What's So Special About the Farm?

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By P. J. Hill

A well-known historian captured the relationship between the U.S. government and agriculture: "No sector of the economy has received more systematic government attention, more technical assistance, more subsidy for research and development, more public investment in education, and energy supply, and in infrastructure, more price stabilization, more export promotion, more credit and mortgage relief" (Schlesinger 1984, 8).

This intervention has allocated farm inputs inefficiently and encouraged overproduction-often at the cost of environmental quality. For example, sugar subsidies have resulted in pollution of the Everglades (Thurman 1995, 33-38), the Bureau of Reclamation has dammed many free-flowing streams and its rules (plus state laws) have kept water from moving to higher-valued uses outside agriculture (Anderson and Snyder 1997; Gardner 2003), government spraying of DDT caused significant environmental damage because of its exemption from common lawsuits (Meiners and Morriss 2001), and crop support programs have encouraged excessive use of pesticides and fertilizers (Thurman 1995, 15-29).

How did this happen? How did politics replace markets and property rights as the allocation mechanism for agriculture?

The "bootleggers and Baptists" theory of regulation, developed by Bruce Yandle, helps explain government intervention in agriculture (Yandle 1983). Yandle explains that those who seek government favors (the bootleggers who increase sales through a ban on legal liquor sales) ally with those seeking the same objective but for moral reasons (Baptists, who want sales banned on the grounds that drinking liquor is wrong). Although the alliance may be inadvertent, it leads to governmental control in the interests of both.

The appeal of agriculture as a superior way of life has given farmers the moral cover that the Baptists gave bootleggers. Championed by Thomas Jefferson, agriculture has long had an exalted place in the thinking of Americans. And agriculture's continuing economic struggles have strengthened its case for government intervention. Low farm incomes have been the result of the market process signaling to farmers that many of them need to move out of that sector. Many have responded to that signal. In 1800, 75 percent of the labor force was in agriculture (Margo 2000, 213). Today it is less than 2 percent (Myers and Kent 2001, 48).

Those remaining have been able to parlay the sympathies of the general population into government intervention, thanks to the principle of concentrated benefits and diffuse costs. Most agricultural programs are targeted to a very small group while the costs are borne by taxpayers and consumers as a whole. Congress or a regulatory agency will feel great pressure from those who stand to benefit from a subsidy, while those bearing the cost find it difficult to organize and find opposing the subsidy hardly worth their time.

The self-interest of those in government also aids agricultural programs. The Department of Agriculture has grown to more than 100,000 employees (U.S. Census Bureau 2001, 319) who benefit from program maintenance and expansion.

Through their producer organizations, farmers have been able to make common cause with politicians who find "saving the family farm" to be useful rhetoric. Furthermore, as agricultural employment has declined, the costs of organizing producer groups have fallen, and the increase in farm size has meant that benefits of agricultural programs are even more concentrated than in the past.

In spite of these forces, however, for the first seventy-five years of the nineteenth century the Constitution provided a formidable bulwark against governmental intervention. Tariffs and subsidies for transportation were the two exceptions, but the basic tenor of constitutional interpretation limited exceptions.

The one area in which the Jeffersonian ideal did play a substantial role was in land policy. The federal government was responsible for disposing of a huge amount of land and, until the Progressive era, there was a general commitment to transferring land to private hands. Unfortunately, the ideal of the family farm and the dislike of speculation in land created inefficiencies in land policy (see Anderson and Hill 1980).

Agriculture also received support from the 1862 Morrill Act, which created the land-grant public universities with the goal of underwriting education in agriculture and the mechanical arts. However, more significant pressure for government intervention came after the Civil War through constitutional interpretation.

Agrarian unrest-primarily, dissatisfaction with low prices and high costs-during the post-Civil War period led several Midwestern states to pass laws regulating the rates of railroads and other enterprises, in particular, grain elevators. Such blatant price regulation would have been declared unconstitutional in the past, but the courts broke new ground (see Munn v. Illinois 1877). Under what became known as the public interest doctrine, railroads, elevators, and farm mortgage companies were viewed as using their property in the public interest and thus were subject to public regulation. Finally, in McCray v. United States in 1904, the court upheld a statute that regulated margarine production. In a move to help dairy farmers, the law placed a tax of ten cents per pound on artificially colored margarine, but only one-quarter cent per pound on the uncolored product. After McCray v. United States, discriminatory taxation became available to farmers.

Other opportunities came from the U.S. Congress. In 1902, the Bureau of Reclamation was established with the goal of "making two blades of grass grow where one had grown before" through irrigation projects. Repayment provisions for these projects were either extended or forgiven during times of agricultural hardship. Other interventions included the creation of the agricultural extension service in 1914 and the Federal Farm Board of 1929, which was designed to raise the prices of agricultural output through government purchase and storage (Pasour 1990, 71-72).

With the onset of the Great Depression, output prices for agriculture declined by more than 50 percent, while input prices fell only slightly. The banking sector collapsed. With small towns and the rural economy hard hit, twenty-five states passed legislation delaying farm foreclosures (Alston 1983). Economic conditions had not been propitious for farmers in the 1920s, but with the deepening crisis of the 1930s, Congress responded. The Agricultural Adjustment Act of 1933 gave broad powers to the secretary of agriculture to intervene in agricultural markets. In 1936, the Supreme Court declared most of the provisions of the act unconstitutional but this limitation was shortlived. Later in 1936, Congress passed the Soil Conservation and Domestic Allotment Act and, in 1938, a new Agricultural Adjustment Act. This legislation withstood court review and reinstituted almost all the provisions of the original 1933 law.

In 1934, the Supreme Court had decided another case with important implications for freedom of contract and private property rights. In Nebbia v. New York the Court upheld a New York law giving a state milk control board the power to set maximum and minimum prices for milk. The Court used the public interest doctrine of Munn v. Illinois in deciding the case. Justice Roberts, writing for the majority, said that "a state is free to adopt whatever economic policy may reasonably be deemed to promote the public welfare" (Nebbia v. New York, 291 U.S. 502 [1934], at 537).

Thus by the end of the Great Depression the agricultural sector was well able to secure government subsidies, regulations, and tariffs in its favor. Many of the interventions had negative effects for the environment, but, with respect to these efforts, there was one more shoe waiting to drop.

After 1970, with the rise of environmental legislation, statute law came to trump common law. Statute law is much more amenable to special interest pleadings than is common law (Meiners and Morriss 2000). For example, many states have passed legislation that has exempted certain agricultural operations, in particular large hog farms, from common lawsuits (Yandle and Blacklocke 2003). Under common law, hog operations that cause air and water pollution would have faced liability for their actions.

The history of agriculture in the United States is a prime example of what can happen when special interest pleading is combined with moral approbation. Although the Constitution initially set clear limits on interference with property rights, those constitutional provisions gradually deteriorated. Over time, the state and federal governments gained the power to intervene in the agricultural economy, and common law doctrine was replaced with statute law, giving further power to those who sought political advantage.

References
Alston, Lee J. 1983. Farm Foreclosures in the United States during the Interwar Period. Journal of Economic History 43(4): 885- 903.
Anderson, Terry L., and Peter J. Hill. 1983. Privatizing the Commons: An Improvement? Southern Economic Journal 50(2):438-50.
Anderson, Terry L., and Pamela S. Snyder. 1997. Water Markets: Priming the Invisible Pump. Washington, DC: Cato Institute. Gardner, B. Delworth. 2003. Legal Impediments to Transferring Agricultural Water to Other Uses. In Agricultural Policy and the Environment, ed. Roger E. Meiners and Bruce Yandle. Lanham, MD: Rowman & Littlefield, forthcoming.
Margo, Robert A. 2000. The Labor Force in the Nineteenth Century. In The Cambridge Economic History of the United States. Vol. II, The Long Nineteenth Century, ed. Stanley L. Engerman and Robert E. Gallman. Cambridge, UK: Cambridge University Press, 207-43.
Meiners, Roger E., and Andrew P. Morriss. 2000. The Common Law and the Environment. Lanham, MD: Rowman & Littlefield Publishers, Inc.
---2001. Pesticides and Property Rights. PERC Policy Series, PS-22. Bozeman, MT: PERC, May.
Myers, Norman, and Jennifer Kent. 2001. Perverse Subsidies: How Tax Dollars Can Undercut the Environment and the Economy. Washington, DC: Island Press.
Pasour, E. C., Jr. 1990. Agriculture and the State: Market Processes and Bureaucracy. New York: Holmes & Meier Publishers, Inc. Schlesinger, Arthur, Jr. 1984. The Political Galbraith. Journal of Post-Keynesian Economics 7 (Fall): 7-17.
Thurman, Walter N. 1995. Assessing the Environmental Impact of Farm Policies. Washington, DC: AEI Press.
U.S. Census Bureau. 2001. Statistical Abstract of the United States, 121st ed. Washington, DC.
Yandle, Bruce. 1983. Bootleggers and Baptists: The Education of a Regulatory Economist. Regulation, May/June, 12-16.
Yandle, Bruce, and Sean Blacklocke. 2003. Regulating Concentrated Animal Feeding Operations: Internalization or Cartelization? In Agricultural Policy and the Environment, ed. Roger E. Meiners and Bruce Yandle. Lanham, MD: Rowman & Littlefield, forthcoming.

Peter J. Hill is a Professor of Economics at Wheaton College, where he holds the George F. Bennett chair. He is a Senior Associate of PERC and during the summer operates a ranch outside Three Forks, Montana. This article is excerpted from "What's So Special about the Farm?" which will appear in Agricultural Policy and the Environment, edited by Roger E. Meiners and Bruce Yandle, Rowman & Littlefield, forthcoming 2003.

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P.J. Hill is professor emeritus of economics at Wheaton College in Wheaton, Illinois and a Senior Fellow at PERC.An economic historian by training, Hill has written on institutional change and the evolution of property rights. His book with Terry Anderson, The Not So Wild, Wild West, challenged many of the traditional theories of how the West was...
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