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 Title Page
 Table of Contents
 Introduction
 Managerial concepts for agriculturalists...
 The development of managerial...
 The testing of existing managerial...
 Summary, conclusions and impli...
 Appendix






Group Title: Bulletin - Kentucky Agricultural Experiment Station - 619
Title: Managerial concepts for agriculturalists
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 Material Information
Title: Managerial concepts for agriculturalists
Series Title: Bulletin - Kentucky Agricultural Experiment Station - 619
Physical Description: Book
Language: English
Creator: Johnson, Glenn Leroy
Publisher: Kentucky Agricultural Experiment Station, University of Kentucky
Publication Date: 1954
 Subjects
Subject: Farming   ( lcsh )
Agriculture   ( lcsh )
Farm life   ( lcsh )
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Table of Contents
    Title Page
        Page 1
    Table of Contents
        Page 2
    Introduction
        Page 3
    Managerial concepts for agriculturalists - Their development, present status, importance, shortcomings and usefulness
        Page 3
        Page 4
    The development of managerial concepts
        Page 5
        Managerial concepts of general economists
            Page 5
            Page 6
            The theory of knowledge and management
                Page 7
            Three of management's tasks
                Page 8
            Different degrees of knowledge held by managers
                Page 8
            Distinction vague between knight's risk and uncertainty concepts
                Page 9
            Knight's uncertainty concept covered three sub-concepts
                Page 9
            Statisticians distinguish two kinds of errors in making choices between two alternatives
                Page 10
            Five different degrees of knowledge are held by managers
                Page 11
            Flexibility is important when learning is possible
                Page 11
            Five tasks of management
                Page 12
            The relationship between profits and management
                Page 12
            Study of managers' adjustments to imperfect knowledge indicates the importance of subjective considerations in management
                Page 13
            Distinction between managing and laboring is difficult to grasp
                Page 13
            In theory the distinction between the business and home is becoming indistinct
                Page 14
            Managerial principles and generalizations having to do with learning
                Page 15
            Economic theory contributes important insurance and chance taking concepts
                Page 16
            Strategy is important in managerial theory
                Page 17
            Strategies, principles and courses of action
                Page 18
            Principles of use in deciding how much chance to take
                Page 19
                Insurance principles
                    Page 20
                The long chance principles
                    Page 21
                Some other strategy principles
                    Page 21
        Managerial concepts of farm management workers
            Page 22
            Page 23
            Five kinds of problems which farm managers face
                Page 24
            Impact of managerial theory on agricultural economics
                Page 24
                Page 25
    The testing of existing managerial concepts
        Page 26
        Case study results
            Page 26
            Case study farmer no. 1
                Page 27
                Page 28
            Case study farmer no. 2
                Page 29
                Page 30
                Page 31
            Case study farmer no. 3
                Page 32
                Page 33
            Case study farmer no. 4
                Page 34
                Page 35
            The survey results
                Page 36
            The empirical importance of the five subject matter areas
                Page 37
            Sources of information
                Page 38
                Page 39
            The importance of subjective uncertainty including the risk, learning, forced action and inaction situations
                Page 40
                Page 41
            General learning methods
                Page 42
            Devices used to protect against unfavorable outcomes
                Page 43
            The use of strategy
                Page 43
                Page 44
    Summary, conclusions and implications
        Page 45
        Page 46
        Page 47
        Implications for farm management researchers
            Page 48
        Implications for extension workers
        Implications for farm management teachers
            Page 49
        Implications for farmers
            Page 50
    Appendix
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
Full Text



July, 1954


Bulletin 619


7/,


Managerial Concepts


for Agriculturalists



Their Development, Present Status, Importance,
Shortcomings, and Usefulness



By Glenn L. Johnson


Kentucky Agricultural Experiment Station
University of Kentucky
Lexington











CONTENTS
Page
THE DEVELOPMENT OF MANAGERIAL CONCEPTS .................................... 5
MANAGERIAL CONCEPTS OF GENERAL ECONOMISTS ....................... 5
The Theory of Knowledge and Management ................................. 7
Three of M anagem ent's Tasks ........................................................ 8
Different Degrees of Knowledge Held by Managers ................... 8
Distinction Vague Between Knight's Risk and Uncertainty Concepts 9
Knight's Uncertainty Concept Covered Three Sub-Concepts ............ 9
Statisticians Distinguish Two Kinds of Errors in Making Choices Be-
tween Two Alternatives .. ............................... ....... 10
Five Different Degrees of Knowledge are Held by Managers ........... 11
Flexibility is Important When Learning is Possible ......................... 11
Five Tasks of M anagem ent ............ ................... .......... ......... 12
The Relationship Between Profits and Management ........................ 12
Study of Managers' Adjustments to Imperfect Knowledge Indicates
the Importance of Subjective Considerations in Management.... 13
Distinction Between Managing and Laboring is Difficult to Grasp .... 13
In Theory the Distinction Between the Business and Home is Becom-
ing Indistinct ............ ......................................... ... ............. 14
Managerial Principles and Generalizations Having to Do with Learn-
in g ...................... ... .......... ...... ............................ 1 5
Economic Theory Contributes Important Insurance and Chance Tak-
ing Concepts ............. ................... .......... ... .......... 16
Strategy is Important in Managerial Theory ............... ............ 17
Strategies, Principles and Courses of Action ......................... .... 18
Principles of Use in Deciding How Much Chance to Take ................ 19
Insurance Principles .................. ......................................... 20
The Long Chance Principles ............................................... 21
Some Other Strategy Principles ........................................... 21
Some Psychological Patterns Concerning the Value of Gains and
Lo sses ..... ........................ .......... .... .. ......................... 2 1
MANAGERIAL CONCEPTS OF FARM MANAGEMENT WORKERS ......... 22
Five Kinds of Problems Which Farm Managers Face ..................... 24
Impact of Managerial Theory on Agricultural Economics ............... 24

THE TESTING OF EXISTING MANAGERIAL CONCEPTS .............................. 26
CASE STUDY RESULTS ........................ .... ............................... 26
Case Study Farm er N o. 1 .. ......................................................... 27
Case Study Farmer No. 2 ................................. ................ 29
Case Study Farm er N o. 3 .................... ....................................... 32
Case Study Farmer No. 4 .............................................. 34
THE SURVEY RESULTS ............................................. ................. 36
The Empirical Importance of the Five Subject Matter Areas ........... 37
Sources of Inform action .. .................... ......................................... 38
The Importance of Subjective Uncertainty Including the Risk, Learn-
ing, Forced Action and Inaction Situations ........................... 40
General Learning Methods ................................. ............. 42
Devices Used to Protect Against Unfavorable Outcomes ................. 43
The Use of Strategy ....................................................................... 43

SUMMARY, CONCLUSIONS AND IMPLICATIONS ................................. 45
Implications for Farm Management Researchers .............................. 48
Implications for Extension W workers .......... ................................. 48
Implications for Farm Management Teachers ............................. 49
Im plications for Farm ers ................... .......................................... 50









Managerial Concepts for

Agriculturalists-Their Development,

Present Status, Importance, Short-

comings and Usefulness

Glenn L. Johnson'
Department of Agricultural Economics

This bulletin has three sections: (1) a history of the development
of managerial principles and concepts leading to tentative statements
of modern managerial principles and concepts; (2) a presentation of
case-study information and survey data gathered to serve as a basis
for sorting the most useful from the less useful concepts; and (3) a
summary statement containing conclusions as to the usefulness of the
concepts to farmers, teachers, extension workers and researchers as
well as their implications for these same workers.
The research reported herein was prompted by the rapid develop-
ment of managerial concepts and the need to sort these concepts to
determine which are useful to agriculturalists-farmers, teachers, ex-
tension workers, and researchers. Farmers comprise the largest single
body of competitive managers in the United States. There are over
5 million managers of independent competitive farm businesses to
justify a special interest on the part of agriculturalists in managerial
concepts.
The first step in the procedure followed was one of reviewing the
literature and consulting with professional farm management workers
and economists. The object in carrying out these activities was two-
fold: (1) to trace out the historical development of managerial prin-
ciples and concepts as a means of acquiring perspective and under-
standing, and (2) to assemble an inventory of existing managerial
concepts. Following this step, an attempt was made to integrate and
expand the existing managerial concepts and principles particularly
useful to agriculturalists.2
1 While many people have contributed ideas presented herein, the author
alone is responsible for selection and acceptance. Contributors include D. Gale
Johnson and T. W. Schultz (former professors of the author), Cecil Haver, Law-
rence Bradford, Burl Back, Ernest Nesius, Robert Rudd, George Byers, and many
farmers and students.
2 At this stage in the work, Ky. Exp. Sta. Bul. 593, entitled "Decision-Making
Principles in Farm Management," was prepared in collaboration with C. B. Haver,
North Dakota Agricultural Experiment Station and published in cooperation with
the North Central States Farm Management Research Committee.









Managerial Concepts for

Agriculturalists-Their Development,

Present Status, Importance, Short-

comings and Usefulness

Glenn L. Johnson'
Department of Agricultural Economics

This bulletin has three sections: (1) a history of the development
of managerial principles and concepts leading to tentative statements
of modern managerial principles and concepts; (2) a presentation of
case-study information and survey data gathered to serve as a basis
for sorting the most useful from the less useful concepts; and (3) a
summary statement containing conclusions as to the usefulness of the
concepts to farmers, teachers, extension workers and researchers as
well as their implications for these same workers.
The research reported herein was prompted by the rapid develop-
ment of managerial concepts and the need to sort these concepts to
determine which are useful to agriculturalists-farmers, teachers, ex-
tension workers, and researchers. Farmers comprise the largest single
body of competitive managers in the United States. There are over
5 million managers of independent competitive farm businesses to
justify a special interest on the part of agriculturalists in managerial
concepts.
The first step in the procedure followed was one of reviewing the
literature and consulting with professional farm management workers
and economists. The object in carrying out these activities was two-
fold: (1) to trace out the historical development of managerial prin-
ciples and concepts as a means of acquiring perspective and under-
standing, and (2) to assemble an inventory of existing managerial
concepts. Following this step, an attempt was made to integrate and
expand the existing managerial concepts and principles particularly
useful to agriculturalists.2
1 While many people have contributed ideas presented herein, the author
alone is responsible for selection and acceptance. Contributors include D. Gale
Johnson and T. W. Schultz (former professors of the author), Cecil Haver, Law-
rence Bradford, Burl Back, Ernest Nesius, Robert Rudd, George Byers, and many
farmers and students.
2 At this stage in the work, Ky. Exp. Sta. Bul. 593, entitled "Decision-Making
Principles in Farm Management," was prepared in collaboration with C. B. Haver,
North Dakota Agricultural Experiment Station and published in cooperation with
the North Central States Farm Management Research Committee.







4 BULLETIN NO. 619 [July,

The assembly, integration, and expansion of managerial principles,
however, was not enough if their usefulness to farmers, teachers, ex-
tension workers, and researchers was to be clearly ascertained. The
concepts had to be compared with reality as a basis for sorting the
relevant from the irrelevant-the potentially useful from the less use-
ful. This was done by studying the case histories of selected farmers
and by making surveys of the managerial activities of thirty-one
farmers in Montgomery County, Kentucky.







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


THE DEVELOPMENT
OF MANAGERIAL CONCEPTS

This section contains a history of the development of managerial
concepts, and statements of those managerial concepts and principles
now appearing to be useful to agriculturalists.
Present-day farm management concepts stem from two lines of
thinking. One of these lines follows the general economists-Mar-
shall, Mill, Smith, and others-back into antiquity. The other line is
based upon the work mainly of farm management workers of the land
grant colleges with an occasional use of concepts from the general
economists or reference to some early Greek or Roman writer men-
tioning the problems of farming and land ownership. The most strik-
ing characteristic of both lines of thought is their bareness, until re-
cently, so far as managerial concepts and principles are concerned.

MANAGERIAL CONCEPTS OF GENERAL ECONOMISTS
The early general economists rarely considered managerial con-
cepts as such. Their considerations of management tended to de-
velop out of attempts to explain the existence of profits. From time
to time writers would refer to profits as payment for risk bearing,
supervision, and administration. Thus, Adam Smith recognized risk
bearing when he wrote that "the lowest ordinary rate of profit must
always be something more than what is sufficient to compensate the
occasional losses to which every employment of stock is exposed. It
is this surplus only which is . clear profit."' Smith recognized
that profits as defined included wages for supervision and, in many
instances, skill.
John S. Mill noted that profit included payment for risk bearing
and for skill in "the control of operations." He wrote, "To exercise
this control with efficiency, if the concern is large and complicated,
requires great assiduity, and often, no ordinary skill. This assiduity
and skill must be remunerated."2 But this is about as far as he went-
his writings are not specific about the nature of this skill, what it
does, how it earns or produces anything of value, how it can be
increased, and so on. Yet this skill appears to be the very core of what

1 Adam Smith, The Wealth of Nations, Random House, Inc., New York, 1937,
p. 96.
SJohn S. Mill, Principles of Political Economy, Bk. 2, Chap. 15, Sect. 1, as
reported by Edmund Whittaker, A History of Economic Ideas, Longmans, Green
and Co., New York, 1940, p. 406.


1954]







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


THE DEVELOPMENT
OF MANAGERIAL CONCEPTS

This section contains a history of the development of managerial
concepts, and statements of those managerial concepts and principles
now appearing to be useful to agriculturalists.
Present-day farm management concepts stem from two lines of
thinking. One of these lines follows the general economists-Mar-
shall, Mill, Smith, and others-back into antiquity. The other line is
based upon the work mainly of farm management workers of the land
grant colleges with an occasional use of concepts from the general
economists or reference to some early Greek or Roman writer men-
tioning the problems of farming and land ownership. The most strik-
ing characteristic of both lines of thought is their bareness, until re-
cently, so far as managerial concepts and principles are concerned.

MANAGERIAL CONCEPTS OF GENERAL ECONOMISTS
The early general economists rarely considered managerial con-
cepts as such. Their considerations of management tended to de-
velop out of attempts to explain the existence of profits. From time
to time writers would refer to profits as payment for risk bearing,
supervision, and administration. Thus, Adam Smith recognized risk
bearing when he wrote that "the lowest ordinary rate of profit must
always be something more than what is sufficient to compensate the
occasional losses to which every employment of stock is exposed. It
is this surplus only which is . clear profit."' Smith recognized
that profits as defined included wages for supervision and, in many
instances, skill.
John S. Mill noted that profit included payment for risk bearing
and for skill in "the control of operations." He wrote, "To exercise
this control with efficiency, if the concern is large and complicated,
requires great assiduity, and often, no ordinary skill. This assiduity
and skill must be remunerated."2 But this is about as far as he went-
his writings are not specific about the nature of this skill, what it
does, how it earns or produces anything of value, how it can be
increased, and so on. Yet this skill appears to be the very core of what

1 Adam Smith, The Wealth of Nations, Random House, Inc., New York, 1937,
p. 96.
SJohn S. Mill, Principles of Political Economy, Bk. 2, Chap. 15, Sect. 1, as
reported by Edmund Whittaker, A History of Economic Ideas, Longmans, Green
and Co., New York, 1940, p. 406.


1954]







BULLETIN NO. 619


should be taught, developed, and learned about when we teach or
do research on farm management. And, this skill must be the very
thing sought after by a farmer striving to become a good manager.
Another early economist, J. B. Say, came somewhat nearer to serv-
ing the needs of modern agriculturalists. He conceived of a master-
agent having the reputation of intelligence, prudence, probity and reg-
ularity, and he wrote that "this kind of labor requires a combination
of moral qualities ... .judgment, perseverance, and a knowledge
of the world, as well as of business." The master-agent "is called upon
to estimate, with tolerable accuracy, the importance of a specific
product, the probable amount of the demand, and the means (meth-
od) of production." Likewise the master-agent "profits by the knowl-
edge and by the ignorance of other people and by every accidental
advantage of production."1 Say did better than Mill and Smith but
still failed to provide a systematic presentation of managerial con-
cepts and principles for use in learning, teaching, and studying man-
agement.
As subsequent economists refined economic theory, they became
less and less concerned with management. Refinement was easier
when the changes and fluctuations of the real world were assumed
away. It was easier to envision high profit combinations of inputs,
cost relationships, demand curves, supply curves, and such, when
bothersome changes and fluctuations were assumed away and all per-
sons in the economy were assumed to have perfect knowledge of
existing conditions and changes. Under such assumed conditions,
there would be little need for management-nor would profits persist
as the perfectly informed members of the economy would eliminate
one another's profits. Among these economists was Alfred Marshall
who, while not having a specific theory of management, hit upon
many relevant points in his discussion of profits in business ability.
For instance, he wrote ". business power is highly non-specialized,
because in the large majority of trades, technical knowledge and skill
become every day less important relatively to the broad and non-
specialized faculties of judgment, promptness, resource, carefulness
and steadfastness of purpose."2 Other pertinent points made by Mar-
shall included the idea that interest rates often partially cover the
earnings of management and payment for risk bearing, that risk is
related to managerial earnings and managerial earnings to rare nat-


1J. B. Say, A Treatise on Political Economy, Bk. 2, Ch. 7, as reported by Ed-
mund Whittaker, A History of Economic Ideas. Longmans, Green and Co., Newv
York, 1940, pp. 616-17.
2Alfred Marshall, Principles of Economics, Macmillan and Co., Ltd, 1936,
p. 606.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


ural abilities, and that supply and demand schedules exist for man-
agerial services.1

Knight Isolated the Relationships Among Change,
Imperfect Knowledge, and Management
Knight,2 writing later, argued that the existence of change ac-
counts for imperfect knowledge and that, in turn, the existence of
imperfect knowledge explains the need for management. Thus, a
theory giving management something productive to do was evolved.
Knight then turned to a consideration of choice making and in so
doing began to consider the problems of management more syste-
matically. The first step in integrating management concepts into the
then existent economic concepts was to examine the theory of knowl-
edge. If change causes imperfect knowledge and if it is management's
job to handle problems created by imperfect knowledge, then the
processes of learning and deciding are fundamental tasks of manage-
ment.

The Theory of Knowledge and Management
In connection with the learning process, Knight noted that con-
scious behavior involves (1) perception of a situation or problem and
(2) inference or prediction of future outcomes. The envisioning of
problems involves concepts of what "ought to be"-i.e., a problem
does not exist until reality appears to differ from what it is believed
it should be. In problem solving, we estimate what the future will
be if we do not try to solve the problem relative to what it will be
if we do. The processes of perception and prediction are subject to
many errors, i.e., we may incorrectly see the present, incorrectly pre-
dict the future, and/or incorrectly estimate our ability to change
what will happen. What ability exists to predict outcomes depends
on the existence of constant modes of behavior in the physical and
social worlds. However, the number of items and modes of behavior
in the real world are too numerous and complicated for limited, finite,
human minds; hence, the learning process involves classification-the
process of grouping numbers of objects and relationships too large
for our limited minds to handle individually into a number of groups
small enough to be handled.
Knight, of course, recognized that both deduction (determination
of the detailed implications of general propositions known or assumed
true) and induction (the drawing of conclusions about a wide group

1 Ibid., pp. 588, 590, 612-3, 618-9, 623.
2 Frank Knight, Risk, Uncertainty and Profit, London School of Economics
and Political Science, London, 1987, Reprint No. 16.


1954]







BULLETIN No. 619


of objects or relationships from observations on a portion thereof)
play important roles in the reasoning processes.
Thus, to summarize, the processes of thinking and reasoning in-
volve perception and prediction or inference. Perception involves
envisioning problems as well as making observations. Hence, con-
cepts of what is important-value systems-are involved; problems do
not exist until reality appears to differ from what it is believed it
"ought to be." Classification becomes a means of reducing the ex-
ceedingly complex world of things and relationships into something
simple enough for limited human minds to grasp or perceive. Classi-
fication is also helpful in envisioning problems. Examples of classi-
fications and perceptual aids are found in budgeting, different sys-
tems of economic thought, and such composite terms as capital, live-
stock, machinery, labor, and real estate. Thus, budgeting, economic
theory and principles, and farm business analysis procedures all be-
come analytical tools useful to managers in perceiving and analyzing
the situations in which they find themselves. These various mental
tools involve both deductive and inductive reasoning techniques.
The inductive reasoning processes are sometimes closely approxi-
mated by the formal processes of statistics and at other times are
more complex than anything yet formalized by statistical theorists.

Three of Management's Tasks
From the above it is obvious that managers must:
(1) make observations;
(2) analyze such observations;
(3) make decisions.
What is observed obviously depends on the concepts guiding one's
perception. Thus, budgeting procedures, economic principles, and
such, serve to guide managers in performing the above three tasks.
Later, two more tasks will be added to these three to bring the total
to five.

Different Degrees of Knowledge Held by Managers
After considering the processes of learning employed by managers,
Knight turned to a consideration of the different degrees of knowledge
held by managers. He distinguished three degrees of knowledge:
perfect knowledge or certainty; risk; and uncertainty. The perfect
knowledge or certainty situation, he pointed out, was the situation
commonly assumed by theorists, in which managers have no risk-
bearing and learning tasks to perform. Knight's risk situation, in which


[July,







BULLETIN No. 619


of objects or relationships from observations on a portion thereof)
play important roles in the reasoning processes.
Thus, to summarize, the processes of thinking and reasoning in-
volve perception and prediction or inference. Perception involves
envisioning problems as well as making observations. Hence, con-
cepts of what is important-value systems-are involved; problems do
not exist until reality appears to differ from what it is believed it
"ought to be." Classification becomes a means of reducing the ex-
ceedingly complex world of things and relationships into something
simple enough for limited human minds to grasp or perceive. Classi-
fication is also helpful in envisioning problems. Examples of classi-
fications and perceptual aids are found in budgeting, different sys-
tems of economic thought, and such composite terms as capital, live-
stock, machinery, labor, and real estate. Thus, budgeting, economic
theory and principles, and farm business analysis procedures all be-
come analytical tools useful to managers in perceiving and analyzing
the situations in which they find themselves. These various mental
tools involve both deductive and inductive reasoning techniques.
The inductive reasoning processes are sometimes closely approxi-
mated by the formal processes of statistics and at other times are
more complex than anything yet formalized by statistical theorists.

Three of Management's Tasks
From the above it is obvious that managers must:
(1) make observations;
(2) analyze such observations;
(3) make decisions.
What is observed obviously depends on the concepts guiding one's
perception. Thus, budgeting procedures, economic principles, and
such, serve to guide managers in performing the above three tasks.
Later, two more tasks will be added to these three to bring the total
to five.

Different Degrees of Knowledge Held by Managers
After considering the processes of learning employed by managers,
Knight turned to a consideration of the different degrees of knowledge
held by managers. He distinguished three degrees of knowledge:
perfect knowledge or certainty; risk; and uncertainty. The perfect
knowledge or certainty situation, he pointed out, was the situation
commonly assumed by theorists, in which managers have no risk-
bearing and learning tasks to perform. Knight's risk situation, in which


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


the probabilities of making errors of perception and inference are
known, permits the risk-bearing function to be carried out; however,
as the probabilities of errors are known, the costs of bearing the risks
can be computed and incorporated in insurance schemes, thereby
eliminating this type of risk bearing as a necessary managerial task.
This, then, left the uncertainty situation as the only situation in which
management was needed to handle problems arising from imperfect
knowledge.

Distinction Vague Between Knight's Risk and
Uncertainty Concepts
Knight's work was followed by that of Hart1 and Hicks2 both of
whom built on his work. Hart pointed out that Knight's distinction
between risk and uncertainty was not clear-cut. He argued that when
a manager feels that the passage of time permits him to learn more
about a future event, he may act as if the situation were an uncer-
tainty situation even though probabilities of errors were known and
risk-bearing costs therefore computable.
Knight's thinking was incomplete in two respects. First, he dis-
tinguished between risk and uncertainty on the unrealistic and objec-
tive basis of whether or not it was possible to compute probabilities
of errors rather than on the subjective, but more realistic basis, of
whether or not the amount of information on hand was considered
adequate for action. Second, he did not break his uncertainty cate-
gory down into sub-categories distinguishing between situations in
which managers try to learn, do not try to learn, and are prevented
from learning.

Knight's Uncertainty Concept Covered Three Sub-Concepts
In the late thirties and forties a statistician named Abram Wald3
re-examined the formal theory of statistical decision-making. He
noted that statisticians commonly set up a required standard of ac-
curacy in making a decision, then compute the number of observa-
tions required to meet this standard, secure the observations, and
make the decision. It appeared advantageous to Wald to devise a
system of statistical decision making whereby a standard of accuracy

1A. G. Hart, "Anticipations, Uncertainty, and Dynamic Planning," Studies
in Business Administration, Vol. XI, No. 1, University of Chicago Press, Chicago,
1940; and "Risk, Uncertainty and the Unprofitability of Compounding Probabili-
ties," Readings in the Theory of Income Distribution, The Blakiston Co., Phila-
delphia, 1946.
2 J. R. Hicks, Value and Capital, Oxford University Press, Oxford, 1938.
SAbram Wald, Statistical Decision Functions. John Wiley and Sons, New
York, 1950. This book contains much of Wald's earlier work in a more generalized
form.


19541







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


the probabilities of making errors of perception and inference are
known, permits the risk-bearing function to be carried out; however,
as the probabilities of errors are known, the costs of bearing the risks
can be computed and incorporated in insurance schemes, thereby
eliminating this type of risk bearing as a necessary managerial task.
This, then, left the uncertainty situation as the only situation in which
management was needed to handle problems arising from imperfect
knowledge.

Distinction Vague Between Knight's Risk and
Uncertainty Concepts
Knight's work was followed by that of Hart1 and Hicks2 both of
whom built on his work. Hart pointed out that Knight's distinction
between risk and uncertainty was not clear-cut. He argued that when
a manager feels that the passage of time permits him to learn more
about a future event, he may act as if the situation were an uncer-
tainty situation even though probabilities of errors were known and
risk-bearing costs therefore computable.
Knight's thinking was incomplete in two respects. First, he dis-
tinguished between risk and uncertainty on the unrealistic and objec-
tive basis of whether or not it was possible to compute probabilities
of errors rather than on the subjective, but more realistic basis, of
whether or not the amount of information on hand was considered
adequate for action. Second, he did not break his uncertainty cate-
gory down into sub-categories distinguishing between situations in
which managers try to learn, do not try to learn, and are prevented
from learning.

Knight's Uncertainty Concept Covered Three Sub-Concepts
In the late thirties and forties a statistician named Abram Wald3
re-examined the formal theory of statistical decision-making. He
noted that statisticians commonly set up a required standard of ac-
curacy in making a decision, then compute the number of observa-
tions required to meet this standard, secure the observations, and
make the decision. It appeared advantageous to Wald to devise a
system of statistical decision making whereby a standard of accuracy

1A. G. Hart, "Anticipations, Uncertainty, and Dynamic Planning," Studies
in Business Administration, Vol. XI, No. 1, University of Chicago Press, Chicago,
1940; and "Risk, Uncertainty and the Unprofitability of Compounding Probabili-
ties," Readings in the Theory of Income Distribution, The Blakiston Co., Phila-
delphia, 1946.
2 J. R. Hicks, Value and Capital, Oxford University Press, Oxford, 1938.
SAbram Wald, Statistical Decision Functions. John Wiley and Sons, New
York, 1950. This book contains much of Wald's earlier work in a more generalized
form.


19541







BULLETIN No. 619


is set first and information then is gathered and analyzed simulta-
neously. After each "batch" of information is analyzed, one of three
decisions is made: that enough information is on hand to decide to
act, that enough information is on hand to decide not to act, or that
not enough information is on hand to make either of the first two
decisions, in which case the learning process is continued. This de-
velopment by a statistician provided the basis for dividing imperfect
knowledge situations into subjective risk situations, on one hand, and
into three subjective uncertainty situations, on the other hand. The
distinction between subjective risk and subjective uncertainty depends
on the subjective standards of accuracy elected by the analyst (man-
ager or statistician, as the case may be). The three subjective uncer-
tainty situations are (1) the situation in which learning is continued;
(2) the situation in which learning is discontinued because its cost
exceeds its value or no action is taken because it is decided that the
probabilities of error are too great; and (3) the situation in which a
manager is forced to act by outside circumstances even though more
learning would be worthwhile if time permitted.

Statisticians Distinguish Two Kinds of Errors in
Making Choices Between Two Alternatives
Neyman and Pearson1, two statistical theorists, pointed out that
two possibilities for error exist in choosing between alternatives. If
one alternative is best but is not accepted, a type-I error is made.
If, on the other hand, this alternative is worse but is accepted, a sec-
ond type of error is made.
These two types of errors are commonly encountered in managing
a business. Consider the alternatives of mortgaging or not mortgaging
120 acres of land in order to buy 200 more. If one fails to mortgage
when he should have, he loses the profits and privileges associated
with being a larger land owner. If, on the other hand, one mortgages
when he should not have, he loses the original 120 as well as the 200
acres and the privileges of being a small land owner. Two distinctly
different types of errors are involved as can be seen from the different
consequences.
Modern statisticians, devising tests for use by business executives
realize that the risks of making these two errors are to be specified
by the person bearing the risk. They let the businessman tell them
how many chances he is willing to take out of 100 chances of making
each of the two types of error. After this is done, the modern statis-
11. Neyman and E. Pearson's work on this subject is summarized by P. Hoel,
Introduction to Mathematical Statistics, John Wiley and Sons, New York, 1947,
pp. 202-6, and S. S. Wilkes, Mathematical Statistics, Princeton University Press,
Princeton, N. J., 1947, pp. 152-6.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


tician attempts to devise a test meeting the businessman's specifica-
tions. This -procedure recognizes that the desire for accuracy is a
personal subjective thing determined by the businessman's desire for
accuracy and his willingness to secure accuracy by paying for statis-
tical observations, computations, and analysis.

Five Different Degrees of Knowledge Are Held by Managers
In partial summary, then, five different knowledge situations in
which managers may find themselves are tentatively conceived. As
different courses and principles of action are appropriate in each case,
it is important to distinguish among these five. The five situations are:
S(1) Perfect knowledge, or at least the conviction that knowledge
is nearly enough perfect to act as if it were perfect.
(2) Risk
'(8) Learning
(4) Inaction
(4) Inaction Imperfect knowledge
(5) Forced action
The risk situation is defined as a situation in which a manager feels
that his present knowledge is good enough for him to take either
positive or negative action and that additional knowledge concerning
this problem is not worth the cost of acquiring or learning it. In the
learning situation the action under consideration is postponed until
more is learned because it is felt that what can be learned is worth
more than the cost of learning it. An inactive situation is one in which
what is known is insufficient for positive action and in which, it is
felt, the cost of learning exceeds the value of what would be learned;
in this case the manager neither acts nor tries to learn. In the forced
action situation some outside influence forces action even though the
existing state of knowledge is regarded as inadequate and, if time
were available, more knowledge could be acquired at a cost less than
its value.1

Flexibility is Important when Learning is Possible
If what can be learned has value, it may pay to arrange business
affairs (even at a cost) so that they can be adjusted or readjusted to
profit from what is learned. This characteristic of a business organi-
zation is referred to as flexibility. Whenever what can be learned
may have value, flexibility has value. As flexibility is often costly in
terms of delay and reduced productive efficiency, the value of flexi-

SIt can be argued that this is a special case of the risk situation in which an
outside force abruptly reduces the value of what can be learned or abruptly in-
creases the cost of learning.


1954]







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


tician attempts to devise a test meeting the businessman's specifica-
tions. This -procedure recognizes that the desire for accuracy is a
personal subjective thing determined by the businessman's desire for
accuracy and his willingness to secure accuracy by paying for statis-
tical observations, computations, and analysis.

Five Different Degrees of Knowledge Are Held by Managers
In partial summary, then, five different knowledge situations in
which managers may find themselves are tentatively conceived. As
different courses and principles of action are appropriate in each case,
it is important to distinguish among these five. The five situations are:
S(1) Perfect knowledge, or at least the conviction that knowledge
is nearly enough perfect to act as if it were perfect.
(2) Risk
'(8) Learning
(4) Inaction
(4) Inaction Imperfect knowledge
(5) Forced action
The risk situation is defined as a situation in which a manager feels
that his present knowledge is good enough for him to take either
positive or negative action and that additional knowledge concerning
this problem is not worth the cost of acquiring or learning it. In the
learning situation the action under consideration is postponed until
more is learned because it is felt that what can be learned is worth
more than the cost of learning it. An inactive situation is one in which
what is known is insufficient for positive action and in which, it is
felt, the cost of learning exceeds the value of what would be learned;
in this case the manager neither acts nor tries to learn. In the forced
action situation some outside influence forces action even though the
existing state of knowledge is regarded as inadequate and, if time
were available, more knowledge could be acquired at a cost less than
its value.1

Flexibility is Important when Learning is Possible
If what can be learned has value, it may pay to arrange business
affairs (even at a cost) so that they can be adjusted or readjusted to
profit from what is learned. This characteristic of a business organi-
zation is referred to as flexibility. Whenever what can be learned
may have value, flexibility has value. As flexibility is often costly in
terms of delay and reduced productive efficiency, the value of flexi-

SIt can be argued that this is a special case of the risk situation in which an
outside force abruptly reduces the value of what can be learned or abruptly in-
creases the cost of learning.


1954]







BULLETIN NO. 619


ability must be matched against its cost in determining the optimum
organization of a business. The value of flexibility, to an individual
manager, depending as it obviously does on his ability to learn, is a
personal, subjective futuristic thing.

Five Tasks of Management
It was noted above that the distinction between risk and uncer-
tainty is subjectively determined, i.e., a manager sets up a standard
of accuracy suitable to him in his situation. When he has acquired
this degree of knowledge or accuracy, he acts on a risk basis-until
he has it, he does not act. Action, therefore, is a managerial task. The
fact that a manager bears responsibility for actions taken affects the
standard of accuracy which he imposes upon himself. Thus, the
earlier statement that three tasks of management are observation,
analysis, and decision making is incomplete; action and the acceptance
of responsibility must be added. The FIVE TASKS OF MANAGE-
MENT, then become:

(1) Observation
(2) Analysis
(3) Decision
(4) Action
(5) Acceptance of responsibility.

The Relationship Between Profits and Management
In accounting systems, profits have ordinarily been computed as
gross income less variable and fixed costs, the fixed costs being set
by various more or less arbitrary assumptions. Only rarely are charges
made for management, and as profits ordinarily go to management,
residual profits so computed are regarded as payment to management.
Three of the above five tasks of management involve learning.
Hence, it follows that part of the pay to management is payment for
learning more about existing conditions and changes therein. De-
cision making, however, is not complete until action is taken. And,
in turn, the nature of decisions made and the actions taken depend
upon responsibilities borne. Thus, it also follows that the pay of man-
agement is partially determined by responsibility borne.
The demand for performance of the management tasks partially
depends upon the uncertainty (ignorance and change) present and
the seriousness of the problems created by that uncertainty. The ef-
fective supply of managers depends upon the distribution of learning
capacity (either inherent or trained), confidence in judgment, wil-


[July,







BULLETIN NO. 619


ability must be matched against its cost in determining the optimum
organization of a business. The value of flexibility, to an individual
manager, depending as it obviously does on his ability to learn, is a
personal, subjective futuristic thing.

Five Tasks of Management
It was noted above that the distinction between risk and uncer-
tainty is subjectively determined, i.e., a manager sets up a standard
of accuracy suitable to him in his situation. When he has acquired
this degree of knowledge or accuracy, he acts on a risk basis-until
he has it, he does not act. Action, therefore, is a managerial task. The
fact that a manager bears responsibility for actions taken affects the
standard of accuracy which he imposes upon himself. Thus, the
earlier statement that three tasks of management are observation,
analysis, and decision making is incomplete; action and the acceptance
of responsibility must be added. The FIVE TASKS OF MANAGE-
MENT, then become:

(1) Observation
(2) Analysis
(3) Decision
(4) Action
(5) Acceptance of responsibility.

The Relationship Between Profits and Management
In accounting systems, profits have ordinarily been computed as
gross income less variable and fixed costs, the fixed costs being set
by various more or less arbitrary assumptions. Only rarely are charges
made for management, and as profits ordinarily go to management,
residual profits so computed are regarded as payment to management.
Three of the above five tasks of management involve learning.
Hence, it follows that part of the pay to management is payment for
learning more about existing conditions and changes therein. De-
cision making, however, is not complete until action is taken. And,
in turn, the nature of decisions made and the actions taken depend
upon responsibilities borne. Thus, it also follows that the pay of man-
agement is partially determined by responsibility borne.
The demand for performance of the management tasks partially
depends upon the uncertainty (ignorance and change) present and
the seriousness of the problems created by that uncertainty. The ef-
fective supply of managers depends upon the distribution of learning
capacity (either inherent or trained), confidence in judgment, wil-


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


lingness to "back it up," and the wherewithal to accept responsibility.
The amount which managers earn depends in some still incompletely
specified way on the supply of and demand for managerial service.

Study of Managers' Adjustments to Imperfect Knowledge
Indicates the Importance of Subjective
Considerations in Management
The distinction between risk and uncertainty makes it evident that
subjective considerations are important in understanding manage-
ment. But this is not the end of the matter. The subjective desire
to avoid losses accounts for the setting up of safety margins, dis-
counts, insurance schemes, on one hand, and the desire to receive
gains accounts for long chance taking, motivation, and such, on the
other. In the learning processes employed by managers, many of the
costs are personal and subjective. Thinking is hard work, the value
of flexibility is a personal subjective thing, and the value of what it
is expected will be learned is, of course, a personal subjective thing.
Still further, what can be learned is partly a matter of personal ca-
pacity.

Distinction Between Managing and Laboring
Is Difficult to Grasp
Laboring is usually thought of as the exercising of physical pro-
ficiencies and, to a greater or lesser degree, mental skills. The dis-
tinction between laboring and the employment of skills, on one hand,
and management on the other, is easy to draw in the extreme cases
and difficult at the center.
The parallel drawn between learning and management in this
bulletin provides a basis for distinguishing between managing and
laboring. When a hired man who does not know how to handle a
grain-combine decides to acquire such ability, it is necessary for him
to perform the five managerial functions discussed in this bulletin.
Thus, in managing his own affairs (note that they are not the affairs
of his employer), a hired hand is performing managerial actions.
Once, however, this ability is acquired, he becomes a more skilled
laborer. The return for his managerial activity is the skill which he
acquires-he acquires a worthwhile asset (a new skill) as a result of
his managerial action. When he sells the use of this asset to the farmer
employing him, he is not selling managerial services-he is selling
skilled labor. His wages are a return on this asset-not returns to his
management. The skill itself was the return for his managerial actions.
A carpenter who knows how to construct complicated roof struc-
tures is not ordinarily classed as a manager while doing such work.


1954]







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


lingness to "back it up," and the wherewithal to accept responsibility.
The amount which managers earn depends in some still incompletely
specified way on the supply of and demand for managerial service.

Study of Managers' Adjustments to Imperfect Knowledge
Indicates the Importance of Subjective
Considerations in Management
The distinction between risk and uncertainty makes it evident that
subjective considerations are important in understanding manage-
ment. But this is not the end of the matter. The subjective desire
to avoid losses accounts for the setting up of safety margins, dis-
counts, insurance schemes, on one hand, and the desire to receive
gains accounts for long chance taking, motivation, and such, on the
other. In the learning processes employed by managers, many of the
costs are personal and subjective. Thinking is hard work, the value
of flexibility is a personal subjective thing, and the value of what it
is expected will be learned is, of course, a personal subjective thing.
Still further, what can be learned is partly a matter of personal ca-
pacity.

Distinction Between Managing and Laboring
Is Difficult to Grasp
Laboring is usually thought of as the exercising of physical pro-
ficiencies and, to a greater or lesser degree, mental skills. The dis-
tinction between laboring and the employment of skills, on one hand,
and management on the other, is easy to draw in the extreme cases
and difficult at the center.
The parallel drawn between learning and management in this
bulletin provides a basis for distinguishing between managing and
laboring. When a hired man who does not know how to handle a
grain-combine decides to acquire such ability, it is necessary for him
to perform the five managerial functions discussed in this bulletin.
Thus, in managing his own affairs (note that they are not the affairs
of his employer), a hired hand is performing managerial actions.
Once, however, this ability is acquired, he becomes a more skilled
laborer. The return for his managerial activity is the skill which he
acquires-he acquires a worthwhile asset (a new skill) as a result of
his managerial action. When he sells the use of this asset to the farmer
employing him, he is not selling managerial services-he is selling
skilled labor. His wages are a return on this asset-not returns to his
management. The skill itself was the return for his managerial actions.
A carpenter who knows how to construct complicated roof struc-
tures is not ordinarily classed as a manager while doing such work.


1954]







BULLETIN NO. 619


Similarly, a man handling a herd of high quality dairy cows for an-
other is not a manager; instead he is a herdsman-a skilled laborer.
On the other hand, a beef producer, with his own herd, observing
the markets, accepting responsibility for his decisions and making
decisions on the basis of what he can learn is classified as a manager-
he is operating in a situation of imperfect knowledge and change
and spends his time handling his business through the process of
performing the five managerial functions outlined herein. If a farmer
does not know how to build a gate and spends time learning how to
build various gates before taking action and accepting responsibility
for the results, he too is engaged in managerial activity. Once, how-
ever, ability to build the gate is acquired, the farmer building the
gate does not differ from a carpenter who could have been hired as
a skilled laborer to perform the same task.
When, as a result of performing the managerial functions, assets
are acquired which have repetitive value, such assets are ordinarily
referred to as skills.
The functional definition of management developed in this bulletin
implies that management is needed only in situations involving change
and ignorance. It is because knowledge is imperfect or changes im-
perfectly foreseen that it is necessary to perform the five managerial
functions. A large percentage of the problems created by change
and ignorance and encountered in running a business are not repe-
titive in nature. Such problems occur but once and the managerial
tasks must be repeated for each problem. Thus, the manager handling
such problems repeats the managerial tasks over and over again with-
out the acquisition of personal capacities or skills having repetitive
value and it is said that he is managing the affairs of his business.

In Theory, the Distinction Between the Business and
Home is Becoming Indistinct
Earlier theorists distinguished between firms and households as
follows. Firms, they conceived, were concerned with maximizing dol-
lar incomes; households, on the other hand, were concerned with
maximizing personal satisfactions derivable from spending dollars.
The realization that many personal satisfactions are involved in man-
agement makes the above distinction vague and indefinite. In fact,
the lines of demarcation between firms and household become so in-
distinct and the lines of interrelationships so complex that we are
forced conceptually to combine the two and treat them jointly.
It will be seen later (p. 48) that in practice, the Land-Grant sys-
tem has been unable to maintain the distinction between the farm







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


business and farm home and has, in many instances, set up extension
programs designed to eliminate the distinction.

Managerial Principles and Generalizations
Having to Do With Learning
Certain managerial principles and generalizations pertaining to
the learning processes can be derived from statistical theory, other
bodies of logic, and the application of the economizing techniques to
the learning processes. Certain of these principles follow.
1. It is unnecessary to learn unless a problem exists. Problems
exist because situations differ from what it is believed or conceived
they should be. Thus, beliefs and concepts help managers perceive
what should be observed and analyzed' in solving the problems which
they face.
2. Organized systems of thinking (such as those incorporated in
budgeting procedures, systems of economic principles, the land-use
approach to farm organization and schemes of logic) decrease the
cost of making observations and analyzing by:
(a) helping managers perceive or envision their problems,
(b) concentrating attention on the most important facts in solving
a given problem, thereby eliminating expenditures of time
and effort on useless facts, and
(c) insuring that the necessary types of facts will be gathered.
3. Organized systems of thinking, such as those mentioned in
principle 2 above, speed up analysis of observations by contributing
an understanding of the casual and structural relationships involved.
4. When facts and data become available slowly with the passage
of time, attention to the sequence in which the facts and data become
available is desirable because:
(a) that sequence often helps explain observations, and
(b) economic information tends to lag and contains trends which
are useful for purposes of prediction.
5. When valuable facts and data are becoming available slowly
with the passage of time, it often pays to spend money, time, and effort
in postponing decisions until more such facts and data become avail-
able. The ability to postpone decisions is referred to as "flexibility."
6. While what is learned generally has value, it pays to substitute
habit, custom and tradition for learning whenever the importance of
the expected resultant errors does not exceed the cost of learning.
1Ignorance is often, but not always, believed to be a situation worth remedy-
ing.


1954]







BULLETIN NO. 619


7. More should not be spent for additional information than such
additional information is estimated to be worth, and equal expendi-
tures (in time, money and effort) should return knowledge of equal
value in solving alternative problems.
8. The accuracy of estimates, choices between alternatives and
decisions, tends eventually to increase at a decreasing rate as the
number of observations used increases.1
9. The per-unit cost of additional observations (in time and effort)
often increases as the number of observations used increases.2
10. The value of accuracy tends to increase at a decreasing rate
as additional information is acquired.3
11. As the cost of accuracy tends to increase at an increasing rate
as more is acquired, and its value tends to increase at a decreasing
rate, it is generally possible to equate the cost of additional learning
with its value in accordance with principle 7 above.
12. Learning is a cumulative process; hence, in appraising the
value of what is learned, allowance must be made for the value of the
"experience gained" as well as for the immediate value of What is
learned.

Economic Theory Contributes Important Insurance and
Chance Taking Concepts
Insurance could be interpreted to reflect one's desire for security.
Chance taking could be interpreted to reflect a tendency to gamble.
Such interpretations, however, make "security seeking" and "gambling"
separate objectives which a person tries to attain. While these two
objectives are doubtless present among people, some good managers
both insure and take chances. Such managers are not necessarily as
inconsistent as they appear at first thought. This becomes apparent
when insurance is regarded as the avoidance of loss and chance taking
is regarded as the seeking of gain. When a person buys an insurance
policy, the "odds" are sufficiently against him to cover administrative
costs and profits for the insurance company. Friedman and Savage4
point out that a person need not be a security seeker in order to buy
insurance at unfavorable odds. All that need be true is that the per-
sonal "importance of losses" increase at an increasing rate as losses
increase.

1This application of the law of diminishing marginal returns to statistical
analysis is borne out repeatedly in statistical computations, though its statistical
generality has not been investigated in connection with this study.
2 This follows as a consequence of principle 8.
SThis, of course, is an application of the law of diminishing marginal utility.
SM. Friedman and L. T. Savage, "The Utility Analysis of Choices Involving
Risk," Jour. of Pol. Econ., Vol. LVI, 1948, pp. 279.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


Similarly, many long chances are taken at unfavorable odds, i.e.,
when land is bought on a "shoe string," brokerage fees and commis-
sions often have to be paid. Friedman and Savage also point out that
in order to do this a person need not be a gambler-i.e., he need not
gamble for the sake of gambling. All that need be true is that the
importance of gains increase at an increasing rate.
Friedman and Savage argue that the importance of gains in in-
come does not continue indefinitely to increase at an increasing rate.
In support of this conclusion, they cite the common practice of split-
ting prizes in large contests and lotteries into sub-prizes. This practice
would not be profitable if participants continued indefinitely to value
increases in prizes at increasing rates. If participants did value in-
creases in prizes at an increasing rate, they would participate at less
and less favorable odds (to the participant) as the prizes increase
in size. This, in turn, would mean that the larger the prizes, the more
profitable it would be to operate the contest or lottery. This condi-
tion would tend to eliminate multiple-prize contests and lotteries
instead of increasing them.
Some evidence exists for concluding that the tendency to value
potential increases in income at an increasing rate is associated with
the "level of aspiration"' of the person or family involved. These
"levels of aspiration" appear to be the next higher socio-economic
plane which the individual has a chance of attaining. Similarly, some
evidence exists to support the conclusion that the tendency to attach
increasing importance to losses in income is associated with the next
lower socio-economic plane which the individual might fall to as a
result of a loss. Further reflection indicates that the "newly rich" and
"newly poor" so often noted to be abnormal have probably not yet
readjusted themselves to new "levels of aspiration" and new "levels
of disdain." This subject is considered further on pages 26 to 36,
which report the results of interviewing case study farmers.

Strategy is Important in Managerial Theory
From time to time, many of the earlier economic theorists noted
the importance of strategic operations as a source of profits. In its
development, free-enterprise competitive theory moved away from
consideration of situations in which managers exploit strategic posi-
tions, engage in more or less fraudulent practices and employ force.
The theory, so developed, was very useful in understanding free,
competitive economics but was not realistic even for an industry as
competitive as agriculture. Farm managers in dealing with others

SG. Katona, Psychological Analysis of Economic Behavior, McGraw-Hill Book
Co., New York, 1951, p. 121.


1954]







BULLETIN NO. 619


continually employ force, exploit the strategic positions they happen
to be in and employ practices such as "covering up" more or less bor-
dering on deceit and fraud.
Von Neuman and Morgenstern, one a mathematician and the other
an economic theorist, noted the importance of strategic operations
in management and proceeded to develop a body of economic theory
built around the theory of games.' The theory of games was borrowed
from military strategists who, in turn, borrowed some of their ideas
from mathematicians and logicians concerned with the theory of gam-
bling. In the theory which von Neuman and Morgenstern developed,
free enterprise competitive theory becomes a special case in which
strategies are of little importance.
The strategies employed by managers probably fall into two broad
categories: (1) those dealing with impersonal situations in which
others do not respond to actions taken by a manager, and (2) those
personal situations in which other people employ counter-strategies.
For instance, it may be good strategy to carry feed, cash, and credit
reserves against the danger of dry weather. This strategy is unlikely
to affect the weather which will occur. On the other hand, the carry-
ing of a cash reserve for use in buying land when a neighbor's estate
is settled may stimulate other persons interested in the same estate
to carry a similar reserve as a counter strategy.
Strategy principles include insurance and long-chance-taking prin-
ciples (which are based in part on psychological principles) as well
as the principles useful in more personal situations. They are particu-
larly useful in selecting the situations under which actions will be
taken. Everyday observations indicate that these interrelated princi-
ples and courses of action are continually employed in business and
are likely, in fact, to be what the student of agriculture intuitively
desires to learn in an introductory psychology class. The popularity
of Dale Carnegie's book on How to Make Friends and Influence Peo-
ple further attests the importance of strategy principles in everyday
life.

Strategies, Principles, and Courses of Action
At this point, it is appropriate to summarize the managerial prin-
ciples having to do with how much chance to take, insurance, long-
chance, and other strategies. These principles are based on statistical
theory, psychological tendencies, and strategical theories.

SJ. von Neuman and Oskar Morgenstern, Theory of Games and Economic Be-
havior, Princeton University Press, Princeton, 1947; and John McDonald, Strategy
in Poker, Business and War, W. W. Norton and Company, Inc., New York, 1950.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


Principles of Use in Deciding How Much Chance to Take:
1. The seriousness of a given mistake in an estimate, choice, or
decision depends (among other things) upon the size of the mis-
take; that is, how far the estimate is wrong or how great the difference
between the alternatives. The accuracy of the estimate, choice, or
decision, on the other hand, depends both upon the probabilities
(number of chances per hundred) of making the given mistake (or
error) and upon its size.
2. A decrease in the size of a possible mistake without an in-
crease in the probabilities of making the mistake is an increase in
accuracy and vice versa. A decrease in the probabilities of making
the mistake without an increase in the size of mistake is an increase
in accuracy and vice versa.
3. Insistence on an unduly high degree of accuracy increases the
amount of facts and data required to make decisions, choices, and
estimates. Especially when the amount of data and facts available
depends upon the passage of time, insistence on an unduly high de-
gree of accuracy causes delay, unemployment of assets, and reduced
(on the average) but more certain incomes.
4. Undue tolerance for inaccuracy, on the other hand, tends to
decrease the amount of facts and data required to make decisions,
choices and estimates. When the amount of data and facts available
depends upon the passage of time, tolerance of inaccuracy eliminates
delay, keeps assets more fully (but not necessarily more efficiently)
employed, and results in less certain and in some cases lower average
incomes.
5. The value of accuracy and the seriousness of losses resulting
from mistakes are personal and depend upon a long list of items, in-
cluding: the psychological nature of the manager, his family obliga-
tions, his age, his debts, and his assets. The foregoing list is by no
means complete.
6. In choosing between two alternatives, two kinds of errors can
be made: (1) the first alternative can be accepted as correct when
in fact it is wrong, and (2) the first alternative can be rejected as
wrong (i.e., the second alternative is accepted) when in fact it (the
first) is right. As the consequences of these two types of errors are
often different, it is important to consider separately the two types of
mistakes in making changes between alternatives.
7. Decisions concerning proposed single actions also involve two
different errors often having very different consequences. For in-
stance, the result of vaccinating hogs for cholera when it is not neces-


1954]







BULLETIN No. 619


sary is loss of the vaccination expenses, whereas the result of not vac-
cinating when it is necessary is loss of the herd.
8. As incomes and capital positions increase, people can simul-
taneously sustain greater losses and spend more on attainment of se-
curity or accuracy.
9. As equity decreases or conversely as borrowing increases, the
danger from errors in predicting prices and yield responses increases.
This danger, of course, is one of having equity fall to or below zero.

Insurance Principles:1
1. It is worthwhile insuring against losses only when the personal
value or importance of losses increases at an increasing rate: i.e., if
the last dollar of a given loss "hurts" worse than the loss of a dollar
in insurance premiums. The "odds" of successful insurance schemes
are always sufficiently against the user to pay the costs of, and per-
haps protfis for, operating the insurance schemes. Users of insurance
exchange a larger (but less sure) average income for a lower (but
more certain) average income. It is worthwhile insuring only when
the lower more certain income is worth more (personally) than the
higher less certain income.
2. Informal insurance schemes can be set up by refusing to take
action except when prospective returns are high enough to pay the
costs of bearing the risks involved. A part of the cost of operating
such schemes is the foregone average income. Thus, as additional
income opportunities are foregone in setting up additional insurance
schemes, such additional costs must be matched against the value of
the additional insurance secured.
3. Informal insurance schemes can be set up by combining risks
as protection against failure. The costs of such insurance occur as a
result of participating in more activities than would be profitable in
the absence of risks. Such additional costs must be matched against
the value of the additional protection secured. Diversification beyond
that amount which is advantageous because different crop and live-
stock enterprises complement and supplement each other is an ex-
ample of this type of insurance scheme.
4. Pessimism, which is the same as overestimating the chances of
disaster, can incorrectly make it appear advantageous to insure even
when the disutility of losses does not increase at an increasing rate.

1 M. Friedman and L. J. Savage, Op. Cit.; K. E. Boulding, A Reconstruction
of Economics, John Wiley and Sons, 1950, New York, pp. 121-6.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


The Long Chance Principles:1
1. It cannot be worthwhile accepting, at unfavorable odds, (1) a
small chance of a large gain and (2) large chances of a small loss, in
exchange for a more certain income unless the personal value and im-
portance of gains increases at'an increasing rate.
2. Optimism, which is the same as over-estimating chances of suc-
cess, can make it incorrectly appear advantageous to take long chances
when the utility of gains does not increase at an increasing rate.

Some Other Strategy Principles:2
1. One principle which can be followed in risky situations is to
select among alternatives that course of action which minimizes the
maximum losses which can be incurred.
2. In dealing with personalities who can in turn react to strategy,
the following strategies often have value:
(a) A random, apparently nonlogical course of action often con-
fuses the strategy of the personality being handled.
(b' Covering up of actions often confuses the strategy of the per-
sonality being handled.
(c) Nonrevelation of intentions prevents the personality being
handled from taking counteraction.
(d) Uncovering the intentions of or logical patterns of action
taken by the personality being dealt with makes it easier to
handle him.
(e) The use of force (economic, political, social, etc.) covering
up, and misleading is necessary for self preservation and at-
tainment of objectives when competing with persons employ-
ing similar strategies.
(f) Reconstruction of a person's scheme of values, as is often done
in advertising, often makes it possible to handle him more
advantageously.

Some Psychological Patterns Concerning the
Value of Gains and Losses"
1. Persons "normally" attach increasing importance to additional
losses up to a limit and then decreasing importance to additional losses
beyond such levels; hence, persons ordinarily do not insure against
losses beyond some limit.
1M. Friedman and L. J. Savage, Op. Cit.; and K. E. Boulding, Op. Cit., pp.
118-21.
2McDonald, Op. Cit.; von Neuman and Morgenstern, Op. Cit.
8 M. Friedman and L. J. Savage, Op. Cit.


1954]







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


The Long Chance Principles:1
1. It cannot be worthwhile accepting, at unfavorable odds, (1) a
small chance of a large gain and (2) large chances of a small loss, in
exchange for a more certain income unless the personal value and im-
portance of gains increases at'an increasing rate.
2. Optimism, which is the same as over-estimating chances of suc-
cess, can make it incorrectly appear advantageous to take long chances
when the utility of gains does not increase at an increasing rate.

Some Other Strategy Principles:2
1. One principle which can be followed in risky situations is to
select among alternatives that course of action which minimizes the
maximum losses which can be incurred.
2. In dealing with personalities who can in turn react to strategy,
the following strategies often have value:
(a) A random, apparently nonlogical course of action often con-
fuses the strategy of the personality being handled.
(b' Covering up of actions often confuses the strategy of the per-
sonality being handled.
(c) Nonrevelation of intentions prevents the personality being
handled from taking counteraction.
(d) Uncovering the intentions of or logical patterns of action
taken by the personality being dealt with makes it easier to
handle him.
(e) The use of force (economic, political, social, etc.) covering
up, and misleading is necessary for self preservation and at-
tainment of objectives when competing with persons employ-
ing similar strategies.
(f) Reconstruction of a person's scheme of values, as is often done
in advertising, often makes it possible to handle him more
advantageously.

Some Psychological Patterns Concerning the
Value of Gains and Losses"
1. Persons "normally" attach increasing importance to additional
losses up to a limit and then decreasing importance to additional losses
beyond such levels; hence, persons ordinarily do not insure against
losses beyond some limit.
1M. Friedman and L. J. Savage, Op. Cit.; and K. E. Boulding, Op. Cit., pp.
118-21.
2McDonald, Op. Cit.; von Neuman and Morgenstern, Op. Cit.
8 M. Friedman and L. J. Savage, Op. Cit.


1954]







BULLETIN NO. 619


2. Persons "normally" attach increasing importance to additional
gains up to a limit and then decreasing importance to additional gains
beyond such limits; hence, persons ordinarily do not take long chances
for stakes beyond some limit.
3. The importance attached to possible gains and losses depend on
many factors such as the psychological nature of the manager, his
family obligations, the beliefs and values of his neighbors and mem-
bers of the community, his education, the amount of analytical ex-
perience he has had, his asset position, his debts, and his age.
4. Newly rich and newly poor persons are apt to be "abnormal"
with respect to the importance attached to losses and gains and, when
abnormal, run to either extreme, i.e., toward security seeking or risk
taking.
5. Abnormal people with respect to the importance of losses and
gains include the extreme long-chance taker and the extreme security
seeker. The extreme security seeker will pay abnormally large amounts
for security (perhaps even at the expense of his own and his family's
welfare). The extreme gambler will pay abnormally large amounts
for a chance of "hitting it rich" (perhaps even at the expense of his
own and his family's welfare).

MANAGERIAL CONCEPTS OF FARM MANAGEMENT WORKERS
The earliest farm management workers were primarily empirical
workers. Several of the earlier workers were former agronomy or
animal husbandry men who became concerned with over-all problems
of farm organization and launched into studies of such problems with-
out benefit of the existing body of economic theory. Others investi-
gated existing economic theory, found it static and nearly void of
managerial concepts and then discarded it in favor of empirical in-
vestigation. Still others investigated economic theory and found it a
source of concepts useful in solving managerial problems if not a
source of managerial concepts. Among the last group, H. C. Taylor,
W. J. Spillman and, somewhat later, J. D. Black should be listed.
The thinking of the empirical workers in farm management, like
that of the economic theorists, was bothered by changes. They, too,
went through a period in which they developed ways of abstracting
or getting away from such difficulties. As prices fluctuated widely and
yields varied from year to year, farm plans and budgets were not
accurate. The natural thing to do was to start making plans and
budgets on the basis of "average," "normal," or "long-run" prices,
yields or output data, and requirements or input data, and such.
Once the concept of normalss" became established in farm man-


[Jul!,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


agement, farm planning and budgeting techniques evolved in a man-
ner very similar to static economic theory. Farm management work-
ers began to seek the most profitable organization of farms. Problems
of enterprise combinations, costs, levels of output, and so on, were
considered. And, just as in static economic theory, concepts of man-
agement and its earnings tended to be ignored. The definition of
profits used by these workers was an accounting definition unrelated
to a concept of management-in fact, the accounting definition was
residual in nature. That is, an estimate of profits was obtained by
subtracting actual variable expenses plus arbitrary fixed-asset charges
from gross income.
As would be expected, the use of static economic theory had little
effect on the bareness of empirical farm management work as a source
of managerial concepts and principles.
From time to time, considerations of risk caused farm management
workers to discount average returns and seek out the safer of alterna-
tive actions. These tendencies, of course, were also found in static
economic thinking which considered risk and risk-bearing functions
occasionally but not systematically. Thus, the farm management work-
ers employing static economic theory and those developing it did not
differ as far as managerial concepts were concerned-both groups
were quite sterile as far as managerial concepts and principles were
concerned-and, for a similar reason. Both groups, in abstracting from
change and ignorance, were led away from the managerial problems
of handling change and ignorance.
What then was the contribution of farm management research
workers and teachers to the management of farms? They did not de-
velop a systematic concept of management, define its tasks, nor de-
velop a set of managerial principles. Their contribution was one of
helping managers solve problems, not by making the problem-solving
processes employed by managers more effective, but by furnishing
data and information to managers. Historically, the data and informa-
tion furnished to farmers by farm management men has tended to be
rather technological, mainly from the fields of agronomy and animal
husbandry.
The departments and sections of farm management were only one
group in the land-grant system furnishing information to farm man-
agers. Agronomists and animal husbandrymen disseminated informa-
tion about both existing and new production methods. Similarly, price
information was assembled by the agricultural economics departments
with the aid of the Federal Outlook and Situation Programs and dis-
tributed to farmers. Along with the price outlook information, much
information on governmental policies and programs was distributed.


1954]







BULLETIN NO. 619


In addition, the land-grant system has disseminated information about
such economic and political organizations as drainage associations,
marketing cooperatives, federal land banks, farm credit organizations,
and price support programs. More recently, several of the land-grant
colleges have become aware of the need among farmers for informa-
tion about the needs and desires of the farm family in planning farm
businesses. Hence, Farm and Home Planning Programs, Balanced
Farming Programs, and such, have been inaugurated. These programs,
while still not considering all of the personal problems involved in
planning a farm business, do recognize that farm managers are con-
cerned with personality and consumption problems, a significant step
forward from having separate home economic and farm management
extension programs.

Five Kinds of Problems Which Farm Managers Face
Summarizing, now, five kinds of problems have been important
enough to farmers for the land-grant system to recognize them in ex-
tension programs. The five are:
(1) Technical problems
(2) Price problems
(3) Problems created by changes in technology
(4) Problems involving political, economic and social institutions
(5) Personality problems.

Impact of Managerial Theory on Agricultural Economics
Beginning in the thirties, the changes, imperfections in knowledge
and foresight which bothered the economic theorists began to bother
agriculturalists employing "normal" and "average" data in farm plan-
ning, budgeting and credit work. Thus, it was natural that these work-
ers would attempt to use the new managerial concepts being de-
veloped by general theorists as soon as contact was established be-
tween the two sub-disciplines.
In 1939, T. W. Schultz, an Iowa agricultural economist, published
an article on the "Theory of the Firm and Farm Management Re-
search" in the Journal of Farm Economics.1 This article, which was
based on Knight's work, pointed out the need for a theory of manage-
ment, profits, risk, and uncertainty as a guide in doing farm manage-
ment research, teaching farm management, and thinking about farm
management problems. This article became a turning point in farm
management thinking concerning managerial concepts and principles.
1T. W. Schultz, "Theory of the Firm and Farm Management Research,"
Jour. Farm Econ. Vol. XXI, 1939.


[July,







BULLETIN NO. 619


In addition, the land-grant system has disseminated information about
such economic and political organizations as drainage associations,
marketing cooperatives, federal land banks, farm credit organizations,
and price support programs. More recently, several of the land-grant
colleges have become aware of the need among farmers for informa-
tion about the needs and desires of the farm family in planning farm
businesses. Hence, Farm and Home Planning Programs, Balanced
Farming Programs, and such, have been inaugurated. These programs,
while still not considering all of the personal problems involved in
planning a farm business, do recognize that farm managers are con-
cerned with personality and consumption problems, a significant step
forward from having separate home economic and farm management
extension programs.

Five Kinds of Problems Which Farm Managers Face
Summarizing, now, five kinds of problems have been important
enough to farmers for the land-grant system to recognize them in ex-
tension programs. The five are:
(1) Technical problems
(2) Price problems
(3) Problems created by changes in technology
(4) Problems involving political, economic and social institutions
(5) Personality problems.

Impact of Managerial Theory on Agricultural Economics
Beginning in the thirties, the changes, imperfections in knowledge
and foresight which bothered the economic theorists began to bother
agriculturalists employing "normal" and "average" data in farm plan-
ning, budgeting and credit work. Thus, it was natural that these work-
ers would attempt to use the new managerial concepts being de-
veloped by general theorists as soon as contact was established be-
tween the two sub-disciplines.
In 1939, T. W. Schultz, an Iowa agricultural economist, published
an article on the "Theory of the Firm and Farm Management Re-
search" in the Journal of Farm Economics.1 This article, which was
based on Knight's work, pointed out the need for a theory of manage-
ment, profits, risk, and uncertainty as a guide in doing farm manage-
ment research, teaching farm management, and thinking about farm
management problems. This article became a turning point in farm
management thinking concerning managerial concepts and principles.
1T. W. Schultz, "Theory of the Firm and Farm Management Research,"
Jour. Farm Econ. Vol. XXI, 1939.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


Since this turning point, several pieces of important empirical
work have been done on the decisi6n-making process in farm manage-
ment. In 1942 Schultz and Brownlee published the results of two
trials to determine price expectation models applicable to agriculture.'
In 1949, Brownlee and Gainer published an article on price anticipa-
tions and farm planning.2 D. Gale Johnson picked up the trend of
thought and explored its consequences for agriculture as an industry-
this work culminated in the forward-pricing idea which has received
widespread recognition and is partially incorporated into existing
price-support activities.3 Several pieces of work have been done on
yield,4 tenure,5 and weather uncertainties.6 At the Kentucky Agricul-
tural Experiment Station the works of Byers,7 Nesius,8 and Johnson9
have utilized managerial concepts provided by the economic theorists.
Most of the above cited work is empirical in nature. Little attempt
is made in these works to assemble existing managerial concepts into
an integrated whole to serve as a frame of reference for farm manage-
ment teaching, extension, and research. The first such published at-
tempt was made by the present author and C. B. Haver in a bulletin
on decision making principles in farm management.10

1T. W. Schultz and 0. H. Brownlee, "Two Trials to Determine Expectation
Models Applicable to Agriculture," Quar. Jour. Econ., Vol. LVI, 1942.
20. H. Brownlee and Walter Gainer, "Farmers Price Anticipations and the
Role of Uncertainty in Farm Planning," Jour. Farm Econ., Vol. XXXII, 1950,
pp. 265f.
SD. Gale Johnson, Forward Prices for Agriculture, University of Chicago
Press, Chicago, 1947.
SC. P. Heisig, "Income Stability in High Risk Farming Areas," Jour. Farm
Econ., Vol. XXVIII, 1946.
ST. W. Schultz, "Capital Rationing, Uncertainty and Farm Tenancy Reform,"
Jour. Pol. Econ., Vol. XLVIII, 1940.
'C. P. Heisig, "Income Stability in High Risk Farming Areas," Jour. Farm
Econ., Vol. XXVIII, 1946; R. Schickele, "Farm Business Survival Under Extreme
Weather Risks," Jour. Farm Econ., Vol. XXXI, 1949, pp. 931-43, and "Farmers
Adaptations to Income Uncertainty," Jour. Farm Econ., Vol. XXXII, 1950, pp.
356-74; P. Thair, Stabilizing Farm Income Against Crop Yield Fluctuations, N.
Dak. Agr. Expt. Sta. Bul. 362, 1950.
SG. Byers, Systems of Farming for the Lower-Ohio-Valley Crop-Livestock
Region of Kentucky, Ky. Agr. Expt. Sta. Bul. 521, 1948, p. 38.
SE. Nesius, Allocation of Farm Resources for Economic Production of Pasture
Forage, Ky. Agr. Expt. Sta. Bul. 568, June 1951, and How Farmers Make Pasture
Plans to Meet the Uncertainty of Weather, Ky. Agr. Expt. Sta. Bul. 575, Dec. 1951.
G. L. Johnson, "Needed Developments in Economic Theory as Applied to
Farm Management," Jour. Farm Econ., Vol. XXXII, 1950, p. 1140; Burley To-
bacco Control Programs-Their Over-all Effect on Production and Prices, 1933-50,
Ky. Agr. Expt. Sta. Bul. 580, p. 55.
G. L. Johnson and C. B. Haver, Decision Making Principles in Farm Man-
agement, Ky. Agr. Expt. Sta. Bul. 593, 1953.


1954]







BULLETIN No. 619


THE TESTING OF
EXISTING MANAGERIAL CONCEPTS

Our survey of literature on managerial concepts indicated that the
following concepts and principles are important in understanding
management:
A. Management is the process of solving the problems created by
change and imperfect knowledge and of adjusting an economic unit
to the solutions. This task is a compound of five sub-tasks: observing,
analyzing, deciding, acting, and accepting responsibility. (See p. 12)
B. Marginality principles apply to the subjective costs and values
encountered by managers performing the five sub-tasks of manage-
ment. (See p. 12)
C. Strategic principles, both personal and impersonal, are in-
volved. (See p. 18)
D. Learning principles, involving both deduction and induction,
are involved. (See p. 15)
The survey of literature also indicated that the main problems
faced by farm managers are concerned with existing technologies,
prices, innovations, institutions, and personalities, and that managers
find themselves in possession of different degrees of knowledge, main-
ly subjective certainty and subjective uncertainty, the latter including
risk, learning, inaction, and forced action situations.

CASE STUDY RESULTS
Final formulations of managerial concepts and principles will
likely utilize the above principles and concepts on the basis of their
importance as revealed by experience and empirical studies. With
the objective in mind of establishing relevance and relative importance
among these concepts, case studies were started in the summer of
1949. Farmers were interviewed in two Kentucky counties. These
interviews, very subjective in nature, tended to confirm the reasoning
presented above and contributed to the formulation of the classifica-
tion of subjective uncertainty into the subclasses: risk, learning, forced
action, and inaction. The data obtained also emphasized the tre-
mendously important roles played by subjective values in managerial
decisions. In particular, "levels of aspiration" appeared to be highly
important in determining the chances these farmers were willing to


[July,







BULLETIN No. 619


THE TESTING OF
EXISTING MANAGERIAL CONCEPTS

Our survey of literature on managerial concepts indicated that the
following concepts and principles are important in understanding
management:
A. Management is the process of solving the problems created by
change and imperfect knowledge and of adjusting an economic unit
to the solutions. This task is a compound of five sub-tasks: observing,
analyzing, deciding, acting, and accepting responsibility. (See p. 12)
B. Marginality principles apply to the subjective costs and values
encountered by managers performing the five sub-tasks of manage-
ment. (See p. 12)
C. Strategic principles, both personal and impersonal, are in-
volved. (See p. 18)
D. Learning principles, involving both deduction and induction,
are involved. (See p. 15)
The survey of literature also indicated that the main problems
faced by farm managers are concerned with existing technologies,
prices, innovations, institutions, and personalities, and that managers
find themselves in possession of different degrees of knowledge, main-
ly subjective certainty and subjective uncertainty, the latter including
risk, learning, inaction, and forced action situations.

CASE STUDY RESULTS
Final formulations of managerial concepts and principles will
likely utilize the above principles and concepts on the basis of their
importance as revealed by experience and empirical studies. With
the objective in mind of establishing relevance and relative importance
among these concepts, case studies were started in the summer of
1949. Farmers were interviewed in two Kentucky counties. These
interviews, very subjective in nature, tended to confirm the reasoning
presented above and contributed to the formulation of the classifica-
tion of subjective uncertainty into the subclasses: risk, learning, forced
action, and inaction. The data obtained also emphasized the tre-
mendously important roles played by subjective values in managerial
decisions. In particular, "levels of aspiration" appeared to be highly
important in determining the chances these farmers were willing to


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


take. Also, the interrelation between household and business decisions
was clearly apparent.
In conducting these case studies, a serious effort was made to
establish close friendly relationships with the farm family. Sometimes
several visits were required and not all attempts were successful. Once
confidence was established, the questioning took place in an informal
manner. The objective was to gain insights into managerial processes.
Prior to going out to the farm, a mimeographed list of questions was
prepared.1 This list was used as a guide in the questioning, though
wording appropriate to individual situations was used in asking the
questions. After the answers were recorded, summary statements
were prepared for each farm. These statements are probably far from
objective, yet as case studies they confirm the general appropriateness
of the modern managerial concepts and principles summarized earlier
in this bulletin. Four of the case study summaries follow.

Case Study
Farmer No. 1
This farmer decided to be a farmer early in life, on the basis of
farm machinery advertisements, according to his own statement. He
also feels that at an early date, his training for farming so outstripped
his training for other occupations that his most profitable occupation
became farming. Both husband and wife emphatically agree that
in farming, the dollar is an intermediate end, to a more ultimate end
of maximizing satisfactions. Items high in their scale of satisfactions
were being their own bosses and rural life in general. Husband and
wife were in close agreement on these points.
The farmer says that he has been aware of the difference between
management and farm work since he, as a boy and young man, super-
vised his father's farm while his father operated a store. He farmed
with his father from 1921 to 1929. During the early twenties, how-
ever, this farmer was concerned mainly over technical questions, such
as tobacco, hog, and corn husbandry. At that time he did not worry
much about future prices, weather, or mechanical advances which
would make his machinery obsolete.
This farmer accumulated working capital which he sold for $2,000
in 1929. He then moved to Indiana and with an additional $1,000,
which he borrowed, started independent farming as a renter. Ap-
parently, the move to Indiana was based on nonmonetary considera-
tions-he states that a renter in Indiana is his own boss in contrast to
the typical Kentucky tenant who is more of a laborer than a manager.

SSee Appendix A for a copy of the list of questions used.


1954]







BULLETIN NO. 619


This farmer stated that he could have borrowed more when he
started renting but did not-he says that he borrowed just what he
should have as a renter on the 146 acres which he had. He feels now
that he should have purchased land with borrowed money; he says
this even in view of what happened to prices in the thirties. At the
time, however, worry about prices did prevent him from investing in
land. In the Indiana area and in his Kentucky neighborhood, yield
uncertainty has not worried this man as much as price uncertainty.
This farmer does not worry about the problem of technical obsoles-
cence.
He stated that his credit remained good in the depression period.
At no time did "external credit rationing" appear to prevent him from
using capital to advantage. He applied fertilizer to corn throughout
the depression. In his own mind he was sure that fertilizer applica-
tions twice as large as he applied would have paid in the depression
years. He gave cash shortage as the reason for not applying the extra
quantity. When asked why he did not borrow, he stated that he
could have but did not want to do so. It appears that technical knowl-
edge of outcome and ability to borrow were present but that he was
unwilling to borrow for personal subjective reasons.
This man feels that his managerial ability has increased greatly
since he started farming. However, he thinks that he should have
purchased instead of renting in 1929 even with the ability he possessed
at that time. He does not think that he should have operated a much
larger farm because a larger farm would involve supervision of hired
labor, for which he has an ethical aversion.
The first major decision which this man had to make after be-
coming established as an Indiana renter was a decision in 1933 to buy
or not to buy the 146 acres he was renting. This farm was offered
to him on the following terms: 20-year repayment plan with no fore-
closure if taxes and interest were paid. His computations, at that time,
indicated that his annual rent always exceeded the taxes and interest
load and that it would continue to do so even at very low prices. He
decided not to buy, however, on the basis of advice from experienced
farmers. He feels that all of these farmers were wrong because they
all had had the same experience with prices in the 1929-33 period.
He indicated that he considered the odds of being wrong when he
decided not to buy as well as the odds of being wrong if he had
bought. He evidently figured that not buying minimized the possible
loss which might be incurred-he appears to have paid more attention
to possible losses than to possible gains. He said that he decided not
to buy at that time, thus indicating that he postponed the purchase
of land hoping to do a better job on the decision at a later date. He


[JUly,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


feels that the cost of deferring the decision (in terms of reduced in-
come and the foregone satisfaction of being an owner) has greatly
exceeded the value of any improvement in the accuracy of his eventual
decision. Apparently postponement did not permit him to increase
the accuracy of his decision enough to offset costs.
When asked what was the best business decision he had made,
this farmer referred to the purchase of an additional 30 acres of land
near the homestead of his present farm at $7600 at the end of the
war. He said that he was 100 percent sure it was the right thing to
do. He said further that he was advised, by his banker, to postpone
his purchase until prices came down. He reasoned, however, that
the extra tobacco base plus his need for more plow land, plus the
land's current high earning power more than outweighed the gains
to be derived from waiting for a drop in prices.
When asked to indicate another of his good business decisions,
this farmer referred to his decision to raise hogs intensively in the
Indiana area. He indicated that he made this decision on a risk basis
as he was both willing and able to handle the risks involved. He also
said that he prefers to handle hogs in contrast to cattle.
He argued that an increase in net worth increases his ability to
run risks but decreases his willingness to do so after a proper (opti-
mum) size of business is reached. His idea of proper size is partially
determined by the relative value which he attaches to leisure and
work, his aversion to supervision of labor, and his managerial ability.
He also stated that his willingness to run risks increases with large
decreases in net worth.
This farmer stated that ability to run risks is increased by diversi-
fication. He also stated that among enterprises, livestock enterprises
increase ability to run risks more quickly than crop enterprises be-
cause livestock enterprises can be expanded to provide a market for
labor, the sale of which will offset adverse developments.

Case Study
Farmer No. 2
This farmer gave as his reasons for becoming a farmer (1) desire
for freedom which farm life offers, and (2) the fact that he was bet-
ter trained for farm work than for other occupations. He appeared
particularly interested in the freedom which farm work gives him
to choose his day-to-day work. He is trained as an electrical welder
and has worked off the farm for prolonged periods. He states that
he can make more money off the farm than he can make on it. When
asked whether farming yields more real satisfaction to him than city


1954]







BULLETIN No. 619


work he said that it does. His wife prefers urban life. She says there
is too much work to do on the farm.
This man started farming as a share cropper (tenant) soon after
he was 21. At that time, he thought of farming primarily as a labor-
ing job. He did not attach much importance to the managerial aspect.
When first questioned concerning his definition of management the
only thing he could think of was the timing of farming operations.
Later on he noted that management includes several other sub-tasks.
This farmer has scaled the agricultural ladder from day laborer
to owner operator. He worked as a day laborer prior to marriage and
as a tenant after marriage. Early in World War II, he sold out the
equipment and livestock which he had accumulated as a tenant, se-
cured training as an electrician, and accepted employment in Louis-
ville. At this time, he purchased his first tract of land on about 50
percent equity. That land did not have buildings. While in Louis-
ville, he accumulated substantial savings from his wages and income
secured by renting his farm. The buildings now on the farm were
built from timber sawed off the farm in the late war years and earlier
peace years. He worked part-time and commuted to the farm while
building the homestead.
He states that at the time he purchased the farm he had no reason
for wanting to borrow more money. With the benefit of hindsight,
however, he says that if he had known what was going to happen to
land prices he would have borrowed much more. Similarly, he says
that if he had known at the time what he could do to the yields of
such lands he would have borrowed more money. The answers of
this farmer to various questions indicate that lending agencies did not
place serious limits on what he could borrow. When asked whether
his managerial ability had increased since he started farming he
stated that it had, because he now knows much more about the re-
sponse of his soils to fertilizers and because he now has greater ability
to make decisions. This farmer says that if he had possessed his pres-
ent managerial ability when starting to farm he could have started
with a much larger farm.
When this farmer was asked to name the first major business de-
cision he had to make after his business was well established, he first
mentioned the decision to engage in grassland farming but, on second
thought, indicated a decision to buy additional land in 1946. When
asked if he had enough information to make this latter decision ac-
curately he stated, "definitely, yes." He said the extra land was needed
to increase the size of his business and that it was adjacent to that
which he already owned. He felt that he was paying too much for
the land but that the above-mentioned advantages more than offset


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS"


the high price. At this point in the questioning, this farmer began to
reveal the conservative manner in which he evidently makes his de-
cisions-he does not take large chances. In the case of the above
decision to buy land, he said that postponement of the decision would
not have increased the accuracy with which he made it but that fur-
ther postponement would have involved costs growing out of lost
earning power.
When asked to mention the most serious reverse which he had
suffered, he stated that he had suffered no serious reverses, mainly
because prices have been going up ever since he started farming. He
had sustained some opportunity losses-if he had known that certain
actions would turn out as profitably as they did, he could have made
more than he made. However, he said that such actions would have
been taken in the dark with little knowledge of the risks involved.
When asked what would increase his willingness to run risks, he men-
tioned net worth and small family obligations. When asked whether
he would run greater risks if he had nothing to lose, he said that he
would not because the running of such risks would endanger the
person who lent him the money with which to run the risk. He rec-
ognizes that it might be profitable but feels that it is unethical to run
high risks with low equity. When asked if he feels that he accepts
larger risks than his neighbors with respect to business decisions, he
said that he was about average.
When asked what he considers the best business decision since
he first started to farm he again mentioned his decision to engage in
grassland farming. He said that this decision was made, at the time
he made it, on a calculated risk basis. He feels, however, that if he
had spent more time securing information, he could have made the
decision on a "certain" basis.
When asked whether he adheres strictly to a rotation, he said
that he tries to and is working towards a rotation, but that changing
conditions continually break up his plans. He does not raise tobacco
continuously on the same land. He feels that he should rotate it so
that other crops will benefit from the residual effects of the fertilizer.
He uses legumes in his rotation and does not terrace his land although
he does practice a certain amount of contour planting. He does not
have purebred animals although his dairy cattle are fairly well-bred
Jerseys. He plants hybrid corn and has tried fescue. He stated, on
one occasion, that he does not know enough about fescue to make
it a permanent part of his rotation. He seems to be postponing the
decision on whether to use fescue permanently, pending the accumu-
lation of more information concerning it. This farmer says that he


1954]







BULLETIN NO. 619


makes a considerable effort to market his animals in accordance with
current market conditions.

Case Study
Farmer No. 3
This farmer said that his farm background gave him training and
interest in farming. He felt that his training makes it possible for
him to earn more money at farming than in any other occupation
open to him. When asked whether he derives more real satisfaction
from farming than he could from any other occupation open to him
he was undecided as he did not know how much satisfaction he would
get from other types of work. His wife felt that there is more real
satisfaction to be derived from farm life than from urban life.
When this man started farming he attached much less importance
to management than he does now. He considered the task of a farm
operator to be primarily one of doing the farm work. He said that
he did not realize how much management was required on the farm
until after he stopped farming with his father. At this point in the
questioning, this farmer was very vague about the nature of manage-
ment.
While he was in partnership with his father, he accumulated a
considerable amount of livestock and equipment which he used when
he started out for himself in 1927. At that time, he bought part of
his present farm and borrowed a large percent of the value of the
land. Even so, he said that he did not borrow enough because he was
afraid of what would happen to prices. Despite the depression of the
30's this farmer said, on the basis of what has happened to prices
since 1927, that he should have borrowed three times as much money
as he did when he started. (He did not state whether it would have
been possible for him to borrow that much money at that time).
Similarly, he stated that if he had known in 1927 what could be done
to the productivity of the land, he would have borrowed more money.
Both of these statements indicate that lack of information concerning
price movements and the technical capacity of his land caused him
to limit his use of capital.
When asked whether his managerial ability had increased since
he had started, he said that it had increased three-fold and that he
would have started with twice as large a farm had he had his present
managerial ability when starting. At about this point in the question-
ing process, he began to define management in terms of accumulating
information and making decisions.
When asked to recall the first major decision which he had to
make after starting to farm for himself, he mentioned his decision


[July,






MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


to postpone land improvement. He said that at the time he made this
decision he was convinced that he should carry out such a program
on his farm. He said, however, that he could not borrow, and did
not have the money to carry out such a program. At that time, he
thought such a program desirable from a physical standpoint. He was
not so sure that the future prices would permit the program to pay
out. ri fact, he was not sure that anything would pay off at that
time. He was fairly sure that he would have lost less had he started
a farm improvement program, but did not want to borrow money
that might cause him to increase his cash, in contrast to inventory,
loss. Evidently, he felt that postponement of the decision to start the
land improvement program would enable him to make the decision
more accurately at a later date. He says that this postponement cost
him several thousand dollars.
When asked about the most serious financial reverses which he
had suffered, he said he was convinced in 1935 that he had made a
serious mistake when he purchased the farm in '27. Evidently, he
purchased the farm with the idea of improving it and selling it at a
profit, but prices went down and he was unable to make the expendi-
tures on improvements. He stated that when he bought the farm he
was quite sure that he was making the decision on a basis which was
consistent with the risks he was willing and able to run. Evidently
he was right, because his business did survive the adverse develop-
ment of the thirties.
This farmer said that he is willing to run greater risks with a low
equity than with a high equity. He said that he would not take very
large risks at his present age with an old-age income virtually assured.
While young, with nothing to lose, he was much more willing to run
risks. He felt that in general he takes more business risks than his
neighbors.
When asked to mention the best business decision he has made
since starting to farm, he referred to his decision to buy adjacent land
two years ago. He says that this land was handy, provided employ-
ment for his 24-year-old son, and in general balanced up his farming
business. He felt 100 percent sure that he should buy it.
This farmer said that he does not adhere to a strict rotation,
though he tries to. He also said that he does not raise tobacco con-
tinuously on the same land, but that he has doubled the rate of fer-
tilizing tobacco in the last few years. He does not use terraces but
states that he plants all his crops on the contour. He uses purebred
animals and hybrid corn and fescue.
General comments made by this farmer are of some interest in
evaluating the dynamic theory of the firm. For instance, he and his


1954]







BULLETIN NO. 619


wife claim that the household and farm decisions are made jointly
and in relation to each other. Current household improvements in-
clude a modern kitchen with electric stove and refrigerator and a
$2,000 water system. It is apparent that the farm and home opera-
tions are equally modern. There seems to be a bias in favor of the
practical in contrast to the esthetic, both in the house and on the
farm. Fancy buildings, fancy fences, and fancy equipment are absent
in the fields, and in the home the kitchen is far more developed than
the living room. The parallel between fields and home indicates that
decisions are in fact made by both man and wife.
Another comment made by this farmer is of interest. He referred
to a man who came to his community several years ago on a fixed
salary and he used that fixed salary as an "ace in the hole" to make
up losses which might occur in his farming operations. This "ace"
evidently permitted this man to take much larger risks than the aver-
age farmer of the community.

Case Study
Farmer No. 4
This farmer started farming in 1911 after having spent some time
working for the railroads. He said that he returned to the farm be-
cause he liked the work better, not because he thought he could earn
more money at farming. He now feels, however, that he has earned
more money farming than he could have earned at other work. The
aspects of farming which he likes in particular is independence. As
he farmed as a bachelor for several years, his wife's thinking did not
have anything to do with early decisions.
When this man started farming, he rented some land from his
mother and used some land which he had inherited. At that time, he
attached very little significance to management unless management
is defined as the possession of technical "know-how." He did not
need to borrow money to get together the operating capital and live-
stock to start farming. He accumulated most of his cattle from farm
sales. For the most part, he did not buy breeding stock-instead, he
purchased a few animals and brought up his numbers gradually while
accumulating the technical ability to handle them. There was con-
siderable evidence in the conversation that he was very conservative.
He does not act until he has accumulated enough information to make
the outcome highly certain. Inheritance of land and the rental con-
tract with his mother made it possible for him to set himself up in
business at practically no risk. When asked whether he should have
borrowed money to start out farming so as to get into immediate large-
scale livestock production, he indicated that he should not have bor-


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


rowed money then because (1) borrowing is dangerous and (2) he
did not know enough about handling livestock at that time.
He stated that price uncertainty did not keep him from borrow-
ing money, but he was somewhat inconsistent in this statement as
he had said earlier that he did not borrow because price uncertainty
made borrowing dangerous. A similar inconsistency was encountered
when he was questioned about yield uncertainties.
Apparently, this farmer has never been limited by outsiders in
borrowing money but has limited himself rather carefully. Question-
ing did not reveal the extent of his internal cash rationing.
When asked to think back to the first major business decision
which he made, he referred to a purchase of land between wars. Ap-
parently, he borrowed a small amount of money to make this purchase.
He felt that he had almost all the information required to make this
decision, though he says that he acted under some pressure. As the
land adjoined his farm, it had an extra value to him and he felt he
was forced to act to prevent someone else from beating him to the
purchase.
When asked about a serious financial reverse which he had suf-
fered, he was at a loss to recall such an occurrence. Apparently, the
only cases in which he lost money occurred in the purchase of cattle.
He carried on cattle purchasing and feeding on a risk basis. He feels
that a person feeding cattle has to be prepared to take occasional
losses in order to be sure of being in business in the years in which
profits are made. He said that he was financially able and also willing
to run these risks. When asked what would increase his willingness
to run risks, he answered the prospect of profits, but attached little
significance to the amount of assets which he owns.
Although this man married late in life he does not seem to feel
that lack of family responsibilities increased his willingness to run
risks. When asked what would increase his ability to run risks, he
answered experience and assets.
When questioned about his willingness to take long chances, he
answered that he was definitely less of a risk-taker than his average
neighbor.
Another profitable decision this man made involved the purchase
of purebred cattle. Discussion of this decision indicated that he mere-
ly took advantage of an obviously profitable opportunity. During the
depths of the depression he ran into the opportunity to purchase a
purebred herd at sacrifice prices and had the money to make the
purchase.
This farmer has tried to adhere to a strict rotation. He has prac-
ticed continuous tobacco culture for four years and states that he


1954]







BULLETIN NO. 619


will continue to do so for another few years. He started tobacco fer-
tilization about 15 years ago. He uses legumes in his rotation, has not
terraced his relatively rough land, but crops on the contour. As in-
dicated above, he has purebred animals. He uses hybrid corn when
he plants corn, but is not using new varieties of any other crop. When
questioned about practices which had been recommended to him
but which he did not decide to follow, he referred to the planting of
orchard grass. He feels that cattle do not eat orchard grass unless
starved to it.
When questioned about whether or not his business had been ad-
versely affected by family expenses, this farmer answered no. As he
did not marry until he was past 50, after starting farming early in
life with inherited assets, his income is so large that serious consump-
tion-investment conflicts do not exist for him and his family. He said
that he will be able to educate his three children and take care of all
family expenses without hurting his business.

THE SURVEY RESULTS
Following the case-study work, a more detailed but still explora-
tory study was set up. In this study 31 Montgomery county farmers
were asked questions concerning the management problems which
they face; the sources of information they used in solving these prob-
lems; the importance to them of the risk, inaction, forced action, and
learning situations; the adjustments which they make to subjective
uncertainty; the relative importance of induction and deduction in
their managing processes; whether or not they employ flexibility; and
the importance of strategic operations in their managerial activities.
A copy of the questionnaire used appears in Appendix B of this bul-
letin. Their answers to the questions, which it should be admitted
were often far from ideally formulated, serve (1) as a basis for sorting
out the most relevant of the new managerial concepts and principles,
and (2) as a source of information for formulating subsequent more
adequate surveys.'
The farms surveyed were located on soils of mixed limestone-
shale origin, fairly rough in topography, and just west of the first
escarpment of the Appalachians. Most of the farms were above 60
acres in size, and as they had fairly large burley tobacco bases, yielded
the farmers moderate incomes. In general, the area is rather well
served with roads, schools, markets, electricity, and telephones. The
small-scale, exploratory nature of the study explains the limited geo-

1 This result was one of the prime objectives of the research project, as out-
lined, on which this report was based.


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


graphic coverage of the sample. It would have been unwise to at-
tempt a wider geographic survey in the absence of exploratory pilot
studies. However, despite its geographic limitations, the results of
the survey are quite conclusive in some instances and are highly sug-
gestive in many instances.

The Empirical Importance of the Five Subject Matter Areas
The thirty-one farmers surveyed were asked whether each of the
five types of information differentiated earlier were important to them
in the management of their farm. The questions were asked in terms
of prices, production methods, possible new inventions and develop-
ments, human nature, and government (programs, taxes, etc.) infor-
mation. Without exception, each farmer indicated that all five types
of problems were important (Table 1).

Table 1.-Relative Importance of the Five Subject Matter Areas Unanimously Indicated
to Be Important by 31 Montgomery County Farmers, 1951
Subject Most important Least important
Production m ethods ................................... ......................... 19 0
Prices ................................................ .. .. .................... 6 0
Government (Programs, taxes, etc.) .................................... 6 5
Possible inventions ........................... ......... .. ............. 0 11
H um an nature ......................... ........ ............................ 0 12
T otal.......................... ...... ..... ......... .............. 31 28*
0 Three felt unable to indicate which was least important.

The importance of the five subject-matter areas was examined
still further by asking the farmers which of the five was the most and
which the least important.
It should be emphasized that the farmers thought that all of the
five categories of information were important. They were often reluc-
tant to try to indicate the least important; hence, one should not con-
clude that human nature problems are unimportant because none
thought such problems the most important and twelve thought them
least important.
To test the extent to which the five categories cover information
actually encountered by farmers, each farmer was asked to indicate
other subjects a manager should study. Three denoted soils and
soil improvement, one home food supply, another diversification, and
another relationships among crops. Soil problems are really technical
production problems. The home food supply is a problem involving
production, on one hand, and consumption demands of the family
(human nature), on the other. Diversification and relationships
among crops do not fit into the above classifications directly, though


1954]







BULLETIN No. 619


a moment's reflection will indicate that price and technical informa-
tion are basic to their solution. What the farmers were probably
asking for were principles for analyzing such data and information
rather than for the data and information. This suggests that problems
involving the process of management may make up a sixth category
not yet covered by managerial concepts.

Sources of Information
The next question concerned the sources of information, thinking
methods, etc., used by farm managers in studying problems in each
of the five problem areas. These questions were asked (1) to de-
termine the relative importance of different sources of information,
(2) to secure leads for use in further development of managerial con-
cepts and principles, and (3) to increase the participation of the
interview in the questioning process by getting him to talk about
subjects of interest to him.
In connection with the different types of information, the following
sources of information were noted the number of times indicated in
Table 2.
Commercial sources were by far the most important as sources
of price information for the 31 farmers studied. Of the 57 sources
reported, commercial sources were listed 31 times, while government
publications were listed 15 times and state college sources only 3
times. College sources can be presumed to include extension service,
vocational agriculture, and Agricultural Experiment Station personnel
and publications. Even if some confusion existed among government
and college publications, agencies and agents, it is still necessary to
conclude that private agencies were much more important in con-
tacting these farmers than either governmental or college agencies,
in regard to price information. This is not to disparage outlook and
situation work, as much of such work is aimed at supplying informa-
tion to the private sources servicing farmers.
The picture was quite different when production methods were
considered. Of 57 sources of information reported, state college
sources were mentioned 22 times and governmental sources 3 times.
General experience and observation accounted for 21, while private
sources numbered only 10. The Farm Bureau was given in one in-
stance.
Information on new inventions and developments was obtained
from 40 informational sources, of which private sources were men-
tioned 23 times and public (3-college, 2-government agencies) sources
5 times.


[July,







1954] MANAGERIAL CONCEPTS FOR AGRICULTURALISTS 39

Table 2.-Sources of Information Used by 31 Montgomery Farmers, 1949

Source of informatCon Number of farmers
mentioning
In studying prices:
Radio and commercial publications ................................................ 24
Government publications .............................................................. 15
Local m markets ..................................................................................... 7
State colleges ..................................................................................... 3
Other sources ..................................................... ............................. 8
In studying production methods:
State colleges ....................................................................................... 22
Experience ......................................................................................... 14
Observation ................................. ............................................... 7
Radio and commercial publications .............................................. 10
Soil Conservation Service .............................................. ................ 3
Farm ers organization ............................................... ....................... 1
In studying new inventions and developments:
State colleges ....................................................... ........................... 3
General observation ................................................ ........................ 8
Private and commercial publications and radio .............................. 17
Farm im plem ent dealers .................................................................. 6
Production and Marketing Administration ......................................... 1
Soil Conservation Service ................................................................. 1
In studying government programs:
Farm er organizations ......................................................................... 7
Government agencies .................................................................. 10
Radio and commercial publications ............................................... 12
State colleges ..................................................................................... 4
Political platform s ............................................................................ .
No answ er, or did not study ............................................................ .... 4
In studying human nature problems:
Personal contact ................................................................................. 27
References .......................................................................................... 7
Observation and experience ............................................................. 4

In securing information on governmental operations, private
sources accounted for 13 of the 37. The government agencies them-
selves accounted for 10 of the 37 while the Farm Bureau accounted
for 7, political platforms for 3, and state colleges for another 4.
The sources of information on human nature problems were dis-
tinctly different from the sources listed for the other four types of
problems. Here the emphasis was upon the manager himself. Thus,
27 of the indicated 38 sources were of a personal contact nature with
the other personality directly involved. References were indicated
in 7 instances and observation and experience in 4.
The answers to questions concerning sources of information were
consistent with what should have been expected. Farm management
has been conceived in the colleges primarily as a static thing with a
Sresultant emphasis on static types of information in extension pro-
grams. The 31 farmers placed heavy reliance on state colleges as







BULLETIN NO. 619


a source of information on existing production methods but turned
to private agencies for information on prices (which are everchang-
ing), inventions, and new developments and government.

The Importance of Subjective Uncertainty Including the Risk,
Learning, Forced Action and Inaction Situations
The next step in the survey was to secure information on the rela-
tive importance of subjective uncertainty and its different component
parts (risk, learning, forced action and inaction) among the farmers
surveyed.
Among the 31 farmers surveyed, 18 indicated that they took im-
portant actions in 1948 even though uncertain of the outcome. These
actions, presumably, were taken in one of the risk or forced-action
situations defined on p. 11. As seven of these later proved to be
forced-action situations, 11 positive risk actions were indicative.
Eight farmers listed important actions not taken last year because
they felt that they did not know enough about the outcome. Evident-
ly, these farmers felt that they did not know enough to be ready, will-
ing and able to act and thus were either in the inaction or learning
situations previously defined or were taking negative risk actions.
The wording of the questions prevents further breakdown of the re-
sults.
Two questions were asked on the forced-action situation. First,
the 31 farmers were asked to list things which they did because they
were forced by circumstances beyond their control even though they
felt their knowledge was inadequate. Seven of the 31 farmers listed
such actions. The outside circumstances included dry weather, corn
shortages, and money shortages. Second, the 31 farmers were asked
to list things they did not do because outside circumstances prevented
them, even though they felt they knew enough about the situation to
risk action. Twenty-three of the 31 farmers offered examples. It is
felt that the answers to these two questions were inadequate for a
number of reasons, including: (1) an apparent unwillingness to ad-
mit being forced to do something because of outside circumstances,
and (2) a tendency to list cost-increasing factors as outside forces.
In general, about all that can be concluded is that the forced-action
situation was recognized by some of the farmers sampled, and that it
is difficult to distinguish forced negative actions from inaction and
negative risk actions.
Another question directed toward the 31 farmers was designed to
ascertain the importance of the flexibility principle and the learning
situation. Specifically, they were asked, "Do you postpone decisions
in order to have more time to learn? In other words, do you often


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


'wait and see' how things come out before making up your mind?"
Of the 31 farmers, 29 indicated that they follow this procedure, and
2 whose answers were inconsistent said they did not while giving
advantages and disadvantages indicating that they did. Each farmer
was asked to list the advantages and disadvantages of this procedure.
Among the advantages listed in favor of the "wait and see" or learn-
ing attitude, by the interviewer, were such phrases as: "saves from
complete loss sometimes," "safer to wait and see-make more in long
run," "learn more by experience," "learn more before making de-
cisions," "can't be too hasty on a farm, must wait and see," "may waste
time and money on some unproven venture," "may jump in before
having enough knowledge," "may decide too quick and lose when you
could have gained by waiting." Among the disadvantages listed
against the "wait and see" or learning attitudes by the interviewees
were such phrases as: "on good things, lose by not acting," "sometimes
lose by waiting till too late to do much about it," "situation some-
times gets worse instead of better; when the time is right, act then,"
"loses a lot of time waiting to see how things turn out," "sometimes
there would have been more gain in making up one's mind earlier,"
"might miss big profits," and "may wait too long; may have been just
what should have been done."
Three conclusions can be drawn from the above: (1) the learning
situation was empirically important, (2) farmers do take steps to
prolong the learning situation, i.e., to keep the business flexible in
order to gain from what can be,learned, and (3) farmers have clear-
cut ideas about the nature and extent of the costs and values of flex-
ibility. Though this particular question was not well designed to
indicate whether or not farmers are aware of the nature and extent
of the costs of learning, the answers given imply that they are. The
same may be said with respect to the value of what is learned.
A question dealing with the value of what is learned was also
asked. More specifically, the farmers were asked, "Do you often feel
that it is not worthwhile learning about 'something new' because you
are not able to use what you learn for some reason or another?" The
question was poorly asked from several standpoints, i.e., the word
"often" made it hard to know what a "yes" or "no" answer meant, and
the question did not focus the farmer's mind specifically on the costs
and value of what is learned. Further, inasmuch as the question was
asked by a representative from an institution of learning, the farmers
may have been reluctant to give a "no" answer.
Of the 31 farmers questioned, nine indicated that they "often felt"
it not worthwhile to learn about "something new" because they were
unable to use what was learned. These nine, in giving their reasons,


1954]







BULLETIN NO. 619


indicated that they considered information learned valueless if un-
usable and therefore not worth its cost. Among the reasons given by
the 22 indicating that they continue to learn even if something pre-
vents their use of what is learned, there was considerable evidence
that long-time values were often placed on what was learned despite
its uselessness in the immediate situation. Reasons recorded by the
interviewer included such phrases as "anything learned might be used
someday," "like to know even though cannot use," "like to have a
backlog of knowledge," "never hurts to know more," and "should keep
up with the times." The evidence was strong among the answers that
the costs of learning are weighed by farm managers against the value
or usefulness of what can be learned.

General Learning Methods
In an attempt to explore further into learning methods used by
farmers, the 31 farmers were questioned as to the relative importance
of deduction and induction in their learning processes.
In order to secure an idea of the proportion of the farmers em-
ploying deductive thought processes, they were asked, "When you are
trying to learn, do you sometimes find out that something is true and
then 'play with the idea' trying to see in your 'mind's eye' how it
would work for you?" Thirty of the 31 farmers interviewed answered
"yes" and the interviewer of the farmer who answered "no" indicated
that he thought the farmer failed to understand the question.
In order to secure an idea as to the proportion of farmers employ-
ing inductive reasoning processes, they were asked, "When you are
trying to learn, do you sometimes observe several outcomes (say, on
neighbors' farms or as reported in magazines and newspapers) and
then conclude that what works for others will work for you?" Every
farmer questioned, indicated that he employed this technique of
reasoning. Thus, we conclude that virtually all of the 31 farmers em-
ployed both deductive and inductive reasoning techniques.
Two more questions were asked about deductive and inductive
reasoning. First, the farmers were asked which of the two methods
came most naturally to them. In answer to this question, 11 indicated
that deductive methods came most naturally and 20 that inductive
methods came most naturally. The second question inquired as to the
percentage of times they use the two methods. The answers for the
81 farmers indicate they employed deductive methods about 43 per-
cent of the time and inductive methods about 57 percent of the time.
While these percentage figures are not significantly1 different from a


'At the 10-percent level.


U[Jly,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


50-50 split, the over-all indications are that among these farmers, the
use of deduction is probably somewhat less than that of induction,
though not by enough to make much difference for most purposes in
view of the limited geographic distribution of the sample.

Devices Used to Protect Against Unfavorable Outcomes
In order to bring specific situations to their minds, farmers were
asked whether or not they carried out any of 10 different measures
which would protect them against imperfections in their knowledge
and analyses and, hence, errors in their decisions.
The answers to these questions (Table 3) established the fact that

Table 3.- Protective Practices Carried and Not Carried Out by 31 Montgomery
County Kentucky Farmers, 1950
Protective practice Yes No
Carried crop insurance....................................................... 3 28
Carried fire insurance .......................................................................... 30 1
Grew more crops than would have been profitable (had you known
yields and prices with certainty) .. .............................. 2 29
Used more expensive hay curing methods in order to protect your-
self against unfavorable weather .......... ............................... 5 26
Vaccination of anim als ..................................... .............................. 21 10
Limed "just to be sure" even when you were not certain of need.... 8 23
Kept a "nest egg" of cash or money in the bank to use for a "rainy
day" ......................................................................... ......... 22 9
Trained children, hired help, and others in order to protect your-
self against costly "teen age" actions, dishonesty, failure to
carry out agreem ents, etc. ........................................................ 26 5
Failed to borrow money for obviously profitable purposes in order
to "b e safe" ................................................................................. 11 20
Kept more tractor or horse power than necessary for average weath-
er as protection against poor weather ................................. 7 24
Kept hay and feed over from one year to the next as protection
against possible low yields ....................................................... 19 12

these farmers were very selective in using protective practices. Three
out of 31 carried crop insurance while 30 out of 81 carried fire insur-
ance. Similarly, 19 out of 31 carried feed reserves over from year to
year, while only five indicated that they used more expensive hay
curing methods in order to protect themselves against poor weather.
The data presented in Table 7 are consistent with the conclusion that
farmers reject or accept protective or insurance schemes on the basis
of (1) the importance to them of the loss insured against and (2) the
importance to them of the cost of operating the scheme.

The Use of Strategy
In order to secure an indication of the use of strategies by farm-


1954]







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


50-50 split, the over-all indications are that among these farmers, the
use of deduction is probably somewhat less than that of induction,
though not by enough to make much difference for most purposes in
view of the limited geographic distribution of the sample.

Devices Used to Protect Against Unfavorable Outcomes
In order to bring specific situations to their minds, farmers were
asked whether or not they carried out any of 10 different measures
which would protect them against imperfections in their knowledge
and analyses and, hence, errors in their decisions.
The answers to these questions (Table 3) established the fact that

Table 3.- Protective Practices Carried and Not Carried Out by 31 Montgomery
County Kentucky Farmers, 1950
Protective practice Yes No
Carried crop insurance....................................................... 3 28
Carried fire insurance .......................................................................... 30 1
Grew more crops than would have been profitable (had you known
yields and prices with certainty) .. .............................. 2 29
Used more expensive hay curing methods in order to protect your-
self against unfavorable weather .......... ............................... 5 26
Vaccination of anim als ..................................... .............................. 21 10
Limed "just to be sure" even when you were not certain of need.... 8 23
Kept a "nest egg" of cash or money in the bank to use for a "rainy
day" ......................................................................... ......... 22 9
Trained children, hired help, and others in order to protect your-
self against costly "teen age" actions, dishonesty, failure to
carry out agreem ents, etc. ........................................................ 26 5
Failed to borrow money for obviously profitable purposes in order
to "b e safe" ................................................................................. 11 20
Kept more tractor or horse power than necessary for average weath-
er as protection against poor weather ................................. 7 24
Kept hay and feed over from one year to the next as protection
against possible low yields ....................................................... 19 12

these farmers were very selective in using protective practices. Three
out of 31 carried crop insurance while 30 out of 81 carried fire insur-
ance. Similarly, 19 out of 31 carried feed reserves over from year to
year, while only five indicated that they used more expensive hay
curing methods in order to protect themselves against poor weather.
The data presented in Table 7 are consistent with the conclusion that
farmers reject or accept protective or insurance schemes on the basis
of (1) the importance to them of the loss insured against and (2) the
importance to them of the cost of operating the scheme.

The Use of Strategy
In order to secure an indication of the use of strategies by farm-


1954]







44 BULLETIN No. 619 [July,

ers, the 31 farmers were asked, "When buying and selling land, hay,
livestock, machinery, automobiles, do you find buyers and sellers
trying to put personal pressures on each other, such as:
1. Buying when the seller "has to sell."
2. Trying to make the buyer believe the item is really worth more
than it actually is.
3. Trying to make the seller think the item up for sale is in "poor
shape," "out of date," etc., in order to reduce the price asked.
Without exception, every farmer questioned answered "yes" to
these three questions. When asked, "Can a farmer be successful with-
out at least taking steps to protect himself against such actions on the
part of others?" the answer was unanimously "no." The conclusion
is unescapable-any complete formulation of managerial concepts and
principles must include the role of strategies.







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


SUMMARY, CONCLUSIONS, AND
IMPLICATIONS

A survey of existing managerial concepts indicates that manage-
ment's main task is that of adjusting a business to imperfect knowl-
edge and change, the five steps in this process being observation,
analysis, decision making, action, and acceptance of responsibility for
action.
In performing these five steps or tasks, systems of convictions, be-
liefs and organized thought patterns help managers envision prob-
lems and see what should be observed. Organized thinking patterns
contribute to both analysis and decision making. Broadly speaking,
these thinking patterns tend to be inductive and/or deductive in na-
ture with combinations of the two approaches the most important.
One core set of managerial principles appears to involve the process
of ascertaining the optimum amounts of observation and analysis
needed in order to assure that the cost (in personal subjective terms
as well as objective terms) of performing more of these activities will
at least be equaled by the value of the additional results obtained.
The subjective nature of managerial activity makes it increasingly
difficult to distinguish between the firm and household in economic
theory, a situation recognized in the land-grant system in such de-
velopments as the farm and home development programs.
In making decisions and accepting responsibilities, certain psy-
chological patterns appear important. Persons adjusted to their pres-
ent income level and social status appear to attach increasing im-
portance to increases in income as the changes involved become large
enough to make significant improvements in their socio-economic
level possible. This condition causes persons to accept long chances
of making gains capable of bringing about major changes in their
level of living even if the odds are or appear to be quite unfavorable.
It also appears reasonable to expect people who are well adjusted to
their income level and social status to attach increasing importance
to decreases in income as the changes involved become large enough
to cause serious reductions in their socio-economic level. This con-
dition causes persons to insure against such losses even when the
odds are sufficiently unfavorable to pay the administrative costs and
profits to the insurance company.
Also, in connection with decision making and the acceptance of
economic responsibility, certain strategy principles are important.
Part of these strategy principles are impersonal, i.e., the manager


1954]







BULLETIN No. 619


sometimes operates against an impersonal economic or physical sys-
tem which does not respond to his actions. Included among the prin-
ciples useful in these situations are the insurance principles, long-
chance-taking principles and, if learning is possible, the flexibility
principles. The other strategy principles are personal in nature and
are employed, mainly, by managers dealing with individuals or or-
ganizations capable of responding to the manager's actions. The per-
sonal strategy principles deal with the use of force in all forms at the
disposal of the manager, the exploitation of strategic position, cover-
ing up, discovery of an opponent's intentions, and such.
A survey of the informational services extended to farm managers
indicates that the main problems which farm managers handle grow
out of (1) imperfect knowledge of existing production methods,
(2) imperfect knowledge of existing prices and changes in prices,
(3) changes (innovations) in production methods, (4) changes in
social-economic and governmental arrangements, and (5) imperfec-
tion of knowledge about and changes in the personalities important
to the operation of the business.
The above concepts and implied principles were tested by a sur-
vey of 31 Montgomery county farmers having small- to medium-sized
farms located on mixed limestone-shale soils of medium fertility, just
west of the first escarpment of the Appalachians, with the follow-
ing results:
1. In general, this survey confirmed the realism of the managerial
concepts and principles assembled, integrated, and expanded from
the fields of economics, farm management, statistics, logic, and psy-
chology.
2. All five problem areas (price, production, innovations, human
relations, and institutions) proved to be important, the listing how-
ever appearing somewhat incomplete. An interest in instruction in
performing the managerial tasks was evidenced in connection with
crop combinations and diversification.
3. The farmers surveyed sought information from various sources,
probably going to those sources in position or desiring to service them
best. In general:
(a) The land-grant system appeared to be a good source of static
information particularly on existing production methods.
(b) Commercial sources appeared to provide dynamic informa-
tion more effectively, particularly on:
(1) prices, in which case the radio, press and local markets
were important, and on


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


(2) new developments and inventions, in which case the
radio, press, and farm implement dealers were important.
(c) The Farm Bureau, government agencies, the press and radio
appeared to be good sources of information on government
programs and taxes.
(d) The manager himself appeared to be his own best source of
information on human nature problems.

4. The 31 farmers surveyed indicated by answers to both direct
and indirect questions that the subjective uncertainty situations are
important.
5. Within the subjective uncertainty category:
(a) Risk situations were important.
(b) Forced action situations were important, though forced nega-
tive actions were confused with negative risk actions and
with inaction due to lack of knowledge.
(c) The learning situation appeared to be particularly important.
6. In connection with the learning situation:
(a) Subjective costs and values of learning were recognized by
farmers in the comments which they made.
(b) The flexibility principle, including concepts of the value of
flexibility, its costs and its functions, was seen by a large pro-
portion of the farmers.
7. All farmers giving clear-cut answers to the questions on whether
or not they employ deductive reasoning indicated that they did.
8. All farmers indicated that they employed inductive reasoning.
9. Answers to questions concerning whether deductive or induc-
tive reasoning came most naturally to them and as to the proportion
of time each method was employed, indicate that a slightly heavier
emphasis was being placed on induction than on deduction.
10. Three questions were asked on the employment of personal
strategies in managing farms. All 31 farmers were unanimous on all
three questions in indicating that such strategies were employed.
Further, when asked whether a farmer could be successful in farming
without taking steps to protect himself against such strategies, they
unanimously indicated that he could not.
The concepts and principles summarized above, along with the
conclusions drawn, have several important implications for agricul-
turalists. These concepts and conclusions bear directly on the work


1954]







BULLETIN NO. 619


of farm management researchers, extension personnel, farm manage-
ment teachers, and farmers.

Implications for Farm Management Researchers
The emphasis which this study indicates that farmers place on
learning activities and subjective values, suggests the need for a basic
reorientation for farm management research. Historically, farm man-
agement research has been pointed primarily at the furnishing of
information to farmers with respect to production problems. Our
study indicates that research should be done on ways and means of
increasing the skill with which the five managerial tasks (observing,
analyzing, decision making, acting, and bearing responsibility) are
performed. The study also indicates that much research is needed
on the roles which subjective values play in the management of farms,
that is, the subjective importance of income changes, of security, of
flexibility, of the results of learning, and such. Apparentlyjfarm man-
agement research needs to be reoriented toward solving managerial
problems of farmers rather than toward the problems of organizing
ad operating farms.

Implications for Extension Workers
The results summarized and the conclusions drawn also have im-
portant implications for extension workers in all fields of agriculture
as well as for those in farm management. The survey indicates that
farm managers face problems in the following five fields: existing
production methods, prices, innovations, social, political and economic
institutions, and personalities. The extension service is essentially a
governmental agency designed to speed up the flow of information
to farm managers. The results summarized herein indicate that ex-
tension activities in Montgomery county have been most effective in
furnishing information on production methods and prices, that the
extension service is somewhat less effective in furnishing information
on innovations and institutions, and virtually noneffective in furnish-
ing information on personality problems. General observation indi-
cates that these conclusions apply over wide geographic areas. This
suggests that perhaps the extension service should make a concerted
attempt to present a more balanced program for disseminating data
and information to farmers in all five of these problem areas. The
farm and home development, balanced farming, etc. programs repre-
sent a step in the right direction in this respect.
Another important implication for the extension service arises
from the importance of deductive reasoning among managers revealed
by this study. Apparently, it is fair to say that the major emphasis


[July,







MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


of the extension service is on inductive teaching-teaching by dem-
onstration and illustration. Yet, by contrast, this study indicates tenta-
tively that deductive learning processes are almost as important as
inductive learning processes in the managerial activities of farmers.
If this be so, it suggests that extension teaching techniques might
profitably be reoriented to balance the use of deductive teaching
methods against the proportion of time farmers employ such reason-
ing methods in the solution of their managerial problems.
With respect to farm management extension, the study has direct
implications. The roles of learning (observation, analysis, decision
making), action, and responsibility bearing in managerial activities
are being established in economic theory and are being confirmed by
such studies as the survey of Montgomery county farmers reported
herein. This suggests that one of the primary jobs of farm manage-
ment extension workers should be to increase the skill of farmers in
the performance of these five managerial tasks. Training for skill in
performing these managerial tasks necessarily involves far more than
furnishing the farmers data and information on production methods,
prices, innovations, institutions, and personalities. It involves train-
ing farmers in methods of both inductive and deductive logic. Farm-
ers can be trained to use the tools of statistical reasoning, economic
principles, budgeting, and logic. Training in these skills also involves
the analyzing of results of the various alternative actions which may
Ie-tfaken in a given situation and development of ability to see the
responsibilities which must be borne for action taken. And, as these
Responsibilities cross the indefinite line between the farm home and
the farm business, the training must cover the importance of family
goals and objectives in the management of business affairs. The use
of strategies are also important in making decisions, acting, and bear-
ing responsibilities-all farmers surveyed used strategies, yet the ex-
tension service does not train farmers in their use.

Implications for Farm Management Teachers
The implications of the above concepts, principles, and conclusions
for farm management teachers are very similar to the implications
for farm management extension workers. The need exists to reorien-
tate farm management teaching from an emphasis on the distribution
of data and information concerning the problems management must
handle to an emphasis on training in performance of the managerial
tasks. Students need to be trained in the inductive and deductive
reasoning methods so important at arriving at sound decisions, if they
are to understand the tasks of a manager. Students also need to be
made aware of the interrelationship between decision making and


1954]







50 BULLETIN NO. 619 [July,

action taking and of the responsibilities which managers must bear.
They need to be made aware of the costs and values of learning in
the managerial processes. They also need to be trained in the inter-
relationship between the home and business in farming, between re-
stricted consumption and investment, and the conflict between con-
sumption and saving. Further, the roles which various strategy, in-
surance, chance-taking, and flexibility principles play in the mana-
gerial processes need to be explained and demonstrated to the stu-
dents.

Implications for Farmers
The concepts, principles, and conclusions also have important im-
plications for farmers. If the five managerial tasks are correctly de-
lineated in this report, then any farmer, by acquiring skill in the per-
formance of the functions, can make himself a better manager. And,
as a better manager, a farmer can expect to earn more dollar income
and, more importantly, attain a higher degree of satisfaction from the
resources at his command.







MANAGERIAL CONCEPTS FOR AGRICULTURALIS'TS


APPENDIX A
CASE STUDY QUESTIONNAIRE

I. Think back to the period during which you became a farmer:
A. Why did you want to farm?
1. Did you think you could earn more money at farming than at
other occupations open to you?
2. Did you think you would derive more "real satisfaction" from farm-
ing than from any other occupation open to you?
If married, did your wife agree with you?
B. At that time, how much attention did you attach to management, in
contrast to plain work?
C. Tell me, what did you think was included in the job of managing a
farm when you started farming?
D. How did you get together the land, livestock and equipment to start
farming?
E.' Describe the "layout" which you had when you started?
F. How much money did you borrow when you started?
Was the amount borrowed too little or too much?
If too little, why didn't you borrow more?
G. If you had known what would happen to prices, would you have bor-
rowed more or less money than you did?
H. If you had known what would happen to yields, would you have bor-
rowed more or less money than you did?
I. If you had been able to foresee the inventions, plant improvements
and increased availability of fertilizer which occurred since you started
farming, would you have borrowed more money to start out with than
you did?
J. Did actions of people who could have loaned you money prevent you
from borrowing as much as you should have when you started farming?
K. Has your managerial ability increased since you started farming?
With your present managerial ability could you have borrowed enough
money when you started to start with twice as large a farm?
II. Think back to the first major decision which you made after your busi-
ness was well established.
A. What was that decision?
B. What information did you need in order to make it accurately?
C. How accurately did you feel you had to make your decision?
D. Did you have enough information to make it that accurately?
E. Would postponement of the decision have enabled you to make it
more accurately?
F. Would postponement have involved additional costs?
G. Would these costs have exceeded the value of the increase in accuracy
of your decision?
How do you measure the value of increased accuracy in decision mak-
ing?
H. Could you have organized your affairs so as to reduce these costs?
III. What is the most serious financial reverse which you have suffered?
A. Was this reverse a result of a conscious decision?


1954]








52 BULLETIN NO. 619 [July,

B. If answer to A is no, then think of a major financial reverse which
was a result of conscious decision.
C. Was this decision made on the basis of a "calculated risk"?
D. Did you feel that you had enough information at your disposal to
make this decision subject to the risk which you were willing and able
to run?
E. What would have increased the risk which you were willing to run?
F. What would have increased your ability to run risk?
G. What would have decreased the risk which you were willing to run?
H. What would have decreased your ability to run risk?
I. Are you a bigger gambler with respect to your business than your
typical neighbor?

IV. What is the best business decision which you have made since you start-
ed farming?
A. Was this decision made on the basis of a "calculated risk"?
B. Were you both willing and able to bear the consequences of taking
such a calculated risk?
C. What are the factors which would have increased the risk which you
would run?
D. What are the factors which would have decreased the risk which you
were willing to run?
E. What are the factors which would have increased your ability to run
risks?
F. What are the factors which would have decreased your ability to run
risks?

V. A. Which of the following practices do you employ or have you employed?
1. Strict adherence to a rotation
2. Continuous tobacco culture
3. Fertilization of tobacco
4. Artificial insemination
5. Use of legumes in rotation
6. Terracing
7. Contour cropping
8. Use of purebred animals
9. Use of hybrid corn
10. Use of a new variety of another crop
11. Varying the marketing of animals in accordance with current mar-
ket conditions
B. Select one of the above practices which you have adopted and tell me
why you adopted it.
C. Select one of the above practices which you have definitely decided
is not advisable for you to adopt on your farm and tell me the basis
for your decisions.
D. Select one of the above practices which you have not adopted but are
undecided about and tell me about your current thinking on the
matter.

VI. List the major business decisions which you have made since starting to
farm.







1954] MANAGERIAL CONCEPTS FOR AGRICULTURALISTS 53

VII. Has your business been adversely affected by unusual family expense?
Indicate the major instance.
A. Could you have insured against this development?
B. Did this situation arise as a result of an earlier incorrect decision, i.e.,
an unwise decision to postpone an operation?
VIII. Has your family's desire for recreation, education, household furnish-
ings, automobiles adversely affected the size of your farm? Explain.




APPENDIX B

INFORMATION USED BY FARMERS IN MAKING
MANAGEMENT DECISIONS

N am e........................ Address.......................Appr. Age.........Acres M managed ......

I. Indicate whether a farmer (who is really the manager of his farm) should
pay attention to the following in order to be successful:
1. Prices Yes........ N o........
2. Production methods Yes........ No......
3. Possible new inventions and developments Yes........ No........
4. Human nature Yes........ No........
5. Government (programs, taxes, etc.) Yes ....... No .......
II. Which, in your opinion, of the above is the most important? ....................
W which is the least im portant? ..... ...... .......... ......... .............. .... ...
III. What other subjects should a manager study?
S. ... ..... ...............................................................................................................
2 .... ............................................................... .........................................................




IV. Indicate sources of information, thinking methods, etc. which you use
in studying each of the following:
1. Prices..................................................



2 P ro d u action m eth o d s ........................................................................................



3. Possible new inventions and develop ent ...............................................








54 BULLETIN No. 619 [July,

4. H um an nature .... ........... .... .. ... .. .. .. .



5. G over m en t .... ...... ........................................... .......




V. List a number of things which you did last year even though you were
not sure of the outcome.
1. ........... .......... .. .. ... ............ ...
2 ............. .... ....... ........ ......................... ....................................... ..........
3 .................. ........... ... ............... ...... ........................ ........... .............. .......




Dept. of Farm Economics, Ky. Agr. Expt. Sta., Lexington, Ky. R &c MA 42

VI. List a number of things which you did not do last year because you felt
you did not know enough about the outcomes.
I .......... ................................... .................. .. ... ... .. ........ ....... ......... .......
2 ...... .................. ... .............................................................................................








poorly known) had you not been forced. (Indicate circumstances.)
VII. List a number of things which you did last year because forced to by
circumstances preventedhich you would not have done (because outcomes were so
poorly known) had you not been forced. (Indicate circumstances.)



















tect yourself against possible unfavorable outcomes:
Carried crop insurance .................. .......................................... Yes........ N o.....
2 ..C d........... r ...... .. ................. ................... .. ..... .. ........
3 ....................................... .............................................................................




VIII. List a number of things which you did not do last year because outside
circumstances prevented you even though you felt you knew enough.
(Indicate circumstances.)
3 ............................ .................... .. ............. ............... ... ..................................... .....







IX. Indicate whether or not you did any of the following last year to pro-
tect yourself against possible unfavorable outcomes:
1. Carried crop insurance ........................................ Yes......No........
2. Carried fire insurance ...................................................... Yes....... N o........








MANAGERIAL CONCEPTS FOR AGRICULTURALISTS


3. Grew more crops than would have been profitable
(had you known yields and prices with certainty).... Yes......
I. Used more expensive hay curing methods in order
to protect yourself against unfavorable weather........ Yes...
5. Vaccination of anim als ............................. ................. Yes......
6. Limed "just to be sure" even when you were not
certain of need ......... .... ......... .. ...... ......... ..... .......... Y es .....
7. Kept a "nest egg" of cash or money in the bank to
use for a "rainy day" ................ ............ ............. Y es .....
8. Trained children, hired help, and others in order to
protect yourself against costly "teen age" actions,
dishonesty, failure to carry out agreements, etc....... Yes .....
9. Failed to borrow money for obviously profitable
purposes in order to "be safe" ................................ Yes ....
10. Kept more tractor or horse power than necessary
for average weather as protection against poor
w eath er .................................... .......... .......... Y es. ....


11. Kept hay and feed over from one year to the next
as protection against possible low yields ..........


.. N o ......

.. N o .......
N o .......

.. N o ........

. N o........


.No....

.. N o .......


.No ...


Yes ....... No


X. Do you often feel that it is not worth while learning about "something
new" because you are not able to use what you learn for some reason or
another? Yes .... No ..... List some of the subjects and reasons below:
I .. ........ .. .... ..... .. .. ... ... .. ... .. .... . .. ... .

.. .. .
2.






IX. (a) When you are trying to learn, do you sometimes find out that

Deduction something is true and then "play with the idea" trying to see in
your "mind's Eye" how it would work out for you? Yes ..... No ...
(b) When you are trying to learn, do you sometimes observe several

Induction outcomes (say, on neighbors' farms or as reported in magazines
and newspapers) and then conclude that what works for others
will work for you? Yes........ No........

(c) Which of the above thinking procedures comes most naturally
to you? (a)........ (b) .......

(d) What proportion of the time do you use (a).......... (b) ......?

XII. Do you postpone decisions in order to have more time to learn-in other
words, do you often "wait and see" how things come out before making
up your mind? Yes ..... No ... .What are the advantages of this pro-
cedure?

1 .. .. ..


1954]








,56 BULLETIN No. 619








1 ................................................................................................................................
2 .. ................ .................................................. .........................................................
3 .. ........................... ..... ................................ ............................. ............................
What are the disadvantages of this procedure?









XIII. (a) When buying and selling land, hay, livestock, machinery, automo-
biles, do you find buyers and sellers trying to put personal pres-
sures on each other such as:

(1) Buying when the seller "has to sell?" Yes ....... No ......

(2) Trying to make the buyer believe the item is really worth more
than it actually is? Yes........ No........

(3) Trying to make the seller think the item up for sale is in "poor
shape," "out of date," etc. in order to reduce the price asked?

(b) Can a farmer be successful without at least taking steps to protect
himself against such actions on the part of others? Yes........ No.....


3M-6-54




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