Our Embattled Farmers


THEY told me when I moved from Minneapolis to Des Moines in 1921 that in Iowa I should n’t see any wild-eyed farmer radicals like those who were making life a burden to the sober and respectable citizens of the Northwest. ‘ You won’t find fanaticism of the Nonpartisan League brand in Iowa,’ said a banker. ‘In that state the farmers know which side their bread is buttered on. They never have a crop failure and they understand the meaning of business principles. Socialistic experimentation like that now undermining the prosperity of North Dakota has no attractions for them. They would rather trust to work and thrift.’

That was encouraging. Although I had friends among the farmer radicals of the Northwest, I was beginning to quarrel with them. Their habit of blaming everything that troubles the farmer on bankers and grain speculators was getting tedious. They suspected me of coldness to their cause when I doubted the power of grain exchanges to control prices and suggested that credit stringencies sometimes indicate an actual shortage of bank resources rather than just a mean streak in bankers. When I ventured to hint that economic principles are a safer guide than political prejudices in forecasting wheat prices, I was given up as hopeless.

Accordingly I welcomed the prospect of getting into a more congenial agrarian atmosphere. But this prospect soon went glimmering. Shortly after my arrival in Des Moines I attended a convention of the Iowa Farm Bureau Federation. This organization was thought conservative, and had much respectable backing. I expected it to hand out a realistic view of the agricultural depression then at its worst. Instead, I found the meeting industriously working itself into a passion against bankers and middlemen and Wall Street in the old familiar way. A director of the Federation played the part of witch doctor.

‘There is no mystery about the trouble with agriculture,’ he said, amid applause. ‘It, is the victim of a trick that I have seen worked twice before, after periods of fairly good times. Each time the trick has been worked by the same crowd. They resort to it whenever the ordinary working of our financial and economic machinery fails to do a clean job in trimming the farmer out of his earnings. It is a religion with Wall Street, that the farmer must not be left with any spare cash, lest he should start loafing and run the country into a shortage of cheap food and cheap raw material.

‘Usually our economic machine is pretty efficient in separating the farmer from his legitimate profits. Merchants and manufacturers overcharge him for household supplies and for tools and implements. Railroads levy toll upon him. Bankers load him down with high interest-rates and extra commissions, evading usury laws by collecting interest in advance and compelling him to leave on deposit a part of the money he is supposed to be borrowing. Grain exchanges manipulate prices against him, and packers squeeze him by collusive buying.

‘Nevertheless, a little money sometimes sticks to the farmer’s hands in spite of these exactions. This happens in periods of exceptional commercial activity, and in war-time. Then it becomes necessary for Wall Street to work its master skin-game. It does so by manipulating credit and currency. Deflation is a dangerous two-edged sword. But Wall Street knows how to handle it so that it damages agriculture more than it damages industry and business. That is proved by the history of every deflation crisis this country has gone through. Right now business is beginning to recover and the stock market is forecasting industrial prosperity, while agriculture is sinking deeper and deeper into the hole. You can’t get away from it. Farmers are just pawns in the hands of market crooks.’

It would have taxed A. C. Townley and the other crusaders of the Nonpartisan League to beat that for an allround denunciation of Big Business. Moreover, the Farm Bureau leader was not expressing the views of a small minority. Later events, notably the election of Brookhart to the Senate, proved that the stereotyped radical explanation of agricultural distress is deeply rooted in Iowa. Senator Brookhart is completely committed to that theory. Even to-day, with agriculture making rapid recovery from the postwar depression, Iowa farmers are very radical. It is from Iowa that the loudest clamor comes for price-fixing and other nostrums.

Failing to escape from farmer radicalism, I tried to understand it. It did n’t seem practical to go on the idea that all its smoke comes from no fire at all. There were then two possible approaches to its secret. One was on the assumption that its leading ideas were in the main correct — that agriculture really is playing a game in which the cards are stacked against it. The other approach was on the theory that perhaps the farmers have a chronic grievance, which has not been correctly diagnosed, or which for one reason or another they are loath to recognize. There was here a problem in psychology, as well as in economics.


Farmer radicalism varies in degree in different states, but not in kind. Curiously there is more of it in the newer and richer farming regions than in the older and poorer ones. Its special preserve is the richly productive land of the Middle West and the Northwest. You don’t find much of it among the stony hills of New England or in the less fertile lands of the Middle Atlantic States. Evidently it is not specifically a product of poverty. Singularly enough, moreover, it is not materially influenced in its ideas by the varying economic circumstances out of which it seems to arise. The radical ideas now being propagated in Iowa, as a result of distress attributed to the post-war depression, are much like those preached by the Nonpartisan League in North Dakota in the boom years of war-time.

In the last few years the main idea of the farmer radicals has been subjected to searching tests. Their central doctrine is that business and finance, through their control of economic institutions, manipulate the prices of farm products so as to create an unnaturally wide spread between the value of such products on the farm and their value when sold to the ultimate consumer. Out of this artificial pricespread are supposed to be drawn all the illicit profits of banking, milling, graindealing, and so forth. Wide spreads do, of course, exist between country and city prices. The question is whether those spreads represent loot or expenses unavoidably incurred in handling farm products.

On the theory that they represent loot, the remedy for the farmer is simple. He has only to go into banking and milling and grain distribution, and the loot will remain in his own possession. Even if he is inefficient at his new job he cannot fail, since he is tapping a supposedly copious source of profits. But what happened when the Nonpartisan League of North Dakota went into the banking business? Did it find the game so easy and profitable that every farmer of the right political persuasion could be given all the loans he wanted at low interest-rates, without in the least endangering the banking system? On the contrary, it made a disastrous and painful discovery that there are costs and risks in banking just as in farming.

Another enlightening experience has befallen North Dakota in connection with its experiment in milling. After two years of operation, the state flour mill is a losing proposition. It is said to be dropping a thousand dollars a day. Its aggregate losses already exceed $700,000. Although under competent management, it has not yet built up a broad and steady market or got its costs down where they should be. North Dakota farmers are so convinced that profitable milling is easy that they will not let the manager of the state mill do what other millers find it necessary to do in producing the best grades of flour. In making the best flour a proportion of hard wheat of high gluten-content is required. Many successful millers buy some wheat of this kind in Canada, when home supplies are low. But when the manager of the North Dakota mill wished to follow their example he aroused such a storm of opposition that he had to drop the plan. The farmers could not believe there was no profit in milling except at the price of bringing in foreign wheat. Such a notion contradicted all their ideas of milling-profits.

One of the chief articles of faith among our farmer radicals is the belief that grain exchanges manipulate prices at will. Recent Federal legislation bringing grain exchanges under government supervision indicates that the radicals are not alone in their view. And yet the collapse of the U. S. Grain Growers, Inc., in 1923, and the more recent abandonment of another big scheme for farmer-controlled grainbuying suggest that the road to easy money is no smoother in the grain trade than in milling. Search for statistical proof of price-manipulation by grain exchanges has always broken down.

I asked a Minneapolis attorney, who has appeared in many grain cases for the Nonpartisan League and is a recognized authority on the grain trade, whether it is possible to show that grain prices have heretofore been regularly juggled against the farmer. This attorney is a strong opponent of future trading. He thinks the mere volume of future trading in wheat is prima facie proof that it is larceny. But he confessed that he has never been able to show by price statistics just where the larceny takes place.

Investigation by the Government into the wild markets of last winter has brought an official declaration that excessive trading was a factor in the situation. Apparently, however, all that the most powerful speculators can do is to throw a little more weight into the scales as they are moving under the influence of supply and demand conditions. Bull and bear markets cancel one another eventually, and the effect they have on the farmers’ ultimate earnings has probably been vastly exaggerated.

Another explanation of the farmers’ troubles that has been to the fore of late attaches great importance to the tariff. Much of what the farmer produces must be sold in a world market exposed to the full force of foreign competition, whereas most of the things he buys are sold under effective tariffprotection. It is inferred that the farmer sells at low world-prices and buys at high American prices. The late Secretary of Agriculture, Henry C. Wallace, held this view. He accordingly championed the McNary-Haugen bill, which contemplated price-fixing for the purpose of making farm-commodity prices equal to those commanded by protected factory-goods. There is still a strong demand in the Middle West for legislation ‘to equalize tariff benefits.'

But the trouble with this theory is that the dependence of agriculture on foreign markets before the war apparently did not hurt it much. Farm earnings were unusually favorable from 1900 to 1920. In that period farm-commodity prices rose faster than the prices of other goods. From 1880 to 1920 the average value of farm land in the United States more than trebled. In some states it increased tenfold. Such increases could not have taken place had farm-commodity prices been unprofitable. American agriculture in the past has undoubtedly been compensated in some way for its exposure to world competition. Urban growth may have strengthened farm-product prices as much as the tariff strengthened the prices of factory goods. Or, on the other hand, the effect of tariff protection on factory goods may have been less than is supposed.

In any event, history furnishes no proof that it is a disadvantage for agriculture to sell abroad. Agricultural commodity prices have been relatively lower since 1920 than the prices of other goods. But this has probably been due more to the over-expansion of agriculture in the war period than to anything else. Cotton has suffered less from price depression in the last few years than any other leading American crop. Yet half our cotton crop regularly goes abroad. It is evident that selling in the world market does n’t hurt agriculture when the supply of its products is not in excess of the demand. When the supply is in excess of the demand, neither tariff nor price-fixing will cure the trouble.


When I got this far in my search for the roots of the farmer’s discontent, I began to think that perhaps there was nothing really ailing him except poor business judgment and inefficiency. That is what most of the bankers of my acquaintance said. They attributed all the farmer’s troubles to his failure in time of war to prepare for peace. They said farmers who made big money in war-time saved nothing in liquid form as an insurance against the inevitable post-war depression, and persistently hugged the delusion that war-prices would continue indefinitely. Such conduct, said the bankers, inevitably produced disaster.

That looked plausible. What could be responsible for the visible woes of the farmer, if he was not robbed cither by means of grain exchanges and financial institutions or through the tariff? Moreover, how was it possible to square the idea that the farmer has a real chronic grievance with the evidence, afforded by price statistics and advances in land values, that agriculture has been a profitable business, on the whole, for several decades? Unless this apparent inconsistency could be dissolved, there was no use in going any further. The farmer was just a grouch, blaming the results of his incompetence on other people.

Light was cast on the problem by a peculiar contrast between the economic position of Iowa and that of North Dakota in the crisis of 1920-21. There was apparently more distress in rich Iowa than in North Dakota, despite the extent to which the latter state had suffered from a succession of indifferent crops. Eugene Meyer, Jr., head of the War Finance Corporation, appears to have been the first to explain the paradox. During the war and the postwar boom North Dakota was in bad repute in the investment world on account of its politics. In consequence, its credit-supply was shut off and it did not participate in the land boom that swept neighboring states. It entered the deflation period with no great burden of debt, and without inflated farm-valuations.

Opposite conditions existed in Iowa. That state, with its rich lands and its reputation for conservative opinions, had received unlimited credit. It had plunged heavily into land speculation, on a wave of rising farm-valuations. As a result it found itself burdened in 1920 with an enormous load of new debt assumed at unheard-of price levels. When corn fell to thirty cents a bushel and hogs to seven cents a pound, the prospect of meeting those obligations looked slim. Accordingly radicalism waxed in Iowa while it waned in North Dakota. Debt and doctrine seemed to be united, if not as cause and effect, at least in some intimate relation. It was evident that the prosperity of agriculture is not always identical with that of the man who works at it.

Search for the true nature of the farmer’s grievance seemed easier when a distinction was made between agriculture and the farmer. When they are confused, a good financial showing for the one necessarily implies equally satisfactory conditions for the other. But you can have poor farmers in a profitable agricultural system, just as you can have poor wage-earners in a prosperous industrial system. This was demonstrated by the fact that rich Iowa was harder hit in 1920 and 1921 than North Dakota. In these two states the prosperity of working farmers seemed to vary inversely with the extent to which farm incomes were high or low in proportion to farm valuations. Agricultural distress and radicalism seemed to have about the same geographical distribution as did overcapitalization of farm properties.

At bottom the problem of the farmer is much like that of the wage-earner. It turns largely on the distribution of income between the capital and labor employed in production. Farmers own only a part, and a decreasing part, of the capital invested in agriculture. Where radicalism is strongest, the proportion, although not the absolute amount, of farmer-owned capital is less than elsewhere. Less than half the farm land of the United States is owned by the men who work it. Tenants renting all the land they till comprise more than 38 per cent of all farmers. Total mortgage-encumbrance on all classes of farms in 1920 amounted to nearly eight billions of dollars, having increased from $3,320,470,000 in 1910.

Obviously a large part of agriculture’s earnings goes to persons who do not farm. Every claim of the capital invested in the business is satisfied in full before the claim of the farmer and his family for a labor income are considered. In the crop year 1924-25, for example, the interest paid by farmers on mortgage and other indebtedness, according to the Department of Agriculture, amounted to 6.4 per cent. Contrast that return with what went to the farmers as a reward for their labor and management and the labor of their families. This averaged only $649.

If the 6.4 per cent that was paid out in interest by farmers in the crop year 1924-25 represented merely a return on actual capital employed in agriculture, their position might be tolerable. But it included a return on water as well as actual agricultural capital. Throughout a large part of the Middle and Northwestern States, land values have undergone manifest inflation in the last few decades. In Iowa from 1890 to 1920 the average value of farm land increased from $28 an acre to $227 an acre. Iowa farms had an average value in 1920 of $35,616. On such valuations it is hard for a farmer to pay interest at 6 per cent out of corn and hogs and have anything left for himself.

An idea of the extent to which Iowa farm-land values were inflated in 1920 is given by the ratio borne to them by cash farm-rents. Cash farm-rents show better than anything else what the actual current earning-power of land is. In accordance with Ricardo’s famous law, they comprise the total annual production of the soil, less only a return representing the minimum that competition for land forces tenants to accept. When cash rents are low in proportion to land valuations, the latter are excessive. That was the case in Iowa in 1920, when cash rents, according to the Department of Agriculture, were only 3 per cent of farm valuations. In other words, the farms were capitalized at about double their current earning-power.

It is customary for farm land in growing regions to be capitalized at more than its current earning-rate. The difference represents hope for the future. But sometimes the hope is destined never to be realized. This is so when the land is really at grips with the law of diminishing returns, but people are ignorant of the fact because time and experience have not yet proved it. When such a condition develops, the first reaction of the farmer to it is likely to be a feeling that he is not getting enough for his products. That seems to be what is going on in Iowa. Farmers there think they are not making progress toward independent farmproprietorship because the prices of their products are too low, whereas perhaps the real trouble is that the prices of their farms are too high.

What the burden of advancing landvalues means to the farmer of the Middle West can perhaps be divined from the enormous rate at which tenancy has increased in that region. Tenancy is an inevitable product of landownership. It tends to arise as soon as land becomes capable of yielding a surplus over subsistence. When that point is reached owners like to retire and live on the surplus. But tenancy increases also when it is cheaper to rent than to buy land, as happens when valuations are inflated.

Tenancy increased from 23 per cent to 41.7 per cent in Lowa from 1880 to 1920. In North Dakota the increase in the same period was from 2.1 per cent to 25.6 per cent. In South Dakota the increase was from 4.4 per cent to 34.9 per cent; in Nebraska from 18 per cent to 42.9 per cent; in Kansas from 16.3 per cent to 40.4 per cent; in Minnesota from 9.1 per cent to 24.7 per cent; and in Oklahoma from 0.7 per cent to 51 per cent. Contrast these figures with what happened in all the states north of North Carolina and east of Kentucky and Ohio, except New York and Pennsylvania. In that region the percentage of tenancy declined from 1880 to 1920. Apparently the explanation is that in the Middle West and the Northwest the land-valuation situation made it cheaper to rent than to buy land.

The increase of farm-land values and the growth of tenancy are a measure of the success agriculture has had in the past. High land-values indicate the estimate placed on farm earning-power. Tenancy shows the extent to which farmers have been able to retire and live on the agricultural surplus. But the very fact that this process has taken place is a warning that it cannot be repeated indefinitely, and a sign to the alert farmer that the immediate future of American agriculture is likely to differ from its immediate past.


Farmers in the Middle West and Northwest are dissatisfied with their earnings because they seem insufficient for current needs and future independence. Certainly the road to full ownership is steep when annual farmearnings are less than annual capital values. Farms that yield a surplus of only 3 per cent on their valuations certainly cannot produce their own purchase money. But may not the trouble lie with the valuations to a greater extent than with the earnings? When earnings are persistently capitalized at an excessive rate, it helps the average operating farmer very little to increase them.

Tenant farmers escape the burden of excessive land-values in part but not altogether. It affects their rents to some extent, and blocks their road to farm-ownership. Farmers trying to complete payments on overcapitalized lands are in a worse case. They are not only overburdened with annual charges, but their hope of reaping a profit in the future out of further increases in land values is diminished in proportion to the extent to which they are paying too much now.

Many farmers are probably kept from seeing the drawbacks of overcapitalization by their hope that the process will continue long enough to let them out of the business with a competence some day. Increasing farmland values carried the last generation of farmers to prosperity. In the sixties and seventies of the nineteenth century, farmers taking up lands on the rich plains of the Middle West could afford to ignore a few years of low income, because they knew rising values would put them on easy street eventually. Most farm landlords are exfarmers.

Naturally the working farmer to-day hopes to win through in the same manner. He does not realize that a farm capitalized at $200 an acre has usually much less chance to double in value than one held at a tenth of the price. Farmers, in short, have an obstinate delusion that the normal course of land values is perpetually upward. Their solution for every farm problem is higher prices for farm products, so that higher prices for land can be paid if they are in process of buying a farm, and exacted if they have one to sell. They are blind to the profound significance of the change that has taken place in farm-land values in the last half-century, perhaps because the change has brought about a corresponding change in their economic status and in their prospects, which they would fain deny.

One need not go outside the United States for proof that farm valuations cannot advance indefinitely. In the East they appear to be approaching stabilization. From 1900 to 1910 the average increase for the entire country was 100 per cent. But the increase in New England and some of the Middle Atlantic and Lake States was very small.

Nor did the East keep pace with the West in the increases that took place in the next decade. Pennsylvania was in the front rank of Eastern states in land-value increases from 1900 to 1920. And yet in this period Pennsylvania farm valuations advanced only from an average of $46 to an average of $75 an acre, whereas farm valuations in Iowa in the same two decades rose from $43 to $227 an acre. It is hard to explain the failure of the East to keep pace with the West in advances in farm valuations on any other ground than that the Eastern level of values is nearing high-water mark, and that buyers and sellers of land are aware of the fact.

It is significant, too, that cash rents are higher in proportion to farm valuations in the East than in the West. This is a sure sign that Eastern farmland values meet with resistance when attempts are made to force them upward. Cash rents in much of New England in 1920 ran from 6 to 8 per cent of farm valuations, or more than double the rate in a large part of the Corn Belt. Landowners would unquestionably have capitalized these high rental returns at correspondingly high farm-valuations, had they been in a position to do so. But they were in no such position. The natural level of cash farm-rents is above, rather than below, the current rate of return on fixed-interest-bearing securities. Otherwise, farm landlords would prefer to sell out and buy 5 per cent bonds. When they accept rents yielding less than the going rate of interest on the capitalization of their farms, it is because the nominal value of the land is not its real value. Valuation and actual selling value, in other words, are two different things. The contrast between rent ratios in the East and in the West is a sign that farm valuations are too high in the West, rather than that they are too low in the East.

Farm-land values and farm-commodity prices must be stabilized somewhere. But it is just this obvious truth, with its practical consequences, that your typical radical will not recognize. He hates to admit it because his habit of mind makes him identify his real interest with the return accruing to the capital invested in agriculture, whereas the working farmer with a lessening property-stake in farming should be more concerned about the reward for his labor and management. Increasing land-values, even when they can be counted on, do not benefit the farmer until he cashes in on them by a sale and retires. Increasing farm-commodity prices benefit the working farmer only when the increase is not absorbed in higher charges for land and capital.

What usually happens is shown by the way an Oklahoma farm landlord of my acquaintance sizes up his personal problem. This man is a scientific farmer. He values one of his rented farms at $100 an acre. Under good management it would produce a return justifying that valuation. Farming practice in the neighborhood, however, is poor. Consequently the farm does not produce an income warranting the price set upon it. Other farms just as good can be bought in the neighborhood for considerably less.

Accordingly, the farm is to be held off the market until better farming practice in the district has increased its selling value. Then the owner will dispose of it to some hopeful young farmer who for the rest of his life will battle to meet the annual payments. At the same time other working farmers in the locality will be burdened with increased charges as a reward for their greater productivity. Increases in agricultural efficiency, when they do not chiefly benefit the consumer in the shape of lower prices, are very apt to mean higher land-values rather than larger current incomes for the producers.

Every plan for relieving agricultural distress which does not take this fact into consideration is likely to fail. Our farmer radicals centre all their attention on commodity prices. Their efforts are devoted to getting larger farm-incomes, either out of the middleman or out of the consumer. But work in this direction has two fatal weaknesses. It is based on the questionable assumption that farm-commodity prices are usually unfair, an idea that is disproved by the extent to which American agriculture as a whole has thriven in the past; and it neglects the necessity for preventing increased farm-incomes from contributing to the further over-capitalization of agriculture.

I have suggested that this capital defect is probably due to the average farmer’s inability to sec that times have changed since his grandfather rode to affluence on a wave of steadily advancing land-values. To-day advancing land-values are a barrier and not an aid to the progress of the average working farmer. It is as a producer rather than as a landowner that he should look at his problem. As the amount of land and capital necessary in agriculture increases and his own share of it diminishes, he should turn his attention more and more to preventing too much of the return from going to the passive partner in his business.

It would be wrong to say that the farmers have no serious handicap except over-capitalization of farm lands. Their troubles have been aggravated in the last few years by disparities between prices of farm products and prices of other goods. Wheat-growers and livestock-raisers face increasing foreign competition. Wastes in distribution are a cause of loss. Farmers are also handicapped by the extreme difficulty of adjusting their production accurately to the demand. Moreover, since the depression of 1920 and 1921 there has been distress in regions where land valuations are obviously not inflated. This is true of many grazingareas. Beef-cattle producers have had perhaps a harder time in recent years than any other group of agricultural producers, and yet as a whole they are not burdened with heavy land-charges.

Full allowance should be made for these qualifying considerations. And yet, when this is done, the importance of over-capitalization as a cause of agrarian discontent is not materially lessened. For one thing, most of the farmer’s other grievances have a tendency to correct themselves. This is particularly true of price disparities, which tend to disappear from the action of the well-known economic law whereby capital and labor flow in and out of different enterprises until their returns are approximately equalized. Losses due to inefficient distribution diminish as improved marketing-facilities are developed, and better use of supply and demand data helps the farmer to gauge his production more nearly in accordance with market needs. But over-capitalization tends constantly to nullify the results, at least from the standpoint of the working farmer, of everything done toward solving the other problems of agriculture. Until that trouble is eliminated, farming will not be a means of wealth, or even of reasonable prosperity, for the men who work at it.