#20 Agricultural Adjustment (New Deal)

Today we will be continuing our look at another of the abhorrent FDR economic policies of the New Deal. In order to understand how we arrived at absurdly silly modern day government economic interventionism, we must go back to where that policy got it roots. Enter The Agricultural Adjustment Act of 1933.

From the Wikipedia:

“The juxtaposition of huge agricultural surpluses and the many deaths due to insufficient food shocked many, as well as some of the administrative decisions that happened under the Agricultural Adjustment Act. For example, in an effort to reduce agricultural surpluses the government paid farmers to reduce crop production and to sell pregnant sows as well as young pigs. Oranges were being soaked with kerosene to prevent their consumption and corn was being burned as fuel because it was so cheap. There were many people, however, as well as livestock in different places starving to death. Farmers slaughtered livestock because feed prices were rising, and they could not afford to feed their own animals.”

Now stop and let that really sink in for a moment…When there was a nationwide food shortage, the US government was busy dousing oranges with kerosene and slaughtering pregnant pigs. Why? In an effort to control prices of course. Shortages create scarcity. Scarcity (in the presence of adequate demand) will cause price appreciation.

But it gets even more absurd when you remember that the government, allegedly, works for the people. Those are public resources which are collected from the tax payers, and then used by bureaucrats to carry out these hair brained schemes. Of course, no rational individuals would ever engage in such a thing as silly as the intentional destruction of capital, but a government with no “skin in the game” in the accumulation of that capital certainly doesn’t have the same reservations.

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The Agricultural Adjustment Act was popularized by a Mr. Henry Wallace (I encourage you to delve into his career) during his tenure as Secretary of Agricultural under FDR. Wallace also later served as Vice President and Secretary of Commerce. As absurd this policy sounds today, realize that the practice is still very much alive and well. The US government still not only heavily subsidizes certain crops grown by farmers, but in many cases actually gives them direct payments not to grow at their maximum output.

The logic for this, as always, is to protect profits by creating artificial supply shortages. Something that is wholly and decidedly socialist and fascist in it’s nature. Centralized economic planning disrupts the feedback loop of entrepreneurship, and this particular form of economic policy has had many far reaching and damaging impacts. More on this topic tomorrow.

Book of the Month:

The Dao of Capital: Austrian Investing in a Distorted World

-“One cannot learn from history, a posteriori, because causal relationships are deceptively veiled from our perception”

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