Farm Subsidies: Created For A Reason


With current budget deficits and a growing national debt, some have asked whether we should eliminate U.S. farm subsidies, but a better question is: Why were they created in the first place?

The agricultural free market collapsed in the Great Depression, and could not recover on its own, because the farm economy stubbornly defied normal supply and demand curves. Agriculture was not like other economic sectors, because everyone needed to eat, and food demand remained constant. Since food demand never changed, the only variable that affected price was supply.

The supply problem, which continues today, is the production of more food than farmers can sell. U.S. farming is so efficient it creates an oversupply, which in turn pushes prices down, often below the cost of production. Although U.S. farmers were making enough food in the 1930s to feed the world, in the free market, they were unable to earn a living wage. They responded to low prices, by redoubling their efforts, and producing even more, with a hope of selling more, but this additional supply caused prices to drop even further, and took the entire farm sector to the brink.

The issue in 1934 was how to ensure a sustainable price for food, given the reality that supply routinely exceeded demand. Liberals argued for controls on agricultural supply, and subsidized minimum prices, to guarantee economic stability. The New Deal Democrats proceeded to make radical changes, as they replaced the capitalist free market system with a controlled economy. It was like creating a farm minimum wage. Once the government set the price for food, surpluses in supply became irrelevant.

The question now is whether the U.S. should once again adopt the capitalist agricultural free market that failed so miserably in the Great Depression. If there is one thing we sometimes learn from history, is that we don’t learn from history. If agriculture goes back to the unregulated free market that ushered in the Great Depression, it is reasonable to predict the system will fail again.

Terminating subsidies will return agriculture, a valuable necessity, to the chaos of free market forces. Excessive supply in relation to demand will cause prices to bottom out again. This will in turn trigger bankruptcies, and the ultimate loss of the farm sector.

While consumers may gain in the short run, once the domestic farm sector is out-of-business, the U.S. will become dependent on foreign producers, imported food supplies from abroad, and prices set in a global market place, well beyond our control.

A controlled economy using supply management and subsidized price controls is not an evil. We should think twice before we end the supply and price controls that have met our needs since 1934.

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