Front Page Titles (by Subject) CHAPTER 27: PROBLEMS OF AGRICULTURAL ECONOMICS - Economics, vol. 2: Modern Economic Problems
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CHAPTER 27: PROBLEMS OF AGRICULTURAL ECONOMICS - Frank A. Fetter, Economics, vol. 2: Modern Economic Problems 
Economics, vol. 2: Modern Economic Problems, 2nd edition, revised (New York: The Century Co., 1923).
Part of: Economics, 2 vols.
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PROBLEMS OF AGRICULTURAL ECONOMICS
§ 1. Size of farms, and total farming area. § 2. Influences acting upon the size of farms. § 3. Self-sufficing versus commercial farming. § 4. Farming viewed as a capitalistic enterprise. § 5. Diversified versus specialized farming. § 6. Conditions favoring diversified farming. § 7. Intensive farming in Europe and America. § 8. Prospect of more intensive cultivation of land in America. § 9. The new agriculture. § 10. Difficulty of coöperation among farmers. § 11. Rapid growth of farmers’ selling coöperation. § 12. Some economic features of farmers’ selling coöperation. § 13. Coöperation in buying. § 14. Need of agricultural credit. § 15. Provisions for farm loans. § 16. Need of an agricultural policy.
§ 1. Size of farms, and total farming area. The average area of farms1 has varied from a maximum of 203 acres in 1850 (the first figures) to a minimum of 134 acres in 1880, being 138 acres in 1910. A better index, perhaps, is the average improved area per farm, which has been more nearly stationary, varying from a maximum of 80 acres in 1860 to a minimum of 71 acres in 1870 and 1880, being 75 acres in 1910. Here again the statistics require interpretation, for in the spread of the frontier the addition of large farms in the arid and semi-arid regions may raise the average, or the breaking up of large plantations in the South may decrease the average, without this indicating any essential change in the technical conditions of farming in the country generally. Since about 1900 the total area in farms has increased very slowly. Between 1900 and 1910 the increase was only 4.8 per cent; whereas a larger increase occurred in the area of improved land, 15.4 per cent, and the improved area in farms decreased 5.6. Future changes of farm areas may be expected to be of this same nature, mainly in the improvement of rough pastures, swamps, partly cleared woodlands, and desert lands awaiting irrigation. An increasing population will have to be provided with food and other products of agriculture on a farming area that henceforth will be increasing less rapidly than it has in the past and than the population increases.
§ 2. Influences acting upon the size of farms. In these averages for the whole country many conflicting influences unite and neutralize one another. Making for smaller farms is the breaking up of large grazing areas in the West into smaller general-purpose farms or irrigated fruit districts, and of larger general farms in the North and East into small poultry, flower, and fruit farms. Opposed to this is a movement toward the merging of farms of 50 to 100 acres into larger farms of 300 acres, more or less. The economic cause of this movement is interesting and important. The typical and economic size of farms when the Atlantic states were settled was determined by the use of hand tools, which permitted a man and his family to operate a farm of about 75 acres, of which about half was tilled and the rest was in permanent pasture and woodland. The fields were small and were laid out irregularly, which was no disadvantage for hand cultivation. But for the most economic use of land in field crops and under more modern conditions it is necessary to have pretty level fields, of regular rectangular shape. The farm unit should be of such extent as to permit of the proper use of the soil by rotation of crops, and to employ fully the best modern labor-saving machinery for each purpose. Numerous recent agricultural surveys point to the conclusion that for general farming this unit is a comparatively large area of about 300 acres.
These conditions offer a reward to those agricultural enterprisers who can purchase lands at a price based upon the high costs and lower yields of the older methods and cultivate them at the lower costs and with the larger yields of the newer methods. This movement, therefore, toward the consolidation of smaller into larger farms is likely to continue in many communities for several decades. This is likewise an advantage to the community in increasing the production with less labor. But the net effect upon the social life of the countryside is more doubtful, and calls for careful consideration.
§ 3. Self-sufficing versus commercial farming. The typical American farming family once produced nearly everything it used, and used nearly everything it produced. It was very nearly a self-sufficing economic unit, a “closed economy,” as it is sometimes called. Food, clothing, fuel, lumber, houses, furniture, tools, were on the farm carried through the various processes from the first gathering of the raw materials to the finished product. They were then consumed by the farm household. It is true that even in the first settlements there were some craftsmen—cobblers, millers, weavers, blacksmiths—whose services and wares were got by trading some of the surplus products from the farms—butter, cheese, eggs, wool, hides, furs, live stock, grain, lumber. A few rare commodities of foreign make found their way to the farm through peddlers and merchants; but altogether the goods produced outside the farm were a small fraction of the family’s consumption, and were exchanged for but little of the farm’s production. Most farmers tried to produce for themselves, as far as possible, everything their families needed, even when the soil and situation were poorly suited to the purposes. True, there were early some exceptional cases in which only one kind of product was taken from the land. Such were the forest products of masts, shingles, lumber, and turpentine, and the great southern staple, tobacco, and later cotton. The exceptions have been tending to become the rule in more and more communities. Farmers have been specializing more and more in the kinds of products to which their farms are adapted in respect to soil, relation to market, and otherwise. These products are taken to market and sold for money with which are bought the things needed for use on the farm.
§ 4. Farming viewed as a capitalistic enterprise. Thus the farm comes to be looked upon more and more, not merely as a home, but much as if it were a commercial enterprise or a factory, by which products are made for sale. This change, to be sure, is far from complete, as the figures for the average farmer’s income show that a large share of the family living still comes from the farm. It has gone on much further in some districts than in others, as is indicated in the types of farming discussed below. But, just to the extent that the farmer grows crops to sell, his outlook on his work undergoes a change. He is less exclusively a farmer, concerned with the technical processes of farming; he must be more largely a business man. Like a manufacturing enterpriser, he buys the factors of production, combines them into new products, and sells them again. He becomes interested in market conditions and prices. He grows more commercially minded. He views the farm no longer as a fixed area, but one that may be enlarged by purchase or by rental, and that may be reduced by selling or letting the less needed parts. One fifth of farm-owners now rent additional land. In commercial farming the land is not contrasted with capital as something apart, consisting of the value of the equipment and stock; but the whole complex of land and other goods is thought of as a capital investment. The greater ease of tranferring landed property in America and the greater mobility of our population have always made it more natural here than in Europe to look upon land as a capital investment. This view is now becoming more general as a result of the commercializing of farming enterprise.
This change has been favored by other influences. Particularly has the use of machinery and of other equipment, calling for a larger investment per man and per acre, been making agriculture, in its form of enterprise, more like manufacturing and commercial undertakings.
§ 5. Diversified versus specialized farming. To be largely self-sufficing a farming family must carry on general farming, that is, must produce a diversity of products. As farming becomes more commercialized it usually becomes more specialized, and a certain district produces a smaller variety of products. In some part of the country and on particular farms this specialization is extreme: In various parts of California, citrus fruits or prunes or beans may be the only crop raised; wheat in central Kansas and the Dakotas; fresh milk and vegetables on thousands of farms surrounding the great cities; cotton in many parts of the South. Many farmers in these districts have no gardens or orchards, keep no cow, and buy much or all of the grain for their horses, as well as milk, butter, vegetables, and fruit for their own use. Poultry and eggs are shipped in trainloads two thousand miles from the Middle West to California to be consumed by orange-growers. Many farmers in the East no longer keep sheep, pigs or beef cattle, and they buy out of the butcher’s wagon all the meat except fowls used by their families. This partly explains the decrease of live stock in the whole country in recent years and the relative increase in the price of meat.
§ 6. Conditions favoring diversified farming. There are however, limits to the net advantage of specialization in crops, and competent authorities on agriculture question whether in many cases that limit has not been reached and passed. Most farms have a variety of soils and conditions—hilltops, slopes, bottom-lands—which are suitable for different purposes. A rotation of crops is necessary to get good yields. Live stock must be kept to maintain the fertility of the land, which deteriorates fast if hay and grain are continually sold. Some live stock can be kept on every farm very cheaply with the food that would go to waste otherwise. The specialization in stock-raising in the prairie states ceased to be profitable when lands became more valuable. Specialization in wheat production in the states just west of the Mississippi is possible only as long as wheat will grow on the virgin soil without costly fertilizers. The cotton farmers of the South, especially the negro-farmers, have been forced by debt and thriftlessness into a one-crop policy that is now seen to be wasteful in the long run. A variety of production is necessary to employ labor somewhat regularly on a farm throughout the year. These and other conditions will make most farming always an industry of comparatively diversified products. Only 1 per cent of the farms get as much as 40 per cent of their receipts from fruit; 2 per cent get that much from tobacco; 3 per cent from vegetables; 6 per cent from dairy products; and 19 per cent from cotton. The remaining 60 per cent of receipts are in most cases from various sources, and these figures do not include the value of produce consumed by the farmer’s family.
§ 7. Intensive farming in Europe and America. No other farm problem interests the city man so much as that of increasing the production of the land. To most city men farming hardly seems to be an occupation giving livelihood and life to the farmer; it seems rather to exist for the sole purpose of feeding men living in cities. The city man, therefore, measures the success of farming, not by the farmer’s income or by the level of the countryside prosperity, but by the number of bushels per acre raised to ship to town. Every city newspaper and magazine contains articles pointing to the fact that larger crops per acre are raised in Europe than in America, and broadly suggesting that the American farmer could do as well, if only he would. Foreign travelers comment in like vein on the wasteful use of land in America as compared with farming methods in Europe.
Land is used most extensively, with respect to labor, when it is in forests; somewhat less so when in pasture, as care must be given to the live stock; and still less when used for hay, grain, and other crops. But cultivation with machinery in large fields is a far more extensive method of agriculture than that carried on by the patient work of peasants with their hand tools. The more labor or the more equipment (or both together) that is put upon an acre, the larger the product, but the larger the cost per unit. It is a familiar economic principle.2 It would bankrupt any farmer, excepting the millionaire amateur, to farm in America by European methods. American farmers, at least many of them, could raise as many bushels per acre and keep their farms as thoroughly cultivated as do the European peasants, if wages were as low here as are the peasants’ incomes.
§ 8. Prospect of more intensive cultivation of land in America. As the aggregate need for food increases in America there must come a steady pressure upon our stock of land uses, resulting in decreasing returns to labor in agriculture, unless this movement can be counteracted by the spread of better methods in agriculture—not European peasant methods, but new American methods consistent with high labor incomes. A good deal of our farm land is undoubtedly too intensively used now in view of present and prospective commodity prices and wages. Maladjustment of land uses has resulted from mistaken judgment, from changing conditions as to prices, transportation, and markets, and from loss of soil fertility. There are thus, on nearly every old farm, some fields that would better be in pasture and much hillside pasture that would better be woodland. It is often declared extravagantly that our country could support easily the total population of China, or as great a population per square mile as that of Italy. If it did so it would be only on the penalty of lowering wages toward, if not quite to, the level of the Chinese coolie or of the Italian peasant. Great metropolitan dailies gravely present, as an argument in favor of unrestricted immigration, the proposition that “if” the cheaper immigrants would but go upon our “waste” land (which they refuse to do), and raise food by European methods, the problem of the rising cost of food in the cities would be solved. This urban ideal of a frugal, low-paid agricultural peasantry can hardly be adopted in America as the national ideal. Rather, it would seem, any movement toward more intensive agriculture that necessitates a lowering of the standard of living of the masses of the American people will, when it is recognized, be condemned and opposed.
§ 9. The new agriculture. Agricultural method, the technic of farming, has been constantly progressing for two hundred years in Europe and in America. Were it not for this, the great growth of population on this combined area would have been quite impossible. But the betterments since about 1890 in America have been especially great. They are mostly the first large fruits of the scientific study made possible by the land-grant colleges and agricultural experiment stations fostered by state and national legislation. These many diverse improvements are grouped under the general title of the “new agriculture.” Its chief features are: new machinery and other labor-saving methods; better methods of cultivation of the soil; better selection of seed; introduction of new plants and trees from abroad to utilize low-grade lands; plant-breeding to develop new varieties of better quality, heavier bearing, or immune to disease; more efficient and economical ways of maintaining soil fertility; better methods of marketing; and better technical education of the individual farmer. Each of these topics, and a number of other minor ones, would require a chapter in a complete treatise on agricultural economics. Here this mere enumeration must be allowed to convey its own suggestion of far-reaching results for the whole political economy of the nation and of the world.
Indeed, so much has been written in a Barnumesque way of the wonders of the new agriculture that its actual results and further possibilities are in many minds absurdly exaggerated. It has not as yet been potent enough to prevent diminishing returns in respect to the great staple foods and raw materials obtained by agriculture. It apparently has barely kept pace with the needs of the growing population of Christendom. It has enabled a larger population to exist in about the same if not in a worse condition, on the same area, while progress in cheapness of goods has come almost entirely from the side of the chemical and the mechanical industries. It does not give the promise of an indefinite amelioration of the lot of an indefinitely multiplying population. But, to a population slowly increasing, a new and ever newer agriculture, utilizing constantly the achievements of the natural sciences and the mechanic arts, insures the possibility of a steady betterment of the popular welfare in city and in open country alike.
§ 10. Difficulty of coöperation among farmers. Rural communities are proverbially conservative; the American farmer is proverbially an individualist. No wonder, then, that the new ideas and plans of coöperation in business matters have made headway in agriculture slowly and with difficulty. The need of mutual aid among American farmers is especially great, for, as has often been said, isolation is the problem of the farm, as congestion is that of the city. On the frontier a coöperative spirit manifested itself frequently in mutual helpfulness, in house-raising bees, husking bees, threshing bees, and other similar gatherings. But this spirit seems to have almost disappeared in the older communities, the more rapidly doubtless in the period of decaying agricultural prosperity.3 To-day, for example, it is impossible on a certain Pennsylvania road for one more progressive farmer to get his neighbors to coöperate in so simple a matter as hauling their milk-cans to the creamery; and so every day in the year ten horses are hitched to ten delivery wagons, carrying two or three milk-cans apiece, and driven by ten drivers along the same road to and from the railroad station. One driver and two horses could easily carry as much or more, as is done now in many other dairy districts. Even of successful coöperation among farmers sympathetic critics are forced to say: “Many students of rural economics assert that coöperation as applied to the distribution and marketing of farm products is not very successful unless it is founded upon dire necessity. When the records of the organizations of the country are analyzed, it becomes almost necessary to accept that statement. As long as farmers do fairly well in their own way; they are not inclined to coöperate.”
§ 11. Rapid growth of farmers’ selling coöperation. Despite what has just been said, coöperation among farmers now is more developed and is growing faster than all other kinds of coöperation in America. In 1920 there were at least 14,000 farmers’ buying and selling associations, distributed throughout every state in the union. Their growth has been most marked in farming communities in the West, especially in California and in the middle western or northwestern states (e. g., Minnesota and Wisconsin). There the farmers average younger, and many have been educated in the state agricultural colleges. They all produce nearly the same kinds of crops of staple produce which must be shipped to distant markets. The need of uniting to get what they thought would be fair treatment from the railroads, and to protect themselves against the abuses of the competitive commission sales-agents, seems to have given the first impetus to farmers’ coöperation.
The most notable developments were those of the California Fruit Exchange and of coöperative societies of the Northwest for marketing grain. The membership of the former is made up entirely of the local citrus-growers’ associations in California. It has a complete organization of selling agents in the eastern cities, and a remarkably efficient, though simple, system of equalizing and expediting shipments. Agricultural coöperative associations of various kinds are multiplying all over the country, for shipping live stock, fruits, butter, cheese, and other farm products. Coöperation for these purposes called forth new activities; packing-houses were built, and grain-elevators and creameries and dairies, and now a goodly number of the simple manufacturing processes are undertaken by these societies.
§ 12. Some economic features of farmers’ selling coöperation. This type of producers’ selling cooperation is proving in America to be far more successful than producers’ cooperation among workingmen;4 and certain important economic features in it should be noted. The local producers’ selling coöperative society is composed of farmers who as enterprisers own and carry on their own separate businesses; they are not, as in the other case, wage-workers. Any productive processes undertaken by this kind of society are subordinate to the main business, being such as picking, packing, drying, preserving, and making boxes for packing. This form of coöperation, with the related form of consumers’ cooperation that is fostered by it, promises to have a wide extension.
Some of these societies, as those dealing in citrus fruits, regulate with some success the picking and the marketing so as to distribute them more evenly throughout the year. They watch the markets and direct their agents by telegraph to divert cars en route away from markets that are glutted with products and into markets where prices are higher. They take some of the products, as eggs in the spring at the period of low prices, and pack or refrigerate them, to be sold when prices are higher. For thus withholding the supply they are said by some to exercise a monopolistic power. But this is a more than doubtful view. As long as only the seasonal variations are equalized and the total supply of the year is not reduced, it is, on the marginal principle, an economic service to the consumers, comparable to insurance in its utility. Reducing the area planted or preventing the entrance of others into the industry would be monopolistic acts, but these as yet have not occurred.
§ 13. Coöperation in buying. Coöperative buying (called also consumers’ coöperation or distributive coöperation) has had a large growth in the British Isles since 1844, when the society called the Rochdale Pioneers was founded by a group of factory workingmen. The coöperative stores, both in Great Britain and on the Continent, have flourished mainly among the industrial workers in urban centers. However, this has not been exclusively the case, and, particularly in Denmark and Ireland, coöperative buying has increased in agriculture in connection with selling associations. Between 1890 and 1914 the growth of consumers’ coöperation among European industrial wage-earners was phenomenal, especially in Belgium, Germany, and Switzerland. American wage-workers however, have made few and feeble efforts in this direction.
In the period beginning 1867 many coöperative stores were founded in America by farmers in the Grange movement, who operated also grain-elevators, warehouses, and steamboat lines. But the movement failed, about 1877. This result is easily explained by lack of commercial knowledge and lack of harmony among the members, selling on credit, and inefficient management. A new era in consumers’ coöperation for farmers began about 1900, and in several widely separated parts of the country—Minnesota, Kansas, California, Washington and elsewhere—the movement has spread rapidly, supported in large part by the same persons who are members of the selling associations.
§ 14. Need of agricultural credit. Banking originated in cities and for the use of the merchant class. It still retains pretty faithfully its commercial character. The change of farming toward a more commercial form5 has been little aided by banking credit. National banks and many others were forbidden in their charters to lend on the security of real estate, the farmer’s one business asset.6 A great number of farms are always in course of being purchased, the balance of purchase money being borrowed by the purchaser. A group of private agencies, such as life insurance and mortgage loan companies and local money-lenders, has supplied long-term farm credits at rates of interest considerably higher than were paid for loans on urban real estate. The total of agricultural loans was estimated in 1916 to be $3,500,000,000. Though rates of interest had become more equalized throughout the whole country, they still ranged between 7 and 10 per cent in the southern and western states, averaging 7 per cent in the whole country for interest and commission. The need of better opportunties for credit in the agricultural districts was long recognized. The high rate of interest for borrowed money necessarily placed a limit on improvements in equipment and methods of farming.7
§ 15. Provisions for farm loans. The Federal Reserve Act made two important changes to improve agricultural credit.8 Long and vigorous discussion of the subject led at length to the enactment of the Federal Farm Loan Act, July 17, 1916. It authorized the establishment of twelve Federal Land Banks, each with a capital of not less than $750,000, to make loans through national farm associations organized somewhat after the model of the building and loan associations. The bonds issued by these banks may bear not to exceed 5 per cent interest and are tax exempt. The loan is repaid by the farmers under a regular plan of amortization.
This plan went into effect opportunely, when the withdrawal of loans from America by European investors and the financing of the war was already causing rising interest rates. But for this act, the financial difficulties to agriculture would have been serious just as the patriotic slogan declared, “Food will win the war.” As private investors were not ready to subscribe for stock in the banks, the Treasury of the United States did so. In the first year of its operation the Federal Farm Loan Banks issued nearly $100,000,000 of bonds; and at the end of about three years (by October, 1920) more than $350,000,000; at which time farm loan associations to the number of four thousand were operating. Besides, there were operating under the act twenty-five Joint Stock Land Banks with mortgage loans of nearly $80,000,000 outstanding.
All of the effects of this legislation are not yet fully apparent; but it is clear that it has brought down the rate of interest on long-time loans of farmers to nearly 5 per cent in the remotest parts of the country. This must stimulate agricultural improvement and make it possible for thrifty tenants to purchase land on long time. But, inasmuch as farmlands are brought within the circle of lower interest rates, their capitalization will be higher, based on the net annual rental. But ultimately the law should, with wise administration and careful changes made in the light of experience, broaden and strengthen the independent farm ownership of the nation, as well as increase agricultural production.
§ 16. Need of an agricultural policy. Men of the farthest vision in the field of agricultural and land economics—men such as Liberty Hyde Bailey, chairman of the Roosevelt Country Life Commission, Eugene Davenport, director of the Illinois College of Agriculture, Kenyon L. Butterfield, president of the Massachusetts College of Agriculture, and Richard T. Ely, founder of the Institute for Research in Land Economics—have since the beginning of this century been striving to gain for this great problem some due share of the national thought and effort. The events of the Great War gave force to their appeal for a national policy of agriculture. It is not too optimistic to believe that in some respects substantial progress toward this end has been made in the development of experiment stations and state colleges of agriculture, farmers’ institutes, and “farmers’ week” gatherings, that bring together the progressive farmers by thousands, not only to get some technical and practical hints on raising crops, but to gain a broader view of their economic task and of their civic responsibilities. These schools and meetings are helping, as are automobiles, good roads, telephones, rural free delivery, better schools, and an active rural press, to destroy the isolation of country life and to make farmers as a class more broadly educated, more cooperative and more public-spirited than the average urbanite. More insistently the call is heard for a national policy in agriculture, with the belief that, more than any other occupation, agriculture is bound up with the very existence and survival of the nation. This belief rests not merely on the crude physical fact that men must have food to live, but also, and even more, on the eugenic fact that whatever be the country population will ultimately be the nation, and on the historical fact that democracy, stable government, and liberty must have their roots in the soil and in the ownership of homes. This and the foregoing chapter have but sketchily suggested some of the topics that make up the agricultural problems. It is even more important to appreciate that the agricultural problem is connected with all the other industrial problems, and is but a part of the one greatest problem, transcending individual, class, and sectional interests, the problem of national welfare.
[1 ]A farm is defined for census purposes as “all the land which is directly farmed by one person, either by his own labor alone or with the assistance of members of his household, or hired employees. When a landowner has one or more tenants, renters, croppers, or managers, the land operated by each is considered a farm.”
[2 ]See Vol. I, chs. 12 and 13, on proportionality and usance.
[3 ]See ch. 26, § 5 and § 6.
[4 ]See ch. 20, §§ 13, 14, 15.
[5 ]See above, § 3.
[6 ]See ch. 8, § 8.
[7 ]See Vol. I, pp. 495-497, on the relation between lower interest rates and productive processes.
[8 ]See ch. 9, § 7 on time deposits, and § 9 on farm loans.