The Land Act of 1796 allowed purchasers of public land a minimum of 640 acres, one square mile at $2 per acre with one half of the purchase price being able to be deferred for a year. The large size of the plots prohibited most Americans from purchasing public land. These minimums were reduced over the ensuing 66 years, resulting in an increase in agricultural output.
Under federal land policy, the minimum was reduced to 320 acres payable over four years in 1800. In 1820 80 acres could be purchased at $1.25 per acre, and in 1832 parcels of 40 acres could be sold. Especially after 1830 squatters were granted rights and in 1841 the "Log Cabin Bill" allowed squatters preemption rights of up to 160 acres. The Graduation Act put up land unsold for 30 years for sale at 12.5 cents an acre. During the Civil War, in 1862, the Homestead Act granted 160 acres and 320 per married couple as long as they lived on the land or cultivated it for five years. Thus, the population of the western states grew from about one million in 1810to about 14.8 million in 1869, or from 15% of the US population to 47.1%.*
From 1870 to 1890, corn output increased from 1.125 billion bushels to 1.650 billion bushels, an increase of 46.7%. Land used for corn increased from 38.4 million acres to 74.8 million acres, an increase of 94.8%. Because the newly granted land was less fertile than the land that settlers purchased first (since settlers chose the best land first) productivity fell from 29.3 bushels per acre to 22.1 bushels per acre. A slightly different pattern applied to wheat, whose output increased 76.8% between 1870 and 1890 and whose land increased by 75.5%. Because of expanding output, real farm income per capita rose by only .8% from 1869 to 1879 and .7% from 1879 to 1889.**
According to Walton and Rockoff***, "it is alleged that the rapid distribution of the public domain laid the groundwork for modern agricultural problems by inducing too much capital and labor into agriculture, thereby impeding the process of industrialization."
"...Partially as a result of this rapid addition of resources, the new West produced crops at such a rate that consumers of foodstuffs and raw materials enjoyed 30 years of falling prices. Furthermore, according to Robert Fogel and Jack Rutner, average rates of return on investments in land improvements, livestock, farm buildings and machinery equaled or exceeded returns on other contemporary investments, and real incomes in the new agricultural areas outside the South grew at rates comparable with those in manufacturing."
Nevertheless, despite the Fogel and Rutner findings, it would seem that Populism was related to falling agricultural prices. Moreover, the culture of farming was likely one that included an element of speculation. As Richard Hofstadter points out in Age of Reform****
"Frequent and sensational rises in land values bred a boom psychology in the American farmer and caused him to rely for his margin of profit more on the process of appreciation than on the sale of crops. It took a strong man to resist the temptation to ride skyward on lands that might easily triple or quadruple their value in one decade and then double again in the next...The penchant for speculation and the lure of new and different lands bred in the American farmer a tremendous passion for moving--and not merely, as one common view would have it, on the part of those who had failed, but also on the part of those who had succeeded...Mobility among farmers had serious effects upon an agricultural tradition never noted for careful cultivation: in a nation whose soil is notoriously heterogeneous, farmers too often had little chance to get to know the quality of their land; they failed to plan and manure and replenish; they neglected diversification for the one-crop system and ready cash...In a very real and profound sense, then, the United States failed to develop (except in some localities, chiefly in the east) a distinctively rural culture...What differentiated the agricultural life of these regions...was that it was so speculative, so mobile, so mechanized, so 'progressive', so thoroughly imbued with the commercial spirit."
Moreover, increasing agricultural productivity put additional pressure on commodity prices. Walton and Rockoff point out that+
"Thanks to the research of Olmstead and Rhode we have a greater appreciation of changes in plant varieties, irrigation systems, fertilizers and other biological inventions that greatly impacted the use of land for planting. These changes worked along two lines: (1) the discovery of new wheat varieties (and hybrids) that allowed the North American wheat belt to push hundreds of miles northward and westward and (2) researchers and farmers who found new methods of combating insects and diseases, some of which came from experimentation with new varieties (seeds) from Europe and elsewhere..labor productivity grew dramatically in wheat and corn over these decades. According to Robert Gallman, labor productivity in these two crops grew at a rate of 2.6 percent annually between 1850 and 1900."
As well, point out Walton and Rockoff, mechanization due to McCormick's reaper as well as thresher, mowers, horse rakes, seed planters, grain cleaners, portable grist mills, corn-shellers and similar devices enhanced labor productivity on farm.
The result was of course increasing competition and economic stress on farmers, who had to adapt, "to run faster just to hold ground". Such rapid change creates anxiety, which in turn leads to the demand for political fixes. For farmers, this was Populism. Of course the alternative, retaining primitive agricultural methods, would have prohibited industrialization. "In 1870 Americans spent one third of their current per capita income on farm products. By 1890, they were spending a much smaller fraction, just over one-fifth...Thus, although the real incomes of the American population rose during the period, and although Americans did not spend less on food absolutely, the proportion of those incomes earned by farmers declined." On the other hand "the value of agricultural exports rose from $297 million in 1870 to more than $840 million in 1900.++
Added to this mix was the "rapid increase in the supply of agricultural products. All over the world, new areas were entering the competitive fray. In Canada, Australia, New Zealand and Argentina as well as in the United states, fertile new lands were becoming agriculturally productive."+++
The Fed was not established purely because of Populism, but Populism was certainly a contributing factor. Fed apologists like William Greider in his Secrets of the Temple emphasize agitation among farmers because of falling commodity prices. Greider neglects to mention that falling commodity prices were great for workers. But they were bad for farmers, including moderate-to-poor income ones, who were landholders or speculators. In his book, Greider does not mention the relationship of federal land policy to falling agricultural prices. He merely paints falling agricultural prices as a monetary issue--in other words he takes the Populists' economic reasoning at face value. Nor does he raise the question as to whether farmers-as-speculators or farmers-as-workers dominated the Populist movement.
As Walton and Rockoff point out:
"Farmers were not inclined to see their difficulties as the result of impersonal market forces. Instead, they traced their problems to monopolies and conspiracies: bankers (some thought that Jewish bankers were particularly to blame) who raised interest rates, manipulated the currency, and then foreclosed on farm mortgages; grain elevator operators who charged rates farmers could not afford; industrialists who charged high prices for farm machinery and consumer goods; railroads that charged monopoly rates on freight; and so on."++++
Greider's book provides an excellent example of the inability of the public to debate questions concerning money dispassionately. A good example is his discussion of the Populist movement.
*Gary M. Walton and Hugh Rockoff, History of the American Economy Tenth Edition. South-Western-Cengage Learning, 2005, pp. 145-148
**Ibid, p. 288
***Ibid.
****Richard Hofstadter, Age of Reform: From Bryan to FDR. New York: Vintage Books, 1955
+Op. cit., pp. 290-1
++Op. cit., p. 294
+++Op. cit., p. 293
++++Op. cit., p. 294
Showing posts with label american agriculture. Show all posts
Showing posts with label american agriculture. Show all posts
Tuesday, December 30, 2008
Sunday, July 20, 2008
Louis Hartz on Jefferson's Error
"(W)hat Jefferson was doing when he assailed the industrial worker was overlooking the magical alchemy of American life which was responsible for the very small liberal farmers that he loved. That alchemy, in addition to transforming passive peasants into dynamic liberal farmers, was going to transform bitter proletarians into incipient entrepreneurs. Jefferson emphasized the concrete fact of ownership of property which to be sure was not a characteristic of the industrial worker. But this was a kind of Marxian mistake, emphasizing economics at the price of thought, for the French peasant also owned property and he was far from being the enlightened liberal yeoman that Jefferson relied so heavily upon. The fact is, the liberalism of the American farmer was largely a psychological matter, a product of the spirit of Locke implanted in a new and nonfeudal world; and this spirit, freed as it was of the concept of class and the tyranny of ancient tradition, could infect the factory as well as it infected the land...Indeed, the irony of Jefferson's fear of an urban 'mob' is that he himself became its philosophic idol when it began to develop, and not merely in a general egalitarian sense: in the sense also of his theory of agrarian independence. The labor literature would not give up the old idea of yeoman free-holding..."
Louis Hartz, The Liberal Tradition in America. New York: Harcourt, Brace and World, 1955, pp. 122-3.
Louis Hartz, The Liberal Tradition in America. New York: Harcourt, Brace and World, 1955, pp. 122-3.
Saturday, November 24, 2007
Richard Hofstadter's Age of Reform
Richard Hofstadter. Age of Reform. New York: Vintage Books, 1955.
I just had the privilege to read Richard Hofstadter's 1955 Age of Reform, which won the 1956 Pulitzer Prize for history. Hofstadter's book, more than 50 years old, resonates today. This book is a true classic for the general reader, although in a few passages he commits the mid-century vice of assuming that Keynesian macro-economics is science.
One of Hoftstadter's points is that the 19th century American farmer was not the idyllic tiller of the soil that we idealize but rather an incipient businessman whose chief interest was real estate speculation. In contrast to European farmers, for whom land was at a premium and labor was cheap, American farmers faced high labor costs and cheap land that was increasing rapidly in value. They did use capital intensive methods and did have to borrow to purchase the machinery. But, according to Hofstadter, real estate speculation was more important in the 19th century. The eastern farmers would sell their land to new immigrants and move westward, investing in larger farms for which they were anticipating even greater price appreciation.
The process that Hofstadter described in 1955 is very much like today's real estate craze. The agrarian populist movement favored inflation, much as today's sub prime investors likely do (if the education of today's sub prime borrowers has cognitively enabled them to consider the issue), but contrary to what I learned in elementary and high school, the greenback and free silver movements were driven by land speculators, not by people whose interest was working farms and were concerned with machinery investment. The overlap between American farmers and their support for inflation in the late 19th century (via the Populists whom William Jennings Bryan's candidacy preempted in 1896) was driven by land speculation more so than by machinery investment.
To understand the Progressives, you need to understand the Mugwumps, who were a generation earlier, and the Populists, who were a less educated late 19th century movement that also preceded the Progressives. The Populists advocated inflation, anti-Semitism, opposed immigration, hated the British, opposed the gold standard and opposed industrialization and big business of the 19th century. In contrast to the Populists, the Mugwumps were late 19th century professionals and were a small, well-educated group that refused to vote for James Blaine, the Republican presidential candidate in 1884, whom they considered corrupt. They refused to vote for Blaine, and because New York was a closely contested state, some believe that they swung the election to Grover Cleveland, a Democrat. They got the name "Mugwumps" after young Algonquin Indian Chieftains. Although the term originated as one of derision, they adopted it themselves. Some argued that they were called Mugwumps because their mugs were on one side of the fence and their "wumps" were on the other. The Mugwumps favored laissez faire and I believe in many cases hard money (as Cleveland in the Jacksonian or Bourbon Democratic tradition did too) and were similar to today's libertarians. I couldn't help thinking that my interest in NOTA ("none of the above") has similar implications to the Mugwumps in '84. Unfortunately, though, today both candidates have adopted the Populist/Keynesian monetary nostrum.
One of the points that Hofstadter makes is that the Populists, the Mugwumps and their successors, the Progressives, were largely reacting to the growth of big business. (I am just starting to read Herbert Croly's Progressive Democracy and Croly, one of the founders of the New Republic Magazine, makes this point on page one.)
In several brilliantly insightful passages Hofstadter discusses how 19th century Americans believed that the purpose of the economy was to reward good ethics, and that the growth of big business contradicted this belief. Big business did not require or encourage the ethical fabric that local business did, and the progressives were concerned that the American economy no longer provided an education in morality, but instead that the economy had begun to encourage corruption. They also felt that the political boss system of the large cities paralleled and was symbiotic with the growth in industrial power. They felt that to balance the power of big business, they had to establish government counterbalances that would regulate business, hence the Sherman Anti-trust Act, the Interstate Commerce Act and the Federal Reserve Bank.
As well, there had been a spike in inflation in the late 1890s and early 1900s because of gold discoveries globally (America was still on a gold standard). Inflation went up to two percent or so, roughly half of what it has been for the last 28 years under the post-Carter Fed. However, that two percent inflation rate infuriated the public and led to support for the Fed. Ironically, the Fed has caused two or three times greater inflation (especially if you add the rise in the cost of home purchasing that the Bureau of Labor Statistics has slyly excluded from the Consumer Price Index since 1980). The cure (the Fed) was worse than the disease (the two percent inflation due to global gold discoveries).
Unfortunately for America, Schumpeter's concept of creative destruction, Austrian economics and the ideas of Milton Friedman were developed after the Progressive era. The ideas of free market economics are subtle, much more so than the antiquated and awkward ideas of the liberal left, and it seemed impossible to the Progressives of the late 19th and early twentieth century that the large concentrated industries were vulnerable to global competition. Indeed, the Mugwumps had advocated free trade as the solution to excessive business power and corruption, and the Progressives could not believe that global competition might reduce business power because the believed in deliberation and rationality, and the notion that competition, creative destruction and innovation would limit ineffective and inefficient big company practices seemed incredible to them, as it seems incredible to today's naive progressive-liberals.
Ironically, as Gabriel Kolko has written in his book the Triumph of Conservatism instead of limiting the power of big business, the concepts of regulation that the Progressives advocated enhanced the power of big business with a few, much-publicized exceptions that satisfied public opinion, such as the Standard Oil breakup. The Fed alone has vastly extended the power and grasp of investment and commercial banking and big business through easy credit. The Fed truly represents the triumph of the interests of real estate and stock speculation, Wall Street, commercial banking and big business, while the average worker has seen stagnant real wages over the past 30 years, a stagnation that did not occur during the laissez faire late 19th century. Thus, the Progressives' reforms led to effects that were opposite from what they intended, namely, the furtherance of big business interests and the impoverishment of labor. Despite the obvious outcomes of their policies, public deliberation today is incapable of rationally dissecting causes for several reasons. First, because of the inheritance tax (the Mugwumps were mostly independently wealthy) the Republicans are largely dominated by self-interested careerists and special interests. Second, because the Democrats are wedded to the failed Populist ideas that turned out to also reflect the careerists' interests. It is no coincidence that the wealthiest Americans such as Bill Gates and Warren Buffett support the inheritance tax, because without an independent-minded elite that is not subject to corporate power (in the form of having to go to work) it is unlikely that any significant group will oppose the rapacious Populist policies of the Federal Reserve.
Hofstadter's final chapter in which he compares the New Dealers with the Progressives is also instructive. The Progressives had traditional American values and did not question the importance of individualism and freedom. In contrast, the New Dealers were influenced by social democratic ideas, collective action and the (supposed) technical benefits of large scale government organization than were the Progressives.
In the end, the ideas of both the Progressives and the New Deal led to failure. The notion that, left to its own devices, big business would be replaced only if the government were prevented from supporting it did not seem possible to these two failed ideologies. Nor, incidentally, did Hofstadter grasp this because he was imbued with 1940s and 1950s Keynesian Populism.
In the end, the Mugwumps were smarter than their children in the Progressive movement or their grand children in the New Deal movement. Although Americans instinctively understand the virtues of the Mugwump position, American education studiously avoids discussing their ideas, focusing instead on the vapid ideologies of liberal-Progressivism and the New Deal.
I just had the privilege to read Richard Hofstadter's 1955 Age of Reform, which won the 1956 Pulitzer Prize for history. Hofstadter's book, more than 50 years old, resonates today. This book is a true classic for the general reader, although in a few passages he commits the mid-century vice of assuming that Keynesian macro-economics is science.
One of Hoftstadter's points is that the 19th century American farmer was not the idyllic tiller of the soil that we idealize but rather an incipient businessman whose chief interest was real estate speculation. In contrast to European farmers, for whom land was at a premium and labor was cheap, American farmers faced high labor costs and cheap land that was increasing rapidly in value. They did use capital intensive methods and did have to borrow to purchase the machinery. But, according to Hofstadter, real estate speculation was more important in the 19th century. The eastern farmers would sell their land to new immigrants and move westward, investing in larger farms for which they were anticipating even greater price appreciation.
The process that Hofstadter described in 1955 is very much like today's real estate craze. The agrarian populist movement favored inflation, much as today's sub prime investors likely do (if the education of today's sub prime borrowers has cognitively enabled them to consider the issue), but contrary to what I learned in elementary and high school, the greenback and free silver movements were driven by land speculators, not by people whose interest was working farms and were concerned with machinery investment. The overlap between American farmers and their support for inflation in the late 19th century (via the Populists whom William Jennings Bryan's candidacy preempted in 1896) was driven by land speculation more so than by machinery investment.
To understand the Progressives, you need to understand the Mugwumps, who were a generation earlier, and the Populists, who were a less educated late 19th century movement that also preceded the Progressives. The Populists advocated inflation, anti-Semitism, opposed immigration, hated the British, opposed the gold standard and opposed industrialization and big business of the 19th century. In contrast to the Populists, the Mugwumps were late 19th century professionals and were a small, well-educated group that refused to vote for James Blaine, the Republican presidential candidate in 1884, whom they considered corrupt. They refused to vote for Blaine, and because New York was a closely contested state, some believe that they swung the election to Grover Cleveland, a Democrat. They got the name "Mugwumps" after young Algonquin Indian Chieftains. Although the term originated as one of derision, they adopted it themselves. Some argued that they were called Mugwumps because their mugs were on one side of the fence and their "wumps" were on the other. The Mugwumps favored laissez faire and I believe in many cases hard money (as Cleveland in the Jacksonian or Bourbon Democratic tradition did too) and were similar to today's libertarians. I couldn't help thinking that my interest in NOTA ("none of the above") has similar implications to the Mugwumps in '84. Unfortunately, though, today both candidates have adopted the Populist/Keynesian monetary nostrum.
One of the points that Hofstadter makes is that the Populists, the Mugwumps and their successors, the Progressives, were largely reacting to the growth of big business. (I am just starting to read Herbert Croly's Progressive Democracy and Croly, one of the founders of the New Republic Magazine, makes this point on page one.)
In several brilliantly insightful passages Hofstadter discusses how 19th century Americans believed that the purpose of the economy was to reward good ethics, and that the growth of big business contradicted this belief. Big business did not require or encourage the ethical fabric that local business did, and the progressives were concerned that the American economy no longer provided an education in morality, but instead that the economy had begun to encourage corruption. They also felt that the political boss system of the large cities paralleled and was symbiotic with the growth in industrial power. They felt that to balance the power of big business, they had to establish government counterbalances that would regulate business, hence the Sherman Anti-trust Act, the Interstate Commerce Act and the Federal Reserve Bank.
As well, there had been a spike in inflation in the late 1890s and early 1900s because of gold discoveries globally (America was still on a gold standard). Inflation went up to two percent or so, roughly half of what it has been for the last 28 years under the post-Carter Fed. However, that two percent inflation rate infuriated the public and led to support for the Fed. Ironically, the Fed has caused two or three times greater inflation (especially if you add the rise in the cost of home purchasing that the Bureau of Labor Statistics has slyly excluded from the Consumer Price Index since 1980). The cure (the Fed) was worse than the disease (the two percent inflation due to global gold discoveries).
Unfortunately for America, Schumpeter's concept of creative destruction, Austrian economics and the ideas of Milton Friedman were developed after the Progressive era. The ideas of free market economics are subtle, much more so than the antiquated and awkward ideas of the liberal left, and it seemed impossible to the Progressives of the late 19th and early twentieth century that the large concentrated industries were vulnerable to global competition. Indeed, the Mugwumps had advocated free trade as the solution to excessive business power and corruption, and the Progressives could not believe that global competition might reduce business power because the believed in deliberation and rationality, and the notion that competition, creative destruction and innovation would limit ineffective and inefficient big company practices seemed incredible to them, as it seems incredible to today's naive progressive-liberals.
Ironically, as Gabriel Kolko has written in his book the Triumph of Conservatism instead of limiting the power of big business, the concepts of regulation that the Progressives advocated enhanced the power of big business with a few, much-publicized exceptions that satisfied public opinion, such as the Standard Oil breakup. The Fed alone has vastly extended the power and grasp of investment and commercial banking and big business through easy credit. The Fed truly represents the triumph of the interests of real estate and stock speculation, Wall Street, commercial banking and big business, while the average worker has seen stagnant real wages over the past 30 years, a stagnation that did not occur during the laissez faire late 19th century. Thus, the Progressives' reforms led to effects that were opposite from what they intended, namely, the furtherance of big business interests and the impoverishment of labor. Despite the obvious outcomes of their policies, public deliberation today is incapable of rationally dissecting causes for several reasons. First, because of the inheritance tax (the Mugwumps were mostly independently wealthy) the Republicans are largely dominated by self-interested careerists and special interests. Second, because the Democrats are wedded to the failed Populist ideas that turned out to also reflect the careerists' interests. It is no coincidence that the wealthiest Americans such as Bill Gates and Warren Buffett support the inheritance tax, because without an independent-minded elite that is not subject to corporate power (in the form of having to go to work) it is unlikely that any significant group will oppose the rapacious Populist policies of the Federal Reserve.
Hofstadter's final chapter in which he compares the New Dealers with the Progressives is also instructive. The Progressives had traditional American values and did not question the importance of individualism and freedom. In contrast, the New Dealers were influenced by social democratic ideas, collective action and the (supposed) technical benefits of large scale government organization than were the Progressives.
In the end, the ideas of both the Progressives and the New Deal led to failure. The notion that, left to its own devices, big business would be replaced only if the government were prevented from supporting it did not seem possible to these two failed ideologies. Nor, incidentally, did Hofstadter grasp this because he was imbued with 1940s and 1950s Keynesian Populism.
In the end, the Mugwumps were smarter than their children in the Progressive movement or their grand children in the New Deal movement. Although Americans instinctively understand the virtues of the Mugwump position, American education studiously avoids discussing their ideas, focusing instead on the vapid ideologies of liberal-Progressivism and the New Deal.
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