Some Considerations in Appraising the Long-Run … · Many of the important factors ... and these may distort the perspective ... of the more pessimistic long-run appraisals made

This PDF is a selection from an out-of-print volume from the National Bureauof Economic Research

Volume Title: Long-Range Economic Projection

Volume Author/Editor: Conference on Research in Income and Wealth

Volume Publisher: NBER

Volume ISBN: 0-691-04141-5

Volume URL: http://www.nber.org/books/unkn54-1

Publication Date: 1954

Chapter Title: Some Considerations in Appraising the Long-Run Prospectsfor Agriculture

Chapter Author: Rex F. Daly

Chapter URL: http://www.nber.org/chapters/c2933

Chapter pages in book: (p. 131 - 190)

SOME CONSIDERATIONS IN APPRAISING THELONG-RUN PROSPECTS FOR AGRICULTURE

REX F. DALYAGR[CLJLTLJRAL MARKETING SERVICE

DEPARTMENT OF AGRICULTURE

A. INTRODUCTION

ALMOST every action taken by an individual, a firm, or a govern-ment making a commitment extending over several years—whether it be the purchase of a home or a car, the building of afactory, or the development of a huge irrigation project—involvesan explicit or implicit appraisal of the future in relation to theaction taken. Much legislation relating to long-run commitmentsmade by the government provides that rather specific cost-benefit computations and repayment schedules be developed forappraising a project or for ranking one project relative to othersproposed. Many departments and agencies of the government—the Interior Department, the Army Engineers, the Soil Conserva-tion Service, the Forest Service, and lending agencies of varioustypes—must base their proposed programs on an appraisal ofthe future. These programs include development of rivers andharbors, flood control, construction of power dams, improvementof waterways, conservation of resources, reforestation, construc-tion of public buildings, river valley development, and others.Appraisals for these purposes often require projections in much

Note: This is not an official report of the Bureau of Agricultural Economics.The views are the author's own, However, the Bureau has a continuinginterest in the long-run prospects for agriculture and is called upon fromtime to time to make such projections as a basis for appraising proposedprojects relating to river valley development, flood control, reforestation, andlong-term financing. One of the most controversial issues relating to suchprojections is that of the generaL price level. Many of the important factorsinfluencing the long-run level of prices are beyond the scope of economics.Thts paper appraises the prospective level of prices under specific assump-tioris which may or may not materialize. The analysis and projections relat-ing to prices do not represent an official position of the Bureau, nor has thereport, as a whole, been reviewed by the Bureau for publication. Althoughthe author is completely responsible for the content of the paper, he wishesto acknowledge the advice and comments of K. A. Fox, N. M. Koffsky,0. C. Stine, H. 0. Been, and many others of the Bureau of AgriculturalEconomics. Thanks are tendered also to Professors E. J. Working andL. J. Norton of the University of Illinois for their helpful comments andsuggestions. This paper is based on a report submitted for a Ph.D. thesisat the University of Illinois.

131

CONSIDERATIONS FOR AGRICULTURE

more detail than can be justified in terms of statistical error con-cepts. Yet such projections are made and will continue to bemade.

The purpose of this investigation was to prepare a set of pro-jections for the economy centering on 1970, in which to cast anappraisal of the long-run prospects for agriculture. Specific ob-jectives included projections of the population, the labor force,productivity, total output, the price level, and the relative posi-tion of agriculture, i.e., the demand for farm products, farm out-put, imports and exports, farm income, prices received for majorfarm products, and prices paid for products used by farmers.

Most economists will agree that forecasting, either short-term orlong-run, is a hazardous undertaking. Any appraisal of the futurecould set• in motion the very circumstances that would make itinaccurate. Long-run forecasts are usually "conditional" withina framework of assumptions. Unfortunately, it is often difficultto specify more than the main assumptions. Projections of thepopulation, labor force, productivity, and potential output areusually based on relatively stable patterns of growth and aregenerally considered to be more accurate than those involvingthe price level or prices of specific commodities. However, eventhe more basic trends may vary and may materially influence theaccuracy of long-run appraisals. Probably there are no economicforecasting techniques for the long term which are highly accurateor to which a probability calculus can be applied. We cannotdetermine the probability that a long-term projection will fallwithin a given range. Informed judgments about the future alsodiffer, as do attempts to make objective forecasts in a frameworkof assumptions.

Appraisals of the future are influenced to a very large .extentby the sum total of social, political, and economic forces char-acterizing the current era, and these may distort the perspectiveof the economic forecaster. For example, in the spring of 1929, areport by the Committee on Recent Economic Changes of thePresident's Conference on Unemployment commented on thehealth of the nation and the "degree of progress in recent years."These observations were made on the very brink of the 1929-32depression. It was but a few years later (1934) that Dr. Nourseand his associates in the Brookings Institution were concernedwith the distribution of wealth and income in relation to economicprogress, to apparent "under-consumption," to reduced outlets

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for investment, and to the generally inadequate level of demand.'And, toward the end of the decade of the 1930's, there developedthe "stagnation" or "mature economy" thesis. The mature econ-omy, it was asserted, would lead to long periods of unemploy-ment and continuous deficit spending by the government to main-tain investment and employment. Long-run population projec-tions of the late 1930's and early 1940's probably influenced someof the more pessimistic long-run appraisals made in this periodfor agriculture and the total economy.

Adam Smith, who wrote during the industrial revolution inEngland (1776), was optimistic about the prospects for innova-tion and capital accumulation. Schumpeter likewise wrote in aperiod of growth and development and considered innovation tobe the prime mover in economic growth, without much concernfor the possibility that demand might be inadequate to maintaina high rate of capital development.2 On the other hand, Sismondi,Lauderdale, and Maithus wrote during the latter part of Eng-land's industrial and social revolution (1776-1850), when a largepoverty-stricken laboring class was concentrated in cities withoutadequate housing, sanitation, or food. These men were concernedabout the prospective lack of purchasing power of the commonman and the possibility that investment and capital accumulationmight result in output greater than could be absorbed in the mar-ket.

Most forecasts made in recent years recognize the potentials ofthe dynamic economy which has characterized the developmentof the United States, but the specter of war, or the possibilityof long periods of semimobilization, overshadow all other con-

As man's experience is about the only basis for ap-praising the future, it appears logical to expect that such apprais-als will continue to be influenced largely by the economic,political, and social trends of the time.

B. METHODOLOGY

The nature of growth, process, and change in the economy over1 E. C. Nourse and associates, America's Capacity to Produce (Brookings

Institution, 1934), pp. 1-17.2

J• A. Schumpeter, The Theory of Economic Development, tr. from theGerman by Redvers Opie (Harvard University Press, 1936).

See H. C. Moulton, Controlling Factors in Economic Development(Brookings Institution, 1949); K. E. Boulding, The Economics of Peace(Prentice-HaIl, 1945).

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time does not lend itself to the rigorous type of analysis em-ployed for short-period or static appraisals. Moreover, in mostinstances, background data for long-period analyses are sketchyand conceptually inconsistent. Refined statistical techniques mustbe supplemented by judgment.

A long-run appraisal of the economy must be concerned withthe very forces which are usually impounded in the static as-sumption "other things being equal," as used• in most moderntheory of the firm and of price determination. We are not somuch concerned with the "allocation of scarce means amongcompeting ends"4 as with the growth in the means themselves.For long-run projections, an appraisal must be made of probable"structural changes" which result in trends in coefficients of re-lationship of one variable to another or to several others. It isquite probable, for example, that price and income elasticities ofconsumption vary over time as real income per capita grows and•modes of living change. In addition, changes in "taste" and"style" and technological developments modify both the demandfor and the supply of a commodity over time. The primary prob-lem of supply response is one of growth in productive factorsand innovation. Prospective changes in the "state of the arts" be-come of primary importance in a long-run appraisal. But, for agiven industry, transfer of resources from one industry to an-other—changes in size—probably are as important as changes inefficiency in determining long-run supply response.

In this report, per capita use of food and other farm productswas projected on the basis of apparent trends in taste and con-sumption habits, trends in innovations influencing consumption,the apparent long-run effect on consumption of price and income,and the judgment of commodity men, each familiar with a com-modity or group of commodities. The aggregate per capita useof farm products was first appraised in the projected framework,then compared with detailed projections for the individual com-modities and groups of commodities that make up the aggregate.The supply response was also appraised in relation to growth inaggregate farm output, interindustry shifts of resources, outputper man, and the shift from horse to machine power. These pro-jections were then compared with detailed commodity analyseswhich were related to demand, past output, acreage, capital andother inputs, and yields.

G. J. Stigler, The Theory of Price (Macmillan, 1947), p. 12.

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It will be obvious to anyone who has thought about the prob-lem that we cannot expect to make highly accurate 20-year fore-casts of production, utilization, and prices for individual com-modities. We may feel reasonably certain, for example, that percapita use of food fats and oils, as an aggregate, will continuereasonably stable, as it has in past years. Yet the prospects forbutter and lard as compared with margarine and shortening aremuch less certain. On the supply side, similar problems arise. Anappraisal of the prospects for a group of related commodities issurely more reliable than one for a given commodity. The outputof soybeans has grown rapidly over the last three decades. Willit continue to grow as it has in the past? An attempted answerwould require assumptions regarding innovations that influencethe demand and supply prospects for soybeans and the demandand supply prospects for every other commodity related to soy-beans on the side of demand or resource use.

Methodology in appraisals such as those undertaken in thisreport must be primarily historical, insofar as past relationshipsand trends in economic, social, and political conditions providethe basis for appraising the future. Many trends reflect tides ofchange in underlying forces that influence the economy. How-ever, projections cannot be simply an extension of trends. Judg-ments concerning the future and possible technological develop-ments often provide a basis for modification of past trends. Manyempirical measurements and statistical analyses were used in thisinvestigation, with varying degrees of success. For the next twoto three decades the long-run stability of growth rates and thegeneral inertia of behavior patterns of individuals over time mustprovide much of the foundation for a framework of projections.No influence can be considered entirely exogenous to the wholesystem of cause and effect. Growth of population, the size of thelabor force, government policy, and foreign demand are all in-fluenced to some extent by underlying trends in economic, social,and political developments.

In appraising the prospects for agriculture, an equilibrium wasassumed within agriculture and between agriculture and the restof the economy. In general, the rate of growth in demand foragricultural products will marshal resources to provide the com-modities desired, and the nature of the supply response willlargely condition the cost price required to bring supply anddemand into equilibrium. The agricultural and nonagricultural

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segments of the economy are closely interdependent from thestandpoint of demand and resource use. And, in a long-runeconomy of growth, it is assumed that labor and capital will bereasonably mobile so that productivity and income of the com-mercial farm population relative to the rest of the economy willapproach some sort of equilibrium, given time for adjustmentsto take place. The projected balance within agriculture is basedlargely on the feed-livestock balance and other complementaryrelationships with respect to both quantities and prices. Prices ofproducts that compete for the same resources were related to eachother and to past and expected future trends in these relation-ships. In effect, an effort was made to examine the competing andcomplementary relationships among commodity supplies andprices.

General methodology for the over-all projections for the econ-omy involved the basic premise that potential output of the econ-omy over several decades will depend primarily on the growth,employment, and quality of both labor and capital, and the de-sires of the people as reflected in the institutional, political, andsocial framework in which the economy grows. The latter groupof factors are often important influences on the rate of innova-tion, shifts in resource use, incentives, and other forces which af-fect the economic progress of an economy.

C. MAJOR ASSUMPTIONS

No attempt is made to specify all assumptions explicitly. It isassumed that the economy will continue to grow during the nexttwo to three decades much as it has in the last three or fourdecades. The projections do not assume wartime conditions orlong periods of semimobilization of sufficient magnitude to• resultin continued inflationary pressure. Although the economy is likelyto experience ups and downs, it is assumed that the governmentwill be at least partly effective in its countercyclical measures tomaintain full employment and prevent deflations of the magni-tude of the depression of the 19S0's.

Population and the labor force will continue to grow. Innova-tion, technological development, and capital accumulation willresult in greater output per man-hour, and the length of the workweek is expected to decline gradually as it has in the past.

Acreage of crops probably will expand very little and the acre-

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age that will be released for food production by further declinesin the numbers of horses and mules will be small. However, yieldsper crop acre and per animal unit will continue to rise as a resultof new varieties and breeds; new disease, insect, and weed con-trols; improved livestock nutrition; and use of fertilizer, bettercultural practices, and more machinery and equipment. Agricul-tural policy will affect agricultural growth. But as policy is notplanned in advance over long periods, it will be influenced byunderlying economic conditions that affect agriculture as well asby the possibility of a politically weaker agriculture.

D. THE PROJECTED ECONOMY

Projections of the population, labor force, capital inputs, andoutput per man and per man-hour for the United States economyare described at length in this volume. As many of the techniquesand considerations used in this study are similar, we report onlythe projected framework in which agriculture was appraised.

Population projections are somewhat lower than those most re-cently prepared by the Bureau of the Census. The labor forceestimates reflect trends in labor force participation by age and sexgroups. Legislation affecting employment and trends in employ-ment by occupation was also considered, as it influences participa-tion of the labor force by age and sex groups. Output per man-hour for the entire economy, approximated on the basis of pastgrowth, was projected at an annual rate of around 2.4 percent perman-hour. This growth assumes, among other things, continuedinnovation and growth in capital per man, a continuation of inter-industry shifts in employment of resources, a continuation oftrends in demand influencing the composition of the gross na-tional product, a shift toward more services and other activitiesformerly performed in the home, and a continued trend towarda shorter work week. Given the population, labor force, employ-ment, hours worked, and trends in output per man-hour, we canreadily compute total output of the economy.

1. The price level

If we are to specify a level of prices for agriculture and forindividual commodities, it will be necessary to begin with a pro-jection of the general level of prices. The association of a "price

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level" or some measure of final-product prices5 with projectedemployment and output is a difficult problem, both theoreticallyand empirically. Some of the factors that affect the level of prices,such as war, private and public controls, administrative determi-nations, and the influence of political pressure groups, cannot bemeasured. However, an attempt was made to appraise the pastand likely future trends of some of the underlying factors thatinfluence the price level, to indicate a level of prices that mightbe expected to prevail in the projected framework for 1970. Thehazards of such projections are realized and the supporting argu-ments can be only briefly summarized in this paper.

The general framework of the traditional quantity-of-moneytheory of the price level is probably about as reasonable a basisas is available for appraising long-run movements in the pricelevel. The quantity theory, if anything, is essentially a tool forlong-run appraisals. To begin with, values were assigned to thevariables of the Cambridge cash-balance version of the equationof exchange, M = KPQ: M refers to the total of money outsidebanks, demand deposits, government deposits, and time deposits;PQ represents the value of all goods and services produced by theeconomy—gross national product—where P is the implicit GNPdeflator index and Q measures total output; and K is simply theratio of the means of payment to total expenditures, M/PQ, rep-resenting the average turnover period or its reciprocal, the num-ber of times per year that money filters through the economicsystem.

Each variable depends upon a multitude of factors, many ofwhich cannot be measured, and the subtle system of cause andeffect probably changes constantly. The rather persistent long-run growth in the supply of money M suggests that it may havea sort of impetus of its own. It seems logical to expect that themeans of payment expands in response to demand for money toservice a larger output, changes in cash balances, and those move-ments in the level of prices which are largely independent of eco-nomic and monetary considerations. Thus, although the pricelevel will depend on monetary influences, monetary practices andpolicies will depend upon a complex of politico-economic forces

No attempt is made to define the "price level" concept. In this connec-tion see 0. V. Wells, "Significance of the General Price Level and RelatedInfluences to American Agriculture," Journal of Farm Economics, Vol. xxxi,No. 4, Part 2, November 1949.

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such that the means of payment becomes more a result than anindependent cause of change in the price level.8 A rough approxi-mation of long-run growth indicates that the money supply hastended to expand at a rate almost double that of the growth inoutput of goods and services.

Individuals and business apparently tend to hold larger cashbalances relative to total expenditures, thus contributing to agradual uptrend in K. This tendency has been observed by severalwriters.7 But the reasons advanced for it are not conclusive.Probably there has been a trend toward less barter trading andtoward relatively more money going through the market placefor such commodities and services as gasoline, transportation, andservices of various types formerly carried out in the home. Thedaily and the weekly payday are probably less common thanformerly, and a trend toward a longer pay period would requirelarger cash balances. The general uptrend in prices and a declinein interest rates also may have encouraged relatively larger cashholdings. A gradual uptrend in K seems plausible if we assumea continuation of past trends in the economic, psychological, andinstitutional forces that influence the amount of money held rela-tive to total expenditures.

One appraisal for the future assumes a continuation of pasttrends about as illustrated in Chart 1. Any of a number of differ-ent trends might be justified, especially for the price level. Thoseshown indicate a level for 1970 somewhat below current highlevels. The general level of prices may tend upward also if therise in wage rates during the next two decades is assumed toequal or exceed somewhat the gain in output per man-hour.

As indicated above, prices and costs of many important groupsof commodities and services are independent of economic andmonetary forces. For example, we have "fair trade" legislation,informal agreements, customary margins and markups, controlledutility rates, milk orders, price supports, minimum wages, andmany other arrangements throughout the economy to regulate

6 E. J. Working, "Internal Stresses as Causes of Price Level Change,"chapter in Explorations in Economics, notes and essays contributed in honorof F. W. Taussig (McGraw-Hill, 1987), p. 275.

J. M. Keynes, The General Theory (Harcourt, Brace, 1935), p. 306;A. H. Hansen, Monetary Theory and Fiscal Policy (McGraw-Hill, 1949),pp. 3ff.; E. E. Hagen, Additional Chapters on the Theory of Price Leveland Employment (unpublished MS, 1949), p. vx-8; and Clark Warburton,"The Secular Trend in Monetary Velocity," Quarterly Jcurnal of Economics,Vol. Lxm, No. 1, February 1949, p. 81.

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• CONSIDERATIONS FOR AGRICULTURE

CHART 1

Output, Means of Payment, Relative Cash Balances,and Price Level, Overlapping Decade Averages,

1869-78 to 1939-48; Projected to 1970Olilions of dollars

Ratio

0.3I

Indei

100

80

60C,'

1870 1880 1890 1900 1910 1920 1950 1960 1970

* In Current Ratio scQIes

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prices. Strong primary producer groups strive to maintain or toimprove their share of total income and, more often than not,political expediency in settling disputes between large producergroups results in higher prices. In the last two decades, laborunions have become strong, well informed, and effective in theirbargaining with business.

The debt structure rises in periods of high prices and becomesrather inflexible to downward adjustment. The federal debtis now deeply ingrained in our monetary system and it probablywill lend greater stability to the credit base than was the casewhen credit expansion was based largely on private loans andsecurities. In addition to these considerations, many govern-ments are more or less committed to a policy of full employment,which may prevent substantial deflations, such as took place inthe 1930's. If effective, this policy may contribute to a gradualuptrend in the level of prices. Most of the arguments advancedin support of rather moderate deflations and prospects for a con-tinued gradual rise in the United States price level are probablyas applicable to foreign countries and world prices as to theUnited States..8

The projected level for 1970 approximates that of 1949, butit is below current levels. The Korean conflict and defense mo-bilization may postpone for years any downward adjustment inprices. Because of the upward shift of the entire debt-cost-pricestructure, the postadjustment level probably will be higher thanit would have been.

2. Projected framework for 1970

Projected real output and the price level assumption provide abasis for assigning value to the gross national product. The com-ponents of the national product were approximated largely on thebasis of historical relationships. No attempt is made to explain inthis treatment the specific assumptions regarding tax rates, cor-porate profits, government revenue and expenditures, consump-tion, saving, and investment.

The high-employment model assumes about 5 million unem-ployed with a labor force of around 78 million. Employment,output per man-hour, a reduced workweek, and the projected

8 In this connection, see Measures for International Economic Stability(United Nations Publications, Sales No. 1951, ii. A. 2, November 1951),chap. i.

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price level for 1970 resulted in a gross national product of around$510 billion, with personal disposable income at approximately$375 billion (Table 1).

TABLE 1

GROSS INCOME, PRICE LEVEL, POPULATION AND EMPLOYMENT,1935-39 AVERAGE, 1949, AND PROJECTIONS FOR 1970

Item

Unitor

Base1 935-39Average 1949

1970

HighEmploy-

ment

Unem-ployment

Assumption

Gross national productConsumption expenditures

Personal disposable income

$ billiondo.do.

84.263.666.2

257180186

510347375

375290310

Consumers' price indexWholesale prices of all commodities,

index

1935—39

1926

100

81

170

155

170

160

145

120

Populationa Million 129 150 181 181

Labor force do. 54.4 63.6 78 77EmploymentbUnemployment

do.do.

45.09.4

60.23.4

735

6512

Estimated as of July 1.b Including armed forces.Source: Background data from the Survey of Current Business (Department of Commerce).

The unemployment assumptions are not as severe as the de-pression of the 1930's, when nearly a fourth of the labor force wasunemployed. The period of decline was assumed to be about twoor three years. Associated with the lower level of employment, areduction is assumed for money wage rates and the money supply,while the demand for cash reserves is assumed to rise as pricesand incomes decline. A considerable reduction in the price levelaccompanies the rather severe drop in economic activity for theunemployment assumption.

E. LONG-RUN PROSPECTS FOR AGRICULTURE

The general framework within which the prospects for agri-culture are appraised was projected in preceding sections of thisreport. Thus, many of the major factors that affect agricultureare now "given." These include population growth, the laborforce, employment, income, the general price level, and an eco-nomic system and government organization in which the pricing

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mechanism is the primary regulator of rates of production andutilization of individual commodities and services.

1. The demand for farm productsAgricultural production consists primarily of food and fibers—two major necessities of life—the total demand for which israther inelastic with respect to both price and income. As weare primarily interested in an aggregate demand function foragricultural products, changes in taste and consumption habitsfor individual commodities will be to some extent offsetting andwill affect very little the total per capita demand for agriculturalproducts. It is recognized, however, that innovations may expandor reduce the total per capita use of farm products.

Total demand for agricultural products over time can bethought of as a relatively inelastic relationship between con-sumption and price which shifts rather continuously in responseto population growth. Per capita use will depend upon: theeffect of growth in per capita real income on the pattern of con-sumption, as indicated by the varying income elasticities of con-sumption; price changes and the price elasticity of demand;changes in taste or innovations which influence per capita useindependent of the price and income effect; and the supply re-sponse which equilibrates price, demand, and supply. Foreigndemand probably will continue to depend primarily upon govern-ment policy. Long-run changes in underlying economic conditionsof different countries—industrial development, new resource de-velopment, depletion of resources, and innovations—will causeshifts in the comparative advantage of producing particular com-modities and thus, over long periods, will influence the foreigntrade policy of the government.

a. SOMF CONCEPTS AND EMPIRICAL APPROXIMATIONS

It immediately becomes apparent that for the long-run periodwe will be concerned with the very forces and structural shiftswhich are usually impounded in such assumptions as "other thingsbeing equal" or "a given state of the arts." In order to specify anddiscuss some of the problems encountered, suppose per capitaconsumption to be as expressed in the following equation form:

q=kpaobyotd (1)

where q refers to quantity utilized per person, p to the price per

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unit, o to prices of nonagricultural products, y to per capitareal income, and t to time or trend influences. Our concern isnot oniy with trends and the relationships among variables asindicated for a given period, but also with the possibility andthe probable nature of shifts in these relationships over time, i.e.,changes in the coefficients a, b, and c.

Price elasticity of demand is usually represented as the relation-ship between quantity and price at given levels of the othervariables. In the framework of equation 1, it would be repre-sented by a, the partial elasticity, which logically should be nega-tive.

7jq p=a= (2)q

Although price elasticity of demand for farm products in theaggregate is small, demand elasticities for individual agriculturalproducts may vary from virtually zero to unity or Analy-ses of food consumption per capita relative to retail food pricesand per capita income suggest a price elasticity of demand ofaround —0.25. Although the empirical elasticities varied, allshowed per capita use of farm products to be relatively inflexiblein response to price changes.1°

The comprehensive work of Henry Schultz on demand analy-ses for farm products in different periods of time indicated thatprice elasticity of demand may decline as real incomes rise overtime.11 For some products this tendency may be a reflection ofthe effect of trend factors other than price or income. The mdi-

9 Karl A. Fox, "Factors Affecting Farm Income, Farm Prices, and FoodConsumption," Agricultural Economics Research, Vol. m, No. 3, July 1951.

'° See, for example, M. A. Cirshick and T. Haavelmo, Statistical Analysisof the Demand for Food, Cowle.s Commission Papers, New Series, No. 24,1947, p. 109; G. Tintner, "Multiple Regression for Systems of Equations,"Econometrica, Vol. 14, No. 1, January 1946, pp. 34-86; Consumption ofFood in the United States, 1909-1948 (Department of Agriculture, Misc. Pub.691), p. 140; and Marguerite C. Burk, "Changes in the Demand for Foodfrom 1941 to 1950," Journal of Farm Economics, Vol. xxxiii, No. 3, August1951, pp. 281-98. Some unpublished analyses prepared in the Division ofStatistical and Historical Research also indicate a retail price elasticity ofdemand around —0.25. See also J. Tobin, "A Statistical Demand Functionfor Food in the U.S.A.," Journal of the Royal Statistical Society, Vol. cxm,Part ii, 1950, pp. 132, 133, 142; and W. W. Cochrane, "Farm Price Gyra-tions—An Aggregative Hypothesis," Journal of Farm Economics, Vol. xxix,No. 2, May 1947.

11 The Theory and Measurement of Demand (University of Chicago Press,1938), pp. 548-49.

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cated decline in the price elasticity of demand for farm prod-ucts, foods in particular, may result because purchases of foodrepresent a declining portion of total expenditures as real in-comes rise over time so that price changes tend to become lessimportant. Also, there may be some inertia in the pattern of con-sumption.

Price elasticity of demand for agricultural products as a whole isvery low (inelastic) and it may become somewhat less responsiveto changes in price as the economy grows. In a long-run ap-praisal of the demand for agricultural products, the low priceresponse suggests that growth of population and effects of in-come on per capita use will be the major factors influencingtotal utilization of agricultural products.

Income elasticity of consumption refers to the response of percapita use of farm products to changes in per capita income. Interms of equation 1, this elasticity is represented by c whenprices are held constant.

_____

q

For virtually all farm products, this relationship should be posi-tive—consumption increases as real incomes rise. However, forsome commodities—the so-called inferior goods--income elas-ticity is negative. Over time, the influence of income on percapita use is probably inextricably bound up with changes in"taste," which are independent of income. However, the effectson consumption of year-to-year changes in income can be meas-ured much more accurately.

As foods generally represent 80 percent or more of the totalutilization of farm products, substantial increases or decreasesin the physical volume of per capita use should not be expected,even though prices and incomes vary widely. About 175 yearsago (1776), Adam Smith made the frequently quoted observa-tion that ". . . the desire for food is limited in every man by thenarrow capacity of the human stomach." He might have en-larged on this statement by observing also that waste may repre-sent a substantial disappearance of food and clothing and, pos-sibly even more important, that the resources required to keepthe human stomach full of the commodities desired may varywidely with the pattern of consumption and with techniques ofproduction.

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A brief review of statistical analyses that attempt empiricalmeasurements of income elasticity makes one hesitant to gen-eralize a coefficient for farm products. Most studies have dealtwith foods at the retail or approximately retail level. The list ofstudies referred to in footnote 10 shows income elasticities vary-ing from approximately 0.2 to around 0.9. They also demon-strate how elasticity may vary depending upon the types ofdata used. An income elasticity around 0.25 appears reasonableon the basis of the Bureau of Agricultural Economics index ofper capita food consumption.'2 Analyses using deflated retailexpenditures for food as a measure of consumption are inade-quate for the present purpose. Such measures, indicating elas-ticities from 0.5 to 0.9, reflect marketing and processing servicesand, possibly, some influence of price.

Budget studies based on a cross section of incomes and ex-penditures at a given time show the nature and extent of differ-ences in the consumption pattern at different income levels. Anexamination of 1947 data13 for various commodities indicatesthat unit prices rise with income for some commodities, espe-cially for such foods as meats, vegetables, and the highly proc.essed grains, fats and oils, and sugar products. The quantity oflivestock products, fruits, and vegetables also increased withincome, but consumption of such foods as grains, fats and oils,sugar, dry beans, and potatoes declined as incomes rose. Theindicated shifts in the pattern of consumption appear reasonable.

One appraisal of these data indicated an income elasticity forfood consumed (quantity) of only 0.14.14 Elasticities of expendi-tures for food relative to income for recent years appear to bearound Although budget and time series data are con-ceptually different, elasticities based on budget data effectivelyillustrate that the income elasticity of demand for food tends to

12 This is an index of per capita disappearance of major foods on anapproximate retail weight basis which was weighted by unit retail pricesas of 1935-39 and expressed on that base as 100. The index does not reflectvariations in the services rendered by restaurants and retailers and, in someinstances, it does not reflect processing costs. See Consumption of Food inthe United States, as cited above.

13 Food Consumption of Urban Families in the U.S., Spring 1948 (Bureauof Human Nutrition and Home Economics, Department of Agriculture,Prel. Report No. 5, 1949).

14 Fox, op.Oit., p. 81.18 See Marguerite C. Burk, "A Study of Recent Relationships between

Income and Food Expenditures," Agricultural Economics Research, Vol. in,No. 3, July 1951, p. 89.

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decline as real incomes rise. An index of per capita food con-sumption (BAE) computed on the basis of estimated food useper person by income level suggests larger income elasticitiesat low than at higher income levels.'° An• elasticity of about 0.25was computed for the range of incomes from $750 to $4,000.But for average incomes from $750 to $1,250, the income elas-ticity of consumption was around 0.3; from $1,250 to $1,750,around 0.23; from $1,750 to $2,500, around 0.22; and from $2,500to $4,000, the elasticity was approximately 0.15.

Available information from time series and budget data, aswell as reason, suggests that the income elasticity of consump-tion (physical volume) of farm products would tend to declineas real incomes rise over time. A very low income elasticity ofconsumption is implied for the long run on the basis of historicaldata for the last seven or eight decades. Rough measures of percapita use of agricultural products indicate that, during the40-year period before 1900, average use of agricultural productsper person based on overlapping decade averages ranged be-tween 90 and 100 percent of 1935-39, in 1925-29 just over 100percent, and during 1940-45, 115 percent. In comparison, percapita real incomes during the last seven decades have increasednearly five times above the average for 1869-78. Prices receivedfor farm products have varied widely during the period, butthe trend has been upward.

Several different equation forms were tried to approximateempirically the influence of gradually rising real income onchanges in the income elasticity of per capita use of farm prod-ucts over time. Fairly reasonable results were obtained from alogarithmic relationship between per capita use of farm prod-ucts and income where it was assumed that the income coeffi-cient, and thus income elasticity, declines gradually as realincomes rise over time. This form was

logq=a+(c—dt)logy+... (4)

where income elasticity of per capita use is represented by thepartial elasticity (c — dt). This form of equation assumes that, asreal incomes rise over time, the slope of the relationship betweenconsumption and income becomes flatter—consumption becomesless responsive to changes in income. The analysis was based onsome rough approximations of per capita use and total real in-

16 Consumption of Food in the United States, as cited, p. 142.

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come per person, using multiple correlation techniques. Theresults, by no means conclusive, are not unreasonable comparedwith some other techniques of analysis. Trend factors are, ofcourse, very important. Empirical approximations based on theperiod 1919 to 1949 are shown in equation 5:

log q = 0.605 + (0.486 — log y — O.00069Sp + 0.016t (5)

where q represents per capita use, y represents per capita realincome, p represents the ratio of farm prices to the generalprice level, and t represents time (1, 2, . . . n). For period 1 inthis equation, income elasticity was 0.48 and declined to around0.18 for the 1970 Similar results were obtained inseveral analyses using slightly different variables. In the long-run analysis employed above, price and income coefficients were"statistically significant" by the usual measures.

To digress for a moment: An examination of the income elas-ticity of expenditures for food will give more insight into rela-tionships of elasticities to each other and, in addition, provide in-formation that can be used as a further check on the projectedframework. Price variations, as might be expected, are highlycorrelated with changes in expenditure and income. Variationsin quantity contribute relatively less to changes in expenditurefor food. Income elasticity of expenditures logically should rangesomewhere between the coefficient of price flexibility relative toincome and the elasticity of quantity with respect to income. Inthis connection, a study referred to earlier shows an incomeelasticity of expenditures for food of about 0.8 compared withprice flexibility relative to income of 1.0 and income elasticityof demand around 0.24.17 Variations in expenditure because ofprice would be expected to approximate the higher elasticityand those because of quantity, the lower elasticity.

The persistent long-run downtrend in the ratio of total ex-penditures for farm products to gross national income indicatesan income elasticity of expenditures of less than unity, thoughit may be rising gradually over time. Extending the long-rundecline observed in the above ratio on the basis of the projectedincrease in income and the income elasticity of expendituresindicated for recent years provides another basis for appraisingtotal expenditures for farm products in the projected framework.These computations are discussed later in the report.

17 Burk, "Changes in the Demand for Food from 1941 to 1950," as citedabove, p. 297.

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b. CONSUMPTEON OF FARM PRODUCTS

The major relationships among the variables consumption, in-come, and price, discussed above, may be illustrated approxi-mately as shown in Chart 2. Changes in per capita use of agri-

CHART 2Hypothetical Illustration of Relationship of Income, Price,

and Consumption of Agricultural Products

cultural products are very small in relation to changes in income.Likewise, consumption is rather inflexible in relation to pricechanges. The illustration indicates an increase in per capita real

149

/

use

/

'I

0,


income of approximately 50 percent, which results in a rise inper capita demand of nearly 10 percent at the same relativeprice for agricultural products. The increase is indicated by theshift in the demand curve from D to D1. Price, in this context,depends primarily upon the growth in output of agriculturalproducts per person in response to the shifts in per capita de-mand. The illustration shows a slight increase in relative pricesfor farm products. The shift in supply response depends pri-marily upon innovations, with resulting greater output per unitof resources used, and upon the possible diversion of resourcesaway from or to agricultural production.

In the framework of empirical measurements discussed in thepreceding section, per capita demand for farm products may beapproximated from projected income, a price assumption, andthe price and income elasticities approximated from analyses ofhistorical data or from such analyses supplemented by judgment.This relationship is of the general form

q=kpayo (6)in which a and c are approximations of the price and incomeelasticities of consumption, respectively. In this case, the percapita income y is given. As a first approximation of per capitaconsumption, prices for farm products were assumed which ap-peared reasonably consistent with the general price level as-sumption. These computations are not shown. They were firstapproximations until an appraisal of the supply of farm products,exports, and imports determined the per capita domestic supplyin this general framework. The final approximations show aslightly higher price for farm products and a little lower percapita consumption than were used in the first approximation.Per capita demand for all farm products under the high-em-ployment assumption, at 115 percent of 1935-39, turned out tobe about equal to per capita supply for domestic consumptionat an index of prices received by farmers of around 260-265(1910-14 = 100) and a general price level about 180 percentof 1935-39 (consumers' price index around 170 percent of 1935-39). Per capita use under the unemployment assumption wasestimated at 110 percent of 1935-39.

The results of empirical analyses were far from.. conclusive.Probably there will never be any very conclusive bases for pro-jecting the structural changes that are important in long-run

150


appraisals. Consequently, it was considered desirable, as a basisfor projecting consumption, to consider in some detail the trendstaking place in the pattern of consumption and to enlist thecooperation of commodity specialists in order to get informe4appraisals by persons, intimately familiar with each commodity.Ctmmodity specialists were given the broad framework of as-sumptions for income, growth of population, employment and un-employment, and the general price level. They were requestedto estimate, in this framework, the per capita use of their com-modity. These estimates were examined for over-all consistency,converted into an index of per capita food consumption (BAE),and combined with projected use of nonfoods to arrive at anestimate of total per capita use of agricultural products.

Per capita consumption of food, projected to 117 percent of1985-39, in general reflects increased use of meats and livestockproducts and increased consumption of fresh vegetables andcitrus fruits. Lower per capita consumption was projected forpotatoes, cereal crops, butter, and sugar. These projections gen-erally reflect trends. But they are not inconsistent with mostempirical measurements of income elasticities, which indicatepositive coefikients for fresh citrus fruits, other fresh fruits, beefand veal, and livestock products in general. Negative incomeelasticities were indicated for potatoes and grains, for example(Table 2).

During the last seven to eight decades, per capita consump-tion of food in total apparently has not fluctuated widely fromyear to year. But averages for selected five-year periods indi-cate a gradual uptrend. The shifts mentioned above from low-unit-cost to high-unit-cost foods would cause a price-weightedindex to rise without any necessary increase in physical volumeof consumption or in calories. However, the price-weighted in-dex is probably a better measure of demands on resources. Useof nonfood agricultural products was projected to around 107percent of the 1935-39 average, which is about the same as in1949. Projected higher per capita use of tobacco approximatelyoffsets assumed declines in per capita use of cotton. Competitionof synthetic fibers is expected to be important in the demandfor cotton. Technological developments in synthetic detergentsused for soaps, in synthetic resins, and in chemical developmentsin the paint industry may moderate trends in per capita demandfor industrial fats and oils. As is to be expected, use of nonfood

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TABLE 2

PER CAPITA USE OF FOOD AND NONFOOD AGRICULTURAL PRODUCTS,1935-39 AVERAGE, 1949, AND PROJECTIONS FOR 1970

1970

High1935-39 Employ- Unem-

Item Unit Average 1949 ment ployment

Per capita food consumption Index 100 111 117 113Meats (carcass weight)a Pounds 126.2 148.9 156.5 151.0

Beef do. 55.2 63.5 67.0 65.0Pork, excluding lard do. 58.1 67.8 75.0 72.0

PoultryChickens and turkeys do. 20.5 29.7 84.0 32.5Eggs Number 298 381 375 370

Dairy products (fat-solid basis) Pounds 801 761 780 770Fluid milk and cream

(milk equivalent) do. 340 384 410 405Butter (actual weight) do. 16.7 10.5 9.0 9.0

Fats and oils, including butter(fat-content basis) do. 44.7 42.3 44.2 43.1

Fruits, fresh and processed onfresh-equivalent basis do. 218 234 273 257

VegetablesFresh do. 235 249 275 260Processed (processed weight) do. 30.6 44.5 53 50

Potatoes, white and sweet do. 152.4 122.3 99 103Dry edible beans and peas do. 9.4 7.4 8.8 8.8Sugar (refined) do. 97.0 94.9 93.0 92.0Grains

Wheat do. 226 193 185 185Other do. 68.6 66.4 66.4 63.4

Nonfood commoditiesCotton do. 25.3 25.8 21.0 20.0Wool, apparel do. 2.2 2.3 2.7 2.2Tobacco do. 7.1 9.4 11.5 10.5

a Includes veal, lamb, and mutton.Sources: Background data from Consumption of Food in the United States, 1909-1948 (De-

partment of Agriculture, Misc. Pub. 691); The National Food Situation (Bureau of AgriculturalEconomics); commodity situation reports of the BAE; and estimations by the author.

products fluctuates much more than the food consumption indexand thus causes slightly more variation in the indicator of percapita use of all agricultural products.

With a relatively short period of falling employment assumedfor the projection, farm output probably would be main-tained at a high level. Slightly reduced output with substantially

152


lower prices would tend to result in a per capita use of farmproducts only moderately below the projection for high employ-ment. Exports probably would decline and some net accumula-tion of stocks would be expected with the reduction in employ-ment and income.

C. EXPORTS AND IMPORTS

Exports and imports of supplementary agricultural products(the similar competing products) were first assumed approxi-mately equal with a relatively high level of trading. Later esti-mates of imports and exports by commodity and group of corn-modifies were prepared in connection with detailed projections.The projected volume of agricultural exports under the high-employment assumption is nearly 80 percent (1924-29 = 100),compared with 108 for 1949 and 60 in 1935-39 (Table 3). Al-though reducti9ns from the high levels for 1949 are projected forwheat, flour, and other grains, exports of food grains are expectedto be relatively large. Value of exports in this framework is esti-mated at $2.5 to $3.0 billion under the high- and about $2 billionunder the low-employment assumptions. Agricultural exportswere valued at $3.6 billion in 1949.

Imports of supplementary agricultural products, projected insome detail by commodity, are 122 percent (1924-29 = 100)

TABLE 3INDExEs OF VOLUME OF AGRICULTURAL EXPORTS AND IMPORTS,SELECTED PERIODS AND PROJECTIONS FOR 1970(INDExEs, 1924-29 = 100)

Item1925-29Average

1935-39Average

1940-42Average 1949

1970

High Em-plo yment

Unem-ployment

Agricultural exports 98 60 43 108 79 66Total imports 104 101 103 100 137 122

Complementarya 105 108 97 110 148 134Supplementaryb 102 92 110 87 122 106

a Complementary agricultural imports include those not considered as supplementary—about95 percent of which consist of rubber, coffee, raw silk, cocoa beans, carpet wool, bananas, tea,and spices.

b Supplementary agricultural imports consist of all imports similar to agricultural commoditiesproduced commercially in the United States, together with all other agricultural imports inter-changeable to any significant extent with domestic production.

Source: Background data from Foreign Agricultural Trade (Office of Foreign AgriculturalRelations, Department of Agriculture).

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for high employment. This compares with 87 in 1949 and 110for the 1940-42 average. Complementary imports, representingprimarily rubber, coffee, bananas, carpet wool, cocoa beans, tea,and spices, are projected to 148 for high employment comparedwith 110 in 1949. Total agricultural imports are projected to 137percent of 1924-29 compared with 100 in 1949. The values ofsupplementary and complementary imports of agricultural prod-ucts are each estimated at around $2 billion under the high-employment assumption and $1.4 billion for the unemploymentassumption. The projected high-employment value of $4 billioncompares with about $2.9 billion for 1949.

d. TOTAL tJTILIZATION

The product of projected per capita use of agricultural productsand population should approximate total domestic use of farmproducts. This computation, on the basis of index numbers, isshown in Table 4. Detailed projections indicated that exportsabove competing supplementary imports may average 1 to 2percent of total output. Data presented for the 1970 projectionsrepresent final approximations after all the pieces of the picturewere fitted together—after exports, imports, and output, as wellas consumption and prices, were fitted into what appeared to bea reasonably consistent picture for agriculture in the frameworkof assumptions for the entire economy.

The absolute difference between the estimated index of totalutilization and the index of agricultural production for sale andhome consumption was expressed as a percentage of total farmoutput. This difference represents primarily net exports of agri-cultural products and net stock changes. Since the approximationof total consumption is rather rough, the difference probably issubject to some error. As a basis of comparison, net value ofagricultural exports above the competing supplementary importswas expressed as a percentage of "value of farm sales plus farmhome consumption." The comparison indicated that, in mostperiods, the difference between domestic utilization and total pro-duction was accounted for by net exports of agricultural products.With a projected increase in imports and some decline in agri-cultural exports from recent high levels, projected net exports aresmall. The relatively large residual for the unemployment assump-tion represents mostly assumed net stock accumulation.

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TABLE 4PER CAPITA USE OF AGRICULTURAL PRODUCTS, TOTAL CONSUMPTION, AND TOTALOUTPUT, SELECTED PERIoDs AND PROJECTIONS FOR 1970

Item1915-1 9Average

1925-29 1930-34Average Average

1940-44Average

1970

1945-49 High Em-Average ployment

Unem-ployrnent

Indexes, 1935-39 = 100 •

Food consumptionper capitaa

Nonfood use92.6 101.2 99.2 109.0 114.0 117 113

per capitab 113.6 102.0 85.4 134.3 124.9 107 98Total utilization

per capitab 100.0 101.4 96.5 113.8 116.0 115 110Population 80.0 92.2 96.7 104.6 111.8 141 141Total utilizationc 80.0 93.5 93.4 118.8 129.5 162 155Production for sale and

home consumptiond 87.2 99.2 97.0 122.6 137.0 165 163

PercentDifference as a

percentage of totalproductione

Value of net exports8.5 5.7 3.7 3.1 5.5 2.0 5.0

as a percentage offarm 11.0 7.0 4.9 2.5 6.5 1,3 1.0

a Consumption of Food in the United States, 1909-1948 (Department of Agriculture, Misc.Pub. 691); and National Food Situation (Bureau of Agricultural Economics).

b Computed for this purpose by the author.C Total utilization is a product of population and per capita use.d From 1950 Yearbook of Agricultural Statistics and Farm Income Situation (BAE).

Percentage points difference between total utilization and total production expressed as apercentage of total production index.

f Value of agricultural exports above imports of supplementary agricultural products fromForeign Agricultural Trade (Office of Foreign Agricultural Relations, Department of Agricul-ture) expressed as a percentage of value of farm sales plus home consumption from the FarmIncome Situation (BAE).

2. Supply of agricultural products

The data presented in Table 4 put us ahead of our story, as out-put is yet to be considered in our framework of assumptionsand in relation to projected demand and relative prices for farmproducts. 1-laying considered major demand factors for agri-cultural products and attempted some empirical generalizationsfor the long run, let us examine supply prospects in the light ofprojected demand, agricultural productive facilities, possible in-novations, and the level of prices received for farm products.Successive approximations among demand, supply, and price

155


projections for agricultural products were used as a basis forprojecting relative prices •considered reasonable in relation todemand and supply considerations in the projected framework.

a. GENEBAL NATtJBE OF THE SUPPLY BESPONSE

For several reasons, the long-run supply response for agricultureis difficult to appraise. The inherently involved problems of sup-ply probably account for so few attempts at statistical measure-ment of agricultural production functions.1s And, even withapproximate empirical measurements, innovations may result, inthe long run, in substantial shifts in the use and contribution ofeach agent. Thus, they may constantly modify the productionfunction. The problem is to appraise probable use of resourcesin agriculture and possible innovations that affect the outputper unit of input. Simply stated, the output of agricultural prod-ucts depends upon resources used—land, labor, and capital—thequality of these resources, and innovations.

In some respects, the competitive long-run theory of the firmis unrealistic for agriculture, because of the relative immobilityof labor and capital within agriculture and, particularly, be-tween agriculture and the rest of the economy. Yet, during long-run periods, resources do move into and out of agriculture. Em-ployment in agriculture has declined moderately during the lastfour decades. Indexes of volume of farm power, machinery, andequipment indicate that this type of capital has more thandoubled since 1890, both in total and per worker, and these in-dexes probably do not reflect improved quality of capital.'9 In-puts of fertilizer and materials for control of diseases and insectsappear to be very responsive to prospective changes in agricul-tural prices and income. Cropland harvested has varied moder-ately in the past, primarily because of crop failure for one reasonor another and because of variations in general economic condi-tions. Land in the fringe uses may become profitable under"high" prices, but in periods of low farm prices it will revert toa natural state (dry-farm grain land, for example), and the crop-ping of pasture land or more intensive types of rotation may

18 See Cochrane, op.cit., and D. G. Johnson, "The Supply Function forAgricultural Products," American Economic Review, Vol. XL, No. 4, Sep-tember 1950, p. 559, n. 32.

M. R. Cooper, C. T. Barton, and A. P. Brodell, Progress of FarmMechanization (Department of Agriculture, Misc. Pub. 680, 1947), p. 7.

156


vary the acreage of cropland harvested, depending on economicconditions.

As a basis for long-run appraisals, it seems reasonable to as-sume that resources used in agriculture will vary in response tochanges in both demand and innovations. Acreage of land mayvary moderately, depending upon river valley developments,reclamation work, economic conditions, and possible withdraw-als of cropland in the interest of conservation, reforestation, rec-reation, flood control, and urban development. In the long run,it is reasonable to assume some rough equality of returns to"commercial agriculture," compared with the rest of the economy,in order to induce or retard shifts in resource use. Admittedlymany institutional and social factors will influence these shifts—government financing of farm capital, financing of education inrural areas, better communication, unemployment services, shiftsin industry to rural areas, social prejudices, and many other fac-tors. But continued availability of nonfarm jobs will be of majorimportance in the shift of labor out of agriculture. Use of capitalper man and per acre probably will continue to increase as de-mand expands and workers continue to shift out of agriculture.

For short-period adjustments, it is reasonable to expect thatthe agricultural-supply function will be very inelastic to changesin price and especially to downward adjustments in prices. Mostagricultural land has practically no alternative uses aside fromagriculture, and farm capital equipment has few alternative uses.Mobility of labor is low, for both relatively declining and rela-tively rising prices of farm products. The bulk of farm labor isclassed as "unpaid family labor," so that the supply of labor mayactually rise during generally depressed economic conditions.

Over time, we may conceive of an inelastic short-run supplyresponse of the type described above, which shifts as resourcesmove into or out of agriculture and because of innovations. Theseshifts are usually made in response to a rather continuous growthin total demand for farm products. Under a given "state of thearts," the long-run supply response for agriculture may be ex-pected to rise as more resources are bid away from alternativeemployment for use in agriculture. The long-run supply curve Lis traced out by successive inelastic short-run responses S (Chart8). Innovations resuk in similar shifts in the short-run supplycurve, but they also tend to shift the entire long-run supply re-sponse downward as indicated by L1 and L2. Innovations reduce

157


resources required for a given output and thus lower the entireprice-output relationship for the long run. Substantial innovationsthat cause a shift in the supply response, such as that indicatedby L2, may result in relative prices for farm products, at a givenlevel of demand, so low that returns to productive agents will bereduced below what they could command in alternative employ-nient. Under such circumstances, we might expect a withdrawalof resources—labor, capital, and possibly land—from use in agri-culture. This would result in some backward shift in the supplyresponse and higher relative prices for farm products.

CHART 3

Long-Run Supply Response of Agricultureto Resource Shifts ond Innovations

Innovations often result in greater total expenditure and greateroutput, as well as lower expenditures per unit. For example,fertilizers, weed control, insecticides, and better seed tend to in-crease total production expenditures. New processes, better trans-portation, and new machinery in production and marketing mayactually reduce total costs by displacing other, less efficient re-sources. Innovations, also, may involve the introduction of new

158

per unit

$ 5,

IIII II'\I

L

p

— —

—— L2

— — —

— — — — — ——— —

— — —— —

a a, Tota' output


goods and new methods of production and marketing. They mayopen new markets, provide new sources of raw material, andmake new uses for old goods.

The rate of innovation in agriculture and its effect on outputare not easy to anticipate. Increased output per man reflects in-creased capital used per man, which is not an innovation in itself.However, increased use of machinery frequently results indirectlyfrom innovations. Increased output per man may also reflectshifts in employment from less to more productive lines of work,more land per unit of labor, better management, and many otherfactors, as well as innovations. Growth in output per man inagriculture has been very rapid, if measured from the middle1930 s. A more generalized trend for the last three to four decadeswould indicate a rate of growth approaching 1.5 percent per year.This has been accomplished with approximately the same cropacreage; a moderately increasing amount of farm power, ma-chinery, and equipment per man (also, a change in the type andquality of this capital); a declining number of workers; higherexpenditures for such variable capital inputs as fertilizer, seed,insect control, disease control, and weed eradication; and themany and varied innovations that have affected the growing,harvesting, and marketing of agricultural products during thelast half century.2°

b. AGRICULTURAL OUTPUT: TRENDS AND PROJECTIONS

Long-run growth in output of agricultural products is examined,first, as a basis for projection. Obviously, several different "an-swers" might be forthcoming from an examination of trends. Ap-parently a simple arithmetic trend line fits the long-run rise infarm output reasonably well, but runs above the output level ofthe 1930's and below that for 1943-49 (Chart 4). This trend,projected out to 1970, indicates an index of physical volume ofproduction for sale and home consumption of around 155 percent(1935-39 100). The same slope projected from the 1943-49level indicates an output of around 165 for 1970. A semilogarith-

20 An indication of the nature and influence of these innovations is pre-sented by S. E. Johnson, Changes in American Farming (Department ofAgriculture, Misc. Pub. No. 707, 1949); Technology on the Farm (Depart-ment of Agriculture, August 1940). See also Dorothy C. Goodwin, "A BriefChronology of American Agricultural History," Farmers in a ChangingWorld, Yearbook of Agriculture, 1940, pp. 1 184ff.

159


mic-growth line, approximating a rate of increase of about 1percent per year, indicates a level of output around 170.

A generalization of the trend in output per crop acre over thelast three decades approximates a growth rate of a little less than1 percent per year. This trend reflects among other things, higheryields because of new and better seed; more fertilizer and lime;

CHART 4

Agriculturot Production for Sate and Home Consumption,1875-1951; Projected to 1970

Index (1935-39=1001180

160

140 -

120 -

l00 -

80 -

60 —

40

20 -

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 19?

and better control of insects, diseases, and weeds. Per unit out-put of breeding animals also increased moderately but some ofthis growth may have been due to expanded feed output, so thetwo rates are not additive.

The long-run supply of agricultural products may also be con-sidered in relation to past trends in some of the primary agentsof production and trends in output per man as a basis for pro-jecting future output. Total land available for crops, as indicatedabove, probably will not change greatly during the next two dec-ades2' An important factor that has influenced land available

21 See, for example, approximate land use conversions needed on pri-vately owned land as reported in Probable Impacts of MLssouri Basin Pro-

160

I I I I I I I i I I I I I I I I I I


for production of food and fiber during the last three decadeshas been the decline in the numbers of horses and mules and therelease of that acreage and production for other purposes. It isassumed that the numbers of horses and mules will continue todecline and this may release another 10 to 12 million acres ofcropland for other purposes.22

Farm employment, as a percentage of the total labor force,declined rather steadily (both series vary little from year to year)until 1940, when the exodus of farm labor reduced the agri-cultural portion sharply. In view of past trends in employment,productivity, and use of capital, farm employment is projectedto around 75 percent (1985-39 = 100) by 1970.

A trend line fitting the long sweep of years reasonably wellsuggests an increase in output per worker to around 220 to 225percent (1935-89 = 100) by 1970. Such a projection implicitlyassumes, among other things, continued expansion in farm power,machinery, and equipment per man; increased use of fertilizer,lime, and other variable inputs; and continued development ofinnovations in agriculture. Farm employment around 75 percentand output per man around 220 percent of 1935-39 appear rea-sonable in relatIon to past growth. These projections would re-sult in farm output around 185 percent of prewar by 1970.

The long-run supply response for agriculture was also built upfrom detailed appraisals for each commodity or group of corn-rnodities. Each commodity was considered in relation to a firstapproximation of projected utilization for that commodity. Cropyields and acreage were projected in each case, livestock wasrelated to feed supplies, acreage was considered in relation toall crops and to past performance, and many competitive andcomplementary relationships were considered both on the sup-ply or resource side and on the demand side in working out thedemand-supply-price balance for each commodity. In this con-nection, considerations for each commodity were discussed withcommodity men familiar with each group of farm products. Thedetailed projections that allow for feed, seed, waste, industrialuse, exports, stocks, and consumption came out very close to the165 projected above.

gram on United States Agricultural Economy, a statement by 0. V. Wells(Department of Agriculture, Release No. 1845-50, August 1-2, 1950).

22 See Progress of Farm Mechanization (Department of Agriculture, Misc.Pub. 630), p. 76.

161


The livestock projections assume a cattle population of around100 million head on a sustained basis, with virtually all of the gainin production of beef cattle. Hog slaughter was projected toaround 100 million head, assuming a continued trend towardlighter, lean hogs. A sheep enterprise of about 40 million head ofstock sheep and feeders was assumed. Some of the data on supplyand disposition and on the livestock-feed concentrate balancebuilt up from detailed appraisals are shown in the appendixtables.

Production of meat under the high projection is about 30 per-cent above 1949, and production of poultry is up 35 percent.Output of dairy products based on detailed demand and supplyprospects is projected to about 15 to 20 percent above 1949, andeggs to about 15 percent above 1949. Utilization of grains(corn, oats, and barley) for feed was increased by nearly a fourthfrom the 1948-49 feeding year. The outputs of fruits and vegeta-bles are projected for 1970 to about 45 and 35 percent, respec-tively, above 1949 outputs. Detailed projections of supply and de-mand prospects indicated smaller production for such crops asfood grains, potatoes, dry beans and peas, and cotton.

3. Prices received for farm products

Prices and incomes still have considerable influence as regulatorsof rates of consumption and production. Agriculture will notcontinue indefinitely to produce and accumulate goods in excessof "effective demand," even though it may do so over a periodof several years. Labor and capital can and do flow betweenagriculture and the nonagricultural segment of the economy.Over the long run, demand for agricultural products will in-fluence the use of resources, the rate of adopting innovations, andprobably the rate of innovation itself, and thus direct the use ofresources to provide goods in demand. The relative ease or diffi-culty of meeting this demand—the supply response—will com-plete the pricing mechanism and determine long-run relativeprices for agricultural products. Prices in the long run must coverthe supply price of a given output, which represents a paymentto all services used in production approximately equal to whatthey could command in alternative employment. Obviously, manylargely noneconomic influences affect the relative prices forfarm products. Many controls, by private groups and by thegovernment, affect output and prices for many commodities, both

162


farm and nonfarm. Yet, it is believed that these controls are re-sponsive to changes in underlying economic forces.

The prices of agricultural products, both the absolute and therelative price, contain an element of the general level of allprices. However, prices of farm products may be relatively higheror lower depending upon long-run forces of demand (popula-tion growth, growth in real income, innovations that affect thedemand for farm products, and exports) in relation to the long-run supply response for agricultural products. It is unlikely thatprices for a substantial group of staples, such as food and fibers,will vary widely from past relationships to the general level ofprices so long as projections assume a continuation of relativerates of innovation and approximately equal returns to servicesused in commercial agriculture and the rest of the economy. As-suming considerable mobility of resources, the supply responseand relative prices for farm products will depend upon possiblelimiting resources, such as land and the rate of innovation. An-.other major factor that is likely to influence relative prices forfarm products is the political strength and the price policy ofthe farm bloc.

a. TERMS OF ThADE: SOME EMPIRICAL APPROXIMATIONS

Suppose the farm output projection to 165 percent of the 1935-39average is considered reasonable relative to past growth and inrelation to projected demand, trends in consumption, and favor-able general economic conditions. After accounting for importsand exports, that level of output and projected population pro-vide a per capita supply of all farm products around 115 percentof 1935-39. This supply and projected demand, together withthe empirical elasticities approximated from historical data, indi-cate a price for agricultural products of around 260-265 percent(1910-14 100) for the high-employment projection. An index of190 is indicated under the unemployment framework, if it is as-sumed that per capita supply (not consumption) may be aboutthe same as that for the high projection. Per capita income andthe general level of prices would be lower under the unemploy-.ment assumption. As pointed out earlier, empirical approxima-tions may yield a rather wide range of results, especially in along-run appraisal of this type.23 However, the level of farm

23 As an illustration of the type of result we might get under these gen-

163


product prices indicated does not seem unreasonable in this gen-eral framework of assumptions for 1970.

The agricultural share. Over the last seven or eight decades,agricultural output apparently increased nearly 1 percent peryear. Total output of the economy, except for depression periods,has tended to increase around 3.5 percent a year. These relativetrends have meant that agricultural output necessarily has be-come a progressively smaller part of the total. It was observed,also, that the ratio of prices received for agricultural products tothe general level of prices was inversely related to the ratio offarm output to total output of the economy. This relationshiptended to shift to the left (downward) over time. That is, at agiven time (or in this case, a given relative level of farm andnonf arm output) when agricultural output represented a rel-atively larger share of total output, agricultural prices were rel-atively low; and vice versa. In the depression years, even thoughfarm prices were low, farm output was maintained and repre-sented a relatively large share of total output. In this rather simpleframework, the ratio X of prices of farm products to the generalprice level (GNP deflator index) was expressed as a function oftwo variables: the ratio P of farm output to total output, and thetrend (t = 1, 2,.. . n), which reflected the tendency for the rela-tionship to shift downward gradually as farm output became asmaller share of total output.

X 2.27 — 8.566P — 0.0084t (7)R, the multiple correlation coefficient, is 0.92.

If the relative growth in farm output, indicated by the trendline (Chart 5), continues to decline in the projected economy ofgrowth to around 6 percent of the total by 1970, a prices-re-ceived index of 260 to 265 is indicated for the high-employmenteconomy. For the unemployment framework in this approach,it may be assumed that farm output will recede little, if any,

eral assumptions, suppose prices are estimated on the basis of the followingequation, which is sometimes used for shorter-period approximations:

Log (prices-received index) = 2.8 12 + 1.241 log (disposable income)+ 0.142 log (value of agricultural exports)— 1.658 log (volume of farm marketings index)

These relationships indicate an index of prices received under the highassumptions of around 415 percent of 1910-14. The equation was taken fromSome Statistical Relationships Used in Price Anal ysis and Outlook Work,working data made available at the 1949 Department of Agriculture OutlookConference.

164


from the figure for the high-employment assumption. But a sub-stantially reduced gross national product would tend to increasethe ratio of farm to tOtal output, possibly to around 6.5 percent.Such a rise in farm output relative to the total and the lowergeneral price level for the unemployment assumption suggest a

CHART 5

Ratio of Farm Sales plus Farm Home Consumption toGross National Product (Both in 1935-39 Dollars),Overlapping Decode Averages, 1869-78 to 1939-48;

Projected to 1970

price for farm products of about 200 percent (1910-14 = 100).The indicated value of farm sales plus home consumption is

around $40 billion for high employment and about $30 billionunder the unemployment assumption.24 A long-run relationship,

24 It may be of interest to compare this approach with results obtainedfrom a forecasting equation which has given reasonably good results foryear-to-year estimates of cash receipts from farm marketings.

Cash receipts — —1.05 + 0.113 (disposable personal income)+ 1.722 (value of agricultural exports)

This equation, with projected disposable income and agricultural exports,indicates cash receipts about $10 billion larger than equivalent cash receiptsestimated above. Cash receipts of $46 billion and volume of farm marketings

165

Percent

Ratio scale


expressing the value of farm sales plus home consumption as afunction of gross national income and time, indicates an elasticityof value of farm products with respect to national income ofaround 0.6 to 0.7 at the means. The estimated value of farm salesplus farm home consumption, based on projected gross nationalincome and an elasticity of 0.6 to 0.7, comes very near the $40billion estimated for the high-employment assumption.

A corn posite of commoditg prices. Detailed price appraisalswere also prepared for each commodity in an effort to projectprices which seemed reasonably consistent with the projected de-mand and supply prospects for each commodity as well as con-sistent with the assumed general price level. Each commodityspecialist was asked to estimate demand, supply, and prices forhis commodity in the general framework of assumptions for 1970.These prices were compared to others through competitive rela-tionships on the demand side and relationships among commodi-.ties competing for the same resources on the supply side. Esti-mates were appraised in relation to each other and to projectionsprepared independently by the author on the basis of statisticalanalyses, trends in price relationships, product-feed price ratios,and other techniques. Detailed price projections resulted in anindex of prices received of 265 (1910-14 = 100) for the high-employment assumption and 190 under the unemployment as-sumption (Table 5).

b. THE PROJECTED PICTURE SUMMARIZED

Projections of per capita demand for agricultural products,population, exports, imports, total output, an over-all priceindex for farm products are now available for the two employ-ment assumptions. We also have estimates of the value of farmsales plus home consumption. These projections should be tiedtogether. The total value of agricultural production should beapproximately equal to the following:

R= [(qP)+e]pwhere R is cash receipts including value of home consumption,q is per capita use, P is population, e is net exports and net stock

projected to around 178 (1935-39 = 100) indicate an index of pricesreceived for farm products of around 340 percent of 1910-14. This com-pares with 415 percent, computed in the preceding footnote.

166


TABLE 5

INDEXES or PRICES RECEIVED FOR FARM PRODUCTS,SELECTED PERIODS, 1935-49, AND PROJECTIONS FOR 1970(INDEXEs, 1910-14 100)

-

Item1935-89Average

1937-41Average

•

1948 1949

1970

HighEmployment

Unemploy-ment

All farm products 107 107 285 249 265 190Livestock and livestock

products 115 117 314 272 300 218Meat animalsDairy productsPoultry productsWool

117119107134

121123105153

361300235263

311251219273

345286222245

252207159190

All crops 99 96 252 223 224 159Feed grains and hayFood grainsOil-bearing cropsCotton

9594

11387

8790

11287

250250851270

170219242245

216207309218

144144207151

Tobacco 172 163 380 398 409 296Fruit 95 92 174 199 200 144Truck cropsOther vegetables

9599

10696

214252

201222

210161

173112

Sources: Background data from Agricultural Prices (Bureau of Agricultural Economics).

accumulation (may be negative), and p is prices received forfarm products. This relationship assumes that net stock accumula-tion, net exports, and home consumption are valued at the averageof prices received. For convenience, these variables were expressedin terms of index numbers. Measuring the change in the computedvalue of R from both 1949 and 1942 to 1970 and raising the dol-lar value of farm sales plus farm home consumption for 1949 and1942 on the basis of the projected percentage change in R sug-gest a total of around $89 billion under the high projection. Ifthe relative change in the computed value of R from the high-employment to the unemployment assumption is applied to the$89 billion projected for high employment, a value of farm salesplus home consumption of around $28 to $29 billion is indicatedfor the unemployment assumption. Cash receipts for these pro-jections would total around $36 billion for high employment and$25 billion for the low-employment projection. These receipts andprojected farm marketings reflect prices received by farmers ofaround 265 percent of 1910-14 for the high- and about 190 forthe low-employment assumption.

167


4. Prices paid by farmers

The problem of projecting prices for cost items used in farm pro-duction is basically the same as that of projecting prices forfarm products or any other product. However, no detailed con-sideration is attempted. The "parity index," which is used to com-pute parity prices for most farm products, includes nearly 180cost items for family living, 159 price series for production items,interest payable per acre, taxes payable per acre, and farm wagerates for hired labor. As so many items are involved, a verysimple procedure was adopted. The gross national product de-flator index—the price component of GNP—and the parity indexhad closely correlated movements during the last three decades.Both indexes represent a wide range of commodities at retail andwholesale levels. On the basis of this relationship, the parity indexwas first approximated from the projected general level of pricesfor the high-employment and unemployment assumptions.

TABLE 6INDEXES OF PRICES PAID BY FARMERS, INCLUDING INTEREST, TAXES, ANT) WAGES,SELECTED PERIODS, 1985-49, AND PROyECTIONS FOR 1970

1910-14 = 100)

Prices Paid forItems in:

1935-39Average

1937-41Average 1948 7949

1970

HighEmployment

Unemploy-ment

Family livingFarm production

124124

124126

251250

243238

245237

202195

Family living andproduction 124 125 250 240 241 201

Interest payableper acre 117 104 72 76 70 70

Taxes payable per acre 182 184 254 275 300 250Wage rates for hired labor 121 183 442 428 470 350Prices paid, interest,

taxes, and wages 125 127 259 250 256 210Parity ratioa 86 84 110 100 103 90

a Ratio of the index of prices received to the index of prices paid, interest, taxes, and wagerates.

Source: Background data from Agricultural Prices (Bureau of Agricultural Economics).

As interest, taxes, and wages represent only 15 percent of thetotal index weight, it is reasonable to expect a very high associa-tion between the parity index and the index of prices paid foritems used in family living and farm production. Consequently,

168


this relationship was used as a basis for projecting the index ofprices paid for living and production items. A similar procedurewas followed in projecting major components of the living- andproduction-cost indexes.

The index of wage rates was projected on the basis of pastgrowth in real wages (the wage rate deflated by the index ofprices paid for items used in family living). The projection wasthen converted to a current-dollar basis, using the projected indexof prices paid for items used in family living. This approximationof the wage rate index appeared reasonable in relation to pasttrends and to other cost items in the parity index. Farm and non-farm wage rates were not compared, but per capita incomes arcshown below. Interest payments per acre were assumed to be atlevels around those of 1949. Interest has a very small weight in theindex. Taxes payable per acre, also a small part of the total costindex, were assumed to be at levels somewhat higher than the1949 level (Table 6).

5. Farm income

Many techniques of appraisal used above assumed that widedifferences in returns to productive services would not persistduring long periods. Although some comparisons are made be-tween farm and nonfarm income, no attempt is made to determinewhether equality exists. Almost any type of data will show con-siderably lower money incomes to farmers than to the nonfarmsegment of the economy.

The usual census concept of a farm includes many units whichare not primarily in the business of farming. There are somerural residences, estates, institutions, and part-time units of van-.ous types. This latter group of farms can be approximated andseparated from commercial farms on the basis of the 1945 Censusof Agriculture.25 Economic classes I through IV are primarily"commercial" farms. Data as to number of farms, population,value of farm products sold, and value of products used in thehome were tabulated for the commercial and noncommercialgroups. About 57 percent of the farms and around 62 percent ofthe population fall in the "commercial" group. However, com-mercial farms sold more than 95 percent of all farm products andaccounted for 92.5 percent of the total value of products for

25 See the special report Sample Census of Agriculture, 1945 (Bureau ofthe Census).

169


sale and use in the home. If farm population, production, andincome are allocated to commercial farms on the basis of theseproportions, per capita incomes of persons on commercial farmsare well above the average for all farms.

TABLE 7

INcoME PER PERSON FOR ALL FARMS, COMMERCIAL FARMS, AND THE TOTAL POPULATION,SELECTED PERIODS, 1935-45, AND PROJECTIONS FOR 1970(IN DOLLARS)

.

1935-39

1970

High Unemploy-item Average 1949 Employment ment

Net income per person on farmsfrom agriculturea

All farms 177 592 927 645Commercial farms — 905 1,595 1,105

Agricultural gross producton farms

per person

All farms 220 792 1,190 847Commercial farms

Gross national product per person—853

1,190

1,713

2,040

2,818

1,450

2,070

Includes government payments.Source: Background data partly from the Farm income Situation (BAE) and partly estimated.

Data in Table 7 are approximations, but they indicate theextent of differences between farm and nonfarm incomes andbetween all farms and commercial farms. Persons on farms alsoreceived an estimated $181 per person in 1949 from nonfarmsources, and nonfarm people averaged around $18 per capitafrom agriculture. Other differences, such as valuing the estimatedrental of farm homes and products used on the farm at "retail"rather than at farm prices, might be approximated. Such an ad-justment may account for several hundred dollars of the differ-ence between per capita farm and nonfarm incomes. In addition,the purchasing power of the dollar may be generally higher inthe country.26 There are many nonmonetary considerations, too,that may make individual families prefer the farm (or the urbanarea), even with a lower real income. Finally, and equally asimportant, these figures are rough approximations and may be

26 See N. M. Koffsky, "Comparison of Purchasing Power—Farm andUrban," Studies in Income and Wealth, Volume Eight (NBER, 1946).

170


subject to a considerable range of error. Probably no explana-tion of absolute differences can ever be conclusive.

6. Some projections under different assumptions

a. ACRICULTURAL OUTPUT AND PRICES

The computations made in this short section are largely me-chanical first approximations prepared to indicate variations infaim prices and incomes under rather restricted sets of conditions.The results have not been examined for internal consistency.

Suppose the over-all assumptions as to population, income,prices, and the projected demand for farm products remain un-changed for each of three alternative levels of farm output—160,165, and 175 percent of 1935-39 (Table 8). In this general frame-work, the index of per capita supply rises as output increases,resulting in lower prices and lower incomes for high than forlow farm output. It is recognized, however, that total real in-comes per person would vary somewhat with different levels offarm output, and, also, that output and total utilization woulddepend upon prices and incomes in agriculture. Thus, for anassumed output of 175, per capita real incomes would probablybe a little higher than for a smaller farm output. And, althoughthe influence of price on aggregate per capita use of farm prod-ucts is small, lower prices would encourage a higher per capitause, particularly if a relatively large part of the greater outputconsisted of livestock and livestock products. If these successiveapproximations were made, prices and incomes would tend to be

TABLE 8PiucEs AND INCOMES RECEIVED FOR FARM PRODUCTS UNDER GIVEN LEVELS OF TOTAL DEMANDwim VARYING LEVELS OF FARM OUTPUT AND PER CAPITA SuPPLY

ITEM

LEVELS OF FARM OUTPUT(1935-39 = 100)

160 165 175

Net exports of farm products (in index points)Domestic supply of farm productsPer capita supply of farm products

3157111

3 3162 172115 122

High-employment assumptionPrices received for farm products (1910-1Cash receipts from marketings (in billions

4 = 100)of dollars)

30540

284 19336 28

Unemployment assumptionPrices received for farm products (1910-1Cash receipts from marketings (in billions

4 = 100)of dollars)

22530

191 13326 19

171


somewhat different from those indicated under the alternativeassumptions specified for the computations.

b. TIlE PRICE LEVEL AND AGRICULTURAL PRICES

For purposes of illustration, suppose all real magnitudes remainas projected and only the "price level" is varied so that we can ob-serve its influence on prices received by farmers, on cash receiptsfrom farm marketings, and on the gross national product (Table9)

TABLE 9

APPROXIMATE INFLUENCE OF DIFFERENT PRICE LEVEL ASSUMPTIONS ON THE Ciioss NATIONALPRODUCT, INDEX OF PRICES RECEIVED BY FARMERS, AND CASH RECEIPTS FROMFARM

I

ALTERNATIVE PRICE LEVELASSUMPTIONSb

II III IV

High-employment assumptionConsumers' price indexPrices received by farmers, indexCash receipts from marketingscGross national product

1935-391910-14$ billion

do.

17028438

510

160 145246 22033 30

477 26

180280

38542

Unemployment assumptiondConsumers' price index 1935-39 145 136 124 154Prices received by farmers, index'Cash receipts from marketingseGross national product

1910-14$ billion

do.

19025

375

178 16024 21

350 320

20627

405

a Only the price level is varied in these calculations. Real income per person, farm output,exports and imports, and employment are the same for each price level assumption.

b Assumption x is the price level projection assumed for most calculations for this report; xi issimply an alternative; xii is the same price level assumed for the "Hope Report" long-rangeprojections; and iv approximates the January 1951 level of prices. The alternative levels arebased on the consumers' price index indicated for each.

Assumes farm production for sale and home consumption at 165 and volume of farm mar-ketings at 178, both based on the 1935-39 average.

d The unemployment price level alternatives assume the same percentage decline as projectedunder price assumption x.

e Assumes volume of farm marketings around 175, based on the 1935-39 average.

Price level alternative III, as represented by the consumers'price index, is about the same as that used in the Hope Report—A Study of Selected Trends and Factors Relating to the Long-Range Prospect for American Agriculture—made for the HouseCommittee on Agriculture and dated March 10, 1948. AlternativeI was used for most projections in this report and alternative IV

172


approximates the level of prices as of January 1951. The im-portance of the price level assumption as a factor influencingthe level of prices and dollar incomes received by farmers isimmediately obvious.

C. POPULATION, AGP.ICULTUEAL OUTPUT, AND PRICES

Population growth is the major factor that influences growth intotal requirements for farm products. Moreover, growth of popu-lation may be a key factor in over-all vigor and expansion in theeconomy. The rate of population growth will very likely slowdown during the next several decades. But prospects for agri-culture during the next two to three decades will depend largelyon growth of population compared with expansion of agriculturaloutput.

As a basis for examining the importance of population growthon prospects for agriculture, let us assume the same projectedlevel of per capita use of farm products and compute requiredoutput under three levels of population. The total product of theeconomy would vary with growth of population, as would farmoutput for a specified level of per capita demand. For example,a population of 210 million by 1970—the high census projection—with the same assumptions for rates of labor force participation,unemployment, productivity, and price level used for the high-employment projections in this report, would result in a grossnational product of around $600 billion. Assuming no change inrelative prices for farm products and no change in per capitademand, a population of 210 million would require a farm out-put of around 188 percent of 1935-39, even though no net ex-ports of farm products are assumed (Table 10).

As indicated above; with lower prices for farm products, wewould expect some increase in per capita use for a specified levelof demand. Likewise for a given level of output, as price changeswith each population assumption, per capita use would alsochange and moderate the rise or decline indicated for the speci-fied assumptions.

F. SUMMARY AND CONCLUDING OBSERVATIONS

Long-run projections should be appraised in relation to a frame-work of assumptions. As anticipations of the future must be basedlargely on past experience, the framework of assumptions and,

173


TABLE 10INDICATED PRICES RECEIVED FOR FARM PRODUCTS UNDER TRREEAND FARM OUTPUT ASSUMPTIONS

FARM OUTPUT ASSUMPTION (1935-39 = 100)ITEM 165 175 180

Index of per ca pita supply under eachpopulation assumption (1935-39 = 100)

165 million peoplea 121 129 133181 million peoplea 115b 122 125210 million peoplea 101 107 110

Indicated index of prices received for each per capitasupply assumption (1910-1 4 = 100)

165 million people 202 125 88181 million people 284b 193 163210 million people 420 351 317

a For 165 million people, net exports are assumed as 10 points of the output index; for 181million, net exports are assumed as 3 points; and for 210 million, zero net exports are assumed.Per capita real income is assumed to be the same for each combination.

b Projections based on assumptions used for the body of this report.

consequently, the projections are, to some extent, products of thetimes and probably ter.d to be conservative. War, or an extendedperiod of defense mobilization, accompanied by a high level ofeconomic activity, would tend to raise prices and might stimulategrowth in output and incomes sufficiently to make specific quanti-tative projections obsolete in a matter of several years. In such aperiod, innovations and the rate at which they are adopted byfarmers could result in farm output well in excess of that whichmight be expected on the basis of past growth.

Total demand for farm products during the next two to threedecades will depend primarily upon the growth of populationand per capita income. It would be possible to have a largegrowth of population and a decline in per capita demand forfarm products. However, these projections assume substantialincreases in per capita real income during the next two decades.Because of the relatively low price and income elasticities of de-mand for all farm products combined, increases in total utiliza-tion per person probably will be small even with much higherincomes or somewhat lower prices. As a result, most of the pro-jected rise in total utilization is due to growth of population. Thepattern of consumption, however, will continue to change, and tosome extent these shifts will be independent of changes in incomeand prices. Empirical elasticity measurements as well as a priori

174


reasoning lend economic significance to many changes in percapita use, such as the shift away from grain products and po-tatoes, and toward more fruits, vegetables, and livestock productsin general. It must be recognized, too, that changes in taste,fashion, working conditions, education, advertising, technologicaldevelopments, and many other factors probably are inseparablybound up with price and income effects on shifts in the patternof utilization of farm products over a long period of years.

Projected utilization of farm products for 1970, on which mostcalculations in this study are based, provides for an increase ofaround one-fourth in total domestic utilization of farm productsabove the 1945-49 average. This appraisal assumed a populationof 181 million by 1970. Per capita utilization of all farm productsis about the same as the relatively high 1945-49 average, with asmall increase in per capita food consumption and a decline innonfood use per person. A high level of foreign trade was as-sumed. But, with some decline in exports and an increase inimports, the estimate of net exports of farm products for 1970is well below the 1945-49 average. If population expanded toaround 210 million—the high projection—the same level of percapita consumption would result in domestic utilization of around45 percent above the 1945-49 average. The nature of the supplyresponse to an expansion in total demand will largely determinerelative prices for farm products and it may also modify thepattern of consumption. That is, heavy pressure of population onavailable resources could cause a shift back toward more cerealsand less livestock products.

The supply response for agriculture is difficult to appraise forseveral reasons. Even if approximate empirical measurementswere available, innovations during the long run might result insubstantial shifts in the use and contribution of each agent ofproduction. Civen projected demand and approximate relativeprices for farm products, the problem becomes one of appraisingprobable use of resources in agriculture, together with possibleinnovations, and their effect on unit costs and output per unitof the resources used. There is ample evidence to demonstratethat resources do move into and out of agriculture over thelong run in response to changes in demand, shifts in use ofresources, and innovations, although probably not rapidly enoughto maintain equality of returns for agriculture. Employment onfarms has declined during the last four decades, and the use of

175


farm power and machinery has increased rapidly. Tractors onfarms rose from around 1,000 in 1910 to more than 4 million in1951. Much of this gain represents merely a substitution of ma-chine power for horse power, but the shift has released around65 million acres of cropland for production of foods and fibers.Total crop acres harvested changed little during the last fourdecades, but land used for food rose by about 100 million acres,or approximately 50 percent.

Yields per crop acre have continued to increase by nearly 1percent per year reflecting greater inputs per acre and innova-tions relating to improved seed, insect and disease control, weedcontrol, cropping practices, plant feeding, and other develop-ments contributing to greater output per acre. Use of fertilizerin 1951 was more than 800 percent of the 1935-89 average, andinputs of material for disease, insect, and weed control have alsorisen substantially. The rate of innovation in agriculture ap-parently has been relatively rapid, but its effect on output is byno means clear-cut. Production per man or per man-hour islargely a reflection of increased capital inputs as well as innova-tions, which may result in increased inputs, but also in greateroutput per unit of resources used.

Total acreage of cropland probably cannot be increased muchduring the next several decades. In fact, conservation, flood con-trol, and urban development may withdraw more acreage than ismade available through reclamation. Acreage that will be re-leased for food production by further declines in numbers ofhorses and mules will be small. Thus, increased production offood and fiber must come largely from more intensive use ofland, which means greater capital inputs and continued innova-tion. It is conceivable, too, that tillable pasture land may be usedfor more intensive cropping.

Domestic consumption for 1970, around a fourth larger thanthe 1945-49 average, probably would not place a heavy strainupon agriculture. Exports were relatively large in the 1945-49period, and stocks of many farm products had become burden-some by the latter part of that period. Moreover, an examinationof trends in yields suggests that an increase of 20 percent intotal farm output during the next two decades could be attainedwith only moderate increases in yields. Such an increase probablywill not be difficult under favorable economic conditions andprobably would provide for projected utilization at relative prices

176


for farm products around the parity level as now defined. If pastgrowth in farm output is indicative of what can be expected inthe future, projected demand for farm products suggests rela-lively favorable terms of trade for agriculture over the long run.

Preliminary results of a survey by the Land Grant. College—Department of Agriculture joint committee the productivecapacity of agriculture are very optimistic and may be instru-mental in influencing projections of farm output well above whatmight have been expected on the basis of long-run growth andwell above most projections published in recent years. The as-sumptions for the capacity study were very favorable, and, forsome commodities, productive capacity was well above prospec-tive demand. Under forced draft, agriculture probably couldexpand rather rapidly during a period of several years. How-ever, such growth would depend upon the expansion of do-mestic and export demand for farm products and upon the com-position of that demand. Substantial increases may be easy forfood grains, potatoes, or cotton, for example, but they are notlikely to occur if consumers want more livestock and livestockproducts. It should be pointed out, in this connection, that withprospects for little change in acreage, just a continuation of pastgrowth assumes a rate of innovation and a rate of adoption ofinnovation somewhat more rapid than those of the last severaldecades.

A projection weil in excess of that indicated on the basis ofpast growth would reflect a larger expansion in total demand, avery rapid rate of innovation, or probably a combination of both.A very rapid rate of innovation for a given expansion in totaldemand would contribute to relatively lower prices and incomesfor agriculture. A large or short supply of farm products relativeto demand probably would also change the pattern of consump-tion and thus would tend to modify the pressure on resourcesin agriculture. Farm output will not be expanded rapidly enoughrelative to growth in demand to result in incomes to resources inagriculture substantially lower than they could earn in alternativeemployment A comparison of farm and nonfarm incomes indi-cated in the projected framework is probably one of the mostreasonable checks that can be made on the internal consistencyof a set of projections.

The rather optimistic projections for population growth andexpansion of the economy during the next 25 years compared

177


with long-run growth in farm output suggest relatively favorableterms of trade for agriculture in the long run. However, if do-mestic economic activity recedes somewhat and export demandweakens in the next few years, the rapid expansion in farm out-put in recent years may contribute to surpluses of some farmproducts following the defense build-up.

178


STATISTICAL APPENDIXTABLE A-iGnoss NATIONAL PRODUCT, MONEY SUPPLY, AND RATIO OF MONEY SUPPLYTO GROSS NATIONAL PRODUCT, UNITED STATES(OVERLAPPING DECADE AVERAGES, 1869-78 TO 1939-48, AND AVERAGE, 1944-51)

Period

GNP inBillions ofCurrentDollarsa

Money Supplyin Billionsof Current

Dollarsb

Ratio ofMoney Supply

to GNP

1869-781874-831879-881884-931889-98

7.59.5

11.412.718,6

2.332.853.674.835.87

0.3110.3000.3220.3800.432

1894-19031899-19081904-131909-181914-23

16.728.030.742.866.0

8.0311.8415.7921.3331.95

0.4810.5150.5140.4980.484

1919-281924-331929-381934-431939-48

86.885.177.9

107.0180.8

44.5349.9851.4365.89

119.77

0.5120.6030.6720.6360.655

1944-51 249.9 165.78 0.673

a See Table A-2.b Money supply includes adjusted demand deposits, time deposits, govern-

ment deposits, and currency outside banks. Data from Banking and Mone-tary Statistics (Federal Reserve Board), p. 34; Federal Reserve Bulletin forrecent years; and for years before 1892 from A. G. Hart, Money, Debt andEconomic Activity (Prentice-Hall, 1948), p. 538.

179

Peri

od

GN

P in

Pric

eG

NP

inC

urre

ntD

efla

tor

1935

-39

Dol

lars

aIn

dexb

Dol

lars

(bill

ions

) (1

935-

39=

1 00

) (b

illio

ns)

•

Em

ploy

-m

entc

(tho

usan

ds)

Tot

alH

ours

Wor

kedd

(mill

ions

)

Out

put

per

Man

1935

-39

(dol

lars

)

Out

put p

erM

an-H

our

1935

-39

(dol

lars

)

Hou

rspe

r M

an-

Yea

r

Hou

rspe

rW

eek

1869

-78

1874

-83

1879

-88

1884

-93

1889

-98

7.5

82.5

9.1

9.5

72.8

13.0

11.4

66.5

17.1

12.7

62.1

20.4

13.6

57.6

23.6

13,4

3015

,400

18,7

5022

,050

23,5

30

41,9

0248

,048

58,5

0066

,547

68,5

19

678

844

912

925

1,00

3

0.21

70.

271

0.29

20.

307

0.34

4

3,12

03,

120

3,12

03,

018

2,91

2

60.0

60.0

60.0

58.0

58.0

1894

-190

318

99-1

908

1904

-13

1909

-18

1914

-23

16.7

57.8

28.9

23.0

63.5

36.2

30.7

69.9

43.9

42.8

86.0

49.8

66.0

116.

156

.8

26,3

3030

,200

34,5

2037

,760

40,0

40

75,8

0484

,802

91,5

4794

,249

95,7

76

1,09

81,

199

1,27

21,

319

1,42

0

0.38

40.

427

0.48

00.

524

0.59

4

2,86

02,

808

2,65

22,

496

2,39

2

55.0

54.0

51.0

48.0

46.0

1919

-28

1929

-38

1934

-43

1939

-48

86.8

126.

868

.785

.111

4.2

74.0

77.9

102.

375

.710

7.0

106.

597

.918

0.8

134.

918

1.1

42,6

2243

,762

43,4

0648

,633

57,4

78

99,6

5699

,117

94,0

5110

5,84

512

8,01

0

1,60

71,

686

1,78

71,

986

2,26

8

0.68

80.

746

0.80

30.

915

1.02

1

2,33

82,

262

2,16

42,

167

2,22

1

45.0

43.5

41.6

41.7

42.7

1944

-51

249.

916

7.6

149.

061

,769

136,

296

2,41

01.

094

2,20

542

.4

TA

BL

E A

-2

EM

PLO

YM

EN

T, T

OT

AL

Hou

Rs

AN

D P

RO

DU

CT

IVIT

Y P

ER

MA

N A

ND

PE

R M

AN

-Hou

R, U

NIT

ED

ST

AT

ES

(OV

ER

LA

PPIN

G D

EC

AD

E A

VE

RA

GE

S, 1

869-

78 T

O 1

939-

48, A

ND

AV

ER

AG

E, 1

944-

51)

C C,)

tTI C z Cl) C C.) r) tTj

a D

epar

tmen

tof

Com

mer

ce o

ffic

ial e

stim

ates

for

192

9-51

. Dat

a fo

r 18

69-7

8 to

192

8 ba

sed

on S

. Kuz

nets

' Nat

iona

l Pro

duct

sinc

e 18

69 (

NB

ER

, 194

6), a

djus

ted

to C

omm

erce

ser

ies

by li

nkin

g in

192

9.b

The

Kuz

nets

dat

a w

ere

pres

ente

d in

cur

rent

and

192

9 do

llars

. The

impl

icit

inde

x w

as c

ompu

ted

from

thes

e tw

o se

ries

and

put o

n a

1935

-39

base

. Kuz

nets

' def

late

d se

ries

in 1

929

dolla

rs w

as o

btai

ned

by d

efla

ting

com

pone

nts

of G

NP.

The

dat

a fo

r19

29-5

1 ar

e an

impl

icit

seri

es b

ased

on

the

defl

ated

Com

mer

ce s

erie

s of

GN

P re

late

d to

GN

P in

cur

rent

dol

lars

(Su

rvey

of

Cur

rent

Bus

ines

s [D

epar

tmen

t of

Com

mer

ce],

Jan

uary

195

1, p

. 9).

Thi

s de

flat

ion

proc

ess

was

als

o do

ne b

y co

mpo

nent

s. T

hede

flat

or s

erie

s te

nds

to b

e m

ore

flex

ible

than

the

cons

umer

s' p

rice

inde

x an

d le

ss f

lexi

ble

than

who

lesa

le p

rice

s.E

mpl

oym

ent f

or 1

869-

78 to

191

4-23

bas

ed o

n K

uzne

ts' d

ata

on g

ainf

ully

occ

upie

d (N

atio

nal P

rodu

ct s

ince

186

9, p

. 120

),w

ith e

mpl

oym

ent e

stim

ated

on

basi

s of

E. R

. Fri

ckey

's s

erie

s on

pro

duct

ion

(ind

ustr

y an

d co

mm

erce

) fo

und

in h

is E

cono

mic

Fluc

tuat

ions

in th

e U

nite

d St

ates

(H

arva

rd U

nive

rsity

Pre

ss, 1

942)

, and

als

o sh

own

in A

. G. H

art's

Mon

ey, D

ebt,

and

Eco

-no

mic

Act

ivity

(Pr

entic

e-H

all,

1948

), p

. 272

. The

pea

ks w

ere

conn

ecte

d an

d th

e de

viat

ions

fro

m th

e lin

e co

nnec

ting

thes

epe

aks

wer

e ar

bitr

arily

use

d as

a b

asis

for

est

imat

ing

the

aver

age

perc

enta

ge e

mpl

oyed

by

deca

de. T

he d

ata

for

1919

-28

are

base

d on

em

ploy

men

t dat

a in

Sen

ate

Com

mitt

ee P

rint

No.

4, B

asic

Fac

ts o

n E

mpl

oym

ent a

nd P

rodu

ctio

n, 1

945.

The

se d

ata

zw

ere

adju

sted

upw

ard

to th

e cu

rren

t ser

ies

on th

e ba

sis

of 1

930-

89 (

divi

ded

by 0

.973

9). C

urre

nt d

ata

for

1929

-51

are

offi

cial

C12

estim

ates

of th

e B

urea

u of

the

Cen

sus.

dH

ours

wor

ked

per

wee

k fo

r 18

69-7

8 to

191

4-23

est

imat

ed f

rom

Coh

n C

lark

's e

stim

ates

of

"hou

rs a

ctua

lly w

orke

d" f

or a

llin

dust

ry in

Con

ditio

ns o

f E

cono

mic

Pro

gres

s (L

ondo

n: M

acm

illan

, 195

1), p

. 79.

Hou

rs w

orke

d pe

r w

eek

for

1919

-28

are

corn

-po

sed

of e

stim

ates

for

agr

icul

tura

l and

non

agri

cultu

ral e

mpl

oym

ent.

The

non

agri

cultu

ral s

erie

s is

bas

ed o

n ho

urs

per

wee

kfo

r m

anuf

actu

ring

indu

stri

es a

djus

ted

to 1

929

rela

tions

hip

of to

tal n

onag

ricu

ltura

l hou

rs p

er w

eek

to m

anuf

actu

ring

hou

rs(t

he h

ours

per

wee

k fo

r m

anuf

actu

ring

wer

e ra

ised

by

1.01

53 b

ack

of 1

929)

. Mis

sing

yea

rs in

thes

e da

ta w

ere

inte

rpol

ated

on

the

basi

s of

cha

nge

in o

ther

est

imat

es a

vaila

ble

for

thos

e ye

ars—

Col

in C

lark

's, P

aul D

ougl

as's

, and

oth

ers.

Hou

rs w

orke

d in

agri

cultu

re a

re a

n es

timat

e of

tota

l man

-hou

rs o

fin

agr

icul

ture

fro

m G

ains

in P

rodu

ctiv

ity o

f Fa

rm L

abor

by

R. W

. Hec

htan

d G

len

T. B

arto

n (D

epar

tmen

t of

Agr

icul

ture

Tec

h. B

ul. N

o. 1

020)

. Hou

rs w

orke

d fo

r 19

29-4

9 ar

e a

com

posi

te o

f an

unp

ub-

lishe

d es

thna

te f

or h

ours

wor

ked

in th

e pr

ivat

e no

nagr

icul

tura

l seg

men

t of

the

econ

omy

(thi

s se

ries

is a

con

fide

ntia

l one

fro

mth

e C

omm

erce

Dep

artm

ent a

nd is

not

sho

wn

sepa

rate

ly in

the

repo

rt),

tota

l man

-hou

rs w

orke

d in

agr

icul

ture

(D

epar

tmen

t of

Agr

icul

ture

Tec

h. B

ul. N

o. 1

020)

, and

an

estim

ate

of h

ours

wor

ked

in g

over

nmen

t (40

hou

rs p

er w

eek

duri

ng 1

929-

41 a

nd19

46-4

9). T

hese

ser

ies

wer

e w

eigh

ted

by e

mpl

oym

ent i

n ea

ch s

egm

ent t

o ge

t tot

al h

ours

wor

ked

and

the

aver

age

wor

kw

eek

for

1929

-49.

TA

BL

E A

-3

C) 0 U)

tTJ

EM

PLO

YM

EN

T, G

RO

SS P

RO

DU

CT

ION

iN 1

935-

39H

otm

s W

oaxE

rlT

HE

NO

NFA

RM

SE

GM

EN

T, A

ND

TH

E T

OT

AL

EC

ON

OM

Y(D

EC

AD

E A

VE

RA

GE

S, 1

869-

78 T

O 1

939-

48)

00

IN A

cmcw

..l'r.

mE

,

PER

IOD

TH

EL

AB

OR

FO1(

cEa

(tho

us.)

Tot

ala

(tho

ns.)E

MPL

OY

ME

NT

Non

far

mb

(tho

us.)

Farm

c(t

hous

.)

GR

OSS

Tot

ala

($ b

il.)

Non

far

md

($ b

it.)

PRO

DU

CT

Farm

e($

bil.

)T

otal

a(m

illio

ns)

WO

RK

ED

Non

far

mb

(mill

ions

)(m

illio

ns)

1869

-78

1874

-83

1879

-88

1884

-93

1889

-98

14,4

4016

,740

19,5

2822

,729

25,5

80

13,4

3015

,400

18,7

5022

,050

23,5

30

5,59

06,

690

9,26

011

,880

12,7

80

7,84

08,

710

9,49

010

,170

10,7

50

9.1

13.3

17.1

20.4

28.6

6.2

9.4

13.0

15.7

18.4

2.9

3.6

4.1

4.7

5.2

41,9

0248

,048

58,5

0066

,547

68,5

19

17,4

4120

,873

28,8

9134

,817

36,6

56

24,4

6127

,175

29,6

0931

,730

31,8

6318

94-1

903

1899

-190

819

04-1

819

09-1

819

14-2

3

28,3

1131

,792

35,9

5439

,329

41,9

27

26,8

3030

,200

84,5

2037

,760

40,0

40

15,1

1018

,720

23,1

6026

,690

29,3

20

11,2

2011

,480

11,3

6011

,070

10,7

20

28.9

36.2

43.9

49.8

56.8

23.3

30.3

37.9

43.4

50.4

5.6

5.9

6.0

6.4

6.4

75,3

0484

,802

91,5

4794

,249

95,7

76

43,7

9854

,954

64,3

7469

,496

72,9

21

31,5

0629

,848

27,1

7324

,753

22,8

5519

19-2

819

24-3

319

29-3

819

34-4

319

39-4

8

45,0

0348

,759

52,1

9356

,229

60,9

86

42,6

2243

,762

43,4

0648

,633

57,4

78

32,1

0133

,356

33,3

2089

,023

48,6

11

10,5

2110

,406

10,0

869,

610

8,86

7

68.7

74.0

75,6

97.9

131.

1

62.2

67.1

68.9

90.4

122.

4

6.5

6.8

6.8

7.5

8.7

99,6

5699

,117

94,0

5110

5,84

512

8,01

.0

76,5

5375

,051

72,2

7685

,160

107,

737

23,1

0323

,066

21,7

7620

,684

20,2

74

a S

eefo

otno

tes

to T

able

A-2

.b

Non

farm

empl

oym

ent a

nd n

onfa

rm h

ours

wor

ked

wer

e co

mpu

ted

by ta

king

the

diff

eren

ces

betw

een

estim

ates

of

the

tota

lan

d th

e fa

rm s

egm

ent.

Em

ploy

men

t in

agri

cultu

re f

or 1

910-

28 is

bas

ed o

n th

e ol

d B

AE

ser

ies

(Far

m L

abor

[B

AE

}, J

anua

ry 1

4, 1

948)

for

the

peri

od li

nked

to th

e ce

nsus

ser

ies

in 1

929-

30 (

0.92

55 p

erce

nt o

f th

e B

AE

ser

ies)

. Thi

s ad

just

men

t was

mad

e in

ord

er to

use

cens

us d

ata

on f

arm

em

ploy

men

t whi

ch is

con

side

red

cons

iste

nt w

ith th

e la

bor

forc

e co

ncep

t. E

stim

ates

bef

ore

1910

are

rou

ghap

prox

imat

ions

fro

m c

ensu

s da

ta o

n pe

rson

s en

gage

d in

agr

icul

tura

l pur

suits

for

sel

ecte

d ye

ars,

as

repo

rted

in P

rogr

ess

of F

arm

Mec

hani

zatio

n (D

epar

tmen

t of

Agr

icul

ture

, Mis

c. P

ub. N

o. 6

30, 1

947)

, P. 5

.d

Non

farm

gro

ss p

rodu

ct is

the

diff

eren

ce b

etw

een

estim

ated

tota

l and

est

imat

ed f

arm

gro

ss p

rodu

ct.

eG

ross

prod

uct f

or a

gric

ultu

re w

as a

ppro

xim

ated

by

addi

ng to

net

inco

me

from

agr

icul

ture

, 191

0-49

(Fa

rm I

ncom

e Si

tuat

ion

Z[B

AE

], A

ugus

t 195

0,P.

25)

, the

est

imat

ed v

alue

of

mai

nten

ance

and

dep

reci

atio

n (N

et F

arm

Inc

ome

and

Pari

ty R

epor

t [B

AE

,19

43],

p. 2

3, f

or 1

910

to 1

939;

and

Far

m I

ncom

e Si

tuat

ion,

Aug

ust 1

950,

P. 3

0). T

he d

ecad

e da

ta w

ere

appr

oxim

ated

fro

mth

e lo

ng-r

un r

elat

ions

hip

of v

alue

of

farm

sal

es p

lus

hom

e co

nsum

ptio

n to

the

gros

s pr

oduc

t of

agri

cultu

re a

s es

timat

ed a

bove

.T

hese

est

imat

es f

ollo

w v

ery

clos

ely

thos

e pu

blis

hed

in th

e Su

rvey

of

Cur

rent

Bus

ines

s (D

epar

tmen

t of

Com

mer

ce),

Sep

tem

ber

1951

. The

re w

ere

wid

er y

ear-

to-y

ear

vari

atio

ns in

the

defl

ated

ser

ies.

Est

imat

es o

f th

e gr

oss

prod

uct f

or a

gric

ultu

re w

ere

then

defl

ated

by

the

inde

x of

pri

ces

rece

ived

by

fa.m

ers

(193

5-39

=10

0).

The

pri

ce s

erie

s fo

r 18

69-1

909

is th

e ar

ithm

etic

inde

x of

pric

es r

ecei

ved

by f

arm

ers

repo

rted

in G

ross

Far

m I

ncom

e an

d In

dice

s of

For

m P

rodu

ctio

n an

d Pr

ices

in th

e U

nite

d St

ates

,18

69-1

937,

by

F. S

trau

ss a

nd L

. H. B

ean

(Dep

artm

ent o

f A

gric

ultu

re, T

ech.

Bul

. No.

703

. Dec

embe

r 19

40),

p. 2

4; r

ecen

tda

ta a

re f

rom

Agr

icul

tura

l Pri

ces

(BA

E).

Hou

rs w

orke

d in

agr

icul

ture

are

bas

ed o

n es

timat

es p

repa

red

by R

. W. H

echt

and

C. T

. Bar

ton

for

Gai

ns in

Pro

duct

ivity

of F

arm

Lab

or, 1

910

to19

48 (

Dep

artm

ent o

f A

gric

ultu

re, T

ech.

Bul

. No.

102

0). D

ecad

e da

ta a

re r

ough

app

roxi

mat

ions

bas

edon

ass

umed

hou

rs p

er w

eek

for

all l

abor

and

are

des

igne

d to

tie

into

the

data

for

191

0-48

.

TABLE A-4CAPiTA UsE FARM PRODUCTS, 1910-49

(INDEXES, 1935-39 = 100)

Per CapitaFood

Per CapitaUse of

Per CapitaUse of All

Year Consumptiona Non foodsb Farm Productsc

1910 96 95 961911 97 97 971912 98 102 991913 96 101 971914 97 100 981915 96 110 991916 95 120 1001917 95 120 101

1918 97 118 1001919 98 105 99

1920 97 100 981921 95 97 951922 99 99 99

1923 101 102 1011924 102 93 100

1925 100 99 1001926 102 100 1021927 101 108 1021928 101 100 1011929 102 104 1021930 101 86 981931 100 88 971932 98 79 941933 98 90 971934 99 83 96

1935 96 95 981936 99 104 1001937 100 104 101

1938 101 91 991939 104 106 104

1940 106 110 107

1941 109 141 1151942 109 146 1161943 109 140 1141944 112 135 116

1945 114 130 1171948 119 132 1211947 115 131 1181948 111 125 1141949 111 107 110

a Food Consumption in the United States (Department of Agriculture,

Misc. Pub. No. 691) and National Food Situation (BAE).b The approximation of per capita nonfood use of agricultural products is

based on tobacco, cotton, wool, and industrial oils. The index is price-weighted and based on the period 1935-39. It is a simple combination ofavailable information on per capita use. No attempt was made to investigateand handle some of the conceptual problems involved, particularly for in-dustrial oils. Data are from statistical publications of the Bureau of Agricul-tural Economics.

Per capita use of all farm products is a combination of the food andnonfood indexes. They were combined by weighting each by the respectivefood and nonfood aggregates for each year computed for the BAE index ofagricultural production for sale and home consumption.

Mea

ts (

carc

ass

wei

ght )

b19

35-3

9 av

erag

e19

491970:

Hig

h em

ploy

men

tU

nem

ploy

men

tD

airy

pro

duct

s (f

at-s

olid

bas

is)

1935

-39

1949

1970

: Hig

h em

ploy

men

teci

tU

nem

ploy

men

tPo

ultr

y (d

ress

ed w

eigh

t)19

35-8

919

4919

70: H

igh

empl

oym

ent

Une

mpl

oym

ent

Egg

s 1935

-39

1949

1970

: Hig

h em

ploy

men

tU

nem

ploy

men

tFa

ts a

nd o

ils (

md.

but

ter

onac

tual

-wei

ght

1937

-41

1949

1970

: Hig

h em

ploy

men

tU

nem

ploy

men

t

——

—13

6—

——

36

—54

—2,

110

——

7—

—13

0—

——

——

—

—12

6—

210

tTl

—26

0—

250

TA

BL

E A

-5SU

PPL

YU

rnJz

Allo

Ns:

EsT

IM.A

rED

FO

R M

AJO

R C

OM

MO

DIT

Y G

RO

UPS

, UN

rrE

D S

TA

TE

S, 1

935-

39 A

VE

RA

GE

,19

49, A

ND

PR

OJE

CT

ION

S FO

R 1

970

HIG

H-E

MPL

OY

ME

NT

AN

D U

NE

MPL

OY

ME

NT

CO

ND

ITIO

NS

EX

POR

TS

CO

NSU

MPT

ION

OR

USE

OT

HE

R

PRO

DU

C-

AN

D s

mp-

Feed

and

UT

ILIZ

A-

CO

MM

OD

ITY

AN

D Y

EA

RU

NIT

TIO

NIM

POR

TS

ME

NT

SFo

odSe

edO

ther

aT

ION

"

Mill

ion

lbs.

do.

do.

do.

Mill

ion

lbs.

do.

do.

do.

16,1

8221

,710

28,1

9327

,832

106,

450

121,

962

142,

600

140,

790

262

198

16,3

8224

213

321

,853

245

111

28,3

2720

520

527

,382

741

351

103,

992

308

2,58

111

4,36

01,

950

370

141,

180

1,95

037

013

9,37

0

2,79

43,

219

3,00

03,

000

0 z (I)

tTl 0 z In 0

Mill

ion

lbs.

2,67

72

22,

870

do.

4,55

818

134,

458

do.

6,15

118

156,

154

do.

5,84

413

155,

842

Mill

ion

doz.

do.

-

do.

do.

3,33

55,

186

5,91

65,

836

182

3,22

52

204,

755

1515

5,65

610

155,

581

Mill

ion

lbs.

8,23

9do

.11

,961

do.

12,4

24do

.12

,155

185

1,97

447

91,

093

2,32

81,

460

1,20

81,

260

1,06

0

6,48

86,

718

8,02

67,

830

—3,

163

85—

3,54

846

0—

4,65

0—

—4,

353

172

TA

BL

E A

-5 (

cont

inue

d)

EX

POR

TS

CO

NSU

MPT

ION

OR

USE

OT

HE

RPR

OD

UC

-A

ND

Feed

and

UT

ILIZ

A-

CO

MM

OD

ITY

AN

D Y

EA

RU

NIT

TIO

NIM

POR

TS

ME

NT

SFo

odSe

edO

ther

aT

ION

b

Frui

ts (

fres

h an

d pr

oces

sed

on f

resh

-equ

ival

ent b

asis

)M

illio

n lb

s.25

,154

4,84

08,

132

28,8

6219

49d

do.

31,7

524,

659

2,44

733

,964

1970

: Hig

h em

ploy

men

tU

nem

ploy

men

tV

eget

able

s (f

resh

and

pro

cess

edon

fre

sh-e

quiv

alen

t bas

is)

1935

-39

do.

do.

Mill

ion

lbs.

45,2

6843

,810

37,5

77

6,22

04,

645

354

2,07

51,

990

221

49,4

1346

,465

37,2

93—

133

284

1949

do.

48,7

2548

254

148

,340

—18

516

119

70: H

igh

empl

oym

ent

Une

mpl

oym

ent

do.

do.

65,1

8961

,672

629

521

386

386

65,2

3281

,607

— —20

020

0—

Pota

toes

and

sw

eet p

otat

oes

1935

-39

Mill

ion

bu.

423

13

334

923

—8

1949

do.

456

105

314

111

2810

1970

: Hig

h em

ploy

men

tU

nem

ploy

men

tdo

.do

.38

340

05 5

5 530

431

369 75

10 10—

Dry

edi

ble

bean

s an

d pe

as19

35-3

9M

illio

n lb

s.1,

590

4673

1,21

827

374

1949

do.

2,30

346

145

1,28

728

263

519

70: H

igh

empl

oym

ent

Une

mpl

oym

ent

Suga

r (r

aw)

do.

do.

1,88

01,

890.

50 4065 65

1,59

51,

595

275

275

—

1935

-39

Tho

us. t

ons

1,94

84,

868

108

6,73

3—

2519

49do

.2,

112

5,70

360

7,54

421

119

70: H

igh

empl

oym

ent

Une

mpl

oym

ent

do.

do.

2,50

02,

500

6,56

06,

470

100

100

8,96

08,

870

—

Whe

at, r

ye, a

nd r

ice

(cro

p ye

ar)

1935

-39

Tho

us. t

ons

24,7

0846

41,

995

14,8

387,

140

232

•96

719

48-4

9do

.41

,381

250

16,0

48e

14,8

686,

844

188

3,59

419

70: H

igh

empl

oym

ent

Une

mpl

oym

ent

do.

do.

34,5

3434

,224

142

159

8,35

07,

550

17,3

8417

,384

8,72

87,

888

224

224

—1,

320

C 0 z 0 0 r) tTj

TA

BL

E A

-S (

conc

lude

d)

0 z ti 0 z Cf)

I•21 0 r)

-4

AN

D Y

EA

RU

NIT

PRO

DU

C-

TIO

NIM

POR

TS

EX

POR

TS

AN

I) s

ini'-

FoodC

ON

SUM

PTIO

N O

RFe

ed a

ndSe

ed

USE Oth

era

OT

HE

Run

uzA

-fl

ON

b

Cor

n, o

ats,

and

bar

ley

(cro

pye

ar)

1935

-39

Tho

us. t

ons

87,3

041,

000

1,52

04,

312

75,7

122,

920

3,84

019

48-4

9do

.13

4,56

882

04,

088

5,57

298

,820

4,14

822

,580

1970

: Hig

h em

ploy

men

tdo

.18

2,51

268

098

05,

424

120,

932

5,85

8—

Une

mpl

oym

ent

do.

131,

640

480

980

5,17

611

8,81

24,

808

4,34

4C

otto

n lin

t19

35-3

9T

hous

. bal

es13

,149

171

5,30

0—

—6,

988

9,41

919

49do

.16

,128

244

5,90

6—

—8,

870

1,21

819

70: H

igh

empl

oym

ent

do.

12,0

3025

04,

500

——

7,78

0—

Une

mpl

oym

ent

do.

12,0

0025

03,

000

——

7,41

01,

790

Woo

l (sc

oure

d ba

sis)

1935

-39

Mill

ion

lbs.

187

56—

——

281

—38

1949

do.

111

155

7—

—33

9—

8019

70: H

igh

empl

oym

ent

do.

150

350

——

—50

0—

Une

mpl

oym

ent

Tob

acco

(cr

op y

ear;

far

mdo

.15

026

0—

——

410

—

sale

s w

eigh

t)19

35-3

9M

illio

n lb

s.1,

460

8847

8—

—96

910

119

49do

.1,

980

100

581

——

1,34

015

919

70: H

igh

empl

oym

ent

do.

2,58

011

061

0—

—2,

080

—U

nem

ploy

men

tdo

.2,

500

110

500

——

1,90

021

0a

Incl

udes

hatc

hing

egg

s, f

ats

and

oil u

sed

in s

oaps

, pai

nts

and

othe

r in

dust

rial

use

s, s

hrin

kage

and

was

te o

f ve

geta

bles

,co

tton,

woo

1, to

bacc

o, a

nd n

onfo

od in

dust

rial

use

s fo

r gr

ains

.b

The

se a

re b

alan

cing

item

s, in

clud

ing

prim

arily

net

sto

ck c

hang

e in

mos

tye

ars,

and

, in

1949

, Dep

artm

ent o

f A

gric

ultu

re n

etpu

rcha

ses.

Exp

orts

of

nonf

at s

olid

s w

hich

mak

e up

a la

rge

part

of

tota

l milk

exp

orts

are

not

ref

lect

edon

a f

at-s

olid

bas

is.

d Pr

ojec

tions

on

basi

s of

tota

L a

pple

cro

p, w

hile

bac

kgro

und

data

are

for

com

mer

cial

app

le c

rop

only

. If

an e

stim

ate

for

all

appl

es is

incl

uded

, ave

rage

pro

duct

ion

for

1935

-39

may

be

arou

nd 2

6.5

billi

on p

ound

s an

d fo

r 19

49 w

ould

be

arou

nd 3

2.8

billi

on p

ound

s.In

clud

es m

ilita

ry p

urch

ases

of

whe

at a

nd r

ice.

Tot

al c

once

ntra

tes

fed

98.9

128.

713

3.4

151.

9314

6.31

TA

BL

E A

-6FE

ED

CO

NC

EN

TR

AT

E B

AL

AN

CE

: LIV

EST

OC

K P

RO

DU

CT

ION

UN

rrs

AN

]) F

EE

D P

ER

UN

IT, U

NIT

ED

ST

AT

ES,

1935

-39

AV

ER

AG

E, 1

948-

49, 1

949-

50, A

ND

PR

OJE

CT

ION

S FO

R 1

970

(ml M

ILL

ION

S O

F T

ON

S)

YE

AR

1935

-39

ITE

MA

vera

ge

BE

GIN

NIN

G O

CT

OB

ER

1948

-49

1949

-50

1970

PR

OJE

CT

ION

SH

igh

Em

ploy

men

t Une

mpl

oym

ent

I-i

00

Supp

lySt

ocks

at b

egin

ning

of

year

Prod

uctio

n of

fee

d gr

ains

Cor

nO

ats

Bar

ley

Sorg

hum

gra

ins

Tot

al

Oth

er g

rain

s fe

dbB

y-pr

oduc

t fee

ds f

ed

Tot

al s

uppl

yU

tiliz

atio

ns, O

ctob

er-S

epte

mbe

rC

once

ntra

tes

fed

Cor

nO

ats

Bar

ley

and

grai

n so

rghu

mW

heat

and

rye

Oils

eed

cake

and

mea

lA

nim

al p

rote

in f

eeds

Oth

er b

y-pr

oduc

t fee

d

10.7

7.9

30.8

aa

64.9

16.7 5.7

1.6

103.

123

.9 7.6

3.7

94.6

21.3 5.7

4.3

99.6

824

.48

8.35

5.04

99.1

224

.48

8.04

5.04

99.5

188.

312

5.9

137.

5513

6.88

5,1

14.4

119.

0

4.5

20.0

170.

7

5.5

20.6

182.

8

6.86

23.1

8

167.

59

5.91

22.2

9

164.

88

75.3

4.2

3.3

2.8

8.3

73.3

20.8 5.7

8.9

7.3

2.4

10.3

83.2

19.3 5.5

4.8

7.8

2.5

10.3

91.0

922

.13

9.38

6.17

9.73

2.25

11.2

0

88.3

521

.44

8.80

5.42

9.15

2.29

10.8

6

0 z 0 z 0 0 tTJ

TA

BL

E A

-6 (

conc

lude

d)

0 z cnIT

EM

YE

AR

1935

-39

Ave

rage

BE

GIN

NIN

G

1948

-49

OC

TO

BE

R 1949

-50

1970

PR

OJE

CT

ION

SH

igh

Em

ploy

men

t Une

mpl

oym

ent

Feed

gra

ins

for

seed

, hum

an f

ood,

indu

stry

,an

d ex

port

11.2

17.7

17.2

15.6

614

.23

Tot

al u

tiliz

atio

n10

5.1

141.

415

0.6

167.

5916

0.54

Util

izat

ion

adju

sted

to c

rop

year

bas

isSt

ocks

at e

nd o

f cr

op y

ear

104.

514

.513

9.9

30.8

152.

631

.2—

a—

434c

Tot

al s

uppl

y11

9.0

170.

718

2.8

167.

5916

4.88

Liv

esto

ck p

rodu

ctio

n in

term

s of

pro

duct

ion

units

(in

mill

ions

)14

0.2

171.

417

6.5

207.

020

1.0

Con

cent

rate

s fe

d pe

r pr

oduc

tion

unit

0.87

0.72

0.78

0.73

30.

728

a S

tock

sar

e as

sum

ed a

t nor

mal

leve

ls w

ith n

o ne

t acc

umul

atio

n of

inve

ntor

y.b

Impo

rted

gra

ins

and

dom

estic

whe

at a

nd r

ye.

cN

etst

ock

accu

mul

atio

n.So

urce

: Bac

kgro

und

data

fro

m F

eed

Stat

i.stic

s (D

epar

tmen

t of

Agr

icul

ture

, Sta

t. B

ul. N

os. 8

5 an

d 95

).

Documents

Some Considerations in Appraising the Long-Run … · Many of the important factors ... and these may distort the perspective ... of the more pessimistic long-run appraisals made