America's Great Depression (40 page)

On November 25, Hoover organized one of his inimitable White House conferences with the major farm organizations, the appointed heads of the FFB, the Land Banks, etc. The farm organizations, like the unions, not surprisingly agreed with alacrity to cooperate with Hoover’s program of massive subsidy to themselves.

Whenever government intervenes in the market, it aggravates rather than settles the problems it has set out to solve. This is a general economic law of government intervention. It is certainly true for the overall Hoover depression policy. Nowhere has this law been so clearly illustrated as in the American farm program since 1929. The FFB managed to hold up wheat prices for a time.

Seeing this apparent success, wheat farmers naturally increased their acreage, thus aggravating the surplus problem by the spring of 1930. Furthermore, as America held wheat off the market, it lost its former share of the world’s wheat trade. Yet, prices continued to fall as the months wore on, and the heavy 1930 acreage aggravated the decline. The accumulating wheat surpluses in the hands of the FFB

frightened the market, and caused prices to tumble still further.

Julius Barnes, of the Chamber of Commerce and the private grain dealers, protested in vain against the unfair competition of the Board and its pet cooperatives, since that competition was directed against the private grain traders. The latter were particularly incensed that the FFB charged the cooperatives a subsidized, lower-than-market interest rate on its loans.

In the spring of 1930, Hoover acquired from Congress an added $100 million to continue the FFB’s lending and purchasing
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policies. But the farmers found themselves with increased surpluses, and with prices still failing. Under farm bloc pressure, Hoover then established the Grain Stabilization Corporation to replace the Farmers’ National and to redouble stabilization efforts.

The GSC concluded that individual wheat farmers had held off wheat in the fall, and were “profiteering” by selling wheat to the GSC. To statists, individual profits are generally heinous, so the FFB announced that from that point on, it would only support the prices of wheat sold by cooperatives and the GSC. Under protests of the grain trade, and the growingly evident impossibility of supporting some wheat at one price while other wheat of the same grade sold at another price, the FFB reversed its stand and decided to support all wheat once more.

The FFB programs had thus inadvertently encouraged greater wheat production, only to find by spring that prices were falling rapidly; greater surpluses threatened the market and spurred greater declines. It became clear, in the impeccable logic of government intervention, that the farmers would have to reduce their wheat production, if they were to raise prices effectively. The FFB

was learning the lesson of every cartel—production must be reduced in order to raise prices. And the logic of the government’s farm monopoly also drove the FFB to conclude that farmers had been “overproducing.” Secretary of Agriculture Hyde accordingly lectured the farmers on the evils of “overproduction.” The Secretary and the FFB urged farmers to reduce their acreage voluntarily.

The first group of farmers selected to bear the brunt of this sacrifice were the marginal Northwest growers of spring wheat—the original agitators for price supports. They were not very happy at the prospect. The farmers, after all, wanted subsidies from the government; having to reduce their production of the subsidized crop had not been included in their plans. A group of economists left Washington at the end of March to try to persuade the Northwest farmers that they would be better off if they shifted from wheat to some other crop. In the meanwhile, in this topsy-turvy world of interventionism, troubles piled up because the wheat crop was abundant. Surpluses continued to accumulate, and wheat prices continued to fall. Legge and Hyde toured the Middle West,
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urging farmers to reduce their wheat acreage. Governor Reed of Kansas reflected the common-sense view of the farmer when he wondered why the government on the one hand promoted reclamation projects to increase farm production and, on the other hand, urged farmers to cut production.20 Since the individual farmer would lose by cutting acreage, no amount of moral exhortation could impel any substantial cut in wheat production.

As wheat piled up in useless storage, foreign countries such as Argentina and Russia increased their production, and this increase, together with the general world depression, continued to drive down wheat prices.21 On June 30, 1930, the GSC had accumulated over 65 million bushels of wheat held off the market. Discouraged, it did little until late 1930, and then, on November 15, the GSC

was authorized to purchase as much wheat as necessary to stop any further decline in wheat prices. Bravely, the GSC bought 200 million more bushels by mid-1931, but all to no avail. The forces of world supply and demand could not be flouted so easily. Wheat prices continued to fall, and wheat production continued to rise.

Finally, the FFB decided to dump wheat stocks abroad, and the result was a drastic fall in market prices. By the end of the Hoover administration, combined cotton and wheat losses by the FFB

totaled over $300 million, in addition to 85 million bushels of wheat given
gratis
to the Red Cross.

The wheat program was the FFB’s major effort. The Board also attempted several other programs, including a similar cartel in cotton. In the fall of 1929, the FFB made substantial loans to cotton cooperatives to stem the decline in cotton prices. These loans were added to loans from the Federal Intermediate Credit Banks. But cotton prices continued to fall, even after the American Cotton 20This was to become a permanent question for logical people, with no sign yet that anyone is willing to answer. From the point of view of the general public, of course, the policies are contradictory and irrational. From the point of view of the government bureaucracy, however, both measures add to its power and swell its number.

21The FFB forced the Chicago Board of Trade to prohibit short selling by foreign governments, notably by Russia.

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Cooperative Association was encouraged to assume management of the operation. Finally, in June 1930, the FFB established the Cotton Stabilization Corporation (CSC) to try to stem the tide.

The CSC took over 1.25 million bales from the coops. Under severe competition from external sources, the CSC announced that it would maintain its holding for an entire year if prices did not rise. But this proclamation, designed to firm the market, had no effect.

Again, the cartel was confronted with growing surpluses, and therefore heavier pressure on farm prices. Finally, the FFB tried to exhort the cotton farmers, too, to reduce acreage. Chairman Stone, of the FFB, urged the governors of the cotton states to “immediately mobilize every interested and available agency . . . to induce immediate plowing under of every third row of cotton now growing.” This action stirred up a host of indignant opposition, the
New
York Times
calling it “one of the maddest things that ever came from an official body.”22 The proposal met with no success; in fact the 1931 cotton crop was considerably larger. In early 1932, the Board then tried an heroic action—along with its 1.3 million bales, it obtained an agreement from southern bankers to withhold all of their cotton (3.5 million bales), while it continued to finance 2.1

million bales held by the coops. This firmed prices until June 1932, when they fell drastically again. By July, the Board had bought $127 million worth of cotton, and it had lost over half of its value.

The upshot was that the CSC had to give up, and it began to liquidate its cotton holdings in August, 1932, completing its unload-ing in a year. The net loss of cotton was $16 million, in addition to 850,000 bales, worth over $78 million, donated to the Red Cross.

At the end of 1929, the FFB established a national wool cooperative—the National Wool Marketing Corporation (NWMC) made up of 30 state associations. The Board also established an allied National Wool Credit Corporation to handle finances. The NWMC, unskilled in the affairs of the wool industry, turned over 22Harris Gaylord Warren,
Herbert Hoover and the Great Depression
(New York: Oxford University Press, 1959), p. 175.

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its selling operations to the private woolen handling firm, the Draper Company. The NWMC made huge advances to wool growers from 1930 on, thereby concentrating a large part of the domestic wool output in the hands of the NWMC, and the FFB

loaned heavily to its creature. While prices firmed at the beginning, they kept drifting inexorably downward, and the NWMC

program only served to stimulate a greater production of wool.

The overhanging surplus depressed prices further, and overextended the funds of the NWMC. Eventually, the NWMC had to sell its huge stock of wool at very low prices, thus aggravating the wool price problem still further. A total of $31.5 million in loans for wool were made by the FFB, of which $12.5 million were permanently lost.

In October, 1929, the FFB set up the National Livestock Marketing Association, but the livestock producers disagreed and set up conflicting cooperatives, and the program was never launched on any considerable scale. The FFB also organized a dairy program, with five regional butter-marketing associations, providing aid to dairy cooperatives. An advisory committee angered the farmers by suggesting that they reduce the size of their dairy herds in order to cut the surpluses in dairy production. The farmers preferred to lobby for legislation to outlaw oleomargarine or to prevent imports of cocoanut oil from the Philippines.23 Other FFB attempts were a National Bean Marketing Association; a National Pecan Marketing Association, established in February, 1930; aid to citrus industries, as well as to figs, grapes and raisins, potatoes, apples, sugar-beets, honey, nuts, maple syrup, tobacco, poultry, eggs, and rice.

However, the Board only tried fully to stabilize prices in wheat and cotton, where it failed ignominiously. Similar attempts, on a smaller scale, were made in butter, wool, and grapes, while FFB

activity for the other crops was confined to subsidizing existing cooperatives. The grape stabilization program was a fiasco like the 23To their great credit, some organizations bitterly opposed the FFB throughout these years. These included the Nebraska Farmers’ Union, which attacked the FFB as a great exploitative bureaucracy, the Corn Belt Committee, and the Minnesota Farm Bureau.

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others. The California Grape Control Board lasted for two years, from 1930 to 1932, and then collapsed, with grape growers unwilling to pay stabilization fees. In the meanwhile, the Federal Prohibition Administration aggravated conditions in the industry by outlawing grape concentrates. By May, 1933, total federal loans for grapes were $25 million, with substantial losses.

In butter, the FFB granted loans to existing regional dairy cooperatives and stimulated interregional agreements between them. The most important was Land O’Lakes Creameries, Inc., in the North Central states. The Board granted a loan to Land O’Lakes in January, 1930, to steady the price of butter by withholding some stock from the market. Prices firmed for a time, but then fell later as the stocks were sold. It is difficult to trace the effect of this operation because it was conducted on a rather small scale.24 In tobacco, the FFB tried to stimulate cooperatives, which had become dormant in this industry. The Board advanced loans, but the 1931 crop was large and the price lower. The new cooperative folded in the next year.

And so the grandiose stabilization effort of the FFB failed ignominiously. Its loans encouraged greater production, adding to its farm surpluses, which overhung the market, driving prices down both on direct and on psychological grounds. The FFB thus aggravated the very farm depression that it was supposed to solve. With the FFB generally acknowledged a failure, President Hoover began to pursue the inexorable logic of government intervention to the next step: recommending that productive land be withdrawn from cultivation, that crops be plowed under, and that immature farm animals be slaughtered—all to reduce the very surpluses that government’s prior intervention had brought into being. It was left to the Roosevelt administration, however, to carry out the next great logical step down the road to a wholly socialized agriculture—

24Murray R. Benedict and Oscar C. Stine,
The Agricultural Commodity
Programs
(New York: Twentieth Century Fund, 1956), pp. 235–36.

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an agriculture socialized, we might add, on principles of irrational-ity and destruction.25

With the failure of the FFB, the leading farm organizations met in Washington, in January, 1932, and called for a program of effective control of farm surpluses, outlawing of short-selling in commodities, a stable currency, and independence for the Philippines in order to stop duty free imports from that territory. But nothing was accomplished in the Congress, even though several Congress-men introduced bills for more extensive farm aid. At this point, some radical farmers decided to call a “farmers’ strike” in an attempted price-support program of their own. Falling farm prices were to be combated by withholding farm produce. The leader of this “Farm Holiday” movement was Milo Reno, head of the Iowa Farmers Union and the Farm Holiday Association. Reno, an old radical and a preacher, had been calling for such “strike” measures since 1920. Now, on May 3, a convention of 3000 Iowa farmers led by Reno voted to call a strike on July 4. Their slogan: “Stay at Home—Buy Nothing, Sell Nothing,” and their song:

“Let’s call a Farmers’ Holiday

A Holiday let’s hold

We’ll eat our wheat and ham and eggs

And let them eat their gold.”