• Brian Kallback

Farm Crisis Presaged the Great Depression

Credit is a necessary function for our American capitalist economy. When consumers have discretionary income, they spend on goods and services to provide a desired lifestyle. Yet, sometimes their desires and/or business expenses exceed their specified level of income. This is where credit applies. Banks and other lending institutions are in the business of lending money to individuals and businesses on the basis of credit. Under the agreement, the consumer will pay back the loan over an agreed-upon period of time and with an associated interest rate. When credit is easily flowing and available, the economy is usually growing because more money is being spent on goods, services, and business than when credit dries up. The impact of a society full of friction was evident in the 2008-2009 Recession when banks pulled back their credit. Consumers couldn’t purchase and grow, thus the economy stalled.

When the Great Depression is analyzed for a particular cause or catalyst, the canary in the coal mine was the farm crisis occurring in the 1920s. The rest of the country was booming, or roaring, and speculators and investors were making fistfuls of money. Speculators borrowed money to make money, thus increasing their leverage and their risk. Unfortunately for the agricultural community, easy credit prior to the crisis led to many farms to be overleveraged. In mild cases of tight credit, consumers can simply sell the items purchased and pay back the loan. However, when the object is illiquid and not quickly marketable, prices fall and, in this case, farmers were unable to sell assets to pay back loans.

International events brought the United States agricultural community to the forefront of the global stage. Geopolitical clashes occurred across Europe, thus providing the United States a location for their goods.

“The emergence of the United States as an economic power helped foster a worldwide boom in commodities in the early twentieth century. The boom, especially in the prices of wheat and other grains, accelerated as World War I disrupted European agriculture, even while demand in the United States was strong. The Russian Revolution in 1917 further exacerbated the uncertainty about supply, and intensified the commodity price boom. However, European agricultural production resumed faster than expected after the war's sudden end, and desperate for hard currency, the new Russian government soon recommenced wheat and other commodity exports. As a result, agricultural commodity prices plummeted starting in 1920 and declined through much of the 1920s.”[1]

The crisis in the agriculture community presaged the larger depression. The class of borrowers most affected by credit reductions were households, farmers, unincorporated businesses, and small corporations; this group had the highest direct or indirect reliance on bank credit.”[2] Farmers were susceptible to the unfortunate situation of trying to sell illiquid assets into a downward fall in prices. This left them unable to pay back their debts. “At the beginning of 1933, owners of 45% of all U.S. farms, holding 52% of the value of farm mortgage debt, were delinquent in payments.”[3]

The Smoot-Hawley Tariff exacerbated the farming credit crisis. Good intentions were behind the passage of the bill, as the Tariff added further levies on the import of foreign agriculture. Congress desired to protect the American farmer via Smoot-Hawley. Unfortunately, the tariff devolved a global situation still reeling from the First World War. Samuelson noted in Economics, "Cynics were delighted at the spectacle of a country trying to collect debts from abroad and at the same time shutting out the import goods that could alone have provided the payment for those debts."[4] Yet, President Hoover would not be deterred. Whether he was unable to understand the complexities of a global trade war or he didn’t care, Hoover signed the bill into law. He stated on June 16, 1930, "The Republican Party believes that the home market built up under the protective policy belongs to the American farmer, and it pledges its support of legislation which will give this market to him to the full extent of his ability to supply it.”[5]

After the disaster of the Smoot-Hawley was diminished upon inauguration of the Roosevelt Administration, the Agricultural Adjustment Act (AAA) was passed in May 1933. This act paid farmers to “take land out of production for several types of goods” in order to create enhanced demand through decreased supply.[6] Though later deemed unconstitutional, the AAA may have inadvertently hurt the people in whom it was designed to help. It seems to have increased the “diffusion of machinery, which may have increased output per acre, although it came at the expense of lost positions for farm workers.”[7]

The farm crisis in the 1920s was a hint of worse times to come. Though the exuberance of the speculative crowd deafened the pleas from the agricultural community, the good times soon came to an end for all. When credit was tightened, money stopped flowing to the people who could spend it and get the economy started again. With farmers holding illiquid and non-marketable assets, their fortunes were crushed within the downward spiral of asset prices.


Bernanke, Ben. “Non-monetary effects of the financial crisis in the propagation of the Great Depression.” National Bureau of Economic Research (January 1983).

Fishback, Price. “The newest on the New Deal,” Essays in Economic & Business History (June 13, 2018)

Hoover, Herbert. “Message regarding the Smoot-Hawley Tariff Act” (June 16, 1930).

Rajan, Raghuram & Rodney Ramcharan. “The anatomy of a credit crisis: The boom and bust in farm land prices in the United States in the 1920s.” American Economic Review 105, no. 4 (April 2015),

Samuelson, Paul. Economics. New York: McGraw Hill Education, 2019.


[1]Raghuram Rajan & Rodney Ramcharan, “The anatomy of a credit crisis: The boom and bust in farm land prices in the United States in the 1920s,” American Economic Review 105, no. 4 (April 2015): 1440,

[2] Ben Bernanke, “Non-monetary effects of the financial crisis in the propagation of the Great Depression,” National Bureau of Economic Research (January 1983): 17,

[3] Ibid., 8.

[4] Paul Samuelson, Economics (New York: McGraw Hill Education, 2019).

[5] Herbert Hoover, “Message regarding the Smoot-Hawley Tariff Act,” (June 16, 1930),

[6] Price Fishback, “The Newest on the New Deal,” Essays in Economic & Business History (June 13, 2018): 2,

[7] Ibid., 6.

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