• TABLE OF CONTENTS
HIDE
 Front Matter
 Half Title
 Title Page
 Frontispiece
 Preface
 Table of Contents
 Part I: Setting of the problem
 Part II: Demand and supply
 Part III: Adjustments related to...
 Part IV: The labor resource
 Part V: Public programs
 Part VI: Goals and values
 Part VII: Summary
 Index






Title: Agricultural adjustment problems in a growing economy
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00089533/00001
 Material Information
Title: Agricultural adjustment problems in a growing economy
Physical Description: xi, 315 p. : ill. ; 24 cm.
Language: English
Creator: Heady, Earl O ( Earl Orel ), 1916-1986 ( Editor )
North Central Farm Management Research Committee
Diesslin, Howard G. ( Editor )
Jensen, Harald, R. ( Editor )
Johnson, Glenn, L. ( Editor )
Publisher: Iowa State College Press
Place of Publication: Ames, Iowa
Publication Date: 1958
Copyright Date: 1958
 Subjects
Subject: Agriculture -- Economic aspects -- United States   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographical references and index.
Statement of Responsibility: edited by Earl O. Heady ... et al.. ; assembled and published under the sponsorship of the North Central Farm Management Research Committee.
 Record Information
Bibliographic ID: UF00089533
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 02603142
lccn - 58006836

Table of Contents
    Front Matter
        Front Matter 1
        Front Matter 2
    Half Title
        Page i
        Page ii
    Title Page
        Page iii
        Page iv
    Frontispiece
        Page v
        Page vi
    Preface
        Page vii
        Page viii
    Table of Contents
        Page ix
        Page x
        Page xi
        Page xii
    Part I: Setting of the problem
        Page 1
        Page 2
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    Part II: Demand and supply
        Page 59
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    Part III: Adjustments related to structure
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    Part IV: The labor resource
        Page 143
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    Part V: Public programs
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    Part VI: Goals and values
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    Part VII: Summary
        Page 303
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    Index
        Page 313
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Full Text






























Agricultural Adjustment Problems

in a Growing Economy







* A compilation of essays on problems, research techniques, and re-
sults of investigations dealing with adjustments needed in American
agriculture.
* Dedicated to the proposition that progress is made by discussing
hypotheses, theories, techniques, and illustrations of their use even
though some are still in their formative stages.
* Published for use by students, researchers, teachers, and administra-
tors who are daily confronted by problems in this important area.
























In This Same Series:

Resource Productivity, Returns
to Scale, and Farm Size
Earl O. Heady, Lowell S. Hardin, and
Glenn L. Johnson, editors (1956)










AGRICULTURAL

ADJUSTMENT PROBLEMS


IN A GROWING ECONOMY

Assembled and published
under the sponsorship of the
NORTH CENTRAL FARM MANAGEMENT
RESEARCH COMMITTEE


Earl O. Heady
Professor of Economics
Iowa State College

Howard G. Diesslin
Associate Managing Director
Farm Foundation

Edited by Harald R. Jensen
Associate Professor of
Agricultural Economics
Purdue University

Glenn L. Johnson
Professor of
Agricultural Economics
Michigan State University






LLLS. THE IOWA STATE COLLEGE PRESS Ames, Iowa, U.S.A.
















North Central Farm Management

Research Committee


Administrative Advisor
L. M. TURK, Michigan State University

State Members


Illinois
Indiana
Iowa
Kansas
Kentucky
Michigan
Minnesota
Missouri
Nebraska
North Dakota
Ohio
South Dakota
Wisconsin


J. E. WILLS, University of Illinois
L. S. ROBERTSON, Purdue University
EARL O. HEADY, Iowa State College
J. A. HODGES, Kansas State College
HARALD R. JENSEN, University of Kentucky
GLENN L. JOHNSON, Michigan State University
GEORGE A. POND, University of Minnesota
CLAY R. MOORE, University of Missouri
A. W. EPP, University of Nebraska
WALTER L. WILSON, North Dakota State College
J. H. SITTERLEY, Ohio State University
RUSSELL L. BERRY, South Dakota State College
S. D. STANIFORTH, University of Wisconsin


Farm Foundation
JOSEPH ACKERMAN
HOWARD G. DIESSLIN

United States Department of Agriculture
C. W. CRICKMAN







O 1958 by The Iowa State College Press. All rights reserved.
Library of Congress Catalog Card No.: 58-6836







































Participants in North Central Farm Management Research Committee Conference on "Agricultural Adjustment Problems in a
Growing Economy," held in Chicago, Illinois, March 18-19, 1957.


















Preface


THIS book includes the papers presented at a conference on "Ad-
justing Commercial Agriculture to Economic Growth," sponsored
by the North Central Farm Management Research Committee in
cooperation with the Farm Foundation. This conference, held March
18-19, 1957, was designed to cover the major aspects of the current
farm problem, and to bring together outstanding agricultural economists
in the various fields discussed.
The reasons for holding the conference are well known. In a period
of full employment and a rising national income, agriculture has been
faced with a declining income. Apparently, adjustments in production
and resources used by agriculture have not been sufficiently rapid to
allow resource returns and incomes in agriculture which compare fa-
vorably with the rest of the economy. From the standpoint of the na-
tional economy, resources are being used to produce a surplus of farm
products when consumers indicate that their welfare might be bettered
if some resources were moved out of agriculture.
The cost-price squeeze, which developed in the 1920's and recurred
in the 1950's, appears to be in prospect for the next decade or longer.
If the wishes of consumers, as expressed in the market, are used as the
criterion, some important adjustments apparently are required in agri-
culture: Fewer and larger farms which can produce at lower unit costs
are necessary. A transfer of labor resources is required. Farming
resources must be used more efficiently and the supply of products must
be made to conform more nearly to consumer demand. Adjustments of
this nature would allow a more favorable income per person in agriculture.
The conference was developed with the idea of giving a broad and
deep view of the adjustment problem and its possible solution. The
papers include:
1. A summary of the existing situation in respect to farm income,
demand outlook, farm output, and trends in farm:numbers, size and re-
source productivity.
2. An analysis of the basic forces giving rise to the current income
and adjustment problems.
3. An inventory of current empirical knowledge which can be used
for predicting future conditions and for recommending adjustments in
resources used in agriculture.







PREFACE


4. An indication of the direction and extent to which adjustments in
agriculture should be made in terms of: (a) scale economies and factor
and product prices, (b) relative consumer demand for farm and non-
farm products, and (c) the values held by society in respect to size of
farms and the farm population.
5. An outline of the research, educational, and policy steps which
could and perhaps should be used to improve resource use and income
in farming and to adjust agriculture in line with prospective economic
growth.
The basic purposes of the conference were to: (1) outline what al-
ready is known about adjustments needed in agriculture and solutions
to the adjustment problem, (2) develop promising hypotheses, concepts,
and empirical techniques, which can prove useful in further solution of
the scale, resource use, and supply and income problems of commer-
cial agriculture. It is a follow-up to the 1954 Conference of the com-
mittee reported in Resource Productivity, Returns to Scale and Farm
Size, Iowa State College Press, 1956. The conference is expected to
serve as a foundation for developing several regional or interregional
research projects to fill gaps in knowledge where they exist.
The North Central Farm Management Committee wishes to express
appreciation to the persons who prepared papers and discussions for
analysis of this important problem, to the Farm Foundation for making
possible the conference and the publication of the proceedings, and to
Maudie Nakada, Elaine Martenson, and Marlene Bress of the Farm
Foundation for their fine assistance and cooperation in preparing the
manuscript for publication.

Conference Committee and Editors:

Earl O. Heady, Chairman
Howard G. Diesslin
Harald R. Jensen
Glenn L. Johnson

















Contents


Page


I. SETTING OF THE PROBLEM


Earl O. Heady
Joseph Ackerman
George A. Pond
Lynn S. Robertson
Howard G. Diesslin
R. F. Daly
Sherman E. Johnson
Glen T. Barton
James S. Plaxico


1. The Income and Resource Problem. .


Discussion................
2. The Agricultural Production Plant . .

Discussion . . . . . . . ..
3. Effects of Technological Research
and Education . . . . . . .
Discussion . . . . . . . .


II. DEMAND AND SUPPLY

Norman R. Collins 4. Demand Functions and Prospects. . .
George L. Mehren
Glenn L. Johnson 5. Supply Function -Some Facts
and Notions ...............
Willard W. Cochrane 6. Some Additional Views on Demand
and Supply ................


In. ADJUSTMENTS RELATED TO STRUCTURE

James T. Bonnen 7. The Structure of Agriculture . . .
William A. Cromarty
A. W. Epp Discussion ................
Cecil B. Haver 8. Institutional Rigidities and Other


Imperfections in the Factor Markets .


109

128


130


.






CONTENTS


Earl R. Swanson


Page
Discussion ............ ... 141


IV. THE LABOR RESOURCE


Earl 0. Heady

C. W. Crickman
D. Gale Johnson

Earl R. Swanson
C. E. Bishop

J. H. Sitterley
Vernon W. Ruttan

Mervin G. Smith


Harald R. Jensen

Lowell S. Hardin
Ernest J. Nesius

Lowell S. Hardin
G. E. Brandow

John A. Schnittker


9. Adjusting the Labor Force
of Agriculture . . . . . ... 145
Discussion. . . . . . . 160
10. Labor Mobility and Agricultural
Adjustment ................ 163
Discussion. . . . . . . . 173
11. The Labor Market and the
Employment Service. . . . . ... 175
Discussion .. . . . . . .... 183
12. The Potential in Rural Industrialization
and Local Economic Development. . 185
Discussion ................ 198


V. PUBLIC PROGRAMS

13. Technological Research in Relation
to Adjustments. . . . . . ... 205
Discussion. .. . . . . . 222
14. Extension Education for Guiding
Adjustments . . . . . . . 225
Discussion . . . . . . ... 232
15. Current Programs in Relation
to Needed Adjustments . . . ... 236
Discussion . . . . . . 249


VI. GOALS AND VALUES


C. B. Baker

A. N. Halter
W. Robert Parks


16. Instrumental Goals and
Economic Growth . . . . .... 253
Discussion . . . . . . ... 267
17. Historical Goals and Political,
Behavior in Agriculture. . . . ... 270







CONTENTS xi

Page
A. N. Halter Discussion ................. 282
C. M. Bogholt
Kenneth H. Parsons 18. The Value Problem in Agricultural
Policy .... ..... .......... 285
C. M. Bogholt Discussion .. . . . . . 300


VII. SUMMARY

Harold G. Halcrow 19. Summary -Prospects and Proposals
for Adjustments in Agriculture ..... .305

Index. .................. 313



















PART I

Setting of the Problem









Chapter 1


EARL 0. HEADY Te I e
Iowa State College e I e
JOSEPH ACKERMAN and Resource Problem
Farm Foundation



AMERICANS have levels of living which are among the best in the

world. Gross national income for the United States has more than
doubled since 1929, and disposable personal income has increased
by about half in the same period. Income and goods available to the con-
sumer are still increasing. The results of these increases are seen
everywhere: in the amount and variety of food, in the adequacy of hous-
ing, in the number of home appliances and automobiles, in health, edu-
cational, and recreational services, as well as in other goods and serv-
ices. These improvements and conveniences are no longer considered
luxuries, but are simply part of the "American way of life." Still the
end is not in sight. It is predicted that, aside from temporary reces-
sions, national and personal income will continue the sharp upward
climb. In the past, these changes in incomes have been accompanied by
changes in consumer spending patterns. These changes will continue
into the future with the result that premiums or penalties will attach to
incomes of different persons and industries.
In part, the accomplishments of agriculture have made possible this
progress. At the same time, this economic progress, to which farming
has made an important contribution, has caused arid is causing income
and transfer problems in agriculture. In becoming highly productive and
efficient, agriculture has freed labor for use elsewhere in the economy,
for production of the other goods and services which now characterize
the American way of life.
A nation can be wealthy only if few of its resources are required to
produce food for subsistence. The standard of living in many parts of
the world is low because so much of the labor force must be used in
producing food. Estimates indicate that 45 to 50 percent of Russia's
labor force must be used in producing food. In some parts of the world
the figure is as high as 80 percent. In contrast with these figures, United
States farms require only about 10 percent of the total labor force. Table
1.1 shows the trend in population and the farm labor force, as a percent
of the nation's total, since 1920. Agriculture has been shrinking, rela-
tive to the remainder of the economy, in labor and capital resources em-
ployed and in income produced. This is, of course, to be expected in a
wealthy and growing economy. This trend will continue in the United
States, and further economic growth can be anticipated as agriculture






EARL O. HEADY AND JOSEPH ACKERMAN


continues to use a smaller proportion of the nation's resources and to
produce a smaller proportion of the nation's income.
Table 1.1. Trends in People Living on Farms and
in Persons Employed in Agriculture, 1920-55*

Percentage of
Percentage of available labor force
Year nation's population employed mainly in
living on farms agriculture

1920 30.1 27.0
1940 23.2 17.2
1950 16.6 11.9
1955 13.5 10.1

*Source: Farm Income Situation (AMS).

Currently, each United States farm worker can produce food for 20
persons. Only one person out of 20 need be engaged in producing food;
the other 19 are freed to produce other goods and services and to help
the national income grow in other directions. As technological progress
continues, our farms will be able to produce food with still less labor.
Output per man hour in farming is expected to increase by over 35 per-
cent in the next 10 years.
This, then, is the healthy picture of agriculture; it is a development
from which most consumers have benefited greatly. Food is available
in quantity and quality at a relatively low price. In contrast with some
areas of the world, where a major part of the consumer's budget goes
for food, the U. S. family need spend only a relatively small portion of
its income for food, leaving more for other goods and services.


THE INCOME SITUATION

But this complex of forces gives rise to one of our major farm prob-
lems today. The picture today is this: National income is at a record
level and has grown at a rate of 6 percent per year since 1950. Aside
from temporary setbacks, this general trend is expected to continue. In
contrast, total farm income declined by about 25 percent from 1951 to
1955; net income per farm declined by 23 percent, since the number of
farms also declined. Hence, we are in a period when national "prosper-
ity" has been moving rapidly upward, but farm income has been going
as rapidly downward, even though physical productivity in agriculture
is still increasing.
The major cause of the surplus and income problem in agriculture
is: Food output has been increasing faster than can be absorbed by
growth in the population and national income. But other things have
added temporarily to the problem. Export demand, particularly for
wheat and cotton, has fallen rapidly in the last few years. Export de-
mand had started to decline before the Korean outbreak, since farm







INCOME AND RESOURCE PROBLEM


production had recovered in most of the world by then. In some parts
of the world, production was substantially above prewar levels by 1950.
The Korean War interrupted the decline in export demand and caused
some buildup of stocks in importing countries. U. S. farm exports rose
sharply. With the end of the conflict, export demand again decreased.
From 1952 to 1955, wheat exports dropped 50 percent; cotton exports
dropped about 30 percent. By the end of the 1953 crop year, wheat
stocks had grown to more than 900 million bushels an amount 30 per-
cent larger than one year's national usage. Cotton stocks jumped from
2.8 million bales in 1951-52 to 9.6 million bales in 1953-54. The large
stocks of wheat and cotton have led to marketing quotas on these crops.
But the large acreage reduction has not eliminated the surplus problem
for these commodities.
While weather and postwar demand conditions partly account for
fluctuations in farm income since 1946, the major force giving rise to
differential income trends is economic growth or progress. Today's
commercial farm problem is not the particular aftermath of war; it is
not an "atomic fallout" from wartime economic bombs. It arises from
complex forces, the roots of which were already well established in the
1920's. The so-called cost-price squeeze, with consumers saying that
we had too many resources in agriculture, even then was being reflected
in relative prices and incomes for agriculture; farm income was lagging
behind nonfarm income. Then the depression of the 1930's and the wars
of the 1940's and 1950's came along to obscure the longer-run picture.
But the same set of forces which operated in the 1920's is with us again
today as a mark of a progressing society. These facts are emphasized
by the income data in Table 1.2 for peacetime and full employment
years since 1910. These data show that growth in agricultural income
has not begun to parallel growth in total national income, a condition
expected in a developing economy. The figures also emphasize the ex-
treme difference over the last five years.


WIDESPREAD PROBLEM

The pressure on farm incomes is neither a localized nor a homoge-
neous problem. It covers important sectors of commercial agriculture.
While nonfarm income and wage rates have moved steadily upward since
the end of the war, net income of major farm groups has fallen sharply,
even from the pre-Korean level of 1947-49. Table 1.3 shows that the
net farm income decline has varied by type of farm, with the greatest
decline taking place on farms of the Corn Belt and Great Plains. Aver-
aged for the years 1953 through 1955 to remove some of the effect of
drouth, net farm incomes for this period were 38 percent below their
1947-49 level for hog-beef farms and 17 percent below for cash grain
farms in the Corn Belt. Comparable figures include declines of 25 per-
cent for Wisconsin dairy farms, 42 percent for Southern Plains wheat
farms, and 47 percent for Northern Plains ranches. Income for Southern







EARL O. HEADY AND JOSEPH ACKERMAN


Table 1.2. Trends in National Income and Farm Income, Selected Peacetime
Years (1947-49 = 100)*

National income Farm incomea Income per worker
Year Million Million Farm Nonfarm
dollars Percent dollars Percent (percent) (percent)

1910 33,252 16.7 4,703 27.3 20.6 31.3
1911 32,393 16.2 3,888 22.5 17.1 31.8
1912 35,022 17.5 4,975 28.8 21.8 31.8
1913 37,552 18.8 4,253 24.7 18.6 35.2
1914 36,454 18.3 4,677 27.1 20.5 34.6

1921 59,272 29.7 4,138 24.0 18.4 58.4
1922 60,970 30.5 5,081 29.5 22.6 54.4
1923 71,626 35.9 5,895 34.2 26.6 58.0
1924 71,251 35.7 5,681 32.9 25.9 58.7
1925 76,304 38.2 7,575 43.9 34.6 57.2
1926 80,937 40.5 6,810 39.5 31.2 61.0
1927 79,123 39.6 6,569 38.1 30.9 59.5
1928 81,467 40.8 6,844 39.7 32.1 59.9
1929 87,122 43.6 7,024 40.7 32.7 61.1

1946 169,730 85.0 16,721 97.0 96.6 86.8
1947 185,296 92.8 17,383 100.8 99.5 93.6
1948 208,980 104.7 19,704 114.3 103.0 102.4
1949 204,641 102.5 14,651 85.0 87.4 103.9
1950 220,151 110.3 15,459 89.6 98.4 108.2
1951 250,779 125.6 18,003 104.4 119.1 116.7
1952 266,406 133.4 17,004 98.8 116.9 122.8
1953 277,893 139.2 15,094 87.5 104.6 126.6
1954 276,780 138.6 14,239 82.6 100.2 128.9
1955 296,398 148.5 13,429 77.9 96.9 135.7

*Source: Farm Income Situation (AMS) and Federal Reserve Bulletin.
aIncludes government payments, 1933-55.
bTotal income divided by number of persons employed.

Piedmont cotton farms increased by 19 percent, and tobacco cotton
farms, where incomes were not high at the outset, registered slight
gains. However, part of these declines must be attributed to short-run
fluctuations, such as drouth and hog cycles in the Corn Belt and drouth
in the Great Plains.
Specialized fruit and vegetable farms, those producing commodities
with highest income elasticities, have generally fared better than those
producing staple commodities with low price and income elasticities.
In this sense, the income and resource problems of the various segments
of agriculture are not entirely homogeneous. Neither are the solutions
homogeneous for those geographic regions which are depressed. For
example, the adjustment problem is quite different between communi-
ties with little developing industry, such as western Kansas, and those
with rapid local economic growth, such as parts of the eastern Corn
Belt. It is different in spring wheat areas, with a declining per capital
demand for its product, as compared with parts of Arizona and California,





Table 1.3. Farm Costs and Returns, Typical Commercial Family-Operated Farms, by Type of Farm*

Corn Belt
Hog-beef E. Wisconsin S. Piedmont S. Plains N. Plains
fattening Cash grain dairy cotton wheat cattle ranches
Size of farm (acres)
1937-41 178 209 115 158 586 3,322
1953-55 198 228 126 175 696 4,100

Total farm capital
1937-41 $20,380 $29,950 $12,420 $ 4,700 $19,460 $20,730
1953-55 59,780 88,030 33,717 15,390 74,470 71,480

Net cash income
1937-41 1,478 1,788 912 206 434 418
1947-49 9,814 8,140 3,061 921 8,962 5,629
1953-55 6,568 6,247 2,050 1,200 6,086 3,385

Indexes: 1947-49 = 100

Crop yield per acre
1937-41 99 99 82 83 53 51
1953-55 105 111 121 111 82 98 '

Production per hour labor
1937-41 77 78 79 78 52 64 -
1953-55 115 114 131 125 96 107 t

Power and machinery
1937-41 71 69 62 54 57 65
1953-55 131 135 149 137 124 130

Net farm income
1937-41 24 29 35 32 12 15
1947-49 100 100 100 100 100 100
1953-55 62 83 75 119 58 53 -a

*Source: "Farm costs and returns, 1955, commercial family-operated farm by type and location," Agr. Inf. Bul. 158.







EARL O. HEADY AND JOSEPH ACKERMAN


where some expansion in per capital demand for agricultural products
is being realized.


ADJUSTMENTS REQUIRED

Agriculture in a wealthy, rapidly growing economy will generally be
faced with a cost-price squeeze and a relative "dampening" of income.
The reason is this: As incomes of consumers increase, food no longer
becomes their major concern. They want more home appliances, better
housing, television sets, recreation, travel, and education. Hence, as
his income increases, the American consumer spends relatively little
more on food. In fact, he does not buy more pounds of food, but simply
changes the composition of the food purchased. The consumer shifts
from fats, starchy foods, and similar staples to fresh vegetables, better
cuts of meat, fruit, etc. The pounds of food consumed per person has
not increased in the last 40 years. Increased expenditures for food, as
consumer income rises, is due partly to the purchase of more expensive
food, but more particularly to the purchase of extra services which go
with food, such as packaging, freezing, etc.
The income elasticity for food expenditures is about .2 (or less),
which means that for each 10 percent increase in incomes of consumers,
expenditures for food increase by less than 2 percent (again with most
of this going for processing and retailing services for food). The con-
sumer does not want more food as much as he wants it in a more con-
venient package or form. Perhaps the United States has more persons
who worry about overeating than those who worry about hunger, although
improvement in the composition of diets is still possible. The con-
sumer increases expenditures more rapidly on many nonfarm products
as his income increases. While he increases expenditures on food by
less than 2 percent with each 10 percent increase in income, his expend-
itures on home appliances, housing, travel, etc., increase several-fold.
The income elasticity of demand for these goods and services is much
higher. Table 1.4 shows that agriculture's share of the gross national

Table 1.4. Agriculture's Share of Gross National Product,
1910-1954

Gross Farm gross Percentage
Year national national farm of
product product national
(billions) (billions) gross product
1910 $ 36.7 $ 5.9 16.1
1920 85.0 12.3 14.5
1929 104.4 9.8 9.4
1930 91.1 7.7 8.4
1940 100.6 6.8 6.8
1950 285.1 21.1 7.4
1954 360.5 21.3 5.9







INCOME AND RESOURCE PROBLEM


product has steadily declined since 1910. Again, this trend will continue
as national income continues to grow and the consumer allocates an in-
creasing proportion of his income to nonfarm products.
As incomes have increased consumers have been unwilling to place
higher premiums on farm products. In fact, they have tended to hold
prices of farm products down, saying that they do not need much more
poundage of food, except as the population grows and more persons need
to be fed.
Bidding higher prices or demanding relatively more nonfarm goods
and services, the consumer also bids up or maintains the cost of steel,
labor, petroleum, and other materials used particularly for those non-
farm goods with high income elasticities. Consequently, the cost of
tractors, lumber, fuel, fertilizer, and other agricultural inputs is kept
high. Table 1.5 indicates that while the proportion of total assets used
in agricultural production has decreased since 1910, the productive
assets per worker in agriculture are five and a half times as much as
in 1910; in industry the increase is only a little more than three times
as much. Agriculture is producing food for the population with an in-
creasingly smaller proportion of the labor force but has been able to
accomplish this only by using more productive assets per worker.

Table 1.5. Agriculture's Share in Total Privately Owned Tangible
Assets Used in Production 1910-55

Farm Nonfarm Percentage Productive assets
Year assets assets of total in per worker
(billions) (billions) agriculture Farm Nonfarm
1910 $ 38.9 $ 53.0 42.3 $ 3,370 $2,060
1920 71.4 139.3 33.8 6,230 4,506
1930 47.2 160.0 23.9 4,650 4,160
1940 39.8 147.2 21.3 4,170 3,190
1950 102.3 292.0 26.0 13,630 5,567
1952 130.5 370.0 26.0 19,180 6,790
1955 121.6 420.0 22.4 18,470 7,140


This, then, is the cause of the cost-price squeeze and the income
problem in agriculture. Consumers are saying that with higher incomes
and a rapid increase in agricultural technology, they wish relatively
more of the nation's resources to be used for nonfarm goods, and fewer
for farm goods than at present. They are indicating, through the pricing
mechanism, that we are producing relatively too much food and too few
other things, and that accordingly they want some labor transferred
from farming. But while consumers have been saying that they wish
only slightly more food per person, output of agriculture has increased
more rapidly than consumer demand; and we have had support prices
and other governmental programs which have not recognized the basic
nature of the adjustment program.







EARL O. HEADY AND JOSEPH ACKERMAN


THE CHALLENGE

Two major sets of forces are at work which call for adjustments in
agriculture: (1) those facets of growth which place a strain on agricul-
ture from the outside including changes in the relative importance of
products from different sectors of the economy as the consumer allo-
cates a growing income in line with his tastes and values, and (2) those
elements of progress generated within agriculture represented espe-
cially by technical improvement and the ability to expand output from a
given collection of resources. Farming is being interlaced tighter and
tighter, in terms of interdependence, with other sectors of the economy.
This interdependence, which is basically the problem of agriculture in a
nation growing progressively wealthier, would continue to call for ad-
justments in agriculture, even if adjustment-generating change within
agriculture could be halted. The composition of the product mix will
continue to change. A larger percentage of the gross national product
will be represented by those commodities with high income elasticities
of demand; a smaller percentage will be represented by those commodi-
ties with low income elasticities notably farm products in their natural
form. The pull on resources will be similar, and incomes of persons
will be affected accordingly, unless adjustment in fact keeps pace with
economic growth.
The challenge is to attain balance between agriculture and industry
in a rapidly growing economy. Somehow, we need to spread the fruits
of economic progress more evenly over the total population. We need
a "moving adjustment," and one which is more rapid, to provide com-
parability of resource returns (incomes can also be comparable) for
persons owning equal amounts of resources including their own labor.
Agriculture has contributed materially to economic progress by produc-
ing more products with less labor. Labor has been freed for use else-
where in the economy. But much of it has been left stranded in agricul-
ture, with these two consequences: (1) many farm families have had
incomes depressed, resulting in a level of living lower than is consist-
ent with an economy which is rapidly growing wealthy, and (2) the con-
suming society has not gained fully from the potential contribution of
increased physical productivity to economic progress.
The basic solution is obvious: Some resources must be transferred
out of agriculture if prices are to be used in guiding production and if
income per farm is to be sufficiently high. The reference is mainly to
labor, although adjustments in use of capital also are needed. If we had
too many kerosene lamps, shaving mugs, and buggies and too few auto-
mobiles and television sets, the answer would be simple: Move people
and production from buggies, which are in surplus, to automobiles which
are in greater demand.

ADJUSTMENT UNDER WAY

The adjustments needed in agriculture are neither revolutionary nor







INCOME AND RESOURCE PROBLEM


dramatic. They are already under way. The great excess of births
over deaths in agriculture has long required a net migration from the
industry. The number of farms and the size of the farm population has,
aside from temporary spurts during the depression and postwar periods,
declined continuously for several decades. The number of farms in the
United States declined by 600,000, or 11.1 percent, between 1950 and
1954. The number of workers in agriculture declined by 40 percent be-
tween 1910 and 1956; it declined by 23 percent even in the 10 years,
1947-56. But at the same time, farm output increased by 86 percent
between 1910 and 1956 and by 15 percent between 1947 and 1956. Con-
tinued adjustments in the farm labor force, population, and farm size
will be needed. Adjustments will need to keep pace as the temporarily
high postwar demand decreases. They will be needed to an extent which
will enable efficient farm managers, with units of efficient size, to have
favorable incomes. But just as important, adjustments are needed so
that persons who would otherwise be underemployed in agriculture,
with resulting low incomes, can take advantage of better income oppor-
tunities elsewhere. Currently, many farms are simply too small either
to use labor efficiently or to provide a good living, at prices the con-
sumer is willing to pay, to the farm family.
It is easy to say that the basic solution to the problem of commer-
cial agriculture is fewer farms, a smaller labor force, and a rate of
growth in aggregate output which matches growth in demand. But the
actual solution is not simple. Adjustments in farm numbers and the
labor force have been quite rapid and they may continue to be so. But
it is unlikely that the farm problem will vanish in a year or two. The
adjustment will necessarily continue to be gradual, although the rate
should be increased to an extent reasonably possible. Because of spa-
tial considerations, acquired values, and differences in required and
acquired skills, the adjustment process is more complex than the obvi-
ousness of the basic solution. The lathe operator can readily transfer
his skills from tractors to automobiles but the transfer from milking
cows to electronics is not as simple. Similarly, the bookkeeper who
transfers from one firm to another in Detroit can remain in his home
and community. But the western Kansas wheat farmer must break
home and community ties if he transfers to a television firm in Minne-
apolis. Also, the costs of inter-industry transfer are greater for him
than the intra-city transfer of the Detroit worker.


FLEXIBLE GROUPS

When we say that the long-run solution lies in fewer labor resources
in agriculture and in a smaller number of farms, we do not mean that
every farmer should quit farming. The majority of farm families are
experienced in this occupation. Many prefer farm life and would make
lower returns elsewhere. But many persons now on farms are still
flexible in their final choice of occupation. Included here are beginning







EARL O. HEADY AND JOSEPH ACKERMAN


operators with small families who have invested but little capital, do
not own their farms, have not developed strong community ties, and
therefore can move fairly easily. (To replace retiring farmers we, of
course, need beginners with capital and management resources who can
expect to make as much or more in farming than in other occupations.)
Also, many farmers situated near industrial opportunities can continue
as part-time farmers. But perhaps most of all, we should look upon
the problem as one of longer-term adjustment of encouraging more
of our farm youth to follow other pursuits.
Farming in general must be made more flexible. The composition
of the product mix must become more adaptable to relative changes in
demand for agricultural commodities as income per capital tends to
grow. The size of the total output and resources used needs to conform
more closely to demand. The adjustment problem in wheat areas stems
as much or more from changing consumption patterns, as incomes have
increased, as from a rate of technical progress which exceeds the rate
of growth in demand -the major problem of the feed grain economy.


ALTERNATIVES IN DEMAND AND PRODUCTION ADJUSTMENT

The income and resource problems in agriculture will be solved
through two basic sets of phenomena or relationships: demand and pro-
duction (supply) adjustment. But as these two sides of Marshall's scis-
sors are manipulated, they need to be consistent with the value systems
of farm and urban people, as well as with economic progress. Evidently
our society places a high value on progress. It makes large investments
in agricultural research and education as one means of increasing labor
productivity and progress. But what can be said about the rate of change
or progress which is desired? Are the numerous farm policies, which
often retard the full realization of potential progress, a reflection of
society's belief that change is too rapid, that we must slow down the
tempo and provide compensation for those whose incomes are affected
adversely? Or, are they simply a reflection of lack of knowledge on
the part of society generally? To provide a more rapid solution to the
farm problem we need to examine these values as well as the alterna-
tives in demand and production adjustment.


SOLUTIONS THROUGH DEMAND

Many of the solutions proposed for agriculture pertain to demand.
Often it is said that if we will only wait out the drouth, a growing popu-
lation and an increase in national income will restore equilibrium in
returns to agriculture. But at the current rate of growth in population
and farm output, the dry spell will be too long for comfort. We are now
producing at a rate required for the population level four or five years
hence; and in addition, we have~an accumulated surplus. We need to







INCOME AND RESOURCE PROBLEM


look carefully at the demand potential and then see how supply can be
adapted to it. Obviously, governmental policies of the past and present
do not accomplish this.
Remedies through increasing demand, aside from population growth
and increases in national income, are popular over the country. Pro-
posals include quality improvement, advertising, improved nutrition,
promotion, and industrial uses of farm products. Proper emphasis
needs to be given to the potential of solving the farm problem through
changes on the demand side. Currently, however, the major potential
for solving the immediate problems of agriculture appears to fall on
the production side.
Proposals for increasing demand usually give insufficient recogni-
tion to substitution effects. For example, an intensive advertising pro-
gram which entices the consumer to eat more pork will most certainly
reduce his intake of beef or poultry, although total meat consumption
might be increased somewhat. Or, a quality improvement program
which places hams in cans or frozen peas in cardboard containers will
mainly replace consumption of ordinary hams or canned peas. The
products and services which increase most in demand are cans and
boxes, not hams and peas.
Solution of the income problem for one segment of agriculture
through promotion, advertising, and quality improvement may simply
shift the burden to another segment. Our concern here should be with
solution of the over-all problem. But an objective examination should
be made of improved nutrition, promotion, or any other market develop-
ments which actually do promise to solve the basic problem. Services
which improve quality have a relatively high priority as the income of
the consumer increases. The fact that income elasticities are highest
for the nonagricultural component of food purchases is evidenced in the
declining portion of the consumer's dollar which reaches the farmer.
Possibilities of demand appreciation through quality improvement ap-
pear to have more promise for increasing consumer utility than for in-
creasing farm income.


SOLUTIONS THROUGH PRODUCTION ADJUSTMENT AND SUPPLY

In large part, the basic solution must come from the production or
supply side. How can we increase the flexibility of the producing plant?
Can we improve our knowledge of the supply function sufficiently to de-
vise educational and action programs which bring production more
closely in line with demand?
What should be the production structure of agriculture? How many
farms should we have, and how many people should be employed in the
industry? Spatially, how should production be contracted to provide a
total output, and a composition of output, consistent with consumer de-
mand? Do we have sufficient information on returns to scale and re-
source productivities to specify the magnitude of adjustment required







EARL O. HEADY AND JOSEPH ACKERMAN


in farm numbers and agricultural workers to provide resource returns
and family incomes comparable with other employment opportunities?
Restoration or attainment of equilibrium for agriculture, measured
in the sense of comparable resource returns and family incomes even
if subjective values are included in these quantities revolves particu-
larly around these specific production relationships. But in the same
category are other possibilities and problems which merit further atten-
tion. Examples are part-time farming, capital structure, and credit
facilities. Given the adjustments outlined above, a problem which will
become even more pressing is the capital requirements of a beginning
farmer.
Farm management workers and production economists have a chal-
lenge before them. The adjustments required in agriculture call for
data. Significantly, the purpose of this conference is to examine the en-
tire structure of economic phenomena involved in solving the basic prob-
lem of agriculture, but in particular, to provide a basis for redirecting
research relating to the production adjustments of agriculture.


COMPLEXITY OF PHENOMENA AND VARIOUS DISCIPLINES

Solution of the basic problem of agriculture can challenge most of
the scientific disciplines found in land-grant colleges. Often, research
efforts will need to be integrated. Just as important as the problem of
production adjustment is social adjustment. Indeed, sociologists should
be closely allied with an intensive effort to bring balance to agriculture.
Shifts in the farm population necessarily give rise to migration and
community problems. At the same level are institutional problems
which challenge the land economists, such as equitable and efficient
taxation and the possibilities of zoning and water regulations in rural-
urban transition areas.


PROGRAM ANALYSIS

The farm problem is not subject to easy and quick solution, nor will
it be solved by major farm programs of the type in existence over the
past two decades. While these programs may not have retarded adjust-
ment as much as sometimes supposed, they have not been directed to
the basic cause of the farm problem. They have only helped to postpone
the day of reckoning. An entirely different emphasis in governmental
programs is needed if they are to provide real long-run solutions. So-
ciety may indeed feel obligated to compensate agriculture for the par-
ticular burden which falls on it as a result of progress. However, pro-
grams are possible which will provide this compensation as well as
facilitate resource adjustment. This conference should help provide
the basis for establishing such programs.







INCOME AND RESOURCE PROBLEM


GENERAL CHALLENGE IN RESEARCH AND EDUCATION

In broad perspective, the agricultural adjustment problem poses a
new challenge for the entire land-grant college system, the U. S. Depart-
ment of Agriculture, and the farm organizations which serve the farm-
ing industry. These agencies have been administered efficiently. In a
century of service to agriculture and society, they helped to: (1) in-
crease agricultural output in early years when the status of economic
and population growth allowed a greater farm product to be consistent
with higher farm incomes, (2) provide food for wartime allies and post-
war adjustments, and (3) safeguard the food supplies in decades when
population growth was extremely rapid, both from the standpoint of
births and immigration.
But now the challenge to institutions serving the industry is to help
agriculture adjust its use of resources and output of product to national
economic growth, as well as to aid this economic growth through further
technical improvement. To be certain, investment in new techniques
and their extension needs to be continued and perhaps even accentuated,
but more in terms of national economic growth than in terms of increas-
ing the incomes of farmers per se. If agriculture is not to bear the ex-
treme burden of this economic progress, and if the technical innovations
in agriculture are to make their full contributions to economic growth,
then these efforts must be complemented with activities which help ag-
riculture to adjust. Major efforts should be directed to research and
education which facilitate the movement of surplus labor from agricul-
ture. To free labor from agriculture, through technical progress, and
then leave it stranded is as inconsistent with economic growth as not
having freed it in the first place.
The challenge in education is extremely great. Education to inform
farm persons of the relative income opportunities in different occupa-
tions will, over the long run, be decidedly more effective than current
farm programs in solving the basic farm problem. Proper education,
with the research to support it, cannot alone effect the transfer of all
surplus farm labor, but it can be the important catalyst in bringing
about adjustments required in a rapidly growing and full-employment
economy.
"It is obvious, of course, that the adjustment will require time. Labor
in farming represents persons, not an inanimate resource. Labor is
represented in older persons with values which tie them to the commu-
nity and occupation. It involves persons who do not have the skills for
ready transfer to other industries, who do not have funds for transpor-
tation to other work or for retraining in other employment. It repre-
sents persons who must market themselves as a resource and who have
incomplete information about the market for their services.

INVESTMENT IN THE HUMAN RESOURCE AND MOBILITY AIDS

But herein lies the modern challenge. Insufficient investment has






EARL O. HEADY AND JOSEPH ACKERMAN


been made in research and education relative to the human resource in
agriculture. Far larger quantities are invested in the capital resource
through items such as improved farm machinery, fertilizer, livestock
breeding, and animal rations; or in developing the land resource through
improved soil management, irrigation, reclamation, and soil conserva-
tion. Certainly, we need to make a commensurate investment in that
resource which is not only a means, but also is an end in itself, the
human resource. Many opportunities and possibilities exist. Among
these are: better economic information on income opportunities in
farming and in other occupations for persons with different funds and
skills; increased emphasis on vocational training which prepares farm
youth for better opportunities in nonfarm employment, as well as for
improved management in an increasingly competitive agriculture; voca-
tional guidance and counseling which reaches farm youth at a flexible
point in their lives and which guides them to their most promising and
rewarding alternative; employment services which effectively inform
farm persons of alternatives in other locations and industries; retrain-
ing programs for persons already in agriculture who wish to transfer
to other employment; unemployment compensation, transportation sub-
sidies, and "severance or mustering out" pay for those who prefer
transfer over subsidies through commodity loans, conservation grants,
and soil bank payments for remaining in agriculture.
We venture the proposition that even though more research is badly
needed, the greatest need is education. As professional economists, we
have considerable knowledge of the qualitative nature of required adjust-
ments. But we have not been sufficiently effective in translating this
knowledge to farm people. We have not sufficiently informed farm
youth that while some are needed as efficient managers in a competitive
agriculture, others can better prosper in nonfarm employment. We
have failed to provide interregional and long-run outlook information
regarding employment opportunities, but have emphasized almost en-
tirely the short-run outlook on commodities such as hogs, cattle, and
potatoes. The blame falls partly upon ourselves, as economists, for
lack of proper emphasis in educational programs. But an important
part of it also falls on agricultural education in general. Our emphasis
in vocational agriculture and 4-H work, for example, has considered
mainly the farm youth who will return to agriculture. The welfare and
life's satisfactions of those who will not or should not remain in farm-
ing is no less important. To allow some to enter agriculture, only to
find later that they have selected the wrong occupation, is no favor to
them.
Investment in the human resource, with emphasis on education to
keep people properly informed in occupational outlook and opportunities,
should be the major element of policy in decades ahead.

ECONOMIC DEVELOPMENT

Increasingly, the agricultural economist needs to focus his attention






INCOME AND RESOURCE PROBLEM


on local economic development. His ranks have been somewhat thinned
as his colleagues have accepted job opportunities in developmental pro-
grams for foreign lands. But often the challenge is just as great in a
local or state area. Generally, we have been passive, leaving the en-
couragement of industrial growth to chambers of commerce. Yet the
agricultural adjustment problem can be solved most simply by local
economic development which is consistent with the spatial features of
our society. It is far less painful and costly for a farm youth or estab-
lished operator to transfer to a position in his home town than to move
to the next state or across the nation; he need not move into a totally
new community with an entirely different set of basic values. He may
even remain as a part-time farmer.
We know too little about the phenomena of economic development.
However, we certainly need to sharpen our tools in order to: (1) better
predict where it should or will take place, (2) determine the spark which
kindles growth, and (3) prevent misguided effort where it is economi-
cally ill-advised as the solution to the local adjustment problem.


THE COMMERCIAL FARMER IN AGRICULTURE

This conference necessarily has a pessimistic note: it deals with a
problem. But it need only be a short-run problem. It arises because
the potential of a more bountiful living exists and because agriculture
has contributed greatly to this potential. Agricultural scientists have
shown great ingenuity in helping to provide a foundation for this poten-
tial in economic growth. It is the expectation of the North Central Farm
Management Research Committee that this conference will help generate
ingenuity in raising the economic possibilities of agriculture to levels
consistent with a progressive nation.
But in aiding agricultural adjustment through labor transfers, we
should not swing the pendulum too far and devote too little attention to
the commercial farmer who remains in agriculture. Family farms of
efficient size, managed properly, are and can be prosperous. Just as
we seek to drain surplus resources from agriculture, we need to focus
attention on those who should remain and produce the basic food product
of the nation. As a requirement for an efficient agriculture, we need to
provide information and services which allow commercial farms to em-
ploy resources and produce commodities in proportions consistent with
consumer demand and favorable family income.














GEORGE A. POND Discussion
University of Minnesota






THIS paper on 'The Income and Resource Problem" provides the
keynote for this symposium. After reviewing it quite searchingly
I find myself in general agreement with the statement of the prob-
lem we are to discuss. My remarks, therefore, will merely supplement
this paper.
The authors emphasize the high level of living in America today.
The gloomy forebodings of the Rev. Thomas R. Malthus near the turn of
the 18th century have seen no fulfilment in our present economy. Our
population is not pressing on our food supply; rather, the reverse ap-
pears to be true, even in the face of our recent upsurge in rate of popu-
lation growth.
The authors devote relatively little attention to the revolution in ag-
ricultural technology that has swept this country with devastating speed
in our lifetime. To me this is one of the major causes of the problem
under study. This may well be compared with the industrial revolution
starting near the close of the 18th century. One radical difference is
the breakneck speed with which this avalanche of new techniques has
revolutionized this ages-old business of farming. Within the memory
of our present generation of farmers almost every agricultural opera-
tion has been changed or displaced.
The wide disparity between the rewards in industry and agriculture,
in different areas and in different types of farming, has been mentioned
in this keynote paper. The authors might well have added that within
each of these areas and within each type of farming group even greater
disparity of income exists among individual farmers. Those areas and
those individuals that have been able to utilize effectively the new tech-
niques have, in general, kept pace with industrial prosperity in their
areas.
The problem, therefore, as this paper points out, is primarily one
of adjustment in resource utilization. For several reasons adjustments
in agriculture have been slower than in industry. Agriculture is com-
posed of a large number of small units in which management is an un-
specialized function. Farmers are traditionally conservative. Too
often they would rather bear their existing ills than take the risk of fac-
ing unknown hazards. Furthermore, agriculture is a biological business,
and nature sets the pace.






DISCUSSION


Prior to the current agricultural revolution, rapid adjustments were
less essential than in this highly dynamic age of ever changing tech-
niques. I well remember this statement (characteristic of those epi-
grammatic generalizations for which he was famous) by Dr. G. F.
Warren: "Adjustments in agriculture are made largely by the sheriff
and the undertaker." In other words, extreme measures have been nec-
essary to induce changes in agriculture. This slow response to change
is doubtless a significant reason why agricultural prosperity has lagged
behind that of the rest of our economy. What was good enough for our
fathers is not good enough to keep the farmer in step with the progress
of this modern atomic age.
Speeding up adjustments of resource use in agriculture is an indi-
vidual and not an over-all or mass process. As the authors point out,
to move a man from farming to urban employment is a more violent
shift than is a move from one industry to another within the same area.
The less radical the shift, the easier the adjustment. Since education
is involved, changes cannot be made quickly in individual cases.
Another factor to consider in agricultural adjustments is determina-
tion of which areas to retain in agriculture and which to release for in-
dustrial, urban, or suburban development. Land differs widely in its
adaptation for agricultural production. Good level prairie land should
be retained in agriculture. Rolling land or timber lands on the lighter
soil may be more satisfactory for urban or suburban residential devel-
opment. This land use problem is only one of the types of problems
that will arise in making the adjustments needed to bring agriculture
back in line with the rest of our economy.
I would like your consideration of one more idea that occurred to
me in studying this paper. A very large proportion of the public funds
for agricultural research is for the field of production agronomy,
plant and animal breeding, livestock feeding, control of insects and dis-
eases that prey on our crops and livestock, and the like. We need more
of these expenditures, not less. But we must not be blind to the fact
that the funds for this type of research contribute to the excess of agri-
cultural production over present needs which the authors of this paper
decry. Is it not time that we supplement these funds with additional
expenditures for economic research to guide adjustments in the pattern
of farm production to effective demand? Is it not time for us to spend
more of our energies in trying to increase farm profits and not merely
production?
Sponsorship of this conference by a farm management research com-
mittee seems highly appropriate. The farm management researcher is
perhaps more directly concerned with helping the farmer make money
than any other research worker in agriculture. This concern should be
an opportunity and a challenge to us in planning our research programs
and in demanding financial support to conduct them.









Chapter 2


LYNN S. ROBERTSON .
Purdue University The Agricultural
HOWARD G. DIESSLIN Production Plant
Farm Foundation



HE commercial farm today is not merely land, machinery, live-

stock, and other inventory items, along with enough labor to oper-
ate it. The top one-third to one-half of our commercial farms
require high-level managerial ability to coordinate the resources into
a profitable operation. The value of these farms as a going concern is
greater than the sum of the values of the individual resources.
Since 1940, technology has been applied to American agriculture at
an unparalleled rate. All segments of agriculture have been affected.
Examples are too numerous to cite here, but the results attest to the
magnitude of the change. Between 1940 and 1955, crop production per
acre increased one-fourth and total farm production increased more
than one-third. This level of production was achieved, despite a 25 per-
cent decline in the agricultural labor force, because output per man
hour in agriculture nearly doubled. Between 1950 and 1956 alone, output
per man hour in American agriculture increased approximately 20 per-
cent.
From 1940 to 1956, physical production of commodities from the
United States agricultural plant increased 36 percent. The increase
from 1950 to 1956 alone was 13 percent. During the 1940-56 period,
U. S. population grew only 27 percent and the increase from 1950 to
1956 was 10.5 percent. Effective demand probably increased more
rapidly than population, but it still increased less rapidly than actual
farm production and much less rapidly than potential farm production.
Studies of the U. S. Department of Agriculture in cooperation with state
experiment stations show that technology has reached the stage where
farm production could easily be even higher if prices were not acting
as a damper.
In general, foreign outlets for products of our agricultural plant are
limited, except for those subsidized by the federal government. In 1956,
our agricultural exports increased for the third consecutive year and
approached the high levels of 1927 and 1952. Even so, depressed econo-
mies and exchange difficulties of foreign countries, along with our at-
tempt to maintain domestic prices above the world level, definitely
limit the extent to which normal commercial outlets abroad can help us
dispose of the large surplus our agricultural plant is geared to produce.
The American agriculture production plant will be viewed from the






AGRICULTURAL PRODUCTION PLANT


following three standpoints: (1) the present situation, (2) trends in agri-
cultural resources and production, and (3) prospects for further change.


CURRENT SITUATION

American agriculture is big business. Measured in terms of cur-
rent dollars, the agricultural plant was valued in excess of 170 billion
dollars on January 1, 1956. Approximately 60 percent of this total
value consisted of real estate and the remaining 40 percent of other
physical assets machinery, livestock, crops on hand, household goods,
and financial assets. Debts of agricultural proprietors totaled slightly
less than 19 billion dollars, or approximately 11 percent of the total
asset value. Financial assets of farmers exceed the total indebtedness;
therefore, the debt structure remains very sound, and liquid assets
continue high although not as well distributed as immediately following
the war. Thus, the financial solvency of American agriculture is one
of the real strengths of the current agricultural situation.


Number and Size of Farms

The 1954 Census of Agriculture indicated that there were 4.8 million
farms in the United States under the Census definition of a farm. Like
many manufacturing or processing industries, a relatively small per-
centage of the total firms (farms) market the major share of the agri-
cultural commodities sold each year. The effective producing farms of
the United States are considerably less than the 4.8 million total enumer-
ated by the Census. The Census lists 3.3 million commercial farms and
1.5 million noncommercial farms in 1954. Therefore, one-third of the
total farms were noncommercial and their market sales- totaled only 2
percent of the total agricultural sales in 1954. The classification of
farms in Table 2.1, according to the value of sales, shows that a small
percentage of the commercial farms produce a relatively high percent-
age of the total marketable agricultural production each year. For ex-
ample, less than 3 percent of our farms with sales of $25,000 and over
sold.nearly one-third of the agricultural market products in 1954. Less
than 10 percent of the farms with sales totaling $10,000-$24,999 per
farm produced 27 percent of the market sales in 1954; therefore, the
583,000 farms with gross sales of $10,000 or more, representing about
12 percent of all farms, produced over 58 percent of all farm products
sold. All farms with gross sales of $5,000 or more, representing 27
percent of our farms, produced nearly 80 percent of all farm products
sold in 1954. It is also noteworthy that the commercial farms averaged
336 acres in size in 1954 whereas all farms, commercial and noncom-
mercial, averaged 242 acres.
In 1956, one farm worker produced enough for 20 people, on the
average. Viewed in terms of class I, II, and III commercial farms, one







22 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN

farm worker on these farms supported approximately 45 people in 1956.
This indicates the wide difference in output per farm and per farm
worker within the total agricultural plant. Farms in economic classes
II, III, and IV, by and large, represent the family-size farms long con-
sidered the backbone of American agriculture. Half of the commercial
farms are included in these classes, and they produce approximately
two-thirds of the total farm products sold. The 1.2 million farms in
economic classes V and VI include most of the farm families with
chronically low incomes, as the small size of the farm business ordi-
narily does not provide adequate employment for the family labor force.


Agricultural Labor Force

Much of the management of the agricultural plant is vested in the
4.8 million farm operators. The total labor force in American agricul-
ture in 1956 was 8.2 million workers. More than three-fourths of them
were family workers. Nonfarm employment has become more attractive
as the pressure to supplement family income has increased in recent
years. In 1954, nearly one-half of all farm operators reported some
off-farm work and almost 28 percent reported 100 days or more of off-
farm work. Income of the farmer and members of his family from off-
farm sources exceeded the value of agricultural products on nearly one-
third of the farms in 1954.
Although still minor, an increasing share of decision-making in
farm organization and operation has been shifted to federal government

Table 2.1. Number and Percentage of Farms and Proportion of Market Sales,
by Economic Class, United States, 1954*

Ave.
Value Number Percentage Percentage e
Economic class of of of all of market
sales farms farms sales f
farm
Dollars Thousands Percent Percent Acres

Commercial farms:
Class I 25,000 and over 134 2.8 31.3 1,939
Class I 10,000-24,999 449 9.4 26.9 538
Class III 5,000-9,999 707 14.8 20.5 312
Class IV 2,500-4,999 812 17.0 12.1 201
Class V 1,200-2,499 763 16.0 5.7 133
Class VI 250-1,999 462 9.7 1.4 97
Total --- 3,327 69.6 98.0 336

Noncommercial farms --- 1,455 30.4 2.0 71

All census farms --- 4,782 100.0 100.0 242

*Source: United States Bureau of the Census
'Includes part-time, residential and abnormal farms.






AGRICULTURAL PRODUCTION PLANT


as a result of government programs of various kinds, to commercial
agencies as a result of "packaged" technologies, and to professional
farm managers on tenant-operated farms.


Farm Mechanization

By 1956, 4.5 million tractors and related power equipment had
largely replaced the 26.7 million head of horses and mules on farms in
1918. More than 10 percent of cash receipts from farming are now an-
nually being used to purchase new tractors, machinery and equipment,
and new and used motor trucks and automobiles. The large amount of
power machinery used is a major reason for the high agricultural pro-
duction per farm worker in the United States. The importance of mis-
cellaneous farm capital has been increasing tremendously in the farm-
ing operations. This resource includes principally livestock and nec-
essary cash for various operating expenses such as purchase of
fertilizer, feed, seed, and services of various kinds.
The investment per farm worker varies considerably with type of
farm throughout the United States. For example, in 1956 investment
per worker was about $59,000 on the typical family-commercial cash
grain farms in the Corn Belt, $54,000 on winter wheat farms in the
Southern Plains, $35,000 on cattle ranches in the Northern Plains,
$14,000 for dairy farms in the central Northeast, and $8,000 on cotton
farms in the Southern Piedmont. The average investment per worker
for all United States agriculture was $18,470 in 1955.


TRENDS IN AGRICULTURAL RESOURCES AND PRODUCTION

Let us take a closer look at the scientific and technological changes
we have experienced in our generation. If the full recorded history of
man, starting with the story of creation in the Book of Genesis and con-
tinuing until 1854 100 years ago were to be put on the face of a clock,
the hands of the clock would have moved from noon around to 11:45 p.m.
The last 15 minutes would represent the last century. Output per worker
in the United States would have increased more in the last 15 minutes
than in the entire previous 11 hours and 45 minutes. And most of the
increase within that last 15 minutes would have occurred since the turn
of the present century. Many of the people now living have played a
substantial role in this amazing scientific and technological revolution.
Let us imagine for a moment that a good Egyptian farmer in the day
of Moses could have been brought back to life in the day of the Caesars,
some twelve centuries later, and placed on a good farm in Italy, then
the most advanced nation of the world. He could have farmed with prac-
tically no additional instruction, for the art of agriculture had changed
little, if any, in the intervening centuries.
Suppose that same farmer were brought back to life on a good






24 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN

English farm in the day of Shakespeare, some four centuries ago. He
still would have been a pretty good farmer with no additional instruction.
Now let us bring that same ancient Egyptian farmer to the eastern
shores of America 150 years ago and put him on Thomas Jefferson's
farm, one of the advanced farms of that day. He still would not have
found the art of farming very different from that which he practiced in
Egypt 3,000 years earlier. He would have used the same power, the
same crude implements, and large amounts of hand labor. He would
need to know very little about fertilization, improved varieties, high-
producing breeds of livestock, and the numerous mechanical and elec-
trical implements and tools found on our modern farms.
On a modern American farm, that same farmer would be completely
bewildered. He would not even recognize the working end of the tractor
parked in the farmyard. He would probably raise the cry of "witchcraft"
at all the amazing things performed by mechanical and electrical power.
He would require hard years of instruction and apprenticeship to operate
the modern American farm.
Family farms will inevitably become larger, as the number of work-
ers on farms decreases and as mechanization of our farms continues at
a rapid pace. A closer look at the trends in number and sizes of farms,
agricultural labor force, farm output, farm mechanization, and the finan-
cial and managerial aspects of commercial farming today are needed to
determine its impact on the American economy and American agricul-
ture.


Fewer but Larger Farms

More than 1.5 million farms, or about one-fourth of our farms, have
disappeared from American agriculture since 1929. More than one-
third of this change took place in the five years, 1949-54, and more than
two-thirds of the change took place since 1945 (Table 2.2). All the de-
cline in the number of farms took place among the commercial farms.

Table 2.2. Trends in Major Groups of Farms, United States, 1929-54*

Number and average size of farms
Part-time,
Year All Commercial residential,
and subsistence
(Acres) (Thousands) (Acres) (Thousands) (Thousands)
1929 157 6,289 a 4,723 1,480
1939 174 6,097 220 4,265 1,685
1944 195 5,859 255 3,941 1,738
1949 215 5,384 300 3,465 1,917
1954 242 4,782 336 3,100 1,682

*Source: McElveen, J. V., "Family farms in a changing economy," U.S.D.A. Agr. Inf.
Bul. No. 171, Mar. 1957, pp. 19 and 26.
aNot available.







AGRICULTURAL PRODUCTION PLANT


Part-time, residential, and subsistence farms increased approximately
200,000 in number between 1929 and 1954; therefore, only two-thirds of
the commercial farms of 1929 are now in existence. Total land in farms
is slightly higher than it was 25 years ago although cropland acreage is
approximately the same. Thus, the 1.6 million commercial farms that
have disappeared at the rate of over 60,000 per year have been absorbed
into active, now-existing farms.
The average size of farms in the United States increased from 157
acres in 1929 to 242 acres in 1954, an over-all increase of nearly 40
percent since 1940 and over 50 percent since 1929. Commercial farms
increased in size from 220 acres in 1940 to 336 acres by 1954 an in-
crease of more than 50 percent. In addition, commercial farms aver-
aged nearly 50 percent larger than all census farms, indicating the ex-
treme smallness of the part-time, residential, and subsistence farms.


Mechanization Continues

Even though mechanical power and equipment has replaced horse
and mule power and related equipment, mechanization continues to sub-
stitute fairly rapidly for labor in agricultural production. The growth
of mechanization in the past few years has been so great that the im-
pact has not yet been fully felt. Tractor numbers in 1955 were double
the total on farms in 1945, and the total number has tripled since 1940.
The number of motor trucks on farms more than doubled between 1945
and 1955. The number of pick-up balers in 1955 was more than twice
the total number on farms in 1950. Practically all farms now have
electricity; the number of home freezers on farms in 1955 was one and
one-third times the number in 1950. Approximately two-thirds of the
farmers have television sets, and the remaining farmers are obtaining
sets at the rate of about 1 percent per month.
Farm mechanization has had far-reaching effects and is one of the
basic causes of the revolution in American agriculture. Crop produc-
tion in the United States today is almost totally mechanized. The live-
stock industry is mechanizing rapidly. Prospects for changes in the
livestock industry in the period ahead are fully as great as those in
field crops during the past two decades. Much of the hard work and
drudgery of farming has been removed as production practices have
been modified and the timeliness of farming operations has been much
improved.


Labor Force Is Much Reduced

The workers in agriculture totaled 13.4 million in 1920, 11 million
in 1940, and about 8 million in 1956 an 18 percent decline from 1920
to 1940 and a 40 percent decline from 1920 to 1956. In 1850, one farm
worker supported approximately 5 people. By 1940 one farm worker






26 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN

supported 11 people and by 1956 nearly 20 people. From 1940 to 1956,
the number of persons supported by one farm worker increased one and
one-half times as much as in the preceding nine decades a further in-
dication of the revolutionary changes that have taken place in agriculture.
With total agricultural production increasing and the agricultural labor
force decreasing, production per farm worker obviously has been in-
creasing at a phenomenal rate. Output per hour of farm work today is
more than twice as much as 25 years ago.
One reason for this increase in farm labor productivity is the in-
crease in the use of other resources with each unit of labor. From 1940
to 1955, for example, the quantity of various selected resources used
with each unit of man labor in farm production increased as follows:
cropland, 45 percent; fertilizer, 498 percent; tractors, 379 percent; and
feed purchased, 243 percent. The amount of capital used per worker
has become even greater in agriculture than in American industry.
The cost-price squeeze and the mechanization of the agricultural
.plant has induced farm people to seek more part-time nonfarm employ-
ment. In 1954 one-eighth of the farms in the United States were classi-
fied as part-time, and 28 percent of all farm operators worked off their
farms at least 100 days during the year, as compared with 16 percent
in 1939. In states with particular opportunities for people that work in
industry to live on farms, the percentage of operators with at least 100
days of off-farm work was much higher e.g., 48 percent in New Hamp-
shire, 39 percent in Pennsylvania and Michigan, and 35 percent in Cali-
fornia. Part-time farming has become an important transitional step
in the transfer from agricultural into industrial occupations.


Technology Brings Specialization

The pounds of plant food used in commercial fertilizers for United
States farm production more than doubled from 1940 to 1948 and in-
creased another three-fourths from 1948 to 1956. This is only one illus-
tration of changes that have been taking place in production techniques.
Genetic improvements have been striking. In Indiana, for example, none
of the four wheat varieties that accounted for three-fourths of the acre-
age in 1955 even appeared in the list of the important varieties of 1944,
and 11 varieties that constituted two-thirds of the acreage in 1944 do not
appear in 1955. One result of technological improvements of various
kinds has been a sharp increase in the rates of crop and livestock pro-
duction. Crop output per acre in the United States increased approxi-
mately 20 percent between 1940 and 1956 and livestock production per
breeding unit increased 27 percent during the same period.
Measurements of specialization for the agricultural plant as a whole
are not available, but we know that the specialized knowledge and equip-
ment needs for efficiently operating any farm enterprise encourages spe-
cialization large volume per enterprise. Farmers are handicapped if
they try to keep up to date on methods for many enterprises. They are






AGRICULTURAL PRODUCTION PLANT


also handicapped if they either purchase equipment to use labor effi-
ciently on many small enterprises or try to get along without the equip-
ment. An additional encouragement to specialization is that better
methods of meeting adverse production conditions have: (1) reduced
risk in connection with having many 'eggs in the basket," and (2) in-
creased ability to produce off-season, thus permitting the specialized
producer to distribute his labor more evenly over the year than for-
merly.


Financial Position Continues Strong

The market value of the agricultural plant more than tripled between
1940 and 1956, rising from 53.8 billion dollars to 170.1 billion dollars,
while farm indebtedness increased less than 90 percent from 10 billion
dollars to 18.8 billion dollars during the same period. Non-real-estate
items and financial assets form an increasing part of the total value of
the agricultural plant. This increase in non-real-estate items is taking
place mainly in capital goods with a productive life much in excess of
one year, the bulk of it being in farm machinery and breeding stock.
The agricultural plant of this country, in the aggregate, is still ex-
tremely solvent. In none of the years 1920 to 1940 was the industry's
financial condition as good as during 1947 to 1956. Certainly, the strong
financial condition has materially assisted agriculture in the face of the
cost-price squeeze of the past several years. Nearly triple their 1940
level, land values in the United States have risen more than one-third
since 1950 and have continued to rise at an average rate of 3 percent
per year since the cost-price squeeze started in 1953.
A realistic examination of the farm picture must take into account
the time farms were purchased and the actual dollar investment for
owner-operated farms. Certain assumptions were made with regard to
this in Table 2.3 which indicate clearly: (1) current earnings relative
to actual investment, (2) the expanded credit base of the modern com-
mercial farm, and (3) the continued ability of commercial farmers to
adjust to profitable new technological developments.


The Family Farm Remains

Some public concern has been expressed about the family farm posi-
tion being jeopardized by the increased farm size, expanded capital re-
quirements, and fewer agricultural workers necessary to operate the
agricultural plant during the past two decades. A close look at the own-
ership pattern of farm land in the United States does not bear out this
public concern. As indicated in Table 2.4, nearly 98 percent of the land
east of the Mississippi River is held by individuals, partnerships, or
estates and more than 80 percent of the land west of the Mississippi is
held in the same fashion. Corporate ownership of farm land totals less








28 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN



Table 2.3. Typical Commercial Hog-Beef Fattening Farm, Corn Belt*

Approximately 5 percent of the farm real estate in the United States changes hands
each year. In other words, farms are transferred about once every twenty years -
on the average. Let us assume the typical Corn Belt farm has been owned for about
10 years and attempt to analyze its income and financial status in reviewing the
current profit position of agriculture.
1945 1955
1. Size of Farm: 189 acres 199 acres

2. Capital
Land and buildings $19,280 $37,610
Machinery 2,920 7,170
Livestock 6,170 9,820
Crops on hand 4,210 6,360
Total $32,580 $60,960
Estimated
Adjustments 1945-55:
Added 10 acres 1,500
Added machinery 1,700
Added livestock 1,150
$36,930 Adjusted total investment

1943-45 Ave. 1953-55 Ave.
3. Cash receipts 11,262 15,221
4. Net cash income 5,912 6,568
5. Net farm income 6,044 6,583
6. Return to operator and family labor 4,615 3,602
7. Probable credit available:
Real estate 9,600 18,000
Non-real estate 6,400 12,000
Total $16,000 $30,000

8. Based on capital charge (5 percent) against only the actual capital investment
($36,960), the 1953-55 average return to operator and family labor would have been
$4,737 (No. 6 above).

9. Current credit base is within $7,000 of the actual capital invested in the farm
business in 1945 and expansion since that date.

10. Though real income has fallen off materially from that of wartime and postwar
years, capital gains and the credit base of commercial agriculture have expanded
materially. As in many sectors of the industrial economy, consolidations have been
rampant throughout the agricultural economy. As long as the U. S. economy maintains
its business vigor and technological developments continue, consolidations will result
in larger and stronger family farms. The commercial agricultural plant is financially
solvent and sound and capable of adjustment to profitable technological developments -
though at a slower rate than during the immediate postwar years.

*Source of basic figures (Items 1 through 6, except estimated adjustments): "Costs
and returns, commercial family-operated farms by type and size," Stat. Bul. No. 197,
Nov. 1956, and U.S.D.A. Agr. Inf. Bul. No. 158, June, 1956.







AGRICULTURAL PRODUCTION PLANT


Table 2.4. Percentage Distribution of All Land in Farms
by Type of Owner, 1950*

Geographic region
Type of owner Easta West United States

Individuals, partnerships,
and estates 97.8% 81.1% 87.8%
Corporation 1.7 6.2 4.4
Indian b 6.0 3.6
Federal government .2 2.2 1.4
State and local governments .3 4.5 2.8

*Source: Bureau of Census, U. S. Department of Commerce.
aAll states east of Mississippi River.
bLess than 0.05 percent.



than 5 percent of all land in farms and is no greater than that held by
public agencies. Therefore, the individual proprietorship is by all odds
the principal type of farm ownership found in the United States.
Another matter closely associated with family farms is the type of
tenure. There has long been considerable concern that too much agri-
cultural land is owned by outside capital and farmed by tenants. It is
interesting to note that farm tenancy in the United States changed very
little from 1900 to 1940; however, from 1940 to 1955 farm tenancy de-
creased substantially (nearly one-third). Approximately the same per-
centage of the agricultural land is currently under tenant operatorship
as in the 1920's and the 1930's, however. Likewise, the percentage of
farms operated by hired managers has changed little during the past 50
years, although the total farm land operated by managers has approxi-
mately doubled since the 1920's (now comprising 8.6 percent of the total).
During the period 1940-55, when U. S. land prices nearly tripled, the
percentage of full-owner operators and part-owners in the United States
economy increased materially (Table 2.5). These factors bear out the
continuing strength of the family farm in United States agriculture.


Table 2.5. Percentage Distribution of U. S. Farms by Tenure
of Operator, 1900-55*

Year Full Part Managers Tenants Croppers
Year own s ownrs Managers Tenants
owners owners (South only)
1900 55.8% 7.9% 1.0% 35.3% a
1910 52.7 9.3 .9 37.0 a
1920 52.2 8.7 1.1 38.1 17.5%
1930 46.3 10.4 .9 42.4 24.1
1940 50.6 10.1 .6 38.7 18.0
1950 57.4 15.3 .5 26.8 13.1
1955 57.4 18.2 .4 24.0 11.6

*Source: 1954 Census of Agriculture, U. S. Department of Commerce.
aNot available.







30 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN

Example of Changes Taking Place

National figures on the agricultural production plant naturally are
composites of widely varying situations. Some changes that are hidden
in these national figures show up more clearly in figures for a smaller
area. Let us take a look at one township in Indiana, Forest Township
in Clinton County, for which we have figures for various years.
Table 2.6 shows that during the period from 1910 to 1955, resources
tended to shift away from labor and toward mechanical power, machin-
ery, and miscellaneous capital items. While the total amount of land
naturally did not increase, the ratio of land to labor increased greatly
as the amount of labor decreased. Since the dollar values in the table
are expressed in 1910-14 dollars, the shifts represent physical quanti-
ties rather than changes in the price level, except to the extent that


Table 2.6. Changes in Relative Inputs of Various Resources
Used in Farm Production in
Forest Township, Clinton County, Indiana

10 ad 1932 1945 1955
1913-15
Value real estate


Labor


Power


Dollars per farm a
Percent of 1910, 1913-15



Number of men per farm
Percent of 1910, 1913-15



Number of horses per farm
Percent of 1910, 1913-15

Number of tractors per farm
Percent of 1932


Machinery


Dollars per farm
Percent of 1910, 1913-15


27,615 16,561 17,427 29,021
100 77 81 134


4.8 3.6 .6 .2
100 75 12 4

0 .5 1.3 1.8
0 100 260 360



366 617 1,682 2,145
100 168 460 586


Livestock


Dollars per farma
Percent of 1910, 1913-15


1,556
100


1,374
88


1,604 1,835
103 118


Cash expenses


Dollars per farm a
Percent of 1910, 1913-15

aAt 1910-14 price level.


770 1,567 2,361
100 204 307


4,116
535






AGRICULTURAL PRODUCTION PLANT 31

prices of various resources did not change exactly in line with general
prices.
Table 2.7 shows a number of specific changes that have taken place
in this sample township not only in combination of inputs but also in the
outputs. The average acreage per farm increased more than one-half.
Tenancy decreased but part renting increased. Capital requirements
increased much more than the general price level. Farmers substituted
machines for a large amount of labor. Fuel expenses and fertilizer ex-
penses increased more than a hundredfold. The major shift in crops
was an increase in soybeans. The major shifts in livestock, which do
not show completely in the table, were an increase in beef cattle and
hogs and increased specialization in livestock. Each man took care of
more crops and livestock and produced more commodities.
The index of specialization shown in the table is an objective meas-
ure of the extent to which farm labor is concentrated on particular en-
terprises. The figure was obtained by computing for each farm the per-
centage of productive man work units on each enterprise, squaring these
percentages, totaling them and extracting the square root of the sum.
With specialization measured in this way, farms were only slightly more
diversified in the earlier years. The difference from 1910 to 1955 prob-
ably is smaller than most people would expect. One possible explanation
of this is that corn required so much more labor when horses were used
instead of tractors, that farmers devoted a larger share of their time to
corn production, whereas in 1955 they had more time for other enter-
prises. If the index of specialization had been computed on the basis of
percentage of receipts from various sources, it might have shown a
greater difference.

PROSPECTS FOR CONTINUED CHANGE

Let us speculate about the prospects for American agriculture as
we look ahead to the future. Farms will likely continue to become
larger. The continuing rise of land values in the face of the cost-price
squeeze is ample indication of the tremendous pressure to enlarge size.
In 1956, for example, 40 percent of the Corn Belt land sold was bought
by other farmers for farm enlargement. In the Wisconsin dairy area,
20 percent of the farm land sold was added to existing farms. One-third
of the Southern Piedmont cotton land, 50 percent of the Southern Plains
wheat land, and 40 percent of the Northern Plains cattle ranch land sold
was added to existing farms.
The trend toward higher cash costs relative to operating income con-
tinues as more purchased technology is added to replace labor. This
trend has been apparent for many years and is increasing as more farm
inputs are purchased. Greater specialization, meaning fewer commodi-
ties produced per farm, is apparent. Where a typical farm had three
classes of livestock ten years ago, it more commonly has two today.
The product and production is becoming more and more standardized.
More and more, the capital, labor, and management functions are being
separated in agriculture as they have been in industry. In the face of







32 LYNN S. ROBERTSON AND HOWARD G. DIESSLIN

Table 2.7. Some Comparisons of Farming in Various Years
on 100 Farms in Forest Township, Clinton County, Indiana


1910 and
1913-15
116


Acres per farm

Percentage of farms
Owner operated
Part rented
Rented


1932

146


24
35
41


1945

174


Total capital per farm
Actual dollars
1910-14 dollars

Value of real estate per acre ($)

Number of machines per 100 farms
Tractors
Combines
Corn pickers
Hay balers

Fuel and oil expense per farm ($)
Fertilizer expense per farm ($)

Percentage of land in:
Corn
Soybeans

Yield corn per acre (bu.)
Production corn per farm (bu.)

Number of animal units of livestock
per farm
Cattle
Hogs
Sheep
Poultry
Colts

Value of products per worker
Actual dollars
1910-14 dollars

Acres corn per man

Index of specialization

Labor income ($)

Average deviation in labor income
Actual dollars
1910-14 dollars


24,038 12,255 41,989 74,274
24,038 18,854 21,422 34,071

186 74 196 348


6 37 328 658
8 16 188 934


49 32 66 64
1,829 1,800 3,962 4,018


6.8
10.7
.3
1.3
.8


1,373
1,373

24

49

205


470
470


9.0
17.2
1.5
3.0
.2


930
1,431

32

51

-120


10.4
19.1
.8
3.7



5,386
2,748

36

b

3,466


13.4
12.0
1.0
.7



10,116
4,640

60

53

-974


392 2,837 3,569
603 1,447 1,637


1955

182


aThe square root of the sums of the squares of the percentage of total man work units
represented by the various enterprises.
bNot calculated for 1945.






AGRICULTURAL PRODUCTION PLANT


depressed farm earnings and prices, the less efficient factors in agri-
culture excess land, excess capital, and excess labor must fall by
the wayside. The 'shaking out" takes time and is often retarded by
other programs. For example, many government subsidies have been
capitalized into higher land values, thus slowing down the needed adjust-
ments by providing renewed incentive to stay on the farm with hope of
increased earnings. With the billions of dollars poured into government
agricultural programs since the war, agricultural income has been in-
creased some, but practically none of the adjustments needed to solve
the basic problems have been made.
Added technology and management skills increase the spread in
earning capacity between the less efficient and the more efficient farms
in commercial agriculture. If the government farm programs, which
are basically the same today as originally set up in the 1930's, are su-
perimposed over an agriculture that is totally different today, they can-
not be expected to solve today's problems. Soon, the adjustment prob-
lems in agriculture must be faced squarely.
Prospective changes in the livestock industry in the period ahead
are as fully dynamic as those in field crops of the past two decades.
Livestock technology is reshaping, and will continue to reshape, much of
the livestock farming operation.
The broiler industry gives us good insight with respect to the direc-
tion in which we are headed. For example, as the major livestock enter-
prise on a commercial Corn Belt farm today, the 20-cow dairy is as
obsolete as the 10-cow dairy was in 1940; the 15-20 sow hog operation
is as obsolete as 7-10 was in 1940; the carload beef feeding operation
is as obsolete as one-half carload was in 1940. In addition, the whole
farm building situation is in a state of flux, not only for livestock, but
also for materials handling grain and forage as well. When genetics,
nutrition, and disease control are combined, as they have been in broiler
production, the result is an assembly line, mass production, and a stand-
ardized, integrated industry.
We know the direction in which agriculture is headed; we are not
sure how far or how fast it will go. Barring severe economic depres-
sion in the general economy, it will take place faster than many of us
anticipate. Certainly, the agricultural recession of the past few years
has increased the rate of change taking place on the typical commercial
farm.












R. F. DALY
Agricultural Marketing Discussion
Service, USDA




AS I read over the brief description of the subject matter to be

developed by Dr. Robertson and Dr. Diesslin, it seemed very
broad. Indeed, the topic for the paper might be interpreted as
treating the entire subject of the cost-price squeeze.
I feel that their development of the subject is too cursory in its
treatment of demand. This may be partly a reflection of differ-
ences in our general areas of interest as well as the subjects to be dis-
cussed in papers to follow. Changes in demand are of strategic impor-
tance in determining the size of the production plant as a whole and in
influencing the output of individual commodities. Although we quite
rightly look on demand changes as largely a reflection of consumer be-
havior, they are not entirely independent of the supply response. Tech-
nological developments on the supply side influence consumption through
price as well as in other ways. For example, the rapid expansion in the
use of frozen food stems largely from technological developments affect-
ing supply.
The nature of the demand for farm products and its relatively slow
growth as the economy expands is an old story. Yet, it is pertinent to
this subject. In measuring changes from the 1924-28 average to the
1951-55 average, a period of a little more than a quarter century, we
find population up 36 percent and income per capital (real) up more than
58 percent. Per capital consumption of livestock products for food in-
creased about 16.5 percent from 1924-28 to 1951-55. Livestock product
prices relative to all farm products rose by about 5.5 percent offsetting
a small part of the income effect on consumption. Based on the changes
between the two periods and our general knowledge of elasticities for
livestock products, an income elasticity around 0.3 looks reasonable.
Nonfood use includes primarily wool and the tallow and greases which
are a by-product of meat production. Feed use of milk products on a
per capital basis has decreased during the period. Thus, total domestic
use of livestock products per person for both food and nonfood uses in-
creased less than 8 percent. With a 36 percent increase in population,
domestic utilization in 1951-55 was about 47 percent above the 1924-28
average. Since both exports and imports of livestock products are rela-
tively small, production increased about the same as domestic use.
Demand changes are primary forces influencing the kinds of products
desired. With relatively favorable demand conditions for meat animals,






DISCUSSION


production was up 45 percent. Since technological developments in meat
animal production apparently have been relatively slow, prices, com-
pared to those of all livestock products, increased by nearly a fourth.
Output of poultry products nearly doubled; technological developments in
production contributed to expanded output as well as to a decline of about
30 percent in relative prices for poultry products. Milk production rose
about a fourth. And dairy product prices, although supported in recent
years, were off about 10 percent relative to all livestock products.
Per capital consumption of food crops as a whole has held relatively
steady over the past quarter century except for a rise during World War
II. If anything, the trend may be slightly downward. Food consumption
of crops combines food grains and potatoes, where per capital use is de-
clining, and fruits and vegetables where consumption is rising. These
divergent trends apparently have been largely offsetting in the past quar-
ter century. Nonfood use of crops per capital has increased even more
rapidly than consumption of livestock products. This group includes
cotton, tobacco, and industrial uses of oils and grains. The decline in
feed use, on a per capital basis, reflects the reduction in use of feed for
horses and mules as well as some apparent efficiencies in feeding. In
the case of food use of crops as a whole, changes over the last 25 years
suggest virtually no price and income effect on consumption. Increases
for nonfood crops may result in an income elasticity as high as 0.3.
With a substantial decline in feed use relative to population, domestic
requirements for crops, on a per capital basis, declined nearly 5 percent
from 1924-28 to 1951-55. Crop prices also declined about 5 to 6 percent


MILLIONS a IJL_

High
200


__/
150 Low



100


1910 1930 1950 1970
1910.55 ESTIMATES AND 1955.75 PROJECTIONS FROM CENSUS BUREAU
U. S. DEPARTMENT OF AGRICULTURE NEC. 1058-56(4) AGRICULTURAL MARKETING SERVICE


Fig. 2.1 Growth of United States population with projections to 1975.






R. F. DALY


relative to all farm product prices. Since population increased 36 per-
cent, total domestic utilization of crops was up about 29 percent even
with the smaller use per person. Exports increased 6 percent, imports
27 percent and output 30 percent over the period. But this production
rate resulted in substantial stock accumulation during 1951-55: about
4.5 percent of output in 1952, 7 percent in 1953, 6 percent in 1954, and
6.5 percent in 1955. It should be noted also that surplus disposal pro-
grams during these years prevented even larger stock accumulations.
Production changes for major commodity groups since the last half
of the 1920's indicate that fruits, vegetables, oil crops, and tobacco were
relatively more responsive to changes in income than were food grains,
potatoes, and cotton, for example. A sizable reduction in relative prices
for potatoes probably reflects efficiencies in output as well as the decline
in total requirements. Lower relative prices for fruits were accompa-
nied by a big increase in production and cost-reducing technological de-
velopments affecting supply, particularly for citrus fruits. Demand for
oil crops has expanded very rapidly and prices in 1951-55 averaged
about a fourth higher than in 1924-28 despite big gains in output per man
hour.
The above changes for crops and livestock products, net of feed and
seed use, sum to an increase in total domestic utilization of farm prod-
ucts of about 50 percent from 1924-28 to 1951-55. Since exports in-
creased less than a tenth, total utilization was up about 45 percent. With
farm output averaging in 1951-55 some 50 percent above 1924-28, net
stock accumulation during the period averaged about 3 percent of total



% OF 1947-49




150 Disposable income-


Domestic utilization [
of farm products
100-- s f

PROJECTED PROJECTED-

50
1920 1930 1940 1950 1960 1970 1980

U. S. DEPARTMENT OF AGRICULTURE NEG. 3118-56(4) AGRICULTURAL MARKETING SERVICE

Fig. 2.2 Disposable income and domestic use of farm products per person, with
projections to 1975.






DISCUSSION


farm output. This stock build up is now represented largely by more
than a billion bushels of both wheat and corn and some 14.5 million
bales of cotton.
Production in excess of requirements and the consequent build up of
stocks in recent years were largely responsible for a decline in farm
product prices of more than 20 percent from 1951 to 1956. With rising
incomes and expanding economic activity in general, prices paid by
farmers for goods and services have been maintained at a high level.
The index of prices paid, interest, taxes and wage rates in 1956 was
about 1.5 percent above 1951. The cost squeeze, as measured by the
parity ratio, thus tightened considerably; the ratio declined from 100 in
1951 to 83 in 1956. In March, 1957, the index of prices paid was running
3 percent above the average for 1956. Prices received were up from a
year earlier, but held near the average for 1956 and the parity ratio in
March stood at 80. Farmers' realized net incomes declined by about a
fifth from 1951 to 1956, reflecting the drop in prices and continued high
production costs. Net incomes in 1956 were up 4 percent from 1955, the
first increase since the gain from 1950 to 1951.
The relatively slow growth in demand for farm products, in the past
two to three decades, has been accompanied by rapid increases in pro-
ductivity and the trend toward mechanization of agriculture. As the
authors pointed out, these developments have resulted in a substantial
decline in the number of agricultural workers needed to supply food and
fiber. In 1930 less than 10 persons were supported by production of one
farm worker; by 1956 this ratio had risen to nearly 20. Attractive alter-
natives for labor in nonfarm industries also have drawn farm workers,
as well as rural population, to urban centers.

% OF 1909-13
Fruits & veg. Eggs -

125 \ .
-*

o100. Dairv orod.
100- (INCL. BUTTER)
N*Meats, fish,

75 -poultry _

Potatoes
50 I .--.-
n ,,I ,,l , I ..ll...o. . i I I I l ,I ,.,l ..l , .... mI n .....i L l I -
1910 1930 1950 19701910 1930 1950 1970
S-YR. MOVING AV. CENTERED PER CAPITAL CIVILIAN CONSUMPTION. U.S. (USING I947-49 RETAIL PRICE AS WEIGHTS)
1956 ESTIMATES BASED ON DATA FOR JULY
U. S. DEPARTMENT OF AGRICULTURE NEG. 10098-56 (7) AGRICULTURAL MARKETING SERVICE


Fig. 2.3 Trends in our eating habits with projections to 1975.






R. F. DALY


0 , I I . I I I I I I .1.
1935 1940 1945 1950 1955 1960
U. S. DEPARTMENT OF AGRICULTURE NEG. 222A-57 (1I AGRICULTURAL MARKETING SERVICE


Fig. 2.4 Factors in farm production per unit of farm output.



The authors have covered changes in resources and organization of
the farm production plant. These trends might be generally character-
ized as: a rise in capital inputs, a decline in the use of labor and land,
and a trend toward fewer and larger farms. It is interesting to note,
however, that acreage needed for domestic use (less exports and feed
for horses and mules) has increased about 50 percent since 1910 as land
used for horse feed declined. Since this shift is largely completed, it
has some significance for the future.
The authors report that we are on the threshold of significant
new technological developments which may be opening up tremendous
possibilities for production. This and the general supply situation fac-
ing agriculture today suggest that our major concern for the next sev-
eral years will involve production adjustment and possibly programs to
tailor farm output to probable expansion in demand. Many of the trends
in our eating habits will continue though they may be moderated some-
what. Demand for farm products, reflecting a growing population, ex-
panding incomes, and trends in consumer preference, will expand -
possibly as much as 40 to 50 percent in the next quarter century. Few
new land resources are in prospect. But capital inputs will likely in-
crease further with rising yields per acre and per animal unit. Output
per worker will increase, and more farm operators and workers will
leave agriculture for higher paying nonfarm jobs.








Chapter 3


SHERMAN E. JONSON Effects of Technological
GLEN T. BARTON
Agricultural s Research and Education
Service, USDA Re ar andEdcto




HIS topic is under the general heading of "The Basis of the Cost-
Price Squeeze in Commercial Agriculture." The program, there-
fore, appears to take for granted that research and education are
at least partly responsible for some of the present farm income diffi-
culties.
This is not the first time that the finger of suspicion has pointed to
research and education. The charge has been made rather frequently in
the last two or three years. When it arises in discussion by laymen, the
reasoning is about as follows: Most production research and education
is output-increasing. We do not need any more farm output to add to
our surplus problems. Why not, therefore, slow down, or even place a
moratorium on, production research and education for the time being?
Usually,. discussions by laymen do not cast suspicion on utilization
and marketing research. Studies along these lines are designed to de-
velop larger markets for our surplus products, or at least to give the
producer a larger share of the consumer's dollar. The suspicious char-
acters are production research and education which stimulates adoption
of the results.
In this program also, the question is limited to technological re-
search and education, and presumably confined to the farm-production
aspects of the problem.
Economists recognize that improvements in farm technology are
frequently (though not always) associated with direct increases in output
of farm products; also that unless demand expands enough to absorb the
larger output, the resulting lower prices may actually reduce farm in-
comes. This is the basis for the charge against technological research
and education. We shall examine a little later the special circumstances
under which the charge is justified, but before doing this it may be well
to mention some other public programs that also increase output. New
reclamation projects, conservation and watershed programs, and even
credit and price-support programs also have production-increasing ef-
fects. All of these programs, including research and education, involve
public investments that are intended to benefit agriculture. All need to
be examined realistically in order to determine to what extent they tem-
porarily aggravate the surplus problem, and how they might be modified
to serve farmers more effectively in the years ahead.






40 SHERMAN E. JOHNSON AND GLEN T. BARTON

Our assignment is limited to the effects of technological research
and education. Frequently, their effects cannot be separated from other
production-increasing activities, but insofar as they can be separated,
the following questions would seem to be pertinent: Do they increase or
decrease net farm income? How are the gains from technological im-
provement distributed? If the gains tend to be shifted away from farm-
ers to the benefit of other groups, is there a conflict between progress
and income improvement and stability in commercial agriculture? If
so, can the conflict be reconciled?
To deal with these questions, it seems necessary to review briefly
the objectives of technological research and education, and to trace the
impacts of adoption of improvements with respect to:
1. Effects on output.
2. Short-run effects on costs, and on gross and net incomes of
individual farmers.
a. On initial adoption.
b. When adoption becomes general.
3. Short-run effects on farmers as a group.
4. Short-run effects on other groups.
5. Long-run effects on farmers and other groups.


OBJECTIVES OF TECHNOLOGICAL RESEARCH AND EDUCATION

The objectives of technological research and education frequently
are stated in the general terms of increasing the efficiency of agricul-
ture. If more specific objectives are outlined, they usually illustrate
how farmers would benefit if, for example, the yield of a crop is in-
creased, or if the costs of producing it are reduced. Little attention
has been given to how the benefits from increased efficiency are likely
to be distributed, although the benefits to the general economy have been
recognized. An individual worker in research or extension may put his
objective simply as "helping farmers to make more money." The as-
sumption here is that if individual farmers make more money, farmers
as a group will profit also, and society as a whole will benefit. Unfor-
tunately, the process is more complex than this, but as most of our re-
search and education has proceeded on these assumptions, we need to
examine the effects on this basis.
Technological research is conducted by public agencies, endowed
institutions, and private firms. Public agencies and endowed institutions
are primarily interested in advancement of knowledge and enhancement
of farm and general welfare. Private firms are justifiably interested
in developments that will be profitable to the firm, but they recognize
that the improvements offered must also be profitable to the farmers
who use them. The research under consideration may be applicable
only to farm production as, for example, fertilizer, or it may be applica-
ble to the economy generally, as are automobiles and motor trucks.
Whenever new production techniques are developed that decrease the






EFFECTS OF RESEARCH AND EDUCATION


total inputs of resources per unit of farm output, adoption of the new
techniques is advantageous to individual farmers.' Educational activi-
ties are organized to disseminate to farmers the advantages of adopting
new techniques of this kind. Sometimes the process of adoption involves
development of the necessary technical and managerial skills that are
needed for successful use of the new techniques. In fact, farmer "know
how" is frequently the key element in profitable adoption. We should
recognize also that the foundation for requisite knowledge is the increas-
ingly higher level of basic education of farm people.
The primary appeal that education makes for adoption of improve-
ments is the possibility of increased income to the individuals who adopt
them. Or, in some instances, the appeal may be in terms of reducing
the workload of the farm family. Advantages of improvements are made
known to farmers through the various educational activities, and in that
way adoption is accelerated.
Some of the farm programs supplement educational activities by pro-
viding direct financial and other inducements for adoption of improve-
ments.


EFFECTS ON OUTPUT

Historically, substitution of mechanical power for animal power has
been the most important output-increasing improvement in agriculture.
Release for other uses of cropland that formerly produced feed for
horses and mules on farms was responsible for about half the increase
in output in the interwar years, and it has accounted for about one-fourth
of the increase since the beginning of World War II. Since 1920, this
land-saving improvement has released some 70 million acres, or about
one-fifth of our harvested cropland, for production of marketable prod-
ucts.2 Its future influence will be relatively small because less than
10 million acres are now used to produce feed for horses and mules.
Improvements in crops usually increase the yield per acre, and
livestock improvements result in larger output per animal. In one sense,
however, the large segment of research devoted to protection against
pests and diseases of both crops and livestock is an exception. A large
part of the current research program is needed merely to maintain the
current level of production without contributing to an increase in output.
Output likely would be greatly reduced if research in these fields were
to be discontinued.
Similarly, protection research is needed to maintain our soil and
water resources, although frequently maintenance is inseparably com-
bined with improvement that results in larger output.
Machines that save either labor or capital usually have no direct

'Assuming no change in factor prices, and that the necessary capital can be obtained.
2Substitution of mechanical for animal power also has been a major labor-saving innova-
tion, and this has added to the problem of resource adjustment.






42 SHERMAN E. JOHNSON AND GLEN T. BARTON

effect on output. An example of exceptions to the general rule would be
a machine for more effective placement of fertilizer. In this instance
crop yields might be increased even with some reduction in fertilizer
use per acre. Also, if a new machine is labor-saving, it may release
sufficient labor to permit increased output of the product on which it is
used, or to expand the output of some other product. Similarly, if the
purchase price of a machine is reduced because of technological im-
provements, the capital saved might be invested to increase output for
example, in the purchase of more fertilizer.
Although there are some exceptions, the conclusion appears to be
well founded that most technological improvements do increase output.
As previously noted, adoption of new technology increases output per
unit of resources. The net effect on total output depends, among other
things, on whether aggregate resource inputs are reduced. Figure 3.1
shows the trend of farm output in relation to the trend in population.
The relatively faster rate of growth in farm output during the postwar
years largely explains the unbalance between total farm output and
available markets. It does not explain the unbalance in specific prod-
ucts, such as wheat and cotton. But if total farm output had not in-
creased by 11 percent since 1951, or if it had increased by only half as
much, price-cost relationships would now be much more favorable.
Undoubtedly, technological research and education have prepared
the way for the increases in output that have occurred in recent years,
as well as for the earlier increases that made it possible to provide


% OF 1910-14


175 --Output


150 Population


125


100--_-


75 1111I17111
1910 1920 1930 1940 1950 1960
1910-56 POPULATION ESTIMATES FROM CENSUS BUREAU
U.S. DEPARTMENT OF AGRICULTURE NEG. 56 (11)-572 AGRICULTURAL RESEARCH SERVICE


Fig. 3.1 United States population and farm output.






EFFECTS OF RESEARCH AND EDUCATION


"food enough" for ourselves and our friends abroad during the late war
and its aftermath of rehabilitation. Neither technical advances nor the
development of technical and managerial skills that made possible their
adoption occurs spontaneously. They are largely the product of research
and education. But the credit for the increased production during the
war and its aftermath, as well as the responsibility for more rapid ex-
pansion of output than of markets in recent years, must be shared with
the other production-increasing activities previously mentioned.
We shall not attempt in this paper to assess the relative importance
of the different output-increasing activities. Much of the following dis-
cussion, therefore, relates to the effects of output-increasing forces
from whatever source, recognizing that the initial impetus for much of
the expansion is found in research and education. We shall discuss first
the short-run effects, which may cover a period of several years, and
then take up the longer run consequences to farmers and the general
economy.


SHORT-RUN EFFECTS ON COSTS, AND
ON GROSS AND NET INCOMES OF INDIVIDUAL FARMERS

It is generally recognized that the market demand for most farm
products is so inelastic that a smaller total output of, say, wheat or po-
tatoes, sells at prices enough higher to bring a higher gross value than
would a larger output. Therefore, a cost-reducing improvement that
increases production eventually may mean much lower prices for the
product and a lower gross income to individual farmers, unless demand
increases fast enough to absorb the additional output.
But individual farmers balance the advantage of adoption in relation
to product prices without considering the potential price effects of larger
supplies. And farmers who first adopt a cost-reducing and production-
increasing improvement benefit from the resulting direct gain until or
unless the price of the product is affected. Therefore, those farmers
who first adopt a well tested improvement gain in the early period of
its adoption. This is a powerful incentive for adoption by those in a fi-
nancial position to make the change. In the case of price supported
products, farmers continue to gain unless allotments and price supports
are reduced as more surpluses accumulate.
We should also recognize that farmers who cannot, or who for some
other reason do not, adopt the new techniques are not injured because
other farmers adopt them until or unless the price of the product is re-
duced. However, the difference in net incomes will increase between
those who adopt the improvement and those who lag in adoption.
What happens then, when a production-increasing improvement is
widely adopted? If market demand is expanding rapidly, as it did during
the war and rehabilitation years, the larger output is absorbed without a
decline in prices. If the market expands at least as rapidly as the in-
crease in output, individual farmers will retain the direct benefits, but






44 SHERMAN E. JOHNSON AND GLEN T. BARTON

other groups will benefit also because the larger output will become
available at lower prices than would otherwise prevail.
Under less favorable conditions, demand may expand less rapidly
than output, as in recent years, or it may fail to expand and perhaps
may actually diminish. Prices are then likely to go down. How individ-
ual farmers fare under these conditions will depend on: (1) the extent
of the decline in prices, (2) the cost structure which farmers have de-
veloped, and (3) their ability to adjust to the new situation.
Frequently, adoption of a production-increasing improvement in-
volves a large fixed investment for equipment supplemental irrigation,
for example. Once such an investment has been made, it becomes for a
number of years a fixed, or at least semifixed, input that has increased
the total cost of operation despite significant reductions in cost per unit.
Even variable costs such as fertilizer add to the total cost at the same
time that cost per unit is decreased.
The added costs of producing the larger output may, therefore, re-
sult in a lower net return to the farmer when price declines result from
a larger volume of marketable products. If the price goes down so much
that the larger output brings no more gross income than before the im-
provement was adopted, individual farmers can continue to gain only if
their total costs have been reduced in the adoption process. Although it
is difficult to achieve a lower total cost for a larger output than was
previously incurred for a smaller total output, it can be done under cer-
tain conditions. Usually it involves a reorganization of the entire farm-
ing system and a considerable saving of hired labor.
If a farmer's costs are higher than they were before he adopted the
improvement, and his gross income has been reduced by declining prices,
his annual loss may be greater than his annual gain during the first few
years of adoption. But the road back to the previous position has been
closed for a number of years. His investments for adopting the new
practices have become a part of his fixed costs. Even if the new prac-
tice involves only variable costs such as fertilizer, he is likely to find
that his net return would be lower if he lessened its use. As an individ-
ual operator, he cannot gain by reducing production.


SHORT-RUN EFFECTS ON FARMERS AS A GROUP

As indicated previously, all farmers who adopt an improvement re-
tain the direct gains from adoption if the market demand is expanding
fast enough to absorb the increase in output without a decline in prices.
And as prices do not fall, the nonadopters are not injured. It can be
argued that, with inelastic demand, prices would rise in response to a
smaller supply under such conditions. Therefore, farmers would gain
even more if production did not increase. But this condition would be
purely temporary because other ways would be found to increase output,
but at higher costs. Farmers would be even more vulnerable in the
event of slackening demands. Therefore, the crucial question is how







EFFECTS OF RESEARCH AND EDUCATION


farmers as a group fare under a price decline resulting from a produc-
tion-increasing improvement.
We have already traced the impact of a price decline on individual
farmers and noted that they may lose part or all of the original gain
from adoption of an improvement. In fact, their net incomes may be
lower than before adoption. Under these conditions, the nonadopters
would experience relatively greater income losses because they would
have no increase in output to help offset the decline in price.
We conclude that, in the short run, price declines because of in-
creases in output may result in annual losses to farmers as a group of
part, all, or more than the original annual gain from adoption of an im-
provement. How long the annual losses will continue will depend upon
how rapidly farmers can adjust to the new situation, as well as on
whether market demand is expanding for the products affected.
Under the assumptions of perfect competition and free mobility of
factors, enough resources should be shifted out of unprofitable enter-
prises to make production profitable again for those who have sufficient
competitive advantage to remain in production. But whether such shifts
actually will be made in the short run will depend upon the availability
of better income alternatives to farm people whn are caught in the
squeeze; also upon whether they are in position to take advantage of
other opportunities. A wheat producer with an $80,000 investment in
land and equipment may not be able to liquidate without the loss of most
of his capital. Consequently, he decides to weather the storm. Some
producers who are heavily in debt may be forced to liquidate, but the
land will move into financially stronger hands and remain in production.
Such a shift, however, may result in higher incomes to the fewer work-
ers who remain on farms. In farming areas where several enterprises
are closely competitive, it may be possible to shift, say, from beef to
dairy, or to cash crops. But when prices are relatively low in all lines,
the only alternative is nonfarm employment, and even that may not be
available at all times.
Adjustment to a surplus situation, whatever its origin, is likely to
be both painful and slow. Moreover, the impediments to adjustment
may be sufficiently strong to offset the forces that pull in the direction
of adjustment. Consequently, a chronic condition will develop unless
the impediments are removed. Our recent experience appears to verify
these conclusions. Price, cost, and income relationships have been rel-
atively unfavorable in most farming areas since 1951. Still, total farm
output has moved upward by about 11 percent in five years. We had the
same experience from 1922 to 1929, although output increased more
slowly at that time about 9 percent in seven years.
Why do farmers as a group increase output in the face of low net in-
comes? At present, our explanation consists of hypotheses that need
quantitative verification. Perhaps the momentum gained in responding
to earlier favorable price-cost relationships is a partial explanation.
It is difficult for farmers to realize that market conditions have changed,
and easier for them to assume that the price decline is temporary. In







46 SHERMAN E. JOHNSON AND GLEN T. BARTON

the more recent period, some of the investment for increased capacity
made up to 1951 became available for increasing output after the price
had dropped, and the pressure on farmers to utilize fixed resources
needs no further elaboration. Also, some farmers find it profitable to
adopt new production-increasing techniques even under relatively un-
favorable conditions. Actually, however, farmers have been decreasing
their rate of net investment in machinery since the peak year 1948.
(See Fig. 3.2.) Purchases of new machinery in 1956 were at the lowest
level since 1947. But machinery inventories are still quite adequate,
and even further increases in output are not likely to be retarded by
shortages of machinery.



% NET INVESTMENT* % OF PARITY

r, Farm machinery 1
S-- -t investment A 1

0 V -- -. 100


-15 ,-'--- ---- 85


-30 -/ Prices received A- 70


-45 I I 55
1910 1920 1930 1940 1950 1960
SOURCE: AGRICULTURAL MARKETING SERVICE
*CALCULATED FROM VALUE IN 1935-39 DOLLARS, OF PURCHASES, DEPRECIATION
AND INVENTORY OF MOTOR VEHICLES AND OTHER MACHINERY
AS PERCENT OF PARITY (INCLUDING INTEREST. TAXES, AND WAGE RATES)
U.S. DEPARTMENT OF AGRICULTURE NEG. 57(3)-2282 AGRICULTURAL RESEARCH SERVICE


Fig. 3.2 Farm machinery investment and farmers' prices in the United States.


From 1951 to 1955, farmers continued to increase their outlay for
some of the variable cost items such as fertilizer, pesticides, and some
of the processed feeds. Apparently, even at the lower prices for farm
products, the return above these variable costs was sufficient to in-
crease their use in combination with fixed inputs. Figure 3.3 reveals,
however, that the rate of increase in the use of fertilizer has declined
since 1950, and preliminary data indicate that the total quantity used in
1956 actually dropped slightly below the level of the previous year.
Acreage allotments and marketing quotas have been in effect for
some crops during at least a part of this period. Although they have re-
duced production of cotton, wheat, rice, tobacco, and peanuts, other crops






EFFECTS OF RESEARCH AND EDUCATION


FERTILIZER
% CHANGE


PARITY


20 1 a / | 120


0 -100


-20 8
A 80
-40 --Prices received 60

-60 11 1 1 11111 1] 1 1 11 Ls.. I l '111'j 40
1910 1920 1930 1940 1950 1960
*CHANGE FROM PREVIOUS YEAR IN USE OF PRINCIPAL PLANT NUTRIENTS
AAS PERCENT OF PARITY (INCLUDING INTEREST, TAXES, AND WAGE RATES)
U. S. DEPARTMENT OF AGRICULTURE NEG. 57(3)-2283 AGRICULTURAL RESEARCH SERVICE


Fig. 3.3 Fertilizer use and farmers' prices in the United States.

have been grown on most of the diverted acreage.3 Also acreage re-
striction of price-supported crops induces greater use of fertilizer and
other inputs on the limited acreage. Consequently, with higher produc-
tion on the allotted acreage and substitute crops on the diverted acres,
the net result in some instances may be an actual increase in total output.
Irrigation development resulting from both public and private invest-
ment has contributed to increased output. Conservation activities also
have tended to increase output.
These developments have all resulted in higher production per acre.
The rise in livestock production per breeding unit since 1950 has been
even greater than the increase in production per acre. (See Fig. 3.4.)
This is partly the result of a larger feed supply and, hence, is directly
related to crop production. But it also stems from direct improvement
in the livestock enterprises, especially in production of broilers, eggs,
and milk. For example, a large number of the higher-producing cows
resulting from artificial insemination have come into production in re-
cent years. Antibiotics, and other feed additives, and disease control
also have had significant effects.
If these tentative explanations are accepted for some of the output
increases of recent years, what about the 1920's? There were no farm
programs to give an upward push at that time. But the tractor, truck,
and combine harvester had been developed to such a point that adoption

SaEffects of acreage-allotment programs 1954 and 1955: A summary report," Prod. Res.
Rept. No. 3, ARS, USDA, June, 1956.







48 SHERMAN E. JOHNSON AND GLEN T. BARTON


/% OF 1947-49
I I Total livestock "
Cropland used_ breeding units o






oo_ Prod.
per acre
Prod. per unit


1920 1930 1940 1950 1960 1920 1930 1940 1950 1960
*ESTIMATED ACREAGE FROM WHICH ONE OR MORE CROPS WERE HARVESTED
PLUS ACREAGE OF CROP FAILURE AND SUMMER FALLOW
INCLUDES ALL BREEDING LIVESTOCK EXCEPT HORSES, AND ALL LIVESTOCK PRODUCTION
EXCEPT FARM-PRODUCED POWER OF HORSES AND MULES
U. S. DEPARTMENT OF AGRICULTURE NEG. 56(9)-101 AGRICULTURAL RESEARCH SERVICE


Fig. 3.4 Farm production per acre and per animal in the United States.


constituted significant economies. Credit was available for purchase of
these new machines. The equipment had a special advantage in the
wheat areas, with the result that millions of acres of sod were broken
in the Great Plains and the Pacific Northwest. Livestock production
also increased during these years, as farmers were struggling to find
more intensive enterprises to meet the fixed charges on high indebted-
ness incurred during the war boom. In one respect, the 1920's were
more favorable to output expansion than the 1950's. Prices paid by
farmers were much below 1920 levels, although they did not decline as
much as prices received. Net farm incomes made some recovery in
the 1920's.
Does the recent decrease in the rate of purchase of new machinery,
and even in use of fertilizer, foreshadow a slowing down in output? Is
this slowing down in farm expenditures and capital investment the re-
sult of financial exhaustion of many farmers and, therefore, a with-
drawal of capital resources from production? Availability of nonfarm
employment in recent years has continuously reduced the labor force
on farms. About 9 percent fewer man-hours were used in 1956 than in
1951. But enough capital and current inputs have been substituted for
labor to maintain total inputs and to achieve the increases in output.
(See Fig. 3.5.) Assuming average weather, output will not be decreased
unless there is an actual withdrawal of land, labor, or capital resources.
The acreage reserve part of the Soil Bank will result in a temporary
withdrawal of land resources, but a part of this effect could be offset
rather soon by soil improvement and summer fallow on reserve acres,
and by applying relatively more labor and capital to the land remaining
in use.







EFFECTS OF RESEARCH AND EDUCATION


601


1940 1945 1950 1955
PRELIMINARY DATA
A FARM LABOR. LAND, BUILDINGS, MACHINERY, FERTILIZER, AND LIME
U. S. DEPARTMENT OF AGRICULTURE NEG. 57 (11-2237 AGRICULTURAL RESEARCH SERVICE


Fig. 3.5 Farm inputs per unit of output.

SHORT-RUN EFFECTS ON OTHER GROUPS

When market demand increases, the general economy benefits from
production-increasing improvements because the larger output tends to
prevent a rise in prices. Under these conditions the benefits of improve-
ment are shared by farmers and other groups. Farmers retain the di-
rect gains, but other groups benefit from a larger output available at
relatively lower prices. This was the case during the war and the early
postwar years. But we have already seen that when production increases
faster than demand for the product, the decline in prices will shift part
or all of the original gain, or even more, away from farmers to other
groups.
How much of the gain is passed on to consumers and how much is re-
tained in processing and marketing channels depends on the organization
of the processing and marketing channels and on the relative bargaining
power of the groups engaged in these activities. In recent years, a con-
siderable part of the gain has been absorbed by additional processing
and marketing services, higher wages to workers in these fields, and
increased profits in some lines.
It seems evident that other groups in the economy benefit from
production-increasing improvements in agriculture under most circum-
stances. In periods of relatively low business activity, however, a labor-
saving improvement that releases workers from agriculture may aggra-
vate unemployment. Consequently, for the nation as a whole, the gains
could be offset temporarily by the cost of unemployment relief.


~---






50. SHERMAN E. JOHNSON AND GLEN T. BARTON

LONG-RUN EFFECTS ON FARMERS AND OTHER GROUPS

In the longer run, technological research and education have con-
tributed immensely to public welfare. The new technology has made
possible increased production of food and fiber with much less labor
and other resources. For example, with the farming practices in use
as late as 1910, one farm worker could provide food and fiber enough
for only 7 persons. In 1956 one farm worker provided enough for 20
persons. Over the years the farm labor released as a result of tech-
nological improvement has become available for development of other
industries and services in our economy.4 In this way, technological ad-
vances in farm production have contributed immeasurably to the tech-
nical and economic progress that has meant a high and still rising level
of living in this country. Furthermore, in a growing economy greater
farm output will be needed in the years ahead. For example, an increase
in output of about one-fourth from 1956 to 1975 may be needed to meet
projected market demands. However, most of the increase in demand
will come in later years.
How do farm people share in the long-run benefits of improved tech-
nology? As consumers they share in the general economic progress.
Perhaps the best test of their gains as producers is the trend of real
incomes for farm workers. (See Fig. 3.6.) But other contributions to



%OF 1947-49




100-- -
Industrial worker *



50 t'_--- Farm worker





1910 1920 1930 1940 1950 1960
SOURCE: AGRICULTURAL MARKETING SERVICE.
INCOME PER EMPLOYED INDUSTRIAL WORKER ADJUSTED FOR CHANGES IN THE CONSUMER'S PRICE INDEX.
NET INCOME PER FARM WORKER ADJUSTED FOR CHANGES IN THE INDEX OF PRICES PAID FOR FAMILY LIVING.
U, S. DEPARTMENT OF AGRICULTURE NEG. 57 (3)-714 AGRICULTURAL RESEARCH SERVICE


Fig. 3.6 Real income of farm and industrial workers.

4Some of the released labor is now engaged in producing goods and services formerly
produced on the farm.






EFFECTS OF RESEARCH AND EDUCATION


farm living also need to be considered. Electricity and other improve-
ments have greatly relieved the burden of physical labor both on the
farm and in the farm home. Community facilities now provide better
education and health services. Improved roads and automobiles have
brought local towns or even larger trading centers within a few minutes'
ride. Rapid transportation, radio, and television also have increased
urban contacts, and most farm people are now a part of the same cul-
tural group as their urban cousins.
Better education and closer contacts with urban groups have greatly
increased the mobility of human resources in agriculture. Farm people
are now much better informed about income opportunities in nonfarm
occupations. Good roads and automobiles have made it possible to com-
bine rural living and nonfarm work and to explore work opportunities in
other areas. Historically, adjustments in agriculture have been made
more easily in the areas adjacent to urban development where other
employment was available.
What would be the income and living conditions of farm people today
if little or no technological improvement had taken place on farms since
the beginning of World War I? The conditions that would have developed
in this country with a combination of industrial progress and a static
agriculture are almost impossible to visualize. Farm people isolated
from urban developments probably would have become a peasant society.
In other countries where those conditions have prevailed, we find either
small peasant farms, or large farms operated with low-paid labor, or
both types of situations. Undoubtedly, farm prices would have risen
with the increase in market demands. 5 Increases in output then would
have been obtained by devoting more of our land resources to crops and
by applying more labor and capital to our productive lands. Land values
probably would have absorbed most of the gains. In other words, the
secular law of diminishing returns would have operated about as postu-
lated by the classical economists. At any rate, it would be difficult to
contend that farm people would have had a higher and more satisfactory
level of living in the years since 1910.
Figure 3.6 indicates the broad sweep of changes in real income per
worker of farm and factory workers since 1910. Perhaps a more effec-
tive and somewhat more valid comparison can be made by considering
percentage changes in real income between periods of relatively low
industrial unemployment. These comparisons are made in Table 3.1.
Real income per farm worker nearly doubled from the years 1910-
14 to 1953-55. However, the real income per employed factory worker
increased about one and a half times over the same period. In other
words, although farm people have benefited greatly in an absolute sense,
their rate of gain in real income has lagged considerably behind the gain
achieved by factory workers. From the years 1947-49 to 1953-55, real

'More people would have remained in farming, and they would have increased production
under existing technology. The cost structure, including land costs, probably would have
been even higher; and commercial farmers with high fixed charges for debt service would
have been in a vulnerable position in a period of slackening demands and declining prices.







52 SHERMAN E. JOHNSON AND GLEN T. BARTON


Table 3.1. Comparisons of Real Income Change Between
Farm and Factory Workers

Percent change in real income per worker

Period Farm Factory
1910-14 to 1925-29 8 29a
1918-20 to 1942-44 98 92
1910-14 to 1953-55 96 149a
1925-29 to 1953-55 81 92
1947-49 to 1953-55 -11b 21

aBased on a 1913-14 average for the beginning years.
bNo adjustment is made for the higher equity investment per worker in 1953-55.


income per employed factory worker increased by 21 percent. The un-
favorable income situation of recent years tends to obscure the long-
term benefits. We must bear in mind, however, that technological de-
velopments are not responsible for all of the income changes either
favorable or unfavorable. And we must also recognize that short-run
unfavorable developments, from whatever source, greatly retard the
benefits of progress over the longer term, and may wipe them out en-
tirely for many farm people.


CAN CONFLICTS BETWEEN PROGRESS AND
INCOME IMPROVEMENT AND STABILITY BE RECONCILED?

It is evident that although farmers have benefited greatly from pro-
duction-increasing improvements, the impacts of these improvements
can also contribute to instability of income for farm people over the
short run. But the solution to this problem does not lie in retardation
of progress by restricting research on technological improvement. It
must be found in removing the obstacles to adjustment that are the root
causes of instability and in working out ameliorative measures to help
those who encounter substantial hardship from major changes. Agricul-
ture must go forward with the rest of the economy. We can no longer
consider farm people as a group apart. Both technical and economic
progress is necessary if agriculture is to provide income opportunities
that will attract and retain persons of ability. Industrial progress and
a static agriculture are incongruous under present conditions.
The real conflict between progress and income improvement and
stability arises from assuming that adjustments to important technologi-
cal developments, or to any other production-increasing forces, can be
made automatically. For example, about half of the increase in output
during the interwar years arose from substitution of mechanical power
for animal power. One solution to this problem would have been to slow
down or actually prevent this shift. Although it seems strange now,
there were strong advocates of this solution at that time. The opposite







EFFECTS OF RESEARCH AND EDUCATION


solution would have been to adopt measures to facilitate adjustment to
the new situation.
When surpluses and low prices became really serious because they
were accentuated by deep depression, programs intended to relieve the
surplus problem were developed. They were developed as emergency
programs, however, and they did not have an adequate research founda-
tion. The adjustment programs in effect today are based largely on
those developed during the 1930's, and the research basis is still inade-
quate.
The question then arises as to what research can contribute toward
facilitating adjustments to production-increasing improvements, or to
other significant changes, and providing a better foundation for amelio-
rative programs. We believe that research can be organized in a way
that will greatly facilitate adjustments to changing conditions. It can
contribute along the following lines:
1. There are some opportunities for expanding markets beyond their
normal rate of growth. For example, the development of the broiler in-
dustry probably expanded the total market for meat. In this way, it has
caused a shifting of consumption from lower value to higher value prod-
ucts, and provided an opportunity for employment of more resources in
agriculture.
2. It may be possible to develop new crops that will increase total
market outlets. Earlier development of soybeans undoubtedly expanded
the total market for farm products. There is some discussion now that
entirely new uses can be found for castor beans. If these new uses can
be found, the market for farm-produced oils will be expanded even more.
But exploitation of this potential market depends on the development of
economical methods of production, including an effective mechanical
harvester.
3. Although many difficulties must be resolved in expanding export
markets, research may reveal new foreign outlets that will result in in-
creasing the market for farm products.
4. Research in the economics of production can greatly facilitate
shifts toward the products with the greatest potential market expansion,
including those indicated under points 1, 2, and 3. Such research will
be needed especially if new crops or new uses are developed. But per-
haps the most important contribution of research in the economics of
production lies in facilitating shifts toward production of livestock prod-
ucts, fruits, and vegetables. The normal market expansion resulting
from increases in population and in purchasing power seems likely to
favor these products.
5. Research in economics of production needs to give special atten-
tion to the obstacles that prevent rapid adjustment to new conditions and
ways of overcoming them. Research of this kind will include emphasis
on improvement of the situation for those who suffer substantial hard-
ship as a result of changing conditions. The goal should be to find ways
of improving incomes for all farm people hired workers as well as
farm operators.
6. At present, farm workers probably would receive higher returns







54 SHERMAN E. JOHNSON AND GLEN T. BARTON

if fewer production resources were used in agriculture. Economic anal-
ysis would suggest a shifting of the least productive resources into other
uses. The conservation reserve features of the Soil Bank and the Great
Plains conservation programs are directed toward this objective on the
land front. Research is needed to make them more effective. For ex-
ample, to the extent that entire farm units of low productivity can be
shifted, both land and labor of relatively low productivity are devoted to
more productive uses.
Shifting land of low productivity into grass or trees will build up a
reserve of productive capacity that may be needed in an emergency or
in the distant future. Other means of lessening present exploitation of
land and water resources and conserving them for future needs should
be fully explored. It may be possible also to slow down the rate of ad-
dition of capital inputs in agriculture, especially those that involve
public investments for new development.
One of the goals of farm people that is frequently stated is an oppor-
tunity to earn real incomes equal to those available in other occupations
with the same effort, skill, and managerial ability. Research is needed
to determine the alternative ways of achieving this goal. Will it require
better health, education, and other community facilities in rural areas?
Will such facilities in turn improve the opportunity for some rural people
to go into other occupations that afford a better outlet for their talents?
Here again, encouragement should be given to shifting resources
that are now bringing the lowest return; for example, migratory labor
and stoop labor of all kinds, provided that better income alternatives
are available for these workers. Research to mechanize the operations
performed by stoop labor will need to be stepped up to provide economi-
cal substitutes for low-paid hired labor.
7. Economists must be alert in detecting emerging changes and in
analyzing their potential impacts. They should appraise the structure
of agriculture that is likely to result from the pending changes and be
in a position to suggest ways of modifying the effects of undesirable
changes. For example, the potential effects of the increased tendency
toward vertical integration of farm production with furnishing of farm
supplies and with processing should be carefully analyzed. More and
more projections of longer term prospects are needed, and great em-
phasis should be given to analyses of their implications concerning the
future welfare of agriculture.
We conclude that physical and biological research should continue
in all major areas. But greater emphasis should be given to basic re-
search, to protection research as previously noted, and to other types
of applied research that give promise of aid in solving adjustment prob-
lems; for example, more productive grasses for the Great Plains. How-
ever, the greatest need is for a combination of natural science research
with greatly expanded research in economics of production. Research
to facilitate adjustments to changing conditions is essential if farmers
are to share fully in the benefits of technological progress. Finding a
solution to the conflict between progress and income improvement and
stability is the real challenge to researchers in economics.














JAMES S. PLAXICO Discussion
Oklahoma A. and M. University





SINCE there is little basis for disagreement with the analysis pre-

sented by Drs. Johnson and Barton, I shall devote most of my dis-
cussion to extending certain of the ideas developed by them. Most
of my attention is directed to the long-run considerations.
The long-run distribution of the benefits of technical development
(defined as shifting to a higher production function) in agriculture be-
tween farmers and non-farmers can assume three different forms:
1. The welfare of both farmers and non-farmers is improved.
2. The welfare of one group, farmers or non-farmers, is improved
while the welfare of the other group is not changed.
3. The welfare of nonfarm groups is improved while the welfare of
farmers is diminished.
If we ignore intra-group changes in welfare, we can conclude that
either of the first two effects would improve the total welfare of society.
However, since we are unable to make inter-personal comparisons, we
must defer judgment on the third possibility.
In an earlier paper Dr. Johnson1 states that agricultural economists
tend to be pessimistic about the long-run benefits of technical develop-
ment to farmers. He attributes this pessimism to a failure to appreciate
possibilities of lower costs for a larger output through new production
combinations. I believe this notion has merit although Dr. Johnson
places less emphasis on this possibility in the present paper. Possibili-
ties of lowering costs are perhaps greater in the case of labor-saving,
land-using types of innovations.
Current research at Oklahoma A. and M. University indicates that
the labor and machinery supply on the modal 320-acre and 640-acre
north central Oklahoma wheat farms are the same. Similarly, there ap-
pears to be no real difference in the level of practices or the input-out-
put relationships. Furthermore, the present organization and the pro-
grammed "optimum" plan is such that the crop acreages and livestock
numbers simply double in moving from the one-half section to the one
section unit. Thus, in this case, doubling the land input apparently

'Johnson, Sherman E., "Technological changes and the future of rural life," Jour. Farm
Econ., Vol. 32, No. 2, May, 1950.






JAMES S. PLAXICO


doubles the output with no increase in non-real-estate capital and little
increase in hired labor.
There are, however, reasons to believe that the results mentioned
(i.e., no change in output per acre after resources were recombined)
are not applicable to any large number of resource situations. The area
studied is one of homogenous soil resources where alternative enter-
prises and production practices are quite limited. In an area such as
the Southeast, output per acre may well increase when units are consoli-
dated due to the employment of more intensive production practices.
Thus, perhaps we must tentatively conclude that innovations which lower
total costs are the exception rather than the rule even after resources
are recombined. In any event, it is significant that although the equip-
ment making possible the savings indicated in the Oklahoma area have
been available for many years, few operators have adjusted their re-
source combinations along the indicated lines. This is evidenced by the
fact that the 320-acre unit is the modal farm size in the area.
If, as is generally agreed, technical innovations usually increase
total costs, then in the absence of an increase in demand sufficiently
great to increase the gross incomes of farmers as much or more than
costs, successful technical research and education has a depressing ef-
fect on net incomes in agriculture. This follows from the inelastic na-
ture of the demand function for farm products in the aggregate and for
most individual products. Therefore, we would conclude that in the long
run the major benefits of technical development in agriculture accrue to
nonfarm segments of society. These benefits are in the form of re-
sources made available to increase the production of non-subsistence
goods and services. As Dr. Johnson indicates, these benefits to society
have been tremendous. Yet as significant as technical progress in agri-
culture has been, we should recognize that certain measures tend to
overestimate the resources released by agriculture. For example,
some of the jobs formerly performed by farmers have been shifted to
organizations serving farmers. Thus, some movement of labor from
farms has not resulted in net reduction in labor employed in agricultural
production.
The farmer as a member of society shares in long-run benefits of
technical development in agriculture. In fact, most of the farmer bene-
fits enumerated by Johnson accrue to farmers as consuming members
of society rather than as producers of agricultural commodities. An ad-
ditional important benefit is that the expanding nonfarm economy, made
possible in no small part by technical development in agriculture, offers
one means of facilitating the constant resource adjustments, within agri-
culture and between agriculture and other industries, which are a neces-
sary part of a productive and growing economy. However, since, as the
data presented by Johnson shows, farm incomes have not increased as
much as those of other groups, farmers as consumers have not been
able to share in the increased productivity of the economy to the extent
that many nonfarm groups have. Furthermore, farm income data, such
as those presented, reflect varying degrees of compensation paid






DISCUSSION


farmers by society. Thus, such data would appear to underestimate the
farm to nonfarm income transfers generated by market forces.
Technical research and education which reduce the risks and uncer-
tainties of farming may increase the welfare of farmers even though
they tend to reduce net incomes. Many of the technical developments
which reduce risk and uncertainty are output increasing and, therefore,
given a fixed demand, income reducing. However, if farmers prefer
the lower but more certain income, farmer and society welfare may be
increased by such innovations.
The innovating farmer in an area of rapid technological development,
producing a commodity with a relatively high price and income elasticity
of demand which has enjoyed rapid technological development, is in the
most favorable position to make short- and long-run adjustments to tech-
nological developments. On the other hand, the farmer who is slow to
adopt innovations, who is in an area of slow technological development,
and who is producing a commodity for which development has been slow
and which has a relatively low price and income elasticity of demand, is
most adversely affected by technological development.
The various technological developments in agriculture have probably
caused important long-term intra-industry income transfers. Technology
has not been developed or adopted at the same rate in the different areas
or with respect to different commodities. Such a differential rate of
technological development benefits areas or commodities where develop-
ment is more rapid at the expense of areas or commodities where devel-
opment has been slower. In like manner, the early adopter benefits at
the expense of the late adopter. Thus, even in the absence of inter-in-
dustry income transfers, technological development would not, in the
long-run, appear to improve the position of one group without injuring
other groups.
Intra-agricultural income transfers are most pronounced where
there is a differential rate of technological development between compet-
ing products or competing areas. For example, the development of corn
hybrids probably improved the position of producers in areas where
corn yields were substantially increased relative to corn producers in
other areas and producers of competing feed grains. In similar fashion
newly developed hybrid grain sorghum may allow certain grain sorghum
producers to gain at the expense of other feed grain producers.
An output increasing innovation can, of course, in the long-run de-
crease the incomes of the innovating group as well as competing groups.
Whether this occurs depends on the extent to which prices are reduced
relative to the per unit cost reduction resulting from the innovation.
However, the important point is that even though an innovation increases
the net income of farmers as a group, the welfare of farmers may be de-
creased due to changes in income distribution within agriculture.
Public research and education funds could be allocated so as to mini-
mize income transfers within agriculture. Scientific discoveries or ad-
vances are probably not predictable. However, some degree of correla-
tion would be expected between the funds and effort expended in a given






JAMES S. PLAXICO


area and the progress made in that area. Thus, major public research
and education funds could be directed to depressed areas or commodities
in an effort to equate, to some extent, the rate of technical development
in agriculture. Such an allocation would not, however, maximize over-
all social progress from a given research input.2
The fact that research and education are not the sole factors re-
sponsible for shifting the agricultural supply function and that not all
technological research and education are publicly sponsored are impor-
tant points. The first point suggests that a given reduction in the rate
of supply increase may be achieved, with less sacrifice of economic
progress, by policies influencing non-research and education factors
than by rationing, in some fashion, resources devoted to research and
education. The fact that private firms are important elements in agri-
cultural research and education implies that the rate of technical ad-
vance is not a variable that can be fully controlled by public policy. In
fact, in a full employment economy, expansion of private agricultural
research and education activities would be expected if publicly supported
research were curtailed. In addition, only publicly supported research
and education can be planned to guide progress in an optimum direction.
Dr. Johnson has outlined a challenging and extensive program of re-
search designed to shed light on problems of resource and market ad-
justments in a growing economy. Over the past 50 years farm manage-
ment workers in this country have made tremendous contributions to
the efficiency of a growing commercial agriculture. During the next
50 years we must not only continue analyses of farm firms, but we must
expand our efforts and direct more attention to analyses of factor mar-
kets and of the structural nature of dynamic supply functions. Farmers
and society expect workers in farm management-production economics
to provide a research basis for a rigorous and forward-looking evalua-
tion of alternative resource-market adjustments. The interest evidenced
in this conference certainly suggests that our profession will not betray
this trust.















2Heady, Earl O., "Basic economic and welfare aspects of farm technological advance,"
Jour. Farm Econ., Vol. 31, No. 2, May, 1944.



















PART II

Demand and Supply









Chapter 4


NORMAN R. COLLINS Demand Functions
GEORGE L. MEHREN
University of California and Prospects





THE QUESTIONS
HE primary question at issue for this conference can be posited
simply: What will be the on-farm demand for major classes of
farm products in each production period over the next 20 years?
This simple question cannot really be answered simply or otherwise.
Ideally, net price-quantity functions together with output, factor price,
and relevant general-economy relations could indicate magnitudes of al-
ternative net returns streams and thus help to guide output adjustments.
Commodity classes and markets should be defined to yield fairly low
cross-demand and high cross-input relations to facilitate implementa-
tion of policy recommendations. All interrelated functions should be
projected from a simultaneous system in which dynamic changes in var-
iables and functional forms are explicitly introduced. Variables should
include no processing or service components irrelevant to farm revenue.
The system should reflect the impact of changes in market structure
upon farm returns. Finally, possibilities for, and effects of, demand
manipulation should be indicated.


METHODOLOGY

In general, available demand projections do not meet these specifi-
cations. Estimates of "needs" or requirements cannot easily be trans-
lated into unequivocal on-farm net price-quantity functions suitable for
guiding input allocation.' Possible mutuality, temporal interrelations,
and market-structure constraints are not always considered. Systems
do not generally indicate means for controlling demand. However, these
limitations are common to all projections and in those concerning food
demand their adverse effects have usually been minimized.
'The following quotation illustrates the form projections commonly take: "The use of the
term 'demand' in this paper is not synonymous with 'demand' in the usual economic sense,
that is, the functional relationship between prices paid and quantities purchased. It is a
broader term widely used in outlook appraisals that refers to total utilization of a com-
modity resulting from the combined influence of changes in price, changes in income, and
changes in population." Cavin, James P., "Long-term outlook- trends in consumer demand,"
talk before 34th Agricultural Outlook Conference, Washington, D. C., Nov. 27, 1956, p. 3.







62 NORMAN R. COLLINS AND GEORGE L. MEHREN

Nearly all economic projections involve essentially the same meth-
ods.2 It is implicitly assumed that demand determinants and their inter-
relations are known from past experience; that reasonable limits can be
assigned to their future dimensions and to both social variables and
physical contexts as well; and that temporal changes in exogenous vari-
ables have been taken into account. Thus, projections indicate "accept-
able" ranges of results consequent upon a disjunctive set of "reasonable"
assumptions with respect to determining variables, their magnitudes,
and interrelations. They are statements of this sort: If demand be gen-
erated within a specified system and if specified changes be introduced
into the variables, their magnitudes, their functional interrelations, or
the system itself, then future attributes of the demand may reasonably
be expected to fall within indicated limits.
With a complete economic theory of change, relevant variables and
relationships would be identified and others could be excluded. Without
such theory, likely future patterns may be generated in many alternative
ways, even if general agreement exists with respect to past observations
over a period encompassing many significant changes in variables, their
magnitudes, and relationships. Some demand projections, but not all,
rest implicitly upon the orthodox static and disjunctive mechanism of
individual demand theory which generates a simple system of determin-
ing variables and relations, imposes the constraint of maximization,
and takes into account an undefined but complex battery of social and
physical variables in the preference system. Most studies, however,
depend explicitly on only one of the variables income specified by
orthodox theory.
The preference system, income, and relative prices can define the
static demand function of the individual. With fixed stocks of goods, a
complete market system of exchange can be derived. If production and
income-generating functions are introduced, a self-contained and con-
sistent system for mutual determination of market inputs, outputs, costs,
prices, incomes, and rates of purchase can be derived. Difficulties of
aggregation are severe. A system based on classical theory is not sta-
tistically operational. Such demand constructs identify the relevant var-
iables and impose broad limits upon likely functional forms and systems
of determination. However, since neither the determinants of temporal
changes nor their interrelationships are specified, there is no general
agreement with respect to methods of projection. The effects attributed
to preferences, population, and income changes appear in fact to be tem-
porally interrelated in most demand projections. But, again, demand
theory imposes no stringent limits on likely forms of such relationships.
It seems impossible to derive operational hypotheses for projection
from the limited propositions of orthodox demand theory.
Most published projections of farm demand seem to involve similar


"There is an excellent discussion of methodology in Kuznets, Simon, 'Concepts and as-
sumptions in long-term projections of national product," Long-Range Economic Projections,
Studies in Income and Wealth, Princeton University Press, 1954, Vol. 16, pp. 9-42.







DEMAND FUNCTIONS AND PROSPECTS


assumptions and operations.3 Per-capita consumption rates are usually
projected from income and price assumptions with shifts in preferences
reflected in the income elasticities employed. A level of total population
is then assumed and aggregate requirements defined. Thus, projections
are usually net rates of purchase from which net price-quantity functions
could presumably be adduced through adjustment for quantity-price elas-
ticities. The explicit variables, then, are size of income and of popula-
tion. Other attributes of both series which affect preferences may be
implicitly introduced.
Generally, a global, all-commodity index is projected first. Base-
period, per-capita takings at base-period prices are adjusted for pro-
jected incomes and then aggregated on the basis of population assump-
tions. Net export and nonfood demands are usually projected separately
and often quite arbitrarily. Commodity projections are adduced sepa-
rately and revised as necessary to achieve consistency with each other,
with past relationships, and with the separately developed global projec-
tion. Thus, base-period consumption rates are assumed to change as
fairly simple functions of population and income with constant base-
period price ratios. Population projections are taken from demogra-
phers. Disposable income is projected from assumptions of number of
workers employed, productivity per man-hour, and hours worked. Do-
mestic utilization so estimated is then adjusted for net outside and non-
food uses.
A complete logical system cannot be derived from assumptions that:
(1) net total consumption-total population elasticity is unity and (2) global
projections so derived may then be adjusted through (a) assumed net con-
sumption-income elasticities and (b) "judgment." No economy-wide or
temporal interrelationships appear in the system. Assumption of con-
stant price ratios or unexplained "adjustments" therein are disturbing.
However, prices of many farm products and inputs are in fact tied to-
gether by close physical or economic interrelationships.4 Base-period,
net consumption-price coordinates are shifted rightward for population
and for income, and then perhaps other "judgment" adjustments are
made, particularly for relative price shifts. Such projections are not
the ideal, but they may well indicate the general drift of future demands
as well as more complex methods and as validly as production, cost, or
supply projections.


SFor a comprehensive treatment of methodological aspects of farm-demand projections,
see Daly, Rex F., "Some considerations in appraising the long-run prospects for agricul-
ture," Long-Range Economic Projections, Studies in Income and Wealth, Vol. 16, pp. 131-89.
Also, one of Cavin's studies, "Projections in agriculture," Long-Range Economic..., Vol.
16, pp. 107-30. Equilibrium supply-demand solutions for aggregate output and average price
levels are developed under three sets of assumptions with respect to the general economic
context in Cochrane, Willard W., and Lampe, Harlan C., "The nature of the race between
food supplies and demand in the United States, 1951-75," Jour. Farm Econ., Vol. 35, No. 2,
May, 1953, pp. 203-22.
4Schultz has argued that the relative price structure of major groups of farm foods tends
to remain fairly stable in the long run. See Schultz, T. W., Economic Organization of Agri-
culture, McGraw-Hill Book Co., New York, 1953, p. 58.







64 NORMAN R. COLLINS AND GEORGE L. MEHREN

THE DATA

The underlying logic calls for assumptions with respect to magni-
tudes of population, income, and those variables whose effect is deter-
mined by "judgment"; their preference-related attributes; and their net
consumption elasticities at given price ratios. Data are also required
to reduce retail-price-weighted-consumption projections of demand to
farm levels. If market-structure and demand-manipulation changes
are introduced, additional data are needed.


Population

Early projections of population were not realized because of higher-
than-projected immigration, lower death rates, and sharply higher birth
rates which may or may not represent a short-run bulge.5 Structural
changes in proportions of women married, age at marriage and first
child, and perhaps in family size, appear to be basic factors in continu-
ing the high birth rates of the 1940's. The Census Bureau published
four projections of total population based respectively upon assumptions
that (AA) 1954-55 rates would continue; and 1948-53 rates from 1955
bases would (A) continue through 1975; (B) continue to 1965 and decline
thereafter to 1940 levels by 1975; and (C) decline continually, reaching
1940 rates in 1975 (Table 4.1).6

Table 4.1. Census Bureau Projections of Total United States Population
(Including Armed Forces Overseas)*

SYear series
Year AA A B C

1960 179,358,000 177,840,000 177,840,000 176,452,000
1965 193,346,000 190,296,000 190,296,000 186,291,000
1970 209,380,000 204,620,000 202,984,000 196,370,000
1975 228,463,000 221,522,000 214,580,000 206,907,000

*Source: U. S. Bureau of the Census, Current Population Reports, Series P-25, No. 123,
Oct. 20, 1955.

Assuming unit elasticity of food consumption and population, projec-
tions of 'needs" or 'requirements" can be generated as functions of
population. There is, however, no 'most reasonable" population series
since no new pattern has yet definitely emerged. Population is the cru-
cial series. The range in projected needs based upon divergent popula-
tion assumptions is dangerously wide. This range is extended by

SDavis, Joseph S., "The population upsurge and the American economy, 1945-80," Jour.
Polit. Econ., Vol. 61, No. 5, Oct., 1953, p. 371.
6For projections and discussion of various fertility assumptions, see U. S. Bureau of the
Census, Current Population Reports. Series P-25, No. 123, Oct. 20, 1955; No. 78, Aug. 21,
1953. For earlier projections see No. 58, Apr. 17, 1952; No. 43, Aug. 10, 1950.







DEMAND FUNCTIONS AND PROSPECTS


divergent assumptions of age, numbers of separate family units, and
other population attributes related either to preference systems or to
disposable income and usually introduced as a "judgment" adjustment.
However, with no change in real income or price relatives, domes-
tic food needs could increase over 1955 levels by 12.7 to 17.0 percent
in 1965 and by 25.2 to 38.3 percent in 1975 from population growth alone,
assuming unit net elasticity of consumption with respect to population.
The diversity of possible population assumptions leads to consequent
diversity in projections of size of market, preference patterns, and
income.


Disposable Income

Again, in the absence of any accepted theory of growth, many income
projections are equally tenable. Income is usually related to population,
number of employed workers, productivity, and hours worked, in a sys-
tem which is operational and which is no weaker logically than more
complex alternatives.
According to series AA, A, and B, United States population in 1975
may range from 215 to 228 million. Most entrants into the 1975 or
earlier labor force are now living. Labor-force projections are,
therefore, not greatly affected by changing birth rates. All three series
project about 137 million people 14 years and older by 1965. Series A
and B project about 159 million by 1975, and series AA about 161 million.
Since 1945, from 57.2 to 58.8 percent of people 14 years and over have
entered the labor force.7 Percentage participation by particular age
and sex groupings has been less stable. Expectations of wider schooling,
early marriage, and high fertility lead to projected participation rates
in 1965 and 1975 of slightly more than 57 percent.8 This would mean
about 78.3 million people in the labor force in 1965 and about 91.5 mil-
lion in 1975 an increase of about one-third over 1955. Most projections
assume a decline in male participation to about two-thirds of the labor
force, increased participation of women aged 35 to 64 years, and a lower
percentage but a larger number of persons under 20 years in the labor
force. Preference systems as well as incomes will vary with alternative
labor-force assumptions. Despite the variety of assumptions, this is
the most stable series in the system.
Productivity is defined in most analyses as real gross national prod-
uct per man-hour of labor. More satisfying definitions usually cannot be
quantified effectively.9 Labor represents total factor input. Identity,

7U.S. Bureau of the Census, Current Population Reports. Series P-50, No. 61, Dec.,
1955, Table 1.
'U.S. Bureau of the Census, Current Population Reports. Series P-50, No. 69, Oct.,
1956, Table 3. Separate age-sex group participation rates were obtained from this table and
applied to population series AA, A, and B to obtain estimates of labor force.
'For a discussion of this point, see Kendrick, John W., "National Productivity and Its
Long-Term Projection," Long-Range Economic Projections, Studies in Income and Wealth,
Princeton University Press, 1954, Vol. 16, pp. 67-104.






66 NORMAN R. COLLINS AND GEORGE L. MEHREN

magnitude, and combinations of all factor inputs are subsumed in the
ratio. Estimates of average annual rate of increase in productivity have
generally ranged from 2.1 to 2.5 percent. An average annual increase
of 2.5 percent is generally projected.10 With low-income elasticities,
varying assumptions here yield relatively minor differences in pro-
jected demand.
Projected declines in average hours of work per week vary from 5
to 15 percent below 1955 levels, centering about a decline of some 5 per-
cent by 1965 and 12 percent by 1975. Decrease in hours worked may be
partly offset by increases in labor force participation.
With additional assumptions of an unemployment rate of 4.5 percent,
and with no war, depression, or other major disaster, gross national
product is usually projected by the relationship:

P=Po [E x x ,

where Pi and Po are the projected and base period indices, respectively,
of GNP, EI is the projected index of number of workers employed,
is the projected index of average man-hours per worker, and is the
H
projected index of average productivity per man-hour. In each case the
base period index equals 100. From a 1955 base, the 1965 GNP would
be up about 34 percent and for 1975 about 75 percent. It is generally
assumed that total disposable income will be about 71 percent of GNP
in 1965 and about 73 percent in 1975. The new postwar income distribu-
tion patterns have been remarkably stable, and these patterns are, there-
fore, extended to 1975.11


Other Variables

Base-period price relatives are required even for point projections
of "needs" or "requirements." Price projections are also necessary to
adjust individual commodity projections or to develop net consumption-
price functions. "Judgment" adjustments usually imply assumed changes
in preference structures, with specific variables sometimes used as sur-
rogates. If changing market structure and demand promotion are related
to on-farm demand, carrier variables must also be identified.


THE BASIC RELATIONSHIPS

Projection of base-period consumption-price coordinates requires
assumption of net elasticities of consumption with respect to population

'oThis is the assumption employed by the U. S. President's Materials Policy Commission.
See U. S. President's Materials Policy Commission, Resources for Freedom, 1952, Vol. 1, p. 7.
"U. S. Office of Business Economics, Survey of Current Business, Mar., 1955, p. 18.






DEMAND FUNCTIONS AND PROSPECTS


and to income. A zero net consumption-price elasticity for total food
is assumed in most studies. Other magnitudes are assigned in some
cases when projecting consumption rates or deriving net consumption-
price functions for particular commodity classes.
Observed consumption-population elasticity has approximated the
assumed magnitude of unity. The effects of changing population charac-
teristics upon individual commodity classes appear to have been offset-
ting. By 1965 the total population will increase about 15 percent and the
10 to 19 age group about 48 percent. This should increase average per-
capita demand for milk, citrus juices, and cotton. Infants and children
consume only one-half the calories required by an adult, but caloric
intake of teen-agers is about 25 percent above adult levels. Thus,
changes in age distribution may raise per-capita caloric consumption
3 to 5 percent by 1975 despite the increase in older age groups.
Regional differences in population patterns and, therefore, in de-
mands are closely related to the income variable.12 Moreover, diets
appear to be increasingly homogeneous. Changing occupational-- and
perhaps other population attributes may affect regional, commodity,
or even total demand.
The net retail expenditures-income elasticity is about +0.4 and about
+0.7 for the service components. Net on-farm value-income elasticity
averages about +0.15 with a wide variation among commodities. Net on-
farm tonnage-income elasticity is near zero. The major effects of ris-
ing per-capita real income consist mainly of a minor shift to higher
cost foods and a great increase in service components. Income elastici-
ties appear to be higher than the average of all farm products for beef,
chicken, most leafy, green, and yellow vegetables, and citrus fruits;
about average for pork, eggs, and most dairy products; and less than
zero for wheat, flour, dry beans, peas, and sugar.'3
Net consumption-price elasticity is usually either not explicitly con-
sidered in total consumption projections or, if introduced, is generally
set near zero. In projecting individual commodity requirements, net
price elasticities must be considered only if projections are "adjusted"
or if net consumption-price functions are derived. The existence of a
stable relative price structure together with low and declining on-farm
price elasticities probably mitigate the effects of omitting this relation-
ship. The assumption of constant price relatives is usually relaxed for
livestock products on the grounds that "requirements" could not be pro-
duced at such ratios. At least implicitly, output for these products is
taken to be determined simultaneously with "demand" but in an unspeci-
fied system.
American tastes have changed dramatically in association with

"2U. S. Department of'Agriculture, "Food consumption of urban families in the United
States." Agr. Inf. Bul. No. 132, Oct., 1954, p. 9.
'SFor a discussion of empirical findings, see Daly, "The long-run demand for farm prod-
ucts," Agr. Econ. Res., Vol. 8, No. 3, July, 1956, pp. 73-91; Kuznets, George, "Measure-
ment of market demand with particular reference to consumer demand for food," Jour. Farm
Econ., Vol. 35, No. 5, Dec., 1953, pp. 878-95; and Schultz, op. cit., pp. 44-82.







68 NORMAN R. COLLINS AND GEORGE L. MEHREN

changes in population, income, labor-force constituency, dietary recom-
mendations, processing and marketing technologies, market structure,
perhaps promotion, and almost surely other factors. Thus far there
has been no effective quantitative expression of the preference structure.
Demands have shifted from carbohydrates and may be shifting now from
certain animal fats.4 Technological changes may affect both the form
of products at retail and on-farm demands. Changing market structure
may already have related requirements for type, uniformity, minimum
quantity, terms of sale, and methods of distribution to farm returns.
Promotion might conceivably have some net effect on consumption but
its effects are, thus far, not measurable even for specific products.
The relationships among these possible determinants of preference are
largely nonquantified and perhaps largely nonquantifiable.


OTHER DEMANDS

The two-variable plus "other factors" projection mechanism is not
usually replicated for nonfood items, which comprise more than one-
third of the value of farm production.15 Three-fourths of nonfood output
is used as farm inputs mainly feed. Consequently, demand projections
for meats and feed-livestock conversion ratios must be major variables
in the nonfood projection system, but few explicit references are made
to them. Changes in particular demands are usually projected with
fibers dependent on income and technology; tobacco dependent in part
on medical research findings; and fats and oils dependent mainly on syn-
thetic detergents, paints, and varnishes.
Foreign takings of major exported commodities such as wheat and
flour, cotton, tobacco, and oils must be projected on quite arbitrary as-
sumptions. Higher world population and per-capita incomes may reason-
ably be projected, but assumptions with respect to development and
trade policies, exchange balances, and foreign aid are of a different
order. Most studies project 1975 exports at levels somewhat below the
1955-56 volume without full explanation of the generating system.


PROJECTED DEMAND PATTERNS

The U. S. Department of Agriculture projections prepared by Dr.
Daly generate increases between 1955 and 1975 of about 90 percent in
GNP and 50 percent in average per-capita real income. As supplements,
projections are also based on: population levels AA, A, and B; an

"U. S. Agricultural Marketing Service, The national food situation, Nov. 7, 1955 (outlook
issue, NFS-74, 1956), p. 25. Also, Sebrell, W. H., Jr., "Nutrition past and future," Proc.
Nat. Food and Nutr. Inst., Agriculture Handbook No. 56, July, 1953, pp. 3-12.
'"The U. S. Department of Agriculture concept of a "total flow of goods produced by agri-
culture" is used to define farm production. See U. S. Department of Agriculture, "Measuring
the supply and utilization of farm commodities," Agriculture Handbook No. 91, Nov., 1955,
pp. 16 and 83.






DEMAND FUNCTIONS AND PROSPECTS


unemployment rate of 4.5 percent; an annual increase of 2.5 percent in
output per man-hour; and a decrease of 5 percent in average hours per
week by 1965 and of 12 percent by 1975. For all projections an average
on-farm consumption-income elasticity of +0.2 is assumed.
Projections of demand determinants suggested by Dr. Daly imply a
1975 per-capita food consumption of 110 percent and aggregate consump-
tion of 140 percent of 1955 levels. The three other projections also in-
dicate that total demand may be expected to rise about 20 percent by
1965 and between 40 and 50 percent by 1975. Population change is the
main determinant with income change a less important determinant.
Within the limits noted, these shifts in "needs" may be taken as meas-
ures of change in aggregate on-farm demand. These projections are
presented in Table 4.2. The total nonfood demand, projected to 1975 by
aggregating commodity class projections, is expected to increase be-
tween 40 and 45 percent above 1955 levels. Export demand is expected
to fall slightly below 1955-56 levels.
Dr. Daly's 1975 projections of per-capita and total utilization indices
for commodity classes are presented in the two columns marked "I" in
Table 4.3. Per-capita and aggregate use are also projected on the basis
of a 1975 population of 221.5 million and a GNP of 680 billion dollars,
using Dr. Daly's basic methods insofar as possible. These are shown
in the columns marked "II." Only a few items are threatened with
shrinkage in aggregate requirements. Relative changes in "require-
ments" do not necessarily indicate relative profitability in production
with either set of assumptions. The smallest increases are projected
for nonfood fats and oils, fruits other than citrus, sugar, potatoes, and
wheat. Percentage increases in "requirements" for dairy products,
eggs, and vegetables other than tomatoes and the leafy, green, or yellow
items, are about the same as for the total food market. "Requirements"
for meats and meat products, and thus for feeds and forage crops, will
apparently increase at a faster than average rate.
These are all well-established trends. However, changes in market
structure may shift on-farm demands sharply in terms of type of product
and in terms and methods of sale. Expansion of prefabrication and con-
venience processing could also introduce new variables into the farm-
demand function. And if the commodity projections are used as guides
to production, price elasticities must also be projected.


IMPLICATIONS OF FINDINGS

There is no clearly articulated theory of economic change from
which workable hypotheses can be derived to guide selection of data and
functional forms. Thus, there are many equally tenable methods of pro-
jection. Most demand projections measure net price-quantity relation-
ships in a base period and project them within a simple system. Meas-
urement techniques are rudimentary largely because the concepts
themselves are crudely defined and are not couched in a complete the-
oretical structure.











Table 4.2. Projected 1965 and 1975 Aggregate Domestic Food Consumption Under Several Alternative Assumptions

1965 1975
1955 AA A and B AA A B Dalya
Gross national product (billion dollars)b 390.9 524.2 524.2 684.5 679.8 679.8 725-750
Population (millions) 165.3 193.3 190.3 228.5 221.5 214.6 210.0
Disposable income (billion dollars) 270.6 372.2 372.2 499.7 496.3 496.3 519.8
Disposable income per capital (dollars) 1,637.0 1,926.0 1,956.0 2,187.0 2,241.0 2,313.0 2,475.0
Labor force (millions) 68.9 78.3 78.3 92.0 91.4 91.4 90-95
Labor force employed (millions) 66.2 74.8 74.8 87.9 87.3 87.3 88.3
Computation of GNP
Index of number employed 100.0 112.9 112.9 132.7 131.8 131.8 133.4
Index of productivity 100.0 125.0 125.0 150.0 150.0 150.0 140.0
Index of hours expended per worker 100.0 95.0 95.0 88.0 88.0 88.0
Product of indices 100.0 134.1 134.1 175.1 173.9 173.9 186.8
Computation of index of aggregate consumption
Index of population 100.0 116.9 115.1 138.2 134.0 129.8 127.0
Index of per-capita food consumption 100.0 103.5 103.9 106.7 107.4 108.3 110.2
Index of aggregate consumption 100.0 121.0 119.6 147.5 143.9 140.6 140.0

a The assumptions used by Dr. Rex F. Daly are developed in: "Appraising longer run demand prospects for farm products," Increasing Under-
standing of Public Problems and Policies, 1956, Farm Foundation, pp. 49-66. Also, "The long-run demand for farm products," Agr. Econ.
Res., Vol. 8, No. 3, July, 1956, pp. 73-91.
bProjections for population assumptions AA, A, and B are made on the basis of the 1955 price level by multiplying 1955 GNP by the product
of the three indices: index of number employed, index of productivity, and index of hours expended per worker.







DEMAND FUNCTIONS AND PROSPECTS


Table 4.3. Indices of Per-Capita and Total Utilization (Including Exports)
of Major Agricultural Commodities Two Projections for 1975*

1975 per-capita 1975 total
utilization utilization
Commodity group I II I II
1953 = 100
Food use


Meat
Beef and veal
Pork (excluding lard)
Lamb and mutton
Total

Poultry products
Chickens and turkeys
Eggs

Dairy products
Total milk equivalent

Fats and oils: food

Fruit
Citrus
Other

Vegetables
Tomatoes
Leafy green and yellow
Other

Potatoes and sweet potatoes

Wheat


Sugar


119 114 153 155
108 106 140 145


106 104 134 140

105 103 148 154


136 127 176 173
107 105 131 136


89 106 117

92 104 114

97 126 134


Nonfood use


98 131


Fats and oils: nonfood

Feed concentrates


142 145


115 111 143 146

119 115 155 157


*Sources:
I--Projections by Dr. Rex Daly in: "Appraising longer run demand prospects for
farm products," Increasing Understanding of Public Problems and Policies, 1956,
Farm Foundation, pp. 49-66. Also, "The long-run demand for farm products,"
Agr. Econ. Res., Vol. 8, No. 3, July, 1956, pp. 73-91.
II-Dr. Daly's projections adjusted by authors for a population of 221.5 million and
GNP of 680 billion dollars.


Cotton


Tobacco






72 NORMAN R. COLLINS AND GEORGE L. MEHREN

Demand Prospects

The assumptions upon which a 40 to 45 percent increase in total con-
sumption is projected over the two decades ending in 1975 are not unrea-
sonable. This is the relevant estimate for determining resources which
need to be used in agriculture as a whole. With respect to optimum input
allocations among particular products, all projections indicate essen-
tially a continuation of trends well established in the last decade or
more. Despite inherent and inescapable limitations of current predict-
ing methods, the broad outlines of future demands may be sketched in
more effectively through use of these than through blind guessing, to
provide part of the necessary data in planning adjustments by commodi-
ties, seasons, or regions. Technical implications of the projected de-
mand shifts involve appraisal of increasing crop yields versus addition
of land; conversion of feeds into livestock products at levels implicit in
the demand projections; and fertilization, supplemental irrigation, and
other cost-increasing technological changes or shifts in input allocation
dictated by relative net income prospects. Projections are dangerous.
Food-demand projections involve two special dangers the difficulty of
deflating for services at retail and adjusting for changing market struc-
ture. Long-term planning must, therefore, be kept fluid.


Possibilities of Increasing Demand

One possible line of adjustment in trying to solve the agricultural
problem is to manipulate demand. Conceptually, demand can be shifted
by controlling preference structures through advertising, promotion, or
education; by lowering cross-demand elasticities through product differ-
entiation; and by manipulation of income distributions. Most proposals
for manipulating demand for agricultural commodities involve promo-
tion and differentiation, either to increase real expenditures for farm
products as a whole or to shift relative expenditures among commodity
lines or items.1'
Thus far, net effects of various means to decrease substitution elas-
ticities or to increase demand for agricultural commodities have not
been measurable not even for single products, and certainly not for
multiple-product enterprises or for broad sectors of the industry. Long-
run changes in tastes have had drastic effects on the demand for com-
modities and on enterprises. Some of them seem to be related to popu-
lation and income patterns. But preference systems are not really
defined quantitatively and, thus far, efforts to specify net effects on
demands of variables thought to reflect changes in preferences have
not been successful.


'6For a discussion of possibilities of sales promotion and advertising, see Cochrane, W. W.,
"Advertising... fact or fancy?" Farm Policy Forum, Vol. 9, No. 1, Summer, 1956, pp. 28-32.
Also, "Some additional views on demand and supply," pp. 94-106, in this book.






DEMAND FUNCTION AND PROSPECTS 73

Experience indicates that demands shift toward livestock products
as incomes rise. Thus, there is no logical reason to believe that total
consumption could be affected any more favorably by advertising than
by increased income; nor in all likelihood could advertising have any
sustained effect upon any class of product to which demand does not
normally drift as incomes rise. Efforts to manipulate food demand
through advertising and other promotional methods cannot be expected
to serve as a fully effective method of solving the farm problem and
achieving future economic adjustments. If this is true, then the mech-
anism associated with achieving adjustment of farm production should
be analyzed.









Chapter 5


GLENN L. JOHNSON Supply Function-Some Facts
Michigan State University and Notions







HISTORICAL perspective is ordinarily desirable; for this confer-

ence it is essential if we are to avoid repetition of past work and
concentrate on areas requiring further development. Space limi-
tations do not permit an historical recounting of works on supply re-
sponses in this paper. As, unfortunately, I am unaware of a suitable
reference to cite, the long footnote below sketches, hastily, some of the
main contributions in recent decades.1
*Michigan Agricultural Experiment Station Paper 2049. This paper is based on work
done at the Michigan Agricultural Experiment Station and at the Giannini Foundation,
University of California, Berkeley, California.
tIn 1938, Galbraith and Black published an article which reviewed the then-current ex-
planations of the maintenance of agricultural production during depression years. (See
Galbraith, J. K., and Black, John D., "Maintenance of agricultural production during depres-
sion: the explanations reviewed," Jour. Polit. Econ., Vol. 46, 1938, pp. 305-23.) After re-
viewing and, for the most part, rejecting the explanations, they advanced their own explana-
tion of continued high-level production during depression. As they saw it, and in accordance
with classical and neo-classical theory, fixed assets but not fixed charges contribute to the
maintenance of output during depressions. The role played by fixed assets in their explana-
tion was the poorly understood role which fixed assets play in neo-classical theory. In other
words the "whys" of asset fixity or variability were not fully explained by either the Galbraith-
Black article or the neo-classical theory used therein.
In 1945, T. W. Schultz published his Agriculture in an Unstable Economy, McGraw-Hill,
New York, an excellent secular analysis of differential rates of growth in supply and demand
for farm products, the intellectual roots of which are to be found in the works of Mill, J. S.,
Principles of Political Economy, Longmans, Green and Co., London, Book IV, ed. W. J.
Ashley, 1923. Mill, in turn, built on the works of Malthus. Schultz modified the Malthus-
Mill analysis by introducing labor saving, technological growth, and capital accumulation as
upward shifters of supply curves for farm products, both individually and in the aggregate.
He concluded that, secularly, (1) the growth of supply for farm products tends to exceed the
growth in demand, particularly for the high-calorie, low-income-demand elasticity products
with adverse effects on the terms of exchange between farmers and others, and (2) the need
to transfer capital into and labor out of agriculture depresses labor earnings and maintains
capital earnings in farming.
Also in 1945, Johnson, D. Gale, Forward Pricing for Agriculture, The University of
Chicago Press, Chicago, concentrated on price instabilities. His work too, had respectable,
though younger, ancestors; it was based on Knight's and Hart's earlier works on risk, un-
certainty, and profits. (See Knight, Frank H., Risk, Uncertainty and Profits, Houghton
Mifflin Co., Boston and New York, 1921; and Hart, A. G., "Risk, uncertainty and the un-
profitability of compounding probabilities," Readings in the Theory of Income Distribution,
The Blakiston Co., Philadelphia, 1946, and "Anticipations, uncertainty, and dynamic plan-
ning," Studies in Business Administration, Vol. 11, No. 1, The University of Chicago Press,
Chicago, 1940.) Both short-run and business cycle price instabilities were considered.
Capital rationing, as a consequence of price risks, was envisioned as a major restriction on
supply responses which deters agriculture from reaching optimum economic adjustment as
defined in static equilibrium economics. The forward price proposal is essentially a method







SUPPLY FUNCTION- SOME FACTS AND NOTIONS 75

When studying the works of Galbraith and Black, Schultz, D. Gale
Johnson, Cochrane, Brewster and Parsons, the reader finds himself in
general empirical agreement with the input-output facts presented by
authors trying to explain supply responses. As far as short-run changes
in the supply of individual products are concerned, economists appear
to be in substantial agreement both conceptually and empirically as to
the factors affecting supply and their quantitative influences. Even

for removing price risks to enable the economy to attain more fully the benefits of reaching
static optima. Harold Halcrow also studied weather risk and crop insurance. (See "Actu-
arial structures for crop insurance," Jour. Farm Econ., Vol. 31, Aug., 1949).
Two papers, one by Brewster and Parsons in 1946 and another by Ellickson and Parsons
in 1947, stressed the roles of technology and "workman like" as contrasted with 'business
like," determinants of agricultural productivity. (See Brewster, John M., and Parsons,
Howard L., "Can prices allocate resources in American agriculture?" Jour. Farm Econ.,
Vol. 28, Nov., 1946, pp. 938f., and Ellickson, John C., and Brewster, John M., "Technological
advance and the structure of American agriculture," Jour. Farm Econ., Vol. 29, Nov., 1947,
pp. 827f.)
Cochrane began to write on the subject of supply responses in 1947. (See Cochrane,
Willard W., "Farm price gyrations- an aggregative hypothesis," Jour. Farm Econ., Vol. 29,
May, 1947, pp. 383f., and Wilcox, Walter W., and Cochrane, Willard W., Economics of Amer-
ican Agriculture, Prentice-Hall, Inc., New York, 1951, Chap. 24, Cochrane, Willard W., and
Butz, William T., "Output resources of farm firms," Jour. Farm Econ., Vol. 33, Nov., 1951,
pp. 445f.) With respect to supply responses for individual commodities within agriculture,
he placed heavy reliance on the classical, marginal principle of opportunity cost. He uses
this principle to explain the allocation of assets fixed for firms among the different products.
He does not explain why such assets are fixed for the firm but not for individual enterprises;
but then, neither did Marshall. Supply responses to completely variable inputs were not
carefully considered either. The burden of explaining change or lack of change in aggregate
farm output is placed almost entirely on technology. While technological advance explains
part of the expansions in aggregate output, it (technology, not Cochrane's analysis) does not
appear to explain failures of aggregate output to contract or some of the resource flows both
into and out of agriculture which, fortunately for Cochrane's analysis, have tended to cancel
each other. We need a better set of hypotheses to explain when assets are fixed, when they
become variable upward, and when they become variable downward for firms and for indus-
tries as well as between the enterprises of multiple enterprise firms.
In 1950, D. Gale Johnson specifically examined the supply function for agriculture. (See
Johnson, D. Gale, "The nature of the supply function for agriculture products," Amer. Econ.
Rev., Vol. 40, pp. 539f.) He related his analysis to the earlier Galbraith-Black article and
emphasized the difference between supply responses under depression and prosperity con-
ditions. While he rejected as invalid the belief that high fixed costs are responsible for the
failure of farmers to reduce output during a depression, he did consider how the availability
of different classes of productive resources to the agricultural industry vary under depres-
sion and prosperity conditions and, hence, have differential impacts on the amounts of farm
products produced. While Johnson's analysis represented a distinct improvement over
earlier analyses, the treatment of fixed assets was not complete enough to explain why they
do or do not flow between the farm and nonfarm sectors under different conditions.
T. W. Schultz has made three more recent contributions to the literature on supply re-
sponses. (See Schultz, T. W., The Economic Organization of Agriculture, McGraw-Hill,
New York, 1953; "Reflections on agricultural production, output and supply," Jour. Farm
Econ., Vol. 38, Aug., 1956, pp. 748f; and a paper read at the 1956 annual meetings of the
American Farm Economic Association at Asilomar, Pacific Grove, California). As his
thinking is changing rapidly, his current position is difficult to determine. By and large,
however, it seems safe to say that it is moving in the direction of the Cochranian analysis,
i.e., the major burden for explaining changes in the aggregate output of American agricul-
ture is placed on technology and education (improvement In the quality of the human agent)
rather than on changes in resources used.
In 1955, Earl Heady presented a paper on the supply of farm products at full employ-
ment. (See Heady, Earl O., "The supply of farm products under conditions of full employ-
ment," Amer. Econ. Rev., Vol. 45, May, 1955, pp. 228f.) Heady, like Galbraith and Black
earlier, and D. Gale Johnson later, stuck close to neo-classical marginal analysis. His







GLENN L. JOHNSON


T. W. Schultz in his more critical moods has not really questioned the
adequacy of our quantitative knowledge of supply responses for individ-
ual products; instead, he has stressed the inadequacy of our knowledge
concerning changes in the aggregate supply of farm products. Galbraith-
Black's depression presentation, D. Gale Johnson's depression-prosper-
ity contrast, and Heady's more detailed examination of the full-employ-
ment situation seem lacking, conceptually, in explaining asset fixities
and their influences on the aggregate supply function. The Cochrane
and Schultz technological analyses do little to remedy the situation,
though the earlier secular analysis of growth in the supply and demand
for farm products, made by Schultz, appears to remain very satisfactory.
Thus, what follows is based on the conviction that the deficiency in our
past attempts to understand agriculture's aggregate supply function is
not in omitted variables; instead, the difficulty appears to be primarily
in the analytical apparatus.2
A slightly modified form of neo-classical marginal analysis is avail-
able and promises to handle fixed assets, quasi-rents, capital gains,
marginal costs and supply responses more adequately than the unmodi-
fied neo-classical analysis used by Galbraith-Black, D. Gale Johnson
and Heady. This analysis, in turn, can be combined with analyses which
include technology, education, capital growth, risk, etc.


THE MODIFIED ANALYSIS

The most neglected aspect of current aggregative supply analysis

analysis of the supply of individual farm products closely resembles Cochrane's. Both
analyses explain short-run supply changes for individual products largely in terms of op-
portunity costs in the allocation of fixed inputs in multiple enterprise firms. The two anal-
yses, however, part ways when the aggregate supply of farm products is considered. Heady,
in disagreement with Cochrane and in some disagreement with Schultz (at least as to em-
phasis) finds in his full employment analysis much greater possibilities for aggregate output
to respond positively and negatively to changes in "factor/product price ratios."
While Heady's paper is not empirical, he does marshal enough evidence of aggregate
resource flows (both in and out of the agricultural sector) in response to price changes under
full employment to suggest strongly that a properly identified aggregate supply function
would have a positive slope. He agrees that the elasticity of the supply function is low,
though not as low as it appears. Heady explains the low elasticity of the aggregate supply
curve in terms of: (1) low reservation prices for family labor in farming, (2) capital limi-
tations, including capital rationing, resulting from risk discounting, (3) asset fixities and
miscellaneous forces such as "the close bonds between the firm and household," low reser-
vation prices on particular resources, and a greater degree of short-run fixed costs.
Forces contributing to an "apparent" inelasticity of the aggregate supply function include, in
addition to Working's and Frisch's "identification problem,": (1) flexibility in factor prices,
(2) technical change, and (3) capital accumulation and redistribution of assets. While Heady
identifies more of the relevant variables than D. Gale Johnson and appears to have judged
the situation better than Cochrane and Schultz, his analysis still seems somewhat short in-
sofar as the theory of asset fixity is concerned.
2Schultz feels that we have neglected technology and education, yet Heady considered
technology in terms which do not preclude education to "improve the quality of the human
agent" so did Galbraith and D. Gale Johnson. As a matter of fact, so did Sehultz himself
in his book, Agriculture in an Unstable Economy; if he had not, he would have produced an-
other of book 4 in J. S. Mill's Principles of Political Economy.







SUPPLY FUNCTION--SOME FACTS AND NOTIONS


for agriculture is the theory of fixed assets. This neglect can be traced
back into the classical and neo-classical marginal apparatus on which
many of the existing supply analyses are based. Analytically, the law
of diminishing returns (or of variable proportions) operates when differ-
ent amounts of variable inputs are used in conjunction with a set of fixed
assets. The law of diminishing returns, in turn, determines the nature
of the marginal cost curve for individual enterprises and, ultimately, of
the aggregate supply curve for an industry. The rate at which the mar-
ginal productivity of variable inputs declines depends on the proportion
of fixed inputs, the levels at which they are fixed, and the degree of sub-
stitutability or complementarity between fixed and variable resources.
Thus, it is extremely important that the framework employed in analyz-
ing supply problems be capable of determining: (1) which assets are
fixed and (2) the levels at which they are fixed. Furthermore, it is im-
portant that the analytical framework define fixity with respect to:
(1) assets used in multiple-product firms, (2) single-product firms,
(3) single-product industries, and (4) multiple-product industries.
The neo-classical, marginal apparatus includes the opportunity cost
principle for purposes of pricing multiple-use, fixed assets within mul-
tiple enterprise firms.3
Similarly, neo-classical analysis has a well developed body of theory
for treating land as an asset which is fixed for the agricultural industry
as a whole. The neo-classical framework, however, is almost devoid
of explanations as to why assets are fixed for a firm, making it neces-
sary to apply the opportunity cost principle. Similarly, it does not ex-
plain why assets become fixed for industries but not for firms within
industry. When it became apparent in the development of economic
thought that land and fixed capital goods have many things in common,
this difficulty was met, in part, with the concept of quasi-rents. After
that, came the question of whether quasi-rents could be negative as well
as positive. Stigler has argued this question without producing a worth-
while conceptual solution.4
Micro-production economists conducting empirical work in the field
of farm management also encountered related problems involving fixed
assets. First, it is clear that a different sub-production function exists
out of, say, y = f(x,......, xi ....., xn) for each of the infinite number
of combinations of xi and levels at which the xi can be fixed. Instead of
(1) an ultimate short run in which all are fixed, (2) a short run in which
some are fixed, and (3) an ultimate long run in which no assets are
fixed,5 there is a multiplicity of lengths of run. Secondly, it is also
clear that there is more than just a short and a long run in the pricing
of fixed assets. In the short run, farmers do not stay in production

'This principle has been used effectively by Galbraith-Black, D. Gale Johnson, Cochrane,
and Heady in analyzing supply responses for individual products produced by multiple enter-
prise firms.
'Marshall, Alfred, Principles of Economics, 8th ed., Macmillan, London, 1920, p. 426n.,
and Stigler, G. J., The Theory of Competitive Price, The MacMillan Co., New York, p. 180n.
'See Marshall, Alfred, Principles of Economics, Macmillan and Co. Ltd., London, 1946,
pp. 376-7.







GLENN L. JOHNSON


until marginal revenue equals marginal cost at the minimum point on
the average variable cost curve.6 In milk production, the number of
cows in a herd is sometimes fixed and sometimes variable. Further-
more, the quasi-rents on cows sometimes appear to be both positive
and negative simultaneously; in 1953 quasi-rents appeared negative
with respect to what had been paid for cows in 1952 but positive with
respect to what the nonfarm economy would pay for them in 1953. Cows
become variable when they are worth less in the herd than they are to
someone else, either another farmer or the packing house. Hence,
farmers shift from the "length of run" in which cows are fixed to the
one in which they are variable, long before marginal costs equal aver-
age variable costs on the particular sub-set of cost curves which treats
cows as fixed assets.7 If cows flow from farm to farm, both the supply
of milk and the aggregate supply curve for agriculture are unaffected.
However, if they flow from farm to packing house, both the milk supply
function and the aggregate supply function shift downward because of
less milk and upward because of more meat unless changes in the dairy
cow inventory are taken into account.
These questions involving fixed assets, lengths of run, negative and
positive quasi-rents8 tend to be avoided in the neo-classical analysis by
assuming either perfect factor markets9 (i.e. markets in which firms
can buy and sell or industry acquire and dispose of inputs at the same
price) or completely imperfect markets (i.e. markets in which the costs
of acquisition are infinitely high and salvage values are zero for econo-
mies.)
At the individual firm level, most factor markets are perfect in the
sense that firms can buy and sell factors, including land, at the same
price. If for some reason a factor market is imperfect and market
prices are inappropriate, the principle of opportunity cost is used to
price the factor within firms. The neo-classical analysis does not ex-
plain clearly how or why resources move into or out of industries as
variable inputs, and then become fixed. For purposes of explaining ag-
gregate supply responses in agriculture under condition of widely fluc-
tuating absolute prices and price relatives it seems essential that our
analytical apparatus be capable of dealing with such problems.
In what follows, an asset will be defined, very simply and crudely,
as fixed "if it ain't worth varying." More elegantly stated, an asset
will be defined as fixed so long as its marginal value productivity in its
present use neither justifies acquisition of more of it or its disposition.'0

'Contrary to Marshall, ibid., p. 376.
7Schuh, George E., The supply of milk in the Detroit milk shed as affected by cost of pro-
duction, Mich. Agr. Exp. Sta. Tech. Bul. 259, Mar., 1957.
"Also of capital gains and losses.
"Stigler, op. cit., pp. 104f, 180n.
'Johnson, Glenn L., and Hardin, Lowell S., "Economics of forage evaluation," Purdue
Agr. Exp. Sta. Bul. 623, Apr., 1955. This definition of a fixed asset is sufficiently flexible
to define: (1) an asset fixed in one enterprise such as a corn picker, (2) an asset fixed for a
farm but variable between enterprises according to the principle of opportunity costs, such
as family labor or a tractor on a general crop and livestock farm, (3) an asset fixed for an
industry in the production of one product or type of product but variable between firms, such







SUPPLY FUNCTION--SOME FACTS AND NOTIONS


If the acquisition cost and salvage value1 of an asset are substantially
different, the asset can remain fixed while the price of the product it
produces varies both absolutely and relatively over wide ranges. If on
the other hand, as is commonly assumed in using the marginal apparatus,
the acquisition cost of an asset is equal to its salvage value, any varia-
tion in product price relative to the price of the asset will cause either
acquisition or disposal of the asset.


THE PROBLEM AT HAND

Our examination of previous work on supply responses has indicated
that the work on individual commodities is more adequate than that on
the aggregative response of the farm sector.12 Furthermore, it indicated
that the main difficulty is of a conceptual nature, involving the treatment
of asset fixities as they depend on shifts in the acquisition costs, salvage
values, and expected marginal value productivities of assets. Thus, the
problem at hand appears to be improving the conceptual treatment of
fixed assets, analyzing existing data, and explaining changes in the ag-
gregate inputs and output for the farm economy as a whole.


A CLASSIFICATION OF PRODUCTIVE RESOURCES

For purposes of this conference, it appears desirable to classify the
inputs used in the agricultural economy into categories which are reason-
ably homogeneous with respect to the behavior of acquisition costs, sal-
vage values, and marginal value productivity. Since the object is to ex-
plain aggregate output, the primary interest is in the movement of

as a self-propelled combine in the Great Plains, or (4) an asset such as land which may be
fixed for an economic sector producing a variety of vastly different products, such as pep-
permint oil, milk, beans, celery, and pulp wood. Using this definition, quasi-rents are nega-
tive if figured with respect to acquisition value, positive if figured with respect to salvage
value, and zero if figured with respect to their marginal value productivity.
"Appropriately adjusted for the life expectation of the assets, for operating costs, to a
net, at-the-firm basis, and for risk and uncertainty (economic, institutional, and technologi-
cal). A fixed asset is fully employed (or it is not fixed); its expected MVP is, of course,
dependent on the amount of variable inputs associated with it in most instances.
"In his doctoral dissertation, "Economic structure in American agriculture," Dept. Agr.
Econ., Michigan State University, 1957, W. A. Cromarty concluded that his estimates of
supply elasticities for product categories within agriculture were more reliable than his
expected estimates of demand elasticities for the same product categories. While this is
contrary to some recently dramatized conclusions, many demand studies appear to be sub-
ject to shortcomings and to lack independence, a factor which decreases the importance of
agreement among them. Total (not per capital demand estimates) have, of course, been no
better than population, war, and prosperity estimates. An example of the consequences of
poor demand estimates in the case of wheat is found in T. W. Schultz's Agriculture in an
Unstable Economy, p. 246. Writing in 1945, he stated that, "The level of wheat storage in
central markets of the world has in recent years been excessively large." In 1946 inter-
national wheat allocations were made to divide limited supplies among countries. In evalu-
ating the reliability of demand estimates it is desirable to read George Mehren's paper, pp.
61 to 73, in this book.







GLENN L. JOHNSON


resources between the farm and nonfarm sectors as contrasted with
movements within the farm sector. Acquisition costs and salvage val-
ues for the farm sector, rather than within the farm sector, are relevant
considerations in setting up the input classifications. Each category in
the following classification includes resources which are reasonably
homogeneous in the above respect:
1. Nonfarm produced durables tractors, combines, tiling, etc.
2. Unspecialized farm durables -fence posts, pasture seedings,
soil improvements, etc.
3. Specialized farm durables dairy cows, orchards, sows, ewes,
beef breeding stock, etc.
4. Unspecialized farm expendables corn, hay, etc.
5. Specialized farm expendables seed corn, grass seeds, etc.
6. Nonfarm expendables fuel, oil, and commercial fertilizers, etc.
7. Hired labor
8. Family and operator's labor
9. Land


THREE FACTS CONCERNING PRICES AND THE
GENERAL LEVEL OF EMPLOYMENT AND BUSINESS ACTIVITY

First, the terms of exchange between the farm and nonfarm sectors
are related positively to the general level of employment and business
activity with wars and increased foreign or domestic demands tending
to strengthen the terms of exchange and vice versa. (See Table 5.2.)
Second, farm product prices (measured in current dollars) are related
positively to the same factors. Third, prices of farm products relative
to each other, though far from stable, tend to be independent of the gen-
eral level of employment and business activity. 13


SOME HYPOTHESES ABOUT RESOURCE EMPLOYMENT AND THE
GENERAL LEVEL OF EMPLOYMENT AND BUSINESS ACTIVITY

Table 5.1, below, has been set up to present some hypotheses about
relationships among acquisition costs, salvage values, and expected
marginal value productivities as they influence resource employment in
agriculture. Influences of technological growth on employment are indi-
cated with pluses or minuses as the case may be. Economic growth
(excluding technology) can generally be expected to cause resource em-
ployment to be higher, i.e., expanding instead of stable, more expanding
than indicated, less contracting than indicated and, possibly, expanding
instead of contracting.

3"Johnson, Glenn L., "Allocative efficiency of agricultural prices as affected by changes
in the general level of employment," Ph.D. Dissertation, Dept. Econ., University of Chicago,
1949, pp. 62-70.







SUPPLY FUNCTION- SOME FACTS AND NOTIONS


For instance, a 20 percent expansion of population in a 10 or 15 year
period keeps the marginal value productivities over all levels of employ-
ment and business activity of farm inputs high relative to what they
would be in the absence of such growth. This, in turn, stimulates re-
source flows into and retards resource flows out of the agricultural
economy. This influence is particularly noticeable in the resource em-
ployment data, 1946 to date.


The Employment Hypotheses Tested

Table 5.2 contains data on the employment of 12 different resources,
at least one for each of the nine resource categories. Each chart shows
the ratio of prices paid to prices received by farmers.
The resource employment hypotheses advanced in Table 5.1 were
tested against the data. Table 5.2 of the thirty-six hypotheses concern-
ing resource employment all are verified in the sense of being generally
consistent with the resource employment data in this table.


CONCLUSIONS ABOUT RESOURCE USE, AGGREGATE OUTPUT,
AND CHANGES IN THE GENERAL LEVEL OF EMPLOYMENT
AND BUSINESS ACTIVITY

Under conditions of increasing prosperity with the terms of exchange
moving in favor of agriculture, the hypotheses call for no expansion in
the employment of five resource categories and stability or slight expan-
sion in the employment of a sixth. One case calls for expanded employ-
ment and two for contraction. The expansion occurs for nonfarm expend-
ables while the contractions occur for (1) hired labor and (2) family and
operator's labor. In general, the verified hypotheses indicate little
change in aggregate input under conditions of increased prosperity,
ceteris paribus; if considerable growth is occurring, as in the period
1946 to date, input use may change considerably.
Under full prosperity conditions, the situation is not much different.
Three hypotheses call for stable employment, three for stable or ex-
panding employment, one for expansion, one for stability or contraction,
and one for contraction. With three categories which are stable, four
which are stable or expanding, and two which are stable or contracting,
little increase in output is likely, ceteris paribus.
With declining prosperity, five hypotheses call for stable employ-
ment and two for stable or decreasing employment, with two uncertain.
The indications are that aggregate output is stable or slightly contract-
ing, ceteris paribus.
Under depression conditions, four hypotheses call for stable re-
source employment, two for stable or decreasing employment, and one
for decreases, and two are uncertain. No hypothesis calls for expansion.
Clearly, curtailed production is indicated under depression conditions,












Table 5.1. Some Hypotheses About Acquisition Costs, Salvage Values,
and Expected Marginal Value Productivities in Relation to the General Level
of Employment and Business Activity, by Resource Categories

Resource category Recovery Prosperity Recession Depression


Nonfarm Durables
Acq., MVP, Salv.a
Employment b
Unspec. Farm Durables
Acq., MVP, Salv.a
Employment b
Spec. Farm Durables
Acq., MVP, Salv.a
Employment b
Unspec. Farm Expend.
Acq., MVP, Salv.a
Employment b
Spec. Farm Expend.
Acq., MVP, Salv.a
Employment b
Nonfarm Expend.
Acq., MVP, Salv.a
Employment b
Hired Labor
Acq., MVP, Salv.a
Employment b
Fam. and Opr.'s Labor
Acq., MVP, Salv.a
Employment b
Land
Acq., MVP, Salv.a
Employment b


MVP Acq.
Stable +

Salv. Stable +

Salv. Stab. or Exp. -

MVP =Acq.
Stab. or Exp. -

Salv.< MVP = Acq.
Stable +

MVP>Acq.
Increasing +

Salv. MVP Stab. or Contr. -

Salv.>MVP
Contracting -

Salv. Stable


MVP>Acq.
Expanding +

Salv. MVP Stable +

Salv.Acq.
Stab. or Exp. -

MVP Acq.
Stab. or Exp. -

Salv. Stable +

MVP Acq.
Stab. or Exp. +

Salv. Stab. or Contr. -

Salv. >MVP
Contracting -

Salv. Stable


Acq. =MVP>Salv.
Stable +

Salv.'MVPAcq.
Stable +

Salv. Stable -

MVP Acq.
Stab. or Contr. -

Salv. Stable +

MVP -Acq.
Stab. or Exp. +

Salv.5MVP Acq.
Uncertain -

Salv. MVP
Uncertain -

Salv. Stable


MVPISalv.
Stab. or Contr. +

Salv.' MVP Acq.
Stable +

Salv. Stable -

MVP6Acq.
Stab. or Contr. -

Salv. Stable +

MVP Contracting +

Salv. MVP Acq.
Uncertain -

Salv MVP
Uncertain -

Salv. Stable








a All acquisition costs, salvage values, and expected marginal value productivities apply to agriculture as an industry. The MVP's are the
present value of the expected future stream of annual MVP's in the case of durable resources.
The three price generalizations,page 80, support the following generalizations about the behavior of acquisition costs, salvage values, and
marginal value productivities for the nine resource categories:
The expected marginal value productivities of all nine of the input categories will move up and down with the changes in product prices
(measured in current dollars) over the business cycle as modified by the presence or absence of war and abnormal domestic and foreign
demands.
Acquisition prices for both nonfarm durables and expendables rise less rapidly with prosperity than their expected marginal value
productivities. Salvage values for nonfarm, specialized durables are, essentially, zero or if not, are determined by their value in non-
specialized uses, i.e. scrap iron for tractors.
Salvage values for nonfarm expendables are largely irrelevant as farmers do not carry significant stocks; the same is true for farm-
produced, specialized expendables. However, salvage values for unspecialized farm expendables (such as corn) are relevant; these salvage
values rise and fall with their expected marginal value productivities and with farm product prices. Z
Both salvage and acquisition values for unspecialized farm durables rise and fall with farm product prices and their expected marginal
value productivities as these change over the business cycle. O
Salvage values for specialized farm durables are, essentially, zero; their acquisition costs, however, rise with the costs of items used g
in their production and, as nonfarm inputs are also used in their production, rise and fall more slowly than farm product prices and their M
MVP's but more rapidly than nonfarm prices.
The acquisition price of land is much above its marginal value productivity while its salvage price is zero (except in rural-urban fringe >
areas).
The acquisition price for family and operator's labor is, if relevant, generally above its marginal value productivity while its salvage 0a
value (appropriately adjusted for risk and personal wants and preferences) is below its marginal value productivity in depressions but
above it during prosperity. As hired labor is a substitute for family and, operator's labor, the acquisition cost of hired labor is relevant
here.
The acquisition price of hired labor, in addition to containing a secular upward trend, rises and falls faster than its marginal value
productivity (on farms) with respect to changes in the general level of employment and business activity. Similarly its salvage value rises O
faster than its marginal value productivity when going into a prosperity period; its effective salvage value, however, may not fall as rapidly
as its MVP due to certain institutional restrictions on the hiring of labor by nonfarm employers.
b In addition to the influence of the business cycle on acquisition costs, salvage values, and marginal value productivities, consideration z
should also be given to the influence of technological advance. For any given set of price relationships, improvements in technology increase
the marginal value productivity of the inputs concerned relative to their acquisition costs and salvage value. Plus or minus signs denote
influence of technological advance on employment.









Table 5.2. Ratio of Prices Received to Paid, Percent of Labor Force Employed and
the Employment of Twelve Resource Categories, 1910 to Date


Durables


Farm


Resource categories

Expendables


Farm


Non-farm


-N nf _rm -Farm


Unspec.I Spec. ISpec. Unspec.
I l i


.h
C.
0


04
44
44




44
Cu
0


I4

s4
4)
4)


.4
44
.4
44


44



CO

N
:
a


_____ I ____ ___ I ___I____ I _____ ____ 1 ____4___


Billions of
1910-14 dollars

1.5 6.0
1.5 5.1
1.6 5.4
1.7 5.7
1.7 6.2

1.8 5.4
1.6 4.3
1.6 4.4
2.0 4.4
2.3 4.5

2.6 5.0
2.4 4.0
1.9 4.2
1.9 4.0
1.9 3.4


Millions













4.8
4.8

4.8
4.9
5.0
5.0
5.0


0


0.08
E44
s~

00
2!


04
0)
44
0.

4)
I-
44


Billions of 1910-14 dollars

166 12 569
161 20 595
182 27 625
208 35 645
172 46 648

179 74 718
236 132 869
317 190 1,033
347 232 1,129
382 296 1,314

221 254 1,098
212 252 1,057
230 271 1,065
231 305 1,049
250 377 1,056


Non-farm


'4
Cu
0.
.4
u
44
04
44
u
0.
0
Cu


4)

u

h

o v

0
0'4
.04
4


0

0.
0'
0)



Cu
I.

04
44
u


Labor


2
u
CQ
m


Land


.4


Million
acres


1910-14=
100
Percent

96
98
101
98
94

103
120
119
110
99

80
87
89
89
95


Percent

97
98
99
95
94

96
102
105
100
96

87
90
96
94
95


1,000's


4
8
14
17
25

37
51
85
158
246

343
372
428
496
549


Cu


1910-
Pei

100
100
100
99
99

99
97
93
91
93

93
93
93
93
94


L4=100
cent

99
100
100
101
101

103
101
98
96
100

100
101
100
99
100




1926 91 96 621 2.0 3.6 5.1 142 103.4 250 444 1,075 93 104
27 88 95 693 2.0 3.8 5.1 140 107.7 230 443 1,003 90 102
28 91 95 782 2.0 3.9 5.1 134 107.2 292 477 1,029 91 102
29 92 97 827 2.1 4.1 5.1 122 104.9 293 509 1,024 363 91 103
30 83 91 920 2.3 4.9 5.0 124 95.7 288 496 951 369 91 98

1931 67 84 997 2.2 5.0 5.0 177 103.8 202 420 873 370 93 93
32 58 77 1,022 2.1 4.9 5.0 79 111.0 125 384 735 375 96 87
33 64 75 1,019 1.8 4.3 5.0 65 91.8 128 374 679 373 97 86
34 75 78 1,016 1.5 3.9 4.1* 104 71.3 158 406 675 338 97 84
35 88 80 1,048 1.5 3.1 4.0* 108 94.1 177 435 667 361 100 87

1936 92 83 1,125 1.6 4.4 3.9* 147 75.4 196 459 687 360 98 94
37 93 86 1,231 1.7 4.0 3.9* 194 97.0 248 521 757 363 97 97
38 78 81 1,368 1.9 4.5 3.8* 206 98.9 226 533 750 354 97 97
39 77 83 1,447 2.1 4.8 3.8* 169 102.1 240 564 730 342 85 80
40 81 85 1,545 2.1 4.7 3.8* 197 108.0 261 584 766 347 82 79
I
1941 93 92 1,675 2.3 3.9 3.8* 203 118.7 292 645 858 347 79 78 m
42 105 101 1,885 2.8 4.1 3.8* 301 142.0 352 812 975 351 78 75 0
43 113 109 2,100 3.2 4.9 3.7* 406 138.8 423 932 1,041 361 79 72
44 108 111 2,215 3.3 4.9 3.7* 440 128.8 476 1,068 1,070 365 79 66
45 109 108 2,422 3.6 4.3 3.7* 435 132.8 562 1,048 1,103 356 78 62

1946 113 98 2,560 3.5 4.0 3.8* 428 122.6 675 1,295 1,257 352 80 64
47 115 98 2,735 3.4 4.1 3.8* 514 110.4 746 1,505 1,546 355 80 67
48 110 99 2,980 3.8 4.2 3.8* 81 120.0 811 1,697 1,678 359 79 69
49 100 95 3,315 4.4 5.3 3.4* 544 127.3 882 1,735 1,775 364 76 66
50 101 95 3,609 5.2 4.6 3.1* 536 129.8 927 1,901 1,810 353 71 61

1951 107 97 3,940 5.1 5.1 3.3* 646 131.6 1,022 2,045 2,125 69 58
52 100 98 4,170 5.7 6.4 3.3* 122.8 66 57
53 92 98 4,400a 5.9 5.4 3.2* 125.7 65 57 z
54 95 M

*Commercial apples only.
preliminary.







GLENN L. JOHNSON


insofar as resource use is concerned, ceteris paribus. This set of hy-
potheses is the least verified of the four sets dealing with the general
level of employment and business activity as we have not had long peri-
ods of prolonged depression to use for testing. During the years 1921-
29, agriculture, rather than the general economy, was primarily de-
pressed. From 1929 to 1932, we were going into a depression. After
1937 or so we were recovering. How much contraction would occur
under prolonged conditions similar to those that prevailed from 1933 to
1936 is not observable.
In general, the analysis indicates a stable supply of agricultural
products over the business cycle given the price, acquisition cost, and
salvage value patterns which usually occur. This does not mean that
the elasticity of the aggregate supply curve is zero. It merely means
that resource use and, hence, changes in output due to changes in re-
source use, ceteris paribus, do not change much in agriculture over
the business cycle.


THE AGGREGATE SUPPLY CURVE
FOR AGRICULTURAL PRODUCTS

While the above analysis explained the stability of aggregate agri-
cultural output over the business cycle but told us essentially nothing
about the aggregate supply curve, this general approach can yield some
information about the supply curve itself.
We can, for instance, inquire about the consequences of, say, dou-
bling farm product prices, ceteris paribus, for each of the four stages
in the business cycle. Also we can inquire concerning the consequences
of halving farm product prices at each of the four stages. While the
available data do not permit hypothetical answers to these questions to
be tested empirically as was done for Table 5.1, analysis in that case
lends some confidence to the answers.
In Table 5.3 are the hypothesized relationships among acquisition
costs, salvage values, and marginal value productivities with doubled
"normal" farm product prices for each of four levels of business activ-
ity for each of the nine resource categories.
In Table 5.4 are the hypothesized relationships among acquisition
costs, salvage values, and marginal value productivities with halved
'normal" farm product prices for each of the four levels of business
activity for each of the nine resource categories.
Tables 5.3 and 5.4 indicate that, ceteris paribus, the aggregate sup-
ply curve for agriculture:
1. Has an elasticity greater than zero at all of the four different
levels of employment and business activity considered.
2. Is more elastic upward than downward.
3. Is more elastic upward at full prosperity and during recovery
than during recessions and depressions.




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