Economic History Association
Institutional Choice and the Development of U.S. Agricultural Policies in the 1920s
Author(s): Elizabeth Hoffman and Gary D. Libecap
Source: The Journal of Economic History, Vol. 51, No. 2 (Jun., 1991), pp. 397-411
Published by: Cambridge University Press on behalf of the Economic History Association
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Institutional Choice and the
Development of U.S. Agricultural
Policies in the 1920s
ELIZABETH
HOFFMAN
AND GARY
D.
LIBECAP
We examine U.S. agriculturalpolicy as an institutionalchoice. Price controls in
WorldWar I had demonstratedthe government'sinfluencein markets, and with
fallingcrop prices in the 1920s,farmersappealedto the federalgovernment.The
federal governmentwas large enough by then to intervene in various ways. It
could have assisted private cooperatives by providing antitrust exemptions,
marketinformation,and enforcementof cooperativerules or interveneddirectly
with mandatoryoutputreductionsand targetedprices. The policies adoptedwere
influenced by crop-specific characteristicsand broader market conditions affecting the success of private cooperatives.
F ollowing a period of generalprosperityfrom 1900throughthe end of
World War I, prices for most agriculturalcommodities fell dramatically in both nominal and real terms in 1921. Many farmers who had
mortgaged their farms were unable to meet their mortgage payments
with currentreceipts, and a wave of bankruptciesand farmforeclosures
ensued.' The experience with the Lever Food Control Act of 1917 and
the operationof the U.S. Food AdministrationduringWorldWar I had
demonstratedthe influencethat governmentcould have on prices. That
lesson was not forgotten, and farmersturned increasinglyto legislative
action for relief. The natureof the proposed policy and the government
response, however, remained to be decided. The eventual choice,
shaped by economic and political factors, provided importantlessons
for the subsequentadoptionof farmpolicies in the 1930s,many of which
remainin effect today.
The legislative agenda can be divided into two types of actions, each
supported by different farm groups. First, there was a call for the
sanctioningand promotionof cooperative marketingassociations. This
activity was consistent with the dismantling of wartime programs
because it relied upon private cooperative organizationsto address the
The Journal of Economic History, Vol. 51, No. 2 (June 1991). ?) The Economic History
Association. All rights reserved. ISSN 0022-0507.
The authors are Professors of Economics, University of Arizona, Tucson, AZ 85721.
We would like to thank Brian Binger, Price Fishback, Shawn Kantor, Paul Rhode, Barbara
Sands, and participants at the 1990 NBER/DAE Summer Institute and the University of Arizona
Economic History Workshop for helpful comments. Valuable research assistance was provided by
Bradley Cloud, Douglas Denney, Chrissy Levering, and Michael Thompson. Funding was
provided by NSF Grant SES-8920965.
1 See Lee J. Alston, "Farm Foreclosure Moratoria: A Lesson from the Past," American
Economic Review, 74 (June 1984), pp. 445-57; and James H. Shideler, Farm Crisis, 1919-1923
(Berkeley, 1957).
397
398
Hoffman and Libecap
WHEAT
COTTON
156
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033
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31
YEAR
YEAR
MILK
ORANGES
239
22
2.3
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~~~~~~~~~~~~~~~~~~~~~~~2.3
24~~~~~~~~~~~~~~~~~~~~~~~~~~.
2~~~~~~~~~~~~~~~~2
2.2~~~~~~~~~~~~~~~~~~~~~~~~.
9~~~~~~~~~~~~~~~~~~~~~~~~~~.
~~~~~~~~~~~~~~~~~~~~~~~~2
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i
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F
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YEAR
FIGURE 1
REAL PRICES OF SELECTED AGRICULTURAL PRODUCTS, FIVE-YEAR AVERAGE
Notes and Sources: Prices were deflated by the wholesale price index (BLS 1926) from U.S.
Department of Commerce, Bureau of the Census, Historical Statistics of the United States,
Colonial Times to 1970 (Washington, DC, 1975), p. 200. Wheat and cotton prices are from U.S.
Department of Agriculture, Statistical Reporting Service, Agricultural Statistics (Washington, DC,
1952), pp. 1-2, 75-76. Orange prices are from Robert S. Manthy, Natural Resource Commodities-A Century of Statistics (Baltimore, 1978), p. 47. Milk prices are from U.S. Dept. of
Commerce, Historical Statistics, p. 522.
problemof fallingagriculturalprices. The emphasison cooperatives led
to the passage of the Capper-VolsteadAct in 1922, the Cooperative
MarketingAct of 1926,and the AgriculturalMarketingAct of 1929.The
alternative was direct intervention by the federal government to limit
supplies on the domestic marketin order to raise prices.
Althoughthe 1920swere a time of agriculturaldistress, the severity of
the problem varied across commodities. Figure 1 illustrates these
differences with five-year averages of deflatedprices for selected crops
U.S. Agricultural Policies in the 1920s
399
from 1900through 1939. The price of wheat, which rose through 1919,
fell sharplyafter WorldWarI; there was a slight recovery in 1925-1929,
but wheat prices did not regaintheir prewarlevel through 1939. Cotton
prices fell in 1920-1924relative to 1915-1919,but they remainedabove
prewar levels throughout the 1920s. Milk and orange prices actually
rose from 1920 through 1929, with orange prices nearly twice their
prewarlevels.2 Thus agriculturaldistress affected some farmers,but not
others. In particular,grainfarmers, concentratedin the Midwest, were
hardesthit; cotton farmersexperienceda moderaterecession after 1920;
and orange and milk producersappear to have been little affected.
ECONOMIC THEORY AND COLLECTIVE ACTION IN AGRICULTURE
In response to agriculturaldistress, farmers acted collectively to
achieve both voluntaryand governmentalsolutions. Collective action to
restrict output and raise prices suffers from the "free-riderproblem."
Each farmerbenefitsfrom the others' output restrictionsbut maximizes
profits by cheating on the joint agreement. Without some means of
enforcing an agreement to restrict output, farmers will cheat and the
price will drift back toward the competitive equilibrium. Further,
without an ability to block new entry, collective action to raise prices is
unlikely to be successful. This is the generalstory with attemptsto form
cartels.3
While most cartels without governmentenforcement are unsuccessful, some firmor productcharacteristicsraise the likelihood of successful private negotiation of cartel rules and enforcement. First, if few
parties are involved and if they are relatively homogeneous in output,
size, and cost, it is easier to reach an agreementand to monitorpossible
cheating. Second, the existence of established producer organizations
will provide a frameworkfor negotiatingrules and monitoringcompliance. Third, public informationon firms' output and shipments lowers
enforcement costs. Fourth, ease of entry affects cartel success. Entry
has both short-run and long-run dimensions. In the short run, new
productionby existing domestic and foreign firms (internationaltrade)
can increase supplies and reduce the ability of the cartel to raise the
price. The size of this effect depends upon the elasticity of the short-run
industrysupply curve. A relatedform of short-runentry is the release of
accumulated stocks or inventories. Storage is determined by product
2
Prices of other grainsfollowed those for wheat. Tobacco prices, on the other hand, remained
above their prewarlevels throughoutthe 1920s.
3 See Steven N. WigginsandGaryD. Libecap,"FirmHeterogeneitiesand CartelizationEfforts
in Domestic Crude Oil," Journal of Law, Economics, and Organization, 3 (Spring 1987), pp. 1-25;
and Brian R. Binger, Elizabeth Hoffman, and Gary D. Libecap, "ExperimentalMethods to
Advance Historical Investigation:An Examinationof Cartel Complianceby Large and Small
Firms," in Joel Mokyr, ed., The Vital One: Essays in Honor of Jonathan R.T. Hughes (Greenwich,
CT, 1991).
400
Hoffman and Libecap
TABLE 1
FACTORS IN COOPERATIVE SUCCESS
Product
Number and
Heterogeneity
of Farmers
Homogeneity
of Product
Wheat
Cotton
Tobacco
Oranges
Milk
-
+
+
+
+
+
Existing
Farm
Cooperatives
Information
on Output
and
Shipment
-
-
_
-
+
+
+
+
+
+
+
+
+
+
Ease of
Entry
Needed
Output
Reduction
perishability and technology. For nonperishable commodities stocks
can be held for long periods, providinga continuingthreatto the market,
ready for release if prices were to rise. On the other hand, for perishable
commodities inventories cannot accumulate in a similar manner in
expectation of cartel price increases. Hence, perishabilityof the product may improve the chances for successful cartelization.4Long-run
entry involves the establishment of new firms (domestic or foreign),
which brings more permanentsources of additionalsupply. Fifth, the
size of the cutback needed to raise prices to their target level affects
cartel success. The greater the per-firmreduction requiredand hence
the smaller its allowed quota relative to its preferredor minimumcost
productionlevel, the greater the incentive to cheat.
These factors suggest that the characteristics of farmers and their
productswill be importantin determiningwhetherthe voluntaryrestriction of output through private cooperatives will be successful. The
factors affecting cartel success by agriculturalcommodity are categorized in Table 1. A plus or minus sign is placed in each cell based on
whether conditions favor or discourage the feasibility of private cooperatives.
In all commodities, the numberof farmersinvolved in bargainingwas
large and varied according to size, value of production, and cost,
potentiallyraisingthe bargainingcosts in private cooperatives.5On the
other hand, all of the products were very homogeneous, facilitating
cooperative grading and pooling of output. The distinguishingfactors
among the commodities were the existence of established farm cooperatives, the availabilityof public informationon output and shipmentby
4 Perishabilityand storage might also have an alternativeeffect to disciplinecartel members.
See EdwardJ. Green and Robert H. Porter, "NoncooperativeCollusionunder ImperfectPrice
Information,"Econometrica,52 (Jan. 1984),pp. 87-100.
5 There were 1,208,368and 1,986,726wheat and cotton farmers, respectively, in the United
States and 19,098citrusfarmersin Californiain 1929.State level datarevealconsiderablevariation
amongwheat and cotton farmersby size and value of production.Countylevel datafor California
fruit farms indicate, however, more homogeneity in terms of size. See U.S. Departmentof
Commerce, Bureau of the Census, Fifteenth Census of the United States (Washington, DC, 1930),
"Agriculture,"vol. 4, pp. 108, 111, 641, 732, 736, 853; and "Agriculture,"vol. 3, p. 414.
U.S. Agricultural Policies in the 1920s
401
farm, ease of entry, and the size of the reduction needed to raise or
maintain prices. These factors suggest that cooperative efforts in the
1920s were much more feasible in milk and oranges than in wheat,
cotton, or tobacco.
Milk and orange cooperatives developed early and were well established by 1920. Further, as the price data in Figure 1 reveal, they were
not faced with a crisis of the magnitudeconfrontingwheat producers.In
order to maintainprices, milk and orange cooperatives had to focus on
controlling the amount of milk or oranges placed upon the market,
denying entry to nonmembers,and negotiatingdistributionand marketing agreements. Members did not have to agree on severe output
reductions.
Milk cooperatives began in the 1860sin New York state, and by 1900
there were about 1,600 in the United States. They appearto have been
relatively successful in bargainingwith milk companies to raise prices
received by members and to deny market access to nonmembers. For
example, in 1889 the Five States Milk Producers' Union pooled the
distributionof dairy products to the New York marketfrom producers
in New York, New Jersey, Connecticut, Massachusetts, and Pennsylvania.6 Later, the Chicago Milk Producers Association and the New
York Dairymen's League were formed. Between 1915 and 1917 these
two cooperatives successfully engaged in milk strikes for higherprices.
The National Milk ProducersFederationcoordinatedmarket strategies
among the local cooperatives and prevented dealers from breaking
strikes in one city by purchasingmilk from farmerselsewhere.7
The first orange cooperative in Californiawas formed in 1885 and
covered one-third of the Californiacitrus crop. In 1905 the California
Fruit GrowersExchange (CFGE)was formed, and by 1910it controlled
60 percent of the state's crop. The CFGE was a federation of district
exchanges, which in turnwere madeup of local associations of growers.
The district exchanges elected members to sit on the CFGE Board of
Directors. Within this federated structure the number of bargaining
parties in each local association was small and the farmers were
relatively homogeneous. The local associations did not compete with
one anotheras did local graincooperatives. All memberproductionwas
pooled, shipped, and marketedunder agreements negotiated centrally
by the Board of Directors. The California Fruit Growers Exchange
developed the Sunkist label and also provided members with a central
source of supplies, such as boxes and fertilizers, through the Fruit
Growers Supply. Penalties were assessed for noncompliance, and
6 For discussion,
see Joseph G. Knapp, The Rise of American Cooperative Enterprise,
1620-1920(Danville,IL, 1969);andTheodoreSaloutosandJohnD. Hicks, AgriculturalDiscontent
in the Middle West, 1900-1939 (Madison, 1951). p. 57.
7 JamesL. Guth, "FarmerMonopolies,Cooperatives,andthe Intentof Congress:Originsof the
Capper-VolsteadAct," AgriculturalHistory, 56 (Jan. 1982),pp. 68-69.
402
Hoffman and Libecap
farmerscould be expelled and denied access to the shipping,marketing,
and purchasingservices providedby the CFGE.8 Similar,althoughless
extensive, cooperatives existed in Florida and Texas, the other major
citrus regions of the country.9
Cooperativeefforts also were initiatedin grains, cotton, and tobacco.
By 1900there were 100cooperativegrainelevators. The early history of
grain cooperatives, however, was quite distinct from that of milk or
orange cooperatives. Graincooperatives served local groups of farmers
but competed among themselves and with railroad-ownedelevators at
urbanmarkets. Efforts in the 1880sthroughthe Farmers'Alliance were
aimed at broader coordination among grain cooperatives. In 1904
representativesof 17 farmercooperative elevators in Iowa formed the
Iowa Grain Dealers' Association. By 1921, 511 elevators belonged.
Similarassociations were organizedelsewhere in the Midwest. Despite
these state organizations,however, no one grain cooperative was able
to control enough of the marketto affect price, and competitionamong
cooperatives continued.10Related thoughless severe problemsaffected
tobacco and cotton cooperatives. Moreover, it is also clear that grain
cooperatives in 1920 faced a very differentproblem than did those of
oranges or milk. With real wheat prices down by 24 percent between
1919 and 1920 and with static demand and greater world supplies,
American grain farmers would have had to absorb significantoutput
cuts to raise prices. Cotton and tobacco cooperatives, such as the
Burley Tobacco Growers' Association, on the other hand, did not yet
face falling prices and the need to reduce production.11
Another distinguishingfactor among the crops is the availability of
public informationon productionand shipmentsfor monitoringcompliance with cooperative rules. Orange producers, in particular, were
located far from final markets. Shipments could be monitored for
compliance with cartel rules, especially through the pooling contracts
negotiated by the CFGE. Although milk producers typically were
concentrated close to final markets, their shipments too were observable and coordinated through cooperative sales agreements to milk
8 See Knapp, The Rise of American Cooperative Enterprise, pp. 81-89; Albert J. Meyer,
"History of the CaliforniaFruit Growers' Exchange, 1893-1920"(Ph.D. diss., Johns Hopkins
University, 1950), pp. 55, 62-63, 81-120; 0. B. Jesness, The Cooperative Marketing of Farm
Products (Philadelphia,1923);and U.S. Departmentof Agriculture,Summary:Organizationand
Development of a Cooperative Fruit Agency, Bulletin No. 1237 (Washington, DC, 1923).
9 In 1925cooperativescontrolled74 percentof outputin California,32 percentin Florida,and
30 percentin Texas. See U.S. Departmentof Agriculture,Yearbookof Agriculture(Washington,
DC, 1932),p. 950.
10
See Murray R. Benedict, Farm Policies of the United States, 1790-1950 (New York, 1953), pp.
95, 104; Leighton Geyer, "FarmerBargaining:Legal, Economic, Conceptual,Theoretical,and
EmpiricalConsiderations"(Ph.D. diss., Universityof Minnesota,1985);and Saloutosand Hicks,
Agricultural Discontent, pp. 56-86.
l See WilliamE. Ellis, "RobertWorthBinghamand the Crisisof CooperativeMarketingin the
Twenties," AgriculturalHistory, 56 (Jan. 1982),pp. 99-116.
U.S. Agricultural Policies in the 1920s
403
companies. By contrast, in wheat, cotton, and tobacco, with thousands
of producers scattered across sections of the country, individualfarm
productioninformationwas more costly to assemble and shipments to
markets difficultto monitor. An importantfactor that contributedboth
to public information on shipments and to the ease of entry was
perishability. Both oranges and milk were perishable, so that output
could not be easily shipped and stored secretly, as was possible for
grains and cotton. Frequent shipments were required for perishable
commodities, raisingthe likelihood of observation.
In terms of entry, perishabilityalso meantthat stores or inventoriesof
oranges and milk could not accumulateto be dumpedonto the marketif
cooperative arrangementssucceeded in raising prices. Inventories of
wheat, cotton, and tobacco, however, were potentialadditionalsupplies
to compete with current output. Entry also was easier for the field
crops, such as wheat, cotton, and tobacco, because farmers could
switch crops or expand production in response to price expectations
with the delay of only a growing season. For oranges, however, new
orchards requiredthree to six years to reach maturity, and even milk
required two to three years before dairy cattle could reach full milk
production.12 Since they could not tolerate frosts, oranges also were
restricted by climate and region much more severely than any of the
other crops. Finally, ease of entry varied by the extent of international
trade. There was little or no foreign trade in milk or oranges, meaning
that foreign supplies could not provide substitutes for cooperative
cutbacks by U.S. producers. Wheat, cotton, and tobacco, on the other
hand, were internationallytraded and hence foreign producers were
potential entrants.13
This analysis suggests that voluntary collective action in 1920 to
maintainor raise prices was more feasible for products such as oranges
and milk and much less so for wheat, tobacco, and cotton. For broadly
produced commodities, largerorganizations,forced output reductions,
and governmentenforcementwould be required.We might refer to this
as forced (or involuntary)collective action.
Two differentinstitutionalalternativesfor governmentregulationare
suggested by the differences between private voluntary and government-enforcedcollective action. Where producershave alreadyformed
relatively successful voluntary cooperatives, the government can provide assistance by not prosecutingfor potential antitrustviolations, by
licensing producers, and by forcing all potential producersto abide by
the cooperative agreements, thus helping to enforce quotas and to
12 Barbara Ellis, ed., Rodale's Illustrated Encyclopedia of Gardening (Emmaus, PA, 1990), p.
271; and Clarence H. Eckles, Dairy Cattle Milk and Production (New York, 1950), pp. 64, 73, 81,
89.
13 U.S. Departmentof Commerce,Statistical Abstract of the United States (Washington,DC,
1930), pp. 557-750.
404
Hoffman and Libecap
prevent entry. Whereproducerscannot successfully restrict output, the
government can provide more direct controls throughenforced output
restrictions, target prices combined with purchases of surpluses, and
tariffprotection to prevent foreign competition.
INSTITUTIONAL RESPONSES TO AGRICULTURAL DISTRESS
Even before the rapid fall in agriculturalprices in 1920, agricultural
cooperatives had received strong political support from Congress.
Section 6 of the Clayton Act of 1914 specifically exempted noncapital
stock agriculturalcooperativesfrom antitrustprovisions of the Sherman
Act. The Capper-VolsteadAct was passed in 1922 to provide even
broaderexemptions for agriculturalcooperatives, regardlessof the form
of their organization. Between 12,000 and 14,000 active cooperatives
were covered by the provisions of the Capper-VolsteadAct. Enforcement of antitrustrestrictions for agriculturalcooperatives was shifted
by the law from the Departmentof Justice to the friendlierDepartment
of Agriculture.
Various aspects of the Capper-Volsteadbill were consideredbetween
1918 and 1922. The law was enacted in January 1922 after intensive
lobbyingof various farmand cooperativegroups, includingthe National
Grange, National Milk Producers Federation, the American Farm
Bureau Federation, the CaliforniaFruit Growers Exchange, and the
CaliforniaAssociated Raisin Company.14
Indeed, because cooperatives relied on less direct government intervention in controllingsupplies placed on the market,they blended well
with the aims of the Woodrow Wilson, Warren Harding, and Calvin
Coolidge administrationsto reduce the role of the government in the
economy after World War 1.15 In addition to passing the CapperVolstead Act, Congress enacted the CooperativeMarketingAct of 1926
and the AgriculturalMarketingAct of 1929.The CooperativeMarketing
Act created the Division of CooperativeMarketingin the Departmentof
Agriculture to assist cooperatives in gathering and sharing data on
output, prices, and demand. These data were designed to assist cooperatives in limitingproduction,controllingthe timingat which products
were placed on the market, and developing new sources of demand.
This law was specifically aimed at promotingthe growth of cooperatives, as many had begun to falter by 1924.
The AgriculturalMarketingAct of 1929, enacted duringthe Herbert
Hoover administration,represented the final major effort by Congress
to address agriculturaldistress through cooperatively determined out'4 See Henry A. Wallace, New Frontiers (New York, 1934), p. 144; Guth, "Farmer Monopolies," pp. 67-82; and Wesley McCune, The Farm Block (Garden City, 1943).
15 See Joan Hoff Wilson, "Hoover's Agricultural Policies, 1921-1928," Agricultural History, 51
(Apr. 1977), pp. 335-61; and Gary H. Koerselman, "Secretary Hoover and National Farm Policy:
Problems of Leadership," Agricultural History, 51 (Apr. 1977), pp. 378-95.
U.S. Agricultural Policies in the 1920s
405
put and marketingefforts.'6 It was aimed at extending the scope and
strengthof producer-ownedand -controlledcooperatives at a time when
many were failing. The AgriculturalMarketingAct created the Federal
Farm Board and commodity committees to assist cooperatives in the
enforcementof productionand marketingrules and to promote coordinated marketingamong cooperatives. Stabilizationcorporations were
authorized to assist cooperatives in various commodities, especially
cotton, wheat, corn, hogs, and cattle, to act as marketingagencies, and
to promoteexports. The FederalFarmBoard, drawingon a fund of $500
million, could make loans to cooperatives. These loans could be used to
purchaseand hold productiontemporarilyoff the marketand to develop
improved merchandisingand distributionnetworks. Limited price insurance also was provided.17
The reaction of the federalgovernmentto the sharpfall in agricultural
prices that had begun in 1920-1921was to assist in the formation and
operation of agriculturalcooperatives. The model was the California
Fruit Growers Exchange, which in 1921 controlled 73 percent of the
fruit shipments from California. The War Finance Corporation, reestablished in 1922, was to provide loans to cooperatives organizedon
the CFGE example, based on collateralof stored products held off the
market. A California lawyer who worked with the CFGE and other
similar cooperatives in California,Aaron Sapiro, traveled around the
country to promote the cooperative movement. His aims were to bring
together a high percentage of the producers of a particularcrop, to
restrictthe amountplaced on the marketat any time to raise prices, and
to develop new marketingand distributionmethods to promotedemand.
Initially, the reaction to cooperatives was favorable, and they spread
across most agriculturalproducts. As Table 2 shows, the bushels of
wheat marketed by cooperative pools increased from 11.4 million
bushels in 1921-1922to 28 million bushels in 1924-1925.These pools,
however, never controlled more than 4.8 percent of the U.S. wheat
crop. By 1927-1928 their share had fallen to 1.9 percent. In contrast,
throughoutthe 1920s citrus marketingpools controlled 70 percent or
more of the Californiacrop and 50 percent or more of the total U.S.
crop. Control of 50 to 70 percent of the market is sufficient to affect
price; control of less than 5 percent of the marketmay not be.18
Although the cooperative movement had been the federal government's primaryresponse to agriculturaldistress after 1920, by 1923 it
was becomingclear that voluntarycooperativescould not reduce output
sufficiently to raise prices for grains and other broadly produced
16 Joseph S. Davis, "Some Possibilitiesand Problemsof the FederalFarmBoard,"Journalof
Farm Economics, 12 (Jan. 1930),pp. 13-20.
17 David E. Hamilton, From New Day to New Deal: American Agriculture in the Hoover Years,
1928-1933 (Ann Arbor, 1985), p. 87.
18
See Bingeret al., "ExperimentalMethods."
406
Hoffman and Libecap
TABLE
2
OUTPUT CONTROLLED BY COOPERATIVE MARKETING POOLS
Citrus Pools Percent of
Market
Wheat Pools
1920-1921
1921-1922
1922-1923
1923-1924
1924-1925
1925-1926
1926-1927
1927-1928
1928-1929
1929-1930
Bushels
(000,000)
Percent of
Market
California
U.S.
11.4
20.3
24.4
28.0
16.8
17.5
12.3
14.9
17.6
2.2
3.5
4.8
4.4
3.5
3.0
1.9
2.2
3.1
82
75
83
69
74
72
69
73
67
73
63
53
60
51
54
56
54
56
53
57
Source: U.S. Department of Agriculture, Yearbook of Agriculture (Washington, DC, 1932), p. 950.
commodities. As shown in Figure 1, real wheat prices never regained
prewar levels duringthe 1920s. After a slight rise in mid-decade, they
fell once again, ending any temporaryoptimism about the success of
grain cooperatives. For agriculturalproducts such as oranges or milk,
on the other hand, prices were stable or rose slightly through the
decade. For these products voluntary cooperatives with government
assistance in funding, information,and antitrustexemptions seemed to
be sufficientfor maintainingprices.
Farm groups associated with milk and oranges continued to support
the cooperative movementand the effortsof the Harding,Coolidge, and
Hoover administrationsto work through cooperatives to implement
agriculturalpolicies. Table 3 shows the percentage of farms reporting
cooperative sales by region in the 1920s. In the Pacific region, where
crops such as fruits and vegetables dominated, cooperatives were
successful in marketingand controlling the flow of production to the
market. This contributed to the observed stability of prices, and the
cooperative share of farms increased from 15 percent in 1919 to 23.5
TABLE
3
PERCENTAGE OF FARMS REPORTING COOPERATIVE SALES
Region
Pacific
Mountain
West South Central
East South Central
South Atlantic
West North Central
East North Central
1919
15.0%
5.2
1.6
1.2
0.8
22.2
13.3
1924
1929
19.3%
10.5
6.7
9.1
8.2
27.3
19.5
23.5%
11.7
3.8
1.9
2.7
26.1
17.7
Source: U.S. Department of Commerce, Bureau of the Census, Fifteenth Census of the United
States, "Agriculture," vol. 4 (Washington, DC, 1930), p. 526.
U.S. Agricultural Policies in the 1920s
407
percent in 1929. On the other hand, in the north and south central
regions, where wheat, cotton, and corn were the primary crops, the
percent of farms involved in cooperatives dropped after 1924. In the
grain belt, less than 10 percent of farms reportedcooperative sales.
With downward pressure on prices, cooperatives in grain, tobacco,
and cotton could not control a sufficientamount of the commodity to
reverse the trend and raise prices. Enforcementof productionlimits or
other marketingcontrols became increasinglydifficult,in part because
producers were isolated from one another so that monitoring was
difficult. "The man who increases his cotton or corn acreage in a time
of great over productionwhen an acreagecampaignis on, is a 'scab'just
as much as the man who takes the job of a striker. Farmers, however,
do not come in close enough contact with each other to make a manfear
loss of standingamonghis neighborsif he is a 'scab.'a'9 "Night riders"
were used unsuccessfully in cotton and tobacco cooperatives to enforce
agreementsto keep productsoff the marketuntil prices rose.20Cheating
was common, and many agricultural cooperatives involving major
commodities, especially wheat, began to fail.
By 1924 dissatisfaction with private cooperatives and the relatively
conservative approach of the Coolidge administrationin addressing
fallingfarmprices led farmgroupsin the grainstates to organizeto push
for more direct governmentinterventionin the market.The U.S. Wheat
Growers Association and the Oklahoma Wheat Growers Association
claimed that cooperatives could not raise prices and that only action by
the federal government could guarantee a price that would cover
productioncosts and provide for a "reasonable profit.''21 At that time
there was no sustained effort to have the government force output
reductionsby individualfarmersthroughquotas; rather,the goal was to
establish greatercontrol over the supply placed in the domestic market.
There were two prongs to this intervention. One was a tariff to
separate domestic and foreign markets and to raise prices.22 Increasingly in the 1920s,with the adoptionof the EmergencyTariffof 1921,the
Fordney-McCumberTariff of 1922, and the Smoot-Hawley Tariff of
1929-1930,tariffsbecame an instrumentfor subsidizinglocal producers.
19 Henry A. Wallace, "Controlling Agricultural Output," Journal of Farm Economics, 5 (Jan.
1923),p. 17.
20
See Gilbert C. Fite, George N. Peek and the Fight for Farm Parity (Norman, 1954), pp. 19,
113.
21 Theodore Saloutos, TheAmericanFarmerand the New Deal (Ames, 1982),pp. 17-21; and
Fite, George N. Peek, pp. 46, 66, 90.
22
Jacob Viner, "The Tariffin Relationto Agriculture,"Journal of Farm Economics, 7 (Jan.
1925), pp. 115-23. Other tariffs of the time were the EmergencyTariffof 1921, the FordneyMcCumberTariffof 1922,andthe Smoot-HawleyTariffof 1929.See BennettD. BaackandEdward
J. Ray, "The PoliticalEconomyof TariffPolicy:A Case Studyof the UnitedStates," Explorations
in Economic History, 20 (Jan. 1983), pp. 73-93.
408
Hoffman and Libecap
The second was to reduce supplies availablefor domestic consumption
to meet a targeted price.
The McNary-Haugenbill was introducedinto the first session of the
68th Congress on January 16, 1924, by Senator Charles McNary of
Oregon and Representative Gilbert Haugen of Iowa. Ultimately, four
McNary-Haugenbills were considered by Congress from 1924through
1928. The major proponent of those bills was George Peek, who had
served on the War IndustriesBoard duringWorldWarI. That board, in
conjunction with the Food Administrationand other agencies, had
controlled prices during the war, demonstratingto farmers that the
official prices of wheat and other commodities could be fixed through
major government intervention. Under the McNary-Haugenbills, the
domestic and internationalmarketsfor majoragriculturalcommodities
were to be separatedby a flexible tariff.In the domestic market, supply
would be held to a level that would meet demand at a real price
comparable to the commodity's price during the period 1905 to 1914.
These prices were to be computed monthly by the Bureau of Labor.
Production beyond that needed for domestic markets was to be purchased, at the target price, by an agriculturalexport corporation,
composed of the Secretary of Agricultureand four presidentialappointees. The corporationwas to have a fund of $200 million to purchase
"excess" supplies and sell them on the world market. The difference
between the domestic price and the world price was to be paid for by an
equalizationtax on farmers.
The McNary-Haugen approach appealed to many farmers for two
importantreasons. First, it involved direct federal interventionto raise
prices, with taxpayersprovidingfunds to control surpluses. Second, the
legislation did not require them to reduce output. The first McNaryHaugen bill covered wheat, flour, corn, wool, cotton, cattle, sheep, and
hogs. In 1924,with cotton and tobacco prices relativelyhigh, the Cotton
Growers Exchange and the Tobacco Growers CooperativeAssociation
opposed the McNary-Haugenbill. Majorcooperativegroups (for example, the National Council of Farmers Cooperatives and the National
Milk Producers Federation), grain exporters and domestic millers, and
the American Farm Bureau Federationalso lobbied for its defeat. The
bill failed twice in the House, on June 3, 1924, and on May 21, 1926.
Two other versions passed Congress in February 1927 and May 1928.
Both were vetoed by President Coolidge.
The growth in supportfor McNary-Haugenreflectedboth the continued deteriorationin prices for some commodities and changes in the
coverage of the legislation. For example, between 1924 and 1926 real
cotton prices fell by 47 percent, and cotton farmers became more
interested in the McNary-Haugen approach. Cattle and butter were
dropped from the bill, and rice and tobacco were added. The final
version was broadenedto include all commodities. To gain the backing
U.S. Agricultural Policies in the 1920s
TABLE
409
4
SUPPORT FOR MCNARY-HAUGEN BY COMMODITY
(Affirmative Vote's Share of Total)
State
6-3-1924
5-21-1926
2-17-1927
5-3-1928
Dairy States
Fruit States
Grain States
Tobacco States
Cotton States
Total
23%
21
72
29
15
41
27%
17
75
41
35
44
32%
31
77
75
67
55
45%
33
83
81
73
63
Source: U.S. Department of Agriculture, Farm Credit Administration, Statistics of Farmers
Cooperatives, Misc. Report No. 108 (Washington, DC, 1947), p. 11; Congressional Record, 68th
Congress, 1st sess., p. 10341; 69th Congress, 1st sess., pp. 9862-63; 69th Congress, 2nd sess., p.
4099; 70th Congress, 1st sess., pp. 7771-72.
of supportersof cooperatives, the thirdversion called for the creationof
a Federal Farm Board to work with cooperatives in disposing of
surpluses. The fourth version added a $400 million fund to help
cooperatives control the amounts placed on the marketand to expand
marketing efforts. Endorsements were obtained from the Grange,
Farmers Union, and the American Wheat Growers Association. The
Coolidge administration countered with competing legislation that
would have established funds to be used to induce cooperatives to hold
more productionoff the market and to better stabilize prices.
Table 4 summarizessupportin the House of Representativesfor the
four versions of the McNary-Haugen bill. The congressional votes
reveal a general increase in supportfor majorinterventioninto agricultural marketsby the federal government. Nevertheless, there are clear
differencesin votes for the legislationacross regions definedby agricultural commodities. Representatives of dairy and fruit and vegetable
states (Maine, Vermont, Massachusetts, Rhode Island, Connecticut,
New York, Pennsylvania,Michigan,Wisconsin, Minnesota, Maryland,
Idaho, Washington, California,Virginia, New Jersey, Delaware, Florida, Oregon, and West Virginia), where cooperatives were more successful and where agricultural prices generally remained relatively
higher, provided the least support for McNary-Haugen. Representatives of grain states (Ohio, Indiana, Illinois, Iowa, Missouri, North
Dakota, South Dakota, Nebraska, Kansas, Oklahoma,Montana, Wyoming, Colorado, and Nevada) were the most supportiveof the legislation. Representativesof the tobacco and cotton states (North Carolina,
Kentucky, South Carolina,Georgia, Tennessee, Alabama, Mississippi,
Arkansas, Louisiana, Texas, New Mexico, and Arizona) supportedthe
legislation by 1927, by which time their prices had fallen and they were
incorporatedinto the bill. The provisions of McNary-Haugenwere not
enacted duringthe 1920s, but supportfor them grew. When agricultural
prices dropped again in the 1930s, the approach of McNary-Haugen
410
Hoffman and Libecap
became the forerunnerfor the FranklinRoosevelt administration'seven
more drastic approachto farm policy.
CONCLUDINGREMARKS
Agriculturaldistress in the 1920sled to collective action by farmersto
create institutionsfor controllingthe outputplaced on domestic markets
in order to fix prices. The institutionalresponses favored by farmers
varied between voluntary cooperatives assisted by the federal government and direct government intervention to restrict the output marketed. The type of action favored varied among farming groups,
depending upon their ability to form successful private cooperatives.
The government assisted the cooperative movement by providing
antitrust exemptions, information, and funds to purchase output to
smooth the amount placed on the market. Cooperatives, even when
assisted by the federal government, were unable to reverse the price
decline in wheat or prevent prices from falling in cotton and tobacco.
Cooperatives in those crops began to fail by 1924 and more direct
government intervention was demanded. Farmers who grew those
commodities appealedfor the McNary-Haugenbills, but they were not
able in the 1920s to have them implementedinto policy. More drastic
governmentinterventioninto agriculturalmarketsawaitedthe sharpfall
in prices in 1930and the enactmentof the AgriculturalAdjustmentAct
of 1933. With the general deterioration in agriculturalprices in the
1930s, all farmersappealedfor greatergovernmentassistance, although
the division between those who favored cooperatives and those who
wanted more direct controls remained.
Agriculturaldistress was not a new experience in the 1920s. In wheat,
for example, there were long, cyclical price patterns through the
nineteenth and early twentieth centuries. Although previous periods of
agriculturaldistress had generated farm protest and contributedto the
enactment of the Interstate Commerce Act in 1887, they did not bring
the type or magnitude of direct federal intervention into agricultural
markets that began in the 1920s.
Three factors appearto separatethe 1920sfrom these earlierperiods
to help explain why more extensive federalinterventionoccurredat that
time and not earlier. First, by the early twentieth century, the integration of the national economy had proceeded to such a degree that the
federal government, rather than state and local governments, had
become the object of interest group pressures for intervention into
markets to redirect income on their behalf. Second, by the 1920s the
federal governmentwas both large enough and had sufficientresources
to affect agriculturaland other markets. The size of the federal labor
force more than doubled between 1901 and 1925, and because of
the power of the state, federal employees in regulatoryand administra-
U.S. Agricultural Policies in the 1920s
411
tive agencies exerted influence in the economy well beyond their
numbers.23Moreover, the income tax, adoptedin 1913,providedmajor
new sources of revenue for government activities. Third, the recent
experience of WorldWarI had demonstratedthe influencegovernment
could have on productionand prices. The Lever Food Control Act of
1917allowed for the fixingof minimumprices for wheat and other crops,
showing farmers that the federal governmentcould have an impact on
supply and demandand fix officialprices.24George Peek, who served on
the War Industries Board, and others involved in federal regulation
during the war were active in lobbying for renewed government
interventionin the 1920s and 1930s.
The 1930sbroughtan expansionof federalinvolvementin agriculture.
As prices fell, producers of major commodities successfully achieved
forced reductions in output and the implementationof parity prices.
Producers of products like milk and oranges also obtained more direct
federal enforcement of productionquotas and shipments among cooperative members through marketingorders. The groundworkfor the
modern farm program, which began in the 1920s, was extended to
become a seemingly permanentfeature of federal regulatorypolicy.
23
24
U.S. Departmentof Commerce,HistoricalStatistics, p. 1102.
Tom G. Hall, "Wilsonand the Food Crisis:AgriculturalPriceControlDuringWorldWarI,"
Agricultural History, 47 (Jan. 1973), pp. 25-46.