Agricultural Adjustment Acts of 1933 and 1938 (AAA)

Government, led by politicians, often feels the need to "do something" in response to economic downturns, natural disasters, changes in the environment, etc. Sometimes action is warranted, but often it is not.

As deflation continued to reduce prices of most items during the Great Depression, farmers felt squeezed as they received less money for the goods they produced. FDR and his supporters believed that the solution to the farmers' troubles was to "stabilize" the prices. They attempted to do so through the Agricultural Adjustment Acts of 1933 and 1938 (AAA).

On May 12, 1933, the Agricultural Adjustment Administration (AAA) was created by the Agricultural Adjustment Act. The new agency was tasked with regulating agricultural production with the aim of raising falling prices through artificially reduced supply. This regulation mandated destroying some existing crops (cotton, cattle, and pigs most notably), as well as using a system of subsidies to induce farmers to willingly limit their production and reduce the amount of acreage devoted to several staple crops. This reduction and destruction of food supplies took place in front of a backdrop of hungry Americans during the Great Depression.

The Supreme Court eventually found the tax used to generate income for the subsidies to be unconstitutional in United States v. Butler (January 6, 1936), and the AAA was struck down.  After the Supreme Court's rejection of AAA and the National Recovery Administration (NRA), FDR threatened to pack the Supreme Court with justices friendly to his New Deal policies. While it never happened, the threat permanently changed the Supreme Court's outlook on the New Deal and the Constitution.

Partially in response to the Supreme Court's rejection of the AAA of 1933, the Soil Conservation and Domestic Allotment Act was passed in 1936. The Act subsidized farmers by paying them for soil-conservation and soil-building.

A new AAA, built upon the Soil Conservation and Domestic Allotment Act, was created in 1938 that drew its funds from the general tax pool, thus making it constitutionally acceptable.

Farm subsidies are still in effect today and are still hotly debated. By understanding the AAAs, one can understand the major foundations of modern farm subsidies.

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Quotes on the Agricultural Adjustment Acts of 1933 and 1938 (AAA) from leading historians and economists.

Commentary or Blog Post

Riedl tackles the past and present problems with farm subsidies and how they negatively impact taxpayers, consumers, and farmers.

"All the ire at banks and multinational companies by dangerous communists and anti-globalisation hippies is misdirected. They should reserve their venom for the rustic rich-world farmer living the life of Henry David Thoreau."

Farmers were simply producing more hogs than consumers were willing to buy at a price that would give them all profits. But rather than trying to increase demand as at present, the Roosevelt administration took more direct action. It killed baby pigs.

Ebeling, the former president of FEE, presents a compelling case that the United States under FDR was attempting to model its economy after the managed economies in Europe during the 1930s.

Chart or Graph

The chart above is important when considering that the purpose of the AAA of 1933 was to stabilize and elevate commodity prices to benefit farmers.

Using the above figure, one may present the argument that overproduction of commodities was not the root of the farmers' troubles, but rather the deflationary economic environment.

Analysis Report White Paper

This piece from the perspective of the USDA gives a thorough account of the history of farm subsidies.

Zobbe and Paarlberg argue that there were two schools of thought regarding commodity prices in the 1920s and particularly in the 1930s. One school argued that an overcapacity in agriculture caused the decline in prices. The other school argued that the primary cause of the decline in prices was a result of the economic and monetary shake-up in the late 1920s and early 1930s.

"The New Deal resettlement communities appear in the literature as efforts to ameliorate the wretched condition of southern sharecroppers and tenants. However, those evicted to make way for the new settlers are virtually invisible in the historic record. The resettlement projects were part of larger efforts to modernize rural America. 'Modernization' is a complex process whereby a relatively...

"The Agricultural Adjustment Act of 1933 (as amended) introduced many of the Farm Bill provisions that continue to the present day, including precursors to the current food and nutrition programs (FANPs). The original US food and nutrition policy served multiple purposes, including enhanced demand for farm products to help alleviate low farm income and reduce agricultural surpluses, no longer...

Video/Podcast/Media

Terkel interviewed hundreds of people across the United States for his book on the Great Depression of the 1930s. In 1973, he selected several interviews that were included in his book to be broadcast in eleven parts on the Studs Terkel Program on WFMT radio.

Reason.tv put together this video about farm subsidies. It traces the roots of modern farm subsidies to the 1930s and then questions the efficiency and fairness of farm subsidies.

"Agriculture is easily the most distorted sector, with high tariffs and, in developed countries at least, large amounts of government subsidies through price supports and direct payments. On the other hand, developing countries, who have a comparative advantage in these products, cannot afford to subsidize their agriculture sector and face prohibitive tariffs for their products abroad. The...

Primary Document

The Act established the Agricultural Adjustment Administration, which regulated the following commodities: wheat, cotton, field corn, hogs, rice, tobacco, and milk.

The Agricultural Adjustment Act of 1938 followed the Soil Conservation and Domestic Allotment Act of 1936, which was a response to the U.S. Supreme Court's rejection of the Agricultural Adjustment Act of 1933.

The conference report presents the disagreeing votes and what recommendations were agreed to between the two Houses on the bill to relieve the existing national economic emergency by increasing agricultural purchasing power.

Henry Hazlitt's classic primer outlines a straightforward and accessible portrayal of free-market economics. An unshackled market, Hazlitt says, is the only path to "full production".

Thorne writes that the adjustment programs of the Agricultural Adjustment Administration kept about 30,000,000 acres out of the production of corn, wheat, cotton and other basic crops in 1935.

This Act was a partial response to the Supreme Court's rejection of the Agricultural Adjustment Act of 1933, which can be seen by how it subsidized farmers by paying them for soil-conservation and soil-building.

President Franklin D. Roosevelt delivered this statement upon signing the Agricultural Adjustment Act of 1938.

"The new law has three major objectives which are inseparably and of necessity linked with the national welfare."

"In Butler, the Court struck down the Agricultural Adjustment Act, which taxed processors in order to pay farmers to reduce production. Although invalidating the statute, the Court adopted the Hamiltonian view (almost in passing) that the General Welfare Clause is a separate grant of congressional authority, linked to and qualified by the spending power...

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