How Did The Competition Affect The Economy Of The 1920's

One of the most economically prosperous time periods in American history is the 1920’s, also known as the Roaring 20’s. This economic upturn occurred shortly after the conclusion of World War I and the short recession that followed the war. Some industries flourished during this time while farming became a cancer to the economy. To help the plight of the American farmer congress did as much as it could in passing legislative bills like the Emergency Tariff of 1921, the Fordney-McCumber Tariff of 1922, the Capper-Volstead Act of 1922, and the Agricultural Marketing Act of 1929. With these pieces of legislation in place the idea was to make the farming industry as prosperous as ever. Farming profits declines significantly after WWI due to
the decline in European demand for American agricultural products and overproduction on the American side. This caused a steep price drop in domestic farm prices. Farmers were finding themselves unable to pay back their loans from the banks. Farmers looked to congress by begging for government intervention to help raise farm prices. The first problem with the farmers request is that there were too many farmers to help all of them. Since farming had become so profitable during previous years, many people chose to take up farming instead of moving into urban, industrialized cities. Congress however, burdened by the obligation to please their constituents, took to drafting new legislation to help these desperate whiners. The first tariff passed by congress during this time of agricultural stress was the Emergency Tariff of 1921. This Act raised the prices on various meats, vegetables, wool, sugar, etc. that were being imported into the United States. This piece of legislation was targeted toward restricting American citizens from purchasing foreign agricultural products thereby forcing them to buy domestic products. With this new bill passed the farmers were hopeful that domestic farm product sales would soar and prices would buoy. The effects of this tariff were not so triumphant. One thing particularly alarming to the U.S. was the decline in American exports to European nations. This act mainly hurt the American economy because the U.S. was such a large exporter to Europe. It was recorded that in the month of January 1921, the U.S. had exported over 60 million pounds of cottonseed oil! Shortly after the passage of the bill European imports of cottonseed oil fell between 5 and 10 million pounds per month. With Europe now having no desire to buy from U.S. the Americans had to figure out a way to recover lost revenue. That was only one of many products that saw a decline in foreign purchase. This Act was short lived by being superseded by the Fordney-McCumber tariff of 1922. The next Act congress foolishly sought to pass was a bill constructed by Representative Joe Fordney and Senator Porter McCumber.
These men basically continued the Emergency Tariff of 1921 by again raising tariffs on imported goods, mainly from Europe. This act not only raised farm product prices such as wheat and other products, but it also raised the price on farm equipment. This was due to the fact that Europe could sell similar equipment cheaper, but not with the tariffs in place that raised the prices of European products above domestic inflated prices. The U.S. continued to try and keep American money in America. This bill was heavily supported amongst the republican dominated congress and opposed by the majority of the minority democrats. The effects would too soon rise to the surface and help prove who was right in all of
this. This bill seemed to do more damage to the American economy rather than helping it. One of the first things that occurred was the inflation of domestic prices. What the bill did was raise foreign prices to just above the inflated domestic prices making it seem like buying from the homeland was the cheapest and best choice. The tariff raised prices on foreign imports by almost 40%! The basic math behind this is that if the price of a product made by the good, old U.S.A is $1.35 and the same product from Europe is $1, let’s place a tariff on that product when its imported, making the price go up to $1.40! This was the constant thinking amongst politicians during this time, why let these farmers fail and move on to and or start new businesses that would potentially create new jobs, when we can just inflate the hell out of the economy and watch everything blow up in our face? Unfortunately this is what later happened as a result. The tariff later also caused American traders in Europe to raise prices on American products in their countries. The auto industry was first to see this happen. It was recorded that France raised American automobile prices by over 50%. Other European nations raised prices on other American products. The overall effect of this tariff hurt the U.S. as an exporter and led to the decline in international trade. A lesser known law that was enacted the same year as Fordney-McCumber was the Capper-Volstead Act. Authored by Senator Author Capper and Representative Andrew Volstead, this law basically spat in the face of the Sherman Anti-trust act. The excuse for the passage was the economic downturn in the agricultural industry. This law made it legal for farmers and farming interest to collude to raise prices. This was a major violation of anti-trust laws that had been in place since the 1890’s. The safeguard against the rise of monopolies in the industry was that the act had granted power to the agricultural secretary to do whatever he felt necessary to prevent such monopolies from coming to power. The secretary of agriculture at the time was Henry C. Wallace, who in previous years had been a farmer himself. Strange to think he wouldn’t want to help any of his farming buddies by throwing them in jail. Some of the effects of this act were easier to spot than others. The first was that these “cooperatives” were growing. Most started off local, then moved on to state-wide, and eventually coming to the national stage. This was what the act was supposed to protect against. Agricultural secretary didn’t have the spine to fight against these machines. The result was a corner on the market of agriculture. These machines were involved in price rigging and skyrocketing prices of products in heavy demand. The Supreme Court later tried cases that would interpret the act and found many industries, even to recent years, had been involved in large trust that were fixing prices. These industries thought they would be protected under the act with the exemption clause, but no such luck. The Agricultural Marketing Act of 1929 obviously wasn’t enacted to help the farmers during the post war recession of the early 1920’s, but is still significant in how it increased government intervention specifically in the farming industry during the end years of the roaring twenties.
This act was interpreted to help farmers in almost any way, shape, or form by government intervention. This meant the government would “loan” money to farmers by buying their crops for them and storing them. This plan was more of a “feed me” strategy imposed by Representative Gilbert Haugen. Haugen was a congressman elected out of Iowa (strong farming state). This bill was sort of the successor of Haugen’s first bill to never make it as a law. Haugen proposed a farm relief act throughout the mid 1920’s which basically had the same principles, to buy the product from the farmers and either store it or export it at a loss. This bill was shot down many times and finally laid to rest in 1928 for good. That is when Haugen drafted this new bill which would do the same thing, but with a twist. The catch was that this bill would not directly lend currency to farmers. It would instead pay farmers for the crops they grew and store the surplus for them. This became increasingly dangerous as farm prices never bounced
back. The devastating conclusion of this bill was that there was no limit on the production of these farmers. They were basically producing as much as they could and not even worried about selling on an open market. They figured if the government gave them top dollar, why not just keep selling to them. This led to the massive government spending and only helped cripple the farming market as a whole. One of the things done with the surplus was to either sell it at extremely low prices or give it away. This became known as “government food”. The result of this bill was that it made farmers dependent on government money to bail them out. The government intervention that took place during the post war recession and continued throughout the 1920’s led to the ultimate downfall of the farming industry. The roaring twenties were a time of great American prosperity, as long as you look outside the agricultural market. The best thing that could’ve been done was the government’s exclusion in the market. The same way the post WWI recession had been fixed was by limiting government involvement and cut government spending. This model would have had a better chance at ultimately helping recover the farming industry and continuing the prosperity of the American economy.