Half Title
 Title Page
 Table of Contents
 Future trends and needed adjustments...
 Total economic growth and...
 Nature of the farm problem
 Present and future demand for farm...
 The nation's present and future...
 The nation's present and future...
 Present and future livestock...
 Farm size, capital, and tenure...
 Farm supply and marketing activities...
 Adjustments in rural human...
 Adjustments in community facilities...
 Government programs in relation...
 Changes in education to meet agricultural...

Title: Adjustments in agriculture
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00089534/00001
 Material Information
Title: Adjustments in agriculture a national basebook
Physical Description: xvii, 376 p. : ports., diagrs., tables. ; 22 cm.
Language: English
Creator: National Committee on Agricultural Policy (U.S.)
Smith, Mervin George, 1911-
Christian, Carlton F. ( Editor )
Iowa State University -- Center for Agricultural and Economic Development
Publisher: Iowa State University Press
Place of Publication: Ames, Iowa
Publication Date: 1961
Copyright Date: 1961
Subject: Agriculture -- Economic aspects -- United States   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
Bibliography: Includes bibliographies.
 Record Information
Bibliographic ID: UF00089534
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 - 03109693
lccn - 61012418

Table of Contents
    Half Title
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    Title Page
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    Table of Contents
        Page xvii
        Page xviii
    Future trends and needed adjustments in U.S. agriculture
        Page 1
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    Total economic growth and agriculture
        Page 22
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    Nature of the farm problem
        Page 55
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    Present and future demand for farm products
        Page 85
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    The nation's present and future supply of farm products
        Page 125
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    The nation's present and future land use and crop production
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    Present and future livestock production
        Page 171
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    Farm size, capital, and tenure requirements
        Page 196
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    Farm supply and marketing activities in relation to agricultural adjustment
        Page 229
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    Adjustments in rural human resources
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    Adjustments in community facilities taking place and needed
        Page 285
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    Government programs in relation to agricultural adjustment
        Page 337
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    Changes in education to meet agricultural and rural adjustments
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Full Text

Adjustments in Agriculture
-a National Basebook

Adjustments in Agriculture


-a National Basebook

Assembled and published under the sponsorship
of the National Committee on Agricultural Policy,
the Farm Foundation, and the Center for Agricultural
and Economic Adjustment at Iowa State University

Iowa State University Press, -J mee Iowa

Other publications sponsored by
the Center for Agricultural and Economic
Adjustment at Iowa State University include:

Problems and Policies of American Agriculture (1959)

Demand for Farm Products (1959)

Adjustment and Its Problems in Southern Iowa (1959)

Consumer Preferences and Market Development
for Farm Products (1960)

Copyright 1961 by
The Iowa State University Press.
All rights reserved.
Composed and printed by
The Iowa State University Press,
Ames, Iowa, U.S.A.

Library of Congress Catalog Card Number: 61-12418


THIS "BASEBOOK" was developed to fill the need for a unified
source book that assembles, coordinates, and interprets
data on U.S. agriculture. Its objective is to collect the fac-
tual background, trends, and problems of our agricultural
economy, and present them in a usable manner for people
concerned with U.S. agriculture for teachers, research
workers, and extension workers in the land grant college
system; for farm leaders and farm organizations; for polit-
ical leaders; for agricultural businessmen; for government
agencies; and for all others interested in the role of agricul-
ture in the future development of this country.
The initial development of the basebook began with
discussions in the National Committee on Agricultural
Policy. This committee is sponsored by the Farm Foun-
dation in cooperation with the state extension services and
land grant colleges. Representatives of the Cooperative Ex-
tension Service, of the land grant colleges, and the U.S. De-
partment of Agriculture have served on this committee
since its organization in 1949.
The Center for Agricultural and Economic Adjustment
at Iowa State University, started in 1957 and financed in
part by a special Kellogg Foundation grant, decided to assist


the Farm Foundation and the National Committee on Ag-
ricultural Policy with the development of the basebook, and
to publish it. A steering committee was selected to plan the
publication and to select authors from the nation's leading
authorities in the field. Committee members were:

Joseph A. Ackerman
Farm Foundation
George M. Beal
Iowa State University
Earl O. Heady
Iowa State University
William G. Stucky
Iowa State University
J. Carroll Bottum
Purdue University
George E. Brandow
Pennsylvania State University

Carl P. Heisig
Gerald H. Huffman
Frederick V. Waugh
C. Brice Ratchford
University of Missouri
Mervin G. Smith
Ohio State University

The most up-to-date data available at the time of the
writing were used by the authors. Projections were made
on the basis of these data. The reader can use these projec-
tions as a point of departure and modify the interpretations
as new data, especially the 1960 census, would justify.
As used in the book, "farming" includes the production
of principal crops and livestock products coming from U.S.
farms. It is recognized that many specialized crop areas
may have adjustment problems differing from those areas
producing our principal crops.
The main emphasis in the basebook is on farming and
the rural community. Some of the adjustments described
have far-reaching implications for firms and organizations
supplying farmers with goods and services, and marketing
farm products. The authors are not pleading a special case
for farmers but rather are presenting basic information so
that the farm and nonfarm public may gain greater insight
as they consider future programs and policies for agricul-


The authors identify gaps in information in certain
areas in agriculture. These suggest the need for further
research so that our understanding can be improved.
A final purpose of this book is to stimulate similar
studies, discussions, and publications of agricultural ad-
justment problems on the state level, perhaps using this
volume as a pattern for the subject matter to be covered.
and to permit conclusions to be drawn from state-by-state
The authors agreed that Mervin G. Smith would be Sub-
ject Matter Coordinator and Editor and that Carlton F.
Christian would be General Editor. Each chapter develops
a phase of agricultural adjustment but is coordinated and
edited with other chapters to make a unified book. This
unified approach was designed, however, to allow treat-
ment of different aspects of the same element of agri-
culture. For example, James Bonnen evaluates people in
farming as a production input. Calvin Beale and Karl Shoe-
maker examine farm people and their movements in the
light of a national concern with human resources.


MERVIN G. SMITH (Subject Matter Coordina-
tor and Editor) is Chairman and Professor
of the Department of Agricultural Economics
and Rural Sociology at the Ohio State Uni-
versity. He has worked in extension, research,
and teaching in agricultural policy. He spent
nearly four years in agricultural attach
work, has been on a number of special for-
eign assignments with the ICA, and has
been Visiting Professor at Iowa State Uni-
versity with the Center for Agricultural and
Economic Adjustment.

CARLTON F. CHRISTIAN (General Editor) was
Agricultural Editor, Ohio Agricultural Ex-
tension Service, prior to retirement in 1958.
He has also served as county agent, exten-
" sion specialist in dairy marketing, and as
manager of a large dairy marketing coopera-
tive. He has had editorial experience with
weekly and daily newspapers and farm jour-


(in alphabetical order)

JOSEPH ACKERMAN (Chapter 13) is Manag-
ing Director of the Farm Foundation. He has
served as president of the American Farm
Economic Association, the American Country
Life Association, the Illinois Association of
School Boards, and secretary-treasurer of the
International Conference of Agricultural

CALVIN BEALE (Chapter 10) is a demographer
with a background in geography. He joined
the Farm Population and Rural Life Branch
of the USDA in 1953, and conducts research
on the numbers, characteristics, and move-
ments of farm people. Previously he worked
for the Population Division of the Bureau of
the Census.

: JAMES T. BONNEN (Chapter 5) is Associate
Professor of Agricultural Economics at Michi-
gan State University. With the late John D.
Black of Harvard University he participated
in 1951 in a national resource use analysis
for 1975, the "Paley Commission" report:
Resources for Freedom, and later co-authored
with Black a report on "A Balanced United
States Agriculture in 1965." He has written
other articles and chapters in books con-
cerned with the current and prospective
problems of agriculture.


GEORGE E. BRANDOW (Chapter 12), Profes-
sor of Agricultural Economics at the Penn-
sylvania State University, devotes his re-
search efforts chiefly to farm price policy
and price analysis. He is the author of sev-
eral professional papers on these subjects,
has served abroad in the ICA technical as-
sistance program, and twice has worked for
the Congressional Joint Economic Committee
on studies of farm policy.


KARL BRANDT (Chapter 2), Professor of
Economic Policy and Associate Director of
the Food Research Institute at Stanford Uni-
versity, has served since 1958 as one of three
members of the President's Council of Eco-
nomic Advisers. As teacher, director of eco-
nomic research, and economic adviser to
agencies of the federal government, the
United Nations, and foundations, Dr. Brandt
has gained wide experience in problems of
economic growth and development.

JOHN M. BREWSTER (Chapter 8) is Head of
Farm Size and Resource Requirements In-
vestigations, ARS, USDA and has been in
that department since 1936. His field of re-
search and his primary interests are in mech-
anization of farms, effects of size of farms
on efficiency, and the role of value judg-
ments in shaping agricultural policy and ad-
justments in agriculture.


KARL A. Fox (Chapter 4) is Head of the
Department of Economics and Sociology,
Iowa State University. For several years he
was in charge of demand and price research
for the Bureau of Agricultural Economics,
USDA. He has made important contributions
to our knowledge of demand for farm prod-
ucts. Dr. Fox during 1960-61 was Visiting
Professor at Harvard University.

EARL O. HEADY (Chapter 3) is Executive Di-
rector of the Center for Agricultural and
Economic Adjustment, Iowa State University,
where he has been a faculty member since
1940. He has served as consultant to the
USDA, Tennessee Valley Authority, and Min-
istry of Food and Agriculture, Government
of India. The American Farm Economics As-
sociation has honored Dr. Heady with four
awards for research and writing. He has been
Visiting Professor at the University of Illinois,
North Carolina State College, Harvard Uni-
versity, and Stanford University.

H. BROOKS JAMES (Chapter 13), Dean of
Agriculture at North Carolina State College,
has worked with educational programs deal-
ing with agricultural policy as a county
agent, specialist, department head, director,
and now dean. He has worked with many
policy committees at the county, state, and
national level. He is past president of the
American Farm Economic Association.


SHERMAN JOHNSON (Chapter 6) is Chief
Economist, ARS, USDA. He was Assistant
Chief of the former Bureau of Agricultural
Economics. During World War II, he was
Chief of the Production Programs Branch
of the War Food Administration. He served
as head of the Division of Farm Manage-
ment and Costs in the BAE, 1937-46. Prior
to joining the USDA, he was Head of the De-
partment of Agricultural Economics, South
Dakota State College.

ELMER KIEHL (Chapter 7), Dean of the
College of Agriculture, University of Missouri,
served three years as Chairman of the De-
partment of Agricultural Economics there
prior to becoming Dean in 1960. His work in
agricultural economics has included exten-
sion marketing specialist, and resident

OLAF F. LARSON (Chapter 11) is Head of
the Department of Rural Sociology, Cornell
University. He has been a staff member of
that department since 1946. He has also
served on the faculty at Colorado A. & M.
College and on the staff in the Farm Popula-
tion Division, USDA, where he was a leader
of regional officers in the Southwest and
Northwest. Dr. Larson was president of the
Rural Sociology Society for 1958, and was a
Fulbright Research Scholar in Norway dur-
ing 1951 and 1952.


t~e ,-


EDWARD A. LUTZ (Chapter 11) is Professor
of Public Administration in the Agricultural
Economics Department, Cornell University.
His work there has been largely in local and
state government administration and finance
and in relations among local, state, and fed-
eral governments. It includes research, resi-
dent teaching, and extension work.

KENNETH OGREN (Chapter 9) is Director of
the Marketing Economics Research Division,
Agricultural Marketing Service, USDA. He
directs a nationwide program to improve the
efficiency of agricultural marketing. One of
the most significant areas of research under
his supervision is the continuing study of
marketing costs and margins.

ORLIN J. SCOVILLE (Chapter 9) is Chief,
Costs, Income, and Efficiency Research
Branch, Farm Economics Research Division,
ARS, USDA. His branch studies the effects
of changing technology upon agriculture. The
growing importance of farm supply indus-
tries and agriculture-business integration are
receiving attention.


KARL SHOEMAKER (Chapter 10) is Chief of
the General Economics and Rural Sociology
Branch, Agricultural Economics Programs
Division, in the Federal Extension Service.
Emphasis on the need for agricultural re-
source adjustment has caused him to work
closely with staff people in the Departments
of Labor and Commerce. Before joining the
USDA, he was on the staff of the University
of Wisconsin in dairy marketing and earlier
was a county agent and extension economist
at Kansas State University.

GENE WUNDERLICH (Chapter 8) is Acting
Leader, Land Tenure Investigations, Land
and Water Research Branch, ARS, USDA.
He is serving on Land Tenure Research Com-
mittees for the Southeast, Southwest, and
North Central Regions and is the author of
bulletins on landownership, land reform,
methods in tenure research, and tenure
trends. He supervises studies in relative ef-
ficiencies of various forms of farm tenure.


1. Future Trends and Needed Adjustments in
U.S. Agriculture 1
Mervin G. Smith
2. Total Economic Growth and Agriculture 22
Karl Brandt
3. Nature of the Farm Problem 55
Earl O. Heady
4. Present and Future Demands for Farm Products 85
Karl A. Fox
5. The Nation's Present and Future Supply of Farm
Products 125
James T. Bonnen
6. The Nation's Present and Future Land Use
and Crop Production 152
Sherman E. Johnson
7. Present and Future Livestock Production . 171
Elmer R. Kiehl
8. Farm Size, Capital, and Tenure Requirements 196
John M. Brewster and Gene Wunderlich
9. Farm Supply and Marketing Activities
in Relation to Agricultural Adjustment . 229
Kenneth E. Ogren and Orlin J. Scoville
10. Adjustments in Rural Human Resources 260
Calvin L. Beale and Karl G. Shoemaker
11. Adjustments in Community Facilities
Taking Place and Needed 285
Olaf F. Larson and E. A. Lutz
12. Government Programs in Relation to
Agricultural Adjustment 337
George E. Brandow
13. Changes in Education to Meet Agricultural
and Rural Adjustments ... 350
H. Brooks James and Joseph Ackerman
Index .369
[ xvii ]


SAA Summary

Future Trends and Needed
Adjustments in U.S. Agriculture

Ohio State University

CHANGES ARE TAKING PLACE faster in contemporary U.S.
agriculture than at any other time in the history of the
world. The need was never greater for people to be ac-
quainted with the true situation in all phases of agriculture
and in rural society and the likely trends in the next decade.
This understanding is essential for our agricultural col-
leges, agricultural extension services, agricultural experi-
ment stations, U.S. Department of Agriculture, farm organ-
izations, rural communities, and the public. The rapid
changes in agriculture call for changes and reorganization
of the institutions associated with agriculture.


The greatest problem facing agriculture is the manage-
ment of changes which accompany rapid adoption of new
technology. Colleges, research and extension institutions,
and farm organizations need to orient their activities more
toward solving this problem. This is important for con-
tinued economic progress in the United States and it can
be significant in foreign economic development and, there-
fore, in world affairs.
The agricultural adjustment problem in this country is
related to the total economic revolutionary movement that
is taking place in the world. Until a few years ago the in-
dustrial revolution centered around the Atlantic basin. The
modern version is world-wide in scope and it is marked by
the rapidity with which underdeveloped nations want
progress. Rapid progress or adoption of new technology
must be accompanied by rapid economic and social ad-
justment. Man has made great progress in scientific and
technological discoveries. He has not done nearly so well
in solving the problems of economic and social adjustment.
The most challenging problems today are how to facili-
tate economic and social change in a democracy. In the
present world, if economic and social changes take place
too slowly or not at all, or if they are misdirected, then the
rate of adoption of new technology will be retarded, prog-
ress will be slow, social upheaval can occur, and the
masses of people may not share in the benefits of progress.
Whether or not the agricultural research and educa-
tional institutions can take the leadership to solve the
problems of agricultural adjustment in the United States is
tremendously significant. The United States is looked upon
as the leader in agricultural technology; but we will not
continue to be a world leader unless we can keep U.S. agri-
culture in step with the rest of our economy. This could be
the key to the development of rapid progress and peace in
the entire world.


Rising incomes of farmers depend considerably on the
continued growth of the total economy. When the national
economy expands, the adjustments in farming to meet
changes can be made much easier. The adjustments will
enable farmers as well as the rest of society to share in the
benefits of adopting new farm technology and the increased
farm productivity. Farmers, therefore, have a profound
interest in total economic growth in the economy.
Most of us think that our form of government and our
policies in the United States have been the most conducive
to growth. We are constantly searching for ways to pre-
serve those principles which have been and will continue
to be essential in promoting growth. We also are attempt-
ing to change and adapt government policies which will
promote economic growth in our present and future econ-
Farming, on the other hand, has and can continue to
contribute greatly to total economic growth. The two im-
portant contributions are (1) the release of labor for off-
farm work as we get increased productivity per person on
the farm, and (2) the lower cost of food resulting from
greatly improved efficiency in farming. In the early history
of our country 90 percent of the people were working on
farms while now only 8 or 9 percent are farming. On the
average, consumers are currently spending only slightly
more than 20 percent of their incomes for high-quality con-
venience foods.
The improvement and continual recombining of the
human, natural, and man-made resources are essential to
economic growth. As growth takes place, agriculture and
other segments of the economy become interwoven into a
complicated pattern. The productive resources must move
from one segment of the economy to another for greatest


The production of all goods and services in the United
States has increased about 3 percent per year for the last
80 years. In more recent years this has been 4 or more
percent per year. The production per man-hour for the
country in the last 10 years increased about 3 percent per
year, while in farming it increased about 6 percent per
year. However, the value of the production for one hour of
work in farming in 1958 was only $1.64 as compared with
$3.38 in nonfarm work. The rate of growth of the entire
economy during the 1960's is expected to be as high or
slightly higher than in the 1950's.

The farm problem in the United States is a growth
problem. It arises from the rapid technological changes and
growth in productivity in farming. The farming sector of
the economy has not been able to digest rapidly all of the
changes so that farmers could share proportionally in im-
proved incomes. In other words, the whole structure of
farming has lagged in adjustment.
Even though farm production increased 25 percent
during the fifties and the number of farm workers declined
26 percent, incomes of farm people (in terms of what they
can buy) declined 2 percent per person. In 1959 income
per farm person, from all sources, was only 43 percent as
much as income per nonfarm person.
When new technology is adopted rapidly, farm pro-
duction is increased rapidly. Excess production results.
The nature of demand for farm products is such that the
small excess in the market greatly depresses farm prices
and, therefore, farmers' incomes are depressed drastically.
If farmers as a group could keep their production per
farmer down to nearly a constant level, or if enough farm-
ers went out of business to keep total production about the
same, farm prices would not be depressed and farm in-
comes would increase as costs were reduced or efficiency
improved. This restriction of production has not been done.


Therefore, it is to the advantage of the individual farmer
to push his own production as high as possible. His only
way to increase his income is to increase the number of
units sold and to reduce his costs per unit.
Many farmers stay in farming even in the cost-price
squeeze mainly because they have high fixed costs. Over a
period of time, however, the situation can deteriorate so
far that some farmers are forced out of farming. This helps
to correct the situation, but it is too slow and brings serious
chronic hardships in the whole farming sector of the econ-
A rise in prices pulls labor, capital, and land resources
into farming more quickly than they are reduced when
farm prices decline.
The surpluses and low returns on labor, capital, and
land used in farming are caused by the greatly increased
productivity of these farm resources, resulting in overpro-
duction. The situation, then, is that too many of these
resources are in farming relative to the demand for farm
products. Consumers indicate, through their purchases
and prices offered, that they prefer more of these resources
used for other products or services. Total quantity of re-
sources (more capital, less labor, and same land) in farm
production has remained nearly the same in the United
States since 1940, but farm production has increased about
50 percent.
The increase in prices paid for farm labor relative to
prices of man-made resources such as fertilizer and
machinery explains why capital has been substituted for
labor and land. Fertilizer prices in the last five years were
only about 51 percent above the mid-thirties prices,
machinery prices were about 91 percent above, farm wage
rates were about 355 percent above, and land values were
about 225 percent above.
Farms which have not made adjustments in recent
years are becoming farther and farther out of adjustment
as more new technology is developed. The extent of farm


maladjustments is represented by the present deficiency in
average size of the family farm. According to a recent
study of crop costs on a group of farms in Ohio, the aver-
age cost of corn on 160-acre farms was 10 cents more per
bushel than on 640-acre farms. This made a difference
of 60 percent in the profits in growing corn. Family farms
should double their present size and employ one-third to
one-half less labor if they are to achieve maximum effi-
There are three main reasons why labor transfer out
of farming has been most difficult: (1) the scattered lo-
cation of farm labor in all parts of the country, making
shift to other employment more difficult; (2) the training
and experience of farm labor, oriented mostly toward farm-
ing; and (3) the number of births on farms greatly exceed-
ing farming opportunities and making the number to trans-
fer relatively large.
The advance in technology and the adjustment prob-
lems, particularly of farm labor, will likely continue for at
least the next decade. Perhaps a question could be raised
whether we should invest greatly in research to develop new
farm technology aimed at replacing farm labor unless we
also invest enough to solve and assist with the problems
such farm labor has in transferring to higher income jobs
off the farm.
Part-time farming has facilitated the transfer of some
farm labor away from the farm and has resulted in im-
proved incomes for these individuals. Income of farm
people from off-farm work is about one-third of farmers'
total incomes.
The farm problem is mainly the low income of farmers.
However, underlying this or related to it are: (1) the diffi-
culties of balancing over-all production with demand, (2)
difficulties of enlarging the individual farm business and
obtaining greater efficiency, and (3) the rural community
and public affairs problems confronted in a rapidly growing
and changing economy.


In examining the imbalance between production and
demand we need to look at the probable trends in demand
and the possibilities for demand expansion in the next de-
cade. Best analysis of trends in population, buying power
of consumers, special food consumption programs and pro-
motion, quality improvement, new uses of farm products,
foreign trade, and relief indicate that total utilization of
U.S. farm products will increase 10 to 14 percent by 1965
and 20 to 27 percent by 1970. The lower figures represent
the increase without any special programs, and the higher
figures would result from the most favorable assumptions ,
that could be made as to programs and economic trends.
Prospects are not very bright for demand to increase
enough to bring about a balance between farm production
and demand. The most optimistic projections of utili-
zation would mean that in the next 10 years demand might
increase about as fast as farm production, assuming pro-
duction increases at the same rate as during the 1950's.
This would still leave production exceeding consumption as
much as it does now and the surpluses as great as they
have been. The surpluses on hand at present amount to
about 12 to 13 percent of farm production in 1959. If farm
production was held down to the 1959 production and the
present surpluses were consumed, we would have pro-
duction and consumption balanced by 1965.
It is seriously questioned whether various demand-ex-
panding programs by the government can do much to close
the gap between production and demand. However, many
of these programs are worthwhile and can be justified for
other purposes rather than just for correcting the im-
balance. Domestic food expansion programs, including
aid to low-income people, promotion and advertising, qual-
ity improvement, etc., might increase consumption at most
1 or 2 percent by 1970. A stepped-up program of finding
new uses for farm products may not expand total demand
since increased new uses for some farm products likely will


be counterbalanced by decreases resulting from nonfarm
product substitutions.
Even with continued vigorous export programs, total
agricultural exports are not expected to increase greatly, at
least until the latter part of the 1960's. It would be
optimistic to assume that even one-fourth of the increased
food needs of underdeveloped countries would come from
the United States by 1970, and this would mean only an
increase of 2 percent in the utilization of U.S. farm
The main increase in demand for farm products will
come from the increase in population in the United States
of 9 percent by 1965 and 19 percent by 1970. One to 3
percent increase in demand might come from a 10 percent
increase in incomes or purchasing power of consumers by
1965 and 20 percent by 1970. This income change will
mean a further shift of food consumption toward livestock
products, and this would require an increase in farm re-
sources of about 4 percent by 1970 to make the correspond-
ing shift toward more livestock production.
As incomes increase, people in the United States spend
about .15 to .2 percent more for food for each 1 percent in-
crease in income. Most of this increased expenditure goes
for better quality and additional services or conveniences
rather than for increased quantity of food. As the incomes
reach higher levels in the United States, people respond
less and less to changes in their incomes as measured by
changes in expenditures for food.
In response to price changes, consumers will change
their expenditures for food about 1 percent for each 4 or
5 percent change in prices. This also would make a differ-
ence of about 1 V percent in the amount of farm production
resources needed, considering that there would be some
shift between livestock and cereal grain production.
Progress in improving farm incomes through greater
marketing efficiency is possible but at best it will be slow.
One of the main reasons why it is difficult to change


marketing costs of farm products is that prices of many
items making up marketing costs (materials, facilities,
utilities, freight rates, wage rates, and others) are deter-
mined in markets extending across other sectors of the
economy. There is an opportunity, however, to improve
efficiency and competition in marketing, which can increase
returns to farmers.

Since the late 1930's agricultural productivity appears
to have increased at a pace substantially greater than that
of the non-farm economy. Total agricultural production
has increased about 50 percent in the last 20 years.
The greatest increase in farm production since World
War II has been in soybeans (180 percent), feed grains (45
percent), rice (70 percent), beef and veal (42 percent),
and sugar beets (90 percent). Since 1940, corn yields have
risen 81 percent, grain sorghums 150 percent, cotton 84
percent, wheat 40 percent, tobacco 51 percent, and potatoes
118 percent.
Increase in total farm production per man-hour since
1940 has been 185 percent, with only 89 percent for live-
stock and 203 percent for crops. We use about 8 percent
of our labor force for farm production while Russia uses
between 40 and 50 percent.
Our carryover of wheat amounts to 130 percent of one
year's domestic and export needs, cotton 60 percent, and
corn 60 percent. We have more than twice as much corn
and feed grains, three times as much wheat, and consider-
ably more cotton than we need for carryover. In other
words, about two-thirds of the Commodity Credit Corpo-
ration holdings are actually surplus stock. Feed grains as a
group have been building up to a troublesome level. The
important point is that, given a few years, the surplus might
be worked off if we did not continuously have excess
production. The government has been taking about 8 to 9
percent of total U.S. farm production in the last few years.

10 M. G. SMITH

About 60 percent of this is disposed of by giving it away or
selling at discount prices, and the remaining 3 to 4 percent
has been added to the surplus stock each year.
According to present production and consumption
trends, excess production by 1965 could be 13 to 14 per-
cent. Of course, restrictions may be applied by government
to curtail this. If no further restrictions are used, the im-
balance of production and consumption of feed grains is
likely to grow worse by 1965, even with large increases in
livestock. Further surplus pressure is expected in produc-
tion of cotton, wheat, and milk by 1965. Excess production
could easily continue for at least 15 years.

We have more land available for crop production in the
United States than we need to produce our requirements.
Excluding Alaska and Hawaii, about 370 million acres were
used for cultivated crops in 1960. Nearly 330 million of
these acres were harvested. In addition, we have an esti-
mated 243 million acres of land (110 forest, 105 pasture,
28 conservation reserve) which are fairly well adapted and
could be used for crop production. There are about 45 mil-
lion acres used for crops regardless of the fact that the land
is not well adapted to crop production. This still leaves a
net of about 200 million acres of extra land which could
be cultivated. There may be a demand for the use of some
of this land for timber and pasture production, but it still
leaves a large reserve capacity for potential cultivated crop
production if and when we might need it.
Cultivated land is owned mostly by individuals who
have little opportunity to obtain an income from it except
to produce farm products. It is difficult for farmers indi-
vidually to remove excess acreage from production in order
to balance over-all supply and demand of farm products
unless they receive some remuneration for discontinuing
the use of the land. The government may compel farmers
to reduce acreage, but this meets with resistance unless


farmers are compensated. Even if farmers remove some
land from production, they will tend to maximize their in-
come either by increasing production on their remaining
land or by bringing presently uncultivated land into culti-
vation. Then, in order to hold production down, more land
needs to be removed from production. We have a real prob-
lem of harmonizing individual, group, and public interest
in the ownership and use of land and water.
The greatest potential for increased farm production in
the next 10 or 15 years is the adoption of new technology
to increase yields per acre. Production increased about 25
percent during the 1950's but there was little change in
acreage of land used. Additional capital investments and
less labor made farmers more dependent on items pur-
chased from nonfarm sources. As the prices of these items
went up and farm prices decreased, the cost-price squeeze
developed. Sixty to 65 percent of total costs of produc-
tion on general farms in Ohio represented out-of-pocket
costs. The chief factors increasing yields in the 1950's
were combinations of fertilizer, irrigation, improved seed,
mechanization, crop protection, and conservation. In-
creased use of fertilizer accounted for over one-half of the
increased yields.
Today's and tomorrow's farmer must possess
more management ability, more capital, and more technical
skills than ever before to combine new technology and thus
achieve the highest possible net income. The average in-
vestment per farm increased nearly 50 percent during the
1950's. Because of the differences among farmers, the pro-
duction and farm income per farmer varies more widely
than it ever has in the past.
We need to develop the most desirable patterns of land
use in this country over the next few generations. This will
require research, public education, discussion, and action.
Once we develop what we think is desirable land use, we
can design public policy to lead us in the desired direction.
For example, it can be made the most profitable alternative

12 M. G. SMITH

for individual farmers and others to use land in accordance
with best public interest.

The increase in productivity per hour by farmers in
livestock production has not been nearly so great as in crop
production. Main increases have come through improved
feed utilization. Most of this has been with poultry, but
break-throughs in research on other livestock can be ex-
pected. Gains in efficiency of labor are being made and are
likely to take place through enlargement of individual farm
operations, mechanization, automation, and more special-
ization. It is expected that livestock will be fed out on
fewer farms, on farms with larger volume of business, on
more specialized farms, and under more confined and dry-
lot systems.
Grazing livestock and production of forage for livestock
utilize about 60 percent of the total land area of the United
The shifting of the national diet toward livestock
products and away from cereals has been about the equiv-
alent of increasing demand 3 or 4 percent, in terms of farm
resources required. This is about as much change as we
might expect during the 1960's.
Since livestock production requires more farm resources
to produce than cereal products, it has been proposed that
we shift food consumption more toward livestock products.
However, to make a substantial shift of this sort would re-
quire a costly subsidy to the consumer because of the higher
price for livestock products. The estimated increased cost
to U.S. consumers would be nearly one billion dollars to
buy 1 percent more livestock products and 1 percent less
cereals. The subsidy by government likely would be more
than this to persuade people to make the shift. This 1 per-
cent shift might require 2 or 3 percent more farm resources
for production.


The family farm, defined as the farm where most of
the labor and management are combined in the same indi-
vidual or family, is still the dominant factor in U.S. farm-
ing. It does not seem to be losing out to larger-than-family
farms, in spite of the great technological advance. The
family farm closely associates the household and the farm
business, but these do not need to be located at the same
place. The farm family does not need to own the land or
the capital. The only requirements are in regard to labor
and management. It fulfills the desire for self-sufficiency
and the freedom of enterprise in a modern commercial
market system.
Most of the advantages of large-scale business can be
realized on the family farm. Certain types of integration
could be destructive to the family type of farm, if there is
strict off-farm managerial control. For example, the com-
bined integrated business might be most profitable with its
farming segment operating at a loss.
Marked expansion in capital used per farm and in total
capital investment in U.S. farming has occurred in the
last 20 years. The new tractor power technology has
pushed farming into larger units. Investment in the most
efficient and productive family farms is much larger than
investment in average farms. According to a recent study
of family farms the estimated total investments required
to obtain a net income of $5,500 varied from $73,000 to
more than $371,000 per farm.
Renting furnishes a means for expanding farm size.
More renting is done in the higher farm income areas such
as the Corn Belt than in the low farm income areas such
as the Southeast. Partnerships, mostly father and son,
offer opportunity for smooth transfer in ownership but are
not favored by farmers for general use. There is a small
increase in number of farm corporations, including family
corporations, especially since the revision of federal tax

14 M. G. SMITH

laws favoring small corporations. The amount of man-
agerial power retained by the farm operator in corporations
is variable depending on the tenure arrangements. The
farm corporation is likely to increase but not likely to
dominate for a long time.
Farm supply firms and marketing firms may expand
their own sales by extending credit and other services to
farmers where farmers cannot obtain such items elsewhere
in order to expand the size of their farms.
It is difficult for many farmers to obtain ownership of
land and also own all the capital required for a farm busi-
ness large enough to obtain even $2,500 net farm income.
Present returns to land on the average are below the
mortgage interest rates. Increasing amounts of external
capital are likely to be needed in farming. There will be
more and more separation between the people who own the
farm resources and those who use them. This separation of
resource ownership and use may mean a reduction in the
role of the farmer as a manager with some types of tenure
arrangements. These tenure arrangements probably will
need to be changed if the farmers are to maintain control
of the farm business.

The total complex of agriculture, on and off the farm,
is called agribusiness. The on-farm portion is declining but
the off-farm portion has increased. Declining number of
workers on the farm has been accompanied by an almost
equal increase in employment in the farm supply industry.
Over 6 million workers are employed in the farm supply
business in the United States. About 10 million are em-
ployed in transporting, processing, and distribution of farm
products. The number of workers on farms now is about
7 million. This makes about 23 million workers in agri-
business about one third of all employed workers.
About 60 percent of farm production expenditures are
for items from off-farm sources. The feed industry has


been increasing rapidly. There are important economic and
adjustment problems of farm supply firms mainly involving
the need to increase the volume of business. Some
machinery dealers and machinery manufacturers are start-
ing to rent equipment to farmers, enabling farmers to ex-
pand their farm size. There is an increasing amount of
machinery sold in "packages" for a whole production sys-
Great change in the technology of nitrogen fertilizer
production has taken place as the fertilizer has shifted from
organic to synthetic origin. Competition is keen in the
fertilizer business and adjustments are taking place.
The number of workers in food marketing increased 40
percent in the 20 years between 1939 and 1959. Farm
workers declined about 33 percent in this period. Market-
ing services are increasing because of more built-in maid
services, fewer people growing their own food, longer trans-
portation of food, and more meals eaten away from home.
The size of the buying firms (marketing firms) have
grown much larger than the size of the producer-seller
(farmer). Large retail stores are increasing direct buying
of farm products, bypassing brokers, wholesalers, and ter-
minal markets, and therefore shortening the marketing
channel. Marketing firms are making rapid adjustments
to meet internal and external changes. Direct buying by
retailers is likely to increase.
The processing food industry continues to increase.
The number of assemblers of food, first step from farmers,
are declining. Farm supply, feed dealers, hatcheries, and
seed firms are increasing contract and integration activities.
Farmers need to adjust production and marketing to
large scale buying practices. Cooperatives may help in
obtaining large quantities for sale but coordination of pro-
duction, timing, and quality is necessary too. With declin-
ing terminal and central markets, price making has
changed and price news is more difficult to assemble.
Integration may stimulate production through superior

16 M. G. SMITH

management. Cost reduction in marketing and financing,
as well as in farm supply industries, should improve farm
prices and reduce farm costs.

Only about 21.2 million (12 percent) of the present
population are farm people and nearly one-fourth of these
do so little farming that they should not be counted as
farmers, leaving about 16 million (9 percent) of the popu-
Rural nonfarm population now outnumber farm popu-
lation almost 3 to 1, which means that farmers no longer
dominate even the rural sections.
About half of the people who are leaving the farm are
between the ages of 15 and 34. This helps to expand the
younger nonfarm labor force. A net of 7.2 million persons
left farms in the 1950's. Due to the high birth rate as com-
pared to the death rate on the farm, the total farm popu-
lation declined only 3.9 million in the fifties. Even if the
movement off the farm is further encouraged, it is doubtful
if the net movement will be as large in the 1960's. The
movement off the farm in the 1950's was greatest in the
South, among tenant families, and among Negro families.
Only about 15 percent of the farm youth will be able
to enter farming during the 1960's. Farm youth have a
special advantage in the area of agricultural related busi-
ness. The total number of young people entering the labor
force will increase very rapidly in the year 1965. For this
reason it may be easier for farm labor to transfer to non-
farm employment prior to 1965 than afterward.

The changes taking place in rural communities have
given rise to many public problems. These problems are
related to, and are nearly as great as, the problems of farm-
ing resulting from the changes in farm production and


The typical situation now is a network of rural com-
munities containing specialized centers for education, shop-
ping, medical service, church, and other services. This is
replacing the single well-defined self-sufficient community.
The trend is toward larger units of operation and ad-
ministration for social institutions which serve rural
people. The one-teacher school, the one-doctor community,
the part-time minister and church, the township welfare
agency are all giving way to large units in order to get better
services, new services, and more services. However, the
more distant and impersonal services of the larger units
make it more difficult for people to participate in the public
affairs decisions.
All types of communities are undergoing adjustments
whether their population is expanding, declining, or re-
maining stable.
To keep in step with changes, communities must (1)
have widespread understanding of changes, trends, causes
of change, and consequences of change; (2) understand
need for people to develop and improve methods as well as
take action for solving problems; (3) have flexibility and
adaptability to changes; (4) determine and recognize goals
of individuals, children, and the community; and (5) rec-
ognize the need for people in the community to give more
time, thought, and energy to meet problems shared in by
others. In other words, they need to give more attention to
public affairs.
The most significant trend in rural schools is the con-
solidation of small schools into larger ones for efficient ad-
ministration, tax support, improved quality of instruction,
and more specialized services. The number of one-teacher
schools declined about 87 percent in 40 years 1917-18
to 1957-58.
More rural people participate in church affairs than in
any other organized community activity. Rural churches
in the next decade will face serious problems of adjustment
in size, in quality of service, and in meeting needs of more

18 M. G. SMITH

heterogeneous groups of people and fewer farm people.
Most rural churches need to be two or three times as large
in membership as they are now.
Farmers are buying twice as much medical care as they
did in the late thirties and early forties. They still are not
using physicians or dentists as much as rural nonfarm
and urban people. Special federal aid for hospital construc-
tion and medical centers since 1945 has increased hospital
service and improved medical service to rural people.
Further increase in medical services, more coordinated
hospital and other medical service plans, and improved and
specialized services are needed by rural people.
Rural recreational services are increasing in importance
and will demand more attention. Some of these services
are often interrelated with rural and urban people. Farmers
and rural people have increasingly shared in social security
and welfare programs.
Rising taxes reflect the growing interdependence of
our society and the increasing demand for such public
services as welfare, medical care, social security, roads,
schools, fire protection, farm programs, etc. Increasing
local and state taxes will be required to finance more public
services growing out of increasing population and density
of population in some areas. Continued technological de-
velopments will have impact upon community services and
facilities. More highly trained and educated citizens will
be needed. Taxes tend to be highest in sparsely populated
areas. Property taxes are decreasing in relative importance
and income taxes are increasing.
With the rapid and drastic changes taking place rural
people are developing much more interest in planning com-
munity development and using rural zoning as a means of
public control to bring about the orderly development. Zon-
ing may be used more, as it is already in California, for
restricting the best land for farm use.
Local government, like the farmer, needs to adjust to
technology and to technical expertness. They have been


slow to do this. Local governments in some cases seem to
be breaking old boundaries. Modern needs are causing
some of them to fragment with certain functions being
combined into larger county, region, and state units.
A variety of means are being directed toward solving
community problems and more are needed. These include
such groups and activities as rural zoning, planning boards,
community councils, and the rural development program.

A basic conflict has existed between price- and income-
supporting programs and production adjustment in that a
price serving the income objective exerts a pull on produc-
tion in the wrong direction.
Production restricting programs on certain crops have
been ineffective in controlling total farm production, main-
ly because of rising yields and shift of land to uncontrolled
crops. Programs for restricting total farm production, for
example, soil bank, have not been put into effect on a large
enough scale to be completely effective.
Land retirement on a larger scale probably could be
more effective. There are a number of variations of land
retirement. It may be voluntary or compulsory. It may be
concentrated on good land areas or poor land areas and
on parts of farms or on whole farms. It will vary in costs
and control larger costs with the voluntary program and
more strict control with the compulsory program.
Marketing quotas might be more generally used. Some
farmers would object to the strict controls necessary under
quotas. In order to accommodate adjustment, quotas might
be made negotiable. This would allow production to shift
to larger farms and from one area to another as it would
more likely do under free markets. The negotiable quotas
would tend to be capitalized into the farming business and
thus become a cost.
It is not possible to maintain the number of farm people
in farming at the 1960 level. The farm resource which is

20 M. G. SMITH

most in excess is farm labor. The level to which farm prices
and incomes generally may be raised is limited, without
conflicting with other segments of the economy. Perhaps
more improvement in farm incomes can be achieved
through assisting farm labor to transfer out of farming and
assisting the remaining farmers to obtain sufficient size
and efficiency in their farm business. This would include
education of youth and adults, off-farm employment assist-
ance, and community adjustment. A favorable aspect of
this type of resource adjustment is that it would contribute
to the total progress of society through still greater produc-
tivity and more valuable use of labor resources.
A complete government farm program for U.S. agricul-
ture is not simple to develop. Strong consideration will be
given to a combination of domestic and foreign demand
expansion, labor and land transfer, marketing and produc-
tion restrictions, education, and research.

The land grant colleges, the agricultural experiment
stations and USDA, the agricultural extension services, and
agricultural education, are facing a real challenge. They
have contributed greatly to general progress and farm effi-
ciency. They need to face agriculture as it is today and ad-
just their programs so that they continue to contribute to
general progress and farm efficiency. The answers to prob-
lems of adjusting to rapid changes in technology must be
found. The education of youth and of future agricultural
leaders must include methods of adaptation to change and
skill in solving new problems which arise rapidly. With the
specialized nature of agriculture or agribusiness more em-
phasis is needed on management. We also need to train
people to work in the farm supply, processing, and market-
ing businesses as well as in farming. College students need
a good balance between applied and basic training.


While there will be fewer farmers in the future, we will
need more well trained farmers. The opportunities for
employment in agricultural related businesses and services
will continue large and perhaps increase. All these factors
should be kept in mind in improving vocational agriculture
and college training in agriculture.
The agricultural extension service needs to adapt its
program on the one hand to do much more in the areas of
individual farm and related agriculture business adjust-
ment problems. On the other hand, the increased inter-
dependence of rural people calls for much more educational
efforts on community and general rural development. This
includes many aspects of public affairs; those at the local
level, and those at national and international level.
If agricultural education is to stress the areas mentioned
here, then the agricultural experiment stations and other
research agencies need to place emphasis on research in
these areas. Much more study is needed on the problems
of the individual farmer, the agricultural business firm and
the farm people in making adjustments. We are seriously
short of research on the use of basic resources of land and
water, capital, labor, and management. Public affairs of
rural communities need much more analysis. The orienta-
tion of much of the agricultural research in all areas may
be influenced considerably if we objectively analyze the
true situation and trends in agriculture and rural society.
Society expects the public supported agricultural, edu-
cational, and research institutions to take the lead in antic-
ipating and developing understanding of the great prob-
lems of agriculture; to develop procedures, alternatives, and
programs for adjusting to the rapid changes taking place;
and to be an influential force in making agriculture, as well
as the entire economy, strong.

I i


The political, social, and
economic setting of U. S.
agriculture; the role of
agriculture in economic growth.

F944 1948 19552 196 1960

Total Economic Growth

and Agriculture

Stanford University

AGRICULTURE is an inseparable part of our national econ-
omy. This is true of any country at any stage of economic
development, because food and fiber are of primary im-
portance. This fact must be recognized in considering agri-
cultural problems.
Any generalization about a "farm economy" or an "agri-
cultural sector" of the national economy, and any assump-
tions that farming is more or less exempt from economic
laws and processes are self-defeating. This is true whether
we subordinate economics as applied to farming by refer-
ence to its biological characteristics; its peculiar combina-
tion of land, labor, capital, and other resources; or the so-
ciological results of decentralization.



3W0 --- ----

20 -
10 6 --^ r


In the original, preindustrial, self-sufficient household
economy, agriculture is identical with the total economy.
This is often still true at an early stage of development
where farm-grown producer and consumer goods are ex-
changed in considerable volume between farm people in
organized markets. Agriculture is then the comprehensive
industry of all industries. It produces not only food, feed,
fibers, fuel, and a great variety of other raw materials, but
also housing, textiles, clothing, "plant" and "equipment"
such as barns, breeding stock, draft animals, plows,
wagons, as well as such basic service as transportation, and
even occupational training and entertainment. Even at this
stage of a minimum division of labor there is considerable
leeway for accumulating working capital.
Increasing production and rising incomes are achieved
in proportion to the native ability of the individual farmers
and their response to economic opportunities. This differ-
ence in native ability of individuals, families, or clans and
the cumulative effects of added skills, experience, and
physical assets results in an extremely wide difference in
levels of productivity, income, and comfort of living within
a single village. This is true even in the least developed
areas of the world.
Some economic growth is not only possible, but has
always occurred in agriculture at the preindustrial stage.
These instances of growth, as well as the sharp differences
in productivity, income, and wealth within underdeveloped
economies, are usually ignored. This oversight is derived
from the reliance on measures of accumulated assets and
production in terms of market values in money which are
However, the leeway for improvements in human exist-
ence and for the rise of a civilization worthy of the name is
extremely limited until the process of the division of labor,
of work specialization, and of developing occupations and
professions is underway. The process of separating from


agriculture the specialized crafts (such as woodworking,
metalworking, textile work, food processing, construction
work, and transportation), of transferring labor to them,
and of developing better tools and work routines, together
with the rise of urban industries and urban mass-consump-
tion of farm products and of an organized exchange of
goods and services are the essence of economic progress. In
its course, farm work also becomes more and more special-
ized. It is ultimately confined to the production of plants
and animals.
For an understanding of the social and economic dy-
namics of the democratic society and of the real issues of
the world-wide farm problem, it is essential to identify eco-
nomic development with the expansion of nonfarming ac-
tivities and the transfer of manpower from farming. In this
process farming makes a dual contribution: It must pro-
vide manpower to the nonfarming activities, and its shrink-
ing share of the nation's manpower must supply an in-
creasing proportion of the food and fibers for the urban
This latter contribution requires an increase in produc-
tion per worker engaged in farming. This improvement in
productivity depends increasingly on the purchase of farm
supplies. Farms become more and more tied into the com-
mercial economy and subject to the dictate of market
prices. The obligation to pay taxes and the use of credit
ties the farmer more closely to the commercial economy.
The population on commercial farms participates in the
benefits of a growing national economy only in so far as it
succeeds in earning a rising net income per person.
An increase in the per capital income of farmers requires
not only an increase in productivity per worker engaged in
farming and an increase in the value of goods produced on
the farm, but the value of farm produce depends on the
response of consumers as a group to price changes and to
changes in consumers' incomes. The proportion of the in-
come spent on food declines as the income of families rises.


The economist puts it this way: The income elasticity of
the demand for food is much smaller than for most other
goods and particularly for services. This is known as
Engel's Law, and based on the physiological limits of the
human capacity to consume food. Hence, a sharp rise in
farm production leads quickly to price declines unless the
capacity of the market for farm products expands mate-
rially. The market for farm products may expand if a grow-
ing number of consumers spend their rising purchasing
power on more expensive foods.
Expansion in the capacity of the market for U.S. farm
commodities need not be confined to the domestic economy;
it could also occur in foreign countries. Whether domestic
or foreign, urban industrial development is necessary for
a rising income in farming. Such urban development
creates the demand suction for an increasing volume of
farm products. It simultaneously creates a rising farm de-
mand for industrial goods that draws manpower from farm-
ing into other occupations, and thereby creates the in-
centive for increasing the productivity per farm worker.
The magnitude of change that has taken place is best illus-
trated by the fact that at Thomas Jefferson's time 90 per-
cent of the people in the United States were working on the
farm, while by 1960 this proportion had shrunk to less than
10 percent.
Farming depends on the growth and structural change
of the total economy in its pursuit of a rising per capital
income. This, in turn, implies that the real leverage for
economic gains by farmers lies first and last in the creation
and maintenance of conditions favorable for general eco-
nomic growth. An expanding national economy makes
farm problems more manageable because there will be op-
portunity for dynamic adjustments in agriculture.
If, on the other hand, the economy contracts if in-
stead of expanding it stagnates or even begins to shrink -
farm problems become increasingly difficult. In case of
prolonged and severe depression the flow of labor from the


farm to nonfarm employment may reverse itself and farm
labor may back up in rural areas.

The well-being of the farm population and the proper
functioning of the farm industry depend inescapably on the
growth of the national economy. Therefore it is important
to have a firm grasp of what is actually involved in eco-
nomic growth and how it can be measured. Unfortunately,
the dynamic processes that constitute growth in a well-de-
veloped modern industrialized economy are so complex
that they are difficult to measure. The usual explanations
or measures oversimplify the combination of factors that
have brought about growth.
This institutional setting must be kept clearly in mind.
It indicates the wide dispersion of the power of decision
making leading to economic action. Our modern society
is determined to have economic action subordinated to its
humane ideals and protected from the depravation of ruth-
less materialism or irresponsible excesses of the use of
power by individuals, groups, or the state. These goals are
sought through continual amendment of the legislative
framework, highly sophisticated supervision, and law en-
The U.S. economy must function and grow within the
basic institutions of our democracy. These emphasize free-
dom of enterprise, competitive markets with flexible prices,
private property, the right of all workers to geographical
as well as occupational mobility, a profit and loss system
for all businesses, and free markets for labor, capital, and
real estate. One aspect of such a system is a wide decen-
tralization of decision making, risk bearing, and the alloca-
tion of productive resources. It offers effective incentives
for efficiency, innovation, and saving and investing, and
thereby puts a premium on progress and dynamic change.
Within this context the term "economic growth" is
synonymous with economic progress, development, or ex-


pension. "Growth" has the specific meaning and is defined
in the present discussion as a continual rise in the capacity
of the economy to meet the changing needs and expecta-
tions of the nation for goods and services.
Growth conceived in this way refers to all productive
resources and our ability to use these resources under vary-
ing circumstances including those of stress and national
emergencies. But growth includes more. It includes the
capacity to renew those productive resources that are being
depleted and to create new ones. This aspect of growth is
of particular importance.
For a highly industrialized country which is also the
leading power in a turbulent period of history, economic
growth also implies inevitably a rise in the economy's mili-
tary potential. The defense potential and the economic stat-
ure of the United States are closely interrelated. They are a
source of strength and assistance to other nations and in-
clude participation in the economic development in other
parts of the world.
The term "growth" is usually applied to living organ-
isms, meaning an increase in size by assimilation of new
matter. But as with so many biological, medical, or other
metaphors used in economics, this one too can be mischie-
vous. Some derive from it the assumption that growth is a
part of a maturing process which must come to an end.
This is an error, derived from a too narrow concept of the
capacities of a human society. Measured by the idealistic
goals of the free society that aspires to the good life for all
its members, the economies of even the wealthiest countries
are seriously underdeveloped. The wealthiest countries are
far from a fulfillment of even major basic social goals.
In a growing economy, society gradually shifts em-
phasis from goods to services. Growth involves a continu-
ous recombination of resources not only within the national
boundaries but in distant parts of this world.
Economic growth is a normal process for a healthy and
vigorous people. If this process is fully understood and


public policies facilitate it, there is good reason to count
on continued growth in this and other countries.

As growth has been defined it is evident that the dy-
namic process of growth concerns several major factors or
resources which taken together determine the capacity of
the economy. For convenience, these factors have for cen-
turies been lumped together under three categories: labor,
land, and capital. Since these labels are rather crude I
would prefer to name them: Human Resources, Natural
Resources, and Man-made Resources.

Human Resources
The essential, powerful, and creative primary factor
on which the capacity of a national economy depends and
which generates its growth is the human resource. Indeed
it is ultimately the unique resource of all resources. Natural
resources are supplementary; they get their meaning only
in so far as human ability and energy are applied to them
and the specific materials they yield are demanded by con-
sumers. Man-made resources, the machines so important
in our economy, are the result of combining human and
natural resources. They are in a continual process of re-
production and development.
The essential features of a nation's available human
resource and its contribution to economic growth are the
size, rate of growth, and age composition of its population,
including the proportion of people of working age. Popu-
lation increase is a normal condition for any society with
vitality. But it is more than that. Throughout history, it
has proved a powerful incentive for economic growth.
In recent decades population increases stimulated
public and political interest in policies favorable to eco-
nomic growth. Population increases without sufficient eco-
nomic growth would create prolonged mass unemploy-
ment, a decline in per capital income, and serious poli-


tical friction. The political impulsion to avoid this outcome
is strong indeed.
Population increase, however, acts alternatingly as
cause and effect. Declining rates of population increase
during the economic instability period of the twenties
helped engender the stagnation of the thirties, but the eco-
nomic stagnation and the high unemployment in turn held
down population increase until the spell was broken by
World War II. The much discussed sharp acceleration of
population increase in certain underdeveloped countries
caused by sharp reduction in infant mortality can seriously
impede economic growth. But these are circumstances
which have nothing in common with those prevailing in
the U.S. economy.
Population statistics about the year-by-year changes in
the number of people of both sexes in certain age groups
are, of course, an extremely crude indicator of the pro-
ductive value of human resources. The economically im-
portant factor is the so-called "labor force," namely the
number of people of working age who are able and willing
to take jobs.
Obviously, the concept of the labor force is very flexible.
How large the actual supply of labor is depends on many
conditions, such as the mores of the society, child labor
laws, years of school attendance, the willingness of work-
ers to change location and jobs, retirement age, social
security, and many others.
With advanced economic development the tendency
prevails to delay the average age for entry into the labor
force and to reduce the average age of exit from the labor
force. Simultaneously, the proportion of women in the
labor force tends to increase.
Apart from the increasing size of the labor force, one
of the major factors of economic growth is the improve-
ment of the physical and mental working capacity of the
individual worker. The physical fitness of the labor force
depends on the status of health of the population. Improve-


ment in the general health requires an expanding economy.
The availability of health facilities such as hospitals, pure
water, and sanitation; the providing of medical care; the
war against contagious diseases; the enforcement of pure
food and drug laws; and the control of water and air pollu-
tion are all bound to have an impact on the capacity to
work. As is true for most of the other factors, public health
has a close tie with growth: it contributes to growth and it
results from growth.
Closely related to the health of the labor force is its
nutrition. Food is the number one raw material of any
economy, irrespective of the degree of economic develop-
ment. The quality and quantity of protective and energy-
bearing foods consumed are underrated as an important
contributing factor to the working capacity of the labor
force. The less physical exertion involved in work of the
labor force, the more the quality of the diet outweighs in
importance the caloric content. Again, this adjustment de-
pends on the process of economic growth as much as it con-
tributes to it.
Good public health and high average level of nutrition,
together with an increase in the labor force, are essential
factors in economic growth. Of even greater significance
are the native ability, the skills, experience, knowledge,
and the inventive genius of management. All our institu-
tions education, government, business organization -
are important in improving all aspects of human resources.
Education and training in all their forms convey exist-
ing knowledge to more and more people of all ages, but
particularly to the young people. In the process, the capac-
ity to think functionally, to sharpen the critical sense and
judgment, and to convey methods of studying, doing re-
search, and of contributing new knowledge are developed.
Research, exploration, and innovation extend the frontiers
of knowledge and techniques.
The sources from which new knowledge, new tech-


niques, and innovations flow are man's curiosity, his imagi-
nation, and his logic faculties. Here lie the main roots of
genuine economic growth. Hence, it is essential that the
economic system be so organized as to offer the widest
latitude and an optimal incentive for the full play of crea-
tive capacities.
For a realistic grasp of the role of the human resources
in economic growth, it is of strategic importance that the
managerial function be recognized as another main root.
Even such progress as advances in basic and applied
research, discoveries, inventions, potentially valuable
patents, and the availability of better tools gives no assur-
ance that the effective capacity of the economy has actually
increased or will increase. Neither do extraordinary skills
of workers necessarily insure increased capacity of the
economy without managerial competence and initiative.
It is the function of management to combine the factors
of production (i.e., labor, capital, and land) in such pro-
portions and quality for such time and in such a manner
as to maximize the net return of the business. This re-
quires fitting the production program of the business tightly
into the anticipated or potential market situations, with
careful regard for the kind and degree of competition and
for the changing character of demand. The dual man-
agerial functions of organizing the business and day-to-day
operations embrace both technical skill and a special art.
Expert knowledge and experience are required, but so is
a unique combination of abilities which differs from the
qualifications of even the most competent workers.
Optimal economic growth of a nation rests crucially on
the availability of business managers and on their com-
petence and stature. This applies to private as well as
public enterprise. While managerial skill can be taught
in schools of higher learning, its full development must
depend on training at the command post of a going busi-
ness. In farming, in large numbers of craft shops, and in


retail and service firms with one man or family operation,
management and labor are typically performed by the same
person. Here the managerial talent is all important.
It is true, however, that investment in the "brain poten-
tial" of the nation is always temporarily at the expense of
current production. Such allocation involves: (1) the
withholding of a part of the population of working age from
entry into the active labor force for education and training;
(2) the employment of an increasing number of the active
labor force in education, training, and research; and (3)
the investment of capital in physical facilities for these
services. In a free society the decision where human re-
sources will be used is not made by central planning, but
by the competitive bidding of employers in the labor market
in response to the demand of private and public consumers
of goods and services. However, the large system of public
education and research enables the government, primarily
at local and state level, to use productive resources for the
development of human resources.
To sum up: The essential basis for economic growth
is a labor force increasing in size, improving in health, with
rising knowledge and skill in more and more specialized
occupations, and organized toward greater efficiency. The
net result is an improved potential production per worker.

Man-made Resources
How much effective productive capacity the human re-
sources actually represent at any time depends on the
capital resources available for production of goods and
services. These capital resources consist of plant, equip-
ment, and materials.
While it is possible to increase the productivity of labor
without the use of more capital resources, primarily by
better organization of work and more specialization, the
extent of such improvement is very limited. The vast
majority of feasible opportunities for more efficient use of
labor also requires the use of more capital goods per worker


or per hour of work. Equipping workers with more mechan-
ical power as substitute for animal power and crude man-
power is one way to increase productivity. Economic
growth requires, therefore, the availability of capital for
transportation, physical plant, equipment, and raw material
inventories needed to increase the economic productivity.
This sort of capital is subject to partial consumption or
to deterioration due to wear and tear, and obsolescence re-
sulting from new inventions and designs or because of
changes in the demand. Economic growth must include
ample allowance for depreciation on existing capital re-
sources and continual addition to and improvement in these
A crucial factor in economic growth is savings. Ex-
pansion of the man-made resources depends primarily on
availability of private savings, namely, savings by indi-
viduals, nondistributed profits of corporations, and profits
of all other business enterprises.

Natural Resources
A further factor that determines the effective capacity
of an economy is popularly called natural resources. Their
nature, their role in economic growth, and the importance
of specific types of resources change with the progress in
science and technology and the shifts in domestic and for-
eign demand. Contrary to popular notions, these resources
have no value as such. They represent opportunities to
apply management, labor, and capital to them for the pur-
pose of deriving energy or materials from them. Once pri-
vate or public capital or both have made natural resources
accessible and productive, these resources become valuable.
There are two types of natural resources. One is per-
petual such as carbon dioxide and nitrogen of the atmo-
sphere. The other type is store resources such as deposits
of organic materials or minerals in the soil or underground.
Agriculture, forestry, horticulture, fisheries, and the gen-
eration of hydroelectric power depend chiefly on the utili-


zation of perpetual resources while mining deals chiefly
with store resources.
It is a misconception most popularly though not ex-
clusively held in other countries that U.S. agriculture
has prospered because from the beginning it was endowed
with uniquely rich resources. In the hands of the American
Indians these resources yielded bitterly little. The appli-
cation of imported human ingenuity and energy, and capi-
tal to the land carved an empire of prolific food and fiber
production outL of wilderness. This included the conquest
of pestilence and disease. Only since 1948 has malaria
been eradicated from the South.
The natural resources of the United States are uniquely
favorable because our economic and political policies pro-
moted the greatest free market area of the world. This
market permits utilization of resources according to prin-
ciples of greatest comparative advantage and a regional
division of labor.
Economic growth requires that the existing opportun-
ities in the geography of the country be utilized in so far
as they yield the needed materials or energy at lower costs
or with greater reliability than they can be obtained from
other countries. Use of natural resources requires the ap-
plication of human resources and a substantial amount of
long-term capital investment. This holds for agriculture as
well as mining and the single or multiple purpose use of
water resources. In each of these resource uses the amount
of manpower needed per unit of production can be reduced
by additional investment of capital.

In a free society growth depends primarily on the use
and combination of resources in accordance with the pref-
erence of the consumers expressed through their purchases
of goods and services. Likewise the government's influence
on use of resources reflects in effect the decisions of the


electorate, i.e., the same consumers. However, the majority
of these consumers who influence the direction of the econ-
omy by their expenditures are also the people who compose
the human resource. The use of resources is influenced by
human beings as buyers and as workers who show prefer-
ences for working conditions, remuneration, and fringe
Hence, it is axiomatic that in the noncoercive society
economic growth, as we have defined it, cannot be ordered
or dictated by the state. Attempts to do so would have to
begin by depriving the consumer of his freedom to deter-
mine the allocation of resources and would replace his de-
cision with a decision by the government. This would in-
volve the piecemeal transition from the free economy to a
centrally planned and directed economy, which in turn ulti-
mately necessitates the conversion of the political system
into a totalitarian state. How well this is recognized by the
nation can best be sensed by the careful language chosen
by the Congress in the Employment Act of 1946 during the
first Truman Administration. This decisive law which de-
termines the economic policy of the federal government
with reference to economic growth and stability begins with
the following declaration of policy (Section 2):

The Congress declares that it is the continuing policy
and responsibility of the Federal Government to use
all practicable means consistent with its needs and
obligations and other essential considerations of na-
tional policy, with the assistance and cooperation of
industry, agriculture, labor, and state and local gov-
ernments, to coordinate and utilize all its plans, func-
tions, and resources for the purpose of creating and
maintaining, in a manner calculated to foster and
promote free competitive enterprise and the general
welfare, conditions under which there will be afforded
useful employment opportunities, including self-em-
ployment, for those able, willing, and seeking to work,
and to promote maximum employment, production,
and purchasing power.


At present one-fifth of the national production of goods
and services is purchased by federal, state, and local govern-
ments. This share will increase further if more economic
tasks are assigned to the government.
There is disagreement on how far the government
should go in assuming economic tasks and how this in-
fluences economic growth. However, the government has
the responsibility and the power to promote conditions fa-
vorable to economic growth, to counteract the occurrence
of conditions detrimental to it, and to stimulate growth in
particular areas through activities such as the construction
of highways or ports, the financing of research, and through
public education and health.
The responsibility of the government includes the crea-
tion and maintenance of confidence in the strength and the
stability of our whole economy. This confidence will enable
the citizens of this country and the business leaders and
governments of the industrially and commercially ad-
vanced nations of the world to make their decisions with
the expectation of continued economic growth in the
United States.
The government can do this by strengthening the free
market force, encouraging the mobility of resources, con-
tributing to the development of our human and natural
resources, reducing or eliminating trade barriers at home
and abroad, pursuing policies which guarantee the integrity
of the U.S. dollar, encouraging saving and investment by
private individuals, and by moderating the periodic fluctu-
ations of the business cycle by restraining excessive ex-
pansion in booms and counteracting excessive contraction
in recessions.
The freely convertible U.S. dollar backed by a large gold
reserve is not only the measure of value in this country; it
is also the reserve currency of leading countries of the free
world and an international standard for comparison of
prices. Maintenance of the stability of our dollar's purchas-


ing power, or defense against continual rise in the general
price level not only at a rapid but at a creeping pace, is a
vital prerequisite of a sustainable rate of growth in the
United States and is important for development elsewhere.
In all countries one important instrument for stimu-
lating growth is an expansion of foreign trade. Free con-
vertibility of a "hard" currency facilitates foreign trade.
Competition in the domestic and the world market is one
of the most effective forces promoting price stability and
economic growth.
Monetary and credit policies are important factors in
economic growth. These policies influence particularly the
rate of capital formation and the flow of capital into pro-
ductive investments.
For example, investment favorable to economic growth
can be stimulated by accelerated depreciation of capital in
our tax laws, particularly in high risk business ventures.
Such provisions are particularly important for overseas in-
vestment. Management of the public debt can influence
the flow of investment funds needed for expansion of the
Innovations, research, and the general advancement of
technology, and their practical application are some of the
main forces that generate growth. The resulting reduction
of costs and improvement in returns anywhere in the trade
chain from producer to consumer encourage investment
and stimulate growth.
Public policies and private actions can create condi-
tions favorable to economic growth in many ways. Prefer-
ential tax-treatment of investment and expenditures in re-
search activities is one of them. The government can en-
courage and support research projects.
Changes are inherent in the process of growth. Private
initiative and public policies which result in greater occupa-
tional and interregional mobility of labor, greater mobil-
ity of capital, and greater mobility in use of all resources


are bound to be favorable to growth. Mobility in this sense
is extremely important to farmers and to growth of agri-

Conversely, any rigidities which stifle or interfere with
the mobility of resources are bound to be harmful to
growth. Rigidities in prices, interest rates, wages, rents.
supply, and demand tend to stifle or interfere with mobility
of resources.
The Staff Report of the Joint Economic Committee of
the Congress on Employment, Growth, and Price Levels of
December 24, 1959, had this to say on policies for Ameri-
can agriculture (p. 203):

10. Since mobility of people and of resources out of
agriculture into other industries is the only ultimate
long-term solution to the problem the Federal Govern-
ment should take all reasonable measures which fa-
cilitate this process special aids to education in
rural areas to provide skills usable in other indus-
tries, relocation allowances and strengthening of em-
ployment service facilities, and encouragement of
movement of nonfarm enterprises to rural areas to
provide job opportunities to those who prefer rural to
urban living even when working in nonfarm occu-

11. It has been suggested that the ultimate solution to
the problem of overproduction lies in providing ag-
riculture with the same type of market structure as in
some industries, giving the producers, through market
organization, control of supply and giving them the
power to keep goods off the market when they think
appropriate. This other policy of adding to the mo-
nopoly and quasi-monopoly elements in the economy
would add significantly to inflationary tendencies as
well as have other undesirable effects on the market
structure of the economy. It would be a serious de-
terioration of the overall structure of the American


If growth is to continue at a healthy rate or be acceler-
ated, it is highly important that governmental programs
and regulations encourage efficiences and not just main-
tain the status quo.
If the government conducts its monetary, fiscal, and
antitrust policies in a way that gives business people con-
fidence in the stability of the economy and its currency, the
average citizen will have faith in the equity and justice of
the economic system, thrift and capital formation will be
encouraged, and savings will flow to growth-promoting in-
vestment, not into the hoarding of goods.
Inflation depreciates long-term obligations, enhances
the value of physical assets, and inadvertently brings about
drastic changes in the distribution of wealth and incomes.
It disorganizes the proper functioning of the capitalist sys-
tem and thereby diminishes growth. Hence, a sustainable
rate of growth cannot be stepped up by public spending
financed by increasing the public debt. It follows that any
policy actions resulting in an undermining of the confi-
dence of the business community in the continuity and
vitality of economic institutions or the steadiness of de-
velopment must be deleterious to growth.
One situation in which the flow of capital investment
may be influenced is where the government enters into a
field of business or intervenes in a market. Example of
the latter was entry of the government into commodity
markets as part of the price support program. Reduction
may occur in the flow of private investment due to the
fact that market intervention by public agencies with
special authority subject to political change either
under executive discretion or as the result of new legisla-
tion represents an additional risk factor.
Freezing or controlling rent is an example of static poli-
cies aimed at social relief which impede economic growth
by impairing the dynamic self-adjusting processes of the
market. The typical result of rent control everywhere has
been sharp reduction in new construction, physical


deterioration in housing previously built, and idling of a
large part of the construction industry.
Monopolistic arrangements, irrespective of the social
or political arguments on their behalf, and irrespective of
whether they apply to agriculture, industry, commerce,
banking, or labor, impede the self-adjusting processes of
the market economy and tend to diminish growth. Produc-
tion allotments or marketing quotas have tended to freeze
the competitive production pattern and to hinder the allo-
cation of productive resources toward greater efficiency.
The impact of such static devices can be mitigated to some
extent by making allotments and quotas negotiable.
However, rigidities within a dynamic economy delay
adjustment but do not do away with the need for it. As a
result, maladjustments accumulate and make the ulti-
mately inevitable correction more and more difficult, pain-
ful, and costly.
Reluctance of workers to move to new jobs or new loca-
tions may impede growth. Some aspects of our gains in
national wealth tend to slow down shifts in our labor force.
For example, home ownership, longer and better education
for children, seniority rights and fringe benefits under
union contracts, and unemployment benefits under state
laws stop some workers from moving to better jobs.
The tendency to limit mobility of the labor force has
also been strengthened to some extent by the increasing
endeavor of business to reduce the costly turnover of work-
ers and hold particularly the skilled workers even in slack
periods by spreading the work with a reduction of working
hours. Firms tend more and more to stabilize work forces
by working overtime in busy periods rather than by adding
workers in order to avoid costs of unemployment benefits,
costs of turnover, and adverse effects on quality of work.

The growth of a national economy ought to be bal-
anced. In reality, this balance is difficult to attain because


of a multitude of hard, compelling circumstances. Yet, in
formulating economic policies, everything practical should
be done to remove the obstacles to balanced growth. If
some businesses develop faster than others, all sorts of bot-
tlenecks in supplies or services result.
Growth, according to all historical experience, has its
roots in increases in productivity which result from a com-
bination of new skills, the availability of capital, and favor-
able cost factors, and can only proceed vigorously with ex-
panding demand.
The start of more rapid growth is usually a matter of
chance, beginning in one or a few enterprises in a small
area or a region. Innovations in production, processing,
transportation, distribution, or shifts in consumer prefer-
ence are other factors of growth and are difficult to predict.
New scientific or technical knowledge and managerial initi-
ative must converge to start growth in one special type of
Growth of the national economy involves continual
change within the economy such as new investment and
shifts in the labor force. The mobility of workers can be
increased by helping new entrants into the labor force to
find their way into new or expanding types of employment
or to the new locations of businesses. The main flexibility
in the labor force lies in guidance of the new generation.
But the dislocation involved in vigorous growth also re-
quires vocational and often geographical changes for senior
workers and their families as in the case of farmers, coal
miners, and steelworkers. It is this sort of adjustment which
involves hardship, social and political resistance, and
policies of retrenchment which try to protect the status quo.
To avoid such blocking of growth requires effective assist-
ance to constructive adjustments.
Growth requires in some fields of activity considerable
time for developing the facilities and expansion of large
capacities with long-term investment. This leads to a stag-
gered progress of growth. But this unevenness in expansion


of businesses is overshadowed in the national economy by
the ebb and flow of the business cycle with its expansive
and contractive phases. A mild recession serves frequently
as the gestation period during which a great deal of ma-
tured innovation is more fully used in production processes.
But more severe and prolonged recessions curtail employ-
ment, profits, capital formation, investment, and public
revenues to such an extent that they reduce the rate of
growth. Hence, during prolonged recessions, monetary, fis-
cal, and public procurement policies and such built-in
stabilizers as the corporate income tax and unemployment
insurance payments may act as an aid to continued
In the process of growth, some businesses and some
areas decline or deteriorate. This is due to change in the
technology, in demand, in comparative costs, and in the
structure of the economy. For example, as deposits of gold
and silver were exhausted in certain parts of California,
boom towns became ghost towns. Progressive mechaniza-
tion of coal mining operations caused serious chronic un-
employment in certain parts of the East. Shifts in location
of factories or failure of enterprises may have the same
effect. Consolidation of farms into larger units reduces
population and curtails business in some areas. Areas which
do not participate in the increase in productivity and in-
come are by comparison retarded.
These pockets of deterioration or stagnation represent
primarily idle or underemployed human and other resources
which should be mobilized. This can be achieved by start-
ing new enterprises in the depressed areas, or by migration
of the people to areas with labor shortage. A legitimate
function of government is to assist any local and regional
initiative and to foster conditions favoring adjustments.
The Committee for Rural Development Program and the
Committee to Coordinate Federal Urban Area Assistance
Programs are charged with federal guidance and coordina-
tion of public efforts to engender growth.


In attempting to measure economic growth, the usual
practice in this country is to use estimates of secondary
nature, such as employment, production, and income. In
fact, some people consider changes in production as iden-
tical with growth. It must be emphasized at the outset that
we do not possess adequate methods for measuring eco-
nomic growth itself, that is the increase in a nation's ca-
pacity to produce goods and services.
Statistics on the number of people gainfully employed,
the unemployed, and the sum of both representing the labor
force, come relatively close to measuring growth potential
because they deal with the employment or nonemployment
of the most essential resource labor.
The Bureau of the Census makes monthly estimates -
based on 35,000 household interviews during a sample
week of the civilians fourteen years of age or over that
are employed. The classification "total labor force" com-
bines all civilians employed or unemployed and members
of the Armed Forces stationed in the United States or
In the U.S. labor market several million people are at
any one time moving from one job to another. Most of these
job changes occur without any unemployment. However,
even when the economy is booming, there remains a certain
amount of unemployment.
The proportion of the population ten years old or over
(former definition) in the labor force amounted to rough-
ly 50 percent just prior to both World Wars (1916 and
1941). In the years 1957-59 the total labor force, including
the Armed Forces, ranged from 57 to 61 percent of the
population fourteen years old or over.
These data do not provide clues to changes in the real
labor capacity of the population. Number of hours worked
per person per year affects the productive potential of our
labor force. In a free economy reduction in the hours of
work per week and even in the number of workdays per


week is considered an achievement resulting from growth.
Shorter work hours and work weeks may be used for all
sorts of part-time employment or do-it-yourself activities
which yield real income. Another limitation to measuring
growth by employment is the omission from our statistics
of all work performed by housewives and their unpaid
It is obvious that the more a rising gain in productivity
reduces hours of gainful employment per worker per year,
the greater will be the reserve capacity of the economy -
a capacity which can be mobilized in an emergency or at
any time the people want to attain maximum production.
From the foregoing, it may be concluded that labor
force and employment statistics provide indicators as to
the population's desire to participate in the labor force,
and to the extent to which desired employment remains
unsatisfied. Those statistics are more useful for these two
purposes than for directly measuring growth.
The main measures of evidence of growth on which
economists rely concern changes in national product and
its components. The gross national product (GNP) or ex-
penditure account, calculated and published by the U.S.
Department of Commerce, comprises the total annual pro-
duction of marketable goods and services in terms of cur-
rent market prices. It embodies four categories: expendi-
tures for personal consumption; government purchases of
goods and services; gross private domestic investment in
buildings, equipment and business inventories; and finally,
net exports of goods and services or additions to assets
owned abroad. While these estimates are free from duplica-
tion and count only goods and services purchased by pri-
vate or public consumers or additions to the country's
capital stock, it is nevertheless, as its name indicates, a
gross and not a net estimate.
Gross national product includes additions to the capital


stock. It does not deduct the necessary depreciation of dur-
able capital goods due to ordinary wear and tear and due
to obsolescence, i.e., the capital consumption.
A net national product (NNP) is also calculated by
deducting from the GNP an estimated aggregate capital
For purposes of estimating the rate of economic growth
the GNP figures are adjusted for changes in the general
price level. In order to exclude the effect of the population
growth, these adjusted GNP figures can then also be ex-
pressed in per capital terms. Finally, in order to refine the
GNP and to measure changes in productivity, the "Real
GNP" can be expressed in terms per hour of employment
of wage and salary workers.
GNP accounts give a great deal of detailed information
about personal consumption expenditures (such as the pro-
portion of durable goods, nondurable goods, and services),
gross private domestic investment (such as the proportion
in new residential and other construction, durable equip-
ment for business and change in business inventories),
and government purchases of goods and services (such as
the federal share for national defense and other purposes,
and the shares of state and local government).
The part of GNP data relating most directly to growth is
the gross private investment in farm and nonfarm pro-
ducers' plant and equipment. In 1959, with a GNP of $479
billion, the total plant and equipment investment amounted
to $42 billion or 9 percent of the GNP (the nonfarm portion
being $36.9 billion, the farm portion, $4.7 billion). Addi-
tional support to growth is found in government expendi-
tures on research and development.
While GNP statistics are a very useful accounting tool
for indicating some aspects of the economy, they are not
designed to permit a direct measurement of growth, as that
term was defined earlier. It must also be recognized that


they are not well suited for making direct international
comparisons, primarily because they ignore all goods and
services which are not exchanged for payment in money.

For the past 80 years as far back as usable data are
available -the Real GNP in the United States has in-
creased at an average rate of about 3 percent per year
(Figures 2.1 and 2.2). This annual average rate amounts
to doubling production every 23 to 24 years, or quadrupling
it in less than 50 years. Table 2.1 summarizes several of
the series frequently referred to in estimating growth
in the U.S. economy.
Special reference should be called to the difference in
productivity per man-hour in farming and in nonfarm work
for the period 1947-58. The annual increase in farm pro-
duction per man-hour was 6.2 percent for the period. Yet,
in considering this remarkable rate of progress in produc-

1900 1910 1920 1930 1940 1950 1960 1970
Fig. 2.1 -Farm output in the United States.


600 Total GNP -
(Left scale)
500 "

400 4
Per capital GNP -*
(Right scale) -..-
300 .---- 3

200 I2 I I 1 I i l I I 2
1950 1955 1960 1965 1970
Fig. 2.2 Real gross national product of the United States with
projection to 1970.


Increases in total production (goods and services)
GN P 80 years .......................................... 3.0
Industrial production (Fed. Res. Bd. index)
1919-57 ............................ ................. 3.7
1948-57 ............................ ............... 4.4
Increase in U.S. labor force (since 1930) .. ....... ............... 1.3*
Increase in productivity per worker (since 1930) .................. 1.7t
Increase in productivity per man-hour worked
1909-59 ............. ............. ...... 2.4$
1948-59 ...................... ... 3.1$
Increase in productivity per farm worker
1947-58 ............. .... ............ ......... 6.2$

*See Figure 2.3. t See Figure 2.4. f See Figure 2.5.



19 10 . ...........
1959 ..............


Farm Number Farm U.S. total
population of farms workers employment

million )

(million) (million) (percent)
6.6 11.5 31
4.6 5.8 9

tivity, it must not be overlooked that the value of production
per man-hour in farming was in 1958 only $1.64 compared
with $3.38 for the value produced per man-hour in nonfarm
Changes in farm population, number of farms, and
farm employment provide further indicators of rates of
growth of the total economy (Table 2.2).
From 1930-59 the U.S. labor force increased by 40 per-
cent, while the farm labor force decreased by 40 percent.



80 -



50 -w 1.3% increase per year

. .. I . ., I . . 1 .. . I . . 1 . .

1935 1940

1945 1950 1955

Fig. 2.3 Total U.S. labor force.




1930 1935 1940 1945 1950 1955
Fig. 2.4 Real gross national product in the United States per person
engaged in production.

% OF 1947-49( LOG SCALE)
180 -
160 Agriculture
140 -

80 -

60"" -' Total private economy

1910 1920 1930 1940 1950

Fig. 2.5 Real product per man-hour in the U.S. private economy.


The percentage of disposable personal income (i.e., per-
sonal income minus personal income taxes) saved has
ranged in the years 1950-59 from 6.1 to 7.9 percent, after
having reached a high of 25.1 percent in the war years
with their reduced supply of consumer durable goods and
many services (1944), and a low of 4.5 percent in postwar
years of high consumption expenditures (1949).

While it is impossible to forecast or predict the future
developments of the United States or any other economy
with any degree of accuracy, it is nevertheless a useful pro-
cedure to compose some projections of what may happen
under certain assumptions. The projections in Table 2.3
are based on the assumption that there will be neither war
nor serious depressions.
If this projection should come true, the per capital share
in the gross national product would increase up to 1970 by
2.5 percent per year in terms of dollars of constant purchas-
ing power.
The Bureau of the Census has projected for the decade
1960-70 an increase of the population from 180 million
to 208 million, or a growth of 28.4 percent. This is a
slightly higher rate than in the preceding decade (Figure


Year Total GNP GNP

($ billion) (B per capital)
1950 ............... 352 2,300
1955 ............... 435 2,600
1960 ............... 505 2,800
1965 .. ............ 598 3,100
1970 ............... 732 3,500

Source: Department of Commerce, Office of Business Economics; Bureau of
Labor Statistics.





1 0 0 l t l l t l l l l l l l l l l l l l l l l
1930 1935 1940 1945 1950 1955 1960 1965 1970
Fig. 2.6 Population growth in the United States with projection
to 1970.

In the sixties, the increase of the number of persons
reaching the age of eighteen will be much larger than in
the fifties (Figure 2.7). It was about 2.2 million per year
from 1950-55, and reached 2.6 million only by 1960. The
annual numbers of these young people ready to enter the
labor force or college are expected to develop as follows (in

1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
2.9 2.8 2.8 2.8 3.8 3.6 3.6 3.6 3.7 3 8

As the projected figures indicate, it is anticipated that
by 1965 and thereafter the entry of young people into the
labor force will probably be one million higher than it was
prior to that year. The Bureau of the Census and the
Bureau of Labor Statistics project a growth of the labor
force by 1970 of 18 percent or of 13.5 million workers to
a total of 87.1 million compared with 73.6 in 1960.


2 1 I I I I I I I I I I I I I I I I I
1950 1955 1960 1965 1970
Fig. 2.7 -- Persons in the United States reaching eighteen years of age
with projection to 1970.

Total employment, which is expected to rise by 20 per-
cent, is likely to vary greatly by industries as follows: 30
percent or more increase in the construction, finance, in-
surance, and real estate business; 25-29 percent in trade,
government, and all other services; 15-24 percent in manu-
facturing; and only 5-14 percent in transportation, public
utilities, and mining. For farming, employment is expected
to decline from 5.9 million workers in 1960 to 4.9 million
by 1970 (Figure 2.8).
While all these figures are not forecasts of what will
happen, but projections of what may happen in the coming
decade, they imply the probability of a continued healthy
expansion of the national economy. If this should come
true, it would create a great need for further dynamic ad-
justments in farming and will offer opportunity for improv-
ing the income of the farmers.
Even with this favorable outlook, changes and adjust-


,60- ~^ESTIMATES I -
Nonfarm employment


6 Farm employment -

A l f_ II 1 II I 1 IIII 1111 il 111111 liII l
1930 1935 1940 1945 1950 1955 1960 1965 1970
Fig. 2.8 Farm and nonfarm employment in the United States with
projection to 1970.

ments accompanying dynamic growth of the nation will
bring considerable hardship for many individuals and
families. It is the duty of our humane society to alleviate
hardship by assisting people in making adjustments. But
it lies beyond the power of government to avoid the adjust-
ments which are involved in economic growth.

Bureau of the Census. Illustrative Projections of the Population of
the U.S. by Age and Sex, 1960-80. Current Population Reports.
Population Estimates, Series P-25 N 187, 1958.
Bureau of Labor Statistics. Population and Labor Force Projections
for the U.S., 1960-75. Bul. No. 1242, U.S. Dept. of Labor, 1959.
Trends in Output per Man-Hour in the Private Economy,
1909-58. Bul. No. 1249, U.S. Dept. of Labor, 1959.
in cooperation with Veterans Administration. Career Informa-
tion for Use in Guidance. Occupational Handbook, 1959 ed. Bul.
No. 1255, 1959.
Clark, Colin. The Conditions of Economic Progress. Macmillan, Lon-
don, 1951.


Clark, John M. The Wage-Price Problem. Committee for Economic
Growth Without Inflation. The American Bankers Assoc., 1960.
Committee for Economic Development. The Budget and Economic
Growth. New York, 1959.
-- Defense Against Inflation. New York, 1958.
---. Economic Growth in the United States, Its Past and Future.
New York, 1958.
Dewhurst, J. Frederic, et al. America's Needs and Resources: A New
Survey. The Twentieth Century Fund, New York, 1955.
Fabricant, Solomon. The Study of Economic Growth. Thirty-ninth
Annual Report, National Bureau of Econ. Research, New York,
Haberler, Gottfried. Inflation: Its Causes and Cures. American Enter-
prise Assoc., Washington, D.C., 1960.
Lewis, W. Arthur. The Theory of Economic Growth. Allen and Un-
win, London, 1955.
Moulton, H. G. Can Inflation Be Controlled? Anderson Kramer As-
sociates, Washington, D.C., 1958.
Riefler, Winfield W. Inflation Enemy of Growth. Paper presented
at the Stanford Business Conference, July 21, 1959.
Social Science Research Council, Committee on Economic Growth,
and Resources for the Future, Inc. Papers read at the Confer-
ence on Natural Resources and Economic Growth. Univ. of
Mich., April 7-9, 1960.
U.S. Dept. of Labor. Manpower Challenge of the 1960's. Washing-
ton, D.C., 1960.
Wallis, W. Allen. Economic Growth: What, Why, How? White House
press release, June 8, 1960.
Zimmerman, Erich W. World Resources and Industries. Harper and
Bros., New York, 1951.


The farm problem defined;
/ its causes; unique characteristics
of agriculture-needs and progress
/_ in adjustment.

Nature of the Farm Problem

Iowa State University

THE NATION'S COMMERCIAL FARMS are in the midst of a
problem of growth stemming from rapid technological and
economic advance. Economic and technological advance
might place premiums on products from and returns in
farming if the United States were a poor nation. However,
the nation is wealthy and per capital incomes are great.
Hence, further rapid progress in technological and eco-
nomic development multiplies farmers' problems within
farming and in comparison with other segments of our
economy. It also calls, through the market, for adjustment
in the land, labor, and capital used in farming.


Growth has been a main characteristic of the U.S.
economy in postwar years. Starting from a 1947-49 base
period and in money terms, gross national product in-
creased by 90 percent to 1959, partly due to price increases.
Total disposable income (amount people have to spend
after taxes) increased by 83 percent and income per capital
of the nonfarm population rose 40 percent in this period.
In the same time span, farm income has declined, both
absolutely and relatively. Total net income from farming
declined by 20 percent from 1947-49 to 1959. Income per
capital from farm sources increased by only 16 percent,
even though the farm population decreased by 30 percent.
We have attained a level of economic development and
per capital income where further economic progress does
not reward farm and nonfarm sectors equally.
The decline in net income of farming has not come


Income per person
Farm popu- in farming Income per
lation as Persons person of
Farm percent of employed From All nonfarm
Year population U.S. total on farms farming sources population

(million) (million)
1946 .... 26.5 18.7 10.3 $ 644 $ 806 $ 1,295
1947 .... 27.1 18.8 10.4 644 825 1,394
1948 .... 25.9 17.7 10.4 765 962 1,534
1949 .... 25.9 17.4 10.0 567 767 1,511
1950 .... 25.1 16.5 9.9 626 838 1,585
1951 .... 24.2 15.7 9.5 751 983 1,763
1952 .... 24.3 15.5 9.1 711 962 1,849
1953 .... 22.7 14.2 8.9 666 931 1,902
1954 .... 22.1 13.6 8.6 660 925 1,849
1955 .... 22.4 13.6 8.4 610 894 1,975
1956 .... 22.3 13.3 7.8 600 901 2,073
1957 .... 21.6 12.6 7.6 665 974 2,102
1958 .... 21.4 12.3 7.5 768 1066 2,066
1959 .... 21.2 12.0 7.3 690 1001 2,131

Source: USDA Agricultural Outlook Charts, 1960.


because farming has lagged in efficiency and production.
To the contrary, farmers have improved technology rapidly,
with productivity growing accordingly. Farm production in-
creased by about 50 percent over the 20 years 1940-59, and
even by 25 percent in the ten years 1950-59.
While income has increased per person remaining in
farming, this increase has been slower and smaller than
for workers and managers in other industries. In general,
the return to resources employed in farming has been much
lower than for resources of the same quality employed in
other industries.
Income from farming per person has scarcely increased
in the postwar period (Table 3.1). Total income from all
sources, per person in farming, has increased about 20
percent mainly due to farm families turning to more off-
farm work. However, the income per person of the non-
farm population grew much more rapidly, increasing by
about 65 percent since 1946.

Farm families find themselves faced with a dilemma.
Individually, it is initially profitable for them to adopt new
technologies and to increase capital expenditures and farm
production accordingly. But farming is highly competitive
and demand elasticity is extremely low. Therefore, income
is depressed as the majority of farmers improve their oper-
ations and aggregate production is increased.
It is not profitable for the individual farmer to retrench,
discarding recent technology and the capital investment it
represents. If he does so, he finds the diminution in his
own production too small to show up in the total supply,
or to have any effect in increasing market price. He would
end up producing less at a lower price and with a greatly
reduced income.
The competitive nature of farming is a strong force
leading to continued technological and economic progress.
But at the same time, this progress, which benefits consum-


ers in variety and favorable price of food, causes short-run
income burdens on farmers.
Under economic growth, with national income increas-
ing and farm production outpacing population growth,
farmers have been caught in a price-cost squeeze. A decline
in income for farm families has resulted except for those
who increased scale and decreased per unit costs more than
enough to offset the decline in price. This adjustment is
impossible for all farmers because of the limits on land
area in farming. Generally, some farmers can expand only
if others reduce their acreage or give up farming. The ex-
treme difficulty of increasing demand for major farm
products serves to restrain all farmers from simultaneously
increasing production, as a means of beating the price-cost

Farmers do, of course, make adjustments in their pro-
duction as prices change. For individual commodities they
are highly responsive to both increases and decreases in
prices. History of changes in production of such commodi-
ties as hogs and soybeans proves this to be true. As price
of an individual commodity such as pork increases relative
to the price of competing products, hog numbers are in-
creased readily, considering the time lag necessary for
formulating breeding plans after change in the price. With
a decrease in pork prices, relative to prices of feed and
competing commodities, hog numbers and marketing are
decreased readily, given time for farmers to change their
production plans. Acreage of soybeans or other crops
change similarly as prices of these products change rela-
tive to the prices of competing crops.
These types of changes have little effect on the total
quantities of resources used in farming and on total farm
production. As soybean acreage is increased or decreased
relative to corn, for example, total farm production remains
about the same.


Total production does not respond so readily to price
changes in both directions. Over time with improvements
in technology, favorable farm prices have encouraged rapid
increases in total farm production.
As farm prices have declined relative to farm costs and
to returns on labor and capital in other economic sectors,
farm production has not shown a similar tendency towards
rapid retraction. Even in the depths of recession, total
farm production has not declined as in other industries.
This short-run tendency of farm production to be
maintained under unfavorable prices, or even to increase
during these periods under the force of improved tech-
nology, evidently arises for several reasons.
An important portion of the costs in farming are fixed
and continue in the same magnitude regardless of the
amount produced. The individual farmer's opportunity to
change plans and limit income reduction comes largely
from his ability to adopt new technology or use more land,
labor, and capital, and expand production by a greater
proportion than the increase in his direct costs. Evidently
enough farmers do make these adjustments so that re-
duction in production by some farmers who must curtail
or cease production during periods of unfavorable prices,
is completely offset.
A more important variable relating to maintenance of
farm production is the fixity of some costs or resources in
the industry. Some of these are fixed in quantity for rela-
tively long periods of time. At one extreme is land which
is fixed absolutely and with few alternatives to farm uses,
except for the small portion devoted to industrial, residen-
tial, transportation, and recreational uses.
Even the quantity of buildings and machinery is highly
fixed for an important number of years, once investment
has been made in them. As long as they will pay any re-
turns above their salvage value in other uses, they continue
to be employed in farming. Land is an extreme example
of this limited flexibility in use of farm resources. Its reser-


vation price, the level of return necessary to keep it in pro-
duction, is extremely low since the major part of it has no
alternative use except for farming. Hence, regardless of
the level to which crop prices decline, farm and ranch land
continues to be held in production as long as the return
from it covers the cash costs of the crops and livestock pro-
duced on it.
The value of an important quantity of land, buildings,
and machinery used in farming tends to decline, with ap-
propriate time lag, as readily as the prices of the com-
modities which they produce. Aside from government sup-
port prices, a decline in livestock prices is accompanied
with a decline in feed prices, so that production of livestock
continues even under general recession of prices and in-
come. Similarly, given a decline in crop prices, land is
continued in production on rented farms since the share
value of rental declines with crop prices. On owner oper-
ated farms, land is not withdrawn from production as
long as prices at a lower level cover out-of-pocket costs.
Even when one farmer relinquishes his farm and moves
from farming, a neighboring operator usually stands ready
to take it over and keep it in production.
The combination of competitive structure, fixed costs,
and flexible costs of items originating on the farm tend to
maintain over-all farm production during prolonged periods
of unfavorable prices and incomes. In other major indus-
tries made up of a few large firms a reduction in demand
is more quickly accompanied by curtailed production and
release of labor and raw materials and the variable costs
which they represent.
The rate at which total farm production might be cur-
tailed, under an extremely long period of unfavorable farm
prices and income, is not known. Obviously though, if un-
favorable prices and low incomes prevailed for a sufficiently
long time, more land would be withdrawn from intensive
agricultural uses such as field crops and diverted to
forestry, grasses, and similar uses. Along with these shifts


in use of land would come shifts in employment of labor
and capital. These land use shifts would tend to become
concentrated in particular geographic locations or com-
munities rather than spread evenly through all farming

Farming in a wealthy, growing economy will generally
face a cost-price squeeze, and a less favorable income situ-
ation than other major economic sectors. The reason lies
in the so-called magnitudes of income elasticities of de-
mand. Income elasticity indicates for a particular com-
modity, or particular groups of commodities, how much
more food consumers will buy as their incomes increase -
expressed as percentage. If expenditure increases by 1
percent with each 1 percent increase in consumer income,
the income elasticity is 1.0, indicating that expenditure on
the commodity, or the demand, increases in the same pro-
portion as income. If, however, the increase in expendi-
tures is only .5 percent, the income elasticity is only .5,
indicating that growth in demand for the commodity ap-
proximates only half the rate of growth in income.
Industries which produce commodities with high in-
come elasticities are in the most advantageous position to
use more resources and increase production as national
and per capital income grow.
Those industries of low income elasticities are much
less favored, largely because they represent commodities
for which the consumer is well supplied and has little
capacity for further expansion. Evidently, the income elas-
ticity for that part of food produced on U.S. farms is only
.15 percent, meaning that, on the average, a 1 percent in-
crease in per capital income causes only a .15 percent in-
crease in expenditure on food.
As incomes of consumers increase, food no longer be-
comes their major concern. They want relatively more
home appliances, better housing, medicine and health serv-


ices, recreation, travel, and education. As the U.S. con-
sumer's income increases, he does not buy any more pounds
of food, but simply changes the composition from fats,
starchy foods, and such staples to more fresh vegetables,
better cuts of meat, fruits, etc. Food consumed per person,
measured in pounds, has not increased in the last 40 years.
Even this .15 percent increase in expenditures for food
represents largely demand for improved quality and more
processing and retailing services.
In contrast, consumer expenditures increase rapidly
on many nonfood products as income grows even more
than 1 percent.
This situation will continue, aside from temporary set-
backs, as national and per family incomes continue to in-
crease. "Good living" no longer is characterized simply by
getting enough food, clothing, and shelter for subsistence.
Use of the nation's resources will shift accordingly under
further economic growth, with a declining proportion of
national income from farming and a smaller proportion of
labor and other resources used in it. Consumers express
their wishes through prices paid in the market.
The consumer's willingness to pay higher prices for
nonfarm goods and services keeps up the cost of steel,
labor, petroleum, and other materials which produce the
"more luxury" goods. Consequently, the cost of tractors,
lumber, fuel, fertilizer, and other cost items of the farm is
kept up, because of the nature of consumer demand and
the organization of industries which produce and fabri-
cate these materials.
This, then, is the major cause of the farm price squeeze
in a period in which national income is growing and farm
production has moved ahead of the rate of population
growth. This cost-price squeeze plus signals from the con-
sumer that he believes too many productive resources are
employed in farming had already started in the 1920's. It is
not a phenomenon of postwar years; it is not a "hangover"
from war. It was, of course, obscured by the abnormal de-


mand conditions of depression of the thirties and the war
conditions of the forties. Now it is back with us as a mark
of a wealthy society in which hunger is the concern of few.
The tendency for farm production expenses to press
upward, due to inflation and demand for labor and capital
by other industries, and the rigidity of prices for farm sup-
plies, while farm commodity prices decline, is illustrated
in Figure 3.1. Production expenses have taken an increas-
ing proportion of gross farm income since the end of the
war. Even between 1950 and 1959, production expenses
of farming increased on the average from 60 percent of
gross farm income to 70 percent.
The increasing proportion of expense to gross farm
income arises from adoption of new technology, increased
use of capital in farming, and from the shift in consumer
demand toward more fresh fruits and vegetables and higher
quality meats, and away from such staples as potatoes,
cereals, fats, and oils.

Surpluses and low returns in farming arose because
the productivity of resources used by farmers increased and
the amount of these resources used remained large relative
to demand. Even under economic growth and income elas-
ticities of zero, the farmers' position would be relatively

Fig. 3.1 -Trend in prices paid and prices received by U.S. farmers,


Received-o'* % I..

1950 1955 1960






1950 1952 1954 1956 1958 1960
Fig. 3.2 Indices of growth in farm output and population in the
United States, 1950-59.

favorable, if increase in production only paralleled popula-
tion growth. Or, if increase in production exceeds that of
population, markets outside the country would be needed to
enable returns on resources used in farming (especially
labor and capital) to compare favorably with those used in
other industries. Rate of increase in farm production has
consistently exceeded the rate of population growth in the
last decade (see Figure 3.2). The average rate of increase
in farm production was 2.4 percent over the 10-year period
1950-59. The average rate of increase in population was
only 1.7 percent in the same period.
This difference in growth rate is small. However, be-
cause of the so-called low price elasticity of demand for
major farm products, the difference in growth rates causes
severe depression of farm prices and income. Price elas-
ticity of demand is different from income elasticity of de-
mand in this respect: price elasticity is an indication of
change in quantity purchased by consumers as the price


of the commodity itself changes expressed in percent-
ages. For example, if a 1 percent increase in quantity pur-
chased is accompanied by a 1 percent decline in price, the
price elasticity is -1.0. An increase in amount marketed
then will leave income from the product approximately un-
changed. If, however, the decline in price is greater than
the increase in amount purchased, the price elasticity is
less than -1.0 and a larger supply will return less total
value than a smaller supply.
In contrast, a price elasticity greater than -1.0, (in-
crease in supply accompanied by a smaller percentage de-
crease in price) allows a greater supply to bring more
revenue in the market than a smaller supply. The differ-
ence is illustrated in Table 3.2 where we assume an original
output of 100, a price of $1.00 and a total value of $100
In the new situation A, price elasticity is high greater
than -1.0. Consequently as supply is increased by 10 per-
cent from the original situation, price declines by only 5
percent. Even with the decline in price, total value in-
creases. Total value is increased, with more supply, be-
cause price declines by a smaller percentage than the in-
crease in supply. (The demand elasticity is greater than
-1.0.) In new situation B, however, price elasticity is
low (less than -1.0) and a 10 percent increase in supply
causes a 20 percent decrease in price. Since price declines


Unit Total
Supply price value
(million) (million)
Original situation ............... 100 $1.00 $100
New situation
A (price elasticity 2.0) ..... 110 .95 104.5
B (price elasticity 0.5) ..... 110 .80 88


by a greater percent than the increase in supply, total value
also decreases. The decline in price more than offsets the
increase in supply.
Unfortunately, from a farm income standpoint, the
situation in farming is that of B. Demand is inelastic, from
a price-quantity standpoint. A modest increase in produc-
tion can cause a marked decline in price and income.
As illustrated in Figure 3.2, the rate of increase in farm
production has been only slightly greater than the rate of
increase in population or number of domestic consumers.
Yet, because demand for farm products is so inelastic, this
small excess places a heavy burden on prices and farm
incomes. Past demand studies have shown that for each
1.0 percent increase in output, hog prices decline by about
2.5 percent; cattle and calves, veal, and poultry by about
1.7 percent; eggs by about 5 percent; dairy products by 5
percent; and feed grains by about 2.5 percent. Wheat has
about the same elasticity as feed grains if it is used for
this purpose. The price decline for a 1 percent increase in
production is much greater for wheat used as food. These
figures apply to the situation in which quantity of the
individual product increases. The price of an individual
commodity also decreases when the quantity of a competing
or substitute commodity increases.1

The competitive nature of farming and low price elas-
ticity of demand for farm products promote economic pro-
gress from the standpoint of total society. They cause pres-
sure on the individual to improve technology and increase
productivity. Consequently, since the magnitude of demand
for food is tied quite rigidly to the size of population or
number of consumers, the strong trend is for each unit
to be produced at lower cost. Resources used in farming

1Stated in terms of elasticity of demand, percentages in this paragraph
would be: Hogs, 0.4; cattle, calves, veal, and poultry, 0.6; eggs, 0.2; dairy
products, 0.2; and feed grains, 0.4.


are thus "saved," so that they can be diverted to other eco-
nomic sectors where consumers desire other goods and serv-
ices as their incomes increase. The extent of these savings
over the past two decades is indicated in Table 3.3. Not
only has the U.S. consumer had a wide variety and quantity
of food for selection, but each unit of food has been pro-
duced at lower cost. With growing population, total food
requirements or demand have increased, but it has been
possible to produce this greater amount with about the
same total quantity of resources as previously. Without
this improved efficiency, total resources used in farming
would have needed to increase by upwards of 45 percent
between 1940 and 1959 to allow for growth in population
and improved nutritional standards.


Total farm Total farm Resources per
Year production resources used unit of production

1940 .......... .. 100 100 100
1941 ....... 104 100 96
1942 .... . 117 104 90
1943 . ...... 115 104 90
1944 .......... 118 104 89
1945 ............ 116 102 89
1946 ............ 120 102 85
1947 ............ 116 102 89
1948 ............ 127 103 81
1949 ............ 123 104 81
1950 ............ 123 104 84
1951 ............ 130 107 82
1952 ..... .... 132 107 81
1953 ......... .. 133 106 80
1954 ......... . 133 106 80
1955 .. ......... 138 105 76
1956 ............ 140 105 75
1957 ........ ... 140 105 75
1958 ............ 152 103 68
1959 ......... .. 152 103 68

Source: USDA


As individual farmers use more capital resources and
push production upward against the inelastic demand for
food and fiber, income per farmer can be maintained only
as there are fewer farms and farmers. Declining number of
farmers has been the main source of resource savings in
farming over the past 20 years. Farmers who remained in
the industry have, on the average, expanded their use of
capital other than land by over 100 percent since 1940.
These capital expenditures took place in adopting new tech-
nology and extending existing technology.
By individual categories, the increase in capital expendi-
tures were 135 percent for machinery, 142 percent for fer-
tilizer and lime, 125 percent for feed and livestock, and
37 percent for miscellaneous items. But at the same time,
the number of farms declined by 30 percent and total farm
labor declined by 47 percent. The substitution of capital for
labor left total value of resources used in farming about the
same while total production increased by 52 percent.
The drive by individual farmers to use new capital and
technology on the existing farming area is particularly en-
couraged in a competitive farm industry with an inelastic
demand for its products. It is an unending process because
the gains to the individual farmer from expending produc-
tion are partly or entirely dissipated as the majority of
farmers follow this procedure and farm prices and income
are depressed in the manner explained above. Hence, the
process becomes continuous as the individual farmer tries
to increase his income by increasing production and lower-
ing unit costs.
But because of low demand elasticities, and especially
in a growing economy where alternative employment of
labor and capital is available at favorable rates, farm fami-
lies with limited capital and managerial ability particularly
find that they can increase their income by transfer to non-
farm industries. As they do so and income and farm re-
sources are recombined into fewer remaining farms, eco-
nomic gains to society are realized. In general, use of labor


in farming can be decreased as capital is substituted for it.
With some surplus labor and machinery in major produc-
ing regions, farm consolidation can take place with a saving
of total costs in farming relative to total production. When
two farms of 160 acres are consolidated, for example, the
new farm unit seldom needs to duplicate the machinery
of the two previous units.

Conservatively figured, considering some change in the
composition of farm production, only about 50 percent of
the 1940 farm labor force was needed to obtain the 1959
production. Labor was freed to produce other goods and
services desired by consumers in a wealthy and growing
economy. Declines of important magnitude took place in
the farm labor force and farm population between 1940
and 1959. Even though farm population declined by 30
percent and farm employment by 45 per cent, this change
was not large enough to bring labor returns in farming to
a level comparable with other industries. The farm labor
force would have had to decline by another third of the
1959 level if net income per worker in farming were to
equal the average wage return of workers in manufacturing
industries [even with additions to farm income of (a) 20
percent for cost of living differentials and (b) 6.7 billion
dollars of income from nonfarm sources]. Even then, this
level of return to a third smaller farm labor force would
have allowed no interest return on the capital used in farm-
Returns to labor in farming consistently lagged behind
wage rates in manufacturing and service sectors of the
economy. This condition prevailed because of the historic
excess of births in the farm population over farming oppor-
tunities. The large labor supply born within the farming
industry, much larger than replacement rates for farm
operators, helped cause overproduction and lowered prices
of commodities and, on the average, to keep returns to labor


low. Of course, not all farm workers had the education,
skill, and experience to make them comparable with wage
workers in manufacturing and service industries. This is
a condition which can be remedied by society through im-
proved educational, counseling, and employment services.

Farmers adopted production-increasing technology not
simply because of its discovery, but because it was profit-
able to do so. Few farmers adopt new techniques for the
sake of being innovators per se. Largely they do so because
they can thus increase profits. They can increase profits
only if new materials and machines are priced favorably
relative to the price of products they produce. This has
been the condition over recent decades. While all prices
increased due to inflation, prices of important production
supplies did not increase as rapidly as farm commodities
in early postwar years. Accordingly, the actual cost of these
farm supplies decreased; their prices were lower relative to
commodity prices than they were in postwar years. As Table
3.4 indicates, the prices of fertilizer, machinery, and all
cost items were lower in the 1950's relative to prices re-
ceived by farmers than in the prewar period 1935-39 when
surpluses also existed, or even during the war.
Farm commodity prices declined generally, relative to


Index of: 1935-39 19-0-44 1945-49 1950-54 1955-59
Prices received by farmers ... 100 144 231 252 221
Price of fertilizer ........... 100 100 132 150 151
Price of machinery ......... 100 102 130 173 191
Price of labor .............. 100 178 333 395 455
Price of land (alone) ....... 100 112 188 254 325
Prices paid, all costs ........ 100 122 184 220 229

Source: USDA


the prices of farm production items and compared to the
prewar period in the past five years. The decline in farm
prices was eased by government support prices and, with
improved technology, an economic climate favorable to
increased production has been maintained. Farm supplies
purchased from nonfarm sectors have not declined even
with recent depression of commodity prices. However, with--
out support prices at levels of recent years, price ratios
would have been less favorable to purchase of those items
from nonfarm sources and to increased production.
These favorable price ratios not only favor greater use
of these production items, but also favor their substitution
for land and labor. By 1955-59 the price of machinery had
risen by only 91 percent while wages of hired farm labor,
a main resource for which machinery substitutes, had in-
creased by 355 percent. Similarly, the price of fertilizer, a
resource which serves as a substitute for land, increased by
only 51 percent while land price increased by 225 percent.
Unlike labor, land was not withdrawn from production over
the last two decades. Cropland remained almost constant.
Price supports and government programs employed over
the period retarded adjustments in land used for farming.
Recent technologies also include those which require
a larger farming unit and a greater production per farm, if
they are to be used profitably. Cost advantages for farms
with larger acreages or animal numbers arise mainly from
mechanical innovations relating to power, machinery,
equipment, and buildings. Power units, field machines, har-
vesters of greater capacity, and larger crop handling equip-
ment particularly increased the size or acreage range over
which it is possible to get declining per unit costs in cotton,
corn, wheat, and other field crops. Increased capacity and
productivity of these machines has greatly increased the
number of acres, animals, and birds which can be handled
by one man or the farm family. Since the fixed costs of
these high capacity machines are greater than those of ma-
chines in prewar days, the per unit costs decline more


sharply with larger production. For the same reason, the
economic disadvantage pinches more sharply farms of
small acreage.

Technological improvement, in farming and nonfarm
sectors, is the important source of economic progress and
rising per capital incomes. Without improvements in tech-
nology, limits to the size of national income would soon be
encountered: or while national income might increase grad-
ually with population and size of the labor force, per capital
income would decline as population grew.
Fortunately in the United States, particularly as a result
of technological advance and improved skill of people, na-
tional income has grown more rapidly than population, with
a consequent rise in income per capital. Labor productivity
has increased throughout the economy, as well as in farm-
ing. The nonfarm worker can obtain his family's food re-
quirements with fewer hours of work than at any previous
time in history. But also, because of technological progress
in farming and other industries, farm people also can ac-
quire nonfarm goods and services with a smaller outlay
of labor than in previous decades.
This general type of progress, with more goods and serv-
ices available with less human effort, is valued highly by
U.S. and other societies. It is desired no less in farming
than in other industries. Farming has contributed impor-
tantly to this process, as labor has been freed for use in
other industries and capital requirements per unit of food
production have been kept relatively low.
The relative contribution of the farm labor force has
increased greatly in the last century (Table 3.5). Even in
the last decade, the number of persons supported by one
farm worker has increased from 15.5 to 26. Without
advance in farm productivity since 1910, nearly 20 million



Number Percent Labor force
persons increase Persons ac- Persons needed "saved" by
supported over pre- tually em- to produce food farm advance,
by one farm vious 10 played in at 1910 productivity compared with
Year worker years farming rates in farming 1910

(million) (million) (million workers)
1850... 4.2 3 5.7 ...............
1860... 4 .5 7 7 .3 ...............
1870 ... 5 .1 13 8 .0 ..............
1880... 5 .6 8 10 .1 ...............
1890 ... 5 .8 7 11.7 ...............
1900... 7.0 20 12.8 ...............
1910... 7.1 1 13.6 13.6 0.0
1920... 8.3 6 12.5 14.9 2.4
1930... 9.8 18 11.0 15.4 4.4
1940... 10.7 9 11.0 16.5 5.5
1950... 15.5 46 9.9 21.8 11.9
1960*.. 26.0 58 7.1 26.3 19.1

Source: Based on data in USDA Agricultural Outlook Charts for 1959
and 1960.

more workers would have been needed in farming to meet
domestic food needs and exports at 1959 levels.
The portion of gain in economic progress to society con-
tributed by the farm industry has not been made without
sacrifice on the part of the farmer. True, other industries
contribute to economic progress and they adjust labor and
other resources accordingly. Down through history, changes
in technology and demand have revolutionized the structure
of some industries and diminished the relative magnitude
of others. Capital has been substituted for labor, or workers
have shifted from industries with low income elasticities of
demand to those where the elasticities are higher. Table
3.6 indicates the general types of long-run adaptations
which have taken place.


1890 1920 1950 Change Change
1890 to 1920 to
Industry No. Percent No. Percent No. Percent 1920 1950

(000) (000) (000) (percent) (percent)
Farming ................ .. 9,990 42 11,120 27 7,015 12 + 11 37
Forestry & fishing ....... .... 180 1 280 1 127 0* + 56 55
Total primary ........... 10,170 43 11,400 28 7,142 12 + 12 37

M ining......... ......... 480 2 1,230 3 1,035 2 +156 16
Manufacturing .............. 4,750 20 10,880 27 15,930 27 +129 + 46
Construction ................. 1,440 6 2,170 7 3,940 7 + 51 + 82
Transportation & utilities...... 1,530 7 4,190 10 4,750 8 +174 + 13
Total secondary ............ 8,200 35 18,470 45 25,758 44 +125 + 40

Trade & finance ............. 1,990 8 4,860 12 12,650 22 4-144 +160
Personal services. ............. 640 3 1,630 4 3,600 6 +155 +121
Other services. ............... 2,570 11 4,810 11 9,310 16 + 87 + 94
Total tertiary ............. 5,200 22 11,300 27 25,560 44 +117 +126

All industries ................ 23,570 100 41,170 100 58,460 100 + 75 + 42

Less than 1 percent.
t Exclude unallocated workers.
Source: Fabricant, Solomon, "The Changing Industrial Distribution of Gainful Workers." Cozference on Income and Wealth. Vol.
XI. National Bureau of Economic Research, Inc., New York, 1949; and Stigler, George, "Trends in Employment in the Service In-
dustries," National Bureau of Economic Research, Inc., New York, 1956. Comparable data for primary, secondary, and tertiary classi-
fication estimated from data in the U.S. Census of Population, 1950. Vol. II, Part I.


The farm industry has faced all of these types of adjust-
ments. New technology in the form of mechanical and
biological innovations substitutes for both farm labor and
land. With low price and income elasticities of demand in
farming, the farm industry cannot expand as rapidly as
others where income elasticities are higher. Because of
these low demand elasticities, a rate of growth in produc-
tion which exceeds population growth severely depresses
farm income. The demand for farm labor shrinks accord-
ingly and migration must take place if (1) persons with
limited opportunities in farming, because of lack of capital
and managerial ability, are to take advantage of alternatives
elsewhere in the economy where they can earn higher in-
comes and (2) those who remain in farming are able to
operate with enough capital and land and on a scale which
will provide their families with satisfactory incomes.
This adjustment problem is more difficult for farm
people than for many industrial workers. There are several
reasons why this is true, but two are particularly important.
Especially important is the tie that holds the farm family to
a particular piece of land and the country-wide dispersion
of farming. It is not as easy for a western Kansas wheat
farmer, for example, to shift to employment in the electron-
ics industry at San Francisco as it is for a worker to shift
between manufacturing or service industries within the
city of Detroit. In the latter case, skills required in the two
positions may be highly similar and the worker need not
shift the location of his home. In addition to other com-
plexities, transportation costs and lack of communication
services hamper transfer of the Kansas wheat farmer.
Also important has been the educational training and
vocational guidance facilities available in rural communi-
ties. Education and training directed at farm youth has
focused on farming, even in regions where number of
births greatly exceeds farming opportunities and out-migra-
tion has been necessary.


The economic problems of farming and the national
economy over the past decade promise to continue in the
1960's. With further growth in national income, demand
for farm products will not grow as fast as for goods and
services produced in other sectors. Technological improve-
ment will continue, with the effect of replacing labor in
industries such as farming. Surplus-farm capacity and the
tendency towards, or potential of farm surpluses, will con-
tinue over the next decade, unless unforeseen "break-
through" comes in demand in such areas as foreign markets
and new industrial uses, or unless we have effective con-
trols on production.
The pressure for adjustment of the production and re-
combination of resources used in farming will continue.
Two major sets of variables or forces are at work and will
continue to call for adjustments in farming. On the one
hand there are those facets of economic growth which place
a "suction" on the farm industry from the outside. They
cause the demand for products to grow differently, as the
consumer uses his growing income to buy more of some
goods and services and less of others. These forces tend to
reward labor and capital more handsomely in industries
other than farming, and cause these resources to be shifted
On the other hand, technical advance making it possible
to expand production will allow capital to replace labor in
farming. In large part, the basic adjustments in farming
must come from the production or supply side. This adjust-
ment is possible only if the magnitude of resources used in
production is changed.
Levels of farm income and returns on resources used
in farming in future years will depend on the rate and
extent to which resource combinations and total farm pro-
duction are modified to correspond with consumer demand
and national economic growth. Emphasis will continue to


be on farm labor, although some major adjustments in land
use also are in sight.
Farming has contributed importantly to economic prog-
ress by meeting per capital food needs with fewer re-
sources. Farm labor has been freed for use elsewhere in
the economy. But much of the labor thus freed has been
left stranded in faming with two consequences. First, the
income of many farm families has been depressed, result-
ing in a level of living which is inconsistent with the degree
and possibility of wealth and economic growth in the U.S.
economy. Second, the consuming society has not gained
all of the contribution possible from increased productivity
in farming.
The adjustments in prospect for farming, both as a
result of technical change within the farm industry and
economic growth in the general economy, are not of rev-
olutionary nature. The number of farms and the size of
the farm population, aside from temporary recession
periods, declined continuously over the past several decades.
These trends took place with growth in the national econ-
omy during both prosperous and depressed periods for
farming, although the rate of change was more rapid dur-
ing years when income of farmers declined. For example,
in the 1947-52 period of prosperity in farming, the number
of farm workers declined by 1.2 million persons or 12 per-
cent. During the period 1953-59, one of continued sur-
pluses and depressed prices, the number of farm workers
declined by 1.5 million or 17 percent.
In both periods, higher wages outside of farming
"pulled" workers from farming, but in the latter period, low
farm incomes also "pushed" labor from the farm industry.
Price support programs and other government farm
programs have not prohibited the basic process of labor ad-
justment to economic growth. While prices of farm com-
modities drew forth a greater farm production than con-


sumers demanded, rising returns to capital and higher wage
rates in other industries caused labor to transfer from farm-
ing. Government farm programs have likely been less im-
portant than positive programs in education, vocational
guidance, and employment services to facilitate the move-
ment of farm workers into better jobs.
It makes little sense for society to make large capital
investment in promoting farm technology, which has the
main effect of displacing farm labor, without investing
equally in guiding this farm labor to production of nonfarm
goods and services desired by consumers.

While the change in resource combinations of the total
farm industry has been great, even greater changes have
taken place in the resource combinations on individual
farms. The resources used in farming (Table 3.7) empha-
size these differences. Resources used in the total farm in-
dustry increased by only 10 percent over the 20-year period
1930-39 through 1950-58. While the increase in fertilizer,
machinery, and livestock was large, the decline in labor
used and the stable amount of land used tempered the total
increase. Because of the decrease in number of farms,
total resources per farm increased by 60 percent in this
period. Real estate per farm increased by 63 percent by
1958, while the increase for all farms was only 12 percent.2
As an average, per farm use of production items such as
fertilizer, machinery, feed, and livestock services increased
twice as much as on all farms. Between the periods 1930-
39 and 1950-58, per farm use of purchased production
items increased by 138 percent. The comparable figure for
the total farm industry was only 60 percent. The index of
nonpurchased production items, mainly labor, declined by
31 percent for the farm industry but by only 5 percent for
the average farm.
2 These figures are magnified somewhat by the fact that farms which have
"disappeared" or declined in number have been especially those with few re-


Total U.S. (millions) Average per farm

Item 1930-39 1940-49 1950-58 1959 1930 39 1940-49 1950-58 1959

Cropland (acre)........... 477 470 472 470 71.2 78.2 92.6 102.2
All land in farms (acre)..... 919 1,005 1,042 1,045 137.2 167.5 204.3 227.2
W workers (number) ......... 12.3 10.4 8.5 7.4 1.8 1.7 1.7 1.6
Man-hours used (hr.)*..... 21.7 18.9 13.0 11.1 3,239 3,150 2,549 2,413
Total inputs ............ 100 109 111 1101 100 122 146 160t
Farm real estate ..... .... 100 103 112 112t 100 115 147 163t
Machinery & equipment ... 100 156 266 274t 100 174 376 399t
Fertilizer & lime ......... 100 248 474 535t 100 278 624 780 t
Feed, seed & livestock
services ........... ... 100 205 313 3811 100 229 412 555
Purchased items ..... ... . 100 133 160 167t 100 149 238 2431
Non-purchased items T ...... 100 86 71 65 100 96 94 95t

Billions for U.S.
f Index.
Source: Economic Report of the President. Washington, 1960. pp. 104-5.


The trends pointed out above for the past two decades
will continue for the next, and perhaps at an increased
rate, if relatively full employment and ample employment
opportunities are maintained in the national economy.
Continuance of these conditions and increased communi-
cation between farm and urban communities will speed
up the tempo at which changes in occupation and location
will take place. This provides the opportunity for the re-
maining farms to expand in land and total capital assets.
Forthcoming technology for farming will certainly encour-
age this. But even in the absence of new technology, the
full adjustment potential growing out of currently known
technology and existing prices of production items will
bring about further changes in the direction emphasized
by Table 3.7.

The farming industry is not, of course, homogeneous.
It has two major income problems: (1) that of commercial
farming wherein production outpaced demand and there-
fore incomes have been low accordingly and (2) that of
chronically low income farms, with farm families owning
so few production resources that meager incomes would
be forthcoming under any level of prices. The latter farms
are concentrated in the South, although all regions have
a few of them.
Change is taking place in the proportion of farms at
different income levels. As Table 3.8 indicates, the number
of commercial farms with sales of less than $5,000 has de-
clined continuously over the past 30 years, while farms
with sales greater than this amount have increased in
A farm with gross sales amounting to less than $5,000
cannot provide a return to farm labor comparable with
other industries where the wage to skilled labor approxi-
mates this amount. Nearly a million farms still fall in this


Economic class

Commercial farms:
C lass I ............
Class II .... . ..
C lass III..........
Class IV ....... ..
Class V *..........
Class VI .........

TOTAL. ........

Noncommercial farms:
Part-time and
residential ......
Subsistence *.......

TOTAI ........

Value of sales
(1954 prices)


25,000 and over
5,000- 9,999
2,500- 4,999
1,200 2,499
250- 1,199

Under 2,500
Under 250













Number of farms

1944 1949

(1,033) (1,003)

91 103
347 381
723 712
976 882
867 661
937 717

3,941 3,455

1,345 1,670
393 247

1.738 1,917

With operator not working off the farm as much as 100 days and farm sales greater than income of family members from off-
farm sources.
t With operator working off the farm 100 or more days, or other income of family members exceeding sales from the farm.
t Combined figure for part-time, residential, and subsistence farms.
Source: "Family Farms in a Changing Economy." USDA Agr. Info. Bul. No. 171, 1957.

Percent of
U.S. farm
sales in










Families on these farms have too few production re-
sources to gain incomes in farming consistent with incomes
which now characterize the U.S. economy and the growth
associated with it. This was true even at the higher level
of prices earlier in the decade.
Families on these farm units face the need for either
shifting to other occupations where labor returns are higher
or expanding their operations so that the amount of capital
employed allows increased returns to their labor. Children
on these farms will have to make much of this adjustment.
An important proportion of farmers are at advanced age
levels and lack the training for migration to other in-
dustries. Their values and customs frequently tie them to
communities where industrial employment opportunities
are limited. Age also prevents many from borrowing more
capital and extending scale of operations to levels ap-
parently necessary for favorable incomes in the decades
Opportunity does exist, however, for those in favorable
locations to engage in part-time farming and supplement
incomes accordingly. Part-time farming serves also as a
means of adding income for beginners. Income to farm
people from nonfarm sources increased from a fifth of
total income in 1945 to a third in 1959. This opportunity
is greatest in states with dense populations and greater
concentration of other industry. It is generally lacking,
however, in areas where adjustment needs are large, such
as much of the area in the western half of the nation.

As illustrated in Table 3.8, most of the change in farm
numbers has taken place in farms with gross sales per an-
num of less than $2,500. The number of farms with sales
smaller than this amount declined from 2.4 million in 1939
to one million in 1954. The number of farms with sales
greater than $2,500 has remained nearly constant. The

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