Dr. Carson has written and taught extensively, specializing in American intellectual history. He is the author of several books and is working at present on A Basic History of the United States to be published by Western Goals, Inc.
This past December, I traveled with my family through north central Mississippi and across the river northwestward into south central Arkansas. The portion of the trip that made the deepest impression on me was that which took us through what is called the Mississippi Delta. The Delta stretches for the better part of 100 miles inland on either side of the Mississippi river in this area, though somewhat wider on the Mississippi than the Arkansas side. The land is table fiat, and the road we were on was arrow straight, bending only so much as was necessary to put it through the next town. The road was raised three or four feet above the surrounding countryside, which was fortunate for us. The countryside was flooded by unusually heavy winter rains, and the flooding was enhanced by a blinding rain squall as we drove through one of the more remote regions. When the ground is too full to soak up the water, there is no place handy for it to go. This is farming country, though it was dormant at this season. More, it is row-crop farming country. Few, if any, cattle or hogs were to be seen, and woodland was rare. Twenty-five or thirty years ago, it was predominantly cotton country. Cotton is still grown extensively—many stalks were still standing, with traces of lint hanging from the empty bolls—but the growing of grains, especially soybeans, has widely supplanted cotton. The Mississippi Delta belongs geographically to a much vaster farming region, extending from Minnesota in the north to Louisiana in the south and from western Ohio in the east to eastern Colorado in the west. It is a vast fertile region, much of it low lying to fiat country with deep soil, well-suited in this age to commercial farming. It is the Mississippi valley, the low lying area through which the waters which begin in the western Appalachians and the eastern Rockies flow into the Mississippi, and thence to the sea. The region of the valley narrows from north to south as the mountains recede in height and fan out into foothills which channel the water along other courses to the Gulf of Mexico. The Mississippi valley is sometimes called the heartland of America. It is certainly the breadbasket, for most of the grain that feeds America is grown there. The Mississippi Delta through which I traveled has undergone a major change in the past two or three decades, a change that was very nearly completed by 1970, say. Although vast acreages of land are under cultivation now, the country is sparsely inhabited. Houses are usually located a considerable distance from one another; often, they are separated by a mile, or more, of farmland. Usually, a single family dwelling sits alone, with the mechanical equipment for farming nearby. An Agricultural Revolution Twenty-five or thirty years ago it would not have been possible for such a small number of farmers to till these great acreages. This Mississippi Delta was one of the major centers of cotton growing in the United States. Cotton required intensive cultivation—it had to be hoed several times by hand—and many human hands to harvest any considerable amount of it. Two major developments altered these requirements. One was the development of herbicides to get rid of unwanted weeds and grass. The other was the development of a mechanical cotton picker. Along with this, there was increasing use of mechanical planters and fertilizer distributors which could be extended across a wide carrying frame to plant many rows. There also were larger cultivators. The reduction of hands used was further accelerated in the 1960s by the extension of the minimum wage to cover farm laborers. So it is that a countryside once dotted with houses of small landowners, tenants, and dwellings for hired laborers is now sparsely settled by farmers who rely almost exclusively upon heavy equipment to do the work. I looked in vain for relics of these buildings. I noted none. There were reports in the 1960s that they were burned to be rid of them. A similar change or transformation has occurred in farming throughout the United States, though less dramatic than in cotton farming in most instances. Here and there are still enclaves of farming which require intensive human care and human hands and decisions in harvesting, such as in tobacco growing or in the production and harvesting of some fruits and vegetables. By and large, though, the extensive use of machines, the shift away from intensive use of labor, and the cultivation of large acreages by single farm families has been the trend throughout most of American agriculture. Fewer Farms—and Farmers Statistics tell much of the story in abstract terms. According to census figures, the total number of farms in the United States has declined from 6,102,000 in 1940 to 2,808,000 in 1980. The most drastic decline for any decade was in the 1950s, when the number of farms dropped from 5,388,000 in 1950 to 3,962,000 in 1960. The number of farms appears to have stabilized over the past decade or so. The total farm population declined from 30,547,000 in 1940 to 8,864,000 in 1980. Again, the largest drop in farm population occurred in the 1950s, when it declined from 23,048,000 in 1950 to 15,635,000 in 1960. The number of hired farm workers (average) in 1920 was 3,391,000; in 1940, 2,679,000; in 1980, 1,303,000. The largest drop in hired farm workers occurred in the 1960s, which coincides with the application of the minimum wage to them. Farms have been increasing in size over the same period, of course, and it might go without saying that they have generally been increasing precipitately in value. The main conclusion to be drawn from these facts is that fewer and fewer people are farming more and more land (per farmer) by the use of more and more equipment. Or, in formal economic terms, there has been a dramatic shift away from labor in the economic mix to land and capital, especially capital. Moreover, not only are fewer people farming more land with more equipment, but also they are producing more of many commodities than ever before. For example, here is a description of production in 1981:
The corn crop of 8,080,000,000 bushels, or 205 million metric tons (t), was the largest on record and 22% greater than the 1980 crop. All feed grain production . . . was 240 million t, up 21% from . . . 1980. Also the soybean crop of 2,110,000,000 bushels was the second largest crop on record and . . . 18% larger than the 1980 crop. The U. S. wheat crop was a record 2,750,000,000 bushels . . . . 377 million bushels more than in 1980. Cotton production of 14.8 million bales was 33% greater than in 1980. Hay production increased 5% over 1980, while pasture and range conditions were 22% better than in 1980. Due to lower livestock prices during the first half of 1980, the number of hogs raised, the number of cattle fed for beef, and the number of chickens raised were down slightly. (American Annual [Grolier, 1982], p. 78)
The production achieved by American farmers by way of this heady shift to capital is surely little short of being one of the wonders of the modern world. Moreover, the prices of farm products to consumers should generally be reckoned as a bargain, compared to the prices of many other goods in an era of rising prices.
Signs of Distress
But there is a rather large worm in the apple of this farming Eden, which brings us to the subject of this essay, the trouble with farming. Discontent among farmers has been widespread and, perhaps, increasingly strident in recent years. There have been tractorcades to some state capitals and to the national capital, confrontations with sheriffs at foreclosure sales, and dark threats of violence if something is not done to help farmers.
The most common complaint is that farm prices are so low that large numbers of farmers cannot make ends meet. Stories surface after each crop year of farmers who lost large sums of money. Nor are the difficulties restricted to farmers in any one section of the country or producers of particular farm goods. They range from dairy farmers to chicken and egg producers to grain and fiber farmers to cattle growers.
Farmers are not noted, of course, for boasting about their great profits. Who is? Those who work and produce rarely complain that they are overpaid or admit that they are adequately compensated for their efforts. It could be, too, that when farmers gather in the winter, bragging rights sometimes belong to the farmer who had the largest losses during the year. But there is naught of exaggeration or humor in the inability of farmers to make payments on their debts or the ensuing bankruptcies and foreclosures. These last are widespread and increasing by all accounts. Moreover, precipitately mounting farmer indebtedness signifies something of the extent of the difficulties.
Total farm real estate debt outstanding stood at slightly over $7 billion in 1953. At the end of 1981, it stood at over $92 billion. There was a steady, though not particularly dramatic, rise in farm real estate debt during the 1950s and 1960s. It began taking off in the 1970s and almost doubled between 1975 and 1981. Closer analysis shows, too, that the least well secured—most precarious—portion of the indebtedness was increasing even more rapidly. Indebtedness to the Farmer’s Home Administration, the lender of last resort for farmers, almost doubled in the period 1979-1981. These figures do not include the indebtedness for shorter terms secured by farm equipment or “rollover” debts, not completely retired from year to year because the proceeds from the sale of produce were insufficient. These add substantially to the overall debt.
Contributing Factors
A good many contributory reasons can be enumerated for short term difficulties of farmers in general and those of individual farmers here and there in particular. Most likely, some farmers who go bankrupt or have their farms foreclosed are ineffective managers. Some are what econ omists call marginal, or on their way to becoming sub-marginal, farmers.
More broadly, there have been fluctuations and changes which had an impact on farmers generally. One was the oil embargo of the Arab countries and the subsequent steep rise in oil prices. This development not only drove fuel prices up but also the prices of such things as fertilizer, pesticides, and herbicides. Another development has been the sharp rise in interest rates in recent years. Embargoes on grain shipments to communist countries have aggravated the situation for grain growers also. It can be added that, of course, farming is a risky business, and the vagaries of weather, of pests, and diseases contribute to the fluctuations in farm production.
These, and like, explanations might suffice if the trouble with farming were temporary or episodic. But some of the signs, especially mounting indebtedness, point to persistent and increasing difficulty. Moreover, if it were simply a market phenomenon, we might expect that farmers would make the necessary adjustments of production to demand to get prices that would enable those who stayed in the business to prosper. But it is not simply a market phenomenon, certainly not of the free market anyway. None of the developments discussed above were simply responses to the free market: not the dramatic shift from extensive labor toward capital, not the enlargement of farms, not the buying of ever larger and more expensive farm equipment, not the mounting indebtedness.
All these occurred in a framework of government tampering, intervention, restriction, subsidization, and tacit inducement. Farmers have been propelled, as it were, in the direction they have taken, including producing more than could be profitably sold, by government programs over the years. That is not to say that some of the developments, such as the shift toward capital by the use of large and specialized machines, would not have taken place, sooner or later, without the intervention. But it is most unlikely that the changes would have occurred so swiftly, so dramatically, or so extensively if the market had been the sole prompter of them. That is a way of saying that it is most unlikely that farmers would have been caught in their present bind by the workings of a free market. At any rate, that is not the way it happened.
Although there have been many government programs over the years which affected farming more or less in a variety of ways, I want to focus on three categories of programs which have the most direct bearing on the present situation. They are: price supports, crop and production restrictions, and easy credit. While easy credit is at the heart of the present farmer difficulties, other programs provide an essential part of the background and highlight some of the fallacies which underlie them.
Price Supports
Farmers have long and often believed that their problems, when they became acute, were caused by low prices for their production. Over the past century, they, or those who claimed to speak for them, have identified a number of villains who either contributed to or caused the low prices. Among these were high transportation costs, extortionate rates for storage facilities, money shortage, the fact that farmers often sold their crops at the time when prices were lowest, protective tariffs on manufactured goods, middleman profits, and, belatedly and occasionally, their own overproduction. Coupled with this has been a sentimental attitude toward farmers and farming, which goes back at least to Thomas Jefferson and was vigorously intruded into the political scene by William Jennings Bryan in the late 1890s. There were sporadic political attempts to “aid” the farmer by making easier money available and regulating rail rates over the years.
However, it was not until the 1930s that the federal government made a concerted effort to raise farm prices. The New Deal devised a variety of programs designed to accomplish this result. Among them were programs to increase the money supply, make loans on crops stored in warehouses until prices rose, subsidies, government guarantees, and government bidding up of prices. Some one, combination, or all of these efforts did succeed in raising farm prices, or some of them.
It happens, however, that one of the most important economic functions of price is to signal what is wanted. Higher farm prices tend to spur farmers to produce more of the goods for which prices are rising. (Not all farm products had price supports.) If the New Dealers did not know this at the beginning, there would soon be bountiful evidence to prove it. In any case, they were intent on raising prices, and they did understand that the way to do that was to reduce the supply on the market. Sometimes, they, or their successors in government, limited the amount of particular crops that could be sold at support prices. But the main device by which government tried to limit production over the years was by acreage restrictions on controlled crops. Farmers were assigned crop allotments for crops that had price supports, usually for their commercial or “money” crops.
Distorted Signals
The combination of price supports and acreage (or production) restrictions bent or distorted the market in opposite directions. On the one hand, price supports, so far as they succeeded in raising prices above what they would have been on the market, signaled farmers to increase production. On the other hand, acreage allotments limited the amount of land that could be planted to those crops. That did not mean that farmers gave up in their efforts to increase production of supported crops. It did mean, however, that they would have to shift the economic mix from labor toward capital. In theory, they might have cultivated the commercial supported crops more intensely in the hope of increasing production. But that was hardly possible, even if it would have worked.
The government program was set’ up in a way that discouraged the concentration of labor on the controlled crop. Allotments were based on the total amount of land under cultivation on a given farm. (Government favored diversified farming.) Thus, on a farm, only an established percentage of the land could be planted to the controlled crop. In order to get his maximum allotment, a farmer had to keep a maximum amount of his land in cultivation. He could, of course, concentrate his capital expenditures for fertilizer, improved seeds, pesticides, and the like, on the commercial and controlled crops. Many, probably most, farmers did. More, when they could, farmers increased their capital expenditures for these over what they had done, for it was a route to increasing production.
Beyond that, however, farmers who survived generally had to bring more land under cultivation, rent it or buy it (or buy allotments, as was sometimes done in the 1950s and 1960s) to make a living. The record is clear that most of those on small farms could not make a go of farming. The mass exodus from farming got under way in earnest in the mid-1930s and continued to the late 1960s, when farm population tended to stabilize. The main path taken by farmers was to increase farm holdings. Since the number of hired farm workers was generally declining during this period, the main approach taken to the cultivation of these larger acreages was to buy mechanical farm equipment, i.e., tractors, trucks, planters, cultivators, and harvesters. Thus, the shift from labor toward capital was completed, so far as it has been.
From Whence the Capital?
Where did the farmers get the capital? More bluntly, where did they get the money to buy the machines, the fertilizer, the pesticides, the herbicides, the improved seeds, irrigation systems, and the like? In addition, where did they get the money to buy or rent additional land? There is no need to generalize too broadly here.
Most likely, there have been farmers who financed their expansion over the years in a businesslike and sound financial way. They extended their land holdings from profits, savings, inheritances, and so forth, and bought additional land only as it became available at attractive prices. Such people might well have bought new and larger equipment from similar sources, supplemented by prudent borrowing. If so, and if they have managed well, they are probably succeeding in farming even today. In any case, we are looking for the sources of the difficulties of farmers in trouble. More, we are looking for what, in addition to support prices, has enabled farmers to get the capital to produce in such quantity that they cannot survive in farming with such price supports as still exist.
The source of much of the money for farm capital and land is no great mystery. It has been borrowed. It has been made available by easy credit. The easy credit is a result of the policies and programs of the United States government. The farm movement that got underway in the latter part of the nineteenth century was early penetrated with the idea that easy money, or inflation, was a panacea for the problems of farmers.
This easy-credit idea achieved political expression in the Green-backer and silverite movement, was propounded by the Populists in the 1890s, and entered the Democratic party by way of William Jennings Bryan and his followers in 1896. It began to bear fruit when the next Democrat, Woodrow Wilson, was elected to the presidency in 1912. The Federal Reserve Act was passed in 1913. The banks authorized under it were to become engines of inflation, for they were empowered to issue currency on the security of commercial and agricultural paper. That is, they could expand the credit by rediscounting notes held by banks, thus making more money and credit available.
The Federal Reserve system, then, has been the main fount of easy credit in the United States generally since that time. It is important to emphasize, however, that farm credit is a breed all its own. Otherwise, it might be supposed that farm financing is done in the same way as for other businesses. True, commercial farming is a business, and farm enterprises are often referred to as agri-business. But much of farm financing is not done under such restraints as apply to business concerns. Farming is an especially risky business, yet much of the risk capital is obtained as loans rather than from investors who knowingly share in the risk. Also, much of farm land is fi nanced by borrowing.
The Farm Credit System
How has this come about? Mainly by the operation of what has come to be called the Farm Credit System. Since little is known about this system generally, and since those who know of one or more of its agencies may not be aware of the government connections or the strange organizational modes, some little explanation of it may be in order.
First, the Farm Credit System was government inspired, government authorized, has had initial and occasional government financial help, and is government controlled! The basic system was authorized by the Federal Farm Loan act of 1916. The Federal Land Banks, probably the best known of the organizations, were first organized in 1917, pursuant to this act. There have been changes in the system from time to time by congressional acts. The following remarks are about the system as it was authorized by the Farm Credit Act of 1971.
According to the U.S. Government Manual, the system is organized in this way:
The Farm Credit Administration, an independent agency, supervises and coordinates activities of the cooperative Farm Credit System. The system is comprised of Federal land banks and Federal land bank associations, Federal intermediate credit banks and production credit associations, banks for cooperatives. Initially capitalized by the United States, the entire System is now owned by its users.
Some of the above information could be misleading, however. The Farm Credit Administration is “independent” in the sense that it does not fall under the authority of any regular department of the government. Otherwise, it is a government agency, as are all the others under its authority, and the governing board is politically appointed: 12 members by the President of the United States and one by the Secretary of Agriculture.
This is a nationwide system of credit for farmers, the central banks being distributed about over the country in much the same way as are Federal Reserve banks. The Federal Land Banks make long term (5 to 40 year) loans to farmers secured by real estate. Although portions of the loans may be used for other purposes, they are made basically for the acquisition of farm land. The Intermediate Credit Banks are discount banks, serving mainly Production Credit Associations. Their main purpose is to discount intermediate term notes, such as would be needed for the purchase of farm equipment. Production Credit Associations make mainly what should be called risk capital loans to farmers. The loans may be for periods of up to 7 years. Banks for Coopera tives are, as the name implies, banks for associations of farmers.
Specialized Loan Companies
None of these organizations are banks in the usual meaning of the term. They are neither depositories of money nor issuers of currency. They might better be called loan companies, for that is their function, loan companies established by the United States government. But the word “company” may be misleading, if by that term we mean an organization owned and operated by investors for profit. The organizations in the Farm Credit System do not fit that description. The investors have no control over the organizations; investment is separated from ownership; hired managers operate them; and the profits, if any, go to the borrowers. Basic policy is set by politi cal appointees or by law. Financing came initially from the Federal government, and ongoing financing comes from consolidated bonds sold to investors and backed by the notes from borrowers. (The United States government does not guarantee these bonds, but that may be only a technicality.)
The borrowers hold the voting stock in the basic organizations for the duration of their indebtedness. They are required to purchase the stock in order to obtain loans, and when the loans are repaid they must either relinquish the stock, or, in some cases, accept non-voting stock in return. The voting stock serves basically as a means of choosing the members of the committee which approves or disapproves loans. Such profits as may be made are, in effect, paid out as reductions of interest rates to current borrowers.
The point of these arrangements may be easier to get by conceiving the matter in figurative language. The government has contrived to bring into being and caused to be planted and grown a vast cabbage patch, i.e., credit, for rabbits, i.e., farmers. The rabbits’ have been placed in charge of distributing the cabbages under guidelines laid down by politicians or their appointees. My point is that a vast system of easy credit to enable farmers to buy land and get risk capital has been made available by government. But to round out the account of credit institutions one more needs to be included. It is the Farmer’s Home Administration (known as the F.H.A. in rural circles).
The F.H.A.
The Farmer’s Home Administration is a backup organization to provide easy credit, mainly for farmers, who cannot meet the requirements of other lenders. (Applicants for loans are usually expected to submit evidence that they have been turned down by other lending institutions.) Its basic authority stems from an act of Congress passed in 1921. It operates within the Department of Agriculture, and it is financed by proceeds from the sale of Treasury certificates. It makes loans to “pay for equipment, livestock, feed, seed, fertilizer, other farm and home operating needs; refinance chattel debts; provide operating credit to fish farmers;” for the purchase of land, houses, and other sorts of things for rural inhabitants and farmers. Terms of repayment and interest rates are adjusted to the financial situation of the borrowers.
None of this is meant to suggest that farmers borrow exclusively from government agencies. They, or some of them at least, borrow from regular banks, from insurance companies, from equipment dealers, and from private as well as other public sources. But there is every reason to believe that the major source of the easy credit which has many of them now swamped with debts are the government agencies.
While I was in the midst of writing this article there was an account on television of a farmer in Ohio who was trying to prevent the auctioning of his farm to pay his debts, or at least those secured by it. According to the television announcer, the man had 199 acres of land, and he owed $400,000 to a Production Credit Association and $200,000 to a Federal Land Bank.
Much more generally, the breakdown of the lenders to whom were owed the more than $92 billion outstanding farm real estate debt in 1981 confirms the preponderance of these agencies. The largest portion, nearly $36 billion, is owed to the Federal Land banks. Nearly $8 billion is owed to the Farmer’s Home Administration. Life insurance companies had loaned nearly $13 billion, and commercial banks somewhat under $9 billion. The other lenders were not enumerated.
Here is a synopsis of an Associated Press release (published in the Birmingham News, January 2, 1983, p. 21A) which illustrates the ease with which farmers could borrow money and the consequences of debt for one man. It is about a man who was a farmer in Missouri. He began fanning in 1965 with 68 acres of land and $600. By 1970, he was planting 900 acres and feeding several hundred hogs. This expansion was built upon a mountain of debt; it eventually totaled nearly $400,000. Drought, a disease which decimated his hog population, and inadequate prices drove him to the wall. The Production Credit Association, which had been supplying the risk capital for his operation, could carry him no longer. He turned to the Farmer’s Home Administration, but that aid did not last long. His farm was sold at auction, but many of the debts remain unpaid.
In retrospect, this farmer understands what happened to him this way. He believes
he still would be farming had he not expanded with such zeal. Had his appetite for money not been so voracious. Had that money not been dished out so readily.
“They made a feather bed for me to lie on . . . .” [he] said of the lenders. “You know, I could basically sit down at my kitchen table and write out a loan. It was just too simple.”
“The road to hell,” it has been said, “is paved with good intentions.” The road to trial and tribulation for farmers is paved with government programs. Undoubtedly, farmers would have a full quota of trouble if there were no government intervention. Commercial farming is a business, and it is beset with all the pit-falls of other businesses. Some businesses prosper, others fail. That is the story ({f all business in good times and bad, and especially in bad. Beyond that, farmers face some risks peculiar to their undertaking. Thus, however unfortunate it may be, farming is unlikely ever to be a universally prospering undertaking for all who venture into it.
Conclusions
But the conclusions toward which this article has been moving are these. Government intervention has greatly aggravated the lot of the farmers. Price supports induce farmers to produce more. That, plus crop restrictions, promoted the expansion of land holdings and the shift from labor toward capital. Despite the fact that this was risk capital, the government set up a vast credit mechanism to supply much of it.
Price supports, crop restrictions, and easy credit sent misleading signals into the market. The crop restrictions have generally been abandoned over the past couple of decades, not, however, before millions of people had been driven from farming and the pattern had been set for those who remained to expand their land holdings and rely more and more on capital. Price supports, while not so obtrusive as they once were, still serve to stimulate production. Meanwhile, farmers go deeper and deeper in debt in a desperate effort to produce more and more in the hope that they can pay off the debts which are threatening to crush them. Many are falling by the way. Others, perhaps most, are having a hard time due to the lower prices resulting from the increasing production.
Many farmers are raising the cry for government aid once again. But the hair of the dog that bit them will no more solve their problems than it will cure alcoholism. Neither economic theory nor historical experience support any such notion. It is government intervention which has bent, strained and distorted the market to produce the current mess, as well as a number of earlier ones.
The unhampered market provides the guides for how much to produce in order to survive in an undertaking. The free market price is the surest guide to what to produce and in what quantity. When credit is only available from those who hope to profit from lending the scarce money available, there is little likelihood of overexpansion of landholdings or overcapitalization. Not so long as these are dependent on credit. And the farmers who are in desperate straits today are those being crushed by a mountain of debt.
Clarence Carson
Clarence Carson (1926-2003) was a historian who taught at Eaton College, Grove City College, and Hillsdale College. His primary publication venue was the Foundation for Economic Education. Among his many works is the six-volume A Basic History of the United States.