There were two schools of thought to the roots of the farm depression in the United States during the 1920s. One school argued that there was overcapacity in agriculture and recommended production adjustment programs. Another school argued that the problem of agriculture had to do with financial and monetary chaos in the general economy and advocated better central banking and monetary reform. This paper evaluates arguments and policy recommendations from both schools using a traditional general equilibrium model and a macroeconomic model. Theory and data do not support the former school. There is no evidence of a long-run fall in agriculture's term-of-trade due to oversupply of farm goods. During the 1920s agriculture's declining share in the general economy was due to either slower endowment growth or slower productivity growth relative to the non-farm sector. In this environment production adjustment programs could hasten the decline of the sector. More support is found for the arguments of the latter school. In a fix-flex price environment a shock created by financial and monetary chaos would create the price pattern observed in the data. This latter school however lost in the battle of policy making. The core of the Agricultural Adjustment Act of 1933 was a production adjustment program.


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