Agricultural Adjustment Act

The First World War severely disrupted agriculture in Europe. This worked to the advantage of farmers in America who were able to use new machines such as the combine harvester to dramatically increase production. During the war American farmers were able to export the food that was surplus to the requirements of the home market.

By the 1920s, European agriculture had recovered and American farmers found it more difficult to find export markets for their goods. Farmers continued to produce more food than could be consumed and consequently prices began to fall. The decline in agricultural profits meant that many farmers had difficulty paying the heavy mortgages on their farms.

The Great Depression hit the farming community very hard. The price of corn fell so low that farmers burned it to keep warm instead of bothering to take it to market. Total farm income fell by two-thirds between 1929 and 1932. Six of every ten farms had to be re-mortgaged and in 1932, five out of every one hundred farms in the state were foreclosed and sold at auction.

Henry A. Wallace, the editor of the Wallaces Farmer, thought that President Herbert Hoover had been a disaster and was tempted for the first time to support the Democratic Party. He was initially suspicious of Franklin D. Roosevelt: "I thought he was just a typical easterner who didn't know too much about the west or other practical affairs - that is, the way ordinary people live." Roosevelt had already identified Wallace as a possible influencial supporter and sent his friend, Henry Morgenthau, to see him. Wallace later recalled that Morgenthau was "a very nice fellow, rather bashful and diffident" but who was "exceedingly weak and tender physically". He added: "I've met very few people who impressed me as being so lacking in physical sturdiness."

Wallace agreed to join Roosevelt's team of advisors on agriculture. This included Rexford Tugwell, George N. Peek and Hugh S. Johnson. Wallace and Tugwell were both impressed with a plan put foward by M. L. Wilson, a professor of agricultural economics at Montana State Agricultural College. Wilson's idea was called the domestic allotment plan. Farmers who agreed to limit production would be rewarded with "allotment payments" which would supplement the income they received for crops on the open market. Its main purpose was not to subsidize farmers but to control production.

Tugwell arranged for Wallace to meet Roosevelt at his home, Hyde Park, on 13th August. Wallace later recalled: "I had heard that his legs were paralyzed, and I feared that he would be completely tired out." Instead he found "a man with a fresh, eager, open mind, ready to pitch into the agricultural problem at once... He knows that he doesn't know it all, and tries to find out all he can from people who are supposed to be authorities." Wallace spent two hours with Roosevelt: "We didn't discuss the election or the campaign at all. No politics, as such, came up at all that day."

In September, 1932, Wallace and M. L. Wilson wrote the first draft of Roosevelt's speech where he gave his support to the domestic allotment plan. By the time the speech was delivered in Topeka it was more vague than Wallace had hoped. However, it still included the promise to raise farm prices without stimulating production. Wallace continued to advocate the plan in Wallaces' Farmer and denounced Herbert Hoover as the most dangerous man in America. "The only thing to vote for in this election is justice for agriculture. With Roosevelt, the farmers have a chance - with Hoover, none. I shall vote for Roosevelt."

Although Franklin D. Roosevelt was vague about what he would do about the economic depression, he easily beat his unpopular Republican rival. William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963), has argued: "Franklin Roosevelt swept to victory with 22,800,000 votes to Hoover's 15,750,000. With a 472-59 margin in the Electoral College, he captured every state south and west of Pennsylvania. Roosevelt carried more counties than a presidential candidate had ever won before, including 282 that had never gone Democratic. Of the forty states in Hoover's victory coalition four years before, the President held but six."

Roosevelt appointed Henry A. Wallace as his Secretary of Agriculture. He asked Rexford Tugwell what post he would like. He replied that he would like to be appointed assistant secretary of agriculture under Wallace. The authors of American Dreamer: A Life of Henry A. Wallace (2001) has commented: "They presented a rather odd picture together - the dapper Columbia University professor and the tousled Iowa editor - but they made a good team. They were men of ideas and shared a vision of government that was activist and progressive. Wallace knew the practical aspects of American farming in the way a sailor knew the stars. And Tugwell knew Franklin Roosevelt."

One of Roosevelt's main advisors, Hugh S. Johnson, favoured the McNary-Haugen Farm Relief proposal that had been rejected several times by Congress. Johnson contacted Raymond Moley and told him: "It seems possible to make such contacts between farm cooperatives or a corporation to be owned by them and existing organizations for the distribution of farm products as will make the farmer a partner... in the journey of his product all the way from the farm through the processor, clear to the ultimate consumer." Johnson's ideas were passed on to the people directly involved in agricultural policy, including Wallace, Guy Tugwell and Henry Morgenthau. However, they were already committed to the alternative policy of "domestic allotment".

On 8th March 1933, Wallace and Tugwell met with Roosevelt and asked him to expand the scope of the special congressional session to include the agricultural crisis as well as the banking emergency. Roosevelt agreed to this suggestion and it was agreed to summon the nation's farm leaders to an "emergency conference" to be held in Washington. Wallace went on national radio and told the country: "Today, in this country, men are fighting to save their homes. That is not just a figure of speech. That is a brutal fact, a bitter commentary on agriculture's twelve years' struggle.... Emergency action is imperative."

On 11th March, Henry A. Wallace reported: "The farm leaders were unanimous in their opinion that the agricultural emergency calls for prompt and drastic action.... The farm groups agree that farm production must be adjusted to consumption, and favor the principles of the so-called domestic allotment plan as a means of reducing production and restoring buying power." The conference also called for emergency legislation granting Wallace extraordinarily broad authority to act, including power to control production, buy up surplus commodities, regulate marketing and production, and levy excise taxes to pay for it all.

John C. Culver and John C. Hyde, the authors of American Dreamer: A Life of Henry A. Wallace (2001) have pointed out: "The sense of urgency was hardly theoretical. A true crisis was at hand. Across the Corn Belt, rebellion was being expressed in ever more violent terms. In the first two months of 1933, there were at least seventy-six instances in fifteen states of so-called penny auctions, in which mobs of farmers gathered at foreclosure sales and intimidated legitimate bidders into silence. One penny auction in Nebraska drew an astounding crowd of two thousand farmers. In Wisconsin farmers bent on stopping a farm sale were confronted by deputies armed with tear gas and machine guns. A lawyer representing the New York Life Insurance Company was dragged from the courthouse in Le Mars, Iowa, and the sheriff who tried to help him was roughed up by a mob."

The American Communist Party were active in rural areas, including Ella Reeve Bloor, who according to one historian "set up shop in hard-hit rural areas and began dispensing doughnuts and Marxist ideology". However, the main problem for Wallace was Milo Reno, the leader of the Farmers' Holiday Association. He had not been invited to Wallace's emergency farm conference and instead he led some three thousand disgruntled farmers on a march to the state capitol in Des Moines, where he issued a sweeping list of demands and vowed to mount a nationwide farm strike if they were not met.

Henry A. Wallace later recalled: "To make provision for flexibility in the bill; to give the Secretary of Agriculture power to make contracts to reduce acreage with millions of individuals, and power to make marketing agreements with processors and distributors; to transfer to the Secretary, even if temporarily, the power to levy processing taxes; to express in legislation the concept of parity - all these points, and a thousand others, were unorthodox and difficult to express even by men skilled in the law." Wallace, on the advice of Felix Frankfurter, recruited Jerome Frank to draft the legislation. Other helpers included Rexford Tugwell, George N. Peek, Mordecai Ezekiel and Chester R. Davis.

Wallace walked it over to the White House and handed it to Roosevelt personally. The president in turn sent it off to Congress with a message to the nation: "I tell you frankly that it is a new and untrod path, but I tell you with equal frankness that an unprecedented condition calls for the trial of new means." An editorial in The New York Herald Tribune argued: "Seldom, if ever, has so sweeping a piece of legislation been introduced in the American Congress".

Congress asked for amendments to be added to the bill. On 13th April the Senate voted 47 to 41 in favour of incorporating "cost of production" into the bill. Wallace had always argued against this as it would effectively turn farming into a regulated public utility. Wallace claimed the "purchasing power of city dwellers was so low in 1933 that an effort to fix the price of food at a high level would result in an economic and political disaster".

On 27th April at Le Mars in Plymouth County, a mob of six hundred farmers marched on the local courthouse. A spokesman for the group asked the judge to promise that he would not sign any more foreclosure orders. Judge Charles C. Bradley said he had as much sympathy for the farmers who had lost their property, but that he did not make the laws. The men did not like this answer and dragged Bradley of his courtroom and taken to a crossroads outside of town, where his trousers were removed and he was threatened with mutilation. A noose was pulled tight around his neck, and the mob demanded that the strangling judge promise no further foreclosures. The sixty-year old Bradley bravely replied: "I will do the fair thing to all men to the best of my knowledge." Bradley was just about to be hanged when he was saved by a local newspaper editor who had just arrived in his car.

The case made the front page of the New York Times. Governor Clyde Herring declared martial law and sent troops to the town. Milo Reno claimed that the Farmers' Holiday Association had nothing to do with the incident. His statement was widely disbelieved when the president of the Plymouth County Farmers Holiday Association was one of the 86 men arrested. Reno and his followers were heavily criticized and he lost considerable popular support. However, Wallace was now seen as a moderate and the Agricultural Adjustment Act (AAA) was now passed by Congress.

The objective of the AAA was for a reduction in food production, which would, through a controlled shortage of food, raise the price for any given food item through supply and demand. The desired effect was that the agricultural industry would once again prosper due to the increased value and produce more income for farmers. In order to decrease food production, the AAA would pay farmers not to farm and the money would go to the landowners. The landowners were expected to share this money with the tenant farmers. While a small percentage of the landowners did share the income, the majority did not.

George N. Peek, who had been placed in charge of the AAA by President Franklin D. Roosevelt, was was adamantly opposed to the production quotas, which he saw as a form of socialism. The authors of American Dreamer: A Life of Henry A. Wallace (2001) have argued: "Crusty and dogmatic, Peek still seethed with resentment over Wallace's appointment as secretary, a position he coveted. Moreover, Peek had no use for the domestic allotment plan, which was the heart of the AAA program." To Peek the plan represented "the promotion of planned scarcity" and according to his autobiography, Why Quit Our Own? (1936), he was "steadfastly against it" from the outset.

Henry A. Wallace appointed Jerome Frank as the AAA's general counsel. John C. Culver has argued: "Frank was liberal, brash, and Jewish. Peek loathed everything about him. In addition, Frank surrounded himself with idealistic left-wing lawyers... whom Peek also despised." This included Adlai Stevenson, Alger Hiss and Lee Pressman. Peek later wrote that the "place was crawling with... fanatic-like... socialists and internationalists."

Peek's main objective was to raise agricultural prices through cooperation with processors and large agribusinesses. Other members of the Agricultural Department such as Jerome Frank was primarily concerned to promote social justice for small farmers and consumers. On 15th November, 1933, Peek demanded that Wallace should fire Frank for insubordination. Wallace, who agreed more with Frank than Peek, refused.

George N. Peek became completely disillusioned with the Agricultural Adjustment Act (AAA). He wrote in his autobiography, Why Quit Our Own? (1936): "There is no use mincing words... The AAA became a means of buying the farmer's birthright as a preliminary to breaking down the whole individualistic system of the country." However, it was clear that President Franklin D. Roosevelt supported Wallace over Peek.

In December 1933, Wallace accompanied Roosevelt on a visit to Warm Springs. Peek seized the opportunity to announce a half-million-dollar plan to subsidize the sale of butter in Europe. Peek's action was intended as a declaration of independence, but Rexford Tugwell, acting secretary in Wallace's absence, took it as insubordination. Tugwell wrote in his autobiography that "it was becoming obvious that if we did not get rid of George Peek, he would get rid of us." He said this to Roosevelt and it was agreed that Peek should be moved from the AAA.

A few days later, Henry A. Wallace made a speech where he said the dairy program had been a failure. Although he did not make reference to George N. Peek, it was clearly a comment of his policy at the AAA. John Franklin Carter commented: "That is the coolest political murder that has been committed since Roosevelt came into office." Peek resigned from the AAA on 11th December, 1933. The same day, President Roosevelt named Peek his Special Advisor on Foreign Trade.

Under the terms of the Agricultural Adjustment Act farmers were paid money not to grow crops and not to produce dairy produce such as milk and butter. The money to pay the farmers for cutting back production of about 30% was raised by a tax on companies that bought the farm products and processed them into food and clothing.

Wallace controversially agreed that hog farmers should be allowed to slaughter pigs weighing less than one hundred pounds instead of allowing them to reach their usual market weight of two hundred pounds. It was argued that pigs would be reduced by five or six million, prices would rise, and the edible portions of the pigs could be used to feed the hungry. William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963), has pointed out: "Wallace reluctantly agreed to a proposal of farm leaders to forestall a glut in the hog market by slaughtering over six million little pigs and more than two hundred thousand sows due to farrow. While one million pounds of salt pork was salvaged for relief families, nine-tenths of the yield was inedible, and most of it had to be thrown away. The country was horrified by the mass matricide and infanticide. When the piglets overran the stockyards, and scampered squealing through the streets of Chicago and Omaha, the nation rallied to the side of the victims of oppression, seeking to flee their dreadful fate."

Newspapers denounced Wallace's plan as "pig infanticide". Wallace was surprised by the criticism as it is "just as inhumane to kill a big hog as a little one". Wallace added: "To hear them talk, you would have thought that pigs are raised for pets. Nor would they realize that the slaughter of little pigs might make more tolerable the lives of a good many human beings being dependent on hog prices." Some one million pounds of pork, and pork by-products, such as lard and soap, was distributed to poor. Wallace pointed out: "Not many people realized how radical it was - this idea of having the Government buy from those who had too much, in order to give to those who had too little."

Henry A. Wallace was popular with farmers. As Frances Perkins pointed out: "Wallace was very able, clear-thinking, high-minded, a man of patriotism and nobility of character. Her had a following among farmers. He was one of the few people with an agricultural background who had begun to make himself comprehensible to the industrial working people of the country." The journalist, John Franklin Carter, commented: "He is as earthy as the black loam of the corn belt, as gaunt and grim as a pioneer. With all of that, he has an insatiable curiosity and one of the keenest minds in Washington, well-disciplined and subtle, with interests and accomplishments which range from agrarian genetics to astronomy. If the young men and women of this country look to the west for a liberal candidate for the Presidency - as they may in 1940 - they will not be able to overlook Henry Wallace."

In the 1930s it was estimated that 45 per cent of the cotton tenants were "sharecroppers" who lived in shacks provided by the landlord. They were forced to buy food at inflated prices in landlord-owned stores and received a portion of the crop in lieu of wages. Norman Thomas, the leader of the Socialist Party of America, denounced this system as "involuntary servitude" and a form of slavery. Thomas told Henry Wallace that the AAA cotton program was not helping the plight of most sharecroppers. The contracts required cotton plantation owners to share government benefits with their tenants, but the provision was being poorly enforced.

In June 1934 the Southern Tenant Farmers' Union (STFU) was established in response to allegations that an absentee landlord had evicted some forty tenant families in Arkansas. Led by socialists, the STFU promoted the idea that blacks and whites could work efficiently together. According to William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963): "It was in Arkansas that croppers and farm laborers, driven to rebellion by the hard handed tactics of the landlords and the AAA committees, established the Southern Tenant Farmers' Union in July, 1934. Under socialist leadership, the farmers, Negro and white-some of the whites had been Klansmen-organized in the region around Tyronza."

The landlords struck back with a campaign of terrorism." The journalist, Dorothy Detzer, argued: "Riding bosses hunted down union organizers like runaway slaves; union members were flogged, jailed, shot-some were murdered." Norman Thomas told a nationwide radio audience: "It will end either in the establishment of complete slavish submission to the vilest exploitation in America or in bloodshed, or in both."

Two of Wallace's junior members of his department, Jerome Frank and Alger Hiss, decided to draw up legislation that would protect sharecroppers from their landlords. They were aware that Chester R. Davis, the head of the Agricultural Adjustment Act (AAA), did not support this move. They therefore persuaded Victor Christgau, his second in command to send out details of the change in the name of Wallace. Davis was furious when he discovered what had happened. He later recalled: "The new interpretations completely reversed the basis on which cotton contracts had been administered through the first year. If the contract had been so construed, and if the Department of Agriculture had enforced it, Henry Wallace would have been forced out of the Cabinet within a month. The effects would have been revolutionary."

Davis insisted that Frank and Hiss should be dismissed. Wallace was unable to protect them: "I had no doubt that Frank and Hiss were animated by the highest motives, but their lack of agricultural background exposed them to the danger of going to absurd lengths... I was convinced that from a legal point of view they had nothing to stand on and that they allowed their social preconceptions to lead them to something which was not only indefensible from a practical, agricultural point of view, but also bad law."

Chester R. Davis told Jerome Frank: "I've had a chance to watch you and I think you are an outright revolutionary, whether you realize it or not". Wallace wrote in his diary: "I indicated that I believed Frank and Hiss had been loyal to me at all times, but it was necessary to clear up an administrative situation and that I agreed with Davis". According to Sidney Baldwin, the author of Poverty and Politics: The Rise and Decline of the Farm Security Administration (1968), Wallace greeted Frank with tears in his eyes: "Jerome, you've been the best fighter I've had for my ideas, but I've had to fire you... The farm people are just too strong."

Rexford Tugwell was unhappy with Wallace's decision and thought he should have sacked Chester R. Davis instead: "He (Wallace) gave up his policy. It was more a failure of leadership than anything else. It was letting himself be pushed around by what I thought were pretty sinister forces." Raymond Gram Swing, wrote in the Nation Magazine that Wallace had shown himself unwilling to stand up to big producers and agribusiness and seize "economic power from the interests in agriculture who hold it."

Farmers in the Mid-West faced another serious problem. During the First World War, farmers grew wheat on land normally used for grazing animals. This intensive farming destroyed the protective cover of vegetation and the hot dry summers began to turn the soil into dust. High winds in 1934 turned an area of some 50 million acres into a giant dust bowl. Wallace wrote: "To see rich land eaten away by erosion, to stand by as continual cultivation on sloping fields wears away the best soil, is enough to make a good farmer sick at heart."

Milo Reno, the head of Farmers' Holiday Association and Floyd Olson, the Governor of Minnesota, insisted on compulsory production control and price-fixing, with a guaranteed cost of production. Henry A. Wallace argued this was against the idea as it would mean licensing every ploughed field in the country. Reno responded by calling a strike. According to William E. Leuchtenburg: "Strikers dumped kerosene in cream, broke churns, and dynamited dairies and cheese factories."

Despite these problems, Wallace's farm program worked out fairly well. Between 1933 and 1936 gross farm income rose 50 per cent, crop prices climbed, and rural debts were reduced sharply. Government payments to farmers benefited merchants and mail order houses. Sewell Avery, the head of Montgomery Ward, admitted that the AAA had been the single greatest reason for the company's growth in revenues.

The Agricultural Adjustment Act had a powerful enemy in the food processors that paid the tax that generated revenue for the farm subsidies. Wallace argued that the tax was actually an excise tax eventually passed along to consumers. In other words, "the processing tax is the farmer's tariff". He also suggested the tax was actually an excise tax was a matter of fundamental fairness.

William M. Butler, a wealthy textile manufacturer, and a leading figure in the Republican Party, took the case to the Supreme Court. Justice Owen J. Roberts, declared in a 7,000-word opinion, that agriculture was "a purely local activity" and should not be subjected to regulation by the federal government. If the AAA were allowed to stand, Roberts added, the rights of individual states would be "obliterated, and the United States converted into a central government exercising controlled police power in every state of the Union."

Justice Harlan Fiske Stone disagreed with the views of Roberts. "Courts are not the only agency of government that must be assumed to have the capacity to govern." The wisest course, he said, would be for the Court to admit that the Constitution "may mean what it says: that the power to tax and spend includes the power to relieve a nationwide economic maladjustment by conditional gifts of money. However, in January 1936 the Supreme Court ruled (6-3) that the regulation of agriculture was a state power and therefore the AAA was unconstitutional.

Wallace's anger turned to outrage when the Supreme Court ordered $200 million of impounded processing taxes be returned to the manufacturings. Wallace retorted: "This is probably the greatest legalized steal in American history... I do not question the legality of this action, but I certainly do question the justice of it." Wallace immediately set out to draw up legislation that would be acceptable to the Supreme Court.

Primary Sources

(1) New Republic Magazine (1932)

Beginning in the Carolinas and extending clear into New Mexico are fields of unpicked cotton that tell a mute story of more cotton than could be sold for enough, even to pay the cost of picking. Vineyards with grapes still unpicked, orchards of olive trees hanging full of rotting fruits and oranges being sold at less than the cost of production.

(2) Oscar Heline, farmer from Iowa, interviewed by Studs Terkel in Hard Times (1970)

Grain was being burned. It was cheaper than coal. In South Dakota, the county elevator listed corn as minus three cents a bushel. If you wanted to sell them a bushel of corn, you had to bring in three cents. We had lots of trouble on the highway, people were determined to withhold produce from the market - livestock, cream, butter, eggs, what not. If they would dump the produce, they would force the market to a higher level. The farmers would man the highways and cream cans were emptied in ditches and eggs dumped out. They burned the Trestie Bridge, so the trains wouldn't be able to haul grain.

(3) C. B. Baldwin, was assistant to Henry Wallace, Secretary of Agriculture, in Franklin D. Roosevelt's administration in 1933.

The New Deal was an uneasy coalition. Fights developed very early between two factions: one, representing the big farmers, and the other, the little farmers. The Agricultural Adjustment Administration (AAA) came into being shortly after I got to Washington. Its purpose was to increase farm prices, which were pitifully low. All the farmers were in trouble, even the big ones.

Hog prices had just gone to hell. They were four, five cents a pound? The farmers were starving to death. It was decided to slaughter piggy sows (a pregnant pig). The AAA decided to pay the farmers to kill them and the little pigs. Lot of them went into fertilizer. Then a great cry went up from the press, particularly the Chicago Tribune, about Henry Wallace slaughtering these little pigs. You'd think they were precious babies.

You had a similar situation on cotton. Prices were down to four cents a pound and the cost of producing was probably ten. So a program was initiated to plow up cotton. A third of the crop, if I remember. Cotton prices went up to ten cents, maybe eleven.

(4) Herbert Hoover, interview quoted in the New York Times (31st October, 1936)

I rejected the schemes of economic planning to regiment and coerce the farmer. That was born of a Roman despot 1400 years ago and grew into the AAA. I refused national plans to put government into business in competition with its citizens. That was born of Karl Marx. I vetoed the idea of recovery through stupendous spending to prime the pump. That was born of a British Professor (John Maynard Keynes).