the number of stripteases that could be performed in a burlesque show.) Both acts assumed that prosperity could be secured by restricting production and boosting prices — prosperity through “universal monopoly and universal scarcity.” That panacea was soon abandoned for business, but it was to carry on for more than half a century for agriculture.
Many farmers were fiercely opposed to a federal takeover. Their attitude toward government assistance depended largely on whether they were successfully standing on their own two feet. The New York Times reported in May 1933 that “it is the unmortgaged farmer who shies away from an elaborate machinery of federal supervision; the mortgaged farmer does not care how many federal agents camp in his barnyard to count his planted acres and his pigs.” Unmortgaged farmers polled heavily against all phases of federal control in a 1933 Midwest survey. After one year’s experience with the AAA, Kansas farmers — the nation’s most efficient wheat producers — again polled heavily against continued federal controls.
The AAA set American crop prices far above world market prices. As a result, agricultural exports plummeted. While U.S. exports of automobiles between 1932 and 1934 rose 110 percent and iron and steel exports 125 percent, exports of major farm commodities collapsed. Agricultural economist O.B. Jesness summed up the government’s attitude toward crop exports: “It has been common among representatives of the AAA to express the view that foreign markets are gone and that all we can do is mourn their loss.” Assistant Secretary of Agriculture M.L. Wilson declared, “Concerted cooperated crop control for American agriculture just now is necessary to compensate for the virtual loss of the foreign market.”
American farmers were badly hurt by the loss of export markets in the 1930s. As agricultural economist Ashner Hobson observed in 1935, “The cause [of surpluses] is not so much that we are producing more, but rather that we are selling less abroad…. While declining agricultural exports may not have caused the depression, certainly their loss contributed substantially to its severity.” But the AAA officials had complete faith in the program’s ability to enrich farmers by manipulating farm markets. And it was extremely difficult to manipulate markets as long as the United States was still tied to world prices.
Manipulating prices
Since the 1930s politicians have viewed farm prices as tickets for votes rather than as signals to producers and consumers, and have believed that they can drive up prices without disrupting agriculture. The Roosevelt administration manipulated prices with carefree abandon. As Treasury Secretary Henry Morgenthau noted in his diary,
On the night of October 16th [1933], as I was spending a quiet evening at home, the telephone rang. It was the President. “We have got to do something about the price of wheat,” he said, strain and weariness apparent in his tone. “I can’t take it any longer…. Can’t you buy 25,000,000 bushels for Harry Hopkins and see if you can’t put the price up?” I started in on the buying game first thing in the morning. Wheat was perched precariously at 64 and 7/8 when I placed the first order for one million bushels. By the end of the day we had worked it up 10 cents. “Squeeze the life out of the shorts,” FDR said to me, with the old fight in his voice, “and put the price up just as far as you can.”
Jesse Jones, chairman of the Reconstruction Finance Corporation (RFC), had a similar tale about cotton prices:
One afternoon in 1933, President Roosevelt called me to the White House and, as soon as I entered his office, said: “Jess, I want you to lend 10 cents a pound on cotton. Cotton was then selling around 9 cents. The law which created the RFC stated clearly that we should lend only on “full and adequate security.” Therefore, to lend 10 cents a pound on cotton when it was selling at 9 and less, was not easy. I did not tell the President we could not do it. I took it to be my job to find a way to do it because I thought cotton was worth more than 10 cents and that to lend that amount of it would be very helpful and entail no loss to the government.
By promising farmers far more than the market value of their crops, the New Deal encouraged farmers to produce far more than could
be sold at government-controlled prices. After the politicians induced the overproduction, they cited crop surpluses as proof of the need for political management of agriculture. Politicians soon realized that to benefit farmers, they must control them.
The AAA was a hotbed of radicals and, according to historian Arthur Schlesinger, there was a communist clique in the legal and policy-making branch, where Alger Hiss worked. Schlesinger is careful to point out that “nothing of importance took place in AAA as a result of [the communists’] presence in AAA which liberals would not have done anyway.” It is unclear whether Schlesinger’s remark was intended as a compliment to the liberals or to the communists.
The federal government in the 1930s and early 1940s attempted many experiments with local socialism. In 1935 Rexford Guy Tugwell, who was undersecretary of agriculture, declared, “Redistribution of our essential wealth, the land, is the clearest mandate our society has received from economic necessities of the present depression.” George Mitchell, who was the assistant administrator of the U.S. Department of Agriculture (USDA) Resettlement Administration, declared in 1941 that the “ownership of [private] property is the greatest detriment to our national prosperity.” The Farm Security Administration (FSA) bought more than a million acres of land and then locked many poor farmers into 99-year leases with close supervision. The FSA intended to supervise the farmer, his son, and his grandson, and was denounced for trying to introduce serfdom into America. Many of the FSA’s local socialized farm projects became renowned for their phenomenally low productivity.
Ruining farmers
Roosevelt’s farm programs were a tangle of contradictions. At the same time his administration was paying farmers to plant less, the Tennessee Valley Authority, the Grand Coulee Dam, and other dams were justified partly as creating millions of new acres of farmland. In 1933 officials of the Roosevelt administration spoke of a massive plan to resettle six million unemployed city and town residents on the land to work as “subsistence farmers.” The economist Otis Durant Duncan observed, “The addition of more insolvent families to the farm population will undoubtedly lower the average per capita wealth of all farm people.” Will Rogers commented,
Well, we had thought that that foolishness had pretty well died out, but no, this year it springs up again. The government decided that the West should be settled again. The first settling on unoccupied land didn’t take, so they would, as they say in the movies, try a “retake.” So now they have issued an ultimatum that every ranchman shall take down all his “Drift” fences, all his pastures that are government land, and give the old ad reader in the papers another chance to starve to death. Principally they offer it to ex-soldiers. War wasn’t tough enough; they are going to dare ’em to live on a government claim.
Joseph S. Davis, who had been the chief economist of the Federal Farm Board, declared in 1935 that AAA programs “have put the brakes on business recovery” by shutting down much of the cotton and corn support industries. In 1930 roughly 40 percent of all American farmers were tenants or sharecroppers. Yet the New Deal farm programs were designed almost solely for the benefit of landowners.
Former USDA chief economist Don Paarlberg observed, “The agricultural elite, generally the large landowners, managed to retain most of the program benefits for themselves rather than share them with tenants or employees.” In 1934 the USDA paid cotton producers to slash cotton production, giving the landlord four cents a pound and the sharecropper only one-half cent per pound for production forgone. William B. Anderson reported in The Nation in early 1935, “In the richer Delta country there was relatively little unemployment until the winter of 1933-34, when the reduction program began to exert its influence. We believe it is fair to say that over the whole cotton belt about one-third of the present rural unemployment can be directly referred to the [cotton] reduction program.”
New Deal agricultural programs were a dismal failure at returning prosperity to the farm. Ezra Taft Benson, secretary of agriculture under Dwight Eisenhower, noted that “cash farm income, less government payments, did not reach the 1929 level until 1941, a war year.” Farmland values continued to decline throughout the 1930s and only began rising after World War II became imminent. The continuing decline of farmland value was the clearest vote of no confidence in government agricultural controls by farmers.
Even after the start of World War II, the USDA failed to release controls on production. The huge bureaucracy had spent its career throttling production; once the war began, it was difficult to teach an old dog a new trick. The USDA was so worried about the possibility that a huge crop surplus would result after the war’s end that it continued controls on production until 1944. As political scientist Charles Hardin observed, the USDA was “skeptical about the predictions of European postwar food needs” and reluctant to provide storage facilities to store surplus U.S. grain. The Twentieth Century Fund reported in 1953 that, thanks in part to U.S. food production cutbacks during the war years, much of western Europe “came desperately near to mass starvation in 1946 and 1947.” Food shortages in the Allied occupied zones in Germany were horrendous, helping to send the civilian mortality rate into the stratosphere. Only good weather and bumper harvests in the immediate postwar years prevented much worse disasters.
One lesson from the New Deal farm follies: It will take more than pervasive debacles to get Obama-care repealed. Americans need to recognize that politicians cannot be trusted to manipulate supply and demand and prices — because taxpayers and consumers will always get shafted in the end.
This article was originally published in the May 2014 edition of Future of Freedom.