Burton Folsom

New Deal or Raw Deal

Soon Hoover's Farm Board was building grain elevators to store wheat, and warehouses to store surplus cotton. After about two years of wild over-production, the government had spent the $500 million allocated to the Farm Board. They stopped the programs and gave away or sold at huge losses about 250 million bushels of wheat and 10 million bales of cotton.

To many Americans, the Farm Board showed the damage created when government interfered with supply and demand. If more farmers would have moved to the city, which was an expanding job market before the 1930s, less would have been produced and prices would have risen for the more efficient farmers who remained on the farm. But few of the 30 percent of Americans who remained as farmers wanted to leave the land. The Farm Board gave them a precedent for government intervention and the high tariff gave them a reason to complain that others were getting help from the government. Why not farmers as well? Since farmers were a potentially strong political group in many states, politicians emerged to argue for more intervention. Hence Roosevelt and others made the case for the AAA, paying farmers nor to produce. The AAA, as strange as the program sounds when it is explained, did satisfy two immediate problems. First, it curtailed production by paying farmers not to produce. Second, it raised farm prices by linking them to what they were in an earlier, more prosperous era.

The concept of parity was invented by economists and farm leaders to rationalize using government to fix higher prices for them. Farm prices, of course, tend to go up or down depending on supply and demand. The farmers chose 1909-14, a period when farm prices were high. Their argument was that prices in the 1930s, and thereafter, should be pegged to the purchasing power of farm prices during 1909 to 1914. If, for example, the price of wheat averaged $1.00 per bushel from 1909 to 1914, and if the cost of living had doubled in the next twenty years, then wheat farmers should receive $2.00 per bushel in 1933. The government should guarantee it. That way, the farmer is protected from falling prices of farm products. His purchasing power is thus kept in 'parity' with the prices of other industrial and consumer products.

But if farmers should be protected by parity, why not everyone else? Some economists of the New Deal era asked that question. Henry Hazlitt, for example, looked at what would result if General Motors and Alcoa had parity.

A Chevrolet six-cylinder touring car cost $2,150 in 1912; an incomparably improved six-cylinder Chevrolet sedan cost $907 in 1942; adjusted for 'parity' on the same basis as farm products, however, it would have cost $3,270 in 1942. A pound of aluminum from 1909 to 1913 inclusive averaged 22.5 cents; its price early in 1946 was 14 cents; but at 'parity' it would have cost, instead, 41 cents.

One reason Chevys improved in both quality and price from 1912 to 1942 was that Billy Durant and Alfred P Sloan—leaders at GM—did not have parity. They had to compete in the market-place. They had to improve their cars, and did so with ignition starters, adjustable front seats, automatic engine temperature control, and hydraulic shock absorbers, for example, which helped them sell more cars than Henry Ford. They did not receive from the government a fixed price and a fixed market share; therefore, they did research, improved their Chevys, and sold more of them. American consumers, of course, were winners. And so were farmers, who also had the cheaper cars along with better tractors, chemical fertilizers, hybrid corn, and mechanical cotton pickers from the 1930s on. In the 1930s, for example, before serious development of hybrid corn, farmers produced about 26 bushels of corn per acre; thirty years later that figure was up to 84 bushels per acre. Other crops had similar improvements.

Farming, like industry, is dynamic. Competition and improved efficiency and sometimes even price cuts make better, cheaper food, industrial products, and consumer goods increasingly available to Americans. But American farmers in the 1930s under the first AAA (and the second AAA, which followed after the first was declared unconstitutional) were able to secure parity, or near parity, for farmers.

The second key ingredient in the AAA was paying farmers not to produce. Not all farmers were allowed to participate, only those in major crops and those crops with strong political support—wheat, corn, cotton, and hogs, for example. Different crops, had different reductions in acreage; processors—for example, flour companies, textile companies, and meat companies—paid the tax to support these farm payments, and these cost increases were then passed along to consumers.

When the AAA came before the supreme court in 1936, Justice Owen Roberts made the following parallel:

Assume that too many shoes are being manufactured throughout the nation; that the market is saturated, the price depressed, the factories running half-time, the employees suffering. Upon the principle of the statute in question congress might authorize the secretary of Commerce to enter into contracts with shoe manufacturers providing that each shall reduce his output and that the United States will pay him a fixed sum proportioned to such reduction, the money to make the payments to be raised by a tax on all retail shoe dealers or their customers.

That analogy is a thoughtful one. Roosevelt, however, endorsed the AAA, not just as an emergency program but as the basis for full-time government control of farming. He wanted parity, and payments not to produce, to be a permanent part of American farm policy. In October 1935, Roosevelt announced: 'But it never was the idea of the men who framed the [Agricultural Adjustment] Act, of those in Congress who revised it, or of Henry Wallace or [AAA director] Chester Davis that the Agricultural Adjustment Administration should be either a mere emergency operation or a static agency. It was their intention—as it is mine—to pass from the purely emergency phases necessitated by a grave national crisis to a long-time, more permanent plan for American agriculture.'

The AAA, as it operated in practice' was fluid and sometimes hard to describe. Much discretionary power was centralized in the secretary of agriculture, and the specifics—parity prices, which crops to subsidize, how much acreage to set aside—could vary from crop to crop. These were issues that the secretary of agriculture strongly influenced. Henry Wallace, Roosevelt's man for that job, made sure the bill was written that way. Wallace later wrote: 'To make provision for flexibility in the bill; to give the Secretary of Agriculture power to make contracts to reduce acreage with millions of individuals, and power to make marketing agreements with processors and distributors; to transfer to the Secretary, even if temporarily, the power to levy processing taxes; to express in legislation the concept of parity—all these points, and a thousand others, were unorthodox and difficult to express even by men skilled in the law.'

What this meant was a huge expansion in the Department of Agriculture. More bureaucrats were needed to determine which crops needed to be reduced, how much reduction should be made, what should be the parity payment for each crop, and what should be the processing tax for the flour millers and textile companies. Beyond this, the department of agriculture used the 3,000 county agents and hired about 100,000 men from farming counties (at three and four dollars per day) all over America to help enforce and determine the correct acreage each farmer would be allowed to set aside for cash. Under the AAA, farmers could refuse to be paid not to plant, but most farmers found it more profitable to farm taxpayers, not their soil. The 110,500 county committee men employed by Agricultural Adjustment Administration collected information on local farmers and tried to keep them honest.

In 1933, for example, a wheat farmer could remove 40 of his 200 acres from cultivation and be paid about $10 an acre not to produce on their land. He was not allowed to plant—secretly or overtly—on any of the 40 acres he had set aside. However, he could pick his worst 40 acres to set aside—even land he normally didn't plant on. Also, he could use his government subsidy to buy fertilizer to improve his yield on the land he did cultivate. In fact, the huge increase in the sale of fertilizer in 1933 and 1934 reveals that many farmers did that—which, of course, forced those federal bureaucrats to recalculate the set-asides for various crops based on ever-increasing yields per acre. The supervising and regulating of millions and millions of farmers so expanded the Department of Agriculture that it became, with the possible exception of the post Office (and later the Defense Department), the largest employer in the federal government.

H.V. Kaltenborn, a national radio commentator and an admirer of Henry Wallace, described how he visited Wallace and 'saw the size and scope of the bureaucratic machinery set up under the new Agricultural Adjustment Act.' According to Kaltenborn:

The amount of regulatory machinery essential to administer A.A.A. was a fearsome thing to behold for anyone who believed in the American farmer as master of his own domain. Thousands of inspectors had to be sent into the fields. Thousands of accountants had to keep track of what each inspector reported about, what each farmer was growing and what benefits every grower or nongrower was entitled to receive. As soon as the A.A.A. helped one group of farmers, other groups were affected and called for similar benefits and protective regulations. If one particular crop was controlled, the farmer would plant excessively in other crops. If acreage was controlled he would use only his best acres. That produced a new surplus, which also had to be controlled. Farmers were paid millions of dollars not to produce crops while President Roosevelt was telling us that one third of our people were ill fed. For every problem that was solved two or three new problems were created.