David R. Henderson  

Galbraith and the Southern Sharecroppers

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"I am astonished how little we were concerned."

In the mid-1930s, under the Franklin Roosevelt-inspired Agricultural Adjustment Act, the U.S. government paid farmers not to grow. Richard Parker, in John Kenneth Galbraith: His Life, His Politics, His Economics, writes:

If they withdrew land from cultivation, the farmers would be paid from taxes imposed on processors and handlers of the commodities.

The government's goal was to reduce output and thus raise prices of crops. This would, no doubt, help farmers [although qua landowners, not qua farmers: more on that anon]. But it hurt people generally. In an era of low production and consumption, you don't make people in general better off by reducing production and consumption. I discuss this point early in every course I teach when I discuss Pillar of Economic Wisdom #9: "The only way to increase a nation's real income is to increase its real output." I typically use FDR's National Industrial Recovery Act, which cartelized industries, and his Agricultural Adjustment Act, both of which had the goal of restricting ouput, to illustrate the point.

Parker doesn't question this goal of restricting output and his lengthy discussion of Galbraith's work on this issue suggests that Galbraith did not either.

But there was one unintended, but totally predictable, consequence of the so-called "allotment payments" to farmers not to grow: they would have no more use for sharecroppers. So sharecroppers, who were mainly in the South and who were already in bad shape, suddenly found themselves out of work. When landowners were paid to keep land fallow, there was no crop on that land to share.

Parker is aware of this--and so was Galbraith. Here's an extensive quote from Parker's book:

And with the government paying big Southern growers to reduce production, the growers in turn found themselves with too many now-unemployed sharecroppers and tenants on their land. The threat to these already brutally impoverished men and women was outright disaster, made all the more bitter because it was the result of ostensibly progressive government policy. Needless to say, given who so many of those sharecroppers were, it touched on the incendiary issue of race.

At the point when Galbraith started working for Howard Tolley [chief of the planning division of the Agricultural Adjustment Administration], the fate of several million very poor white and black rural Americans hinged on an obscure paragraph in section 7 of the Cotton Acreage Reduction Contract of 1934-35. The issue was how allotment payments should be divided between a landlord and his tenant and whether, with his acreage reduced, the landlord could evict tenant as he pleased. The position of the large cotton growers was straightforward: they wanted the government's money but would brook no interference in these matters. The AAA's reformers believed otherwise: they thought tenants should receive part of the government's payments and shouldn't be evicted.

One young AAA lawyer recalled what happened when Senator Ellison DuRant Smith of South Carolina discovered the AAA had begun sending allotment checks to the sharecroppers. First elected to the Senate in 1908, "Cotton Ed" was chairman of the powerful Agricultural Committee and a major cotton grower himself. Massively rotund, with thinning gray hair and a walrus mustache stained by a lifetime of chewing tobacco,

Senator Smith came to my office when he heard that the [allotment] checks were going out to the tenants. A senator coming to see a young bureaucrat shows how things were turned upside down by the New Deal . . . He said, "Young fella, you can't do this to my ni**ers, paying checks to them. They don't know what to do with the money. [DRH comment: Count me skeptical. My guess is that they knew exactly what to do with the money.] The money should come to me. I'll take care of them. They're mine." That attitude, much less kindly expressed, was widespread.

By the way, although the "young lawyer" is not named in the text, he is named in the footnote. That fact reinforces my strategy of virtually always reading footnotes. Who was the young lawyer? Alger Hiss.

Parker again:

The debate spread outside the AAA that summer, to the front pages of the nation's newspapers and continued into the fall and winter of 1934. By the end of Galbraith's first semester at Harvard (and while he was still making weekly trips to the AAA), tensions had reached a boiling point. Roosevelt, with his entire legislative agenda suddenly at risk through defections by Southern Democrats who controlled the Agriculture, Appropriations, and Rules committees, ordered Secretary [of Agriculture] Wallace and the AAA to surrender.

A few sentences later, Parker writes:
Section 7 was "reinterpreted" so that no more allotment checks would go to sharecroppers directly, and the planters were left with what was deemed a "moral obligation" not to evict their tenants. Over the next year, the growers acted on that moral obligation by evicting more than 700,000 Southern tenant farmers and their families, with many ending up homeless and on general relief.

How did Galbraith react to this harsh lesson in unintended consequences? He said nothing. I was hoping that he later talked to his friend, John Steinbeck, who wrote about these displaced sharecroppers in The Grapes of Wrath, and maybe pointed out the U.S. government's wrath. But no such conversation is reported.

In a footnote, Parker writes:

Galbraith's 1930s academic articles on farming never mentioned the AAA's fight over tenants and sharecroppers, and his memoirs, published in 1981, make only this oblique reference: "Franklin D. Roosevelt won the affection and support of northern blacks because he gave them jobs. He did nothing that would disturb the great southern baronage in the Senate . . . for these men gave the President his prime congressional base. . . The New Deal remembered the forgotten man but not the truly forgotten. Looking back, I am astonished how little we were concerned.


COMMENTS (13 to date)
Tom West writes:

Thanks for this. I was utterly unaware of this bit of depression history.

Shane L writes:

Yes, very interesting and new to me too.

As a side note, I think some of my friends would read that story broadly as follows: the left-wing government was trying to give money to the black poor, but the right-wing racist Senator Smith and others blocked them and made sure the rich whites only would benefit. That is, they would see the left as supporting redistribution to the poor, and the right as supporting redistribution to the rich. Alger Hiss would be a crusader, trying to bring justice to the poor.

The idea that the redistribution itself may be harmful and unnecessary might not strike them immediately. It's in this way that the arguments of the right sometimes fail to convince my friends. You in EconLog help remedy that with such interesting stories as this!

RPLong writes:

Shane L,

Excellent comment. I confess, that is much the way I understood the story as I read this blog post, although I was not thinking explicitly in terms of left and right. I take Prof. Henderson's point and conclude that the redistribution was heinous; I take the addition of racism as being a further way in which redistribution often punishes the weak by institutionalizing the strong and thus obliterating the meritocracy that is at the heart of a truly free market.

ThomasH writes:

Excellent example of the need to do cost benefit analysis of government programs.

As soon as I saw that reference to a young AAA lawyer, I suspected it was Hiss. Though there were plenty other Communists in AAA and other New Deal agencies at the time (i.e. Joseph McCarthy was right).

Unfortunately one of the best refutations of JK Galbraith is not available on the internet, but it's well worth the trouble to ask your library to get it for you; The Economist Plays With Blocs, by George Stigler. It's in the American Economic Review Papers and Proceedings, 1954, 44 (May) 2, pp 7-14.

It concludes; 'I want to close with an apology for the consistently negative attitude I have felt compelled to take with respect to Galbraith's theory [of Countervailing Power]. One would like to speak well of so urbane and witty a presentation. Especially at this season one would like to avoid expressing doubts that a mysterious, benevolent being will crawl down each and every chimney and leave a large income as well as directions to the nearest cut-rate [retail] outlet. Yet even at this season, Galbraith cannot persuade us that we should turn our economic problems over to Santa.'

Daublin writes:

The world could use more mining out of failed grand economic plans. That's great that you are doing so.

I also really like your punchline about "The only way to increase a nation's real income is to increase its real output."

A lot of people want to go, FDR faced an emergency, and he had to Do Something, so why should we look too closely at what exactly we did?

We should look at what he did, and the results of it, precisely because the next time we have an economic problem, we want to do better. I am sure well-trained economists understand the various follies of the New Deal, but the general public really doesn't get it.

Similarly for the economic policies of the Soviet Union. It went really badly, and it's not just because Stalin was such a cruel person. He made multi-year plans with a total ability to implement them, and the economy just tanked.

Matt B writes:

Interesting points Shane L. No doubt many people will interpret the story this way and view it through it a modern political lens. This is ironic as both the "left wing government" (FDR) and the "right-wing racist Senator" (Smith) were both democrats and Alger Hiss was a communist!

Marc F Cheney writes:

OT: somebody tell Bryan that comments are turned off on his last post, so he shouldn't expect to get many examples from people...

[I fixed it. -- Econlib Ed.]

MikeP writes:

Parker doesn't question this goal of restricting output and his lengthy discussion of Galbraith's work on this issue suggests that Galbraith did not either.

Unlike yesterday, here I concur with the author's silence: There is no remotely plausible argument for paying people not to produce.

Mr. Econotarian writes:
The threat to these already brutally impoverished men and women was outright disaster, made all the more bitter because it was the result of ostensibly progressive government policy.

This is the paradigmatic "Atlas Shrugged-style" government program:

1) Government initiates economically damaging regulation in the name of the common people
2) Common people suffer
3) Politically-connected people benefit

Dan writes:

In the 1930s government paid producers not to produce. In the 2010s the government pays workers not to work.

The error is to assume policymakers are interested in the greater good. Rather, the explanation is that in each case the policymakers are giving a bone to the constituent they value most.

MingoV writes:

Daublin wrote:

We should look at what he did, and the results of it, precisely because the next time we have an economic problem, we want to do better.
We may want to do better, but we almost never do. Politicians do what's best for their cronies or what's popular among voters, history be damned.

Joseph writes:

Reducing the Nation's output to increase prices on products is not good because there is a lot of soil and people to work on crops. Low cost for food!

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