The Economic Organization of Agriculture
THEODORE W. SCHULTZ
PROFESSOR OF ECONOMICS
McGRAW-HILL BOOK COMPANY, INC.
1953
PREFACE
This study is based on two fundamental beliefs about which I want to be explicit. There is the belief that the community prefers a developing economy to one that is stationary, and it prefers economic stability to large, sudden changes in prices and employment. This is to say, economic development is good, stagnation is bad. A steady level of prices and full employment are good, whereas large, short-term movements of prices and mass unemployment are bad. The other belief is that the concept of economy is an organizing value, which means that to economize is good, and that it is necessary for a community to organize to achieve economy. Should it be true that either or both of these two beliefs were invalid--that is, if the community were to prefer stagnation
or were indifferent about it, or preferred economic instability; or if the community were to place no value whatsoever on economy, or if it could achieve economy without organization--a study such as this would be quite meaningless.
Agriculture can make, as it has in some countries, important contributions to economic development. Agriculture also finds it necessary to make major adjustments as a consequence of economic development. These particular contributions and adjustments do not come easily,
quickly, or automatically. Whether the contributions are large and whether the adjustments are made satisfactorily are dependent in large measure upon economic organization. So that a community may choose with greater assurance the path it wishes to take in relating its agriculture to the development it wants to achieve, I have devoted a major part of this study to these organizational possibilities.
I am also concerned about economic instability in relation to agriculture. This instability has attributes, some of which are general to the economy as a whole and some specific to agriculture where the demand and supply schedules are highly inelastic, where large and abrupt shifts
of the demand schedule occur frequently, and where weather causes some large year-to-year variations in production. In this study I have made an attempt to find ways of improving the existing economic organization by eliminating or reducing the instability, or where this does not
seem to be the solution, by adapting the economy to the instability.
Unfortunately, most studies of economic organization deal either with the functions of particular firms and households, in microanalysis, or with general social and political issues, which are all too often represented solely as problems in valuation and of methodology. Nor has macro analysis as currently practiced lived up to its promise or prospects.
Nevertheless, economics can contribute much to the art of national housekeeping; to do so, however, it will be necessary to rediscover political economy. This means that the student should go beyond the organization of firms and households although not neglect the important
role that they play in a community which places a high value on de centralization in its organizational structure. Factor and product markets should not be taken for granted as is now common practice. In the case of agriculture, in adjusting to economic development, as I have shown in this study, the performances of the factor markets are of critical importance. Then, too, one should not leave out the integrating functions borne necessarily by the social and political processes.
I look upon this study as a progress report for I have carried forward the essential ideas of my Agriculture in an Unstable Economy. Mean while, I have drawn heavily upon new research, some of which has been done by my colleagues. I have come to see more clearly the implications
of the analysis not only for communities that are rich but also for those that are exceedingly poor in the collection of resources and in the income at their disposal. Nor do I view this as a definitive study. Much remains to be done and this has led me to formulate at many different points
what I deem to be the best hypothesis for explaining the particular behavior. To test these hypotheses calls for much hard work. My hope is that some of these hypotheses will challenge other workers sufficiently for them to put particular hypotheses to test and thus hasten the process
of rejecting or establishing the explanation that I have tentatively advanced.
For data I have turned again and again to members of the staff of the Bureau of Agricultural Economics. Everyone whom I burdened has been exceedingly generous in helping me. There are, however, two important sets of data which governmental agencies have failed to produce, namely,
data on rewards to factors used in farming and on how these rewards compare to those received by comparable factors in other sectors of the economy, basic as such data are in analyzing the efficiency of agriculture, and data on the personal distribution of income within agriculture. A few research workers located mainly in the South and in the Plain States have undertaken studies related to uneven economic development of agriculture and to yield and price uncertainty. I have benefited from these.
I saw fit to offer for publication two chapters: " Reflections on Poverty within Agriculture," which appeared in the Journal of Political Economy and " The Declining Economic Importance of Agricultural Land," in the Economic Journal. I am grateful to the editors for permission to use
these chapters in this study as was my plan.
I am deeply indebted to my colleague, D. Gale Johnson, as will be clear to any reader as he proceeds. Not all of the research already completed by Johnson is presently available. The results, however, from our major research enterprise at the University of Chicago, made possible by two
generous grants from the Rockefeller Foundation, will in due time be presented to the profession as a treatise by Johnson.
The difficult set of tables appearing in Chaps. 12 and 13 is the work of George Coutsoumaris. He also checked most of the tables and references in other parts of this study. The painstaking hand and intelligent efforts of Mrs. Janet Weider throughout and especially in correcting proof represent a contribution which has saved me much grief.
It is my privilege, however, to bear full responsibility for what appears and to invite criticism from others as part of the larger endeavor of advancing our still very limited insights about economic development and economic stability.
T. W. Schultz
OCTOBER, 1952
CONTENTS
Preface
List of Tables
List of Figures
I. Agriculture in a Developing Economy
By way of classifycation and procedure. Four elementary representations of developments related to agriculture. A population increase, an increase in income, a new technique employed by consuming units, and a new output-increasing agricultural technique.
II. Three Sets of Demand and Supply Shifts
Equal rates of shifts to the right. Demand for farm products in the forefront. Supply of farm products out ahead.
III. Focal Points and Conditions Affecting Long-term Shifts of the Demand
Focal points of demand for farm products. Conditions affecting long term shifts of the demand. Some pitfalls in ascertaining shifts in demand for farm products . Shifts in demand of selected farm commodities, 1875 to 1929.
IV. Population Still Uncoiling
Relevant population and food aggregates. High food drain (Type I), intermediate food drain (Type II), and low food drain (Type III). The population variable in relation to the food economy. Population as a within variable and as an outside variable. Some demand effectsof Types I and II. Population growth and
V. Gauging the Relevant Income Elasticities
Income elasticity-an appeal of cross-sectional data. Income elasticity use of time series. Clues from consumer studies of consumption of food over time. An evaluation of income elasticity estimates. Income elasticity of farm products from Tintner's model. Clues from crude expenditures for farm products. Income elasticity of services added to farm products. Income elasticities of particular food groups. Classification of industries. The rise in the level of income.
VI. Effects of Nutrition upon Demand and Supply
Increasing the efficiency of food: supply effects. Demand effects of nutrition. Correcting nutritional imbalances.
VII. Gauging the New and Better Production Possibilities
Changes in the supplies of inputs. Outcome with 1946-1948 input prices and outcome with 1910-1914 input prices. New and better production techniques. Industry and agriculture compared. "Producing" and distributing new techniques. Agricultural research: expenditures and returns. Gauging the value of the inputs saved. 1910 techniques for 1950 production. 1940 techniques for 1950 production. Labor force and its distribution.
VIII. The Declining Economic Importance of Agricultural Land
Agriculture relative to the whole economy. Relative position of land as an input in producing farm products. Land as an economic variable.
IX. Divergencies in Economic Development Related to Location
A hypothesis. Implications of hypothesis.
X. Income Disparity among Communities and Economic Development
Simplifying empirical propositions. Economic development can bring about increasing disparity in income. Conditions related to the increasing disparity in income. Proportion of population that contributes to income. Conditions that determine the abilities of a population to produce. Conditions that impede factor-price equalization.
PART II. ECONOMIC INSTABILITY AND AGRICULTURE
XI. Conditions Underlying the Economic Instability of Agriculture
Hypothesis explaining the price instability of agriculture. Shifts that are large. Elasticities that are relatively low.
XII. Yield Instability
Fluctuations in yield by location. The Pacific region is placid. The turbulent West Central regions, both North and South. Location of yield instability in the
XIII. Stability of Agricultural Inputs and Production
Stability of production inputs in agriculture. Stability attributes of farm production. Divergencies between agricultural inputs and production.
XIV. Producer Supply during the Stock Period
The concept of the stock period. By way of explanation. Backward sloping supply schedule, vertical supply schedule, and forward sloping supply schedule. Data and some inferences. Income effects the farm household. A poor community-the case of
PART III. ECONOMIC ORGANIZATION FOR DEVELOPMENT AND STABILITY
XV. Economic Activities to Be Organized
Propositions about economic organization. Classifications of activitiesto be organized. Firm and household units. Product and factor markets. Political and social integrating processes.
XVI. Economic Organization: Possibilities and Preferences
Two case studies. " Producing " new and better techniques. Producing farm products. Some general attributes. Preferences related to economic development. New combinations of "organization" and "product." Economic development and some other social adjustments.
Distribution of income.
XVII. Organizing Agriculture for Economic Development
Some general concepts and assumptions. Rating the desired decentralization. Organization to induce economic development. Techniques, information, and capital. Organization to adjust to economic development. Structural and locational attributes of economic evelopment. Periphery and center compared.
XVIII. Factor Markets and Economic Development
Labor market serving agriculture. Functioning of the labor market; relative earnings of workers, an international comparison, and low output farms in the
XIX. Organizing Agriculture for Economic Stability
No marked short-term movements in the employment of resources in agriculture. Yield instability in farming. Functioning of the economy in relation to yield instability. Improvements in organization to cope with yield instability. Organization to adjust to yield instability.
XX. Organization for Price Stability
Reducing the instability of farm prices. War and peace with less economic instability. Gradual and small versus abrupt and large shifts of the demand. Reducing the variations in agricultural production. Increasing the price elasticity of the supply. Increasing the price
elasticity of the demand for farm products. By way of accommodations. Organize farms more capable of coping with price instability. Safeguarding income of agriculture in depression. Possibilities by storage.
Index
LIST OF TABLES
Table
4-1. Growth in Population in Fifteen Countries in
5-1. Income Elasticity Relations and Effects
5-2. Retail Weight of Food
5-3. Changes in Food Nutrients Available for Consumption
5-4. Three Measures of per Capita Food Consumption
5-5.Approximate Values of Income Elasticities of Food in the
5-6.
5-7.
5-8. The Elasticity of Physical Consumption and the Elasticity of the Value of Consumption with Respect to Income of
5-10. Levels of Real National Product per Man Hour
5-11. National Income of the
5-12. Total and per Capita Disposable Personal Income in Current
and 1950 Prices, 1929-1950
6-1. Nutrients Available per Capita per Day in the United States, Averages 1935-1939, 1941-1945, and 1950 and the Recommended Allowances of the National Research Council
6-2. Gauging Nutrients Available to Two Income Classes, United States Urban Families, Spring, 1948
7-1. Relative Prices of Agricultural Inputs, 1910 and 1950
7-2. Production Inputs in Agriculture, 1910 and 1950
7-3. Farm Production Expenses in Relation to Gross Farm Income
7-4. Farm Production Expenses by Classes, 1910 and 1950
7-5. Indexes of Production Inputs in Agriculture, United States, 1910-1950
7-6. Public Funds Spent for Research in Agriculture for the Fiscal Years Ending June 30, 1940 and 1949
7-7. Expenditures for Agricultural Research by the United States
Department of Agriculture and by State Agricultural Experiment
Stations during 15-year Period from 1937-1951
7-8. Increase in the Ratio of Farm Outputs to Inputs, United States, 1910-1950
7-9. Per Cent of the Total Labor Force Engaged in Agriculture in
Ten Countries
8-1. National Income and Agricultural Land Rent in
8-2. Relative Inputs in
11-1. Approximate Values of the Price Elasticities of the Demand for Farm Products, Farm Food, and Food in the
11-2. Three Short-term Movements in Agricultural Inputs
12-1. Year-to-year Variations in Crop Production per
12-2. Profile of the Variations in Crop Production per
12-3. Variations in Crop Production per
12-4. Summary of Variations in Crop Yields per
United States, 1909-1949
12-5. Profile of Variations in Crop Yields per
13-1. Contraction in Agriculture, 1920-1924
13-2. Quantity of Inputs in Agriculture, 1920 and 1924
13-3. Contraction in Agriculture, 1931-1934
13-4. Quantity of Inputs in Agriculture, 1931 and 1933
13-5. Year-to-year Variations in Gross Farm Production by Groups of Products, United States, 1910-1950
13-6. Profile of the Year-to-year Variations in Gross Farm Production and Groups of Commodities, United States, 1910-1950
13-7. Year-to-year Variations in Gross Farm Production by Regions
and for the
13-8. Profile of the Year-to-year Variations in Gross Farm Production by Regions and for the
13-9. Variations in Gross Farm Production by Products and Regions,1919-1949, and for the United States, 1910-1950
13-10. Year-to-year Variations in Production of Feed and Meat Animals
13-11. Year-to-year Variations in Production of Fruits and Tree Nuts, Truck Crops, Vegetables, Food Grains, and Cotton
13-12. Agricultural Inputs, Production, and the Divergency between Them from Year to Year, United States, 1910-1950
14-1. Home Consumption of Farm Families in Relation to Agricultural Production,
14-2. Change from 1929-1938 to
18-1. Real Earnings of Workers in Industry Relative to Workers in