View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The Development of Agricultural
Policy Since the End of the
World War
Reprint From Pases 297-326 of the 1940 Yearbook
of Agriculture




The Development of Agricultural Policy
Since the End of the World War


THERE can be little doubt but that the past 20 years will be looked
back upon as one of the most eventful and interesting periods in the
whole of American agricultural history. It is too early as yet to
appraise the events of this period, and the forces that shaped them,
from an entirely detached historical viewpoint. The attempt, however, is worth making; and few people are as well equipped to make
it, from the standpoint of long and intimate acquaintance with agricultural problems, as the author of this article. Here he tells the
story of the increasing economic pressure upon farmers in the 1920's;
the gradual spread of a powerful farm movement from the grass
roots; the ideas back of the farm legislation in the latter part of the
decade; the modifications in these ideas and their extension in the
agricultural programs of the 1930's. It cannot be said, he concludes,
that these laws have solved the farm problem. Presumably they
will themselves be subject to change and displacement. But if
experience in this field teaches anything, it is that a continuous thread
runs through the evolution of agricultural policy notwithstanding its

Chester O. Davis is a member of the Board of Governors of the Federal Reserve System.




ook of Agriculture, 1940

inconsistencies and contradictions. The programs of the present
become the foundations for the programs of the future.
DURING 1919 and the first half of 1920 the general expectation
prevailed that an enormous demand for American goods and products
of the farm would follow the removal of restrictions on consumption
that war had imposed on the people of the world. Farmers and
nonfarmers were slow to realize that an effective market is not created
by the desires or needs of men or of nations but by their ability to
pay with goods, services, gold, or credit.
Farmers of the United States had produced in abundance under the
joint stimulus of patriotism and price; they continued the stride
after the artificial market created by the war and the post-war spree
of extravagant buying had faded away. The annual report of the
Secretary of Agriculture for 1919 (11)2 optimistically recited that
"America during the war helped to save Europe and to preserve
civilization by making available to the Allies, through increased production and conservation, large supplies of foodstuffs." The same
report viewed the land problem from the standpoint of our capacity
to expand still further the acreage tilled, pointing out that the cultivation of land still unused could increase the output of commodities
by over 60 percent of the total.
Nevertheless a faint note of warning was discernible in the report.
The Secretary raised a question (11, p. 26) as to "the bearing of the
increasing prices of land and the resulting speculation on the progress
of agriculture and the welfare of the farmer/' and concluded (11,
pp. 28-29):
American agriculture should consolidate the gains already made; prepare for
the period of competition which is to be expected with the return of normal world
conditions, principally by increasing, through sound and economical methods,
the productivity of areas already under cultivation; and utilize the services of
the most experienced and judicious agricultural leaders in determining where,
when, and how to bring into cultivation and develop public and private unused land.

In spite of the prevailing optimism, Secretary Houston recommended to the President that he call an agricultural conference at
the earliest possible date because of changed conditons at home and
abroad, existing uncertainties, and disturbed states of mind. When
the conference was finally called, in January 1921, it was by another
Secretary of Agriculture at the direction of another President, and
it raised the curtain upon two decades of swift and radical change in
agricultural policy, which is still unfolding as another general war
overwhelms Europe.

Agricultural prices were the first to break in 1920. The July 1920
index of prices paid to producers was 10 points under the June index;
the August index, 15 points below the July; and the September index,
15 points below the August. In contrast there was no noticeable
drop in nonagricultural prices until near the end of the year. The
blow struck the farmers at about the time the grain crop of the
» Italic numbers in parentheses refer to Literature Cited, p. 326.

elopmcnt of Agricultural Policy Since Woi\



United States was coming on the market. Within a few months
every industry and producers of every class were swept a]ong under
the avalanche of descending prices. The boom market, which had
endured while credits granted to Europe remained unexpended and
while, at home, citizens were cashing bonds to buy goods, had come
to an end.
The collapse of agricultural prices, particularly while the rigidity
of nonagricultural prices and wages was creating a new and alarming
disparity between farm income and costs, produced vehement protest
from farmers everywhere. Existing farm organizations increased
their membership, and new ones sprang into being. They exerted a
pressure on lawmakers and administrators which, continuing through
the years, has been primarily responsible for the unparalleled sweep
of farm legislation from the early 1920's through 1938 and has carried
the Federal Government into fields of farm aid undreamed of when
the crisis of 1920 broke.
The quick violence of farm protest was due partly at least to the
general unexpectedness of the price downturn. The apparent hunger
of a world that had been strictly rationed for years had encouraged
farmers in the belief that good markets for their crops would continue.
The crops sold in 1920 had been produced at the highest costs ever
known. Farmers had used credit freely in buying more land and
equipment. They had set aside little as a surplus to offset losses in
commodity prices. They saw no way to reduce production to match
falling demand. Old debts must now be paid with products that
brought sharply lower prices. - The pressure for debt liquidation struck
at a time when returns from crop sales were wholly inadequate to
balance the debts incurred in producing them.
The ferment throughout the country during the last half of 1920
did not result in action at Washington. A Presidential campaign
was under way. While demands for Government price fixing stirred
farmer mass meetings, Washington talk was of higher tariffs, better
farm credits, more loans to finance exports, and an improved legal
status for cooperatives. The 1920 report of the Secretary of Agriculture pointed out that the year's crop had been the largest but one
in the country's history and that the returns were inadequate and,
while suggesting that no single solution could be found, insisted that
big crops should not be allowed to impoverish the farmers who produced them.

Early in 1921 the new Congress created a Joint Commission of
Agricultural Inquiry, the Senate acting on May 31, the House on
June 7, and instructed the Commission to report its findings within
90 days (7). The Commission was directed to—
investigate and report to the Congress * * * upon the following subjects:
(1) the causes of the present condition of agriculture; (2) the cause of the difference
between the prices of agricultural products paid to the producer and the ultimate
cost to the consumer; (3) the comparative condition of industries other than
agriculture; (4) the relation of prices of commodities other than agriculture;
(5) the banking and financial resources and credits of the country, especially as
affecting agricultural credits; (6) the marketing and transportation facilities
of the country.



ok of Agriculture, 1940

The Commission was also directed to " include in its report recommendations for legislation which in its opinion will tend to remedy
existing conditions" (8, p. 8) and to report " specifically * * *
upon the limitations of the powers of Congress in enacting relief
The Commission completed its hearings and report by early fall,
and delivered its findings on the causes of the agricultural crisis, with
its recommendations, to Congress in early December.
In general the inquiry was broad and important, but its specific
recommendations were limited and proved ineffectual when subsequently carried out. The farm groups at the time regarded them
as inadequate to meet the conditions that were developing.
In attempting to arrive at the causes, the Commission studied
changes in the purchasing power of the farmer's dollar, the relation
of the prices of farm products to those of other commodities, and the
physical output and the return to capital and labor in agriculture as
compared with other industries.
I t found that by May 1921 the purchasing power of the farmer's
dollar was only 77 percent of its pre-war value. I t reported that the
prices of farm products had declined more rapidly and had fallen to a
lower level than those of other commodities, although the physical
output of agriculture had not kept pace with that of other industries,
and that the. return to farm capital and labor was relatively low.
The distress of agriculture was attributed primarily to the general
business depression which began in 1920, although a failure of export
demand was considered to be an important cause. The maintenance
of unduly high freight rates, the lack of facilities for intermediate
credit, and the need for an adequate and integrated warehouse system
were also deemed contributing factors. Overproduction or overmarketing of farm products in 1920 was not adjudged to be an important cause of the subsequent price decline.
The Commission recommended granting preferred legal status to
cooperative marketing associations, a system of intermediate credits
for agriculture, improved warehousing facilities and supervision,
reduction in freight rates on farm products, extension of the statistical,
research, and foreign-service functions of the Department of Agriculture, better grades and standards for farm products, farm-tomarket roads, and rural life improvement; and finally the Commission declared that renewal of confidence and prosperity was dependent
on readjustment of commodity prices, which "cannot be brought
about by legislative formulas but must be the result for the most part
of the interplay of economic forces" (8, p. 11).

In the meantime, the War Finance Corporation was revived particularly to finance exports; an emergency tariff act, vetoed by President Wilson as one of his last official acts, was again passed and was
signed by President Harding; the "farm bloc" was organized in
Congress; the powers of the War Finance Corporation were broadened
to enable it to make loans for agricultural rehabilitation, and its life
was extended to 1924.

elopment of Agricultural Policy Since Wort



The National Agricultural Conference, called by Secretary of
Agriculture Henry C. Wallace at the direction of President Harding,
met in Washington January 23 to 27, 1922. Nearly 400 representatives of agricultural and related industries attended. Practically
all of the notes that have been struck in subsequent agricultural
policy were sounded in one way or another in that conference.
In his letter asking Secretary Wallace to call the conference, the
President said (5, p. 3):
It is unthinkable that with our vast areas, our unparalleled endowment of
agricultural resources, our fertility of soil, our vast home market, and the great
ability and resourcefulness of our farmers we should accept the status of a distinctly industrial Nation. Our destiny seems to require that we should be a wellrounded Nation with a high development of both industry and agriculture, supporting one another and prospering together. It must be, and I feel sure it is,
the national wish and purpose to maintain our agriculture at the highest possible

But the President clearly was not thinking in terms of a broad
assumption of responsibility for agricultural policy by the Federal
Government. In his opening address to the conference, he said (9,
p. 10):
It cannot be too strongly urged that the farmer must be ready to help himself.
This conference would do most lasting good if it would find ways to impress the
great mass of farmers to avail themselves of the best methods. By this I mean
that, in the last analysis, legislation can do little more than give the farmer the
chance to organize and help himself.

Secretary Wallace told the conference (9, p. 13) that " the agriculture of the Nation is in a bad state, and our entire business and industrial life is suffering in consequence/'
The conference operated in 12 sections, each of which reported its
recommendations, which, as incorporated in the final report, are too
detailed and extensive for recapitulation here. One significant pronouncement on price adjustment suggested the slogan, "Equality for
agriculture," which has resounded through every subsequent political
campaign, and set prominently before the country for the first time
the objective for which organized agriculture was to strive in the turbulent farm fights of succeeding decades. It was incorporated upon
the insistence of a man who became an active leader of farm forces in
their fight for farm equality—George N. Peek, later first Administrator of the Agricultural Adjustment Act. The paragraph reads
(9, p. 171):
Agriculture is necessary to the life of the Nation; and, whereas the prices of
agricultural products are far below the cost of production, so far below that
relatively they are the lowest in the history of our country; therefore, it is the
sense of this committee that the Congress and the President of the United States
should take such steps as will immediately reestablish a fair exchange value for all
farm products with that of all other commodities.

The demand for equality for agriculture cropped out at several
places in the conference report (9, p. 137):
The conference declares that no revival of American business is possible until
the farmer's dollar is restored to its normal purchasing power when expressed in
the prices paid for the commodities which the farmer must purchase, and the
conference further declares that by right the men engaged in the agricultural
field are entitled to a larger return than they have heretofore received for the
service they give society.



>ok of Agriculture, 1940

Adjustment of farm production to demand was stressed (5, p. 187):
The manufacturer has in the past quickly adjusted his production to price
recessions while the farmer has not. When farm production is so large that
the product cannot be sold for prices that will maintain a reasonable standard
of living on the farms, the supply is too large. We recommend that the farmers
and the farm organizations consider the problem of world supply and demand
and make comprehensive plans for production programs so that they may be able
"to advise their members as to the probable demand for staples, and to propose
measures for proper limitation of acreage in particular crops," as pointed out by
the President of the United States.

The conference report favored higher tariffs, more foreign credits
to facilitate exports, an intermediate credit system for farmers, and
recognition of farm cooperative-marketing associations and price
stabilization through their operations, and made scores of other recommendations of varying importance.
Recommended for study were a system of crop insurance and the
whole question of Government guaranty of agricultural prices.

In the meantime, in December 1921, George N. Peek and Hugh S.
Johnson, who were associates in the management of a farm implement
company at Moline, 111., had written and filed with the American
Farm Bureau Federation their first brief, Equality for Agriculture
(3), which set forth the principles and a plan of operation which were
in general incorporated in the surplus-control bills which 2 years
later became known by the names of their legislative sponsors,
Senator Charles L. McNary, of Oregon, and Representative Gilbert
N. Haugen, of Iowa.
While the National Agricultural Conference was holding the spotlight in Washington, an important series of conferences took place
between Mr. Peek and General Johnson and Cabinet members and
other officials. At their suggestion their plan was submitted first to a
group of economists within and outside the Government and then to a
group of industrial and financial leaders. The proponents of the plan
remained in Washington until mid-February. When they left, their
proposal was assured continued study by the interest of the Secretary
of Agriculture and of Henry C. Taylor, who that year was to become
the first chief of the Bureau of Agricultural Economics. The first
drafts were prepared in the Department of Agriculture in 1923 under
the direction of Charles J. Brand, who 10 years later became coadministrator of the Agricultural Adjustment Act. They emerged as the
McNary-Haugen bills, which reached both Houses of Congress in
January 1924.
The proposal is described by its authors in the following summary
taken from Equality for Agriculture:
This is a plan to improve marketing of farm products, to insure a fair return
from farm operations, to stabilize farm securities> to facilitate farm finance, and to
secure equality for agriculture in the benefits of the protective tariff, by the
following means:
Establish each year the fair exchange value on the domestic market of each
principal crop, by computing a price which bears the same relation to the general
price index as the average price of such crop for ten pre-war years bore to
the average general price index for the same period. Protect this fair exchange

elopmcnt of Agricultural Policy Since Wor



value from world price by a tariff fluctuating with it and with world price.
Organize under Federal legislative charter a private corporation to maintain
this value by buying carry-over from any such crop from farmers or associations
of farmers at such value. Such corporation may sell for export exportable surplus
at the world price, even if less than domestic price, and may sell for domestic
consumption, any of its carry-over at not less than the exchange value. The
process will result in little, if any, material interference with existing mechanism
for supplying domestic consumption.
Purchases and losses by reason of sales to export or of downward fluctuations
in such fair exchange value to be financed, viz:
From worst experienced years of price, production, and surplus, determine an
empirical formula, which when applied to any future year, will compute a percentage of price per bushel or per pound, large enough to absorb any probable loss.
This differential to be computed and announced in ample time before planting
season to enable farmers to plan croppage with reference to existing supply.
By authority of a Federal statute, collect this percentage as a differential loan
assessment on each pound or bushel when and as sold by the farmer. Issue
scrip for such receipts, bearing interest on a retirable value to be fixed and announced when losses and expenses are determined.
Pass unabsorbed amounts in such fund to a farm-loan fund for reloan to appropriate banks and associations of farmers, at moderate interest, and on farmers'
notes, for 1, 2, or 3 years, given for purchase of reproductive facilities.
In the first year, after a sufficient fund has accumulated to take care of annual
agricultural loan requirements, the installment of scrip issued in the first year's
operations is retired, and so on for each succeeding year's installment.
Wheat, cotton, corn and oats are tentatively proposed for the operation of
this plan.

The Joint Commission of 1921 and the agricultural conference of
1922 helped set off the farm-relief campaigns which have continued
almost without breathing space from that time to this. In the
judgment of the more aggressive farm leaders the remedies proposed
in the two reports were hopelessly inadequate to meet the conditions
the reports recognized as existing.
Developments of later years reveal some surprising gaps and blind
spots in these early post-war analyses of the farm problem. Commission and conference alike seemed unconscious of the clash between
their demand that agricultural as well as industrial exports be restored
and maintained and their insistence that this Nation vigorously pursue
a policy of exclusion through higher and yet higher tariffs. Neither
the conservative administration leaders nor the farm forces they
called radical recognized that the volume of agricultural exports
following the war and up to 1929 was financed in large part by extension of credit abroad—many of the loans not to be repaid.
It is less surprising that they failed to foresee the turn among the
nations of the world toward autarchy, national self-sufficiency, and
directed international trade, and that the consequence would be
diminished export opportunities for the United States, a high-tariff,
creditor Nation.
The full significance of the McNary-Haugen bills which were before
Congress in varying forms from 1924 through 1928 does not end with
the fact that the measures were twice put through Congress and
twice vetoed. Their real importance lies in the fact that the continuous pressure for them made the Nation wholly conscious of its
agricultural problem. Counterplans were put forward to sidetrack




ok of Agriculture, 1 9 4 0

and substitute for the measures which the organized farm groups were
demanding. Some of them were adopted, and their trial added to the
experience and knowledge which has helped shape still later endeavors.
Early Alinement on Farm Relief

The line-up of forces on farm relief from 1923 to 1926 was discouraging from the point of view of those who favored aggressive
action to restore farm prices to equality with costs. The cooperative
marketing associations, which had developed along commodity lines
into strength and prominence in the years following the war, were
generally hostile. They were unconvinced that, given Federal recogtion and support, they could not do the job themselves. The South
as a whole was indifferent, partly because its chief farm organizations
were the cotton, tobacco, and rice cooperatives and partly because of
traditional opposition to increased Federal powers and to extension
or recognition of the protective-tariff principle.
The East and the industrial centers were inherently opposed.
Even when prominent industrialists recognized the importance to
national prosperity of restored farm buying power, they were violently
critical of any specific method proposed to that end.
Agricultural colleges and economists were as a whole indifferent to
the problem. During the early years their leadership was negative
and their attitude scoffing.
Outside of Congress and a small group close to the Secretary in the
Department of Agriculture, official Washington was solidly opposed
to any but the most orthodox Government moves to strengthen
The spearhead of the movement for positive Government action
from 1923 to 1926, therefore, was made up in the first stages by individuals and special groups; State units of general farm organizations
were next to fall in line, and after them the national farm associations—the American Farm Bureau Federation, the Farmers' Union,
and the Grange.
Generally through those years the farm forces were disposed to
divide all over the field as to details of procedure. The cooperatives
went their own way, with the exception of Northwest wheat associations, who favored the surplus-disposal plan. Some farm leaders
were for outright Government guaranty of fixed prices. There were
lively debates over the surplus problem—even over the question
whether in fact any surplus of farm products existed. Many farm
leaders contended that there could be no overproduction if marketing
were properly organized.
Secretary Wallace, in his annual report for 1922 (11, Yearbook 1922),
summed up the opposite view in saying:
Some contend that there is no such thing as overproduction of farm products
and cannot be as long as there are people in the world who suffer for food and
clothing. On the same line of reasoning it can be argued that the production of
automobiles will be inadequate until every man and woman and every boy and
girl of high-school age owns one. There is overproduction, so far as the producer
is concerned, whenever the quantity produced cannot be marketed at a price
which will cover all production costs and ^ave the producer enough to tempt him
to continue production.

d e v e l o p m e n t of A g r i c u l t u r a l P o l i c y Since W o r i u W a r


Some Tariff Inconsistencies

Small voices were raised but scarcely heard when they questioned
the wisdom of a tariff policy which excluded from this country the
means by which foreign buyers could pay for our exports, while at
the same time we demanded and expected that our exports would be
maintained. Meanwhile the policy of raising tariffs swept on to its
culmination in the Tariff Act of 1929 without effective protest either
from the pros or the antis in the farm-relief fight.
Both sides failed to recognize the fact that continued exports
through these years were made possible by the extension of credit to
foreign nations and buyers. The total volume of new foreign issues
floated in the United States from 1919 to 1929, inclusive, amounted to
$8,172,000,000, while the net outward movement of long-term capital
during the period exceeded $6,000,000,000. The heaviest flotations
of new issues during these years were $1,201,000,000 worth in 1927
and $1,111,000,000 worth in 1928.
Even the farm proposals for a protected domestic consumption at
parity with nonagricultural prices, independent of the world price for
the surplus, depended for effective operation on the willingness and
ability of the world market to take all the surplus the United States
There was failure to recognize the effect of our change from a debtor
to a creditor nation. Our status as a nation in another sense had also
changed. We at last were at the end of the pioneering period. We
now had a preempted continent—the last of the good free land had
been taken up, and we were face to face with the problem of a maturing
nation. No longer was there a frontier to act as shock absorber for
dispossessed farmers and unemployed from industrial centers, with
outside creditor nations ready to take our suplus production in payment on our debts to them.
The Farm Movement Spread by Regions

The persistence and growing strength of the farm-relief movement,
from 1923 until the passage of the Agricultural Marketing (Federal
Farm Board) Act in June 1929, is not explained wholly by index
figures showing in national averages the purchasing power of farm
crops in terms of other prices. The ratio of prices received to prices
paid by farmers actually approached parity with the 1910-14 ratio in
1925, owing to the fall in nonagricultural prices at a time when farm
prices were improving. B u t averages were misleading; they failed to
reveal the local areas over which trouble was developing.
Distress did not strike all farm regions at the same time. I t was
most acutely felt first in the Spring Wheat Belt, and it was there that
the first farm-relief movement caught on and incubated. The South
had only three partly good years from 1919 to 1926, but nevertheless
that region was slow to start thinking in terms of national action.
The Corn Belt in 1921 and 1922 was not particularly interested when
agitation for farm relief was running strong in Minnesota and westward. But when hog prices went back to pre-war levels in 1923,
foreclosures and bankruptcies set in in earnest. The banks began to
close. Land prices in Iowa in 1927 were 91 points below those of 1920.



j k of Agriculture, 1940

The storm center began to shift from the Northwest to the Midwest
about 1924.

The influence of the Department of Agriculture in giving direction
to the gathering farm-relief movement became clearly evident in the
autumn of 1923. In October, Henry C. Taylor, Chief of the Bureau
of Agricultural Economics, made a trip into the Dakotas, Montana,
and the Pacific Northwest which gave him an opportunity to question
most of the farm leaders of the region about the agricultural situation.
Members of the groups which gathered to meet Dr. Taylor recall
that he made no positive statements in support of any particular
form of farm relief, but it was after his trip that the Northwest with
singular unanimity started its drive for a Government export corporation to segregate and dispose of agricultural surpluses.
Secretary Henry C. Wallace first publicly referred to the export
plan in an address to the Chicago Association of Commerce on November 14, 1923 (IS). In this guarded endorsement, he said:
Among all of the suggestions that have been made, the one which has been
made by several people in this state and which has been considered at different
times, seems to have more merit in it than anything else. It is simply this. In
the case of those products of which we produce a large surplus, which must be
exported, the government might well consider whether by setting up a government agency which would take that surplus and handle it in exactly the same way
that many manufacturers have handled their surplus in times past, so that it
would not be the government carrying the burden, but the producers of that
crop, many who have given the matter consideration believe that of aU the proposals suggested that offers the most hope.

On November 30, 1923, Secretary Wallace delivered to the President and published a report on The Wheat Situation (18), which
provided the farm-relief forces of the Northwest with a wealth of
ammunition which they were not slow to use. The report closed
with these paragraphs:
Inasmuch as the first step looking toward increasing the domestic prices requires
the disposition of the surplus over and above domestic needs, and inasmuch as
the facts presented in the foregoing pages indicate that the world production of
wheat will probably be over-large for another year or so, the suggestion that the
Government set up an export corporation to aid in the disposition of this surplus
is worthy of the most careful consideration. Such a corporation necessarily
would need rather broad powers. It would not be necessary that it should undertake to handle the entire crop, and it could probably carry on its activities in
cooperation with existing private agencies. If it should be found necessary to
arrange for the sale of the surplus exported at a price much lower than the domestic price, the loss so incurred would properly be distributed over the entire crop.
The prime duty of such an export corporation would be to restore, so far as
possible, the pre-war ratio between wheat, and other farm products of which we
export a surplus, and other commodities. Its activities would therefore expand
or contract according as the relative prices for farm products varied with other
commodities, and it would cease to function as pre-war ratios become fairly well

In December 1923 and throughout the winter so-called export corporation leagues sprang into being in the spring wheat States. Wheat
growers' associations of the Northwest opened a militant campaign,
and organizations of businessmen in cities and towns from Minnesota
west pressed for action. In 1924 State farm organizations of the Corn
Belt joined up, and the struggle was on in earnest.

development of Agricultural Policy Since Wond War



The agitation centered, first and foremost, around the general idea
of equality for agriculture and the related idea of "a fair share of the
national income." It also embodied the hope for security against
bankruptcy prices and low and unstable income, drought and crop
failure, and mortgage foreclosure and uncertain land tenure.
Prior to the appearance of the McNary-Haugen bill on the congressional scene, the Norris-Sinclair bill held the lead in farm support,
although it had received no encouragement from the executive branch
of the Government. Senator George W. Norris, of Nebraska, its
chief sponsor, originally felt that the McNary-Haugen bill was an
administration measure introduced to divert and divide farm support.
He was strengthened in his conclusion by the fact that the original
McNary-Haugen bill was drafted in the Department of Agriculture
and had the quiet support of Henry C. Wallace, the Secretary of
Agriculture, a fact which had much to do with the quick alinement of
farm support back of it.
The Norris bill would have created a Government corporation empowered to buy or lease storage and processing facilities, and to buy,
process, and sell farm products in raw or finished form. Its declared
purpose was to eliminate as far as possible the commissions and
charges between producer and consumer so as to increase the price to
the former while decreasing the cost to the latter.
On their face, therefore, the provisions of the Norris bill promised
to increase farm income by savings and short cuts which it was believed would be secured by substituting a Government agency for the
private processors and middlemen. Its supporters read into the
measure, however, the hope and expectation that the corporation
would fix prices to farmers on a cost-of-production basis. The
corporation was to be given $100,000,000 capital, with authority to
sell tax-free bonds up to five times that amount.
In contrast, the McNary-Haugen bills proposed a minimum of
interference with existing agencies and aimed only at the segregation
and exportation of crop surpluses to bring domestic prices up to the
"ratio" or fair-exchange level. It was proposed that operations
should be made self-financing by collecting an "equalization fee" upon
the first sale or the first processing of the commodity dealt with.
This plan was written into the original 1924 version of the McNaryHaugen measure and also into the vetoed bills of 1927 and 1928. The
mechanism for implementing the plan varied considerably in the
several bills, but at no time did the advocates abandon what they
considered the essential ideas, (1) that the centralizing power of the
Federal Government should be used to assist farmers to dispose of the
surplus abroad and raise prices to the desired level in the domestic
market, and (2) that the loss on the segregated exports was to be paid
by the farmers themselves by means of an equalization fee.
The opposition centered its fire on the equalization fee, and assailed
the proposal to bring about fair-exchange, or ratio, prices for export
farm crops as "price fixing." They fought back against farmer charges
that tariffs are ineffective on export crops. The supporters of the
measures clung stubbornly to the principle of the equalization fee to


Yeak .ok of Agriculture, 1940

enable the programs to pay their own way, but retreated temporarily
from the fair-exchange-price principle and, instead, offered a bill in
which the existing customs duties were made the measure of the price
benefits to be secured by draining the surplus production off into
export channels.

Under pressure of this general agitation, farm legislation advanced
speedily along less controversial lines.
The Federal Government, always sympathetic to the idea of
agricultural cooperation, moved to strengthen further the legal position
of cooperatives with respect to the antitrust legislation by enacting the
Capper-Volstead law of 1922.
Demand for further improvement in the credit structure had
paralleled the fight for marketing reform. Specifically this was a
demand for farm credit at rates comparable to those paid by businessmen and for the establishment of new banking institutions that could
meet the peculiar credit needs of farmers. The Federal Farm Loan
Act had been passed in 1916. Although this act greatly increased the
availability of long-time farm-mortgage credit, it did not meet the
needs of farmers for intermediate and short-time credit.
The Federal Intermediate Credit Act of 1923 provided for the
establishment of 12 intermediate credit banks, to rediscount agricultural paper maturing within 3 years for banks and special lending
agencies. This still did not fully meet the short-time credit needs of
farmers. They had to wait another decade until the banks for
cooperatives, the production credit corporations, and the production
credit associations were set up or provided for in 1933 under the
Farm Credit Administration.
To meet the growing unrest in the Northwest, the Norbeck-Burtness
bill was introduced in late 1923, appropriating Federal funds with the
general idea of turning spring wheat farmers into dairy production,
and the President called the Northwest Agricultural Conference to
meet in Washington in February 1924 to give it public support. The
main body of the conference, which was made up chiefly of nonfarmers,
endorsed the plan to spend money to diversify northwestern agriculture and recommended the establishment of the Agricultural Credit
Co. to assist banks in the Northwest. Most of the farmer-members
of the conference, however, united on a minority report endorsing
surplus-control legislation along the lines of the McNary-Haugen bills,
which had just reached Congress, and took their statement to the
White House.
Action by the President about the same time to increase the tariff
on wheat from 30 to 42 cents a bushel failed to lessen the pressure from
the Wheat Belt, and the Haugen bill was brought to a vote in the
House of Representatives in June 1924 and came within 36 votes of
passage. In July the American Council of Agriculture was established
at a big farm mass meeting in St. Paul to carry on the campaign for
surplus-control legislation.

velopment of A g r i c u l t u r a l Policy Since W o .



Special Organizations Play Important Part

The drive of the farm forces for a more clearly defined national
agricultural policy brought into being from 1924 to 1928 a number of
special organizations which cooperated with the general and longestablished farm organizations and some of the cooperative marketingassociations in support of particular bills. The American Council of
Agriculture was the first of these to bring together a membership of
cooperating organizations with national rather than regional scope.
It was the center of leadership for the aggressive farm forces during
1924 and 1925. The national farm organizations sometimes joined in
its statements and sometimes expressed their views independently.
The functions of the American Council of Agriculture in guiding the
campaign for the McNary-Haugen bills passed to another special organization when the Executive Committee of Twenty-two was created
early in 1926. This committee grew out of a conference of Governors
of 11 Midwestern and Northwestern States which met at Des Moines,
Iowa, in January 1926, on the call of the Governor of Iowa. Its
activity ended when the second Presidential veto of the McNaryHaugen bill threw the issue into the 1928 political campaign.
The Corn Belt Committee of Farm Organizations was still another
special body whose representatives were in Washington working closely
with the Committee of Twenty-two during the years when the latter
was active. But the American Council of Agriculture did most of
the speaking for the proponents of farm relief from midsummer of
1924 until the early months of 1926.
Agricultural Conference of 1925 Draws Fire

With this prospect of continued activity on the farm front, President Coolidge in November 1924 called an agricultural conference
which held hearings culminating in a series of reports filed in late
January and early February 1925.
The conference report (6) failed to develop any program acceptable
to the farm forces and served to spread the irritation that had become
increasingly apparent. One of its proposals for a Federal cooperative
marketing board with broad powers was defeated shortly thereafter
in the House of Representatives.
Another section of the report (6, p. 2) directly attacked the pending
proposals for handling exportable surpluses when it said:
Any form of legislation or plan that tends toward a stimulation of production
of any particular commodity for export will result in even further ill balance to
our agriculture and, therefore, continued subjection of American farmers to competition with production based on lower standards of living abroad. There must,
therefore, be established a balanced American agriculture by which production is
kept in step with the demand of domestic markets and with only such foreign
markets as may be profitable.

The conference failed to submit any blueprints for the establishment of the balanced agriculture it advocated. The fight went forward when the American Council of Agriculture filed its reply with
Members of Congress, in which it declared (10> p. 63):
No human agency can adjust acreage or number of these great commodities
and, except by accident, arrive at, or anywhere near, the desired mark in production. No human agency should attempt to. The one attempting it would be


V e d ^ o o k of Agriculture, 1940

faced with the necessity of suggesting substitute crops to utilize the acres thus
vacated. The difficulty of this is apparent. It is noteworthy that those ardent
advocates who in 1923 would have turned the wheat farmers into commercial
producers of butterfat, are now silent in the face of existing conditions in the dairy
Even if it were possible for farmers through voluntary organization to make a
nice adjustment of acreage to the estimated domestic demand, there is no possible
way of forecasting to what extent drought and flood, hail and freeze, insects and
disease—all these and others beyond the farmers' power to foresee and control—
would thwart such calculations.

On the proposition that the task of handling the surplus should be
left to cooperative associations, the American Council had this to say
(10, p. 63):
The great task is to deal with this normal surplus so as to preserve the home
market for American producers at an American price that does equalize differences
in production costs between farmers of this and competing countries. Those
without experience in trying to accomplish this say: "Let the farmers organize
cooperatively to do this thing." Undoubtedly, if this were practical, it would be
the very remedy sought for. Co-operative organization has done great good for
agriculture in this and other countries, and in years to come is destined to accomplish vastly more. The opportunity for co-operatives to demonstrate their worth
by helping farmers secure a fair price for their products would be immensely increased if the question of the disposal of the surplus were itself disposed of otherwise. But to maintain a domestic price above world levels, and at the same time
dispose of a substantial surplus at the world price, is a task which co-operative
organizations of farmers alone cannot do, and which, if attempted by them, would
destroy them.

The conference report had one direct effect on the form of the surplus-control legislation. Taking at face value the suggestion that
cooperatives should handle the surplus problem, the bill was redrafted
to provide that cooperative associations might organize to administer
the export transactions with a particular commodity, backed by the
equalization fee to spread the costs over all producers presumably
benefited by the operation. While the modified bill failed to reach a
vote in the Congress then in session, the changes may have accounted
in part for the increased support the measure received from cooperative associations in 1926 and subsequent years.
South and West Unite

The year 1926 marked the union of the South with the West in backing the farm-relief program. The first conference with southern farm
leaders took place in Memphis, Tenn., in March of t h a t year, after
which heads of southern commodity cooperatives, first cotton, then
tobacco and rice, joined the western farm leaders in Washington.
These cooperative marketing associations, based on membership
contracts and formed on commodity lines, were at that time the most
active and influential of the southern farm organizations. Their influence in the national cooperative movement was great. As a result of
their growing interest, midsummer conferences were held between proponents of the pending legislation and some of the nationally prominent sponsors of cooperative marketing, including former Governor
Frank O. Lowden of Illinois.
A joint mass meeting of southern and western farmers in St. Louis
in November, after the Haugen bill had met its second defeat in the
House, issued a long declaration of principles. The section on surplus
legislation said (4):

Ifelopment of A g r i c u l t u r a l P o l i c y Since Wost



As a practical and immediate move to secure for agriculture a just and proper
share of the national income and a position of equality with other industries in our
national economy, we favor legislation that will enable farmers to control and
manage excess supplies of crops at their own expense, so as to secure cost of production with a reasonable profit. We assert our conviction that such legislation
must function through and foster cooperative marketing.

The tariff came in for critical attention at this convention.
declaration reads (4):


We recommend to farmers' organizations that they make a special study of the
effects on agriculture of industrial tariffs and also of the effect of our change from
debtor to creditor nation, and especially of its effects on the accumulation of our
agricultural surpluses. Our "tariff primers" have taught us that the farmer would
get his reward through the demand created by the high purchasing power of
prosperous industrial classes. We demand that the farmer be given the opportunity to promote the national prosperity by his own increased purchasing power
through increased prices.
Alternative Legislative Plans A p p e a r

An alternative method for surplus disposal through use of customs
debentures to subsidize exports reached Congress early in 1926. The
general plan was developed by Charles L. Stewart, of the University
of Illinois, and chiefly supported by the National Grange. It was
essentially an export bounty which, instead of being paid in cash,
was to be paid to exporters in the form of negotiable certificates
(debentures) that could be used for paying import duties and hence
would have a cash value. This increased buying power in the hands
of exporters would enable them to bid more than the world price for
exportable commodities. The increase above the world price was,
of course, the objective of the plan.
The proposal that a Federal farm board be created to assist cooperatives to stabilize agriculture developed among opponents of the
surplus-disposal programs and took several forms in 1927. The
Curtis-Crisp bill, with administration support, gave it legislative
status early in the year. The idea was endorsed in the report of the
Business Men's Commission on Agriculture, which was one of two
important committee pronouncements on agricultural policy published in late 1927 from quarters that until shortly before had been
silent or negative on the farm question. The other report was
presented by a special committee of the Association of Land Grant
Colleges and Universities, also in November.
Important Committees Report on Agricultural Policy

The Business Men's Commission was sponsored and financed
jointly by the National Industrial Conference Board and the United
States Chamber of Commerce. A report of the former body on The
Agricultural Problem in the United States had been published and
given wide attention in 1926.
Referring to it as the administration plan, the Business Men's
Commission endorsed the proposal for a Federal farm board to aid in
the stabilization of prices and production in agriculture through
advice to farmers on production and marketing and through a system
of quasi-official stabilization corporations with power eventually to
buy farm products at a price announced before the date of planting.
The commission condemned "legislative measures designed artifi-

31 2


)ok of Agriculture, 1940

dally to raise the domestic level of farm products above the world
price level by export bounties, export debentures, or by agencies
designed to dispose of surplus products abroad at a loss * * *" (2).
At the same time it asked, in effect, for a thoroughgoing revision
downward of the tariff, starting with industrial rates, and then, when
industry and agriculture reached approximately equal levels as to
protection, to continue the reduction at equal rate, retaining adequate protection, however, on products the full domestic production
of which is required by the country's long-run interests.
The report of the land-grant college special committee, like so
many reports of the period, was strong on analysis and weak on
remedy. I t was important chiefly as a belated recognition by the
agricultural colleges that a national agricultural problem did exist,
and that they should be concerned with the development of a national
policy to meet it. The discussion of the agricultural situation was
revealing; of the tariff, straddling; and of the surplus problem, vague.
" T h e movement toward stabilization and control/' it concluded (1),
" m a y be hastened by favorable and sound types of legislation.''
Progress of Farm Bills in Congress

Before these studies were undertaken, the effect of the union of
farm forces back of export control legislation had been felt in Congress.
The McNary-Haugen bill had passed both Senate and House, but
had been vetoed by President Coolidge.
Early in 1928 a revised measure was introduced, dealing with all
farm products instead of a limited number of basic commodities,
and providing for operations similar to those proposed under stabilization corporations, with use of the equalization-fee plan only as a
last resort if other moves failed to achieve the specified results. Again,
both Senate and House passed the bill by substantial margins, and
again the President returned it with his veto. On M a y 25 the Senate
failed by 10 votes to muster sufficient strength to override the veto.
Agricultural policy commanded first-rank attention from the major
political parties, but the threatened farm revolt against the administration failed to materialize in 1928. The farmer had been promised
a general farm bill, and the Federal Farm Board was provided for in
the Agricultural Marketing Act of 1929. He had also been promised
higher tariffs, and he got them, too, in the Smoot-Hawley Act of the
same year.

The Agricultural Marketing Act of 1929 aimed to provide agriculture with a mechanism for the orderly production and marketing of
farm products that would parallel the production and marketing
mechanisms of other industries. The major provisions of the act
were concerned with marketing, and the Federal Farm Board undertook to encourage cooperatives and stabilization corporations,
provided the latter were established and owned by cooperatives.
To unify the process of agricultural marketing with the support of
loans, a 500-million-dollar revolving fund was put into the hands of
the Board.

%lopment of Agricultural Policy Since W o r l



At the beginning of its operations, the Board viewed its principal
function as the fostering of a system of cooperative marketing associations, but the drastic decline of agricultural prices which developed
in the latter part of 1929 caused the Board to become increasingly
concerned with the stabilization of the prices of agricultural
Notwithstanding many previous unsuccessful attempts to hold up
prices by stabilization measures of storage and withholding, the
Federal Farm Board through its subsidized stabilization corporations
launched an ambitious attempt to support prices in this manner.
Unfortunately, the period selected for the venture coincided with a
world depression of unprecedented scope and severity. Operations
might have been temporarily much more successful if, instead, they
had coincided with severe droughts such as those experienced in 1934
and 1936.
The first efforts toward stabilization consisted of making loans to
the cooperatives which would enable them to hold the commodities
in storage until the market improved. This was followed by the setting up of stabilization corporations for wheat and cotton. These
corporations took over most of the supplies that had been held by
the cooperatives and in addition accumulated stocks by direct purchase
in the market. Legally, these stabilization corporations were owned
by the cooperatives, but the actual financing, operation, and riskbearing were ultimately taken over by the Farm Board itself. The
operations of the stabilization corporations resulted in heavy losses
to the Board, which soon began to insist that gains in withholding
supplies from the market could be realized only if production were
held in line with actual market demand at home and abroad.

Meanwhile foreign loans had practically ceased, and the export
market shrank year by year. Renewed depression fell with cruel
force on the American farmer.
Even at the peak of the business cycle in 1929, farm products could
be exchanged for only 91 percent as much of other products, on the
average, as they could have been exchanged for in the period before
the war. By February 1933 the exchange value of farm products for
industrial goods had fallen to 50 percent of the pre-war average.
Their value in terms of taxes and interest was even less.
The disparity was present in the price of every farm product. I t
was most severe in the prices of export commodities, such as cotton,
wheat, tobacco, and rice, where the disappearance or severe contraction of export demand had backed up great excess stocks of the commodities. It was also marked in hogs and hog products, the reduced
export outlets for which had forced increased quantities into domestic
Gross farm income from the production of 1932 was less than half
that of 1929, while fixed charges, including taxes and interest, were
not proportionately lower. The Department of Agriculture estimated
that the average farmer, after paying the expenses of production,
rent, interest, and taxes, had only about $230 left out of his year's



>ook of Agriculture, 1940

income. This gave him nothing as a return on his investment and
much less than common-labor pay for his labor and management.
All the capital employed in agriculture had a value in January 1933
of only 38 billions of dollars as compared with 58 billions in 1929 and
79 billions in 1919, while farm debt remained virtually unchanged.
Credit was restricted and in many communities practically ceased
to flow as thousands of country banks closed. Nearly 15,000 banks
suspended operations during the 14 years 1920-33, involving total
deposits of $8,500,000,000. Of these, 4,000 suspended in 1933, with
total deposits of $3,600,000,000.
I n the face of these conditions, it was obvious that further farm
legislation would be enacted soon. I t was only a question of what
and when. During the winter of 1932-33 the agricultural committees
of both Senate and House held hearings and produced bills, but the
effort to enact them was less than wholehearted in view of the change
in administration scheduled for March.
When the three national farm organizations were asked by the
Senate committee to embody in a farm bill their ideas of what should
be done, each brought its favorite remedy out of the past, and the result was a three-barreled measure combining the equalization-feesurplus-disposal program of the Farm Bureau, the cost-of-production
goal of the Farmers' Union, and the export-debenture plan of the
Grange. The Secretary of Agriculture was to choose the method,
or combination of methods, best calculated to work. This proposal
did not command much congressional attention.

With mounting surpluses and stagnant markets staring farmers
in the face, the argument for production control began to gain ground.
Control legislation was freely discussed in 1932, and prototypes
heralding the coming Agricultural Adjustment Act appeared in Congress during the winter of 1932-33.
Economists inside and outside the Department of Agriculture took
a hand in shaping the Agricultural Adjustment Act of 1933. At the
same time, responsible leaders of farm organizations had reached a
stage of willingness to cooperate in trying to devise practical means
to work for fair-exchange or "parity" prices through adjustment of
the productive plant in line with probable future demand. The forces
that had twice put the McNary-Haugen bill through Congress had
been disorganized during the 4 years following 1928. Many of the
leaders of that movement had experienced growing doubt whether,
under existing and prospective world conditions, a sufficient foreign
market could be found for an export surplus in the old proportions.
This doubt became conviction when export outlets shrank with the
termination of foreign loans by the United States.
All of the experience of the previous decade converged in the first
Agricultural Adjustment Act and related measures.
The cooperatives had demonstrated to their own satisfaction that
they could not hope to maintain and stabilize prices of the commodities for which they assumed responsibility so long as nonmembers
shared in the benefits but escaped the costs assessed against members.


l l o p m e n t of A g r i c u l t u r a l Policy Since W o r l #



31 5

The interest of farmers in maintaining export outlets was recognized
by provisions for disposal of excessive surpluses either abroad or in
new uses at home.
The Federal Farm Board, which had operated with almost the complete support of organized agriculture, even of groups that had opposed
its creation, had demonstrated the futility of attempting to control
prices through storage and withholding without effective authority
to control production.
Outlook Reports a Contributing Factor

Another important type of experience, of which nothing has yet been
said, had originated in the Bureau of Agricultural Economics in the
early 1920's and had continued with steady purpose since its beginning.
That was the preparation and publication of outlook reports, covering
all phases of farm production. In this work the Department drew
heavily on the State agricultural colleges and experiment stations
with their familiarity with local and regional conditions and problems.
The outlook reports aimed to promote efficient farming and balanced production. The Department had long lent its aid to the improvement of crops, livestock, and soils. The work got under way
with the passage of the Morrill Act in 1862 providing for the establishment of the land-grant colleges. The research activities were intensified with the passage of the Hatch Act, in 1887, which provided for
the establishment of the State agricultural experiment stations. Later
on, in 1914 and 1917, with the passage of the Smith-Lever and SmithHughes Acts, machinery was provided for disseminating to the mass
of farmers and farm youth the research findings and technical advances made in the experiment stations and research bureaus of the
Beginning in 1922, the Department moved beyond the old boundary
which had confined it merely to bringing the farmer improved techniques of production. The new step included the dissemination of
economic information which would enable individual farmers to make
adjustments in their acreage of crops and production of livestock in
the light of prospective domestic and foreign demands. It was believed that farmers provided with such an outlook service could
develop well-balanced systems of farming which would at least minimize, if not prevent, unprofitable agricultural surpluses and thereby
stabilize income.
The objective of this program, obviously, was basically sound, but
it depended entirely upon educational appeal as the motivating force.
Even though they convinced farmers intellectually, the outlook
reports failed to direct the economic behavior of many of the millions
engaged in farming as individual units. The average farmer remained
inclined to let the other fellow do the adjusting while he maintained
or increased nis production in his fight to meet expenses and interest
payments. But the educational process started many farmers thinking about acreage allotments and quotas.
Domestic-Allotment Plan a Forerunner

An important contribution to the Agricultural Adjustment Act of
1933 was made by the domestic-allotment plan, which came to be



Dok of Agriculture, 1940

widely discussed during the years in which the Federal Farm Board
was gaining experience and disillusionment.
The domestic-allotment plan was proposed prominently after the
export-debenture and equalization-fee plans had been set aside by the
creation of the Federal Farm Board. The domestic-allotment plan
recognized that these proposals would fail to work unless an export
market existed that would take, at some price, all of the surplus of a
crop above domestic requirements. It grew out of a doubt whether,
under existing conditions, such large export outlets could be found.
Therefore it sought to increase income directly for the domestic
consumption, leaving the export surplus to take care of itself.
As originally conceived, it involved raising the price that farmers
would receive on the domestically consumed portion of their export
crops by limiting sales of such crops in the domestic market. The
part of the crop which farmers could sell in the domestic market was
called the domestic allotment, and they were to be given certificates
covering that allotment. In order to move a commodity into domestic consumption, processors had to cover the quantities offered for
sale with certificates purchased from farmers. The increased return
on each farmer's domestic allotment was to result from the fact that
he received not only the world price but also the proceeds from the
sale of his certificates. No certificates were issued on production in
excess of the domestic allotment, and on this quantity the farmers
received only the prevailing world price. A somewhat different plan,
incorporated in the Hope-Norbeck bills of 1932, eliminated the certificates and provided that cash-benefit payments realized from a processing tax and requiring limitation of production be made on the
domestic allotment.
This plan, which developed through study and discussion by a small
group of economists, aroused considerable interest in the winter of
1932-33 in both farm and nonagricultural circles. M. L. Wilson,
recently Under Secretary of Agriculture, then an economist with the
Montana State College, and John D. Black, professor of economics,
Harvard University, developed the domestic-allotment plan with the
aid of specialists on the staff of the Federal Farm Board and in the
Department of Agriculture. Most of these men later became important figures in shaping programs under the Agricultural Adjustment
The domestic-allotment plan definitely influenced the form of the
agricultural adjustment legislation. Some of those who had worked
on it participated in the discussions of farm legislation that took
place following the election of 1932, before the new administration
took office.

In March 1933 the unofficial work carried on during the winter by
informal groups matured into draftsmanship, with Members of Congress, farm leaders, Federal and independent economists, and executive officials all taking a hand.
The Agricultural Adjustment Act was passed in the spring of 1933.
Under this act millions of farmers entered into contracts to reduce

felopment of Agricultural Policy Since Worlf



acreage in specified surplus crops in return for benefit payments,
financed chiefly by processing taxes on the commodity concerned. In
order to assure the success of the cotton adjustment program, cotton
farmers were soon asking for marketing quotas with a penalty tax to
force noncooperating producers into line. These requests led to the
passage of the Bankhead Control Act, under the leadership of Senator
John H. Bankhead, of Alabama.
This act imposed heavy taxes on the ginning of cotton, and at the
same time provided participating cotton growers with tax-exemption
certificates on their production allotments. This was soon followed
by similar quota legislation for tobacco. Under the Kerr-Smith
Tobacco Control Act, taxes were placed on the sale of tobacco, and
participating tobacco growers were given tax-payment warrants on
their production allotments.
The adjustment program was brought to a sharp halt by the Supreme Court decision in the Hoosac Mills case in January 1936,
which held that the Agricultural Adjustment Act was unconstitutional in that it was a scheme for regulating and controlling agricultural production, whereas this power resided in the States and not in
the Congress. The processing tax was also declared void because it
was an inseparable part of the scheme for effecting production control.
This decision, in turn, helped to determine the direction of the Soil
Conservation and Domestic Allotment Act of 1936 and the Agricultural Adjustment Act of 1938. Under the conservation act an open
or unilateral offer on the part of the Secretary replaced the contracts
under the original adjustment program; conditional payments replaced benefit payments; direct appropriations replaced processing
taxes; and the emphasis was shifted from acreage control toward soil
conservation and upbuilding. Although it had obvious merits as an
aid to better use of land, the Soil Conservation and Domestic Allotment Act was largely impotent as an aid to continued acreage control.
The heavy production of wheat and cotton in 1937 was in part a testimony to that lack and intensified the problem faced by farmers and
officials in 1938.
Farmers in general were dissatisfied both with the Supreme Court's
narrow definition of the powers of the Federal Government to assist
agriculture and with the ineffectiveness of the Soil Conservation and
Domestic Allotment Act to implement acreage adjustments. So
farm leaders took a more important hand in shaping the latest general
agricultural law, the Agricultural Adjustment Act of 1938, than they
had done with any of its predecessors that had become law.

It is interesting to examine the extent to which this act and related
measures represent a synthesis and culmination of earlier efforts. For
this purpose the existing legislation may be considered under five
major headings: (1) Soil conservation, good farm management, and
balanced output; (2) loans, marketing quotas, and parity payments;
(3) marketing agreements; (4) the diversion of surplus production
into both domestic and foreign channels, and the development of new
uses for agricultural products; and (5) crop insurance.



iok of A g r i c u l t u r e , 1 9 4 0

Soil Conservation, Good Farm Management, and Balanced Output

Maintenance of soil resources is a basic objective of the Agricultural Adjustment Act of 1938 and must be included in any farm program which hopes to bring enduring benefits to agriculture and to the
Nation. The act of 1938 provides for payments to farmers who save
and build up the soil. The supplemental income received for cooperation in the program enables them to check the inroads of soil erosion
and hence take a necessary step in the application of the principles
of good farm management to their enterprises. An important aim of
the farmers' work under the present program is to keep the total acreage allotments at a level that will insure a normal supply of food and
fiber for domestic consumption and export. This balance between
depleting and nondepleting acreage tends not only to protect farmers
against those erratic swings in production that have led to burdensome
surpluses and ruinous prices but to guarantee consumers an evernormal supply of essential farm products.
Under earlier programs the tendency was to work toward this objective through direct control of acreage. The experience of the Federal
Farm Board led to this approach to the problem. As losses on commodities held by the stabilization corporations increased, the Board
began to insist that gains could be made only if production were held
in line with the requirements of orderly marketing. The shift from
this approach following the Supreme Court's decisions of 1936 did not
eliminate the necessity of working toward a balance between supplies
of farm products, on the one hand, and domestic-consumption requirements and foreign demand on the other. On the contrary, it is only
through such balance that the declared purposes of the present act—
parity prices and parity incomes for producers and adequate and steady
supplies of farm commodities at fair prices to consumers—may be
These provisions emerge from the background of previous experience.
The problem of soil erosion is one which has attracted the attention of
farmers and agricultural experts since Revolutionary times. Since
the latter part of the nineteenth century the State and Federal Governments have given attention to the problems of erosion control, and the
results of this work eventually reached farmers through activities of
the Extension Service. A most significant advance was made in 1930,
when Congress authorized the establishment of 10 regional experiment
stations whose work revealed the full seriousness of the problem and
hastened the formulation of more effective measures for coping with it.
Shortly afterward came the establishment of the Soil Erosion Service,
first in the Department of the Interior and subsequently transferred
to the Department of Agriculture, which inaugurated a program of
soil-conservation demonstrations in cooperation with private landowners. The manifest importance of this work led to the passage of
the Soil Conservation Act of 1935, which established the Soil Conservation Service. The work of this agency was closely integrated
with that of the Agricultural Adjustment Administration, as the programs of the latter aimed not only to increase agricultural purchasing
power through control of the production of basic crops but also to
encourage adj ustments from the chief soil-depleting crops to crops or uses
which would conserve or improve the soil and check or prevent erosion.

^lopment of A g r i c u l t u r a l P o l i c y Since W o r t f



The movement in this direction was given further impetus with the
enactment of the Soil Conservation and Domestic Allotment Act of
1936, under which soil conservation became the primary concern of
the Agricultural Adjustment Administration and farmers and ranchers
received payments conditioned upon positive performance in improving and conserving farm and range land. The Agricultural Adjustment Act of 1938 embodies a reenactment of the Conservation Act of
1936, and the objective of soil conservation remains a major objective
under the present program.
Loans, Marketing Quotas, a n d Parity Payments

A separate title of the 1938 act provides a series of supplementa
measures which enable producers of corn, wheat, cotton, tobacco, and
rice to obtain storage loans to put a floor under prices when these
are threatened by a slump and to finance the holding of surplus
supplies until they are needed. Furthermore, marketing quotas may
be employed to buttress the price-supporting influences of the loans.
Their effect is to limit the sales of a commodity during a marketing
year when supplies are at excessive levels. Each farm is given a
marketing quota, and penalties are prescribed for sales in excess of
that quota. Quotas, however, may be introduced only after producers of a commodity, in a special referendum, have voted in favor
of their use by at least a two-thirds majority. Finally, since the result of the loans and quotas may be to stabilize farm prices at levels
still too low in the light of the goals of parity prices and income, the
Secretary is authorized to make payments, insofar as funds are
available, to producers of the five basic commodities, that together
with their income from the sale of their crops, will bring them a
return approximately equal to parity price on their normal production.
Here again, there are historical antecedents. The crop-loan idea
became sufficiently widespread to furnish a basis for the Agricultural
Marketing Act of 1929, which was administered by the Federal
Farm Board. Through its revolving fund, the Board was authorized
to facilitate orderly marketing through loans to farmer-owned cooperatives and stabilization corporations. Loans on corn, cotton, naval
stores, and other commodities were important adjuncts to programs
under the Agricultural Adjustment Act of 1933.
The marketing-quota device found partial precedent in the Bankhead and Kerr-Smith laws and is a logical accompaniment of acreage
allotments and of the present policy of encouraging the storage of
excess supplies.
The direct parity payments are clearly traceable to the post-war
demands, as evidenced by the McNary-Haugen and domestic allotment movements, that agriculture be accorded parity prices and its
fair share of the national income.
Various criteria for determining the level of price stabilization
have been discussed for years in connection with farm legislation.
These have included such standards as equivalent tariff protection,
cost of production, parity price, and, more recently, parity income.
The criterion of tariff equivalence, which implies raising agricultural prices above the world-market level in about the same average
proportion that the tariff has raised the prices of industrial products



)ok of A g r i c u l t u r e , 1 9 4 0

above the world-market level, has considerable justification on grounds
of equity. I t is not, however, very satisfactory. Industrial tariff
rates are designed to check imports, and the rates necessary to do
this do not necessarily constitute an accurate measure of the discrepancy between the positions of agriculture and industry.
Cost of production has a considerable amount of theoretical validity,
but it is an unsatisfactory concept to use in practice. The experience
of farm-management investigations and the studies of the Tariff Commission have indicated that the statistical determination of cost is
exceedingly difficult and involves many arbitrary decisions, particularly with respect to the allocation of costs among different products
produced on the same farm.
Parity price is easily calculated and easily understood, but the
Department of Agriculture has pointed out that it is not always a
reliable index of disparity between agriculture and industry. I t
assumes that over a period of time prices of all agricultural products
will continue to bear the same relations to one another that they
bore during the period selected as a base. In many instances the attainment of parity prices will bring undesirable results, such as impeding the normal consumption of farm products and even reducing the
net income of producers below a fair level.
The Department of Agriculture has come to believe that parity
income constitutes a more justifiable expression of the concept of agricultural-industrial balance than does parity price. The income concept
was introduced into the Soil Conservation and Domestic Allotment
Act of 1936, the purposes of which include the—
reestablishment, at as rapid a rate as the Secretary of Agriculture determines
to be practicable and in the general public interest, of the ratio between the
purchasing power of the net income per person on farms and that of the income
per person not on farms that prevailed during the 5-year period August 1909July 1914, inclusive.

Unfortunately, the fact t h a t incomes cannot be determined with the
same statistical accuracy as prices greatly reduces the usefulness of
the income criterion.
Consideration of all the proposed criteria raises the question whether
the objectives of agricultural policy can be once and for all established
by a simple exercise in arithmetic.
Marketing Agreements

Supplementing the provisions of the 1938 act aimed to prevent
sudden surpluses from disrupting the farm-price structure, the Agricultural Marketing Agreement Act of 1937 enables farmers and
distributors to establish permanent and rational marketing systems for
entire crops and groups of crops. The basic device authorized by
this act is the marketing agreement, the genesis of which is easily
discerned. Like so many other devices, this idea crystallized during
the McNary-Haugen period. The final version of the McNaryHaugen bill provided that surpluses in excess of the requirements
for orderly marketing could be handled by marketing agreements
between the then contemplated Federal Farm Board and farmers'
cooperative associations or corporations established and controlled
by cooperatives. The Agricultural Marketing Act of 1929 laid great

^lopmcnt of Agricultural Policy Since WorH



emphasis upon orderly marketing and effective market organization
but did not specifically provide for the use of marketing agreements.
The marketing-agreement idea was revived and made an integral
part of the Agricultural Adjustment Act of 1933. The marketingagreement provisions of the act permitted the organization of processors, distributors, and cooperatives into groups exercising centralized
control over the marketing of agricultural products, and exempted
such groups from antitrust laws. These provisions were supplemented
by others granting the Secretary of Agriculture power to license distributors in order to eliminate unfair practices and to effectuate the
general purposes of the act. Because of the doubt cast on the validity
of the licensing provisions by the Panama Refining and Schechter
decisions of the Supreme Court, orders of the Secretary were substituted for licenses in the 1935 amendments to the Agricultural Adjustment Act. The principal marketing-agreement provisions of this
amended act were reenacted as the Marketing Agreement Act of 1937.
Surplus Diversion and New Uses

The Agricultural Adjustment Act of 1938 contains important provisions designed to widen the market for farm products. In the forefront are provisions authorizing the continuation of the Federal Surplus Commodities Corporation and the establishment of four regional
laboratories to conduct research into and develop new uses and outlets
for farm products. In addition, the Secretary of Agriculture is
authorized to—
use available funds to stimulate and widen the use of all farm commodities in the
United States and to increase in every practical way the flow of such commodities
and the products thereof into the markets of the world (5).

The idea of diverting farm surpluses into domestic channels antedated the present act, as evidenced by the congressional resolutions of
1932 directing the Farm Board to make available to the Red Cross up
to 40,000,000 bushels of wheat and to distribute 45,000,000 bushels of
wheat and 500,000 bales of cotton to distressed persons in the 1932
crop-failure areas.
The original Agricultural Adjustment Act authorized the Secretary
to make use of available funds for the disposal of surplus agricultural
products. This authority was greatly emphasized and extended by
section 32 of the amending acts which provided that 30 percent of the
receipts from import duties be segregated for use in surplus-removal
Operations designed to increase domestic use of farm products by
low-income consumers were carried out first by the Agricultural Adjustment Administration in conjunction with the Federal Surplus Relief
Corporation, and since 1935 have been carried out by the Federal
Surplus Commodities Corporation. As to new uses, the regional research laboratories represent the culmination of a line of activity in
which the Department of Agriculture has long been engaged and to
which both farm and industrial groups have given wholehearted support.
The provisions for encouragement of exports have a distinguished
and obvious lineage in the equalization-fee plan which was a prominent
feature of the McNar^-Haugen bills and in the export-debenture plan
of the late 1920's which was written into the proposed McKinley-



JOU of Agriculture, 1940

Adkins bill of 1926 and the Jones-Ketcham bill of 1928. Last of this
line was the domestic-allotment plan, which was designed primarily to
avoid the appearance of export dumping, which had been charged
against both the equalization-fee and the export-debenture plans.
The history of the special provision enacted in 1935 that sets aside
30 percent of annual customs revenues to finance disposal of surplus
at home and abroad illustrates clearly the influence of past events on
present legislation. Representative Marvin Jones, of Texas, Chairman of the House Committee on Agriculture since 1933, was one of the
early supporters of the export-debenture plan, which indirectly would
have diverted customs revenues to pay bounties on agricultural exports. Chairman Jones conceived section 32 of the amending legislation as a direct way to accomplish the same purpose but broadened
the purposes for which the funds could be used so as to include disposal
of surpluses for relief and other domestic uses.
In many quarters consideration has recently been given to current
proposals which would give the export-diversion idea a more prominent
place in the present program than it now occupies. In some of their
forms these proposals would virtually abandon other approaches, such
as soil conservation and orderly marketing, in favor of a program of
large-scale export diversion plus certain direct subsidies to farmers.
While under the present program large-scale attempts to stimulate
exports have been made, notably with wheat and cotton and their
products, it needs to be recognized that in view of existing world conditions this approach is less likely to attain desired results now than in
earlier periods. With the progressive narrowing of world markets for
agricultural products and with increasing supplies of competitive substitutes throughout the world, it seems impossible to increase our agricultural exports much above the recent level without causing sharp
declines in price. Furthermore, many important countries to which
we used to export in large volumes are engaged in a drive for agricultural self-sufficiency, and their strongly centralized governments are
almost certain to resist effectively any influx of large supplies from
abroad which would tend to make these countries more dependent
upon outside sources of supply.
In presenting these new proposals, the proponents naturally give
only the broad outlines, which possess a disarming appearance of
simplicity, particularly when contrasted with the administrative detail
necessary to carry out the present program. A more rigorous examination of such proposals reveals that without exception their effective
operation requires detailed administration. For example, many of
these plans call for the segregation of farmers' crops into two parts,
one for export and one for domestic use. This means that quotas must
be determined and enforced on the individual farms. Again, many of
the plans imply the extensive regulation of all types of middlemen and
processors in order to secure information as to the prices at which different portions of various crops are bought and sold. In any event, it
is certain that proposals which involve the abandonment of vital parts
of the current program should be carefully scrutinized to see whether
or not they are really any simpler than the current program and
whether their promise of greater gain for the farmer is a reality or only
a mistaken hope.

lelopment of Agricultural Policy Since Woif



Crop Insurance

The Agricultural Adjustment Act of 1938, under title V, cited as
the Federal Crop Insurance Act, sets up the Federal Crop Insurance
Corporation, an agency of and within the Department of Agriculture.
This new agency has a capital stock of $100,000,000 and is empowered
to write insurance against loss in wheat yields, commencing with crops
planted for harvest in 1939. This new development has a background
of its own. The hazards of farming have long been a subject of serious
discussion, and in seeking modification it is but natural that the idea
of insurance, applied so successfully to the elimination of other
hazards, should be tried out in the field of agriculture.
As early as the latter part of the nineteenth century, private companies made an attempt to enter the field of all-risk crop insurance,
and governments have been interested in the possibilities of crop insurance from an early date. The topic has been a matter of public
interest in the United States since the early 1920's, and bills relating
to crop insurance and resolutions calling for investigation of its possibilities have appeared frequently since that time. The immediate
inspiration of the present law was the report of the President's Committee on Crop Insurance in December 1936, which proposed, among
other things, that a crop-insurance plan for wheat, effective in 1938,
be recommended to Congress.

Even a brief history of agricultural policy since the end of the
World War would be incomplete without some reference to three types
of problems that have become increasingly prominent during the past
decade. Approaches to a solution of these problems have been tentative and experimental, but there is a growing realization that they
must be met.
One is the problem of tenancy. This is not a new problem. Ever
since 1880, when the Census Bureau, under Francis A. Walker, first
began to collect figures on farm tenancy, some attention has been
given to the steady growth of tenancy at the expense of operator
ownership. The trend did not become a matter of public concern,
however, partly because other agricultural problems seemed more
urgent and perhaps partly because farm tenants are not a homogeneous
or articulate group. But during the last few years farm tenancy has
received new emphasis as a factor in soil misuse. In addition, the
fact that 42 percent of our farmers are now tenants, with the percentage as high as 70 in some States, seems to some people to be a
sharp contradiction of the traditional American ideal of individual
The problem received prominent recognition through the appointment in 1936 of a Committee on Farm Tenancy, composed of citizens
from various parts of the country. In 1937 Congress passed the Bankhead-Jones Farm Tenant Act, and under this act increasing sums have
been appropriated each year to be loaned for the purchase of farms on
a 40-year-mortgage basis. The administration of the fund, which is
still small enough to be considered only experimental, is now in the
hands of the Farm Security Administration. Meanwhile an attack



ook of Agriculture, 1940

on the tenancy problem is being made from another angle through the
study, in several States, of local customs and laws relating to leases.
The idea here is that many of the so-called evils of tenancy may be
largely a matter of the conditions of tenure and that by an intelligent
approach on the part of States and communities, these conditions can
be made consistent with the welfare alike of tenants, landlords, and
the soil.
The second problem is that of the large group of farmers who are on
the fringe of commercial production or entirely outside it. This
problem is possibly a belated backwash of the industrial revolution,
finally having its full effect in agriculture.
Broadly speaking, three conditions prevented the appearance of a
surplus farm population in the United States in the past. At first
American farmers were largely self-sufficient. Next they were kept
busy supplying the wherewithal for building up American industry,
which was founded on farm exports. Then, when industry got into
its stride, it was able for a time to absorb whatever surplus population
there was on the farm.
One by one, these three conditions were reversed. The United
States now has a highly commercialized agriculture which, like industry, is constantly undergoing technical improvement so that year
by year fewer workers are needed to produce a given quantity of
products. At the same time the domestic demand for many important
food staples, unlike that for industrial products, is relatively inelastic;
adequate industrial opportunities for the part of the farm population
released from labor by improved techniques do not exist at present;
and the rate of natural increase among rural people remains relatively
The net effect of these conditions is summed up in the fact that 50
percent of our farmers now produce 90 percent of our commercial
agricultural products. The other 50 percent—which is more likely
to grow than to be reduced—perforce constitutes a marginal and in
part a surplus farm population. How are these people to make a
The situation is not a theory but a hard fact. It is made worse by
any adverse condition such as the recent widespread droughts. The
marginal and surplus farmer is the rural counterpart of the unemployed city worker, and both would of course disappear if industry
expanded enough to absorb them. Throwing the problem on industry's doorstep, however, does not alleviate the immediate plight
of some millions of American citizens. On humanitarian grounds
alone, their problem cannot be left unsolved. Aside from humanitarian grounds, there is the question of how healthy a society can
remain if so large a number of its members have no apparent economic function and therefore no self-respecting way to gain a
Obviously there is no simple or easy solution for this problem,
which in fact is only one aspect of a much more complex situation.
Too little has been done as yet to draw any very significant conclusions,
though recognition of the problem as of major importance is itself
significant. A limited attack has been made on the problem, first
by the Federal Emergency Relief Administration, then by the Reset-

%lopment of Agricultural Policy Since W o r l

~fox 325

tlement Administration, and today by the Farm Security Administration. This agency uses an individual-case-study method. The
situation of each family with which it is concerned is studied individually, and an effort is made to give the family an adequate start
toward self-sufficiency and a modest livelihood. This may involve
resettlement of the subsistence-homestead type. The work proceeds
on the theory that for the most part the rural unemployed are average
folk, willing and able to make a living and that they can find a place
for themselves if they can get the right kind of start. The Farm
Security Administration has also attempted some cooperative projects,
and it has started a promising program for medical care in rural areas.
The third problem has to do with the domestic consumption of
farm surpluses. Orthodox methods for disposing of these surpluses
have already been mentioned. An ingenious new method has recently
been receiving considerable attention. This is the food-stamp plan
being tried by the Federal Surplus Commodities Corporation as a
possible way to overcome some of the shortcomings of distribution
through ordinary relief channels. The food-stamp plan has three
distinctive features. It attempts a systematic correlation of surplus
production with actual need—for example, by getting certain foods
to people whose diets are deficient. It operates through regular
trade channels, making commercial dealers an integral part of the
picture. And it apparently stimulates some additional buying of
the surplus products beyond what the stamps themselves would
All these aspects of the current farm problem are discussed at
greater length elsewhere in this Yearbook. They are brought into
the historical record here because, though relatively new, they indicate
that under the drive of necessity there has been a significant broadening out of agricultural policy beyond the areas of price, export, and
credit with which it has been traditionally concerned.

A nation's agricultural policy is not set forth in a single law, or
even in a system of laws dealing directly with current farm problems.
It is expressed in a complexity of laws and attitudes which, in the
importance of their influence on agriculture, shade off from direct
measures like the Agricultural Adjustment Act through the almost
infinite fields of taxation, tariffs, international trade, and labor,
money, credit, and banking policy.
The combined indirect effect of policies in many of these other
fields may be nearly as important, if not fully as important, in determining progress toward the goal—equality for agriculture—as are the
direct approaches to the farm problem. A common tendency to
ignore these related factors has been apparent in the oversimplification
of most statements of what is called the farm problem.
Our own experience with farm legislation indicates that a nation
never reaches the time when it can say its agricultural policy is fixed
and complete. Evolution and change are nearly the only constant
factors, partly because conditions at home and abroad which policy
is required to meet are themselves constantly changing.



ook of Agriculture, 1940

The intense effort and deep study of the business of farming in the
United States, which so many individuals and groups have contributed
during the two past decades, have produced the present system of
agricultural laws and organizations, but it cannot be said they have
solved the farm problems. Presumably these laws themselves will
be subject to change and displacement. But if experience in this
field teaches anything of value, it is that a continuous thread runs
through the evolution of an agricultural policy notwithstanding the
manifest inconsistencies and contradictions that appear in it. The
programs of the present become the foundations for the programs of
the future.
(1) A S S O C I A T I O N O F L A N D G R A N T C O L L E G E S AND U N I V E R S I T I E S , S P E C I A L
CONVENTION, CHICAGO, I L L . , NOVEMBER 15 T O 17, 1927. 4 0 P P .

[n. p . j
(2) B U S I N E S S M E N ' S C O M M I S S I O N O N A G R I C U L T U R E .


MEASURES F O R ITS IMPROVEMENT . . . 273 p p . , illus. N e w York

a n d Washington.
(3) P E E K , G E O R G E N .
48 p p .
Moline, 111.


6 pp.

(5) U N I T E D S T A T E S A G R I C U L T U R A L A D J U S T M E N T A D M I N I S T R A T I O N .

J U N E 16, 1938).

73 p p .

Washington, D . C.

(6) U N I T E D S T A T E S C O N G R E S S , H O U S E C O M M I T T E E ON A G R I C U L T U R E .

1925. AGRICULTURAL RELIEF. Hearings before t h e Committee on Agriculture . . . U. S. Cong. 68th, 2d sess., Ser. C C , p t . 1.

240 p p . , illus.

(U. S.

Cong. 67th, 1st sess., H . R p t . 408, p t . 1.)

J O I N T C O M M I S S I O N ON A G R I C U L T U R A L I N Q U I R Y .

1922. AGRICULTURAL INQUIRY. Hearings . . . u n d e r Senate Concurrent
Resolution 4 . . . v. 1, illus. (U. S. Cong. 67th, 1st sess., S.
Con. Res. 4.)


210 p p .

(U. S. Cong. 67th, 2d sess., H . Doc. 195.)

C O M M I T T E E ON A G R I C U L T U R E .

1925. MCNARY-HAUGEN BILL. Joint Hearings . . . on S. 4206 a n d H . R.
12127 . . . p t . i. 70 p p .
(11) U N I T E D S T A T E S D E P A R T M E N T O F A G R I C U L T U R E .


U. S. D e p t . Agr. Year-

books 1919, 1922.

W A L L A C E . H E N R Y C.


tion of Commerce meeting.
10 p p . Chicago.

Speech before regular Associa-

Chicago Association of Commerce.



Washington, D . C.


126 p p .