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The Shaky Foundation Of Farm Policy In The United States - Flawed Analysis, Flawed Policy?

Author

Listed:
  • Zobbe, Henrik
  • Paarlberg, Philip L.
Abstract
There were two schools of thought to the roots of the farm depression in the United States during the 1920s. One school argued that there was overcapacity in agriculture and recommended production adjustment programs. Another school argued that the problem of agriculture had to do with financial and monetary chaos in the general economy and advocated better central banking and monetary reform. This paper evaluates arguments and policy recommendations from both schools using a traditional general equilibrium model and a macroeconomic model. Theory and data do not support the former school. There is no evidence of a long-run fall in agriculture's term-of-trade due to oversupply of farm goods. During the 1920s agriculture's declining share in the general economy was due to either slower endowment growth or slower productivity growth relative to the non-farm sector. In this environment production adjustment programs could hasten the decline of the sector. More support is found for the arguments of the latter school. In a fix-flex price environment a shock created by financial and monetary chaos would create the price pattern observed in the data. This latter school however lost in the battle of policy making. The core of the Agricultural Adjustment Act of 1933 was a production adjustment program.

Suggested Citation

  • Zobbe, Henrik & Paarlberg, Philip L., 2003. "The Shaky Foundation Of Farm Policy In The United States - Flawed Analysis, Flawed Policy?," Staff Papers 28637, Purdue University, Department of Agricultural Economics.
    • Handle: RePEc:ags:puaesp:28637
    DOI: 10.22004/ag.econ.28637
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    References listed on IDEAS

    as
    1. University of Western Australia, 1964. "Farm Policy," Farm Policy, University of Western Australia, Department of Agricultural Economics, vol. 4(3).
    2. Robert G. Chambers, 1984. "Agricultural and Financial Market Interdependence in the Short Run," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(1), pages 12-24.
    3. Paarlberg, Robert, 1989. "THE POLITICAL ECONOMY OF AMERICAN AGRICULTURAL POLICY: Three Approaches," 1989 Annual Meeting, July 30-August 2, Baton Rouge, Louisiana 270661, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Zobbe, Henrik, 2002. "On The Foundation Of Agricultural Policy Research In The United States," Staff Papers 28644, Purdue University, Department of Agricultural Economics.
    5. Robert Paarlberg, 1989. "The Political Economy of American Agricultural Policy: Three Approaches," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(5), pages 1157-1164.
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    Keywords

    Agricultural and Food Policy;

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