Farmers as Entrepreneurs: Regulation and Innovation in American Agriculture during the Twentieth Century

For the last half-century American agriculture has been one of the most regulated, yet most successful, sectors of the American economy. The federal government administers programs to restrict production, control prices, and provide special credit for farmers. Still, what is striking about this regulation is that its introduction in the 1930s coincided with the start of a revolution in agricultural productivity: in the three decades prior to 1930, total factor productivity in the farm sector increased at a mere 0.5 percent annual rate. By contrast, between 1935 and 1975 farm productivity increased at a 3.0 percent annual rate -a performance that surpassed rates achieved in all but two industries of the manufacturing sector. So great were the gains in agricultural productivity that by 1980 one farmer fed 76 Americans on average, or 8 times the number fed in 1930 [3, p. 366; 4, p. 161; 5, p. 565; 7, p. 63]. My intent in writing this dissertation is to assess the relationship between government regulation and farmers' revolution in productivity. In recent years Americans have become increasingly disenchanted with regulation. Critics frequently charge that regulation reduces efficiency because it fixes prices above or below levels that would prevail in a free market. In my own study I take exception with this negative perspective. Rather than focus on short-term changes in prices, I ask how regulation affected farmers' long-term investment calculus. In particular, I test the proposition that regulation actually accelerated the rate of productivity growth because it mitigated certain risks inherent in farmers' commodity markets so as to create a new climate for investment. My analysis is divided into two parts: the first part examines how regulation stimulated investment and encouraged higher rates of productivity growth; the second part considers the effects of government intervention in the decades since the Great Depression. In the first part, I begin with the notion that it is not intuitively evident that New Deal regulation contributed to farmers' revolution in productivity. One could argue, for instance, that in the years prior to 1930 farmers reported few gains in productivity simply because scientists and engineers had not introduced