Not Just Another Recession
Why the Global Economy May Never Be the Same
WHETHER the United States will continue to advance along the path of international collaboration depends to no little extent upon the state of mind of the rural electorate and the farm organizations. Rural attitudes on foreign policy in the years ahead will be determined primarily by the health or weakness of domestic agriculture; and it is a mistake not to face the fact that the long-term prospects for internationalism among American farmers are not particularly bright.
Most persons concerned about foreign relations are prone to underestimate the strategic position which the American farmer holds in the formulation of our foreign policy. The political voice of rural America is peculiarly influential in Congress, for two obvious reasons. Each State has two Senators, a simple truth which describes the magnitude of the veto power of the rural, less populated sections of the country. And the Congressional districts are so drawn as to give extra weight to the rural areas. To these factors another must be added at the present time: so far as political majorities go, the anti-Administration sentiment is heavily concentrated in non-industrial districts of the Middle West and in the plains States. Herein lies the source of rural America's great power on international issues.
Currently, the hand of the American farmer is raised in approval of Dumbarton Oaks, Bretton Woods, and the Food and Agricultural Organization of the United Nations formulated at the Hot Springs Conference. The extension of the Reciprocal Trade Agreements program, with new powers to cut tariffs, presents the farmers with a more difficult choice, however. On this issue agriculture is divided against itself, with the strong commodity lobbies -- wool, cattle, sugar and dairy -- in opposition, and two of the general farm organizations, the American Farm Bureau and the Farmers Union, in favor of the extension. At present there is strong leadership in the general farm organizations favorable to international collaboration and there is widespread farm prosperity. This conjuncture bodes well for the immediate future. The trouble may come two to five years from now. In the opinion of the writer, the main weight of agriculture not only may be thrown against foreign policies favoring freer trade but probably will be, unless we take measures to avoid a prolonged depression in agriculture after the war and to close the growing gap between agricultural policy and trade policy.
First, what is the point of view of American farmers on international questions at the present time? People who rely upon the forces of education to bring about more enlightened public action all too often overlook the fact that education seldom has much influence in the short run. An examination of the activities of educational groups provides a clue to the ideas likely to prevail a decade hence, but to acquire an insight into current developments we must turn to prevailing attitudes, and, what is more important, to the interest groups which are busy working for concrete objectives. Such groups have substantial power in agriculture. Their task, as they see it, is to make the attitudes of their "constituency" effective, and they strive to accomplish this through direct political action and through propaganda. At the moment, the attitudes of farm people, as reflected by the major farm organizations, favor the development of new international institutions and the acceptance of added responsibilities by the United States.
The American Farm Bureau has the strongest influence in Congress of any of the farm organizations. The Bureau has taken its stand for the principles and plans of the proposed international organizations. The membership is heavily concentrated in the middle Corn Belt and the central Cotton Belt, and the Bureau accordingly represents the heart of American agriculture. This area has always had a pulse beat for "free trade" and a pulse beat for a "protected American market." One of the outstanding political accomplishments of the Bureau in recent years has been the reconciliation of these two opposing attitudes. Its policy in foreign affairs is clear-cut. No one has seen fit to put the label of "isolationism" on this organization, although it is rooted in America's hinterland. The Bureau helped former Secretary Hull realize his trade agreement programs. It was in the vanguard in anticipating the need for preparedness and the coming of war. Much of the credit for holding the Corn and Cotton Belts to a common purpose with regard to foreign policy belongs to Edward O'Neal, long President of the Bureau, who with his Alabama background is strongly international-minded. His espousal of "free trade" was made tolerable in Corn Belt circles by the rapid rise, especially in Iowa, of local leadership committed to the same principle.
The Bureau is not likely to lend its support to Congressional strategy designed to cripple or weaken the major proposals for America's participation in international organizations. The Bureau is not wholly satisfied with all of the many features embodied in these proposals, nor with the way in which they were drafted; yet, practised as the Bureau is in political realism, it will not be inclined to jeopardize its larger goals by insisting upon amendments and modifications.
Yet despite the Bureau's admirable and forthright stand on measures dealing directly with foreign policy, it has been largely responsible for domestic measures affecting agricultural prices which are increasingly inconsistent with the essentials of a liberal trade policy. Here the Bureau finds itself in the rôle of a Dr. Jekyll and Mr. Hyde. The internal measures which it supports can lead only to more protectionism; and sooner or later they will give both cotton and wheat farmers a vested interest in price discrimination and dumping. When this takes place the influence for "freer trade" of this powerful American group may be reversed. This question of a two-price policy, leading to dumping of American farm products abroad, provides the clue to the problem we are discussing, and we shall return to it in more detail later.
The National Farmers Union wants full participation by the United States in international organizations. The Union has its tap root in the plains immediately west of the rich territory where the Bureau is strong. Union farmers have always been burdened by much economic uncertainty, not only in regard to prices but also -- as a result of erratic weather in this region -- in regard to production. The membership of the Union, like that of the Bureau, spans the North-South axis; and both Oklahoma and North Dakota have a common interest in hard wheat -- still very much a world commodity. But the Union's program, including its position on foreign policy, is not determined by an interest in basic commodities and parity prices; it is to be found in a concern for underprivileged people in agriculture and in the ranks of labor, here and abroad. The leadership of the Union reacts quickly against any action that aids anti-democratic forces abroad. James Patton, its President, has given the Union an intellectual rationale befitting an advanced industrial-urban society. That liberal leadership of this kind should have emerged in agriculture may seem paradoxical unless one remembers the social forces that gave rise to Bryan, Norris, the elder LaFollette, Walsh, Norbeck and others. The early agrarian movements -- the Grange, Farmers Alliance, Populist Party and Non-Partisan League -- all had a deep concern about monetary policy, industrial monopolies, inequality in incomes and the welfare of the underprivileged.
The National Grange holds a mixed position on foreign policy. Its membership is for the most part conservative and protectionist. Politically, it is strongest in the northeast, but its strength is diffused. In the northeast and middle states it chiefly reflects the views of moderately prosperous farmers, home-and-family-conscious folk, engaged for the most part in producing milk. These farmers believe in the efficacy of a high tariff. The wartime importation from Canada, duty free, of 150,000,000 bushels of barley, oats and wheat for feed received the hearty approval of the Grange; but it must be noted that prices were high at the time and that the resources of the feed-producing areas were being fully utilized. In such circumstances all farm people are quite willing to accept even free trade.
Under the leadership of Albert Goss, the Grange has shifted some distance from its former rôle as an outright protagonist of a high tariff, and its present position is more moderate. It now favors a two-price system for farm commodities, and it believes that this does not constitute dumping of American farm products. It wants an international political organization that leaves the rights of sovereign states intact. It favors Bretton Woods, with provisos, and accepts trade agreements if they are subject to Congressional approval. On agricultural policy the Grange is for the most part on strong ground. It sees the weak foundations on which crop control and the parity price formula rest. It favors lower support-prices and modifications of parity which would lessen certain adverse effects of parity on both domestic and foreign trade.
How firmly the lessons of the inter-war years are fixed in the farmers' minds is a question which cannot be answered. The economic crisis of the early thirties cut the farm income to nearly one-third of its pre-depression level. This shock was linked in the minds of most farm people with the disintegration of foreign trade and the Tariff Act of 1930, and these issues were discussed wherever two or more farmers happened to meet. Henry A. Wallace, first as a farm editor and then as Secretary of Agriculture, led the debate. He pointed to the new creditor position of the United States, the inability of buyers abroad to earn dollars for the purchase of American products, and insisted that America must choose between tariff walls and trade. A healthy core of sentiment favorable to international trade developed in the middle states outside of the reaches of the Chicago Tribune. It was centered in a Republican hinterland dependent upon agriculture. Des Moines and Minneapolis led this movement, and it gained strength in Omaha, Kansas City, Sioux Falls and many other towns. The influential papers of the Cowles family, through the editorial pages of W. W. Waymack and Gideon Seymour, gave favorable hearings to the whole question and stressed its importance to agriculture. The Western Policy Committee gave strong support, as did professors at the University of Minnesota and at Ames. It is worth while to note that the Iowa Farm Bureau has become the most international-minded of the strong state farm organizations in the Middle West. Its leaders, Allan Kline and Mrs. Raymond Sayre, are deeply committed to the achievement of world order and peace through international coöperation.
An attempt to assay the position that American farmers will take in the long run on questions like those mentioned above cannot leave domestic economic policies out of account. A postwar depression in agriculture will give rise to strong nationalist attitudes among farm people; in particular, it will breed antagonism to imports. Though farm people are now giving approval to policies that enlarge the responsibility of the United States in world affairs, they are likely to oppose this program actively after the war unless this country manages to correct the growing inconsistency between trade policy and agricultural policy. Few signs exist that the United States is prepared to make the transition from war to peace without deflation and depression in agriculture. And it is well to recognize the fact that the mood induced by deflation is incompatible with a favorable attitude toward international collaboration.
Postwar agricultural production in the United States will be much larger than before the war. Exports of American farm products will drop off sharply after relief needs are met and as our Allies return to more normal sources for their supplies. Even with a high level of employment, the American market is no large enough to absorb the expanded farm production at prices which will not cause depression in agriculture. Briefly, this is the sequence of events which we must expect: Agricultural production as a whole is not likely to contract appreciably from its wartime level; farm prices are likely to fall, as much as one-fourth or one-third (from a parity of about 115 to a parity in the neighborhood of 85); and the reduced farm income will have to be divided among more farm people, for the farm population will increase substantially as the Armed Forces are demobilized and as many of the several million farm people who went to work in industry return. (There are 1,650,000 men from the farms in the Armed Forces. Net migration from farms was 4,660,000 from January 1, 1940, to January 1, 1944.) The per capita income of farm people, therefore, is likely to drop at least one-third, and it may go as much as two-fifths below current levels. Should deflation of this magnitude occur, the result will be a depressed agriculture, despite the much stronger financial position of farmers at present and despite the marked improvements in farm practices and techniques. Indeed, the increased efficiency of agriculture, which increases its productive power, will tend to make the depression worse.
The depression will be tempered somewhat by government buying to refill the ever-normal granary and by other measures to make good the commitments of Congress to support most farm prices for at least two years after the war. It may not be as sharp or as deep as the one which struck American agriculture in 1921; but it will probably be sufficiently acute to work a great change in the prevailing state of mind among farm people on the subject of freer trade. The change will be especially great among farmers who produce products which compete (or which they believe compete) with imported commodities. Farm surpluses -- fats and oils, cotton, wheat, sugar, rice and other products -- will accumulate. The possibility of such a situation, with farm relief once more in the foreground, does not augur well for the adoption of broader American foreign trade policies.
It is well to recall that soon after World War I we passed the so-called Emergency Tariff Act. The political impulse that brought this Act into existence came from the farming areas, especially from the Middle West where bankruptcy and liquidation had become widespread following the 1921 crisis. The representatives of protected industries, of course, joined hands and saw to it that their tariffs were raised even further. Perhaps the results of that Act have really taught farmers the folly of raising tariffs on farm products which we are exporting. The case for protection of the home market will certainly be made, however, and the strength of the argument will increase as the foreign demand contracts. The maladjustments which will plague agriculture at the end of the war are not easily remedied. It is not within the province of this article to outline measures for avoiding or at least minimizing the agricultural depression now in prospect, but it is relevant to point out here where the weakness of our present agricultural policy lies.
Except for the loans of the Commodity Credit Corporation, farm programs from 1933 to 1941 did not create any major problems as far as the interplay between trade and agricultural policy is concerned. In 1941, however, the center of gravity in agricultural policy shifted from acreage allotments designed to control production to support-prices planned to encourage expansion. By 1944 support-prices had been extended to include most farm products. This shift in price policy has far-reaching implications for both internal and external trade. Congress has made it mandatory that farm prices be supported at not less than 90 to 92.5 percent of parity for at least two years after the war. Parity for most farm products is based on the relative price that prevailed during 1910-1914. This means that no allowances are made for changes in the structure of supply and demand that have occurred since then. The parity price formula very appreciably overvalues many major farm products, including most of the products that are on an export basis. The program of support-prices involves commitments that will preclude a satisfactory pricing of farm products for trade after the war, unless Congress substantially alters present laws.
What we have done about cotton illustrates the steps in this process and suggests the danger. We first raised the price of cotton by means of a loan that was higher than the market price; it was sufficiently high to make it apparent that we were pricing cotton above the world market. The second step was to maintain the domestic price and sell abroad at the lower world price; to do this we established a two-price sales policy. The inevitable third step will be aimed at enlarging the volume sold abroad by further price discrimination and through overt dumping. By the time this stage is reached the cotton farmer will quite obviously have acquired a vested interest not only in the appropriations employed to maintain the two-price system and to increase the dumping of cotton abroad, but also in a tariff on cotton. The tariff becomes necessary to prevent the product dumped abroad from reappearing in the American market, and to provide added protection for textile producers against foreign competitors whose raw material costs less than that used by American mills.
This price policy, which enjoys strong political support, can be made somewhat more acceptable to other countries by international commodity agreements; but it sets the stage for a profound shift in attitudes on the part of farm people. Producers in the Cotton Belt and Wheat Belt who heretofore have had a major economic interest in world trade will acquire a vested interest in a policy inimical to international trade.
What is needed is a careful reëxamination of our agricultural policy with the view of making it more consistent with a liberal trade policy. Legislation regarding the pricing of farm products must be overhauled. Parity prices as now defined by law and the way in which they are administered is not compatible with a "freer trade" policy. It is a serious mistake to proceed to adjust trade policy to fit the prevailing farm price policy.