10/12/07 - a depression dilemma

In today's excerpt - in the 1930s, people are starving but food prices are falling, so farmers have little incentive to farm. With hindsight, the problem is seen to have been deflationary actions, but FDR's solution at the time—even as millions starved—was to destroy food and pay farmers to stop growing:

"Roosevelt and the brain trusters also created a twin for the National Recovery Administration: the Agricultural Adjustment Administration to sort out farming. ... In the spring of 1933 agricultural prices stood at 40 percent of their 1926 level; farmers threatened a general strike. Henry Wallace and others told Roosevelt that this must mean there was too much supply and too little demand. They suggested correcting supply. If farmers sold less, their prices would go up. ...The man named to lead the AAA was George Peek of Moline, Illinois. ...

"The AAA began paying farmers to produce less. The government also encouraged farmers to sell less ... by offering them favorable loans in exchange for restraint. ... Legislators and southern agricultural commissioners were already busy quantifying the amount of acreage to retire—10 million acres of cotton fields, for example. Farmers began receiving their payments. Peek would be able to announce that checks to a million farmers to pay $110 million on their contracts to take more than 4 million bales of hay out of production had already been sent. To many, this seemed odd, outrageous even. The $110 million that went to farmers more than offset the $100 million in savings the government had gained by [the massive recent cut in] its employee's salaries. In a year of hunger—the year that [for example, a couple] had starved in a cabin on a New York lake—food production was cutting back, and additional food was being withheld. ...

"The AAA got its first serious negative publicity after Americans learned that a total of six million young pigs were killed before reaching full size over the course of September. 'It just makes me sick all over', one citizen would write, 'when I think of how the government has killed millions and millions of little pigs, and how that has raised pork prices until today we poor people cannot have a piece of bacon.' The move did drive pork prices up—a bit—but ... in October 1933 the commodity reports that Warren and Roosevelt watched so closely edged down or stayed flat."


Amity Shlaes


The Forgotten Man: A New History of the Great Depression


HarperCollins Publishers


Copyright 2007 by Amity Shlaes


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