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A Critical Review of Estimates of Net Income from Agriculture for 1880 and 1900: New Hampshire, a Case Study

Published online by Cambridge University Press:  11 May 2010

Paul Glenn Munyon
Paul Glenn Munyon
Affiliation:
Georgia Institute of Technology
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Abstract

During the past twenty-five years American economic historians have made substantial progress in improving the quantitative measures of the nation's economic performance in the nineteenth century. Using New Hampshire as a case study, this paper attempts to build on this earlier research in the area of late-nineteenth-century American agriculture; the primary focus is on Richard Easterlin's estimates of state and regional income. The research reported here suggests that Easterlin's estimates need to be revised on the basis of state-level analysis and that in their present form his figures may lead to erroneous conclusions about the regional distribution of service income in late-nineteenth-century America.

Type
Articles
Information
The Journal of Economic History , Volume 37 , Issue 3 , September 1977 , pp. 634 - 654
Copyright
Copyright © The Economic History Association 1977

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References

1 Easterlin's estimates of agricultural service income by state for 1880 and 1900 first appeared in Richard Easterlin, “State Income Estimates,” in Kuznets, Simon and Thomas, Dorothy S., Population Redistribution and Economic Growth, United States, 1870–1950, Vol. 1, Methodological Considerations and Reference Tables, American Philosophical Society Memoirs, 45 (Philadelphia: American Philosophical Society, 1957), 703–59Google Scholar. Hereinafter referred to as “State Income.” This work also included income estimates for 1919–21 and 1949–51. A modified version of the estimates—one that included property income with service income—appeared in Easterlin, Richard, “Interregional Differences in Per Capita Income, Population and Total Income,” in Trends in the American Economy in the Nineteenth Century, National Bureau of Economic Research, Inc., Studies in Income and Wealth, 24 (Princeton: Princeton University Press, 1960), 73–140Google Scholar. Hereinafter referred to as “Interregional Differences.” This work also included income estimates for 1840. Another version of the Easterlin work is found in Easterlin, Richard, “Regional Income Trends, 1840–1950,” Harris, Seymour, ed., American Economic History (New York: McGraw-Hill, 1961), pp. 525–47Google Scholar. Hereinafter referred to as “Regional Income.”

2 For example, see Fogel, Robert William and Rutner, Jack L., “Efficiency Effects of Federal Land Policy, 1850–1900: A Report of Some Provisional Findings,” in Aydellotte, William O., Bogue, Allen G., and Fogel, Robert William, eds., The Dimensions of Quantitative Research in History (Princeton: Princeton University Press, 1972), pp. 390–418Google Scholar. Hereinafter referred to as “Efficiency Effects.” As is often the case, Fogel and Rutner use the state weights (relatives) developed by Easterlin to distribute a total different from the one used by Easterlin. See also Ransom, Roger and Sutch, Richard, “The Impact of the Civil War and of Emancipation on Southern Agriculture,” Explorations in Economic History, 12 (1975), 1–28.CrossRefGoogle Scholar

3 Easterlin indicated that he intended his estimates to be used primarily for regional analysis. His work—“State Income”—contains numerous disclaimers about the quality of the estimates he produced and several comments about the dangers involved in using his estimates for any purpose other than general regional analysis. An examination of recent literature on American economic history indicates, however, that many scholars have chosen to ignore the warnings found in the original Easterlin work.

4 For the purposes of this study, 1880 and census-report year 1879 and 1900 and censusreport year 1899 can be used interchangeably.

5 Munyon, Paul Glenn, “A Reassessment of New England Agriculture in the Last Thirty Years of the Nineteenth Century: New Hampshire, A Case Study” (unpublished Ph.D. dissertation, Department of Economics, Harvard University, 1975)Google Scholar. Hereinafter referred to as “A Reassessment of New England.” A revised version of this dissertation is now being published by the Arno Press, Inc. (Stuart Bruchey, series editor) and should appear in the spring of 1978.

6 Bureau of Agricultural Economics, Income Parity for Agriculture, Part 6 (Washington: United States Government Printing Office, 1945), pp. 2–5Google Scholar. Hereinafter referred to as Income Parity. It should be noted that Easterlin presented two definitions of agricultural service income. The first definition is ambiguous. “Service income is the sum of wages and salaries (excluding employee contributions to social insurance and ‘other income’ such as cash sickness compensation, etc.) and proprietor's income, with imputed rents of farm dwellings included in the agricultural component of service income.” Easterlin, “State Income,” p. 703 (emphasis added). The second definition cited contains all of the elements of agricultural service income. “The income concept includes the realized net income of farm operators plus farm wages. Realized net income of farm operators covers, among other things, the value of farm products consumed as food and fuel by the farm family, government payments to farmers, farm rents and farm mortgage interest received by persons living on farms, and the imputed net rental value of farmer-owned dwellings.” Ibid., p. 714 (emphasis added).

7 Gross farm income is a BAE concept and should not be confused with gross income, a concept used by Strauss and Bean. See Strauss, Frederick and Bean, Louis H., “Gross Farm Income and Indices of Farm Production and Prices in the United States, 1869–1937,” United States Department of Agriculture Technical Bulletin No. 703 (Washington: U.S. Government Printing Office, 1940), p. 7Google Scholar. Hereinafter referred to as “Gross Farm Income.” Gross farm income is the sum of all farm products sold, traded, or consumed on the farm on which the products were produced, plus the gross rental value of all farmhouses. See BAE, Income Parity, p. 2. The estimates of gross farm income reported in this paper are intended to meet the BAE specifications.

8 Gross rental equals net rental—the market value of the house times the prevailing rate of interest—plus taxes and depreciation. Ibid.

9 The census intended the value of products not fed to livestock to measure the farm value of all agricultural products minus the value of farm output fed to livestock on the farm on which the crops were grown. After checking the figures, the census concluded that some livestock feed purchases had been deducted by farmers before the farmers figured the value of products not fed. U.S. Census, 1900, vol. 5, pp. cxxii-cxxiii. Consequently, the figures reported by the census do not fit precisely either the specifications of the BAE or the concept used by Strauss and Bean.

10 See Easterlin, “State Income,” pp. 711–12. See also U.S. Census, 1900, vol. 5, pp. 747–53. A close study of the census worksheets for 1880 and 1890 indicates that the dollar values reported by the 1880 census were intended to measure the value of products sold or consumed on the farm. One assumes that the census encountered reporting problems in 1880 similar to those encountered in 1900.

11 See U.S. Census, 1900, vol. 5, p. cxxii.

12 (1.3776). Ibid. See Easterlin, “State Income,” pp. 711–12.

13 Feedstuffs included: wheat, oats, corn, rye, barley, buckwheat, potatoes, and hay. The gross output for 1899 of each commodity was taken from U.S. Census, 1900, vol. 6. The 1879 output figures were taken from U.S. Census, 1800, vol. 3. Percentages of total production going to feed and seed were taken from Strauss and Bean, “Gross Farm Income,” pp. 36, 39, 43–45, 48–50, 53, 61–62. Price information came from “Prices of Farm Products Received by Producers, 1. The North Atlantic States,” U.S.D.A. Statistical Bulletin No. 14, p. 28. The seed component was figured at 4.7 percent of the value of the total production of feedstuffs. See Martin, Robert, National Income in the United States, 1799–1938 (New York: National Industrial Conference Board, 1939), p. 136Google Scholar. Hereinafter referred to as National Income.

14 The first alternative used was to allocate to New Hampshire its share of the national total feed and seed bill based on New Hampshire's share of the total value of livestock in the country. This figure was adjusted by a price-divergence factor to account for the difference between New Hampshire prices and national average prices for feedstuffs. The resulting estimate was approximately one percent less than the estimate used in this paper. The second alternative involved estimating livestock feed equivalents for the entire country, finding the cost of feed per livestock equivalent, calculating the livestock-equivalent “population” for New Hampshire, and multiplying that “population” by the average cost per livestock equivalent. This total feed and seed bill was adjusted by the price-divergence factor to convert national average prices to New Hampshire prices. This alternative estimate was almost 10 percent less than the estimate used in this paper. The use of feed cost estimates with upper-bound characteristics is consistent with the objective of producing reasonable lower-bound estimates of agricultural service income.

15 Using the data for 1900, it was determined that 93.76 percent of the total feed bill was reported as products fed to livestock. Total feed costs for New Hampshire for 1900 were estimated to be $6,411,000; the census reported the value of products fed to livestock in New Hampshire as $6,011,000.

16 Agricultural service income earned by farmers—entrepreneurial income—is the equivalent of the BAE concept of realized net income from agriculture. Easterlin did not estimate service income earned by farmers; for certain regional comparisons, however, agricultural service income earned by farmers is a better measure of the strength of a region's agricultural sector than is agricultural service income. Also, for comparisons of the earnings of nonfarm employment with farm employment, figures which separate the laborer's earnings from the farmer's are essential.

17 For a discussion of the weaknesses of census-reported employment figures see Miller, Ann Ratner and Brainerd, Carol P., “Labor Force Estimates,” in Kuznets, Simon and Thomas, Dorothy S., Population Redistribution and Economic Growth, United States, vol. 1, Methodological Considerations and Reference Tables, American Philosophical Society Memoirs, 45 (Philadelphia: American Philosophical Society, 1957), 371–85.Google Scholar

18 This adjustment rests on the assumption that unspecified laborers came proportionately from all employment classifications. To the extent that agricultural laborers in New England were easier for the census to count than were workers employed in the growing cities of the Northeast, the adjustment made will result in an overstatement of the New Hampshire agricultural labor force.

19 Miller and Brainerd provided estimates for employment in agriculture, but did not break down those estimates into farmers and farm laborers. To provide consistent estimates for 1880 and 1900 for each of these classifications, the census-reported figures were used as weights to split the Miller and Brainerd totals between farmers and farm laborers. See Munyon, “A Reassessment of New England,” pp. 164–65.

20 For a detailed summary of the traditional perspective, see ibid., pp. 11–27. For a modern statement of the conventional wisdom, see Fogel and Rutner, “Efficiency Effects,” pp. 403–4.

21 Data on agricultural income separated by primary source of revenue from products not fed to livestock indicate that only a small percentage of farms was committed primarily to the production of field crops, and that an even smaller percentage of farms devoted significant effort to producing cereals. Furthermore, the data appear to confirm that most of the farmers concentrating on growing field crops were marginal producers. For a more detailed discussion of this issue, see Paul Glenn Munyon, “The Decision to Farm Reconsidered: New Hampshire, A Case Study,” Working Papers in Economics E-76–7, Georgia Institute of Technology. Hereinafter referred to as “The Decision.”

22 The census included orchard products and miscellaneous vegetables in the gross classification of “all crops.” In 1880 and 1900, however, the census also reported separate figures for each category. Orchard products and miscellaneous vegetables are grouped in this section with forest products because of the regional market characteristics of each of the output categories.

23 Between 1900 and 1930 the output of hay, clover, and other forage crops declined by more than 75 percent. U.S. Census, 1900, vol. 6, p. 251. U.S. Census of Agriculture, 1930, vol. 2, part 1, p. 149.

24 For an explanation of the estimation of the 1879 price, see Munyon, “A Reassessment of New England,” p. 187. The 1899 price was taken from U.S. Census, 1900, vol. 5, p. 589.Google Scholar

25 See Table 5, footnote d.

26 “Prices of Farm Products Received by Producers, 1. The North Atlantic States,” U.S.D.A. Statistical Bulletin No. 14, p. 28.

27 The selected crops included: hay, potatoes, wheat, corn, oats, rye, barley, and buckwheat. The price data were taken from USDA, “Prices of Farm Products,” p. 28. The quantity data were from U.S. Census, 1880, vol. 3, pp. 6–9.Google Scholar

28 The price data were from four USDA Statistical Bulletins—nos. 14, 15, 16, and 17. The quantity data came from U.S. Census, 1880, vol. 3, pp. 6–9.Google Scholar

29 Easterlin estimated agricultural service income for New Hampshire for 1880 to be $10,700,000. He estimated the figure for 1900 to be $10,200,000. Easterlin, “State Income,” pp. 705, 716.

30 Personal income consists of service income and property income. See Easterlin, “State Income,” pp. 727–28.

31 Easterlin's intermediate estimates were for seven sectors—agriculture and six nonagricultural sectors; his final estimates, however, were only for agricultural income and nonagricultural income. See Easterlin, “State Income,” pp. 705, 711, 755–56.

32 In the 1957 study, Easterlin did not separate property income for agriculture from property income for nonagricultural wealth; in the 1960 study, however, he allocated property income to agriculture and to nonagricultural employment.

33 The state weights (relatives) for agricultural income were meant to represent state percentage shares in net income from agriculture.

34 Easterlin's description of the estimation process raises the possibility that he estimated per-worker income for each state by dividing the state's share in agricultural income by the state's share in the agricultural labor force and multiplying that ratio by the national average per worker for agricultural service income. That computational method should not affect the results.

35 The net effect of some of the operations discussed may be no more than one or two percent, but my interest is in the cumulative effects of those calculations.

36 In describing the personal income total for 1880, Easterlin wrote, “The figure for 1880 is the arithmetic average of estimates for 1879, 1880, and 1881. The estimate for each year was derived on the assumption that the relative change in personal income between that year and the average for 1899–1901 was the same as the relative change in net national product, as indicated by unpublished annual estimates, kindly supplied by the National Bureau of Economic Research.” Easterlin, “State Income,” p. 705.

37 Goldsmith, Raymond W., A Study of Personal Savings in the United States (Princeton: Princeton University Press, 1956), vol. III, p. 427, Table N-1, column 4.Google Scholar

38 See Robert Martin, National Income, pp. 65–85.

39 Since Easterlin derived his adjusted figure for agricultural service income by subtracting property income from personal income, accurate adjustments to personal and property income would assure an accurate adjustment to service income. See Easterlin, “State Income,” p. 711.

40 See Martin, National Income, pp. 106–46.

41 To adjust Martin's figures properly, one must add to personal income in agriculture an estimate of net imputed rent on owner-occupied farmhouses and net rental payments on all other farmhouses. To the figure for property income in agriculture, one must add an estimate of net rent paid to nonfarm landlords and mortgage interest payments on owner-occupied farmhouses paid to nonfarm lenders. One must also correct nonagricultural property income for Martin's omission of an estimate of imputed rent on owner-occupied nonfarm homes, net rental on rented nonfarm homes, and interest on mortgages on owner-occupied nonfarm homes.

42 Easterlin, “State Income,” p. 714. Martin, National Income, pp. 98–9, 145–46.

43 See Easterlin, “State Income,” p. 714. Martin made it very clear that he did not supply any estimates of imputed rent or of interest on owner-occupied-farmhouse mortgages. Martin, National Income, pp. 97, 145–46.

44 By convention, rent and interest payments made by farmers to other farmers are included in service income, while such payments made to those not living on farms are included in property income. But see Easterlin, “State Income,” pp. 714, 733–35.

45 Ibid., pp. 706, 723. Also see Easterlin, “Income Differences,” p. 105.

46 For confirmation that Martin included fishing and forestry under miscellaneous (all other industries), see Martin, National Income, pp. 57, 106, 119.

47 Easterlin, “State Income,” p. 715.

48 Ibid, (emphasis added).

49 States with gross-net ratios greater than one would have had a larger share of gross income (value of product not fed to livestock) than of net income. In order to distribute net income rather than gross income, some adjustment downward of the shares of those states would appear proper. The opposite adjustment would be appropriate for states with ratios less than one.

50 A partial list of factors influencing gross-net relationships would include: output specialization leading to a change in the proportion of feed purchased by farmers in one region as compared with feed purchases of farmers in another region; changing differential rates of capital intensity resulting in changes in the regional distribution of interest expenses and depreciation charges; changing tenancy ratios and disproportionate changes in the value of farm property causing shifts in both the distribution of imputed rent contributions to income and of rental charges; and regional variations in changes in property taxes.

51 Easterlin wrote, “All three comparisons pointed to a ratio of gross to net substantially below the national average for most of the Southern states, and somewhat less consistently to a ratio above the national average for certain other states, mostly in the West North Central and New England regions.” Easterlin, “State Income,” p. 715 (emphasis added). The fact that Easterlin apparently used the national average of the ratios rather than one as the dividing point would not affect the results.

52 The means used to evaluate the observations for each year raises serious questions. See Easterlin, “State Income,” p. 715. Some state-by-state comparisons where the scheme used would influence the adjustments made are: Illinois with Wisconsin, Kentucky with Texas, Indiana with Minnesota, Texas with Virginia, Wisconsin with Rhode Island, and Kentucky with Virginia. Moreover, cases can be found in the data where, regardless of the scheme used, shares of a state were adjusted inconsistently. For example, for 1880, the adjustment of the share for the Dakotas was less than the adjustments for New Hampshire and Vermont; for 1900; the adjustment for each of the Dakotas was greater than the adjustments for New Hampshire and Vermont.

53 See footnote 58.

54 For example, in 1900, the addition of forestry and fishing to the labor force data for agriculture would produce an underestimation of per-worker agricultural income in Iowa of 1.5 percent but an underestimation of per-worker income for New Hampshire of 2.4 percent. Miller and Brainerd, “Labor Force,” pp. 625, 627. Although the error in this case is only one percent, the cumulative effect of such calculations can produce major distortions of the regional income patterns.

55 Easterlin applied New Hampshire's share in net income to an estimate of national income that was based on a three-year average—1899, 1900, and 1901. The estimates of agricultural income produced in this paper are based on output and price data for 1899. Data reported by the Bureau of Agricultural Economics and by Martin indicate that agricultural income in 1899 was lower than agricultural income in either 1900 or 1901. This was true both for the United States and for New Hampshire. If, therefore, my estimates for New Hampshire were based on data from all three years, the difference between the Easterlin estimates and my figures would be greater than 29 percent.

56 See Table 1, footnote d.

57 National feed costs were estimated by applying Strauss and Bean ratios to census-reported value of gross farm output. Strauss and Bean, “Gross Farm Income,” pp. 36, 39, 43–5, 48–50, 53, 61–2. U.S. Census, 1900, vol. 5, pp. cxxi-cxxii.Google Scholar

58 New Hampshire's output of feedstuffs declined by more than 75 percent between 1899 and 1929. See footnote 23. Given that New Hampshire's concentration on dairy farming increased between 1899 and 1929–39, New Hampshire's purchases of livestock feed as a percentage of gross farm income increased by more than 1,000 percent in thirty years. See Tables 2 and 8. See also BAE, Income Parity, pp. 30, 38.

59 See U.S. Census, 1900, vol. 5, p. cxxii; U.S. Census of Agriculture, 1940, vol. 3, pp. 905–11Google Scholar. See also BAE, Income Parity, pp. 30–1, 38–9.

60 U.S. Census, 1900, vol. 5, p. 258.Google Scholar

61 Ibid., p. 689.

62 Ibid. Tenancy ratios for the rest of New England were similar to that for New Hampshire.

63 The state's share was computed by dividing New Hampshire's agricultural service income as estimated by this paper by Easterlin's estimate of national agricultural service income. See Table 2. See also Easterlin, “State Income,” p. 705.

64 Easterlin, “State Income,” p. 716.