The Ideological and Institutional Foundations of Modern Agriculture –

Part II

Ecological Agriculture Program

October 21, 2003

Chad Kruger

IntroductionThe federal government has played an integral role in the

development of US agriculture.

• In the Jefferson vs. Hamilton/Madison debate we learn that there are opposing reasons for government involvement in agriculture: 1) that farming cultivates a “character” quality beneficial to civic democracy or 2) that agricultural development is a means to an end of industrial and commercial development.

• During and after the Civil War, the government attempts to “redirect” the vision of the country from the civil conflict to westward expansion, opportunity and growth. A number of key “institutions” are established in the midst of the civil conflict to promote the ideological values and physical pioneering and colonization of the west.

IntroductionIn this lecture we are going to discuss the continued and expanded “partnership” (or “marriage”) between

government and private interests in the development of agriculture in the US.

Three key “events” or sets of events have laid the groundwork for the interlocked relationship between the Federal government and the agricultural sector today:

• The Great Depression and the New Deal• World War II - increased industrial capacity and new “world role” of the US.• 80’s farm crisis and the neo-liberal economic revolution

The New Deal: Causes of the Great Depression• Stock Market Crash:

– Commoners were investing in the stock market for the very first time.

This is the first “public” heyday of stock market investing in our countries history. The country (and world) was recovering from WWI. Electricity had reached most urban consumers, and the market for electric goods (radios, washing machines, etc.) was strong, as was the market for the automobile (GM had introduced “pay as you drive” financing that made car ownership possible).

– Conditions of market were exacerbated because stocks could be purchased on the margin.

(ie. one could purchase stock on percentage – 10% of the value, using that 10% as collateral for the purchase of the rest of the stock on credit.) When the stock would rise, you would cash out and pay the remainder of the credit from the sale. This works as long as the value of the stock rises.

The New Deal: Causes of the Great Depression• Financial Panic:

– On October 29, 1929 (after of week of crashes and recoveries), traders/bankers started calling in the margins on investors (requiring investors to pay for the losses of their stocks in cash)• created a selling fever and ultimately the stock market crash.

– Financial panic created a “deflationary spiral” .• of extreme consequence is the fact that ordinary people, for the first time, were largely involved in capital investment – consumer confidence was shattered, demand for products dropped, retailers had to move inventory at heavy losses, industry suffered heavy losses in production and had to lay off laborers, deflation hurt debtors by increasing the real costs of debt, banks couldn’t collect and there was no value in foreclosing on assets, banks collapsed taking good solvent people down with them.

The New Deal: Causes of the Great Depression• Agriculture:

– We know that farmers were already dealing with difficult times in the 20’s due to price corrections following WWI. Many had large debt burdens from purchasing land, which were exacerbated by expenses incurred in technology adoption (tractors and machinery became widely available in the 20’s). Many of the “Ag of the Middle” farms/farmers had been squeezed out.

– The “crash” of the stock market exacerbated the situation for farmers as well. Demand for food and fiber dropped (how can demand for food drop?) Southern cotton prices dropped as demand for new clothes dropped. Demand for “higher value” agricultural products (meats, etc.) dropped considerably. “Meatless meatballs” example. Meats, dairy, fruits and veggies drop. Export markets drop.

The New Deal: Causes of the Great Depression• Agriculture:

– Further exacerbating the situation was the inability of farmers to control supply. We will look at this problem in greater depth with a lab on the corn model later in the semester. Essentially, the problem with supply control in agriculture is that there are too many “independent” decision-makers in the sector. If demand for automobiles drops, the “Big Three” can stop producing by shutting factories down and laying of labor – thereby curbing losses. If demand for food (and thus prices of commodities) drops, each farmer then has an individual incentive to produce more to cover the difference in price – further exacerbating supply of crops and reducing prices.

The New Deal: Causes of the Great Depression• Dustbowl:

– Phenomenon of drought and wind erosion in the Great Plains. Unfit cultivation practices combined with extended drought and heavy winds caused highly erodable soils to be caught up in the atmosphere. Described as dust “blizzards” with dust settling as far east as Boston and on ships in the Atlantic.

–Thousands of people migrated from the region – and depended on the government for help in restarting. The “Okies” characterized by John Steinbeck in the Grapes of Wrath were the icon – greatly troubling American society to see American refugees. (Whidbey cutover farmers)

The New Deal: Impacts of the Great Depression• Impacts of the Great Depression on agriculture:

- Reverse migration – Many of the more recent immigrants to urban areas (WWI veterans and industrial workers) still had close ties to family farms and were able to return and work on farms for subsistence needs.

- Advantage of agriculture – “Live at home” campaign. The great advantage of being a farmer is that you can grow your own food and provide for much of your basic needs yourself.

- Foreclosures – in the midst of the downward financial spiral, land values fell, reducing asset wealth in addition to reduced profits from market agriculture. With reduced land values, banks do not want to foreclose on farms (because it costs the banks money, too) and many rural banks folded and took solvent accounts with them.

The New Deal: The Government Responds

• Hoover:

-Hoover was an economic conservative who operated with a “laissez faire” approach to economics. Government involvement in expensive programs to stabilize agriculture were thought to be unnecessary and potentially problematic (ie. guaranteeing farmers a price that would recover the cost of production would be expensive and would encourage inefficient and increased production when there was already a problem of moving commodities).

-The Hoover administration settled on an economic delay mechanism targeted at stabilizing prices – The Federal Farm Board would purchase commodities on the open market when prices were low and then “hold” them and sell when prices were sufficiently high in an effort to create price equilibrium. Without supply control – this works effectively as a subsidy – creating inefficient and surplus production.

The New Deal: The Government Responds

• Hoover:

- Promoted the idea of cooperation as the key to agricultural survival and recovery. Aaron Sapiro led cooperative efforts – attempts to “control the market” usually were not successful. Farmer incentives never fully lined up with cooperative interests – corporations could break cooperative efforts by offering a better price or quality of service at key times.

The New Deal: The Government Responds

• Other crop “holding” efforts:

-The Governor of Louisiana tried to garner support for taking a one-year ‘holiday’ from cotton production.

-The Governor of North Dakota attempted to create a wheat export embargo for ND wheat (unconstitutional).

-Farmers in Iowa created the Farmer’s Holiday movement and lobbied for a farm strike on August 15, 1932 to raise prices. Farmers attempted to block markets and foreclosures.

-The Communist Party tried to unionize farmers in the United Farmers League.

The New Deal: The Government Responds

The problem with all of these actions is two-fold:

1) without legitimate, system-wide solidarity the action won’t work and there are simply too many incentives for individuals to act against the interest of the group (need to pay mortgages or lose farms) and

2) there is a moral objection to using food as a bargaining tool – especially in the midst of widespread poverty and starvation.

The New Deal: FDR

Key New Deal personalities:

- Franklin Delano Roosevelt - President, raised on a farm, wide political constituency, experimenter

- Henry Wallace – Secretary of Agriculture, geneticist, agrarian fundamentalist

- George Peek – McNary-Haugenism approach (price supports and acreage reduction for commodities).

The New Deal: FDR

Programs:

- Farm Credit Administration (FCA), May 1933. Bought out farm mortgages from private lending institutions at discount, refinanced with farmers over longer periods at lower interest rates

- Land Bank, Production Credit Association, Bank of Cooperatives – all farmer-owned enterprises that received capital from the FCA.

- Agricultural Adjustment Act, May 1933. Agricultural Adjustment Administration (AAA). Acreage-limiting legislation. Seven commodities: corn, cotton, hogs, milk, rice, tobacco, wheat – voluntary acreage limitation in return for a subsidy (price support based on parity). Barley, beet and cane sugar, cattle, flax, peanuts, potatoes, rye and sorghum added later.

The New Deal: FDR

Programs:

- Commodity Credit Corporation (CCC), October 1933. Loans at 60-70% of parity to farmers who limited production – to “hold” a crop until the market price moved high enough that the farmer could sell for a profit – if the price didn’t rise in the period of the loan, the CCC would “seize” the farmers crop in repayment for the loan.

- Soil Conservation and Domestic Allotment Act. Acreage limitation on the basis of “erodibility” – rents paid out of general program funds – this Act was created because Supreme Court ruled that the AAA of 1933 was unconstitutional – regulation of ag production beyond the power of Congress.

- Agricultural Adjustment Act, 1938. Acreage limitations and crop loans through the CCC.

The New Deal: FDR

Programs:

- Federal Emergency Relief Administration (FEMA), Civilian Conservation Corps, Civil Works Administration, Works Progress Administration – mostly consisted of work-relief programs – payment for labor.

- Resettlement Administration (1935) – Subsistence homesteading schemes (Dust Bowl refugees)

- Farm Security Administration, 1937. Helped Farmer’s Union aquire facilitities to create substantial cooperatives.

The New Deal: FDR

Programs:

- Tennessee Valley Authority (TVA), 1933. Hydroelectric dams to provide comprehensive development in seven southern states – land reclamation, fertilizer production, electricity.

- Rural Electrification Administration (REA), May 1935. Long-term, low-interest financing to farmers to wire homes and to establish rural electric cooperatives.

The New Deal: FDR

Programs:

- Soil Conservation Service (SCS, now NRCS) – in response to the Dust Bowl. Advocated new and different cultivation and cropping technologies and systems to curb erosion. Established local soil-conservation districts – as an “extension” type of model. Example: Coulee Region Farm Planning Project – Aldo Leopold and others.

- USFS Shelterbelt Program. 220 million trees planted in the Great Plains to serve as windbreaks and erosion control.

- Taylor Grazing Act, 1934. Removed much of the remaining Great Plains from “public domain” and placed into Federal reserves in the BLM as grazing land.

The New Deal: FDR

Programs:

- Most prominent project in Washington State – the Grand Coulee Dam and complementing Columbia Basin Federal Land Reclamation Project. Considered to be either the largest or second largest public subsidy of agriculture in the history of the world --- the greatest beneficiaries are McDonalds and other fast food chains – the French Fry.

The New Deal: Impacts, successes and failures Impacts:

- New Deal programs focused primarily on building infrastructure and institutional support for commercial, market agriculture.

- “Subsistence” or “welfare” programs were poorly administrated and financed and were NOT the ultimate objectives of the New Deal.

- Questionable how much of the recovery from the Great Depression is based upon the success of New Deal programs and how much is based upon World War II and other “normal” reasons for recovery.

The New Deal: Impacts, successes and failures Impacts:

- Unquestionably set the stage for a marriage between government and commercial agriculture unparalleled by any other sector in our economy outside of the military.

- New Deal programs and initiatives were intended to be short-term, recovery based projects. It is no longer possible for the government to withdraw itself from the agricultural sector without severe, and probably, devastatingly destabilizing consequences for our agriculture and food system.

World War II: America goes all out for war Impacts of the Great Depression on War Effort:

• National economic crisis – felt at every social level

• Intricate involvement of the government in every aspect of life – the government became “they”

• War boom fueled economic recovery from the Depression

World War II: America goes all out for war

Neutral, but allied:

• Anti-Hitler / German aggression sentiment (Moral objective of WWII)

• Trade and financial support for England and France

Pearl Harbor – attack on US soil – galvanizes Americans behind war objective

World War II: America goes all out for war Consumption restrictions and benefits for farmers:

• War Manpower Commission – farm laborers exempted from draft

• Petroleum and tire rations – farmers get special allocations

• Use of Cooperative Extension for running local County War Boards – gave the Farm Bureau substantial influence over County War Boards

• New Deal subsidy programs became politically invulnerable – temporary suspension of acreage restrictions.

• Price increases for commodities

World War II: Factors of Production 1940, 1 farmer fed 10 people. Late 80’s, 1 farmer fed

90 people.

• Increased structural capacity – from tanks to tractors

• Technology Change- “Improved” Crop/Animal varieties, Land Grant /

Extension researchers- Mechanization- Petroleum based agrochemicals- Anhydrous ammonia

World War II: Factors of Production Human transitions – 1940 – 23% of nation on

farms. 2000 – less than 2%.

• rural to urban migration• casualties of war• the baby boom• demographic changes – increased average age

of farmers• role of women changed dramatically – business

managers, off-farm employment

World War II: The Rise of Communism Truman Doctrine

- On Dec. 31, 1946, President Truman declared an end to the period of World War II hostilities. Early in 1947 the British said they could not support the Greek government after March 31. Many diplomats feared that the Soviet Union would then spread its power throughout the Middle East. President Truman met the problem by asking Congress for 400 million dollars to aid Greece and Turkey. Congress appropriated the money. This policy of aid, popularly known as the Truman Doctrine, was an American challenge to Soviet ambitions throughout the world.

World War II: The Rise of Communism Marshall Plan

- the Marshall Plan was a rational effort by the United States aimed at reducing the hunger, homelessness, sickness, unemployment, and political restlessness of the 270 million people in sixteen nations in West Europe. Marshall Plan funds were not mainly directed toward feeding individuals or building individual houses, schools, or factories, but at strengthening the economic superstructure (particularly the iron-steel and power industries). "European Recovery Program"--aimed at:

(1) increasing production

(2) expanding European foreign trade

(3) facilitating European economic cooperation and integration

(4) controlling inflation, which was the program's chief failure.

World War II: The Rise of Communism McCarthyism:

- “There’s a communist under every bush” – Severe impact on the ideological position of farmers in rural America

- – McCarthy sentiment STILL HAS A STRONGHOLD IN RURAL COMMUNITIES TODAY – AND IS THE PRIMARY REASON THAT RURAL COMMUNTIES AND FARMERS HAVE A DISSONANCE TO UNIONIZING AND POLITICAL ACTION

Fiscal Conservatism80’s Farm Crisis:

• 1971 Nixon changes fiscal policy – allows dollar to float – increased demand for US exports

• USSR agrees to purchase US wheat, other foreign countries began to buy US wheat

• 1972 – 1974 wheat and corn prices doubled and tripled respectively, acreage restrictions suspended

• Massive expansion in cultivation, capital expenditure for land, machinery and facilities – financed largely with high-interest credit.

Fiscal Conservatism80’s Farm Crisis:

• Rapidly rising land prices --- rapidly increasing asset wealth and collateral for loans.

• Bankers / Farmer’s Home Administration would only lend to “big” farmers --- or to farmers attempting to get “big”.

• Livestock dumping – concentration on grain production – decreased diversity

• 1979 Federal Reserve raised interest rates– borrowing became more expensive, reduced inflation (relation of inflation to debt), raised the value of the dollar (reducing export demand for American grain)

Fiscal Conservatism80’s Farm Crisis:

• 1980 Carter administration instituted grain embargo to USSR in protest of Afghanistan invasion.

• 1981 Reagan tax cut – higher interest rates

• Rapidly declining farm prices – 1979 (71% of parity) to 1986 (51% of parity) – lower prices relative to the Depression

• Financial crisis – farmers were unable to service debts

Fiscal Conservatism80’s Farm Crisis:

• American Agriculture Movement (AAM). Discussed massive agricultural strike (but no indebted farmer could afford not to plant – lose their farms) – staged 2 tractor protests in Washington D.C. 1st was marginally successful, 2nd became a more “obstructive” protest and backfired.

• More than 300,000 farms (roughly 17% of farms) were lost between

1981 and 1990.

• The 1985 Farm Bill re-introduced acreage limitations – through Payment-in-Kind programs and the Conservation Reserve Program.

Fiscal ConservatismBayh – Dole Act:

• 1980 enactment of P.L. 96-517, The Patent and Trademark Law Amendments Act, more commonly known as the Bayh-Dole Act, and amendments included in P.L. 98-620, enacted into law in 1984.

• This is known as a “technology transfer” act – the purpose of which is to help move research in the university system to the private sector for the development of products, processes, etc. that will bring benefit to the public

• In the 1960’s and 70’s the federal government had invested substantial amounts of tax revenue into research that should benefit the public. The Federal government held over 28,000 patents in 1980 – but fewer than 5% of those patents had accompanying use licenses by private sector businesses.

• The Federal government interpreted this as evidence that tax funded research in public institutions was not be efficiently used to provide public goods.

Fiscal ConservatismBayh – Dole Act:

• The problem was believed to be a tenure problem (though not with real property – with intellectual property). If a private company did not have the exclusive ownership of an idea – it was expected that the company would not be willing to risk investing in developing products – no guarantee of limited competition, etc.

• The Bayh-Dole act enabled public institutions to “share” patents (or at least get exclusive licenses to develop products) with private companies. The expectation was that this would increase the potential of publicly funded research to be processed into products and goods for the public.

Fiscal ConservatismBayh – Dole Act:

• The Federal government sponsors approximately 60% of the research of public universities and research institutions. Private industry now supports between 6 -7 % of public university research.

• So what’s the problem? In an era of decreasing tax revenues (tax

cuts, no new taxes), this seems to be a new source of revenue for public research institutions.

• The problem is also a tenure problem. Private institutions will not invest in research in public institutions without a substantial guarantee that they will recoup and profit from investments. The 6-7% of private revenue is leveraging the 60% of federal revenue (in addition to state and foundation revenue) toward private research interests rather than public interests.

Fiscal ConservatismFreedom to Farm Act:

• High crop prices in 1995 and 1996, along with a philosophical opposition to subsidizing agriculture and the interest in reducing taxes created a fever in Congress to “undo” the New Deal based commodity support programs that had been in use for 60 years.

• Congress passed a “phase out” package in 1996 (known as the Freedom to Farm Act – or the 1996 Agriculture Appropriations Bill [Farm Bill]) that intended to phase out subsidies over the course of 7 years.

Fiscal ConservatismFreedom to Farm Act:

• Between 1997 and 2000 depressed commodity prices had effectively ended the effort to phase out subsidies and in the first 4 years of the program – subsidies were three times the amount that Congress had authorized in the Freedom to Farm Act.

• The most concentrated attempt to “liberate” agriculture from government intervention was a miserable failure.

Study Questions• Why has the government been unable to withdraw itself

from the agricultural sector since the Great Depression?

• What are possible alternatives to intellectual property rights that could supplement revenues for public research institutions, while still enabling technology transfer to farmers?

• Subsidies create inefficient markets (ie. they encourage overproduction and thus more subsidies) and are costly to the public, but are seemingly necessary for keeping farmers on the land. How can we create a subsidy program that keeps farmers on the land (farming sustainably) without being socially unacceptable and economically inefficient?