The Cotton Problem

Cotton policy in the New Deal needs to be placed within the framework of the cotton market. By the 1920s, despite its lack of mechanization, Southern cotton cultivation was modern and quasi-industrial. It was grown for both foreign and domestic consumption in a cotton belt that stretched from the Carolina and Georgia coasts to the Rio Grande Valley in Texas. Small but very promising western pockets in California and Arizona had also emerged. As a rule of thumb, by the 1920s, most cotton grown east of the Mississippi River was purchased by domestic mills and was costlier to produce, whereas the highly productive western cotton sector primarily grew for export.Footnote ⁶ Although each region sold to different markets, prices usually trended in the same direction and were generally set on spot markets in response to the expectations of global futures traders on the New York Cotton Exchange.Footnote ⁷ By the Great Depression, cotton farmers, like their western wheat and corn brethren, had been struggling with historically low prices off and on since 1920.

By the onset of the Great Depression, the small American farmer was on the verge of extinction. The cotton sector was no different and faced a similar, if more extreme, set of problems as other farmers, primarily persistently low and unprofitable prices. Thus, small independent cotton farmers tended to share the policy preferences of small corn and wheat farmers. Meanwhile, larger farmers and those along other parts of agricultural supply chains had different ideas. However, all agreed that the status quo was unsustainable, and most agreed that prices had to be artificially “adjusted” to make American farming profitable.

The consequence of low cotton prices for the entire South was starkly described by contemporary economist Edward T. Pickard, who explained, “The value of the cotton crop is the major determining factor in the purchasing power of the population in the Southern States.”Footnote ⁸ By June 1932, cotton had dropped to 5 cents per pound in the critical New Orleans spot market. In contrast, it had traded at 26 cents per pound 8 years earlier.Footnote ⁹ Pickard claimed the result was that, by 1934, “the total value of lint (and cottonseed) produced amounted to $767,772,000,” whereas “in 1928 the combined value of lint and seed was $1,529,000,000.”Footnote ¹⁰

Policy scholars have done much work on the complex relationships between bureaucrats and interest groups and the inherent dangers to the public interest arising from policy officials relying on external interest group experts during the policy-making process.Footnote ¹¹ In the case of New Deal agricultural policy, interest group experts captured the policy process by being appointed to the key policy-making roles in the Administration. Given the corporatist nature of the New Deal and the established connections between corporatism and regulatory capture, it should not surprise readers that New Deal agricultural policy making was an internal contest for control by a broad tent of interested experts.Footnote ¹²

The prevailing opinion among 1930s agricultural experts was that the cause of low agricultural prices was “overproduction,” the idea that prices were low because too many Americans were farming too much for existing demand. Cotton was usually singled out as the worst offender. The experts at the Department of Agriculture, shortly after the Roosevelt Administration assumed office, issued a memo explaining their perception of the cotton problem. According to the memo, prices were low because Americans held about six million bales of surplus cotton in storage nationwide. This was a consequence of “production running well ahead of consumption” and would not be resolved until “surplus (farmers) are disposed of in urban industry” at some unspecified future date.Footnote ¹³ Thus, according to these experts, the cotton problem would only be resolved when there were significantly fewer cotton farms. However, with urban employment running over 20%, there was little appetite for policies encouraging migration from the country to the city. According to the report, the only responsible way to manage the health of the cotton belt until there were fewer farmers was through a government-facilitated price increase. New Dealers, including Southerners, would come to Washington with conflicting pre-existing ideas for what such a price adjustment scheme should be.

The Roosevelt Coalition

By the time of Roosevelt’s election, the white South had been divided over various national issues for decades. Disagreements over the gold standard, branch banking, taxation, prohibition, and farm relief programs had polarized the Southern electorate since the rise of populism in the 1890s. And, by 1932, Southerners had even split over the tariff, which the cotton interest in the South had historically opposed. However, the 1920s agricultural crisis encouraged cotton interests in Congress to join the bipartisan “Farm Bloc” with Western Republicans to protect American agriculture, necessitating compromise on trade. The United States’ transition from debtor to creditor at the end of the First World War created a crisis for export-dependent cotton farmers. Northern protectionists, who dominated the House of Representatives due to the urban North’s larger population, were no longer constrained by the need to repay foreign creditors with farm exports. Instead, global purchasers of American cotton now depended on American loans to make their purchases.Footnote ¹⁴ Loans that provided little apparent benefit for a Northern manufacturing interest primarily selling domestically.Footnote ¹⁵ Recognition of this new reality led some cotton interests to abandon their free-trade principles and seek protection for themselves. Thus, they cooperated with the Western farmers in the Farm Bloc to pass the McNary-Haugen Bill, which sought to permanently equalize the standard of living between industrial workers and farmers through a significant increase in state intervention.

Agricultural economist, and McNary-Haugen supporter, John D. Black, described McNary-Haugen as representing “an alignment, running crosswise of established party lines, which more deeply disrupts these lines than anything since populism.”Footnote ¹⁶ Black called McNary-Haugen “agriculture’s last stand against the domination of its affairs and the affairs of the country by the commercial and industrial interests.”Footnote ¹⁷ It was embraced by a diverse constellation of farm industry groups, Southern and Western businessmen, journalists, academics, and most farmers in the West and South. The policies at the heart of McNary-Haugen originated in a 1922 pamphlet written by Western agribusinessmen George Peek and Hugh Johnson called Equality for Agriculture, which tried to reconcile protectionism with American farming. In this pamphlet, Peek and Johnson argued that most of agriculture’s woes could be blamed on the protective tariff and that the tariff, which both authors believed was necessary for American economic development, must be made to work for agriculture. They argued that “[a]griculture will not die. But protection will die politically unless the principles necessary to secure a fair exchange for agriculture are added to the doctrine.”Footnote ¹⁸

Peek and Johnson argued, “The surplus is the crux of the agricultural and tariff problem… . therefore the question of disposing of this surplus becomes the most important of our national problems.”Footnote ¹⁹ The authors recommended a two-price mechanism with a higher domestic price and a lower global price to guarantee farmers a high standard of living while still disposing of surpluses. Domestically, farm prices would be fixed according to a “fair exchange value,” which Peek and Johnson defined as “the worth of a thing in terms of those things for which it is exchanged.”Footnote ²⁰ Thus, wheat prices would be fixed domestically at a level that allowed the grain farmer to continue consuming industrial goods at his accustomed level. Meanwhile, the authors argued that crops that could not be disposed of domestically should be sold on the world market for “what we can get for it.”Footnote ²¹ Exporting farmers would be compensated for this lower price through an “equalization fee” government subsidy payment that would pay that farmer the difference between the world price and the “fair exchange value.” Last, they recommended tariffs on agricultural products to protect the “fair exchange value” and to create a self-contained economy, “[s]ince every export must be paid in some import, and, with few exceptions, we can produce everything we need, we cannot export without in some way hindering the development of our own resources, the enterprise of our own people, and hence the prosperity of our own domestic market.”Footnote ²² Peek would modify his position on this last point by the beginning of the New Deal.

These concepts would form the basis of all four versions of the McNary-Haugen Bill between 1924 and 1928. Although earlier versions said nothing about cotton, the need to attract Southern votes encouraged the bill’s sponsors to include cotton in later versions, which encouraged Southern congressmen to become supporters. These later versions garnered supportive votes from all but the most committed Southern free traders, like Representative Cordell Hull of Tennessee. Congress passed the McNary-Haugen Bill twice, but it was vetoed by President Calvin Coolidge each time.Footnote ²³

In the wake of McNary-Haugen’s failure, its agricultural fundamentalist supporters embraced an even more radical idea: mandatory domestic allotment. Although the concept had been around for several decades, it was most prominently championed in the wake of McNary-Haugen’s failure by economists Milburn L. Wilson and John D. Black. Unlike the complicated provisions of McNary-Haugen, the idea was pretty simple. The national government should help farmers withdraw enough land from production to reduce the supply of crops to match the domestic market. By 1930, domestic allotment had become a mantra among agricultural fundamentalists. Henry A. Wallace, Chester Davis, and Cully Cobb became adherents who proselytized its potential across the countryside. Franklin D. Roosevelt, seeking an agricultural policy after his nomination in 1932, was convinced by brain-truster Rexford Tugwell to meet with Wallace and Wilson to discuss the acreage allotment idea. Its simplicity appealed to Roosevelt, who canvassed supporters and urban liberal experts, such as Raymond Moley and Adolph Berle, before committing to it, along with an agricultural protective tariff, as the foundation of his farm reform policy in a campaign speech in Topeka.Footnote ²⁴ By Roosevelt’s inauguration, farmers across the country, including many Southern ones, had been convinced of the plan’s necessity.

The Topeka speech must have been discouraging for Cordell Hull, who had succeeded in inserting a “tariff for revenue only” clause in the platform at the convention that had nominated Roosevelt.Footnote ²⁵ During the campaign, Roosevelt’s reliance on urban liberals and agricultural fundamentalists adjusted his policy agenda away from the revenue-only tariff in favor of those interests’ ready-made, simple, and coherent agricultural reform platform. Politically, it was a plausible way to win the farm vote that avoided McNary-Haugen’s controversial price floor, which might cost him urban and labor votes. However, despite the influence of urban liberals and agricultural fundamentalists during the campaign, Roosevelt was not a committed nationalist either and his selection of Cordell Hull as secretary of state indicates that Roosevelt desired to somewhat balance the agricultural protectionists.

Happy Days are Here Again

Roosevelt came to power at the head of a nationalist leaning party with a free-trade rump. Nationalists, like Raymond Moley and Henry Wallace, held prominent positions in his administration, and even his Texan Vice President, John Nance Garner, was a committed protectionist. Few Wilsonians held prominent positions in the Administration aside from Cordell Hull. For much of the first year, the agricultural fundamentalists and urban liberals were the dominant forces in the agricultural parts of the Administration, ensuring that the Administration pursued a policy of practical farm self-sufficiency. Roosevelt’s First Inaugural Address illustrates the power of the nationalist groups in the early months of the Roosevelt administration: “Our international trade relations … are in point of time and necessity secondary to the establishment of a sound national economy.”Footnote ²⁶ However, as the material reality of resolving the cotton problem became clear, Roosevelt settled for short-term solutions that paved the way for Cordell Hull’s long-term internationalist project.

Roosevelt promised experimentation and brought prominent members from agricultural interest groups to Washington with broad discretion to increase farmers’ purchasing power.Footnote ²⁷ Roosevelt’s ambitions for massive experimental agricultural reform necessitated the selection of a bold and visionary reformer as Secretary of Agriculture. Given the importance of the South to the Democratic Party’s electoral coalition, many cotton farmers cherished the hope that he would select Southern Ruralist editor Cully Cobb as the new Secretary of Agriculture.Footnote ²⁸ Roosevelt would disappoint them by bypassing Cobb and appointing Iowa Republican Henry A. Wallace to the post.Footnote ²⁹ Like Cobb, Wallace was the publisher of a farm journal, Wallace’s Farmer, where he advocated for his small white farmer readership to benefit from government programs to inflate farm prices. Wallace spent the 1920s lamenting farm workers’ migration to the cities and criticizing large-scale farmers he believed were reckless.Footnote ³⁰ He had offered measured support for the McNary-Haugen Bill but preferred a more radical approach that included a government-controlled price and production system along the lines of the Food Administration during World War One.Footnote ³¹ By 1932, he was committed to the idea of domestic allotment.Footnote ³² Wallace and the Roosevelt administration’s early efforts culminated in the Agricultural Adjustment Administration (AAA), created in May of 1933, to be led by George Peek. Cobb, who would be appointed to lead the Cotton Production Section of the AAA, argued that the sole purpose of AAA employees like him was to “devote ourselves to the task of increasing the purchasing power of the farmer.”Footnote ³³

The 1933 Agricultural Adjustment Act codified the provisions Roosevelt had announced in his Topeka speech and aligned with the beliefs of agricultural fundamentalists like Cobb and Wallace, who sought farm salvation through acreage controls. Cotton farmers would be offered government checks for voluntarily taking acres out of production. Additionally, they would receive “parity checks” for the difference between what they sold their cotton for and the “fair exchange value,” now relabeled “parity.” Southern support for such a plan meant abandoning free trade. According to Saloutos, “acceptance of the domestic allotment plan meant acceptance of the principle that the farmers who produced an exportable surplus had to be protected by the tariff. Since the United States was committed to a high tariff, and foreign nations resorted to almost every conceivable form of restriction, the American farmer had to be protected for at least that portion of his product sold at home… .Farmers had been victimized by economic nationalism in the past and had to protect themselves by adopting a nationalistic plan of their own.”Footnote ³⁴ Wallace believed, at least in the early days, that international markets were to be avoided for all farm products save cotton, which would require a transition period, and the AAA should act as if “we are a self-contained agricultural economy.”Footnote ³⁵ Thus, whatever disagreements would emerge between agricultural fundamentalists like Cobb, Wallace, and Davis with the urban liberals over race and tenancy issues, they were in concert on the initial AAA framework that emphasized domestic allotment and national self-sufficiency.

Most Southern farmers generally agreed that this was an attractive policy mix for the cotton belt, but it was hardly universally accepted. Given that, on average, 57% of the American cotton crop was exported yearly, this was hardly surprising.Footnote ³⁶ In a 1931 article, cotton merchant and ardent Wilsonian William Clayton suggested, “Before condemning the farmer for producing too much and seeking means of forcing him to curtail, let us carefully examine the highways of international trade to see if the trouble may not be due to obstacles there in the way of a free exchange of goods.” Clayton continued, “Instead of serving an injunction on nature to ‘cease and desist’ from bringing forth her bounties, is it not wise to seek the reason for inability to keep commodities moving in the customary processes of exchange? Why should there be great unmarketable surpluses of wheat and cotton, etc., when many millions of the world’s population are cold and hungry?”Footnote ³⁷ Clayton argued this was because the United States, in displacing the United Kingdom as the “world’s chief banker,” acted with “gross and stupid incompetence.” He castigated American politicians for not recognizing “that our new responsibilities placed us in the position of requiring payments from the rest of the world, not only for the goods which we were still expecting them to buy from us—cotton, wheat, automobiles, radios, etc., etc., but in addition that we should have to receive heavy annual payments as interest and amortization on the vast sums of money which we had loaned abroad. We should have known that these payments could only be made in goods.”Footnote ³⁸ In an earlier article, Clayton laid out the position of the foreign debtor once the United States curtailed its foreign credit program in the late 1920s, “He is thus in this situation: either he must buy less from us for lack of cash to pay with, or else he must sell us something in exchange for our goods. Congress answers him on this point with a tariff bill which raises barriers against the goods that he might sell us so high as virtually to say, ‘Thou shalt not pay.’”Footnote ³⁹

Despite Clayton’s misgivings, most cotton farmers were not particularly discerning about relief details. In 1933, they just wanted action. The 1929 stock market crash had triggered a crisis where cotton prices collapsed, culminating in a deflation by 1930 that threatened almost every farmer in the belt. Not even the large farms were immune. For instance, Oscar Johnston’s Delta and Pine Land Company, the largest privately owned cotton farm in the world, located in the Delta town of Scott, MS, barely escaped its date with insolvency despite the plantation’s scale and Johnston’s industry prominence.Footnote ⁴⁰

Johnston’s operations produced over twelve thousand bales (five hundred pounds each) of high-quality cotton annually, primarily for export to England, where the company’s bondholders resided. Although the company was incorporated in the United States, it was controlled by the Fine Cotton Spinners and Doublers Association of Manchester, England, which owned several million dollars of Delta and Pine Land corporate bonds and the mortgage on the property. The Association was led at the time by the Englishman H. H. Stowell. Thus, far more so than Cobb, the journal editor, Johnston was operating in a global market.Footnote ⁴¹

Johnston spent the early years of the depression begging Stowell and his bosses in Manchester for additional credit while Manchester’s responses increased in exasperation. When Oscar Johnston was recruited to Washington in 1933, the plantation’s financial situation was desperate. Johnston had been forced to pledge all the company’s and its tenants’ assets as collateral in a desperate attempt to get a $500,000 land and chattel mortgage from President Hoover’s Reconstruction Agricultural Credit Corporation to salvage the plantation.Footnote ⁴² Applying for this loan would be one of Johnston’s final tasks before being invited to Washington in the spring of 1933.Footnote ⁴³

Oscar Goodbar Johnston was nominated to become the AAA Director of Finance because of his considerable financial talent, extensive Wall Street connections, and enthusiasm for reform. Although there were other politically connected cotton figures with an even more impressive financial background than Johnston, such as William Clayton, Clayton’s public disdain for acreage controls and threats to abandon the Democrats over that policy precluded him from being recruited.Footnote ⁴⁴ Accordingly, although Johnston was not as enthusiastic about domestic allotment as Cobb and Wallace were, and would certainly oppose their self-sufficiency program given his company’s dependence on European markets, he seemed eager for reform and was not a public opponent. Thus, he seemed the right fit. At the end of May 1933, Johnston took a leave of absence from his position as president of the Delta and Pine Land Company to become the Director of Finance of the AAA.

The AAA was designed according to the vision of agricultural fundamentalists like Wallace and Cobb. Although its first administrator, George Peek, was an agribusinessman who authored the pamphlet that inspired McNary-Haugen, he had little influence on its design. He never bought into the acreage control program, and his power plays against Wallace would lead to him being shuffled out of the role before the end of the year, which some scholars have suggested indicates a complete victory for Wallace and the agricultural fundamentalists.Footnote ⁴⁵ However, Peek’s departure was not the end of the story. By the autumn of 1933, it was clear that the Agricultural Adjustment Act the agricultural fundamentalists had designed, with the support of urban liberals, was insufficient for cotton price adjustment.

The Failure of Acreage Controls

Disagreements between Cobb and Johnston were not evident upon Johnston’s arrival in Washington. Unlike Peek, Johnston’s skepticism of acreage controls did not preclude him from being willing to experiment with the AAA’s provisions, even the “plow-up,” owing to the severity of the crisis.Footnote ⁴⁶ Both Johnston and Cobb believed another year of low cotton prices might be fatal to the industry, so they supported the rapid adoption of acreage controls even though the cotton crop had already been planted. The timing of the law’s passage in the agricultural cycle meant government officials had to convince farmers to destroy their crops by as much as 30% in return for government checks.Footnote ⁴⁷ The AAA hoped that reducing acreage by 30% would reduce surpluses and increase cotton prices. Prices did rise, seemingly intermittently, to almost 12 cents a pound, but it is difficult to determine how much of this was due to the plow-up campaign and how much to market variations.Footnote ⁴⁸ Despite his enthusiasm for acreage controls, Wallace seemed to think the reason was the dollar’s devaluation.Footnote ⁴⁹ In 1936, economist A. B. Cox agreed, in an article that compared cotton’s price to gold, he concluded that there had been nothing but a nominal rise in prices owing to devaluation. Cox blamed the cotton restriction program for “preventing hundreds of millions of dollars in employment … (putting) millions of people on relief … (and for being) an utter failure as a scheme for raising prices.”Footnote ⁵⁰

Oscar Johnston had seen enough to convince him that acreage controls were a failure and that external markets were the only salvation for American cotton farmers. In a letter to Stowell, Johnston admitted as much.Footnote ⁵¹ In a series of letters back and forth, Johnston and Stowell agreed that the inability to control the concentration of production on farms would lead to little reduction in overall cotton stocks, and any price increases would only result in farmers planting more, which would undo the whole plan. Johnston came to government with experience as the president of a major farm operation. He understood how farmers would respond to the new regime because he advised Delta and Pine Land Company officials on how to respond. He appreciated that not all cotton land on a farm, especially a big farm, was created equal, and that some land was more productive than others. He knew that most farmers would endeavor to rent the worst land they could get away with to the government while increasing production on their best land.Footnote ⁵² Economist Reed Frishknecht summarized this problem in 1953 by suggesting that “The method of acreage allotments … actually provided no guarantee against price decreasing surpluses. Under these programs … farmers selected the best acreage to use under their acreage allotments, planted rows closer together, and used better seed strains and more fertilizer.”Footnote ⁵³

Johnston appears to have generally kept his skepticism over acreage controls to himself until the early fall of 1933, when debate began over the bill that would become the Bankhead Cotton Control Act. The Bankhead Cotton Control Act of 1934, sponsored by Alabama Senator John H. Bankhead II, an agricultural fundamentalist sympathizer, made bale and acreage control compulsory. The Bankhead proposal emerged in late summer 1933 from acreage control supporters trying to explain why acreage controls had not successfully raised prices. Unlike Johnston, who assumed prices failed to respond because farmers could manipulate the system to their benefit by increasing production on the land they were not renting to the government, Bankhead blamed those who had not signed acreage contracts with the government and planted more to take advantage of the price increase caused by others’ cotton being plowed up. The Bankhead Act made compliance with acreage controls mandatory and imposed additional bale control measures at the gin. Farmers were issued a certain number of “bale-tags,” beyond which they would have to pay a 50% tax on any ginned or sold cotton. The AAA forecasters believed that if the 1934 American cotton crop were limited to 10 million bales, about 70% of the typical cotton crop, supply would drop to a point where prices would increase. Although this was more than the domestic textile market consumed, it was a step toward the self-sufficiency desired by the agricultural fundamentalists.Footnote ⁵⁴ Accordingly, 10 million bale tags were issued to farmers across the belt, with a farmer’s allotment depending on their historical production.

Cully Cobb was an enthusiastic supporter of the Bankhead Act, and during these debates, his disagreement with Johnston became evident.Footnote ⁵⁵ Cully Cobb, an agricultural fundamentalist with experience as an educator and publicist rather than a director of a large plantation, believed that gin control was the key to reducing production equally among all farmers.Footnote ⁵⁶ He felt control would benefit small producers by ensuring that processing operations were consistent with the AAA’s overall plan to increase farmers’ purchasing power by limiting supply.Footnote ⁵⁷ In a letter to AAA official Victor Christgau on the Bankhead Act, Cobb argued that it was consistent with the Roosevelt Administration’s approach because the “cotton program is a control program.”Footnote ⁵⁸

Johnston, however, disagreed with the bale control plan and voiced his opposition in a letter to Secretary Wallace in September of 1933. He argued that a farmer could not predict annual production, so there would be regular surpluses above what the farmer was permitted to gin under the Bankhead Plan quota. This cotton would continue to exist, even if it were not immediately ginned and “exercise a bearish influence” on the market.Footnote ⁵⁹ In a letter to Stowell on February 1, 1934, the interim head of operations for the Delta and Pine Land Company, A. P. Toler, said that Oscar Johnston had told him the Bankhead Act was “distinctly to the disadvantage of the company” and therefore planned to lobby heavily for its defeat in Congress.Footnote ⁶⁰ Unfortunately for Johnston, he could not overcome support for the measure, and the Bankhead Act was passed with the president’s enthusiastic support. Will Bankhead of Alabama, the bill’s House Sponsor and brother of its Senate sponsor, accused Johnston of “not looking at the bill from the standpoint of the farmer … but from the interests of a great British syndicate.”Footnote ⁶¹

Johnston was additionally concerned that these controls would handicap American exports. Whatever price increases accompanied a reduction in American cotton production would only be undone by competitors like Brazil, Egypt, or India increasing their production. During the 1934 planting season, Egypt and India substantially increased their acres under production to take advantage of the summer 1933 price increases. Additionally, if the government only succeeded in raising prices for American cotton, international growers could undercut those prices in export markets, leading to a significant decrease in American market share and America losing its position as cotton’s global price setter. Stowell told Johnston that he was unsure the American government could maintain such a program long term, as these acreage reduction programs were burdensome and only resulted in a loss of American ability to shape the world market.Footnote ⁶² Agricultural fundamentalists like Cobb and Wallace were not focused on global market share, as they hoped to wean American cotton producers off global markets. However, protecting American market share was vital for Johnston and the Delta and Pine Land Company’s operations, which depended on British textile markets. Thus, an alternative was needed.

The Bankhead Act was the last gasp of the agricultural fundamentalists, who had to reckon with cotton prices collapsing to below 9 cents a pound in September 1933 despite successfully destroying over 30% of the American cotton crop. However, the Bankhead Act’s effects were not expected to be felt until the end of the 1934 crop cycle, and representatives from cotton states were issuing desperate cries for immediate government relief.Footnote ⁶³ Senator Ellison D. Smith of South Carolina telegrammed the president to tell him to issue an order to “stop the sale of cotton until prices can recover.”Footnote ⁶⁴ Meanwhile, A. D. Steward of the Mississippi Cooperative Cotton Association urged the president to “immediately institute further inflation” to “relieve distress among cotton growers.” Furthermore, he argued that the government should issue an advance to all those growers who plowed up cotton to alleviate the farmer’s distress “until the inflation can benefit him.”Footnote ⁶⁵ Representatives from cotton states traveled to Washington on September 18 to demand that the government “inflate the currency, fix the minimum price of cotton at 15 or 20 cents, and limit the 1934 cotton crop to 9 million bales.”Footnote ⁶⁶ These policy demands show that although industry experts disagreed over reform alternatives, cotton farmers wanted relief in whatever form it took.

By mid-September 1933, at the peak of cotton anxiety, Oscar Johnston conceived a relief plan via public credit for farmers to “enable producers to liquidate existing crop mortgages, to market their crop in an orderly fashion, and to obtain the benefits which we believe will be derived from the National Recovery program.”Footnote ⁶⁷ Johnston had begun to believe, during the summer of 1933, that price adjustment required a domestic price-floor administered through a system of public credit.Footnote ⁶⁸ Johnston, like many cotton sector participants, was convinced that one of the most influential causes of low cotton prices was farmers panic-selling their cotton to repay short-term high-interest private crop loans they had taken out earlier in the crop cycle. He proposed that the government offer 10-cent nonrecourse loans, with extended terms, across the cotton belt to establish a price floor and give farmers maximum marketing flexibility to raise prices.

The newly created Commodity Credit Corporation (CCC), established by Executive Order in October 1933 on Johnston’s personal recommendation to Roosevelt, issued the nonrecourse loan.Footnote ⁶⁹ It was called “nonrecourse” because the lender, the government-owned CCC, had no additional recourse against the borrower besides the crops the farmer pledged as security for the loan. The “nonrecourse” provision reshaped how farmers accessed credit, protecting them against having to liquidate their crops to satisfy creditors. The 10-cent nonrecourse loan of 1933 allowed cotton farmers to pledge bales from their planted crop as collateral for a loan from the CCC at 10 cents per pound. If prices rose above 10 cents a pound in the subsequent year, the farmer could sell their cotton and repay their CCC loan from the proceeds. If the farmer could not sell their cotton for 10 cents or more, he could simply relinquish his cotton to the CCC. The CCC accepted this “in-kind” payment and canceled the loan. The goal was for the CCC to sell that cotton themselves for a profit once prices rose.

The nonrecourse loan established an implicit price floor for American cotton growers. Buyers would have to entice sellers into the market beyond the loan rate to convince them to sell. The one-year loan terms and nonrecourse provision also prevented panic-selling, meaning sellers could wait out market swells. Thus, with the CCC, farmers could market their cotton with a government safety net.

The nonrecourse loan was immediately popular among most cotton interests, even many agricultural fundamentalists. Senator Bankhead of Alabama told the president after it was announced internally, “Your announcement on cotton plan will electrify the cotton belt and give the people new life. All of us love you and this action will increase our affection.”Footnote ⁷⁰ E. F. Creekmore of the American Cotton Cooperative Association told the president that the public announcement has “caused generally a more hopeful feeling among the World Cotton Trade.”Footnote ⁷¹ C. O. Moser passed along “the appreciation of the Organized Cotton Producers of the South for [the president’s] wise and courageous monetary program.”Footnote ⁷² Prices stabilized and by January increased, as Johnston had hoped.Footnote ⁷³ It was so popular and effective that Wallace and Peek urged similar loans be extended to corn farmers.Footnote ⁷⁴

In the fall of 1933, cotton growers borrowed $120,000,000.00 through the nonrecourse loan and only paid about half of it back in cash the following year.Footnote ⁷⁵ Economists Edwin Nourse, Joseph S. Davis, and John D. Black, in their analysis of New Deal Farm legislation for the Brookings Institute, summarized the results of the cotton loan by claiming “the loan served its purpose of tiding growers over a period of depressed prices during the fall and early winter, but it encouraged them to hold longer than was necessary and increased the volume of cotton that was under government control.”Footnote ⁷⁶ The problem was that the loan forced buyers to entice sellers into the market, requiring purchases higher than 10 cents per pound. This was too much for the market to bear, leaving the government with the problem of warehousing and disposing of the cotton that growers had relinquished to them. It was the same problem that had doomed the Hoover administration’s commodity price stabilization efforts.

In the crisis atmosphere that gripped agriculture in 1930, President Herbert Hoover’s newly created Federal Farm Board set up corporations for open-market commodity purchases. Unfortunately, after the scheme became public, farmers were disincentivized to curb production while buyers waited for the price to drop again, which it did quickly.Footnote ⁷⁷ The Farm Board purchased well over a million bales in the summer of 1931 to raise cotton prices.Footnote ⁷⁸ By 1933, the Farm Board was warehousing over 2 million bales of surplus cotton from purchases that failed to raise prices.Footnote ⁷⁹

Oscar Johnston took immediate control of this surplus cotton on behalf of the AAA after being appointed director of finance. He was eager to sell the stocks “without discrimination or favoritism and with every caution to avoid dumping or taking any action that might have an unfavorable effect on the market.”Footnote ⁸⁰ The 1933 nonrecourse loan “in-kind” repayments meant that an additional 1.2 million bales would have to be warehoused after August 1934. Meanwhile, the government announced it would renew the nonrecourse loan on the 1934 crop at 12 cents per pound. The 1934 loan was two cents higher than the previous year because the CCC believed that poor weather conditions and large weevil infestations across the belt would lead to a significantly smaller crop and, thus, higher prices.Footnote ⁸¹ However, prices did not rise, and the increased loan rate led to an additional six million surplus bales in 1935.Footnote ⁸² This put significant pressure on warehouse space across the country, as the government was forced to find whatever warehouses they could to store this surplus cotton, sometimes at the expense of other cotton merchants. This warehousing became very expensive for the government, leading to bitter battles over pricing and payment between the CCC and warehouse operators.Footnote ⁸³

Unlike Wallace and Bankhead, who initially supported the nonrecourse loan out of desperation, Cully Cobb opposed it. He always believed the loan rate would either be too low to affect prices or lead to such a high cotton surplus that the government would be forced to dump the surplus bales abroad to liquidate their holdings, which would negate his preference for shrinking dependence on foreign cotton markets. Cobb argued that experience had proved that the government was generally bad at disposing of surpluses and typically did more harm than good by trying to play the market. He argued that even if the experts perfectly predicted prices and the loan rate exactly equaled the market rate, most cotton growers would probably still prefer to relinquish their bales to the government because it was less work. According to Cobb, that was the best case scenario. Cobb believed it was far more likely that the government would guess incorrectly and some spread would exist between the loan and market rates. He argued that if the government set a rate well below the market rate, it would crowd out and destroy the small-town community banks that farmers had historically relied on for their crop loans while having little to no effect on prices. Meanwhile, if the loan rate was set well above market prices, the government would take ownership of enormous amounts of surplus cotton, which they would struggle to dispose of.Footnote ⁸⁴

Johnston did not intend the program to be permanent. He assumed he was clever enough to eliminate a short-term surplus without resorting to dumping, which would bring down the price of cotton.Footnote ⁸⁵ To Johnston’s credit, he seemed clever enough and managed the problem reasonably effectively as pool manager. By 1936, he was proud to announce to George Peek that all the surplus cotton from 1930 and 1933 had been sold.Footnote ⁸⁶

The Search for Foreign Markets

Johnston had hoped to dispose of much of the surpluses in foreign markets, but he had only modest success owing to the significant 1930s barriers to global trade. He had been a key Administration voice for the dollar’s revaluation, which made American products more affordable abroad, and supported Cordell Hull’s pursuit of Reciprocal Trade Agreements.Footnote ⁸⁷ Johnston would have agreed with Representative A. Willis Robertson of Virginia’s characterization of those agreements as the only way “farm commodities could be moved into foreign commerce.”Footnote ⁸⁸ However, he had no wish to wait for the Reciprocal Trade Agreements negotiations to conclude before beginning exporting, creating tension between himself and the State Department.

By January 1934, it was clear that Roosevelt was no longer committed to the self-sufficient recovery the agricultural fundamentalists and urban liberals had championed. The economist Carl T. Schmidt argued that by that year, Roosevelt had embraced the need for internationalism and “restoring the old course of our foreign trade in agricultural products.”Footnote ⁸⁹ Cordell Hull had solidified internationalist control of the State Department after urban-liberal Raymond Moley, who Roosevelt had originally installed in the State Department, was shuffled out in August of 1933. Meanwhile, the CCC loans meant the Administration had to pivot to foreign markets to absorb surpluses. By then, George Peek had renounced his 1922 position that exports weakened the American economy. In a 1934 note to Roosevelt, he declared that “the prosperity of our agriculture is more dependent on foreign markets than is the prosperity of our industry” and that the biggest obstacle to agriculture’s recovery was “our exports being denied payment.”Footnote ⁹⁰ Although Cobb and Wallace would still insist on acreage controls to control surpluses, the failure of acreage controls alone to effectuate a rise in cotton prices meant they lost the battle for self-sufficiency. Instead, a new battle over how to access foreign markets would emerge with Hull on one side and agribusinessmen Peek and Johnston on the other. In January of 1934, Roosevelt, under Peek’s influence, attempted to strike a bilateral barter deal with the Nazi German Government where the United States would accept manufacturing goods in return for cotton and other American farm goods.Footnote ⁹¹ Hull had to talk the president out of it. However much Hull sought export markets, he opposed any short-term barter deals that disrupted his campaign for permanent open trade, which he believed would permanently liquidate surpluses once achieved.Footnote ⁹²

This frustrated Johnston, as the trade agreements preferred by the State Department took a long time to negotiate and his mandate was to liquidate surpluses quickly. Without barter agreements, Johnston had trouble moving cotton to many of America’s traditional European markets because of exchange controls imposed by those governments to protect their currency holdings. Firms in those countries needed American dollars to purchase American cotton, dollars they could only access if firms in their country could export goods into America, a process hampered by high American tariffs. Thus, these countries, according to historian Michael A. Butler, “sought to preserve declining gold reserves by balancing trade precisely with trading partners.”Footnote ⁹³ Johnston had hoped that barter deals would allow countries like fascist Germany and Italy preferential access to the American manufacturing market on a one-time basis in return for American dollars through which they would purchase American cotton.

The State Department opposed these ad hoc barter deals, as its officials, including Hull, did not believe that the short-term needs of agriculture trumped the long-term benefit of permanently open trade to all American industries. The barter deal fight came to a head over a 1934–35 deal to sell cotton to Germany when Peek, who Roosevelt had appointed his Special Advisor on Trade and Chairman of the Export-Import Bank after his dismissal from the AAA, negotiated an agreement where the Germans would buy American cotton by paying “25 percent in dollars, the balance plus a fixed premium would be in reichsmarks.” Those reichsmarks would then be used by Americans specifically to purchase German manufacturing exports.Footnote ⁹⁴ According to historian Lawrence Nelson, the State Department believed this agreement subsidized German exports, which “jeopardized the integrity of the equal treatment and liberal trade ideals embodied in the reciprocity negotiations.”Footnote ⁹⁵ Brazil threatened to withdraw from its reciprocity negotiations with the State Department if the German deal went through.Footnote ⁹⁶ The tension over the agreement created an impossible situation between Peek and Hull, which forced Roosevelt to make a decision. He sided with Hull, killing the German agreement and related barter deals with France and Italy. Accordingly, despite no longer being constrained by the agricultural fundamentalists’ nationalist trade agenda, Johnston had to trade by Cordell Hull’s rules, which Nelson described as a great “source of consternation.”Footnote ⁹⁷

The 1938 Farm Bill

Nonrecourse loans were issued every year, except in 1936, until they became permanent with the passage of the 1938 Farm Bill. In response to the 12-cent 1934 loan, which resulted in overwhelming government surpluses, the cotton loan rate was reduced to 10 cents per pound in 1935. Despite the more modest rate, few loans were repaid in cash, as the spread between the average market price and loan rate was razor-thin for most of the year. However, the lower rate at least discouraged the scale of borrowing seen in 1934.Footnote ⁹⁸

By the summer of 1936, Johnston had managed to liquidate the government’s holdings of the cotton inherited from the Federal Farm Board and the 1933 CCC cotton, and prices had stabilized to the point where he felt he could retire from his position as finance director.Footnote ⁹⁹ Johnston could return his full attention to his operations in the Delta, something much more attractive now that the government subsidies he had designed and implemented had made his company profitable again.Footnote ¹⁰⁰ Meanwhile, Cully Cobb’s Cotton Production Division continued its bale control program. Although the popularity of the nonrecourse loan meant that the goal of bale control may no longer have been national self-sufficiency, Cobb and Wallace still preferred supply controls over the CCC loans as a tool of long-term price adjustment. In 1935, Cobb’s division believed that the cotton crop needed to be less than 11,500,000 bales to increase prices; accordingly, the Bankhead quota was set at 10,500,000 bales. The actual harvest was just over 11,500,000 bales. Although production was only slightly higher than Cobb’s target, prices failed to respond. Cobb blamed accumulated stocks from the 12-cent 1934 loan.Footnote ¹⁰¹ His efforts to marginalize the loans in favor of acreage control were finally defeated by the 1936 U.S. v. Butler Supreme Court decision, which declared the control program unconstitutional.

Between 1936 and 1938, cotton prices plummeted to barely above 8 cents a pound, erasing any increases the AAA and CCC effected. Marxist commenter Jeremy Pytlak said in 1939, “Six years of capitalist ‘planning’ have ‘improved’ the cotton situation only to the extent of raising the price 2.86c above the all-time low of 1931.” This accomplishment had cost the government $1,539,000,000.00 since Roosevelt took office.Footnote ¹⁰² Cobb and Wallace blamed the 1936–37 price drop on overproduction associated with the government’s forced abandonment of production controls by the Butler decision. They argued that freeing farmers from controls encouraged them to put seven million more acres into production than they would have if the Bankhead quotas had remained in effect.Footnote ¹⁰³ It led to a harvest of over 18 million bales in 1937, six million more than in 1935. Wallace believed this increase would have led to a collapse of cotton prices to 4 or 5 cents a pound had it not been for the emergency 9-cent CCC loan in 1937.Footnote ¹⁰⁴

After returning to Mississippi from Washington, Oscar Johnston responded to the 1937 cotton price crisis by creating a powerful new industry group, the National Cotton Council, as a new national umbrella group for cotton producers. He criss-crossed the Delta in the winter of 1937–1938, urging cotton farmers and sellers to join his new lobby group. In the wake of the Butler decision, Johnston told cotton farmers that production controls had failed and that it was in every farmer’s interest to encourage an increase in cotton consumption across the globe. As Delta Times-Democrat Editor Hodding Carter scribbled down in a note, “For the first time since the New Deal assumed complete responsibility for farm welfare, cotton’s leadership agrees that control is not the answer. That, instead, consumption increases through advertising, the discovery of new uses, and loosening of trade restrictions is the only hope for salvation.”Footnote ¹⁰⁵

However, Cully Cobb and Henry Wallace were not ready to abandon production controls, even after the Butler decision. Although grateful for the nonrecourse loan on the 1937 crop, both remained skeptical that stable prices could be achieved through loans and export markets. Accordingly, even after Butler, they continued encouraging acreage controls, which were reintroduced under the Soil Conservation Act of 1936.Footnote ¹⁰⁶

The passage of the 1936 Soil Conservation Act reinstated acreage controls under the guise of environmental protection while devolving authority to the states to administer the plan to address the Supreme Court’s concerns about the constitutionality of the Agricultural Adjustment Act. The downside was that it required time to bring the states on board, perform ecological surveys, and reobtain the support of stakeholders. By the time this was accomplished, the historic bumper 1937 cotton crop had already been planted, the size of which, it was believed, would encourage a cotton price crash without intervention. Senators from the cotton states demanded a new loan be offered, but the president initially refused because he felt that, without production controls, the surpluses would be uncontrollable. A compromise was eventually reached where the government would offer a 9-cent loan for congressional action to reimpose acreage controls as soon as Congress returned, resulting in the 1938 Farm Bill.Footnote ¹⁰⁷

The 1938 Agricultural Adjustment Act, or the 1938 Farm Bill, permanently reorganized the government’s relationship with the farmers of five key American crops, including cotton.Footnote ¹⁰⁸ Henry Wallace claimed that it fulfilled his vision of an “ever-normal granary,” an idea he suggested he borrowed from ancient China and the biblical story of Joseph in Egypt.Footnote ¹⁰⁹ However, the new Act resembled the old McNary-Haugen plan but with acreage controls and no additional tariffs. Wallace’s plan called for permanent fixed domestic prices, established by an annually calculated nonrecourse loan rate that would guarantee the farmer a congressionally mandated 60% of whatever parity was calculated to be.Footnote ¹¹⁰ At the same time, farmers could export their surpluses at the world price, thus creating a “dual-price mechanism” like the McNary-Haugen plan had envisioned. If world prices were below the domestic price floor, surpluses would be absorbed by and exported by the CCC.Footnote ¹¹¹ However, if farmers wanted to access such a generous program, they were expected to sign an acreage reduction contract with the government. Additionally, like McNary-Haugen, the 1938 Agricultural Adjustment Act approved appropriations for annual subsidy checks to make up the difference between cotton’s sale price and parity.Footnote ¹¹²

The experience of the 1930s had shown that domestic allotment alone, or any form of production quotas, was not enough to raise or even stabilize prices. Nonrecourse loans, however, were considered successful. Agricultural economist Reed Frishknecht said the loans became farm policy makers’ “major method of increasing farm prices.”Footnote ¹¹³ Thus, unlike the agricultural fundamentalists’ initial vision for farm relief, the 1938 Agricultural Adjustment Act accepted cotton surpluses as a permanent feature of American farming. Rather than eliminate cotton surpluses beyond the domestic market, the 1938 Act would try to manage them and leave them to foreign markets to liquidate.

The price floor on American cotton was, initially, well above the world price for spot cotton. Thus, American farmers had little interest in exporting cotton for a lower price than the domestic price floor. Accordingly, American farmers were exporting less cotton in 1938 than they had in 65 years, and the CCC was forced to absorb surpluses that otherwise would have been exported.Footnote ¹¹⁴ By March of 1939, the administration was forced to acknowledge that “the cotton loans have served a useful purpose in sustaining prices during heave marketing periods, but due to large extent of the record crop of 1937 stocks under loans have now accumulated to such an extent that it is desirable that a portion of the stocks be moved into domestic consumption and export as fast as marketing conditions permit.”Footnote ¹¹⁵ Accordingly, in 1939, the United States Government organized an export subsidy, which paid farmers $7.50 per exported bale.Footnote ¹¹⁶ The result was a bonanza resulting in six million bales from the 1939 crop being exported, “almost double the shipments in the preceding season.”Footnote ¹¹⁷ Thus, the Agricultural Adjustment Act had put the US Government in a position where it was resorting to dumping to alleviate the pressure on warehouses. Additionally, the State Department was forced to embrace barter deals despite its earlier hesitancy. Senator James Byrnes of South Carolina successfully championed a barter program between the United States, Britain, Belgium, and Holland whereby the Americans would trade 600,000 bales of cotton for rubber and tin.Footnote ¹¹⁸ Thus, 1 year of experience with the 1938 Agricultural Adjustment Act indicated to the Administration that the cotton provisions were unsustainable without an aggressive export strategy.