Two sectors of the economy: the relationship between agriculture and industry
Half of all Americans, some sixty-two million of them, were living in rural areas at the end of the 1920s. Thirty million Americans earned a living through farming, whether owning or renting farms, as sharecroppers (tenant farmers who give a share of their crop in lieu of the rent for the land they farmed), or else selling machinery or providing services to farmers. Then there were their families. This data shows how important the agricultural economy was in America. Still is today in fact. But what is the link between the two, then, biggest sectors of the economy: agriculture and industry?
Agriculture, of course, supplies the food for urban society as well as for itself. That alone makes it crucially important. It will also supply raw materials for industry. In America in the 1920s this would include cotton for the textiles industry. Industry too requires a market, and if agriculture is booming it will look to sell the things it makes to the rural community. But this means that the rural community needs to be doing well in able to afford the goods being made.
This is why it is very important for us to consider the implications of the data we read. Here are some example:
between 1919 and 1928 total farm income dropped by almost half from $22 billion to $13 billion
more than three million American farmers were earning less than $1,000 a year
very few farms had electricity.
The problem was made worse in the 1920s by the fact that the more successful farmers were growing more produce than the market needed. And more goods than buyers want, means falling prices. But what can they do? They could grow less. But most farmers weren’t making a lot of money before prices started to fall. Their lives were already hard, even downright miserable. It is not likely that they would voluntarily make things worse. But it still leaves a considerable problem.
Question: What is being sold to these farmers?
Answer: Very little. For most farmers, there was not the money for cars, whilst what’s the use of a fridge, a vacuum cleaner or even an iron without electricity?
This means the American urban-industrial economy either has to export its goods, pay more for its food in order to enable farmers to afford the things it makes, or lay off its workers once the urban demand for its goods has been met. The first option is not easy to achieve, other countries are making similar things and will look to protect their own industries. The second option would require an increase in wages and either a reduction in profits or else an increase in prices, the latter only likely to reduce sales further. Whilst the last option will lead to urban unemployment and in any case, will not address the problem in rural America. It’s a complex relationship, then, and not an easy one to fix once it goes wrong.
And in America, before Wall Street crashed, it had already gone very wrong.