From the 1933 Farm Act to Freedom to Farm, How the Safety Net Got Built

In 1933 the federal government paid farmers to plow under growing cotton and sent young pigs to be slaughtered, in the middle of a national hunger crisis. The goal was to push prices up by producing less. It is the sort of policy that makes you wonder who was in the room, and the answer is that some very smart people were in the room and the situation was truly desperate.

That is the starting point of the farm safety net, and it matters because almost everything we argue about in farm policy today is a descendant of that emergency. Policies that were meant to last through a crisis outlived the crisis by nine decades. Nothing in Washington is as permanent as a temporary measure, and nothing lasts longer than an emergency that has a lobby. Let me tell you the story in order, because the most conservative thing you can do with a government program is to find out where it came from.

The emergency: the Agricultural Adjustment Act of 1933

By the early 1930s, American farm prices had collapsed. Farm families were losing land to foreclosure, and a farmer could grow a bumper crop and still lose money on it. The new Roosevelt administration, with Henry A. Wallace at the Agriculture Department, answered with the Agricultural Adjustment Act, signed in May 1933.

The idea was to restore what the law called "parity," a price for farm goods that would give farmers the same purchasing power they had in the years just before World War I, the last period that farmers considered prosperous. The tool was simple. The government paid farmers to take land out of production or to reduce output of the "basic" commodities such as wheat, cotton, corn, hogs, rice and tobacco. Less supply, the theory went, meant higher prices. The payments were funded by a tax on the processors who turned those crops into flour, cloth and food.

Here is the first thing to notice: the program was voluntary on its face and compulsory in effect. A farmer who stayed out of the program competed against neighbors who were paid to cut production and got a higher price. The government's grip on planting decisions started on day one.

The Supreme Court says no: United States v. Butler, 1936

The processing tax was challenged, and in January 1936, in United States v. Butler, the Supreme Court struck down the 1933 act by a vote of six to three. Justice Roberts, writing for the majority, held that the law used the tax-and-spend power to regulate agricultural production, a matter that the Tenth Amendment left to the states. The Court agreed that Congress had a broad power to tax and spend for the general welfare. It disagreed that the power could be used as a lever to control what farmers grew. Justice Stone dissented, warning that the Court had no business second-guessing the wisdom of Congress's spending.

I want you to see how modern that argument is. Conservatives today sometimes complain that Washington uses federal money as a lever to steer decisions that the Constitution leaves to the states or to individuals. In 1936 that complaint won at the Supreme Court. It did not win for long.

The administration responded in two steps. In 1936 Congress passed the Soil Conservation and Domestic Allotment Act, which paid farmers to shift acres out of "soil-depleting" crops and into conservation uses. The goal was the same, but the legal wrapping was different: the payments were for conservation. Then in 1938 came the real prize.

The 1938 act: the template for the next sixty years

The Agricultural Adjustment Act of 1938, signed in February of that year, rebuilt the system on firmer ground. It had four features that you will recognize in every farm bill since.

1. Marketing quotas and acreage allotments, approved by farmers in referendums, which limited how much of certain crops could be grown or sold.
2. Nonrecourse loans through the Commodity Credit Corporation, which let a farmer borrow against stored crops at a set rate and, if prices stayed low, hand over the grain instead of repaying. That created a de facto price floor.
3. The "ever-normal granary," Wallace's idea of storing grain in good years to release in bad ones.
4. Federal crop insurance, authorized the same year by the Federal Crop Insurance Act.

In 1942, in Wickard v. Filburn, the Supreme Court upheld the quota system even as applied to wheat that a farmer grew for his own use. I tell that story at length in A Farmer's Wheat Crop and the Long Fight Over the Commerce Clause. The Court had swung from Butler to Wickard in six years. The lesson for anyone who believes the Constitution will keep a government program in check by itself is: do not count on it.

The postwar problem: too much of a good thing

Now a government policy meets the real world. The war created demand, and prices were high. Then the war ended, and American farms, with better machinery, better seed and more fertilizer, kept producing. The government's price supports, set at a high percentage of parity, encouraged farmers to keep planting. The result was a surplus. The government ended up owning mountains of grain, butter and cheese, stored at the taxpayers' expense.

It is a good illustration of a principle conservatives should keep in mind: when you set a price above what the market will pay, you buy the difference. The government became a very large, very bad grain merchant, the only business in America that kept buying more of a product it could not sell.

The Republican answer came from the Eisenhower administration, whose Agriculture Secretary Ezra Taft Benson argued for lowering the supports and letting prices move closer to market levels. The Agricultural Act of 1954 introduced flexible supports, which were meant to slide down as stocks piled up. Benson was a lightning rod, and he was unpopular in farm country for it. In 1954 Congress also passed the program that became known as Food for Peace, which shipped surplus commodities overseas, and in 1956 the Soil Bank paid farmers to retire land from production. None of these solved the underlying problem, which was that supply kept outrunning demand.

I would not paint this as a story of one party against another. Plenty of Republicans from farm states defended the programs, since their voters relied on them. Plenty of Democrats from cities wanted cheaper food. The real division ran between the farm bloc and everyone else, and between people who thought government should manage supply and people who thought it should leave planting to farmers.

The 1970s: from supports to targets

In the early 1970s, a surge in foreign demand, including big grain sales to the Soviet Union, pushed prices up. Nixon's Agriculture Secretary, Earl Butz, urged farmers to plant more, and the Agriculture and Consumer Protection Act of 1973 replaced old-style supports with target prices and deficiency payments. In plain English: Washington set a target price for a crop. If the market price fell below it, the government paid the farmer the difference, up to a limit. The idea was to let farmers sell at the market price, let consumers buy at the market price, and let the Treasury make up the gap. It was a clever bit of accounting, like paying the restaurant to make up the difference whenever the menu price drops.

On paper, that was more market-friendly than buying and storing grain. In practice, the payments were still tied to what a farmer planted and how much land he farmed, so the government still had a say over planting decisions, and when prices fell the bill to taxpayers rose.

The big reform: Freedom to Farm in 1996

The Republican Congress that took office in January 1995 brought a different idea. Why not cut the link between payments and planting decisions? The Federal Agriculture Improvement and Reform Act of 1996, known as Freedom to Farm, was signed by President Clinton in April 1996. The principal architects on the Republican side included Pat Roberts of Kansas, who chaired the House Agriculture Committee, and Richard Lugar of Indiana, who chaired the Senate Agriculture Committee.

Here is what the law did.

• It ended the target-price and deficiency-payment system.
• It ended the annual acreage set-asides that told farmers to idle land.
• It replaced them with fixed annual "production flexibility contract" payments, scheduled to run for seven years and to decline over that period, that did not depend on what a farmer planted or what prices did.

The pitch was plain conservative economics. Let farmers plant what the market asks for, not what the program pays for. Give them a fixed, declining payment as a transition, and let them manage their own risk. The government would stop steering the plow.

For a couple of years, it looked like it was working. Prices were high and farmers were planting freely. Then in 1998 prices collapsed, with Asian financial turmoil hurting export demand. Farm groups, including many Republican constituents, wanted help, and the party that had written the law ended up voting for extra emergency payments year after year. The fixed payments were no safety net at all when prices fell, and Congress was not willing to let farmers fall. In 2002 Congress passed a new farm bill that brought back a counter-cyclical payment, tied to prices. The experiment in ending the safety net had lasted six years.

What does that teach us? Two things, and they pull in opposite directions. One: a government program is much easier to start than to end, and a transition payment that is meant to decline will be replaced the first time it hurts. Two: Freedom to Farm did succeed on one count. Farmers kept their planting freedom. The plain old fear that the government would tell them what to grow, which had defined farm policy since 1933, did not return.

2014: direct payments end, ARC and PLC arrive

The next reform came with the Agricultural Act of 2014, signed in February of that year. It ended the "direct payments" that had gone out to landowners regardless of prices or planting, a long-standing target of critics on the right and the left, since the checks went out even in boom years. In their place it created two programs, between which farmers choose.

• Price Loss Coverage (PLC) pays when the market price for a crop falls below a reference price set in the law.
• Agriculture Risk Coverage (ARC) pays when revenue per acre falls below a benchmark based on recent yields and prices.

It also expanded crop insurance, which had become the main risk tool, with a new layer of coverage. I walk through how an insurance claim works in Hail Hits Your Wheat Field and a Crop Insurance Claim Moves to a Check.

Notice the shape of the change. The government stopped sending checks that did not depend on anything and started sending payments that kick in when something goes wrong. That is closer to insurance than to a handout, and it is a step toward market logic. It is also a step that required Congress to admit that the payments were no longer defensible when farm incomes were high. On the other hand, ARC and PLC and subsidized insurance all remain, and they still tie federal support to crops.

The strongest case for the safety net

Let me be fair to the people who defend the whole structure, since they have a serious argument.

First, farming is exposed to risks that no other industry faces in quite the same way: weather, disease, global prices and trade policy, all outside the farmer's control and all arriving after he has already spent his money on seed and fertilizer. Second, food security is a national interest, and a country that cannot feed itself is at the mercy of others. Third, other countries subsidize their farmers, and unilateral disarmament would not help American growers. Fourth, a stable farm sector keeps rural communities alive.

Those are real points. Here is my answer. They justify a safety net, and I support a safety net. They do not justify one that is open-ended, one that pays the biggest operators most, or one that steers decisions about what to plant. The best of the reforms, from the 1954 flexible supports to the 1996 decoupling to the 2014 end of direct payments, moved in the direction of letting farmers farm and sharing risk without picking crops. The worst moved the other way. Judge the next farm bill by which direction it takes.

How these questions come back in Congress

Farm programs are funded through the budget process, and the farm bill is one of the few pieces of legislation that still mixes city and country in one package. How that package got built, and whether it should be split, is its own story in Why Food Stamps Live in the Farm Bill and Whether That Marriage Should Last. If you want to understand how the budget process shapes what farm programs get, How a budget becomes law, from the President's request to the checks lays out the steps. For the myths people on both sides repeat about these programs, read Eight Myths About Farm Subsidies That Both Parties Keep Repeating. And for what happened when credit and interest rates, not farm programs, brought American agriculture to its knees, see Embargo, Volcker and Foreclosure Is What Really Caused the 1980s Farm Crisis.

The bottom line

• The farm safety net began as an emergency in 1933 and was rebuilt in 1938. Every reform since has tried to shrink the government's say over planting decisions, with mixed success.
• The Supreme Court struck down the 1933 act in Butler in 1936 and upheld the 1938 system in Wickard in 1942. Do not expect the courts to restrain farm programs on their own.
• Freedom to Farm in 1996 ended planting-linked payments, and Congress replaced the fixed payments with emergency aid within two years. The 2014 law ended direct payments and substituted ARC, PLC and expanded crop insurance.
• Support a safety net that shares risk and leaves planting to farmers. When your representative votes on the next farm bill, ask whether it ties money to what a farmer plants, and whether it caps what the biggest operations can collect.