Why did the agriculture's terms of trade fall during the US Great Depression? The best paper on the Internet.

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RedRight
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Why did the agriculture's terms of trade fall during the US Great Depression? The best paper on the Internet.

Post by RedRight » 01 Nov 2020 15:33

The farmers were bound by contracts with the landlords. Typically they had to pay a fixed amount for seven years regardless of their profits. That was essentially a feudal relationship - not for a capitalist profit but a direct share. Therefore there was no place for a capitalist crisis there. Furthermore two assisting factors. Firstly, the farmers were less dependent on market consumption than the urban workers, they could consume more out of their direct production. Secondly, the unemployment in the cities forced them to stay in the rural economy.

The cause of major capitalist crises the fall of the rate of profit resulted in the decrease of the industrial output that multiplied to the entire non rural economy causing a drop by one third.

The crucial point is that this increased the non rural value relatively to agriculture. As explained in the beginning as opposed to the industrial capitalists the farmers had to keep paying the rent. Precisely those factors forced a deflation of agricultural output by 33% in real terms. Here we find the deterioration of agricultural terms of trade.

A general deflation could not solve the problem because it would merely restore the lack of demand at a lower level of prices. Also, in the industrial and service sectors there was nothing to force the supply to increase. Anyway since the level of investments dropped six times the real wages would have to fall six Times what is impossible.

Others have tried but only I found the answer.

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