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Two Conditions Necessary for Economic Progress in Agriculture

Published online by Cambridge University Press:  07 November 2014

Theodore W. Schultz
Theodore W. Schultz*
Affiliation:
The University of Chicago
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Extract

In a consideration of the economic problems that confront agriculture there is much wisdom in a return to the classical tradition of treating these problems within the context of the political economy. In our division of labour in professional effort we have departed from this tradition; and our work has been weakened as a consequence. The Older Economists were deeply concerned about agriculture. They did not, however, make the mistake of treating agriculture in isolation, as if it belonged in another category to be studied, one might be led to suppose, by a different set of analytical models and presumably, largely by surveys and statistics. Such procedures certainly are not in keeping with what the Older Economists did as they put together an engine for economic analysis and laid down a roadbed for policy. On the contrary, their major premises and the basic policies that emerged were heavily weighted with agricultural affairs. This is evident when we consider the attention they gave to the production of food, the distribution of rewards to factors, particularly to rent and land. Whether our analysis pertains to labour, finance, trade, agriculture, or any other problem sphere, we will do well to formulate our approach in terms of the economy as a whole. We need especially to view agriculture as an integral part of the political economy and not as a series of particular farm problems treated as if they were self-contained.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 10 , Issue 3 , August 1944 , pp. 298 - 311
Copyright
Copyright © Canadian Political Science Association 1944

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References

1 For a treatment of this point see the present writer's “Diminishing Returns in View of Progress in Agricultural Production” (Journal of Farm Economics, vol. XIV, 1932).Google Scholar

2 In 1931-3 without AAA the acreage in corn, wheat, cotton, and tobacco in the United States averaged 218.5 million acres, while in 1940-2 with AAA it averaged 173.0 million acres, a drop of 21 per cent. Some of this reduction, however, is to be ascribed to the after-effects of the drought years.

3 Cotton acreage was cut nearly two-fifths, which was sufficiently large to have caused a small reduction in output.

4 See especially Notestein, Frank W. and others, The Future Population of Europe and the Soviet Union (League of Nations publication, 1944).Google Scholar Also, Thompson, Warren S. and Whelpton, P. K., Estimates of Future Population of the United States, 1940-2000, (U.S. National Resources Committee, 1943)Google Scholar; and MacLean, M. C., “Projection of Canada's Population on the Basis of Current Birth and Death Rates, 1931-1971” (Canadian Papers, vol. IV, Yosemite Conference, Institute of Pacific Relations, 1936).Google Scholar

5 In many important respects there is a striking similarity between Eastern Canada and the South in the United States in the causes and scope of the excess supplies of labour in agriculture.

6 Public expenditures for agricultural researches in the United States appear to exceed 40 million dollars yearly at the end of the thirties, and what is more, this large “input of resources” may well be bringing returns to society much higher than do expenditures in most productive efforts.

7 See note 4.

8 These are being treated in a comprehensive study by the present writer to be published by McGraw-Hill as a part of the Research Program of the Committee for Economic Development.

9 This new and greater emphasis on prices may well have far-reaching implications in reshaping agricultural policy for the post war. It is a desirable and much needed shift in emphasis for it once more places the mechanism of relative prices in a strategic position as a means for guiding and directing the allocation of resources in agriculture. The success of price techniques during the war to induce farmers to increase their production efforts and to curtail the output of some products in order to expand the output of others is not likely to be passed unnoticed. The support prices of the Department of Agriculture when announced prior to the time farmers made their production plans accomplished two things: (1) they greatly reduced the price uncertainty confronting farmers, and (2) they made much more precise the exact price position of each farm product relative to all the others—consequently gave farmers a more exact notion of what products were needed most urgently and with less uncertainty ahead brought forth a greater effort to expand production.

10 It is convenient to classify support prices in the United States as follows: Class one, includes cotton, corn, tobacco, wheat, rice, and peanuts (for nuts), all the old basic commodities provided for in AAA legislation. For this class Congress has directed the Department of Agriculture to support the price at 90 per cent of parity regardless of the supply and demand situation, and to do so for two years from January 1 following the date on which the President or Congress shall have proclaimed hostilities to have ended. The second class includes a much larger number of farm products. Whenever the Secretary of Agriculture finds it necessary to encourage farmers to expand production, he is directed to announce price supports, and here again, at not less than 90 per cent of parity and for two years after the war. The third class in a sense covers those farm products which do not fall within either of the previous two classes. In this case Congress has directed the Secretary to support the prices if and when funds for other operations make it possible for him to do so. In Canada there also have been various price commitments which extend into the post-war period. Fortunately, however, the year to year changes in support prices that have been announced are not tied to an absolute, historical, price parity formula as is the case in the United States. Moreover, the administrative procedures being developed in Canada do not make it necessary to keep the market price of each product from declining below the support price. The Canadian programme of pricing wheat in recent years is instructive on this point.

11 Whether or not this is possible would depend primarily (a) upon the level of the support price, and (b) upon the depth of the depression (assuming the flow of supplies of farm products to remain constant). Obviously, the lower the support prices, or the smaller the difference between the market price during a depression and the support price, the easier it would be to create sufficient additional demands to clear the market; but also, the less effective the support price in maintaining farm incomes during a depression.

12 The perishability of many farm products is such that it is quite impossible to carry out the specific commitment of keeping market prices of such perishable farm products from declining below the support price.

13 To accomplish the first objective it may be necessary to establish a system of forward prices to shape and guide agricultural production and to lessen the excessive amount of price uncertainty that prevails in agriculture. Some of the more basic aspects of this problem are discussed by the writer in Redirecting Farm Policy (New York, 1943).Google Scholar

14 The necessary setting for this proposal is as a part of a comprehensive counter-cycle policy. It certainly is not sufficient to undertake merely a single measure of this kind. When, however, it is formulated and instituted along with similar measures for the industrial sector, it becomes part of a more general anti-delationary policy which if it is applied would minimize the necessity of compensatory price payments to farmers.

15 There are, of course, several alternative indicators of developing cyclical unemployment. In principle the indicator should be sensitive to economic fluctuation of the type under consideration. Unemployment figures, as such, are far from satisfactory. Changes in income payments have real merit. Factory payrolls, however, are better in one important respect; they quickly reflect conditions in industry generally. Industrial production is still another measure. A combination of these, always making allowances for secular developments, may prove most useful. However, whatever indicator is to be used, it should be a measure of the performances of the non-agricultural sectors of the economy and not of agriculture itself. It cannot be a set of parity prices based on some historical formula of the 1910-14 type.

16 Yet, it should be noted again that this proposal is conceived as an integral part of a more general counter-cycle policy to attain economic stabilization.

17 If compensatory price payments induce farmers to increase production somewhat, to that extent it would contribute to lowering the price of food to consumers during a depression. There is also the possibility that farmers may withhold less products than they otherwise would during some stages of a depression, and this, too, would have the effect of making food somewhat cheaper during that phase of the depression.

18 The general problem of instability of farm income is being analysed by the present writer in a monograph which will appear in the Research Series of the Committee for Economic Development. This study will treat in much more detail the main presuppositions of compensatory price payments to farmers and it will also consider the merits and limitations of such a procedure.