From Omnivore’s Dilemma, by Michale Pollan:
The great turning point in the modern history of corn, which in turn marks a key turning point in the industrialization of our food, can be dated with some precision to the day in 1947 when a huge munitions plant at Muscle Shoals, Alabama, switched over to making chemical fertilizer. After the war the government had found itself with a tremendous surplus of ammonium nitrate, the principle ingredient in the making of explosives. Ammonium nitrate also happens to be an excellent source of nitrogen for plants. Serious thought was given to spraying America’s forests with the surplus chemical, to help out the timber industry. But agronomists in the Department of Agriculture had a better idea: Spread the ammonium nitrate on farmland as fertilizer. The chemical fertilizer industry (along with that of pesticides, which are based on poison gases developed for the war) is the product of the government’s effort to convert its war machine to peacetime purposes. As Indian farmer activist Vandana Shiva says in her speeches, “We’re still eating the leftovers of World War II”.
Corn produced by ammonium nitrate has been in super abundance since the policies of the Nixon Administration set it off, and prices have usually been depressed even as farmers grew more and more. But corn is now selling for over $5.00 a bushel, the result of yet another government program – ethanol. Government is now using up the surplus it created. The snake is consuming its own tail.
Before free market enthusiasts respond that this is yet another example of government meddling screwing things up, think back to that time in our history, the Great Depression, when farmers produced so much that they had no market for their product. Market economics in agriculture, as in health care and utilities and education and mail delivery, apply wonderful academic theories to a real world that simply doesn’t respond.
Piece of Mindful 
Mark, Re: farm surpluses during the Great Depression.
You should spend some time studying this. In the 1920’s, with the advent of farm automation – such as tractors, etc. – food production saw its greatest gains in productivity in history. Because of that there was general over-supply of farm goods in the 1920’s. But there was no economic crises in farming during this period and excess produce was the core of American exports. In the late 1920’s the Republican party started a strong push for trade protectionism. The expectations of the passage of the Smoot-Hawley Act caused retaliatory protectionism among our foreign trading partners even before the passage of the act. When the final trade war actually broke out in 1930 the sector most affected by this was agriculture – being more than half of all exports.
In other words, even if there was a shift in the supply curve do to efficiency gains, the government’s interference exacerbated the problem at best and, more likely, caused a market failure.
Look it up. Do some homework on the issue and you’ll find that the almost all economist agree.
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I more or less expected this – everything can always be laid at the feet of government. Markets never fail.
But you have pegged the problem quite well – agricultural markets do not respond well to supply and demand signals. When prices drop, farmers tend to produce more to make up for the shortfall. The problem is that markets don’t always serve us well. FDR had a nice program in place to cushion farmers form teh market, loaning them money in place of growing crops. having them pay the money back in bumper years. It was a nice partnership, but the laissez-faire set undid it.
Smoot-Hawley was passed in 1930, well into the Great Depression. It coincided with a world-wide depression. It did not cause the Great Depression – that’s rote history on your side, but not factual. It is, as you say, that there were 200 tractors in the US in 1920, and then production boomed, but there was no market, so followed a bust. As the little lamb followed Mary. Government can protect us from this sort of tragedy.
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Mark, you’re putting words in my mouth again. First, Smoot-Hawley was past just six months after the stock market crash. Secondly, the U.S. GDP didn’t start to fall until 1931 (check you facts.) Next, I never said that Smoot-Hawley caused the depression. I do say it made it much worse. Last, if government could actually foretell the business cycle we wouldn’t have had a second deep recession in 1937. The consensus of modern economists is that FDR’s farm policies greatly prolonged the depression. A little study on your part will affirm that. Like today, the government can’t foretell the future. You live in a dream land if you think they can.
You have a remarkable ability to not study beyond the surface. I encourage you to stop writing about things that you’re unqualified to write about.
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There are at least three schools of thought on the Great Depression – one that exonerates government, and one that exonerates capitalism. A third is more likely – capitalism failed, and government screwed up to boot. I’m only guessing which school you belong to. Naturally there are sets and subsets of economists who belong to each school, and you are free to cherry pick those with whom your libertarian ideology resonate, to get your “consensus” (translation: the ones you agree with).
In my view “capitalism” is an unsustainable system that has been tried and failed, that only appears to succeed because of strict regulation and regular and massive subsidy, and of course, the war machine. In America, we are in mass denial as to the existence of subsidy and permanent war footing, though it permeates our very being.
We learned much of this during the Great Depression – our leaders were on a learning curve too. World War II got us out, and Korea firmed up the lesson – the way to avoid a repeat of the 1930’s is, to repeat, permanent and massive subsidy and permanent state of war.
Perhaps Smoot-Hawley was unwise, but for someone who accuses me of surface treatment, you are doing quite the same. Those of us who are anti-free-trade are not, after all, anti-trade.
Worldwide, the Depression was evident as early as 1928. The stock market collapsed in 1929, unemployment was soaring. But I’m sure if you look hard enough, you’ll find evidence that it didn’t start until 1931.
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Well Mark, I don’t see how I’ve cherry picked anything and, like Socrates, “I know that I don’t know” the definitive answer to what was the root cause of the depression. What I do know, which you seem to deny, are the academic definitions of recession and depression – which you seem to define as something quite other than they are.
The US unemployment rate in 1929 was less than 4% and it jumped to 8% by the end of 1930. GDP, indexed for deflation, between 1929 and 1930 was flat. It wasn’t until the 1931 that real economic output declined (remember that the stock market is considered a leading economic indicator.) Beyond Smoot-Hawley there was also the creation of The Farm Board in 1929. Here is an analysis of the impact of government intervention on the price of wheat and trade:
Marxist, eh? I don’t know about that. All I know for sure is that I am almost 58 years old, and that save a few brief and accidental intervals, my country has been at war with someone duirng all of that time. I’ve lived through hot wars and cold wars and intense propaganda – one of the few achievements that helps my ego as I encounter the vast right wing and its armies of screamers and, in your case, intellectual pundits, is that I managed to overcome the propaganda and set some distance between myself and my country, and see it for what it is.
Coming late to the game, I have to fix on a few hard facts and extrapolate from that. I’m not going to read Smith – I’m going to read the stuff I like to read. I’m not an economist, and I found very little of use when I studied economics in college other that how easy it is to get mixed up in minutia and lose sight of the big picture. I focus on what I see with my eyes instead. I see permanent war, I see subsidy and denial of same, and I see a reflexive fear of government, is if it were some evil beast. (I don’t care if you are against subsidy of business – I’m against winter storms.)
I see that we had a major collapse in the late 1920’s, and that this came after a time when we had major advances in mechanization, and that we had farmers who could not sell their products on the open market. We collapsed, and those charged with the task of preventing or repairing that collapse failed miserably. I see a Federal Reserve that was new at its game that probably responded badly to the crisis. I see the usual howling of factions on the trade debate, and restrictions applied at at time when they probalby should have been loosened. I wonder about all of that, as I’m not going to study it in detail, but still try to focus on the big picture – we had a superabundance of good available on the market, and people not having enough money to buy those goods. It appeared to be w world wide phenomenon, so that trade surpluses in one place siphoned off to another, in the long run, would not have made much difference.
Then we had a war, and it cured some of the evils of the depression, but after the war, the same problems cropped up, and we had another war, and a light went on somewhere – so long as we were at war, we were OK. So we formulated this marvelous engine that would do two things – fight a permanent war and provide consumer goods and the credit needed to buy the same. We would have deficits to stimulate the economy on a permanent basis, because we knew that without constant stimulation, we would ease back into recession and, maybe, depression. We’re constantly on the run.
Those are just general observations – I am far removed from minutia here, which is your forte, and that’s not going to change. Here’s what strikes me as odd: This system that you say would work so well without war and subsidy – very smart people, tens of thousands of them over the years, have had a hand in guiding this system along, and they always seem to come away with the same policy – war and subsidy. Perhaps some time you too should step back and see what I see – they do that becuase they know things – not the opposite. The engine doesn’t’ run without fuel.
Marxist? I suppose. Maybe reality is Marxist. I’m far more interested in reality than esoteric theories. Marx had nothing to offer us in replacement theories – some pretty lame stuff, actually. But he did do a good job of describing what we have.
So here’s where I came to rest in my amateurish travels through hisotry and policy – capitalism without war and subsidy implodes, overheats, creates nasty boom and bust cycles, and is extremely inefficient and painful. Tempered with oversight, regulation, targeted subsidy and government programs to ameliorate its excesses, its an engine that serves us very well. You might suspect I don’t recognize the power of markets or the importance of personal freedom. You’d be wrong about that. I just don’t see government’s intervention in taming capitalism as a threat to either prosperity or freedom. Rather, it makes life better.
I will not be reading Smith anytime soon. If you haven’t figured it out yet, I’ll spell it out. I hate economics. And my sketchy understanding of Keynes is that he, like Shakespeare, is quoted by many people who have not read him. He never advocated permanent deficits.
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You’re right about Keynes, he never argued for permanent deficits – but that has been the outcome of his advocacy.
Yet you have no proof nor, I might say, any historical facts that support this. Why then do you argue it?
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I do believe, if you were to read through what I havea written previously, you will note that I referenced my 58 years of war footing in this country. You seem to have a hard time seeing the forest …
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I think if you’ll read what I said:
Try this again…
I think if you’ll read what I said:
you’ll find that you’re arguing with yourself. Seems to me you have a hard time remembering what you’ve read.
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“Arguable” – let’s see – you’re not absolutely certain … evidence must be clouding theory. Find me a five year period from Korea forward when we have not been engaged in warfare, hot or cold, with someone, and spending exorbitant sums on our military. Isn’t the “war on terror” a perpetual war?
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Mark, you’re not reading that well, so let me spell it out for you in English. Your supposition was that the economy had been “propped up” by a perpetual state of war. I didn’t argue that we weren’t in such a state. I argue that the economy was propped up by such a activity.
But I won’t engage you in that debate since you remain willfully ignorant about economics as, to wit, the economic argument about investments of money into productive v unproductive assets. As the argument goes, economies are better off where investment is made in things that produce things rather than just producing things. But I know you’re unprepared for that discussion.
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My daughter, who reads these exchanges, thinks you need a good kick in the shins, and wonders why I put up with the condescension and arrogance. She’s right. I shouldn’t. As I said and repeat, I hate economics. You don’t read so well, as I made it plain to you that I regarded economics as a sea of detail that helped one lose sight of the bigger picture. Political philosophies comes embedded in economics, and if you buy into the details, you buy the whole product.
Now, what is to be said about investments in armaments rather than in people – the argument against the war economy is that we spend all of this money to make things that we blow up, and none benefit but the few who are involved in production of high tech weaponry. On the other hand, if we invest in a health care system, we have healthier and happier people. If we invest in roads and bridges and schools, ditto. Those are productive assets.
So I think you’re really deeply and fundamentally missing the point here – armaments are not productive assets – they are a diversion. They prevent investment in productive assets that benefit all of us.
Are you beginning to see it now, or are you going to remain erudite and dense?
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OK, let me be really condescending here: I think we agree. And to give you the beneifit of the doubt I was unclear when I said “I argue that the economy was propped up by such a activity.” That contradicts what I said earlier – which is what I meant. Rather, I argue that it is arguable that the current state of “war” helps the economy. But you should have gotten that by my earlier comments. My argument is that building arms is not building productive assets. Get it? Hence I think that building arms does not materially help the economy.
As for your daughter, she’s welcome to kick me on the shins anytime. As for me being more condescending than you my guess is that she only sees that from a sense of familiarity. You’re no saint.
But I like your idea that ignorance is understanding. You should run for office.
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We don’t really agree – I think armaments is a way of propping up the economy without having the benefit seep down among ordinary people. I think it works fine, as intended. That’s the objective. Socialist countries in Europe have taken a decidedly different tack with their surplus production. Without putting words in your mouth, I seem to recall your prediction that they are, as a result, headed for a fall.
I don’t claim ignorance of economics in general – if we are debating in very broad terms, I can do that quite well. You seem to think a knowledge of minutia is essential to understanding large policies and trends, and will hammer people with it as a debating tactic. That pretty well insulates you, as very few get into the nitty gritty. It puts you in the driver’s seat, cedes all debates to you by default, and even keeps you, in your own mind, in the right on all subjects economic. But as I said, political philosophy is embedded in economic theory. If I carry a different philosophy, such as use of government to spread the benefit of our enormous production among the greatest number of people, we can’t really have much of a debate, can we. I’d have to adopt your philosophy, aggregation of collective production to a few adept at harvesting it without government “interference”. That is, after all, where the minutia will take us.
So stick to large philosophical subject matter, avoid minutia, and you’ll get your ass kicked. That’s what you manage to avoid by using the shrapnel of economic minutia on people.
There. I was arrogant.
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