The Agricultural-University Complex: Destroying Agriculture for 80 Years

0:00Our first speaker today is a gentleman who has appeared on Judge Napolitano's Freedom Watch, if any of you are familiar with that program. He recently testified on Capitol Hill in Ron Paul's subcommittee meeting and had a fairly spirited sparring match with the brightest of minds in Washington. He is a senior faculty member for the Ludwig von Mises Institute. He's been doing work for us for two to three decades. He's been around for a long time. Holds a PhD from Virginia Tech. He's written a number of books.

0:45If you don't know the real story behind Lincoln, he tells it in The Real Lincoln, Lincoln Unmasked. He has a book, I think, on Hamilton, that great guy Hamilton and so he pretty much rips the facade off these old, all these old guys that sent America the wrong way. So he's a wonderful, wonderful speaker, wonderful friend of the Institute, author of two essays in Reassessing the Presidency. He's going Let me talk about the Agricultural University Complex, Destroying Agriculture for 80 years, Tom DiLorenzo. Thank you all for coming, and thanks to the Weber family for supporting us in this event.

1:45I'm glad to see the 14 or so students here. And when I was asked to participate in this, I haven't written that much about agriculture, as far as that goes. But the first thing that came into my mind was the work of someone who was probably the best free market economist who was writing, who has written over the past several decades on agriculture and agricultural economics. His name is E. C. Passour, those were his initials, E. C. If you look him up on the web, P-A-S-O-U-R is how he spells his name. I've never met E.C. I've read a lot of his writings. Some people call him Eddie, some people call him Zeke. I don't know how they get Zeke out of E and a C, but that's sort of a nickname. And so I thought, since I'd read a lot of his writings, I thought the topic I would give would be the relationship between sort of the academic support system for the government's farm programs and the effect of that academic support system for

2:45for the Government's Farm Programs. But the first thing I want to do though is give you a little historical perspective from my perspective. Does anyone here happen to know who, which president, which American president started the U.S. Department of Agriculture? I know a few people I talked to last night knew. But I guess FDR. FDR, no. No, but it was A-blanket. If you look up the USDA on the internet, you'll find out that during the Lincoln administration, the Department of Agriculture was created. As were the land-grant universities, it was a politician from Vermont named Morrill who was also the author of the Morrill Tariff, M-O-R-R-I-L-L, tariff, around the same time who started the business of the government giving hundreds of acres of land to the states for state universities, like one of my alma mater is Virginia Tech, to be an agricultural college.

3:46And so that was the beginning of it, and from the very beginning, this was sort of, my interpretation of this was sort of an interventionist scam, because look at Mr. Morrill, Justin Morrill. He was responsible, he's a sponsor of the Morrill Tariff Act, which more than doubled tariff rates in the United States. And high tariffs have always been disproportionately harmful to farmers, especially because American farmers have always exported a lot. And at this particular time, the southern farmers were exporting about three-fourths of everything they grew, to Europe mostly, and Midwestern farmers were exporting a lot too. So there's always been a discriminatory effect on farmers. And let me try to explain the economics of it to you, of how high tariffs discriminate Against Farmers by quoting the late Milton Friedman, a lot of you probably know who Milton Friedman was, you've heard of Milton Friedman, he wrote this famous book with his wife called Free to Choose in 1980, and the students in the class, I would recommend that you read

4:53this book sometime, the students in the room, and so here's a short passage on how people who export things are disproportionately harmed by tariffs, which are taxes on imports, and If tariffs are imposed on textiles, that will add to output and employment in the textile industry. However, foreign producers who can no longer sell their textiles in the United States earn fewer dollars. They will have less to spend in the United States. Exports will go down to balance the decreased imports, and so, you know, one of the laws of economics is that a tax on imports ends up being a tax on exports as well.

5:44So if you're in the exporting business, a tariff on the stuff coming into the country will eventually hurt you, will hurt your business, and farmers understood this in the 19th century. Another book that I would highly recommend, I don't think we have it here today because The Income Tax, Root of All Evil by Frank Trotterov

6:29was made worse by the protective terrorist policy of the government. The best they could get for their products was the competitive world price, while manufacturers they bought from the East were loaded down with duties. The populists clamored therefore for lower tariffs, so the Midwestern farmers understood that they were being ripped off by this high-tariff policy. And so when the USDA was founded during the Lincoln administration, at the same time, terrorists were I look at it as Uncle Sam walking up to a farmer and handing him a penny and saying here, this is from your government, aren't you lucky? Here's a penny. And while he's handing him the penny, he's reaching around into his back pocket and pulling out his wallet with $10,000 in it.

7:16And then the farmer walks away saying thank you, Uncle Sam, for the penny. And that's how I view the creation of the U.S. Department of Agriculture and the land grant system during the 1860s, because the harm done to farmers by the high tariff policy was lasted until 1913, until the income tax came in, I think far exceeded any conceivable benefit from government bureaucrats talking to farmers about which kind of seeds to plant, which is pretty much what the USDA did for a long time, as though they needed that. And so that was the beginning of interventionism, and the farmers seemed to understand economics pretty well back then, they were businessmen after all.

8:04But there was sort of a change in the type of interventionism, as far as I can tell, beginning with Herbert Hoover, and it wasn't just sort of technical assistance, subsidizing Banking, University Research, and so forth. There was pretty dramatic interventionism in agriculture. And it was Herbert Hoover who started the Federal Farm Boards that established what were called stabilization corporations that were supposed to control farm surpluses and to prop up farm prices, to make farm prices go higher. In other words, it was a legal The first federal antitrust law was passed in 1890, which outlawed what the government called conspiracies and restraint of trade.

8:51But by the time you get to the late 1920s, here's the president organizing a legal cartel to help farmers. Look at who was on the Federal Farm Board. The whole purpose was to push up prices of food. Here are some of the people who are on this board who controlled food production and prices. Let's see, there's James Stone of the Tobacco Growers Association, Carl Williams of the Cotton Farmers Cooperative Association, C.B. Denman of the National Livestock Producers Association, C.C. Teague of the Fruit Growers Exchange, William F. Schilling of the National Dairy Association, and Samuel McKelvey, a lobbyist for grain farmers.

9:38And so, this is similar to what happened with the railroad industry in the late 1800s, when the Interstate Commerce Commission was created, the first supposedly to protect consumers from railroad monopolies, the first head of that was a railroad industry president. And so, of course, the thing benefited the railroad corporations, not the consumer, and the same sort of model was used by Herbert Hoover to form a legal government-run cartel for the benefit of farmers. And so this is the business where farmers were paid for not growing crops and for not raising livestock. My old friend Walter Williams, a syndicated columnist who sometimes guest hosts the Russ Limbaugh shows. I've been reading his columns for 30 years and one of my all-time favorites was when Walter read in a newspaper that Sam Donaldson, the former ABC newsman, used to cover the of the White House during the Reagan administration.

10:38He owns a sheep ranch in New Mexico, and he received a check for $200,000 for not raising sheep on his sheep ranch. And Walter, in his column, wrote the column in the form of a Dear IRS letter, and it said, Dear IRS, I also do not raise sheep on my property. Where's my $200,000? And so here's Herbert Hoover condemning wheat farmers for profiteering, how awful, profiteering, and harshly criticized the evils of overproduction. This was sort of something that was going on in the academic world in these days. There were a lot of economists and others who were condemning what they called excessive Excessive Duplication, which is just another word for competition.

11:30And so they use these euphemisms for competition like overproduction and excessive duplication. I suppose you could say, you know, since we have Toyota and Volvo and Dodge and Chevrolet and all this, there's excessive duplication of cars. But who would think that that's a bad thing, that we have competition in the car industry? But they were saying this about agriculture. Culture. Here's something that Murray Rothbard concluded in one of his books where he wrote about Herbert Hoover. This is his book, America's Great Depression, summarizing Herbert Hoover's efforts. He said, the grandiose stabilization effort of the Federal Farm Board failed ignominously.

12:17Its loans encourage greater production, greater production, adding to its farm surpluses. So it created farm surpluses, which overhung the market, driving prices down, even though its policy was to drive prices up. The FFB thus aggravated the very farm depression that it was supposed to solve. With the FFB a generally acknowledged failure, President Hoover began to pursue the inexorable logic of government intervention to the next step, where that is recommending that productive of Land be withdrawn from cultivation, that crops be plowed under, and that immature farm animals be slaughtered, all to reduce the very surpluses that the government itself had brought into being.

13:02And so from the very beginning, government intervention in agriculture had been one big Rube Goldberg machine, not too dissimilar from the Soviet-style central planning in agriculture, which Yuri Maltsev is going to talk to us about. In fact, when you get to Roosevelt, his top economic advisor for the duration of his administration was a man named Rexford Tugwell from Columbia University, and he wrote a book in 1930 on the American economy in which he praised Soviet central planners to the treetops, and he thought it was the wave of the future, and he boasted that we Americans will show these slobs how to do it. We'll show them how central planning works. But I have to think that his advice had something to do with what FDR eventually did.

13:50And so speaking of FDR, if you look up on the web, there's all sorts of information on FDR on the web. And if you were to search around and find his role in agriculture, he pretty much continued when Hoover started. And here's one description of what FDR did that I think is pretty accurate. It says, when FDR was elected as president, he appointed Henry Wallace as his secretary of agriculture. In 1933, Wallace drafted the Agricultural Adjustment Act, the AAA. The AAA paid farmers not to grow crops and not to produce dairy produce such as milk and butter. It also paid them not to raise pigs and lambs. The money to pay the farmers for cutting back production above about 30% was raised by a tax on companies that bought the farm products and processed them into food and clothing.

14:46So the consumers were hit twice, once with higher prices caused by the 30% supply reduction, and then a second time when a lot of these taxes were passed on to the customers of the companies that distributed the food. And so that was FDR's start in this whole business. And so what was going on here is similar to what was going on in the late 19th, early In the early 20th century, in a lot of industries in America, the Americans were basically adopting a European style fascism as their economy. The Europeans, the Germans and the Italians especially, had intentionally created cartels of various sorts and run them under the sharp control of government bureaucrats when the businesses were ostensibly private, would fail, they would be bailed out.

15:39and we were essentially doing something very similar here in the United States with agriculture and manufacturing, especially during Roosevelt's era, the National Recovery Act was pretty much the same thing, a government organized cartel system. And there are two good books that talk about this. One of them is called In Restraint of Trade by Butler Schaefer and the other is The Triumph of Conservatism by Gabriel Kolko, K-O-L-K-O, to talk about how big business in particular was very active in seeking government intervention, because the bigger businesses understood that they could work the system, that this interventionism would probably be very harmful to their smaller competitors, but good for them.

16:28And what was going on in farming seemed to be similar to this. And so the main effects of all this in the name of stabilizing farm incomes I think has not been so much to stabilize incomes but to create greater inequality because the government farm programs benefit primarily the larger agricultural corporations because of the way these programs are set up and so it pretty much guarantees that the larger corporations The price support rip-off. The government for a long time had price supports on a lot of farm products, but this is politically risky because every once in a while the public would get wind of the fact that the reason why certain food items have gone up is that the government has forced them up.

17:22And so if you're a politician and you get caught having voted to raise the price of food, that's not a good thing for you. And so they've tried all sorts of subterfuges to try to hide essentially the same kind of thing. In fact, one of the reasons for price supports in the first place is that it's even worse to a politician if you're getting caught just literally giving cash to farmers or to anybody. ." You know, taxpayers are going to say, why are you giving my money to this multi-billion dollar corporation that's a food distributor or something like that? But if you can manipulate the system in terms of making the price higher of the thing that they sell, the average consumer is not going to really know about that. But sometimes the consumers do even catch on with that.

18:09And one example is an article I wrote several years ago on Mises.org called Farm Drobbery. and there's an article in USA Today that caught my eye as a good example of this, it was about the cotton business and there's a picture of a cotton farmer from Texas on the front page of USA Today and he had a big smile on his face just like Jimmy Carter, the older people in the room know Jimmy Carter, he had this big horse teeth and big smile, big politician smile, so this guy, he looked just awfully happy and it sort of caught my eye, I looked at his USA Today

19:16was a banner year for cotton farming and so the huge supply drove down the price to $0.35. So the world price of cotton was $0.35 and the U.S. government had a program that says we, the government, that is the tax payers, will pay you the difference between $0.35 and $0.52 if the price goes below $0.52, which it did and so this guy's name was Bednards. He was a cotton farmer in Texas, so the reason he was smiling is that he had just cashed a check for $340,000 because he had produced so much cotton, the volume of cotton that his farm produced multiplied by the difference between 52 cents and 35 cents ended up being $340,000.

20:06And so he got $340,000 and in return the consumers got absolutely nothing at all, just the same And so that's another type of program that we have, and it turns out this type of program was recommended years and years ago, it's just a plain old rip-off, it's legal plunder is what Friedrich Bastiat called it, it's sort of like I'm a college professor, we college professors make a lot of money, at least a million a year, and so it's as though we had Law saying that I can never make less than $2 million a year if my salary ever did. Say we have open borders immigration policy, and 500,000 economists from India come here and drive the price of economists down to a very low level.

20:57I'm guaranteed the difference between $2 million a year and whatever low level the price is. That would be a pretty good scam, but that's what they have in cotton farming. But this was recommended. There's a well-known agricultural economist named D. Gale Johnson, who recommended this way back, right after World War II. He was the president of the American Farm Economic Association and the American Economic Association. He was a pretty well-known economist of the last generation, and he recommended this. He recommended, quote, forward prices for agriculture. Now what is this? Here's a description of it. The government would determine and announce the right price for each commodity for the upcoming crop year.

21:43No markets would determine the price. The government would declare the correct price for the next year, setting the price at the level that the government thinks would clear anticipated supply and demand. Good luck with that. If market prices fell sufficiently far below the forward price level, of the World. And so, you know, the first 15 minutes of my talk here, I've briefly described some and other forms of interventionism that the government has always been involved in and has always created instability.

22:38It creates agricultural surpluses and then it tries to do things to get rid of the surpluses. FDR was famous for carrying forward Hoover's policy of slaughtering farm animals and destroying crops to try to drive up the price. But it was a public relations disaster for FDR because the Great Depression was on, and there were long food lines, people nearly starving to death, and here's the government destroying food. And so he wised up and did more to pay farmers to not raise crops or grow livestock in the first place, rather than allowing them to raise the crops and so forth, or grow the crops and then destroying them. That's foolish, shouldn't do that. and so they had the other program.

23:25Now, the role of the agricultural university complex, beginning roughly the New Deal era, there was a big surge in a number of economists, especially, who became agricultural economists. And here's what E.S. Passour says in one of his articles, the New Deal farm programs markedly increased the demand for agricultural economists. In 1929 and 1939, the total number of agricultural economists increased about four times in the United States and by about two-thirds in land-grant universities. A prominent agricultural economist at the time concluded that after 1933, almost every agricultural economist was engaged directly or indirectly in the development, administration, or appraisal of government farm programs.

24:18So you're paid, at least in part by the government, and your job is to appraise the government's foreign programs. That's like being employed by Coca-Cola, and they're asking you, tell us what you think of Coca-Cola compared to Pepsi, you know, you're an outside observer, you're at a university, which do you think is a better product? And so the government set up a system of paying all these academics to assess the government's programs, and of course their pay and the continuation of their pay is always contingent on giving the right answers to these programs. If you start telling the government you're creating a disaster for the farm economy, you're not going to have a long career in agricultural economics.

25:08And so the economic livelihood of these agricultural economists is closely tied to the government's role in agriculture, the government's policies. And so this, that's why, you know, these land grants that occurred during the Lincoln administration was really the camel's nose under the tent, as they say, of political correctness. You know, it was the first intervention of the federal government into higher education, the university system in a big way. And of course, when you take the king's money, you always become the king's man to some extent, as the old saying goes, to paraphrase that. And so they began corrupting academics from the 1860s. Here's one example of this, of the type of corruption.

25:55This is from Eddie Passor's, one of his articles. In 1943, an agricultural economist at Iowa State College wrote a pamphlet on dairy policy. The study concluded that margarine compared favorably with butter in nutrition and palatability and argued for federal changes in federal and state legislation that impeded the consumption of margarine. Following a tax on the pamphlet by groups of dairy farmers and a subsequent recommendation by a review committee that the pamphlet be retracted and revised, the professor and several other agricultural economists resigned from Iowa State College. And the professor, the top professor, his name was Theodore Schultz, who later won the Nobel Prize in Economics and so he dared to actually say the truth about this one program and he was forced to leave his job, that was 1943 and a few other examples of the role of agricultural economists, a lot of them in economics, the students in the room if you In order to go and take an economics course, you'll learn all about market failure, there's theories of market failure, and I categorize all of these theories, and there are hundreds of them, into something that an economist named Harold Demsitz called the Nirvana Fallacy.

27:22They create an unrealistic theory of a competitive economy that the Austrians never bought into. It's called perfect competition. and it's a contrived theory, and then they compare the real world to that, and of course the real world is never perfect, nothing on earth is perfect, and they'll say, ah-ha, the world, the market fails because it's not perfect, well nothing succeeds compared to perfection or nirvana. And so there are many economists who have made careers, 40 or 50 year careers writing paper after paper after paper, just with applications of this silly Nirvana fallacy, comparing actual markets to some sort of unachievable ideal that could never be achieved in the real world.

28:11And a lot of that is in agricultural economics too. And it's even worse in agricultural economics because the agricultural markets have been and so perverted and changed around by government intervention that it's hardly realistic to call them free markets. And so when bad things happen, blaming it on the market system is very dubious indeed because there's so much interventionism in agriculture and has been for such a long time. But here are some examples of how the game is played. is an agricultural economist named Daryl Ray, who has the Blazing Game Chair of Excellence in Agricultural Policy and is Director of the Agricultural Policy Center at the University of Tennessee.

28:59He says this in one of his articles, there is no recognition that when crop prices capsize, market demand does not provide a rigging to raise them back up again. There is also no recognition that market response on the supply side is no help in the search for a cure for low prices. While belief in the market self-correction via supply and demand response to depressed prices may have been a reason to embrace the 1996 legislation, he's talking about the farm bill, why would we want to take that dog out to hunt again this time around? So he's saying markets don't work. He's proclaiming markets don't work. Another example is Neil Harrell, who's the Charles F. Curtis Professor of Agriculture.

29:45These guys all have huge job titles. Also Professor of Economics at Iowa State University, former president of the American Agricultural Economics Association. He supports worldwide central planning of agriculture by the United Nations. How do you think that would work out? Here's what he says, farm policy debate in the United States in the 1920s was largely about whether it was appropriate to have a national food and agricultural policy. To a considerable extent, the decision was in the negative until 1933, Roosevelt. In many respects, farm policy today poses a similar question. Should efforts be directed toward a global food and agriculture policy?

30:32The opinion of this commentator, the answer is yes. So we should have worldwide sense. This was 2003. When did communism fail? About 1990, something like that. So you see a lot of this in academe, when I can recall, right in the middle of the collapse of communism, I happened to be at the University of Tennessee at the time, and there was a Marxist on the economics faculty, his name was John, and I remember running into him on the parking lot. The Soviet Union had fallen apart, and all of Eastern and Central Europe had left, and I said, well, John, now what are you going to do, carpenter, bricklayer, what? And he said, oh, no, no, we're no longer tainted by all these bad guys like Stalin and all that. Now, now, we could really have a socialist paradise, and apparently the agricultural economists are of the same mind, at least some of them, some of the top ones.

31:27There are some good ones, I'm not saying they're all like this, but these are some big shots that I'm quoting. Another one, Robert Taylor, he's the, I'm thinking this might be a typo in this article I'm reading here, he's the Alpha Eminent Scholar, I thought it might be Alpha, Alpha Eminent Scholar, but it's the Alpha Eminent Scholar and Professor of Agricultural Economics at Auburn University. The permissive attitude behind the approval of recent mergers, acquisitions and joint ventures among agricultural corporations appears to be based on the single-minded pursuit of economic efficiency. Imagine that. Isn't that horrible? Legislation including GATT, NAFTA and freedom to farm also reflect pursuit of economic efficiency as does the teaching of many present-day professional economists, and he's complaining about this.

32:24He's complaining that people want to make the most efficient use of resources in farming is a bad thing, and we shouldn't allow that. Labor unions usually say the same thing. They're always complaining about economic efficiency, which is pretty bizarre in a competitive world economy. One more, there's Richard Rogers, professor of resource economics at the University of of Massachusetts and his co-author Richard Sexton, Professor of Agricultural and Resource Economics at University of California Davis, they say that markets for raw agricultural products are likely to be structural oligopsinies and that monopsony slash oligopsiny issues deserve strong consideration in food policy debates.

33:13These are the models of market failure that I was referring to, and these are people that once again are making models saying that first of all it's false that there's free markets in most agricultural products because there's so much intervention, and then second they're saying we need to model these free markets as somehow being insidious because there's not enough competition in them. So I guess you get the message of what I'm saying here is that there's a whole industry of Economists, that they look at agricultural policy, which started out as one big system of creating cartels, and it has ended up continuing to try to do that, to transfer income to farmers from the rest of the population, with massive intervention, with the credit programs and the regulations and the EPA regulations that affect all farmers and everything else.

34:07And they call this, they tend to refer to this as free market, and they condemn the Free Market. They don't condemn the agricultural programs, and when they do, they sometimes get fired for condemning the programs. And so, we really need more people like Eddie Passour on our side of the things. And I recommend to any of you who want to follow up on this to look him up on the web and read some of his articles on agricultural economics, because he really is the one free market Austrian-oriented economist that I know of who has spent a a career writing and researching on agricultural economics and has written a lot of good stuff, but I can't think of another one, I don't know of another one that's out there other than, we have Rich Wilkie in the audience, he's sort of the closest, where's Rich at, he's, is he here, oh there he is, he's probably the closest we can get, but he's not been as prolific as Eddie Passour, I've been reading his articles for 25 years and he's a publishing

35:05in Dynamo. And so one final comment I'll make about this is that one of the things I've found out in digging into some of this literature is that the agricultural economists, like a lot of economists that aren't in agriculture, that research other areas, they claim to be positive economists. That is, they'll write things and they'll explain how a policy works, for example. And so, even if they do take the big step and explain how one of these cartel policies works, they'll never make a judgment saying that it's good or bad. They'll say, it's not my role to say it's good or bad. And that's one big difference between the Austrians, most Austrians anyway, and the mainstream, is that if we see a policy that is sort of an immoral rip-off of the consumer, we call it an immoral rip-off of the consumer, we're not afraid to.

35:56But we're not paid by the USDA. And so, but if you're paid by the USDA, you can't say that. And so I don't know how many times in my career I've had letters or emails from people responding to my articles saying something like, by academics, or comment, or personal comments, saying something to say, gee, why don't you tell us what you think, DeLorenzo? What am I supposed to tell them what I don't think? And that's sort of the attitude. What do you mean, tell, you know, sarcastically tell us what you think? If you're an academic and you're a writer and you're a researcher, isn't that what you're doing? It should be, but these people are so cowed into not wanting to disturb their financial benefactors, the government, that they never ever make a statement on good or bad.

36:46They're scared to death they might lose their funding. Again, it's not everybody who's in this business, but I think that's true of some of the big shots that I've looked up to prepare this talk, some of the highlights in the agricultural economics business. And I went to school with some of these people, I went to Virginia Tech and I can remember taking a statistics class with one of the smartest and most brilliant statisticians I could ever imagine is employed in the United States, the guy was great. But the one thing that impeded my learning in that class was that I was in that class with all the ag-econ people and they would all come into class every day with chewing tobacco being spit out into a Coke can and horse manure on their boots and the professors smoked a cigar and so I would sit there with a cigar smoke and the manure and the tobacco juice and by 50 minutes my head was pounding and I didn't learn nearly as much statistic.

37:45Maybe that's why I'm so critical today of these people. I think my time is about up. Thank you very much.