What factors caused the farm crisis in the 1920s?

Farmers struggled with low prices all through the 1920s, but after 1929 things began to be hard for city workers as well. After the stock market crash, many businesses started to close or to lay off workers. Many families did not have money to buy things, and consumer demand for manufactured goods fell off. Fewer families were buying new cars or household appliances. People learned to do without new clothing. Many families could not pay their rent. Some young men left home by jumping on railroad cars in search of any job they could get. Some wondered if the United States was heading for a revolution.

Farmers Grow Angry and Desperate

During World War I, farmers worked hard to produce record crops and livestock. When prices fell they tried to produce even more to pay their debts, taxes and living expenses. In the early 1930s prices dropped so low that many farmers went bankrupt and lost their farms. In some cases, the price of a bushel of corn fell to just eight or ten cents. Some farm families began burning corn rather than coal in their stoves because corn was cheaper. Sometimes the countryside smelled like popcorn from all the corn burning in the kitchen stoves. 

Some farmers became angry and wanted the government to step in to keep farm families in their homes. In Le Mars, Iowa, a mob of angry farmers burst into a court room and pulled the judge from the bench. They carried him out of the court room, drove him out of town and tried to make him promise that he would not take any more cases that would cost a farm family its farm. When he refused, they threatened to hang him. Fortunately the gang broke up and they left the judge in a dazed condition. The governor of Iowa called out the National Guard who rounded up some of the leaders of the mob and put them in jail.

In other areas around the state, farmers banded together like a labor union and threatened to prevent any milk from getting from farms to towns and cities. They hoped that this would raise the price that farmers were paid for their products. They set up blockades on country roads and made any trucks carrying milk, cream, butter or other farm products to turn around and go back home. They called it “The Farm Strike.” Not all farmers joined the movement, however, and the effort did not have any effect on prices.

In some ways farmers were better off than city and town dwellers. Farmers could produce much of their own food while city residents could not. Almost all farm families raised large gardens with vegetables and canned fruit from their orchards. They had milk and cream from their dairy cattle. Chickens supplied meat and eggs. They bought flour and sugar in 50-pound sacks and baked their own bread. In some families the farm wife made clothing out of the cloth from flour and feed sacks. They learned how to get by with very little money. But they had to pay their taxes and debts to the bank in cash. These were tough times on the farms.

The Federal government passed a bill to help the farmers. Surplus was the problem; farmers were producing too much and driving down the price. The government passed the Agricultural Adjustment Act (AAA) of 1933 which set limits on the size of the crops and herds farmers could produce. Those farmers that agreed to limit production were paid a subsidy. Most farmers signed up eagerly and soon government checks were flowing into rural mail boxes where the money could help pay bank debts or tax payments.

Town and Cities Suffer Too

When factories and stores shut down, many workers lost their jobs. In Dubuque, for example, 2,200 workers lost their jobs between 1927 and 1934 when their firms closed, while only 13 new businesses opened—employing only 300 workers. That meant a loss of 1,900 jobs. Dubuque railroads employed 600 workers in 1931; three years later, only 25 jobs remained.

Before the Great Depression, people refused to go on government welfare except as a last resort. The newspapers published the names of all those who received welfare payments, and people thought of welfare as a disgrace. However, in the face of starving families at home, some men signed up for welfare payments. For most it was a very painful experience.

Town families could not produce their own food. Many city dwellers often went hungry. Sometimes there were soup kitchens in larger cities that provided free meals to the poor. Winters were an especially hard time since many families had no money to buy coal to heat their houses.

The government created programs to put Americans to work. The Works Progress Administration (WPA) hired many men to work on parks, roads, bridges, swimming pools, public buildings and other projects. Teen age boys were hired by the Civilian Conservation Corps (CCC). They lived in barracks, were given clothing, and provided with free meals. The small salary that they earned was sent back to help their families. The CCC boys planted trees, helped create parks, and did other projects to beautify and preserve natural areas.

The 1930s are remembered as hard times for many American families. With the coming of World War II, the government began hiring many men to serve in the army. Factories began receiving orders for military supplies. But the memories of the Depression did not go away. Many Americans worried that when the war ended, hard times would come again.

JOURNALISTS, entertainers, and political spokesmen often compare the present crisis in America's farm belt with conditions farmers and rural bankers experienced in the depressed 1930s. But it is to the 1920s that the present financial hardship of rural Americans should be likened. Then, as now, most Americans enjoyed considerable prosperity, while farmers and rural bankers faced appalling debt and unprecedented numbers of farm foreclosures. To compare the '20s with the '80s offers insight into the causes, and implications, of the present crisis in the farm belt.

In the present, as in the 1920s, farmers suffer particularly from their inability to repay mortgage debt. Consequently, uncommonly high rates of farm foreclosures and rural bank failures are now occurring, as they did in the '20s. But for neither period do politicians and news analysts assign these foreclosures and bank failures to farm debt itself. Instead, most insist that the farmer's inability to repay legitimate mortgage loans is not his fault.

It is ironic that the experience of the past 50 years has not diminished the widespread conviction that financial hardship -- resulting in falling farm real estate values, farm bankruptcies, farm foreclosures, and bank failures -- is caused by circumstances beyond farmers' control. In the 1920s, depressed farm income was widely blamed for rural debt problems. Supporters pointed out that since 1910, when official price statistics were first collected, the prices farmers received for their production had steadily declined in relation to their costs.

It was argued that farmers had to sell their products at marginal-cost prices in competitive markets, over which they had no control. They purchased their materials, however, at prices set by large companies in monopolistic markets. This view led to the belief that farmers would earn fair incomes if they had the power to influence prices by controlling the quantity of the products they sold. That belief, conceived during the farm crisis of the 1920s, led in turn to price-support proposals in which the f ederal government would help farmers to control agricultural ``surpluses'' through acreage limitation. Such control has been the cornerstone of federal farm legislation since the Agricultural Adjustment Act of 1933.

Clearly federal solutions to the financial distress that occurred in the 1920s have not prevented rural financial distress from recurring in the 1980s. The inability of these measures to prevent the type of rural hardship that is occurring today -- the same type of hardship that prompted their enactment more than 50 years ago -- suggests that they are treating the wrong problem. Indeed, today's recurrence of rural problems suggests that the architects of New Deal agricultural policy were wrong to blame

depressed farm income for those financial difficulties. Net farm income rose sharply during the '20s and, unlike the falling incomes in the '30s, could not in itself have contributed to the post-1920 rural financial crisis; similarly, depressed farm net income is not an underlying cause of today's rural financial distress.

In the present, as in the 1920s, the popular view is wrong. The underlying cause of most rural financial distress in both the 1920s and the 1980s lies within farmers' control. Farmers create their own economic anguish by borrowing excessively against farm real estate values in times of severe inflation. Immediately preceding each of these decades was a 20-year era of prolonged inflation that culminated in a final year or so of sharply escalating prices, followed by a pronounced deflation. Farm real esta te values and mortgage debt followed the path of inflation from the early 1900s to 1920 and then again from the early 1960s to about 1980. Observers sometimes used the word ``speculation'' to characterize highly leveraged purchases of farm real estate during the peak inflations of 1919-20 and 1979-80. When the inflation bubbles burst in both 1920 and 1981, declining farm real estate values left those farm mortgage borrowers, and their bankers, in a precarious position, regardless of how much net income the farmers earned from their basic agricultural pursuits.

In the 1920s, rural bankers sought a rise in agricultural commodity prices that could restore farmland values to pre-1920 levels. This was an understandable position, since they held a great many loans backed by sharply depreciated farm real estate. Bankers believed, not unreasonably, that Congress would support legislation to aid the nation's farmers before it would back measures to aid failing banks. Thus rural bankers pressed hard for federal agricultural commodity price supports.

All efforts to enact price-support legislation in the 1920s failed, perhaps because the major legislative proposals all advocated export dumping, a means of supporting domestic prices which did not find favor in the Coolidge and Hoover administrations. The first administration of Franklin Roosevelt, however, quickly passed into law a method for propping up domestic agricultural prices by limiting the acreage farmers could plant.

In the 1980s we see that price-support legislation does not prevent farm foreclosures and bank failures such as rural Americans faced in the '20s, and which beset today's farmers. Is there a lesson to learn from this experience? Perhaps one lesson is that long-term mortgage debt and the operation of a farm are not compatible. Theoretically the two might be compatible if farmers' loan repayments were always predicated on expected operating cash flows, and never on expected increases in land values. But

that condition would hold only if farmers never succumbed to the temptation to speculate in real estate, hardly a reasonable expectation.

As long as there are American farmers who view their farmland as an asset that they should own, and not rent, there will be farmers who will combine gambling with farming. These farmers will never lack funds as long as bankers are willing to base loans on property values rather than cash flows. But when these farmers and their bankers periodically indulge the temptation to beat an inflationary farm real estate market, as they did just after World War I and again in the 1970s, the rest of the public and their elected representatives should not attribute the inevitable aftermath of farm foreclosures and bank failures to depressed farm incomes. Instead, they should point to the true cause -- gambling.

H. Thomas Johnson, visiting professor at the University of Washington, is the author of ``Agricultural Depression in the 1920s: Economic Fact or Statistical Artifact?''