The Frightened Farmer
FOR the past three years even the most casual reader of newspaper headlines has been aware that the farmers of the Middle West are profoundly discontented and distressed. No national question has occasioned more discussion than the state of agriculture. Nothing else except the oil scandal has been on the front page so often or so voluminously. Statesmen have risen to power, or have been hurled into outer darkness, because of what they have promised or failed to promise to do for the harassed tillers of the soil.
Yet despite all this publicity it is, I think, almost impossible to realize the seriousness of the question without visiting the regions affected. Certainly the writer found this the case when the exigencies of his profession forced him to make an extended trip through the Middle West a short time ago. Though he had followed the public discussion of the subject with some care, he found the distress, and the psychological and social conditions which have resulted from it, far more acute than he had imagined possible.
It is true that the situation in general is steadily getting better. At the peak of prosperity, the total farm income (cash) was fourteen billion dollars. When the boom broke it was cut to seven billion, and it has advanced for the present crop year to nine billion. Of this increase of two billion, perhaps five hundred million is to be credited to the present year, three hundred and fifty million of which is for cotton. (The Department of Agriculture estimates the year’s increase in total crop value as over a billion, but more than half the total production never leaves the farm. There is also reason to believe that the Department estimate is too high.)
The improvement, of course, is far from uniform; in fact, it is impossible to speak accurately of ‘the condition of the farmer.’ There is one such condition among the wheat raisers of the Dakotas, another in Kansas, still another in the corn and hog belt, others for livestock and cotton. Average figures taken for the whole country are therefore highly misleading. The present high price of cotton ensures substantial prosperity in the South, though the price per pound is less important to the planter than the yield per acre, and the depredations of the boll weevil are a serious matter. In the corn belt, the farmer who chose to ship last year’s crop to market as corn has done fairly well, but if he elected to feed his corn to hogs he has not. The wheat farmers are still as badly off as they were in 1922. The livestock men are no longer doing business at a net loss, but they have not yet recovered from the ruinous position in which they were placed by the collapse of the market more than two years ago. An exception should be noted in the case of those who buy cattle and fatten them for market. They have had a good year.
In generalizing on this subject it is also necessary to distinguish among farmers who own their land clear, those who hold it under mortgage, and tenants. The men who own their land have come through the crisis fairly well, tenant farmers have suffered, and the man with a mortgage has been penalized worst of all. However, if present conditions continue, the great majority of all the farmers in the country can undoubtedly continue to hold their land, and keep their families fed and clothed.
Wheat represents the most serious problem. The wheat acreage has been reduced about twelve per cent in the last year, but is still too high. Before the war we raised 47,000,000 acres, which in 1919 had been increased to 75,000,000. The figure has now shrunk to 58,000,000 — which, however, ought to be reduced to 50,000,000 if we are to raise only enough wheat for our own population. Many authorities believe this will be necessary, and that, barring abnormal conditions such as war, we shall never again be able to produce wheat cheaply enough for the world market.
It is the exportable surplus, the price of which is made at Liverpool, which determines the domestic price, subject (when world supply does not outrun world demand) to our domestic tariff. Unfortunately, that condition now exists. The world production of wheat is in excess, if not of the world’s normal consumptive capacity, at least of its ability to buy. For 1923-24 this world production is estimated at 3,400,000,000 bushels, an increase of 300,000,000 bushels over the preceding year, and 500,000,000 bushels more than the pre-war average. This increase more than makes good the deficiency occasioned by the loss of part of Russia’s pre-war annual export of about 164,000,000 bushels, and the decrease in Indian production.
During the war the people in many countries were taught to eat less wheat, and the habit thus established continues. Mixing with substitutes is still required by law in some places. Most serious of all, the depreciation of currency in several European countries makes it impossible for their populations to buy wheat and other food products abroad, particularly in the United States, which has the most adverse exchange rate.
The catastrophic break in the price of farm products, which occurred at the beginning of 1921, was, of course, part of a world-wide movement. Farm prices, made internationally, decreased more rapidly than those of manufactured articles. The movement was accelerated because European purchasing power had almost disappeared. Quantitatively, crops were excellent, making certain that the ‘exportable surplus’ could not be consumed at home. In fact, our own per-capita consumption had diminished.
Not only did agricultural prices come down fastest and farthest, but they have stayed down and are still out of all proportion to the prices of other things. In January 1920, the wholesale price index of all commodities stood at 247 (1913 equals 100). By June 1921, it had fallen, for all commodities except farm products, to 154, while the price of the latter had sunk to 114. Food prices have risen substantially since then, but are still much below the general level.
What matters is not, of course, how much money the farmer receives, but its purchasing power. According to the Department of Agriculture, an average acre of crops in 1921 had 52 per cent of the purchasing power it had in 1914. By 1922 it had risen to 67 per cent, and it is now somewhat higher though still less than 100 on nearly every item. The Department estimates that in 1922 the farmer’s purchasing power, expressed in terms of axes, was 58 per cent of 1914; in barbed wire, 77 per cent; in coal, 61 per cent; in fertilizer, 91 per cent; overalls, 65 per cent.
A bitter controversy is now raging and will, no doubt, continue for some time, as to the part the Federal Reserve Board played in this deflation. The agricultural community, including some of the local bankers, firmly believes that the deflation was the result of a deliberate, rigidly enforced policy of the Board, which called in its loans suddenly, and to an impossibly high percentage of the total outstanding at a moment when the farmers could not, except by a miracle, meet their obligations. Those who defend the Board maintain that there is a confusion between currency deflation and credit deflation, and that practically none of the latter has taken place. The farmers’ suffering, they maintain, is the result of world-wide causes with which the Federal Reserve Board had nothing to do and they point out that the slump in prices was just as bad in the Argentine Republic, Australia, and Canada as in the United States. The subject is so complex, and so much affected by hidden and variable factors that it is difficult to dogmatize about it with any certainty. It is the writer’s judgment, after reading the evidence on both sides, that a serious decline in agricultural prices was inevitable, but that the action of the Federal Reserve Board in advancing the rediscount rate and contracting its loans was certainly too sudden and too drastic, and thus served to make a bad matter decidedly worse.
The incident has left a scar which will be long in disappearing. In the Middle West I talked with men, bankers of good standing and conservative farmowners, who firmly believed that the Government and ‘Wall Street’ had worked hand in glove to destroy the agricultural community. The animosity engendered thereby has had, and will have, important political results.
A serious factor in the farmer’s plight, though one of which too much is frequently made, is speculation in land at high prices. The war brought the largest prices agriculture had known in two generations; and while these had to be balanced against correspondingly high costs of production, farmers were in general more prosperous than they had ever hoped to be. A great deal of land changed hands at the top of the market, much of it being bought ‘on a shoestring.’ When the crash came, and the loans were called, the new purchasers lost their land, and with it, in many cases, their savings of a lifetime.
In considering this situation one must remember that the price of nearly all land in the chief agricultural states west of the Mississippi is, and for many years has been, higher than is justified by its earning power. In the long run, the farmer makes his money not out of his crops but out of the increase in land value because of the influx of population. For this reason, the cash rent of farm land — based directly on its annual earning power — is absurdly low in proportion to its estimated value for sale or for mortgage purposes. In Iowa in 1920 this rental value was only 3.2 per cent of the land value, whereas in Ohio, which has passed its pioneer stage and settled down, it was 5.6 per cent.
In addition to these general reasons for farmer distress, there are four specific causes for the farmer’s present economic plight. First of these is high industrial wages. The agricultural districts, including, as they do, one third of the total population of the country, are heavy consumers of manufactured goods. The farmer has to pay high prices based both on high wages to industrial labor and on high freight rates in which wages paid to railroad men are a factor. I am not saying that either of these groups is overpaid; there is excellent reason to believe that they are not. The fact remains, however, that with the farmer’s curtailed purchasing power he is forced to pay high prices, plus freight rates 60, 75, or 100 per cent higher than before the war. At the same time the freight rates on farm produce are increased by 45 to 75 per cent and this increase is deducted from what he receives.
Increased taxation bears heavily on the farmer. State, county, and local taxes increased between the fiscal year 1913-14 and the year 1921-22, for the whole United States, by 226 per cent. In Iowa, South Dakota, and Minnesota, three of the states hardest hit, the increase was 220, 292, and 246 per cent respectively. In Iowa, the average tax per acre is now $1.49. You have only to compare this fact with the statement of the Department of Agriculture, based on reports from 5300 farms, that in 1922 the average profit was $2.43 an acre on corn, while the loss per acre on wheat and oats was $1.89 and $1.65 respectively, to see what a burden taxation has become. In the whole country, in 1922, the average farm paid out in taxes $174, not including income taxes or indirect levies. This taxation is to be compared to a total cash income of $1972 and a total cash expenditure of $1257.
The tariff is another important factor in the farmer’s cost of living. I realize that I tread on highly controversial ground; but I cannot in honesty fail to state that in my judgment the Fordney-McCumber tariff was a colossal swindle perpetrated against the farmer. The farm representatives in Congress were persuaded to vote for high tariffs on manufactured goods in exchange for high tariffs on farm products. But we don’t import foodstuffs; we produce a surplus of them for export; and, in consequence, the tariff laid on hypothetical inbound trade has no effect on the prices the farmer gets (except as regards a small amount of high-grade hard wheat). On the other hand, the prices of many things which he buys have been increased because of the tariff, either directly through duties imposed, or indirectly because of the general upswing of all prices.
Finally, the farmer is struggling under a heavy load because his indebtedness was incurred in dollars of a certain value, and now must be discharged in dollars of far greater value — about fifty per cent greater, on the average. This means that, even if every other factor were normal, the farmer who borrowed $10,000 in 1919 or 1920 must now pay back the equivalent of $15,000 — plus interest. It is this fact which has brought about the demand in some parts of the Middle West for reinflation of the currency to the degree which existed when most of these loans were made. Every economist knows, of course, that the proposal is fallacious and would not bring the farmer the relief he imagines. You cannot inflate the farmer’s dollar without inflating the wage-earner’s dollar as well. Industrial wages would go up, prices of manufactured articles would go up, freight rates would go up, and the farmer would soon find that his plight was as serious as before.
Whatever the reasons for the economic plight of the farmer, its results have been deplorable. In 1923, the Department of Agriculture found that in the leading fifteen corn and wheat states four per cent of all farmers owning their land have lost it through foreclosure or bankruptcy proceedings. Four and a half per cent more have turned over their farms to their creditors without taking the trouble to go through legal forms. An additional fifteen per cent are actually bankrupt but are continuing in possession of their property through the leniency of their creditors. This leniency is not altogether philanthropic: the lenders, many of whom are banks, have made loans on land at greatly inflated valuations; and if they were forced to reveal this fact by compelling bankruptcy of their debtors, they might themselves go under. Bankers in Minnesota and the Dakotas have, in fact, been in terror lest the farmers, in large numbers, should take advantage of the bankruptcy laws to evade their obligations. The desperate measures for emergency relief which have lately been taken by the Government through the War Finance Corporation for the support of banks in these sections are too well known to require comment.
Among tenant farmers the Department of Agriculture’s figures show even more serious conditions than among owners. Seven and two-tenths per cent have been forced out by formal foreclosure or bankruptcy. Another 7.8 per cent have moved out without legal proceedings, and 21.3 per cent are being carried by their creditors although actually insolvent. These are average figures, which of course do not represent accurately the condition in any locality. The percentage of farmers who have lost their land since 1920 varies, for example, from six in the five East North Central states to nine in the seven West North Central states and twenty in the three Mountain states.
But cold figures do not tell the human story of suffering and loss. In 1922 Secretary Wallace estimates that 1,200,000 people left the farms for good and all. Of this total number ninetyone per cent claim they were forced out by financial pressure. In the old days a farmer came to town to spend his declining years after he had acquired a competence through years of exertion; nowadays it is the young men who are leaving; and the diminution in the farm reservoir of man power is thus even larger than the figures would imply.
In the heart of Iowa’s rich corn and hog belt I was told recently that ‘pretty nearly everybody,’ not tied to the land by ownership or other obligation, is leaving. The agricultural colleges, while the size of their classes is not greatly diminished, report an increasing percentage of graduates who are looking for salaried positions in farm bureaus, agricultural extension work, and so on, instead of going back to the farm. Of all habitable farmhouses in the United States 4.7 per cent were vacant in 1920, 5.7 per cent in 1921, and 7.3 per cent in 1922. Because of the housing shortage not all such houses are occupied by farmers, many being used by workers who commute to near-by cities. The farm occupancy decreased during the years noted from 89 to 86 per cent.
While it is important to know why the farmer is in his present situation, it is far more important to know whether he can get out, and if so, how. Turning to this aspect we find that there are nine main proposals for relief of the farmer which deserve discussion. They are: —
First: — Reduction of acreage. This is suggested particularly in the case of wheat, where, as I have indicated, the total acreage is still 25 per cent above the pre-war level, although the former export market has been largely eliminated.
Second: — Diversification of crops, so that a disastrous slump in the price of any one of them will not spell ruin. This also is proposed especially for the wheat farmer who, as a rule, raises little else.
Third: — Cooperative marketing, whereby the farmer may free himself from the grip of the middleman, holding his produce in jointly owned elevators and warehouses, and putting it on the market through the year on terms most advantageous to himself, and at prices which represent an increased proportion of what the consumer pays.
Fourth: — Arbitrary fixing by the government of minimum prices on leading products such as wheat.
Fifth: — Revision of the immigration law in order to encourage the entrance of agricultural laborers, both to provide more man power and to bring down agricultural wages. It is also proposed to encourage industrial immigration in the hope of reducing factory wages and the prices of manufactured products.
Sixth: — An increase in the tariff on wheat. This was secured on March 7, 1924, when President Coolidge, acting under the ‘flexible’ provision of the Fordney-McCumber law, increased the rate on wheat from 30 to 42 cents a bushel and on flour from 78 cents to $1.04 a hundred pounds.
Seventh: — Purchase of the surplus wheat crop by the Government to hold it off the market, create an artificial domestic scarcity, and thereby raise the price. One form of this proposal would have the Government buy a large part of the entire production and become the actual middleman in distributing it at home. Another plan (which has secured the support of Secretary Wallace) provides that the Government shall form an export corporation which shall finance the sale of the surplus wheat abroad, at a loss if necessary. It is believed that, were the tariff wall maintained, the domestic demand would outrun the supply and the price would go up. The loss on one year’s export business would be charged back to the individual farmer against the next year’s crop, each man contributing in proportion to the amount of his wheat sold. It is supposed that thereby the danger of an increase in acreage to take advantage of the Government’s assistance would be avoided.
Eighth: — There is some support for the simple proposal that the Government buy the surplus wheat at a high price and sell it to the American consumer at the market rate, taking a loss and paying the deficit out of taxation.
Ninth: — There is, of course, a widespread demand from the farmer, that freight rates come down, both on the products which he ships and on those he buys, into the cost of which freight enters.
One or more of these underlying proposals is to be found at the basis of every piece of legislation introduced in Congress, and every effort to help the farmer by activity in the purely economic field. Are they practicable? Is it likely that any of them will be made effective?
Here, of course, we enter the realm of prophecy, where it may be argued that one man’s guess is as good as another’s. I must, however, record my reluctant conviction that not one of these measures except reduction of acreage is likely to be put into operation in the near future in any such way as will bring the farmers relief.
Reduction of acreage and diversification are going on now, under the whip of necessity. They are, however, a slow process. Much of the wheat land, for instance, is ill-suited to other crops, and the farmer feels that in view of his investment he cannot let it lie idle. To shift from one crop to another frequently needs special machinery, the purchase of seed, and so forth, requiring expenditures which the farmer cannot undertake and for which his local banks are not in a position to provide funds. The Government has approved the creation of a $10,000,000 corporation to make loans for this purpose. The Norbeck-Burtness bill authorizing a Government fund of $50,000,000 for the same purpose was defeated in the Senate in March. If passed it might have brought a substantial degree of relief to the wheat growers. It could not, of course, aid the farmer who is already producing diversified crops and who in 1921 and 1922 suffered quite as seriously as the wheat farmer is suffering now. Moreover, the moment the price of wheat goes up again, the temptation to return to this high-value cash crop will be irresistible.
As for cooperative marketing, we might as well recognize plainly that the American farmer is not ready for such an enterprise on a big scale. Cooperation has succeeded in the case of special crops, usually in single localities; but such a huge problem as is involved in marketing wheat, corn, or livestock in this way can be solved only by years of patient educational work, and even then will probably need to grow from small local beginnings. In the long run cooperative marketing is the farmer’s best hope; but it will work no miracles. It cannot, for instance, solve the problem of high American costs of production as compared to these abroad.
Government price-fixing seems to the writer a fantastic proposal. The war experience showed that even when patriotic emotion is at its height, people disregard these laws in so far as they feel there is a personal advantage to them in doing so. Since consumers of foodstuffs outnumber producers two to one, no Government is likely to put through a law which to a large majority of the people would seem to legalize profiteering by a minority. The same objections lie against the proposal to bring in additional immigrants. When a surplus of agricultural products is being produced, the last thing the country needs is more farmworkers. This suggestion, and the scheme to import industrial workers and break factory wages are both politically impossible even if there were not other grave objections to them.
As for the hope which has been based on the tariff increase, the economic fallacy involved seems plain. A tariff cannot increase the price of a commodity of which we produce more than we consume, exporting the surplus which is sold on the world market at a world price. The former thirty-cent rate failed to benefit the farmers substantially. What the present increased rate will do is suggested by the fact that on the second trading day after President Coolidge ordered the change, the price of wheat fell two cents a bushel!
The suggestion that the Government buy the surplus, or even the whole wheat crop, is one which must be taken seriously. Economically, it is feasible if the Government has the funds. For Uncle Sam to become a middleman in the marketing of any large part of our total agricultural production is probably too big an order; but it would be possible to buy the surplus and sell it abroad at a loss, if we wished to do so. Such action would raise the domestic price; and it would not be impracticable to charge this year’s losses back to the farmers to be paid out of next year s crop. But here again the fundamental objection is political. Is Congress likely to pass a law which will raise the price of bread for two thirds of the population in order to benefit one third? I think not. If it were done, I believe the law would be repealed as soon as the people saw how it worked.
There is also the serious question of the retaliatory measures which might be taken by the European countries upon whom our surplus was dumped. Great Britain, in particular, would not be likely to stand by and with complacence watch America ruining the British market for Canadian and Australian wheat.
The demand of the farmer for lower freight rates is of course a familiar one. The reply of the railroads is that they cannot reduce freight rates while they are forced to pay present wages. Whether this is true or not, substantial relief to the farmer in this quarter is extremely unlikely. So is inflation of the currency in order to restore the 1919-20 scale of values and allow the farmer to pay off his debts with money actually worth no more than that which he borrowed.
When the Russian famine was at its height, American farm conditions were particularly bad and some relief was experienced through the purchase of a total of about $70,000,000 in American foodstuffs by the Government and private relief organizations for the Russian people. The distress in Germany which has reached such alarming proportions is again putting a demand upon the American people for assistance, which will have some effect on agriculture, though not of importance.
The reader who has followed me thus far may well ask, If none of these remedies is to be effective, by what means shall we rescue the farmer?
In my judgment, by none. I do not believe any political panacea can help agriculture. The stock formula is that the restoration of Europe to prosperity will repair our market, since eighty per cent of all our exports are of foodstuffs, and Europe used to take eighty per cent of these. But the facts indicate that even such a restoration would be only temporary in its effects. Europe is more and more growing its own grain or depending on foreign sources where production costs are too low for the American farmer to be able successfully to compete.
This is especially true with such high land-prices as exist even to-day after the depression. In view of these prices, plus American labor costs and the standard of living of the American farmer, it is impossible, as I have said, to produce wheat in the United States for sale on the world market when that market is normal. I have already referred to the fact that the farmer in the newer states in the Middle West has been primarily a land speculator and has made his money in that capacity. To-day it seems probable that the upward movement of land values in those states has come to an end. Certainly this is true until new methods in agriculture are introduced which will increase the number of persons employed per square mile. The farmer suddenly finds himself compelled for the first time to look for his revenue solely to his crop production, and is awakening to the fact that this is impossible as long as his selling prices are created on a world market in competition with other lands where the standard of living is far below his own.
While this is true, it is only temporarily so. The population of the United States is steadily increasing, and steadily turning more and more from agriculture to industrial activity, as is shown by the constant increase in the proportion of urban dwellers. Herbert Hoover has estimated that within ten years we shall have no more wheat for export, and shall begin to import for the needs of our own population. If the farmer can tide over his present troubles, his future is fairly certain after, at most, a few years.
Unfortunately, the wheat farmer is unable to wait. As everyone now knows, the situation of both farmers and financial institutions in the northwest is precarious. Five hundred bank failures have occurred in the past two years; many more institutions are unsound and will require support either from the Government or from the big institutions of New York and Chicago to carry them through. Over limited areas for the next year or two it may be necessary for us to reconcile ourselves to direct subsidization of a type and on a scale for which nothing in the American tradition prepares us. Such effort may properly be regarded as part of the cost of the war — quite as much so, certainly, as the million dollars a week which we are now spending on our ‘emergency’ fleet of vessels — most of which were built after the Armistice.
As I have already said, it is impossible to realize what the situation of the farmer means in human terms until you go out through the territory which is involved and talk to the men who are struggling to keep a roof over their heads. The psychology in those sections which have safely weathered the storm is not noticeably different, from that existing where the future is still faced with the gravest apprehension.
Throughout the Middle West the farmers have been terribly frightened. All their lives they have believed the copybook maxims to the effect that hard, intelligent work should enable every American to keep his family and himself at least beyond the fear of actual want. Since 1920, they have suddenly and catastrophically found that the copybooks are wrong. Those who have managed to save their farms, as well as the thousands who have lost them, have been the victims, not of indolence or stupidity, but of economic processes as vast and terrible as the laws of the physical universe. Add to this the fact that many of these men sincerely believe some of their suffering was deliberately engineered by Government agencies, and it is small wonder that the West is sending to Congress to-day a group of radicals who, whatever else they do or leave undone, may be relied upon to tell the nation that the farmer is in distress.
At heart, there is no more conservative individual on earth than the landowning American of the Middle West. He is blood-brother to the man on Main Street, with all his horror of cults and isms and new-fangled notions. The farmer’s radicalism is exactly the radicalism which threw the tea overboard in Boston Harbor. It is an outraged sense of injustice and a burning determination to leave no stone unturned to secure what he regards as redress. When he gets what he wants,
I predict that the radicalism of the farmer will disappear so quickly that overnight people will wonder how they could ever have supposed that the agricultural regions were anything else than safe and sane.