Economic Error #7: Roosevelt's Food Price Controls, Which Raised Food Prices, Were Good for America.

Gary North

Ellen Brown believes that the Federal government should tax people in cities to pay farmers to sell their crops to the government, which will store it at taxpayers' expense.

A farm policy of "parity pricing" was enacted that ensured that the prices received by farmers covered the prices they paid for input plus a reasonable profit. If the farmers could not get the parity price, the government would buy their output, put it into storage, and sell it later. The government actually made a small profit on these transactions; food prices were kept stable; and the family farm system was preserved as the safeguard of the national food supply. [Web of Debt, pp. 151-52]

When the government pays farmers an above-market price for their crops, this raises food prices in cities. Where does the government get this tax money? Mostly from people in cities. So, city-dwellers get to pay twice for their food: once to pay farmers not to sell it to them, and next to pay higher prices for food.

She says that the government made a profit on this. She does not say how. The food was stored in huge facilities. These facilities had to be paid for. The food was not sold to the public at a market price. That was the whole point of Roosevelt's farm program: to keep prices high by restricting supply.

Here is the assessment of the Wikipedia article on the New Deal. This source is considered neutral (though nothing can be). It is surely not controversial. This section deals with the Agricultural Adjustment Act.

The aim of the AAA was to raise prices for commodities through artificial scarcity. The AAA used a system of "domestic allotments", setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat. The farmers themselves had a voice in the process of using government to benefit their incomes. The AAA paid land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. The goal was to force up farm prices to the point of "parity", an index based on 1910--1914 prices. To meet 1933 goals, 10×10^6 acres (40,000 km2) of growing cotton was plowed up, bountiful crops were left to rot, and six million baby pigs were killed and discarded. The idea was the less produced, the higher the wholesale price and the higher income to the farmer. Farm incomes increased significantly in the first three years of the New Deal, as prices for commodities rose. Food prices remained well below 1929 levels. A Gallup Poll printed in the Washington Post revealed that a majority of the American public opposed the AAA.

The AAA established an important and long-lasting federal role in the planning on the entire agricultural sector of the economy and was the first program on such a scale on behalf of the troubled agricultural economy. The original AAA did not provide for any sharecroppers or tenants or farm laborers who might become unemployed, but there were other New Deal programs especially for them.

In 1936, the Supreme Court declared the AAA to be unconstitutional, stating that "a statutory plan to regulate and control agricultural production, [is] a matter beyond the powers delegated to the federal government..." The AAA was replaced by a similar program that did win Court approval. Instead of paying farmers for letting fields lie barren, this program instead subsidized them for planting soil enriching crops such as alfalfa that would not be sold on the market. Federal regulation of agricultural production has been modified many times since then, but together with large subsidies it is still in effect in 2010.

It is clear that this was a program of government-run agriculture. Once begun, it has never ended. Federal bureaucracies do not go away. They get larger.

The trend in ever-larger farms did not cease because of Roosevelt's New Deal. These charts are from the U.S. Department of Agriculture.

http://www.ers.usda.gov/publications/eib3/eib3.htm

http://www.ers.usda.gov/publications/eib3/charts.htm#fig3

Ellen Brown believes in big government. She believes in price controls. She believes in FDR's New Deal.

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm