Location: 368A Heady Hall

Description: Price V. Fishback
"The New Deal and Cotton Agriculture During the Great Depression"

Abstract: The modern farm programs essentially started during the New Deal of the 1930s. The Agricultural Adjustment Administration (AAA) began paying farmers to take land out of production for enumerated crops and there were a series of lending programs designed to provide low-interest loans for mortgages and inputs; the largest was the Farm Credit Administration (FCA). Versions of many of these programs are still in place today, and the field of Agricultural Economics has developed a very large literature on their impact since World War II.
     There has been plenty of narrative discussion of the New Deal versions of the programs during the 1930s. Yet, there had been very little quantitative work measuring their impact until Fishback, Horrace, and Kantor (2005, 2006) collected county level data and found that the AAA did not have positive effects on net migration or economic activity. The lack of positive impact was confirmed in a state panel study by Fishback and Kachanovskaya (2015). Meanwhile Depew, Fishback, and Rhode (2013) found that the AAA contributed to sharp reductions in the numbers of tenants and croppers in cotton agriculture in the South. This damage to labor opportunities was a significant reason for the lack of a positive effect of the AAA on overall economic activity. On the other hand, Kitchens and Fishback (2015) found that Rural Electrification Administration (REA) loans that provided access to electricity had a number of positive effects on welfare in rural areas and Hansen and Libecap (2004) found that the AAA efforts to prevent soil erosion helped prevent a second occurrence of the Dust Bowl when drought hit the Midwest in the 1970s.
     This New Deal research has yet to address the direct impact of the AAA and of most of the farm lending programs on their central goals. The AAA was designed to reduce output as a means of raising farm prices and farm incomes. Total cotton output fell in the South in the 1930s, but it is hard to tell how much of the fall was due to the AAA and how much was due to problems with severe droughts and other weather problems. Economists have long suspected that AAA recipients removed their least productive land from cultivation and more intensely farmed the remaining acres with fertilizer, new seeds, and new machinery, thus mitigating the reduction in output.  Meanwhile, farm loan programs gave farmers new access to credit at subsidized interest rates, allowing them to purchase machinery and to open up new lands for production.  These programs may have contributed to the sharp rise in output per acre that occurred in cotton in the 1930s after several decades of flat trends.  New Deal programs that provided poverty relief and built public works also influenced the farm sector through their impact on the availability of labor and access to markets from new roads.
     Farm operators made a wide range of decisions that were likely affected by the New Deal programs. The decisions included whether to continue farming, the size of the farm, how much acreage to plant for each crop, and the use of machinery, work animals, and fertilizer. These decisions and the weather fed into how much cotton was produced and measures of cotton yields per acre and farm. It is less commonly known that the AAA allowed cotton farmers to shift the land to noncommercial production; therefore, we examine the change in noncotton acres harvested.  We also examine the impact of the program on overall farm income as a short run measure of welfare and the value of land and farm buildings as a measure of the capitalized expected value of future incomes. To perform the analysis, we developed a new panel data set of county level information from the U.S. agricultural censuses that cover the years 1919, 1924, 1929, 1934, and 1939 at the county level. We then combined this information with measures of temperature, rainfall, drought and excess wetness, the Dust Bowl, and the 1927 Mississippi Flood. Our strategy for identifying the effects of the programs is to use county fixed effects to control for the time-invariant geography and soil quality. We use state-by-year fixed effects to control for state regulations and for crop prices and the prices of inputs, which varied relatively little within each state except through distance from markets, which was unchanged over time. We report the estimates using those method. Because the distribution of the AAA funds was based on past output over a 5-year period, we also develop an instrument based on weather from the beginning of that five year period. We also perform placebo analyses to search for potential pre-trends that might have led to selection that would bias the findings.

Price Fishback is a very well-known economic historian and a Phi Beta Kappa lecturer in 2017-2018. He is the incoming president of the Economic History Association and has written on a broad range of topics including workers’ compensation and the economic consequences of the New Deal.

Contact Person: Elizabeth Hoffman