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8

The Depression Begins: President Hoover Takes Command

And so we see that when the Great Depression struck, heralded by the stock market crash of October 24, President Hoover stood prepared for the ordeal, ready to launch an unprecedented program of government intervention for high wage rates, public works, and bolstering of unsound positions that was later to be christened the New Deal. As Hoover recalls:

the primary question at once arose as to whether the President and the Federal government should undertake to investigate and remedy the evils. . . . No President before had ever believed that there was a governmental responsibility in such cases. No matter what the urging on previous occasions, Presidents steadfastly had maintained that the Federal government was apart from such eruptions . . . therefore, we had to pioneer a new field.[1]

As his admiring biographers, Myers and Newton, declared, "President Hoover was the first President in our history to offer Federal leadership in mobilizing the economic resources of the people." He was, of course, not the last. As Hoover later proudly proclaimed: It was a "program unparalleled in the history of depressions in any country and any time."

There was opposition within the administration, headed, surprisingly enough, considering his interventions throughout the boom, by Secretary of Treasury Mellon. Mellon headed what Hoover scornfully termed "the leave-it-alone liquidationists." Mellon wanted to "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate," and so "purge the rottenness" from the economy, lower the high cost of living, and spur hard work and efficient enterprise. Mellon cited the efficient working of this process in the depression of the 1870s. While phrased somewhat luridly, this was the sound and proper course for the administration to follow. But Mellon's advice was overruled by Hoover, who was supported by Undersecretary of the Treasury Ogden Mills, Secretary of Commerce Robert Lamont, Secretary of Agriculture Hyde, and others.

The White House Conferences

Hoover acted quickly and decisively. His most important act was to call a series of White House conferences with the leading financiers and industrialists of the country, to induce them to maintain wage rates and expand their investments. Such artificially induced expansion could only bring losses to business and thereby aggravate the depression. Hoover phrased the general aim of these conferences as "the coordination of business and governmental agencies in concerted action." The first conference was on November 18, with the presidents of the nation's major railroads. Attending for the government were Hoover, Mellon, and Lamont, and also participating was William Butterworth, President of the United States Chamber of Commerce. The railroad presidents promised Hoover that they would expand their construction and maintenance programs, and publicly announced this promise on November 19. Later, the railroad executives met in Chicago to establish a formal organization to carry this program into effect.

The most important White House conference was held on November 21. All the great industrial leaders of the country were there, including such men as Henry Ford, Julius Rosenwald, Walter Teagle of Standard Oil, Matthew Sloan, Owen D. Young, Edward Grace, Alfred P. Sloan, Jr., Pierre DuPont, and William Butterworth. The businessmen asked Hoover to stimulate the cooperation of government and industry. Hoover pointed out to them that unemployment had already reached two to three million, that a long depression might ensue, and that wages must be kept up! Hoover explained that immediate "liquidation" of labor had been the industrial policy of previous depressions; that his every instinct was opposed to both the term and the policy, for labor was not a commodity: it represented human homes. . . . Moreover, from an economic viewpoint such action would deepen the depression by suddenly reducing purchasing power.

Hoover insisted that if wage rates were to be reduced eventually, they must be reduced "no more and no faster than the cost of living had previously fallen, (so that) the burden would not fall primarily on labor." In short, real wage rates must be prevented from failing. Hoover was insistent that the first shock of the depression must fall on profits and not on wages-precisely the reverse of sound policy, since profits provide the motive power for business activity. At present, then, wage rates should not be reduced at all, and industry should maintain its construction work. Industry should try to keep everyone employed, and any necessary reductions in work should be spread over all employees by reducing the work-week. (Reducing the work-week can only spread unemployment, and prevent that pressure of the unemployed upon wage rates which alone could have restored genuine full employment and equilibrium to the labor market.) If industry followed this course, "great hardship and economic and social difficulties would be avoided." The industrialists all agreed to carry out the Hoover program, and further organized cooperative efforts on its behalf in a conference in Washington on December 5.

The agreement was also announced publicly, and, in addition, the telephone industry, steel industry, and automobile industry pledged to expand their construction programs. The industrialists at the conference pledged not to cut wages, and recommended that all employers in the nation do the same. Henry Ford, in fact, bravely announced a wage increase. Nor was industrial cooperation left on a haphazard basis. Representatives of business were appointed to a temporary advisory committee, along with Secretary of Commerce Lamont. The group, along with representatives of various trade associations, then merged into an Executive Committee headed by Mr. Julius Barnes, chairman of the United States Chamber of Commerce, to coordinate industry collaboration on the Hoover program.

On November 22, Hoover called a conference at the White House of leading representatives of the building and construction industries, and they also pledged to maintain wage rates and expand their activity. On November 27, the President called a similar conference of the leading public utility executives, and they unanimously pledged to maintain wage rates and expand construction. The latter included representatives of the American Gas Association, the National Electric Light Association, and the Electric Railways and American Railways Associations.

In a burst of na?vet?, Hoover recalls that the nation's leading labor leaders, called to a White House conference on November 21, also agreed to cooperate in the program and not press for further wage increases, this gesture being presumably a sign of their basic "patriotism." These leaders included William Green, Matthew Woll, John L. Lewis, William Hutcheson, A.F. Whitney, and Alvanley Johnston. The agreement put very little strain upon their patriotism, however, since the Hoover program was tailor-made to fit the very doctrine that union leaders had been long proclaiming. There was no chance of wage increases in an unhampered market. The point is that unions did not have the power to enforce wage floors throughout industry (unions in this era being weak, constituting only about 7 percent of the labor force, and concentrated in a few industries), and so the federal government was proposing to do it for them.

But even in an agreement so favorable to unions, the labor leaders were ready to scrap their part of the bargain at the first opportunity. William Green wrote the affiliated unions on November 27, emphasizing that the agreement concluded with Hoover was not binding, and assuring his colleagues that they were free to press for higher wage rates in their negotiations.[2]

In his annual message to Congress on December 3, Hoover pointed out that depressions had always been marked by retrenchment of construction activity and reduction of wage rates, but now things were different:

I have instituted . . . systematic . . . cooperation with business . . . that wages and therefore earning power shall not be reduced and that a special effort shall be made to expand construction . . . a very large degree of individual suffering and unemployment has been prevented.

On December 5, Hoover called together a larger conference of industrial leaders in Washington, to adopt the Hoover program. Hoover addressed the conference to hail their agreement, as an advance in the whole conception of the relationship of businesses to public welfare. You represent the business of the United States, undertaking through your own voluntary action to contribute something very definite to the advancement of stability and progress in our economic life. This is a far cry from the arbitrary and dog-eat-dog attitude of the business world of some thirty or forty years ago.

With all the leading industrialists thus pledged to maintain wage rates, expand construction, and share any reduced work, it was no wonder that the American Federation of Labor hailed the new development. Its journal, the American Federationist, editorialized on January 1, 1930:

The President's conference has given industrial leaders a new sense of their responsibilities. . . . Never before have they been called upon to act together . . . in earlier recessions they have acted individually to protect their own interests and . . . have intensified depressions.[3]

By the following March, the A.F. of L. was hailing the new attitude toward wages, with employers now realizing-in contrast to the 1921 depression-that it is poor business to destroy consumer purchasing power, and it greeted the fact that not one of the big corporations had thought of lowering wages as a means of reducing unit costs. The A.F. of L. proclaimed that business was now adopting the purchasing-power gospel of W.T. Foster, and stated that the United States will "go down in history as the creator of [an] . . . epoch in the march of civilization-high wages."[4]

Inflating Credit

If the Federal Reserve had an inflationist attitude during the boom, it was just as ready to try to cure the depression by inflating further. It stepped in immediately to expand credit and bolster shaky financial positions. In an act unprecedented in its history, the Federal Reserve moved in during the week of the crash-the final week of October-and in that brief period added almost $300 million to the reserves of the nation's banks. During that week, the Federal Reserve doubled its holdings of government securities, adding over $150 million to reserves, and it discounted about $200 million more for member banks. Instead of going through a healthy and rapid liquidation of unsound positions, the economy was fated to be continually bolstered by governmental measures that could only prolong its diseased state. This enormous expansion was generated to prevent liquidation on the stock market and to permit the New York City banks to take over the brokers' loans that the "other," non-bank, lenders were liquidating. The great bulk of the increased reserves-all "controlled"-were pumped into New York. As a result, the weekly reporting member banks expanded their deposits during the fateful last week of October by $1.8 billion (a monetary expansion of nearly 10 percent in one week), of which $1.6 billion were increased deposits in New York City banks, and only $0.2 billion were in banks outside of New York. The Federal Reserve also promptly and sharply lowered its rediscount rate, from 6 percent at the beginning of the crash to 4? percent by mid-November. Acceptance rates were also reduced considerably.

By mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upward again. Standard and Poor's stock price monthly averages, which had climbed from 56 in mid-1921 to 238 in September 1929-more than quadrupling-fell to 160 in November, a one-third drop in the course of two months. By the end of the year, stock prices had risen by several points. The stock market emergency over, bank reserves declined to their pre-crash levels. In two weeks-from November 13, when stock prices hit bottom, to November 27-member bank reserves declined by about $275 millions, or to almost exactly the level existing just before the crash. The decline did not come in securities, which increased in the Federal Reserve portfolio from $293 million on October 30 to $326 million a month later-a rise of $33 million. Discounts fell by about $80 million, and acceptances by another $80 million, while money in circulation embarked on its seasonal increase, rising by $70 million. Thus, from the end of October to the end of November, controlled reserves were reduced by $111 million (including miscellaneous factors not itemized here); uncontrolled reserves, which were more important, fell by $165 million.

By the end of 1929, total reserves at $2.36 billion were only a little over $20 million below the level of October 23 or November 27 ($2.38 billion on each date), but the distribution of factors was considerably different. Thus, while total reserves were almost the same on October 23 and December 31, security holdings had increased by $375 million, more than tripling Reserve holdings of U.S. governments. Total discounts were about $165 million less, acceptances slightly larger, money in circulation higher by over $100 million, and the gold stock down by $100 million. Of the $23 million fall in reserves from October 23 to December 31, controlled reserves increased by $359 million (with government securities the overriding factor), while uncontrolled reserves fell by $381 million. It is evident, therefore, that the failure to inflate reserves over the last quarter of 1929 was no credit of the Federal Reserve, which did its best to increase reserves, but was foiled by the decline in uncontrolled factors. The total money supply, as gauged by member bank demand deposits adjusted and time deposits, increased slightly-by about $300 million-during the final quarter of 1929.

President Hoover was proud of his experiment in cheap money, and in his speech to the business conference on December 5, he hailed the nation's good fortune in possessing the splendid Federal Reserve System, which had succeeded in saving shaky banks, had restored confidence, and had made capital more abundant by reducing interest rates. Hoover had done his part to spur the expansion by personally urging the banks to rediscount more extensively at the Federal Reserve Banks. Secretary Mellon issued one of his by now traditionally optimistic pronouncements that there was "plenty of credit available." And William Green issued a series of optimistic statements, commending the Federal Reserve's success in ending the depression. On November 22, Green said:

All the factors which make for a quick and speedy industrial and economic recovery are present and evident. The Federal Reserve System is operating, serving as a barrier against financial demoralization. Within a few months industrial conditions will become normal, confidence and stabilization in industry and finance will be restored.

Public Works

With Hoover's views, we would not expect him to delay in sponsoring public works and unemployment relief as aids in curing depressions. On November 23, Hoover sent a telegram to all the governors, urging cooperative expansion of all state public works programs. The governors, including Franklin D. Roosevelt of New York, heartily pledged their cooperation, and on November 24 the Department of Commerce established a definite organization to join with the states in public works programs. Hoover and Mellon also proposed to Congress an increase in the Federal Buildings program of over $400 million, and on December 3 the Department of Commerce established a Division of Public Construction to spur public works planning. Hoover himself granted more subsidies to ship construction through the federal Shipping Board and asked for a further $175 million appropriation for public works. By the end of the year, Professor J.M. Clark of Columbia University was already hailing President Hoover's "great experiment in constructive industrial statesmanship of a promising and novel sort."[5]

The New Deal Farm Program

The New Deal program of farm subsidies, characterized especially by farm price supports, arrived in the United States under the Hoover, not the Roosevelt, administration. To understand this development, we must sketch the emergence of the farm bloc and its drive for Federal intervention in the 1920s. The first cloud no bigger than a man's hand of government grants of special privilege to farmers, came with the agricultural extension program by the U.S. Department of Agriculture, which had its beginnings at the turn of the twentieth century, and was fully established in 1914. In 1916, the United States Warehouse Act imposed regulations on agricultural warehouses.

The important drive for farm privilege came at the end of the war, when farm groups began to organize throughout the nation, originally at the behest of the county agents of the USDA, who were operating under the extension program. Soon the farm groups, led especially by the midwestern farmers, formed a pressure bloc in Congress. The bloc was cemented in the spring of 1921 under the pressure of the American Farm Bureau Federation and led in the Senate by senators from the midwest. The farm bloc first showed its power and its statist drift, in the summer of 1921, when it drove through Congress several interventionist measures-the regulation of meat packers; regulation of trading in grain futures; renovating and enlarging the War Finance Corporation, and establishing it as an aid to farmers; and an increase in the capital of the previously dormant Federal Farm Loan System.[6]

The first massive intervention in agriculture had been the Federal Farm Loan System, established by the Federal Farm Loan Act of July, 1916. This System had set up a network of Federal Land Banks, under a Federal Farm Loan Board, to lend money on long-term mortgages (under subsidized terms) to cooperative farm loan associations. The regulation of the meat packers and stockyards was the culmination of a demagogic campaign against the packers and yards that had been conducted for years. Since meat packers had few votes, it was common sport for farmers to agitate that the packers were paying them too little for livestock, while consumers denounced packers for charging them too high a price for meat. This harassment of efficient large-scale enterprise bore fruit in a Federal Trade Commission (FTC) investigation and in bills before Congress during the war. Under the guise of a war emergency, Congress threatened to authorize the President to seize and operate the large stockyards himself. After threatening an antitrust suit, Attorney General A. Mitchell Palmer, in February, 1920, managed to force the packers to agree to a Packers' Consent Decree, which forced the packers out of all non-meat production, including stockyards, warehouses, wholesale and retail meat, etc.[7] Yet, agitation continued and culminated in the Packers and Stockyards Act of 1921, which established a detailed regulation of the activities of packers, including their pricing policy, under the direction of the Secretary of Agriculture.

The Futures' Trading Act also followed years of demagogic attacks upon grain speculators and middlemen, whose votes were also few. In this case, even an FTC investigation found no need for stringent regulation. Yet, the Futures' Trading Act placed a prohibitory tax of 20 cents a bushel on speculative transactions, including futures, puts and calls, bids and offers, except when made in certain specific markets authorized by the Secretary of Agriculture.

The War Finance Corporation (WFC), headed by Eugene Meyer, Jr., had made loans to exporters during 1919 and 1920. Suspended in May, 1920, the WFC was reactivated by Congress over the veto of President Wilson in January, 1921. It did not then do very much to finance exports, however; its major role at that point was bailing out country banks that had loaned to farmers-an operation that served as a model for the later Reconstruction Finance Corporation. The WFC worked closely with farm bloc leaders and appointed a Corn Belt Advisory Committee of these leaders to pressure midwest bankers into lending more heavily to farmers. The Act of August 1921, drafted by Chairman Meyer and Secretary of Commerce Hoover, increased the maximum authorized credits of the WFC to $1 billion and permitted it to lend directly to farmers' coops and foreign importers, as well as to American exporters.[8] The WFC could then supply agricultural capital. The aims of the expanded WFC were to encourage farm exports, raise farm prices, subsidize cheap credit to farmers, and subsidize farm cooperatives-which were to become the pampered pets of the government throughout this period. The new WFC superseded the Stock Growers' Finance Corporation, an organization promoted by the Federal Reserve in the spring of 1921 and financed by Eastern banks to stabilize the livestock market. The expanded WFC made loans of $39 million for exports and $297 million for agriculture, virtually ending its operations in 1925, after the creation of the Federal Intermediate Credit System.[9] The bulk of its loans had gone to farm cooperatives.

In the fall of 1921, the Interstate Commerce Commission, under Farm Bureau pressure, used its dictatorial powers over the railroad industry to order a sharp overall 10 percent cut in freight rates-largely to aid Western grain. The Senate also directed the FTC to investigate the supposedly too low export prices that were being paid to grain farmers.

In the meanwhile, Congress established a Joint Commission on Agricultural Inquiry, which delivered a report in October, 1921. It recommended that the government authorize more farm cooperatives, that it provide for intermediate-term credit to farmers, that agricultural freight rates be lowered (this was quickly adopted), that there be special agricultural attach?s in foreign countries, that agricultural departments expand their research, and that more wholesale terminals be provided. An even more ominous note occurred-again belying the myth of laissez-faire in the 1920s-when President Harding allowed Secretary of Agriculture Henry C. Wallace to pressure him into calling a National Agricultural Conference, at the end of January, 1922. In his opening address, Harding called for increased Federal aid to cooperatives, and took the radical step of endorsing crop restrictions by co-ops to obtain higher farm prices. The conference-consisting of farm leaders, farm machinery manufacturers, meat packers, and economists such as Richard T. Ely and under the aegis of the administration-recommended stabilization of the price level, continuation of the WFC, an agricultural representative on the Federal Reserve Board, crop insurance, more federal regulation of warehouses, agricultural tariffs, development of plants to produce cheap fertilizer at the Muscle Shoals Dam, a St. Lawrence Seaway, federal aid to farm cooperatives, and steps toward aiding farm prices in some undefined manner-although outright price fixing was rejected.

In 1922, Congress passed the Capper-Volstead Cooperative Marketing Act, which exempted cooperative marketing associations from the antitrust laws, with the crucial requirement that no farmer have more than one vote in the co-op. The Futures Trading Act was declared unconstitutional by the courts, but the intrepid Congress passed a new law-the Grain Futures Act of 1922-with similar provisions.

In March 1922, the government made available over $1 million for the purchase of seed grain in crop failure areas. But the farm bloc wanted credits on a more regular basis. Farmers could obtain abundant bank credit for short-term loans (under six months), and they could obtain long-term mortgages from the Federal Land Banks and other institutions; they now felt a gap in the intermediate credit range. A tug-of-war ensued in Congress between two farm-bloc bills: the Capper-McFadden Bill, supported by Eugene Meyer, Jr., livestock interests, and cooperative marketers, which would have extended Federal Reserve powers to farm credits, and the Lenroot-Anderson Bill, presented by the Joint Commission of Agricultural Inquiry (appointed by Harding in 1921) and backed by the three large national farmers' organizations. The latter bill would have created new institutions with capital subscribed by the Treasury, to grant intermediate (six months to three years) credits. This bill was supported by Secretaries Wallace and Hoover (and also backed by the National Agricultural Conference). The final result combined features of both bills, with perhaps more emphasis on the Lenroot-Anderson Bill. The Agricultural Credits Act of 1923 established a vast system of Federal farm credit; there were 12 Federal Intermediate Credit Banks, patterned after the Federal Reserve Banks, and run by the Federal Farm Loan Board. Funds were supplied directly by the Treasury, and the banks were to make loans to farm associations for any agricultural purpose.

Apparently the dictation over packers and stockyards did not prove sufficient, and in 1924 the Secretary of Agriculture ordered smaller commission firms and traders to stop "discriminating against" farm cooperatives in their purchases. The Packers and Stockyards Administration of the USDA also directly helped farm cooperatives to find markets, and investigated the books of many private commission firms.

This pattern of farm intervention was the overture to the crucially important and characteristically New Deal policy of farm price support. At first, the farmers tried voluntary methods. During 1920, farm organizations centered in Kansas and Nebraska, for example, tried to hold wheat off the market and to reduce acreage in an attempt to raise the price. But such a local attempt could only fail, despite feeble efforts to organize farmers into a National Wheat Growers' Association. The withholding of wheat from the market resulted in drastic losses as wheat prices continued downward. An impudent attempt to induce the Treasury and the Federal Reserve to grant special credits to farmers to permit them to withhold wheat collapsed.

Similar failure attended the cartellizing efforts of the American Cotton Association in the South. In fact, at the end of 1920, cotton planters reacted to failing prices by resorting to violence, including murder and destruction of the cotton and cotton gins of recalcitrants in order to reduce the quantity of cotton produced and sold. Under planter pressure, Governor Parker of Louisiana asked cotton gins to cease operations until cotton had achieved a "living price," and similar advice was given farmers by the Texas Department of Agriculture. But while sales in these states declined, prices also continued to fall. Several times, the farm organizations tried to induce the Federal Reserve Board to supply funds for withholding cotton and other farm products, but Governor W.P.G. Harding and Secretary of the Treasury Houston stoutly refused to intervene.[10]

The next year, 1921, saw determined and well organized efforts toward a nationwide cotton cartel. The American Cotton Association, The Cotton News, and other groups urged an acreage reduction of up to 50 percent for cotton, and South Carolina officially proclaimed a "Cotton Acreage Reduction Day."[11] Acreage was reduced considerably, and this, joined with a poor crop, lowered the supply greatly; but cotton prices rose less than proportionately to the fall in output, thus frustrating the cartellists once again.

Meanwhile, in corn, Henry A. Wallace, editor of Wallace's Farmer, preached the gospel of "sagacious sabotage," a presumably voluntary way to restrict corn production. The campaign got nowhere among the farmers in 1921, but Wallace tried again in 1922 and urged the state Farm Bureau Federations, with indifferent success, to fix systematic township and county acreage quotas for corn. Several farm journals and organizations endorsed the idea, but the major farm leaders were repelled by the idea of formal farm quotas.[12] The result was failure once more, the Corn Belt even increasing its acreage of corn.

The chief stumbling block in all these schemes was the noncooperating farmer, the rugged individualist who profited by expanding his production while his rival farmers cut theirs. Unlike his counterparts in industrial labor, he was not deterred by such favored epithets of frustrated cartellists as "scab" and "traitor to his fellow-farmers," hurled at him by such organs as Wallace's Farmer.

The next step in the drive for a farm cartel was the "Sapiro Movement," inspired by Aaron Sapiro, a high-priced young attorney for several California cooperatives. The plan was launched, under Sapiro's inspiration, by the Farm Bureau Federation in July, 1920. It aimed to amalgamate all of wheat marketing into one giant producers' cooperative. The July conference appointed a committee which produced, in the spring of 1921, a plan for a huge national grain cooperative to be called U.S. Grain Growers, Inc.[13] As almost always happens with voluntary cartels, the new organization bogged down almost immediately. Many local cooperative farm elevators preferred dealing with existing private markets, and the private grain exchanges successfully wooed the bulk of the farmers into avoiding the new cartel. By early 1922, the grandiose scheme had proven to be a complete failure.[14]

The July 1920 conference also tried to set up numerous other national cartels-for national fruit marketing, dairy marketing, vegetable marketing, and wool marketing-and all but one were quick failures. Only a livestock marketing plan had staying power, and this because its aims were much less grandiose. Other Sapiro failures were attempts at cotton and tobacco cartels.

These failures did not end the cooperative movement, which had to turn to less flamboyant and more gradual methods; but they did show the folly of voluntary price-fixing. The next step was almost inevitable-a determined call for compulsory price-support by the federal government.

A precedent had been set by the wartime Food Administration Grain Corporation, which had fixed high prices of wheat in order to stimulate production and had itself distributed the wheat available. Furthermore, the Hoover European food relief program of 1919, widely trumpeted as a humanitarian gesture, was also a means of getting rid of "surplus" farm products and thus bolstering food prices.[15] William H. Lyon, a South Dakota attorney, now proposed that the government fix a high price for every farm product and buy up any unsold surplus. The Lyon Plan won the support of Samuel Gompers, the South Dakota Assembly, many country banks, and the Republican whip in the House of Representatives. It was put forth as the Christopherson Bill in July, 1921, but failed to win the support of the major farm organizations, as did other price-support bills in this and immediately following years. But the drive for compulsory price support had not begun in earnest. It reached major importance in the "Equality for Agriculture" movement, launched in the fall of 1921 by George N. Peek and General Hugh S. Johnson and backed by the powerful support of Bernard M. Baruch. The idea was that since industry was protected by tariffs, agriculture might as well join in mulcting the consumer. The government was to maintain domestic farm prices at a high level, buying the unsold surplus and selling it abroad at lower, world-market levels. Both Peek and Johnson had direct economic interests in farm subsidies as heads of the Moline Plow Company, manufacturers of agricultural machinery. They found little difficulty in interesting Secretary Wallace in their scheme, and the result was a continuing agitation over McNary-Haugen bills, embodying the plan, from 1924 through 1928. The first McNary-Haugen Bill was drawn up by Charles J. Brand, an executive of the American Fruit Growers and former head of the Bureau of Markets in the USDA. The original mass base of Peek's support was the marginal wheat farmers of the Northwest, backed by the bankers of that region. Eugene Meyer, Jr. also lent his powerful backing. In 1924, Peek established the American Council of Agriculture, with representatives from the leading farm groups, to advocate his plan. By the late 1920s, the mass farm organizations were solidly behind the program.[16]

It is true that President Coolidge vetoed McNary-Haugen Bills in 1927 and 1928, but it is also significant that he called upon Eugene Meyer in 1926 to head a cotton corporation to try to keep cotton prices from falling and that grants totaling $10 million were made to government-sponsored farm organizations to buy cotton at a certain price. Other countries-such as Canada, Hungary, and Poland-were also trying to keep up the price of wheat; but the threat of growing surpluses over the market had the reverse effect and drove prices lower in 1928 and 1929, inducing a farm clamor for more effective price support.

There were many other instances of Coolidge intervention in agriculture. In 1924, he supported the Norbeck-Burtness Bill for government loans to northwestern farmers for livestock purchases. The bill failed to pass Congress, but Coolidge proceeded to appoint a special agricultural commission, heavily weighted with farm leaders. The commission-The President's Agricultural Conference-issued three reports during 1925. It recommended further Farm Loan Board credits, further compulsory reduction of freight rates, and large-scale subsidization of farm cooperatives through a Federal Cooperative Marketing Board. The latter provision was embodied in the Capper-Haugen Bill, which was however defeated by the opposition of the farm coops, who objected to the great degree of government regulation involved. Despite this defeat, President Coolidge was more determined than ever to aid the farm coops in any way that he could. Coolidge firmly believed that government "must encourage orderly and centralized marketing" in agriculture.[17] Herbert Hoover and Secretary of Agriculture William Jardine (a member of the President's Agricultural Conference) agreed with Coolidge. In 1925, the Congress granted additional funds for subsidizing the marketing research of farm cooperatives, and the following year, prompted by Secretary Jardine, it established a Division of Cooperative Marketing in the Bureau of Agricultural Economics in the USDA. The new Division then threw itself with enthusiasm into support of the farm coops. This kind of intervention was of course welcomed by the coops. In 1926, Jardine sponsored the "Jardine Plan" for a federal farm advisory council and a farmers' marketing commission to subsidize cooperatives and to aid in marketing farm surpluses. The bill failed to pass the House, which instead adopted the McNary-Haugen Bill. The next year, the Coolidge administration brought out a revised "Jardine Plan," for a Farm Board, commodity advisory committees, and a set of stabilization corporations established by the Board, with funds to lend to cooperatives. The new plan was again sidetracked for another round in the McNary-Haugen battle.

As Secretary of Commerce, Herbert Hoover did a great deal to subsidize farmers, and especially farm coops. He aided the latter in many ways-solving their research and marketing problems, helping find export markets for their produce, and making many speeches on their behalf. He also supported tariffs for agricultural produce. Furthermore, he was the man chiefly responsible for the appointment of the strongly pro-cooperative Secretary Jardine. Hoover had been one of the earliest proponents of a Federal Farm Board to aid cooperative marketing associations, and he helped write the Capper-Williams Bill of 1924 to that effect. And so it is no surprise that, as Presidential candidate, Hoover advocated support for farm cooperatives and promised the farm bloc that he would soon institute a farm-price support program. As soon as he took office, he fulfilled both promises, In June 1929, the Agricultural Marketing Act was passed, establishing the Federal Farm Board (FFB).

The new scheme was, in essence, the old "Jardine Plan." The Federal Farm Board was furnished with $500 million by the Treasury and was authorized to make all-purpose loans, up to a 20-year period, to farm cooperatives at low interest rates. The Board could also establish stabilization corporations to control farm surpluses and bolster farm prices. Essentially, this was a Sapiro-type cartel, this time backed by the coercive arm of the federal government.[18] Hoover appointed, as chairman of the FFB, Alexander Legge, president of International Harvester Co., and long-time prot?g? of Bernard M. Baruch. International Harvester was one of the leading manufacturers of farm machinery, and therefore Legge, like George Peek, had a direct economic interest in farm subsidization. Other members of the FFB included the Secretary of Agriculture, Arthur M. Hyde; James C. Stone, vice-chairman and founder of the Burley Tobacco Growers' Cooperative Association; Carl Williams, a cotton grower of the 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; Samuel McKelvie, publisher of the Nebraska Farmer, representing the grain interests; and Charles S. Wilson, Professor of Agriculture at Cornell University. It is clear that the Board was dominated by representatives of the very farm cooperatives that it was organized to favor and support.[19] Thus, the Hoover administration established a giant agricultural cartel, directed by government, and run by and for the benefit of the cartellists themselves.

As the depression struck, the FFB went into action. Its first big operation was in wheat, prices of which had been falling sharply for over a year. When first established, in August, the FFB advised farmers not to send wheat forward to market too rapidly, but rather to hold wheat in order to wait for higher prices. In September, it made additional loans to cooperatives to withhold stocks and raise prices. Yet the wheat price continued to fall sharply. On October 26, shortly after the stock market crash, the FFB announced that it would lend $150 million to wheat coops, at up to 100 percent of the market price, to try to hold up prices by keeping wheat off the market. Soon after the stock market crash, the FFB established a Farmers' National Grain Corporation, with a capital of $10 million, to centralize cooperative marketing in wheat and other grains. The old dream of a wheat cartel had at last come true. The FFB was supposed to work largely through such "corporations," or favored farm marketing cooperatives; and the Farmers' National was selected to centralize all farmers' grain cooperatives, eliminate competition among them, and thus stabilize and raise the market price. At first, the FFB and Farmers' National loaned money to farm cooperatives to hold wheat off the market, then, after prices continued to fall, the Farmers' National itself began to buy wheat at the loan prices.

On November 25, Hoover organized one of his inimitable White House conferences with the major farm organizations, the appointed heads of the FFB, the Land Banks, etc. The farm organizations, like the unions, not surprisingly agreed with alacrity to cooperate with Hoover's program of massive subsidy to themselves.

Whenever government intervenes in the market, it aggravates rather than settles the problems it has set out to solve. This is a general economic law of government intervention. It is certainly true for the overall Hoover depression policy. Nowhere has this law been so clearly illustrated as in the American farm program since 1929. The FFB managed to hold up wheat prices for a time. Seeing this apparent success, wheat farmers naturally increased their acreage, thus aggravating the surplus problem by the spring of 1930. Furthermore, as America held wheat off the market, it lost its former share of the world's wheat trade. Yet, prices continued to fall as the months wore on, and the heavy 1930 acreage aggravated the decline. The accumulating wheat surpluses in the hands of the FFB frightened the market, and caused prices to tumble still further.

Julius Barnes, of the Chamber of Commerce and the private grain dealers, protested in vain against the unfair competition of the Board and its pet cooperatives, since that competition was directed against the private grain traders. The latter were particularly incensed that the FFB charged the cooperatives a subsidized, lower-than-market interest rate on its loans.

In the spring of 1930, Hoover acquired from Congress an added $100 million to continue the FFB's lending and purchasing policies. But the farmers found themselves with increased surpluses, and with prices still failing. Under farm bloc pressure, Hoover then established the Grain Stabilization Corporation to replace the Farmers' National and to redouble stabilization efforts. The GSC concluded that individual wheat farmers had held off wheat in the fall, and were "profiteering" by selling wheat to the GSC. To statists, individual profits are generally heinous, so the FFB announced that from that point on, it would only support the prices of wheat sold by cooperatives and the GSC. Under protests of the grain trade, and the growingly evident impossibility of supporting some wheat at one price while other wheat of the same grade sold at another price, the FFB reversed its stand and decided to support all wheat once more.

The FFB programs had thus inadvertently encouraged greater wheat production, only to find by spring that prices were falling rapidly; greater surpluses threatened the market and spurred greater declines. It became clear, in the impeccable logic of government intervention, that the farmers would have to reduce their wheat production, if they were to raise prices effectively. The FFB was learning the lesson of every cartel-production must be reduced in order to raise prices. And the logic of the government's farm monopoly also drove the FFB to conclude that farmers had been "overproducing." Secretary of Agriculture Hyde accordingly lectured the farmers on the evils of "overproduction." The Secretary and the FFB urged farmers to reduce their acreage voluntarily.

The first group of farmers selected to bear the brunt of this sacrifice were the marginal Northwest growers of spring wheat-the original agitators for price supports. They were not very happy at the prospect. The farmers, after all, wanted subsidies from the government; having to reduce their production of the subsidized crop had not been included in their plans. A group of economists left Washington at the end of March to try to persuade the Northwest farmers that they would be better off if they shifted from wheat to some other crop. In the meanwhile, in this topsy-turvy world of interventionism, troubles piled up because the wheat crop was abundant. Surpluses continued to accumulate, and wheat prices continued to fall. Legge and Hyde toured the Middle West, urging farmers to reduce their wheat acreage. Governor Reed of Kansas reflected the common-sense view of the farmer when he wondered why the government on the one hand promoted reclamation projects to increase farm production and, on the other hand, urged farmers to cut production.[20] Since the individual farmer would lose by cutting acreage, no amount of moral exhortation could impel any substantial cut in wheat production.

As wheat piled up in useless storage, foreign countries such as Argentina and Russia increased their production, and this increase, together with the general world depression, continued to drive down wheat prices.[21] On June 30, 1930, the GSC had accumulated over 65 million bushels of wheat held off the market. Discouraged, it did little until late 1930, and then, on November 15, the GSC was authorized to purchase as much wheat as necessary to stop any further decline in wheat prices. Bravely, the GSC bought 200 million more bushels by mid-1931, but all to no avail. The forces of world supply and demand could not be flouted so easily. Wheat prices continued to fall, and wheat production continued to rise. Finally, the FFB decided to dump wheat stocks abroad, and the result was a drastic fall in market prices. By the end of the Hoover administration, combined cotton and wheat losses by the FFB totaled over $300 million, in addition to 85 million bushels of wheat given gratis to the Red Cross.

The wheat program was the FFB's major effort. The Board also attempted several other programs, including a similar cartel in cotton. In the fall of 1929, the FFB made substantial loans to cotton cooperatives to stem the decline in cotton prices. These loans were added to loans from the Federal Intermediate Credit Banks. But cotton prices continued to fall, even after the American Cotton Cooperative Association was encouraged to assume management of the operation. Finally, in June 1930, the FFB established the Cotton Stabilization Corporation (CSC) to try to stem the tide. The CSC took over 1.25 million bales from the coops. Under severe competition from external sources, the CSC announced that it would maintain its holding for an entire year if prices did not rise. But this proclamation, designed to firm the market, had no effect.

Again, the cartel was confronted with growing surpluses, and therefore heavier pressure on farm prices. Finally, the FFB tried to exhort the cotton farmers, too, to reduce acreage. Chairman Stone, of the FFB, urged the governors of the cotton states to "immediately mobilize every interested and available agency . . . to induce immediate plowing under of every third row of cotton now growing." This action stirred up a host of indignant opposition, the New York Times calling it "one of the maddest things that ever came from an official body."[22] The proposal met with no success; in fact the 1931 cotton crop was considerably larger. In early 1932, the Board then tried an heroic action-along with its 1.3 million bales, it obtained an agreement from southern bankers to withhold all of their cotton (3.5 million bales), while it continued to finance 2.1 million bales held by the coops. This firmed prices until June 1932, when they fell drastically again. By July, the Board had bought $127 million worth of cotton, and it had lost over half of its value. The upshot was that the CSC had to give up, and it began to liquidate its cotton holdings in August, 1932, completing its unloading in a year. The net loss of cotton was $16 million, in addition to 850,000 bales, worth over $78 million, donated to the Red Cross.

At the end of 1929, the FFB established a national wool cooperative-the National Wool Marketing Corporation (NWMC) made up of 30 state associations. The Board also established an allied National Wool Credit Corporation to handle finances. The NWMC, unskilled in the affairs of the wool industry, turned over its selling operations to the private woolen handling firm, the Draper Company. The NWMC made huge advances to wool growers from 1930 on, thereby concentrating a large part of the domestic wool output in the hands of the NWMC, and the FFB loaned heavily to its creature. While prices firmed at the beginning, they kept drifting inexorably downward, and the NWMC program only served to stimulate a greater production of wool. The overhanging surplus depressed prices further, and overextended the funds of the NWMC. Eventually, the NWMC had to sell its huge stock of wool at very low prices, thus aggravating the wool price problem still further. A total of $31.5 million in loans for wool were made by the FFB, of which $12.5 million were permanently lost.

In October, 1929, the FFB set up the National Livestock Marketing Association, but the livestock producers disagreed and set up conflicting cooperatives, and the program was never launched on any considerable scale. The FFB also organized a dairy program, with five regional butter-marketing associations, providing aid to dairy cooperatives. An advisory committee angered the farmers by suggesting that they reduce the size of their dairy herds in order to cut the surpluses in dairy production. The farmers preferred to lobby for legislation to outlaw oleomargarine or to prevent imports of cocoanut oil from the Philippines.[23] Other FFB attempts were a National Bean Marketing Association; a National Pecan Marketing Association, established in February, 1930; aid to citrus industries, as well as to figs, grapes and raisins, potatoes, apples, sugar-beets, honey, nuts, maple syrup, tobacco, poultry, eggs, and rice. However, the Board only tried fully to stabilize prices in wheat and cotton, where it failed ignominiously. Similar attempts, on a smaller scale, were made in butter, wool, and grapes, while FFB activity for the other crops was confined to subsidizing existing cooperatives. The grape stabilization program was a fiasco like the others. The California Grape Control Board lasted for two years, from 1930 to 1932, and then collapsed, with grape growers unwilling to pay stabilization fees. In the meanwhile, the Federal Prohibition Administration aggravated conditions in the industry by outlawing grape concentrates. By May, 1933, total federal loans for grapes were $25 million, with substantial losses.

In butter, the FFB granted loans to existing regional dairy cooperatives and stimulated interregional agreements between them. The most important was Land O'Lakes Creameries, Inc., in the North Central states. The Board granted a loan to Land O'Lakes in January, 1930, to steady the price of butter by withholding some stock from the market. Prices firmed for a time, but then fell later as the stocks were sold. It is difficult to trace the effect of this operation because it was conducted on a rather small scale.[24] In tobacco, the FFB tried to stimulate cooperatives, which had become dormant in this industry. The Board advanced loans, but the 1931 crop was large and the price lower. The new cooperative folded in the next year.

And so the grandiose stabilization effort of the FFB failed ignominiously. Its loans encouraged greater production, adding to its farm surpluses, which overhung the market, driving prices down both on direct and on psychological grounds. The FFB thus aggravated the very farm depression that it was supposed to solve. With the FFB generally acknowledged a failure, President Hoover began to pursue the inexorable logic of government intervention to the next step: recommending that productive land be withdrawn from cultivation, that crops be plowed under, and that immature farm animals be slaughtered-all to reduce the very surpluses that government's prior intervention had brought into being. It was left to the Roosevelt administration, however, to carry out the next great logical step down the road to a wholly socialized agriculture-an agriculture socialized, we might add, on principles of irrationality and destruction.[25]

With the failure of the FFB, the leading farm organizations met in Washington, in January, 1932, and called for a program of effective control of farm surpluses, outlawing of short-selling in commodities, a stable currency, and independence for the Philippines in order to stop duty free imports from that territory. But nothing was accomplished in the Congress, even though several Congressmen introduced bills for more extensive farm aid. At this point, some radical farmers decided to call a "farmers' strike" in an attempted price-support program of their own. Falling farm prices were to be combated by withholding farm produce. The leader of this "Farm Holiday" movement was Milo Reno, head of the Iowa Farmers Union and the Farm Holiday Association. Reno, an old radical and a preacher, had been calling for such "strike" measures since 1920. Now, on May 3, a convention of 3000 Iowa farmers led by Reno voted to call a strike on July 4. Their slogan: "Stay at Home-Buy Nothing, Sell Nothing," and their song:

"Let's call a Farmers' Holiday
A Holiday let's hold
We'll eat our wheat and ham and eggs
And let them eat their gold."

This self-destructive threat to return to a barter economy was originally supposed to last a month as a warning to the rest of society. But, by the fall of 1932, the movement had become a continuing mob. Centering in Sioux City, Iowa, the movement spread, and state units were formed in North and South Dakota, Minnesota, Montana, and there was agitation in Illinois, Wisconsin, Nebraska, and Kansas; but the units did not form a very cohesive front. The farmers soon shifted from attempts to persuade their fellows to outright physical violence. As is often, the case, when the strikers found that they were starving due to their own policies, while their non-striking colleagues were thriving, they attempted to force the hated "scabs" to lose their income as well. In August, in Sioux City, scene of the first farm strike, strikers blockaded roads, used guns to enforce their commands, stoned buildings, and forcibly stopped transportation.[26] Strikers formed their own aggressive private army, the Khaki Shirts of America. And Governor Floyd Olson of Minnesota offered to use the state militia to enforce an embargo on the "export" of all farm produce from his state, provided that all the other farm-state governors would join. Happily, his offer was refused. All this agitation failed to raise prices; in fact, more goods flowed in from non-striking (largely non-Iowa) sources, and prices continued to fall rapidly. By the end of 1932, the farmers' holiday movement had ended-with the exception of North Dakota, where a farmers' convention urged farmers to organize a council of defense, and to strike and refuse to farm for the market until prices had risen to the farms' cost of production.

Although they failed in their main objective, the farm councils managed to scale down farm mortgages, worth hundreds of thousands of dollars, and farmers also organized "penny sales," where they forcibly barred other than a bankrupt farmer's friends from attending the auction sale of his goods. The friends would buy the goods for a "penny," and then return it to the bankrupt. The low point of this criminality occurred in April, 1933, when a gang assaulted and almost hung an Iowa county judge for refusing to agree to their demand that he order no more farm foreclosures.[27] And in February, 1933, Governor Olson, under threat from radical farmers of his state to march on the Minnesota capitol to demand compulsory debt moratoria, actually decreed a halt to all foreclosures.


  1. Hoover, Memoirs of Herbert Hoover (New York: MacMillan, 1937), vol. 3, pp. 29ff. For the sake of simplicity, any quotations from, or references based upon the Memoirs, Myers and Newton's The Hoover Administration, Wilbur and Hyde's The Hoover Policies, or Hoover's The State Papers of Herbert Hoover, will not be footnoted from this point on.

  2. Irving Bernstein, The Lean Years: A History of the American Worker, 1920-1933 (Boston: Houghton Mifflin, 1960), p. 253.

  3. In addition to the above sources on the Hoover conferences, see Robert P. Lamont, "The White House Conferences," The Journal of Business (July, 1930): 269.

  4. The American Federationist 37 (March, 1930): 344.

  5. J.M. Clark, "Public Works and Unemployment," American Economic Review, Papers and Proceedings (May, 1930): 15ff.

  6. See Theodore Saloutos and John D. Hicks, Agricultural Discontents in the Middle West, 1900-1939 (Madison: University of Wisconsin Press, 1951), pp. 321-48; and Murray R. Benedict, Farm Policies of the United States, 1790-1950 (New York: Twentieth Century Fund, 1953), pp. 145-75, for accounts of the farm bloc and farm programs in the 1920s and during the depression. Also see Alice M. Christensen, "Agricultural Pressure and Governmental Response in the United States, 1919-1929," Agricultural History 11 (1937): 33-42; and V.N. Valgren, "The Agricultural Credits Act of 1923," American Economic Review (September, 1923): 442-60.

  7. Part of the pressure for this attack on the meat packers came from wholesale grocers, who raised the familiar cry of "unfair competition" against efficient rivals. See Benedict, Farm Policies of the United States, 1790-1950, p. 150n. For similar instances, see Charles F. Phillips, Competition? Yes But... (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1955).

  8. President Wilson had suspended and then vainly vetoed renewal of the WFC at the behest of Secretary of Treasury David Houston, who was opposed in principle to any continuation of war intervention in the peacetime economy. Even after Congress overrode the veto, Houston was able to keep a checkrein on WFC activities. When Harding became President, he reappointed Eugene Meyer as head of the WFC and, under Meyer's inspiration, supported the subsequent expansion. See Gerald D. Nash, "Herbert Hoover and the Origins of the RFC," Mississippi Valley Historical Review (December, 1959): 459-60.

  9. Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), vol. 4, p. 40.

  10. See James H. Shideler, Farm Crisis 1919-1923 (Berkeley: University of California Press, 1957), pp. 50-51, 55-56.

  11. It may surprise many to learn that much of the cartel agitation came not from cotton farmers. It came from the merchants and bankers with large inventories of cotton on hand, and who would not suffer from reductions in acreage. Ibid., p. 85.

  12. The Iowa Farm Bureau Federation resolved in January, 1922 to present the facts on reduction of corn acreage to its membership, but added that "we entrust each farmer to adjust his acreage in accordance with his own judgment." Ibid., p. 87.

  13. See Benedict, Farm Policies of the Unitd States 1790-1950, pp. 186n. and 194ff.

  14. In 1924, Gray Silver, powerful Washington lobbyist for the farm bloc, attempted another national grain cooperative, setting up the Grain Marketing Company (GMC). The GMC aimed at becoming a holding company of the major private grain marketing firms, but farmers failed to support the plan, and the company died a year later.

  15. See Shideler, Farm Crisis 1919-1923, p. 21.

  16. By 1924, in addition to Peek, Johnson, the two Henry Wallaces-father and son-and Bernard Baruch, in support of McNary-Haugen there were the Illinois Agricultural Association, most Western farm journals, the American Farm Bureau Federation, the National Grange, the National Board of Farm Organizations, the American Wheat Growers' Association, and the prominent banker Otto H. Kahn.

  17. See Saloutos and Hicks, Agricultural Discontents in the Middle West, 1900-1939, pp. 286-91; and John D. Black, Agricultural Reform in the United States (New York: McGraw-Hill, 1929), pp. 337, 351ff.

  18. Behind the scenes, Bernard Baruch had also been advocating a Federal Farm Board to raise farm prices by organizing agriculture under government aegis, starting with wheat and cotton. He was also active in urging Commerce and the National Industrial Conference Board, Commission on Agriculture, jointly established by the U.S. Chamber of Commerce and the National Industrial Conference Board. The Commission was sure that "laissez-faire is of the past." See Dorfman, The Economic Mind in American Civilization, vol. 4, pp. 79-80.

  19. "Hoover chose the Board members from men proposed by farm organizations, as requested by the administration." See Edgar E. Robinson, "The Hoover Leadership, 1929-1933" (unpublished manuscript), pp. 128ff. After the first year of operations, Legge retired and Stone became chairman. Teague and McKelvie were replaced by two former high officials in the American Farm Bureau Federation, Frank Evans and the aggressive Sam H. Thompson.

  20. This was to become a permanent question for logical people, with no sign yet that anyone is willing to answer. From the point of view of the general public, of course, the policies are contradictory and irrational. From the point of view of the government bureaucracy, however, both measures add to its power and swell its number.

  21. The FFB forced the Chicago Board of Trade to prohibit short selling by foreign governments, notably by Russia.

  22. Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), p. 175.

  23. To their great credit, some organizations bitterly opposed the FFB throughout these years. These included the Nebraska Farmers' Union, which attacked the FFB as a great exploitative bureaucracy, the Corn Belt Committee, and the Minnesota Farm Bureau.

  24. Murray R. Benedict and Oscar C. Stine, The Agricultural Commodity Programs (New York: Twentieth Century Fund, 1956), pp. 235-36.

  25. At the end of 1931, Secretary of Agriculture Hyde was advocating the replacement of our traditional "planless" agriculture by a program of government purchase and reforestation of submarginal lands. "Hyde, however, had rejected as incompatible with American liberty the proposal of Senator Arthur H. Vandenberg (R., Michigan) to compel farmers to curtail their production." Gilbert N. Fite, "Farmer Opinion and the Agricultural Adjustment Act, 1933," Mississippi Valley Historical Review (March, 1962): 663.

  26. There were also "milk strikes" in some areas, with milk trucks seized on the roads, and their contents dumped upon the ground. Wisconsin and California, in 1932, pioneered in setting up state milk controls, amounting to compulsory milk cartellization on a state-wide level. See Benedict and Stine, The Agricultural Commodity Programs, p. 444.

  27. See Fred A. Shannon, American Farmers' Movements (Princeton, N.J.: D. Van Nostrand, 1957), pp. 88-91, 178-82.