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.