The evolution of the federal government’s efforts to stabilize agricultural markets.
The federal government had always maintained policies designed to encourage the development of agriculture, but not until the 1920s did it formulate policies to specifically regulate fundamental market forces in the agricultural sector.
Intensifying urbanization at the turn of the twentieth century generated increased demand for American farm products and subsequent improvements in the standard of living for American farmers. World War I further stimulated this expanding market as European allies began to depend on American agricultural exports. However, this wartime demand could not be sustained after the Armistice, and agricultural prices fell precipitously.
As falling commodity prices began to trigger bankruptcies in rural areas, Congress searched for the means to strengthen agricultural markets. An alteration of the mandate of the War Finance Corporation provided credit for farm exports; the Capper-Volstead Act (1922) protected agricultural cooperatives from antitrust prosecution; the Fordney-McCumber Tariff (1922) protected American farmers from foreign competition. The most controversial of these efforts came with the McNary-Haugen legislation. Beginning in 1924, members of Congress attempted to legislate a price support system in an effort to restore to farmers the purchasing power they had during the prewar boom. This system would guarantee domestic prices for key agricultural products and dump any surpluses on the international market. President Calvin Coolidge’s two vetoes (in 1924 and 1928) of the McNary-Haugen legislation sparked a debate over farm policy that formed the groundwork for the New Deal’s approach to agriculture in the administration of Franklin D. Roosevelt.
The farm crisis that began after World War I continued to deepen with the Great Depression. Under the New Deal, the federal government responded with the Agricultural Adjustment Act (1933). As it had done with the McNary-Haugen proposals, Congress designed the AAA to guarantee farmers a higher standard of living by enabling the federal government to set prices for key agricultural products. Unlike McNary-Haugen, the bill contained limits on agricultural production. By the end of the 1930s, the government’s ability to set minimum prices for agricultural products and to limit the number of acres in production formed the core of federal agricultural policy.
This effort to create stability in prices coincided with support for modernization. Under the Rural Electrification Administration (REA), farmers in remote areas gained access to inexpensive electricity. The REA encouraged diversification by permitting extensive use of technologies, including refrigeration, irrigation pumps, and storage ventilation systems. The federal government built dams and levees to control flooding. These initiatives worked to improve the profitability of farming and raise the standard of living in rural areas.
The goals of agricultural policy set during the New Deal continued during World War II. As had been the case in World War I, demand for agricultural production increased tremendously. The federal government permitted farmers to put more land into production temporarily to meet wartime demand. However, at the end of the war, the government quickly reined in production to prevent agricultural surpluses that would have lowered commodity prices and farmers’ income.
During the postwar period, efforts by the federal government to prevent overproduction became complicated due to continued improvements in farm technology. During the Eisenhower presidency, the administration initiated two major adjustments to compensate for this problem. Under the Agricultural Trade Development and Assistance Act of 1954 (PL 480), farmers could export agricultural surpluses to developing nations to alleviate food shortages. Exports under PL 480 projected American influence abroad while absorbing the surplus production of American farmers. To further limit the growing stocks of grain and cotton, the government created the Soil Bank, which permitted farmers to take land out of production for conservation purposes. The Soil Bank initiated a long-term pattern in which overproduction was curbed for reasons of ecological protection.
The construction of agricultural policy presented a conundrum in the postwar era. The ideal of the family farm permeated American culture, and the government remained committed to creating the circumstances under which family farms could provide a reasonable standard of living. However, the costs of agricultural programs remained high. As farmers made up a declining proportion of the American population, price support systems became harder to legitimize.
During the 1960s, federal agriculture policy continued to curtail surplus production and raise farm incomes, but it placed greater emphasis on guaranteeing low food prices to American consumers. The government dropped price support levels to reflect prevailing world market prices, not domestic spending patterns. This action by the government lowered food prices for American consumers and simultaneously pushed American farmers into more competition in the international market. The political effort to link low food prices and agricultural policy expanded under President Lyndon B. Johnson’s Great Society, as the U.S. Department of Agriculture (USDA) supervised the food stamp and free school lunch programs.
The debate over farm subsidies intensified during the 1970s and 1980s, as American political rhetoric emphasized the importance of lowering food prices and limiting spending on farm subsidies. The Agricultural and Consumer Protection Act of 1973 reformulated the price support system. Under this new “deficiency payment” system, crop prices were compared with a USDA target price, and farmers received compensation for any shortfall. The deficiency payment system continued to form the basis for federal agricultural policy into the presidency of Bill Clinton, but it did little to curb overproduction or raise income levels for family farms. This failure was further complicated by increasing public support for balancing the federal budget by cutting spending for deficiency payments.
Dissatisfaction with the high costs resulting from federal agriculture policy led to the passage of the Federal Agricultural Improvement and Reform Act in 1996. The product of conservative rhetoric supporting “freedom to farm,” the new policy—designed to eliminate federal subsidies and encourage diversification according to international market demands—returned American farmers to a free market system. The act marked the first legislative attempt to abandon the direction of marketplace regulation initiated in the 1920s.
