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123 6 6. Surpluses and Payments Federal Agricultural Policy,1954–2008 In many respects, the agricultural revolution after World War II was a blessing. Consumers were able to spend a steadily decreasing share of income on food and fiber.The diversion of workers from agriculture freed up labor for manufacturing and services, leading to a higher growth rate in the overall economy and to a level of consumption undreamed of in the human past. One of the best indicators of a nation’s overall prosperity is the percentage of workers required to feed a population—more workers in agriculture usually mean a lower standard of living, unless a large share of that product is profitably exported. But as in any revolution, there were losers, including many who were forced to leave farming and make a difficult adjustment to some other occupation. Even the winners, those who continued to farm more efficiently with each passing year, did not always gain a fair return for what they contributed to the nation as a whole.This leads to the thorny issue of farm prices and farm incomes. Production Controls and Price Supports The statutory authority for federal involvement in the marketing of farm crops remained in place through the Korean War.With a few exceptions, such as tobacco, the acreage controls, price supports, and marketing agreements were unneeded until at least 1948, and for most crops not until the end of the KoreanWar.A devastated Europe and Japan ensured a strong demand for American farm goods until a gradual recovery began in the early 1950s. By then, an unprecedented surge in production was 124 A Revolution Down on the Farm taking place onAmerican farms. From 1954 to 1972 farmers consistently produced more crops than they could sell. Surplus became a ubiquitous term and concern in these years, as Congress struggled to find an answer to the “farm problem.” In a productivity revolution, it is always difficult to generate enough demand to absorb an avalanche of goods.This is most true of food, where demand is inelastic. Until the end of the Korean War, exports and the baby boom kept demand in line with supplies, with the exception of feed grains in some years. The rate of population growth continued through the 1960s, but it could not match the growth rate in agriculture . A more important factor in causing price instability was shifts in foreign demand. One may ask, as economists do, Why not let the “market” control prices and the allocation of labor and capital to a given sector or industry ? Of course, in a strict sense, the term market is a bit of a mystification, for there is no market actor making decisions, but only various individuals or groups exchanging labor and goods.They can safely do this only in a polity that protects property ownership, ensures the fulfillment of contracts , enforces rules to uphold the common welfare, and uses taxes to provide necessary public goods such as law enforcement, defense against foreign enemies, education of children, and protection of the environment .Within this context, one may argue that the best agricultural policy is to let individuals decide what to produce, just as other individuals decide what farm products they want and are willing to pay for. If too many farmers grow corn, prices will certainly fall, given the inelasticity of the demand for corn. Low prices will encourage farmers to grow less corn, shift to other crops, or even give up on agriculture altogether and take up another occupation. Prices will rise as corn production slows, and over time, the interaction of supply and demand will lead to an equilibrium in which corn prices and the number of corn farmers remain close to a “rational” or “market-determined” level, with optimal benefits to society as a whole. Until the New Deal, federal agricultural policy generally adhered to such a market model. In fact, agriculture in many respects remained closer to this ideal than did other sectors of the economy. It had no monopolies or restraints on trade. More than in any other sector, agriculture was made up of millions of individual producers competing with one another.As the most basic economic sector, the one most vitally involved with human welfare, agriculture had received plenty of support from state and federal governments, but without any direct control over agricultural 125 Surpluses and Payments marketing. It had seemed to be in the national interest to open up public land at low cost, provide...


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