The problem with agriculture in Europe caused by the First World War had been advantageous to American farmers who were able to use machines in order to increase their production. This led the farmers to export their products that are excessive to the local market’s demand overseas. But when the European market recovered in the 1920s, the American farmers encountered difficulty in finding markets for their products abroad. With the continuous overproduction of agricultural products that is more than what the local market can consume, prices inevitably drop resulting to the decline in agricultural profit. This problem was intended to be resolved by the Agricultural Adjustment Act.
The Agricultural Adjustment Act is part of the New Deal program of Franklin Delano Roosevelt when he was elected president. The Agricultural Adjustment Act (AAA) was drafted by his Secretary of Agriculture Henry Wallace. The goal of the Agricultural Adjustment Act is to bring back the golden years of agriculture like that of in 1909 to 1914, which had relentlessly gone downhill due to the Great Depression. The Agricultural Adjustment Act aims to achieve parity by eradicating excessive production of crops and livestock.
The Agricultural Adjustment Act restricted the farmers’ overproduction of basic crops and livestock by giving them subsidies for not planting on parts of their land and eliminating surplus livestock. These subsidies came from exclusive tax on companies that processed agricultural products. This practice then resulted to a balanced supply-versus-demand ratio, effectively maintaining the price of the crops across different markets. It also encouraged diversified farming since they have specific quota for basic crops, the farmers are able to plant different crops with the remaining parts of their land. The Agricultural Adjustment Act also eliminated the practice of sharecropping, where owners lease their land to farmers in exchange for 1/3 of the farmers’ profit.
By 1936, the Supreme Court determined the Agricultural Adjustment Act to be unconstitutional for taxing the agricultural processors in order to accumulate funds for the subsidies given to the farmers. The majority of the judges decided it is illegal to charge tax from one group in order to give it to the other. This issue was resolved by the Agricultural Adjustment Act of 1938. Instead of giving subsidies to farmers in order to lower their production, a marketing quota is employed and penalties are issued for overproduction. For example, when the secretary of agriculture determined that a certain crop exceeded the “reserve supply level”,  the secretary would divide the quota among the producers of that crop nationwide and issue penalty to warehouses that markets the crops coming from farms with excessive production. Although the marketing quota enforced by the Agricultural Adjustment Act of 1938 interferes more aggressively with the agricultural economy than the processing taxes issue of the Agricultural Adjustment Act of 1933, the Mulford still considered it as a program “intended to foster, protect and conserve commerce“.
Along with the Agricultural Act of 1949, the Agricultural Adjustment Act of 1938 comprises the majority of “permanent legislation” which gives federal support to farm incomes and commodity prices up to this day.