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THE AGRICULTURAL ADJUSTMENT ADMINISTRATION

Passage of the Agricultural Adjustment Act in May 1933 was part of President Franklin D. Roosevelt’s "New Deal" domestic policy. Nearly every sector of the U.S. economy was adversely affected by the Great Depression, and one of the hardest hit was agriculture.

In an effort to prop up farming, Roosevelt expanded government regulation of farming that had begun under his predecessor, Herbert Hoover. This expansion featured the creation of the Agricultural Adjustment Administration (AAA).

However, instead of returning farming to prosperity, the AAA stunted the agricultural sector, harmed consumers and workers, and prolonged the economic downturn.

Declining Farm Prices
By 1933, farm profits had been declining for nearly 15 years. The decline was mainly due to an artificial inflation of demand for farm goods that had taken place during World War I. When the war ended in 1918, the artificial demand dropped, leaving an overabundance of goods. Or more importantly, it left an overabundance of farmers. This overabundance caused prices to drop, crippling the farming sector.

Several government interventions were attempted to raise farm prices throughout the 1920s, culminating with the creation of a Federal Farm Board under President Hoover in 1929. This board was largely ineffective. When Franklin Roosevelt became president in 1933, rather than try a new approach, he merely accelerated Hoover’s fruitless policies by creating the AAA.

The Agricultural Adjustment Administration
Roosevelt signed the act creating the AAA on May 12, 1933. The AAA was designed by Progressive Secretary of Agriculture Henry Wallace. According to Wallace, whose policies would later be endorsed by the Communist Party, the AAA was intended to be "a cleaning up of the wreckage from the old days of unbalanced production."

The AAA was inspired by the "legally recognized syndicates" between government and business established in Italy by Benito Mussolini’s Fascist Party. The Fascists regulated business through government bureaucrats to offset, if not eliminate, free market competition. The AAA did the same with American farming, abandoning free market principles upon which the country was founded.

The goal of the AAA was to pull farmers out of poverty through government intervention that would raise farm prices. However this goal was destined to fail because it did not address the root cause of why so many farmers were impoverished in the first place: Farmers were impoverished because prices were too low, and prices were too low because too many goods were being produced by too many farmers (i.e., supply exceeded demand).

In a free market economy, this would have led to a natural contraction that would have prompted farmers to either diversify, consolidate, or seek employment in more profitable sectors of the economy. Then, as supply diminished, demand would increase, thus raising prices once more. But the AAA distorted the free market by artificially preventing the contraction.

To accomplish its goal of raising farm prices, the AAA sought to diminish the surplus of farm goods. Thus bureaucrats encouraged farmers to harvest less and even destroy current crops and livestock in exchange for taxpayer-funded government subsidies (i.e., welfare). Essentially farmers were paid for not farming. 

Paying Farmers Not to Produce
Under the AAA’s guidance, millions of acres of land went unseeded, and the crops and livestock that were destroyed often prevented future production of more crops and livestock. In one summer, southern farmers were paid to destroy 10 million acres of cotton, and midwestern farmers were paid to destroy six million pounds of pork. Those benefiting most from the AAA’s program were large corporate producers who could afford to decrease production without fear of bankruptcy. For example, a large sugar company received over $1 million not to produce sugar.

When the policy of destroying products received public criticism, the AAA simply bought the surplus farm goods at predetermined prices with taxpayer money. The predetermined prices were often higher than market prices, which assured that farmers would sell to the government. Once the goods were bought, the government had no use for them and usually destroyed them.

While decreasing supply achieved the desired goal of raising prices, it also deprived consumers of much-needed goods. At the time, millions of hungry Americans suffering through the Great Depression and waiting in bread lines could have used the products that were either destroyed or not produced at all.

In addition, farmers who enjoyed increased profits from government subsidies and raised prices tended to reinvest those profits in their farms by buying more equipment, and planting and raising more products. This undermined the AAA’s strategy of limiting production to decrease the surplus.

The AAA is Unconstitutional
In 1936, the Supreme Court declared that the AAA was unconstitutional because it levied taxes on large farm producers and then allocated the tax revenue to individual farmers, thus violating the tax clause of the Constitution.

To circumvent the Court’s decision, Roosevelt signed the Second Agricultural Adjustment Act into law in 1938. This continued the AAA’s welfare programs under a “soil conservation” project and made farmer participation voluntary rather than mandatory. Since government subsidies remained higher than market prices, most farmers joined on, and the process of artificially propping up agriculture continued.

Long Term Effects on Agriculture
The success of the AAA in raising farm prices came with harmful consequences. Farmers benefited from the AAA programs in the short term with increased profits, but consumers and workers suffered, and the economy was harmed in the long term. When demand for farm products fell again, another government intervention provided more subsidies and incentives to decrease supply.

Consumers suffered from this decreased supply, which resulted in less food and higher prices at a time when most people were hungry and poor. In the late 1930s, the Department of Agriculture issued a report stating that most Americans were not getting enough food to sustain a basic diet. This made the AAA’s policy of limiting foodstuffs very controversial.

Also, the attempt to raise farm prices was offset by similar attempts from other New Deal bureaucracies to raise prices in other industries, thus making items such as farm equipment more expensive. Among these bureaucracies was the National Recovery Administration (NRA), and historian Jim Powell observed that farmers “actually found themselves worse off because FDR’s NRA had been even more successful in forcing up the prices that consumers, including farmers, had to pay for manufactured goods.”

From a national security perspective, it was later revealed that the AAA was a breeding ground for many young Communist agents, sympathizers and radicals in the 1930s. But perhaps the most damaging impact the AAA had on the economy was that it caused mass unemployment among farm laborers and sharecroppers, mostly minorities. Since the AAA was paying farmers not to farm, the farm labor was no longer needed. Some scholars have estimated that AAA policies caused the unemployment of about two million people during the Depression.

Overall, the AAA and other interventionist policies in agriculture initiated by Hoover and accelerated by Roosevelt demonstrated the negative effects of government distorting the balance between supply and demand in a free market economy. It also set a trend for massive government intrusion into private farming that continued until most subsidies were finally eliminated in the 1990s.