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Farm Product Prices, Redistribution, and the Early U.S. Great Depression

Published online by Cambridge University Press:  09 July 2021

Joshua K. Hausman ,
Paul W. Rhode  and
Johannes F. Wieland
Joshua K. Hausman*
Affiliation:
Associate Professor, University of Michigan, Ford School of Public Policy and Department of Economics, 735 S. State St. #3309, Ann Arbor, MI 48109 and NBER.
Paul W. Rhode
Affiliation:
Professor, University of Michigan, Department of Economics, 611 Tappan St., #205 Lorch Hall, Ann Arbor, MI 48109 and NBER. E-mail: pwrhode@umich.edu.
Johannes F. Wieland
Affiliation:
Associate Professor, University of California–San Diego, Department of Economics, 9500 Gilman Dr. #0508, La Jolla, CA 92093 and NBER. E-mail: jfwieland@ucsd.edu.
*
E-mail: hausmanj@umich.edu.
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Abstract

We argue that falling farm product prices, incomes, and spending may explain 10–30 percent of the 1930 U.S. output decline. Crop prices collapsed, reducing farmers’ incomes. And across U.S. states and Ohio counties, auto sales fell most in crop-growing areas. The large spending response may be explained by farmers’ indebtedness. Reasonable assumptions about the marginal propensity to spend of farmers relative to nonfarmers and the pass-through of farm prices to retail prices imply that the collapse of farm product prices in 1930 was a powerful propagation mechanism worsening the Depression.

Type
Article
Information
The Journal of Economic History , Volume 81 , Issue 3 , September 2021 , pp. 649 - 687
Copyright
© The Economic History Association 2021

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Footnotes

Jon Denton-Schneider provided superb research assistance. We thank the editor, Eric Hilt, and two anonymous referees for excellent advice. We are also grateful for comments and encouragement from Price Fishback, John Leahy, Gary Richardson, Christina Romer, Matthew Shapiro, Peter Temin, and audiences at the Society for Economic Dynamics, the University of Michigan, the NBER Development of the American Economy program meeting, Florida State, and the University of California, San Diego. Rhode’s work was in part funded by NSF grant SES-0921732 (“Dramatic Rise in Agricultural Productivity in the U.S During the Twentieth Century: Disentangling the Roles of Technological Change, Government Policy, and Climate”).

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