World War I, as much as anything, is responsible for modern U.S. farm policy. America’s response to the Great War altered farmers’ behavior and set them on a course that would eventually lead to price supports and production controls. Specifically, to ensure enough wheat to feed an army of men and a starving European civilian population, Herbert Hoover, appointed as Food Administrator by President Woodrow Wilson in 1917—when the U.S. entered the war—fixed the price of wheat at $2.20 per bushel, nearly twice the price it had been the year before. U.S. farmers responded to the price signal, and in January 1919, the New York Times reported, “the winter wheat acreage is the largest that ever went into the ground and it is expected the same will be true of the Spring planting” (Moore 1919). Production rose from 636 million bushels of wheat in 1917, to 932 million bushels in 1918 and 1.2 billion bushels in 1919.
The war transformed the world wheat market. Before the war, Europe was a major market for U.S. wheat. The war, however, left Europe relatively impoverished. After the war ended, Russian wheat production was rejuvenated. Wheat producers in other foreign countries had also responded to the high wheat prices and expanded wheat acreage. By 1921 wheat prices had fallen back to pre-war levels, and, with the exception of a brief spike in 1925, stayed there.
Throughout the 1920’s, attempted legislative support for agriculture came in many forms, but the only successful farmer-focused legislation was due to Herbert Hoover. Hoover, having dealt closely with the heavily concentrated wheat export industry as U.S. Food Administrator during World War I, approached the issue from the perspective of the exporters, who saw the problem as one of price instability and access to credit, not low prices per se. From this perspective, the problem boiled down to uncoordinated marketing by the farmers. If farmers could agree to slowly release the harvested commodity into the market, they all would receive a higher price. The farmer who can sell his crop first, however, avoids paying storage costs and repays his annual operating loan from the bank, avoiding extra interest charges. In this way, the sooner the crop is sold, the higher the effective price the farmer receives. Since everyone faces these incentives, the coordination game breaks down and everyone rushes to sell their newly harvested crop. So, despite attempts to pass legislation that would raise the price level by reducing overall production, the legislation signed into law by Hoover in 1929—the Agricultural Marketing Act— set up the Federal Farm Board to assist with year-to-year marketing and allotted $500 million to farmers’ cooperatives to cover the storage and interest costs of delayed marketing. This effectively extended cheap credit to farmers at a time when most of the credit was tied up in the booming stock market of the late 1920s (Ahamed 2009). Relics of this approach to supporting farmers are still present in modern U.S. agricultural policy.