Agricultural Investment and the Interwar Business Cycle
During the interwar period, the agricultural sector was a much larger component of the United States economy than at present. Thus, changes in agricultural fortunes had a larger impact on macroeconomic events than is the case today. The Great Depression and concomitant collapse of commodity prices adversely affected the farming sector, as did the drought that distressed many farming regions during this period. Farmers’ income plummeted, sharply curtailing investment in farm equipment. One key goal of the New Deal agricultural policies was to reverse the fortunes of the agricultural sector. Price supports and production control programs attempted to increase farmers’ incomes, enabling them to reverse the dramatic drop in equipment investment that occurred during the contraction period. This paper investigates the macroeconomic impact of investment in agricultural equipment on the aggregate economy. Results obtained support the hypothesis that increased expenditures for agricultural equipment contributed to the strength of the recovery, especially during the crucial early years of the recovery.
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