Agriculture lost a lot of ground during the 1920-1921 recession. In mid-1920, farm prices began a precipitous drop. By the end of 1921, despite a slight recovery, wheat that 18 months previously had sold for $2.58 per bushel was selling for $0.93, and corn was down to $0.41 from $1.86. Many commodities did not suffer quite as severe a decline, but prices seriously decreased in all lines of production. From an index of 234 in June 1920 (1909-1914 = 100), prices received by farmers fell to an index of 112 a year later. A gradual recovery followed, and the farm index stood at 159 in August 1925. After a small decline during 1926 and 1927, prices remained stable until the end of 1929. The deflation of 1920 and 1921 was severe in the industrial sector and overall economy, too, but not as great as in the agriculture sector. The terms of trade (the ratio of the prices received by farmers to the prices they paid) ran against agriculture during the break in prices. Then, however, they recovered, so that by 1925, they were not much below the 1920 level. This index fell a little during the next few years, but in 1929, it was still not far from the level of prosperous prewar years. The earnings of farm workers, moreover, rose only a bit slower than those of industrial workers during the 1920s (Alston and Hatton 1991). Moreover, research by Charles Holt (1977) suggested a rise in income for the average farmer in the 1920s. On the whole, then, it does not seem that agriculture should have suffered much in the middle and late 1920s. Yet great agitation for remedial farm legislation occurred during these years. Why?
The answer seems to be that many farmers, especially in the Midwest, had incurred fixed indebtedness at what turned out to be the wrong time. Land values had risen sharply between 1910 and 1920; at the height of the boom, the best lands in Iowa and Illinois sold for as much as $500 an acre—a fantastically high figure for the time. In those 10 years, many high-grade farms doubled in value. To buy such high-priced properties, farmers borrowed heavily. World War I added to the boom as many farmers rushed to increase the acreage they had under cultivation to take advantage of what they realized would be a temporary rise in prices (Alston 1983). Long-term debt rose from $3.2 billion in 1910 to $8.4 billion in 1920 and reached a high of nearly $11 billion in 1923. Deflation in the early 1920s turned farm debts into crushing burdens. Although a majority of American farmers may not have been burdened with fixed debt payments during these years, a large and extremely vocal minority were pushed toward bankruptcy. The number of farm mortgage foreclosures advanced sharply at the turn of the decade and then remained high throughout the 1920s. According to H. Thomas Johnson (1973-1974, 176), the rate increased from 2.8 per 1,000 mortgaged farms foreclosed in 1918 to 3.8 in 1920, to 6.4 in 1921, to 11.2 in 1922, and to between 14 and 17 for the remainder of the decade.
World History
