America's Great Depression (38 page)

join with the states in public works programs. Hoover and Mellon also proposed to Congress an increase in the Federal Buildings program of over $400 million, and on December 3 the Department of Commerce established a Division of Public Construction to spur public works planning. Hoover himself granted more subsidies to ship construction through the federal Shipping Board and asked for a further $175 million appropriation for public works. By the end of the year, Professor J.M. Clark of Columbia University was already hailing President Hoover’s “great experiment in constructive industrial statesmanship of a promising and novel sort.”5

THE NEW DEAL FARM PROGRAM

The New Deal program of farm subsidies, characterized especially by farm price supports, arrived in the United States under the Hoover, not the Roosevelt, administration. To understand this development, we must sketch the emergence of the farm bloc and its drive for Federal intervention in the 1920s. The first cloud no bigger than a man’s hand of government grants of special privilege to farmers, came with the agricultural extension program by the U.S. Department of Agriculture, which had its beginnings at the turn of the twentieth century, and was fully established in 1914. In 1916, the United States Warehouse Act imposed regulations on agricultural warehouses.

The important drive for farm privilege came at the end of the war, when farm groups began to organize throughout the nation, originally at the behest of the county agents of the USDA, who were operating under the extension program. Soon the farm groups, led especially by the midwestern farmers, formed a pressure bloc in Congress. The bloc was cemented in the spring of 1921

under the pressure of the American Farm Bureau Federation and led in the Senate by senators from the midwest. The farm bloc first showed its power and its statist drift, in the summer of 1921, when it drove through Congress several interventionist measures—the 5J.M. Clark, “Public Works and Unemployment,”
American Economic Review,
Papers and Proceedings
(May, 1930): 15ff.

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regulation of meat packers; regulation of trading in grain futures; renovating and enlarging the War Finance Corporation, and establishing it as an aid to farmers; and an increase in the capital of the previously dormant Federal Farm Loan System.6

The first massive intervention in agriculture had been the Federal Farm Loan System, established by the Federal Farm Loan Act of July, 1916. This System had set up a network of Federal Land Banks, under a Federal Farm Loan Board, to lend money on long-term mortgages (under subsidized terms) to cooperative farm loan associations. The regulation of the meat packers and stockyards was the culmination of a demagogic campaign against the packers and yards that had been conducted for years. Since meat packers had few votes, it was common sport for farmers to agitate that the packers were paying them too little for livestock, while consumers denounced packers for charging them too high a price for meat.

This harassment of efficient large-scale enterprise bore fruit in a Federal Trade Commission (FTC) investigation and in bills before Congress during the war. Under the guise of a war emergency, Congress threatened to authorize the President to seize and operate the large stockyards himself. After threatening an antitrust suit, Attorney General A. Mitchell Palmer, in February, 1920, managed to force the packers to agree to a Packers’ Consent Decree, which forced the packers out of all non-meat production, including stockyards, warehouses, wholesale and retail meat, etc.7 Yet, agitation 6See Theodore Saloutos and John D. Hicks,
Agricultural Discontents in the
Middle West, 1900–1939
(Madison: University of Wisconsin Press, 1951), pp.

321–48; and Murray R. Benedict,
Farm Policies of the United States, 1790–1950

(New York: Twentieth Century Fund, 1953), pp. 145–75, for accounts of the farm bloc and farm programs in the 1920s and during the depression. Also see Alice M.

Christensen, “Agricultural Pressure and Governmental Response in the United States, 1919–1929,”
Agricultural History
11 (1937): 33–42; and V.N. Valgren,

“The Agricultural Credits Act of 1923,”
American Economic Review
(September, 1923): 442–60.

7Part of the pressure for this attack on the meat packers came from wholesale grocers, who raised the familiar cry of “unfair competition” against efficient rivals.

See Benedict,
Farm Policies of the United States, 1790–1950,
p. 150n. For similar instances, see Charles F. Phillips,
Competition? Yes But...
(Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1955).

The Depression Begins: President Hoover Takes Command
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continued and culminated in the Packers and Stockyards Act of 1921, which established a detailed regulation of the activities of packers, including their pricing policy, under the direction of the Secretary of Agriculture.

The Futures’ Trading Act also followed years of demagogic attacks upon grain speculators and middlemen, whose votes were also few. In this case, even an FTC investigation found no need for stringent regulation. Yet, the Futures’ Trading Act placed a prohibitory tax of 20 cents a bushel on speculative transactions, including futures, puts and calls, bids and offers, except when made in certain specific markets authorized by the Secretary of Agriculture.

The War Finance Corporation (WFC), headed by Eugene Meyer, Jr., had made loans to exporters during 1919 and 1920.

Suspended in May, 1920, the WFC was reactivated by Congress over the veto of President Wilson in January, 1921. It did not then do very much to finance exports, however; its major role at that point was bailing out country banks that had loaned to farmers—

an operation that served as a model for the later Reconstruction Finance Corporation. The WFC worked closely with farm bloc leaders and appointed a Corn Belt Advisory Committee of these leaders to pressure midwest bankers into lending more heavily to farmers. The Act of August 1921, drafted by Chairman Meyer and Secretary of Commerce Hoover, increased the maximum authorized credits of the WFC to $1 billion and permitted it to lend directly to farmers’ coops and foreign importers, as well as to American exporters.8 The WFC could then supply agricultural capital. The aims of the expanded WFC were to encourage farm exports, raise farm prices, subsidize cheap credit to farmers, and subsidize farm cooperatives—which were to become the pampered 8President Wilson had suspended and then vainly vetoed renewal of the WFC

at the behest of Secretary of Treasury David Houston, who was opposed in principle to any continuation of war intervention in the peacetime economy. Even after Congress overrode the veto, Houston was able to keep a checkrein on WFC

activities. When Harding became President, he reappointed Eugene Meyer as head of the WFC and, under Meyer’s inspiration, supported the subsequent expansion. See Gerald D. Nash, “Herbert Hoover and the Origins of the RFC,”
Mississippi Valley Historical Review
(December, 1959): 459–60.

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pets of the government throughout this period. The new WFC

superseded the Stock Growers’ Finance Corporation, an organization promoted by the Federal Reserve in the spring of 1921 and financed by Eastern banks to stabilize the livestock market. The expanded WFC made loans of $39 million for exports and $297

million for agriculture, virtually ending its operations in 1925, after the creation of the Federal Intermediate Credit System.9 The bulk of its loans had gone to farm cooperatives.

In the fall of 1921, the Interstate Commerce Commission, under Farm Bureau pressure, used its dictatorial powers over the railroad industry to order a sharp overall 10 percent cut in freight rates—largely to aid Western grain. The Senate also directed the FTC to investigate the supposedly too low export prices that were being paid to grain farmers.

In the meanwhile, Congress established a Joint Commission on Agricultural Inquiry, which delivered a report in October, 1921. It recommended that the government authorize more farm cooperatives, that it provide for intermediate-term credit to farmers, that agricultural freight rates be lowered (this was quickly adopted), that there be special agricultural attachés in foreign countries, that agricultural departments expand their research, and that more wholesale terminals be provided. An even more ominous note occurred—again belying the myth of laissez-faire in the 1920s—

when President Harding allowed Secretary of Agriculture Henry C.

Wallace to pressure him into calling a National Agricultural Conference, at the end of January, 1922. In his opening address, Harding called for increased Federal aid to cooperatives, and took the radical step of endorsing crop restrictions by co-ops to obtain higher farm prices. The conference—consisting of farm leaders, farm machinery manufacturers, meat packers, and economists such as Richard T. Ely and under the aegis of the administration—recommended stabilization of the price level, continuation of the WFC, an agricultural representative on the Federal Reserve Board, crop insurance, more federal regulation of warehouses, 9Joseph Dorfman,
The Economic Mind in American Civilization
(New York: Viking Press, 1959), vol. 4, p. 40.

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agricultural tariffs, development of plants to produce cheap fertil-izer at the Muscle Shoals Dam, a St. Lawrence Seaway, federal aid to farm cooperatives, and steps toward aiding farm prices in some undefined manner—although outright price fixing was rejected.

In 1922, Congress passed the Capper–Volstead Cooperative Marketing Act, which exempted cooperative marketing associations from the antitrust laws, with the crucial requirement that no farmer have more than one vote in the co-op. The Futures Trading Act was declared unconstitutional by the courts, but the intrepid Congress passed a new law—the Grain Futures Act of 1922—with similar provisions.

In March 1922, the government made available over $1 million for the purchase of seed grain in crop failure areas. But the farm bloc wanted credits on a more regular basis. Farmers could obtain abundant bank credit for short-term loans (under six months), and they could obtain long-term mortgages from the Federal Land Banks and other institutions; they now felt a gap in the intermediate credit range. A tug-of-war ensued in Congress between two farm-bloc bills: the Capper–McFadden Bill, supported by Eugene Meyer, Jr., livestock interests, and cooperative marketers, which would have extended Federal Reserve powers to farm credits, and the Lenroot–Anderson Bill, presented by the Joint Commission of Agricultural Inquiry (appointed by Harding in 1921) and backed by the three large national farmers’ organizations. The latter bill would have created new institutions with capital subscribed by the Treasury, to grant intermediate (six months to three years) credits.

This bill was supported by Secretaries Wallace and Hoover (and also backed by the National Agricultural Conference). The final result combined features of both bills, with perhaps more emphasis on the Lenroot–Anderson Bill. The Agricultural Credits Act of 1923 established a vast system of Federal farm credit; there were 12 Federal Intermediate Credit Banks, patterned after the Federal Reserve Banks, and run by the Federal Farm Loan Board. Funds were supplied directly by the Treasury, and the banks were to make loans to farm associations for any agricultural purpose.

Apparently the dictation over packers and stockyards did not prove sufficient, and in 1924 the Secretary of Agriculture ordered
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smaller commission firms and traders to stop “discriminating against” farm cooperatives in their purchases. The Packers and Stockyards Administration of the USDA also directly helped farm cooperatives to find markets, and investigated the books of many private commission firms.

This pattern of farm intervention was the overture to the crucially important and characteristically New Deal policy of farm price support. At first, the farmers tried voluntary methods. During 1920, farm organizations centered in Kansas and Nebraska, for example, tried to hold wheat off the market and to reduce acreage in an attempt to raise the price. But such a local attempt could only fail, despite feeble efforts to organize farmers into a National Wheat Growers’ Association. The withholding of wheat from the market resulted in drastic losses as wheat prices continued downward. An impudent attempt to induce the Treasury and the Federal Reserve to grant special credits to farmers to permit them to withhold wheat collapsed.

Similar failure attended the cartellizing efforts of the American Cotton Association in the South. In fact, at the end of 1920, cotton planters reacted to failing prices by resorting to violence, including murder and destruction of the cotton and cotton gins of recalcitrants in order to reduce the quantity of cotton produced and sold. Under planter pressure, Governor Parker of Louisiana asked cotton gins to cease operations until cotton had achieved a

“living price,” and similar advice was given farmers by the Texas Department of Agriculture. But while sales in these states declined, prices also continued to fall. Several times, the farm organizations tried to induce the Federal Reserve Board to supply funds for withholding cotton and other farm products, but Governor W.P.G. Harding and Secretary of the Treasury Houston stoutly refused to intervene.10

The next year, 1921, saw determined and well organized efforts toward a nationwide cotton cartel. The American Cotton Association, 10See James H. Shideler,
Farm Crisis 1919–1923
(Berkeley: University of California Press, 1957), pp. 50–51, 55–56.

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The Cotton News
, and other groups urged an acreage reduction of up to 50 percent for cotton, and South Carolina officially proclaimed a “Cotton Acreage Reduction Day.”11 Acreage was reduced considerably, and this, joined with a poor crop, lowered the supply greatly; but cotton prices rose less than proportionately to the fall in output, thus frustrating the cartellists once again.