Transform traditional agriculture

Author: Theodore W. Schultz (USA)
Publisher:
Publish Date: April 1, 2006
Features: When I saw that most countries had achieved little in increasing agricultural production, I understood why people firmly believed that mastering agriculture was a valuable yet rare art. If mastering agriculture is an art, then a few countries are very skilled in it, although they seem unable to teach this art to other countries. These few skilled agricultural countries have continuously increased production while reducing the labor and land used for farming. However, it is no surprise to me that economic policies aimed at increasing agricultural production remain largely in the realm of myth when the economic foundation for increased production is treated as an art. Now, in policy-making, policymakers in one country after another are as adept as farmers of the past who planted crops based on the phases of the moon. Agriculture is one of the oldest productive activities in a settled society, but surprisingly, people know little about the incentives for saving and investment in places where farmers are constrained by traditional agriculture. Even more strangely, economics has regressed in its analysis of the saving, investment, and production behavior of farmers in poor countries. Older economists knew more about the special types of economic equilibrium applicable to these environments than modern economists. Although the weakness of traditional agriculture is obvious, it is not immediately apparent that this weakness is a function of unique preferences related to work and saving. Similarly, it is not clear that the weakness of traditional agriculture is primarily due to farmers exhausting the advantages of "production technology" as part of the inputs and knowledge they control, with little incentive for their saving and investment to increase the stock of reproducible capital. The purpose of this book is to demonstrate that the fundamental characteristic of traditional agriculture is the low rate of return on investments in the types of agricultural inputs that farmers have used for generations. It also aims to further explain that to transform this type of agriculture, it is necessary to develop and supply a set of more profitable inputs. Developing and supplying these inputs, and learning to use them effectively, is the matter of investment—in investment in human and physical capital. Food and agricultural issues have repeatedly been used as testing grounds for new concepts and analytical tools. The diminishing returns to labor and physical capital relative to land, and Ricardian rent, are examples. The demand-income elasticity starting with Engel's statistics, as well as the later immortal research of Henry Schultz, Girshick, Haavelmo, Stone, Tobin, Buck, Houthakker, and Goreux, are also examples. Recently, Nerlove tested the explanatory value of the distribution lag, Griliches emphasized the production function, and Griliches also tested the cost and social benefits of new inputs like hybrid corn. In the research of this book, I attempted to test the usefulness of supply and demand methods in determining the prices of income streams from agricultural sources. When I began my research, I planned to include a comprehensive bibliography. However, I quickly realized that although there is much literature on the characteristics of agriculture in poor countries, it is generally unrelated to the fundamental economic issues at the core of this book's research. Therefore, I decided that instead of listing the bibliography separately, it would be better to include it as an appendix. As a result, many of the published literature entries I mentioned represent views and descriptions that support doctrines and policy methods inconsistent with my analysis. Since I began this book's research in the second half of 1959, I have been grateful to many people. When I presented the central idea of this book's research to my students, the discussions with them were very fruitful. My colleagues Zvi Griliches, D. Gale Johnson, and Dale W. Jorgenson read the main chapters of this book, and their criticisms benefited me greatly. Vernon W. Ruttan read the entire draft and I almost accepted all of his suggestions. Abraham Bergson, Richard A. Musgrave, and Lloyd Reynolds raised some useful questions. My wife Esther Wohlfarth Schultz proofread the typescript, checked the bibliography, and repeatedly made me realize that what I thought was clear was actually not expressed clearly enough. Miss Marian Neal Ash of Yale University Press generously contributed her editorial skills. My secretary Virginia K. Thurner diligently proofread the galley proofs. Support from the Ford Foundation allowed me to be free from schoolwork during 1961–1962. But even more gratefully, I want to acknowledge the oral transmission, which is part of the at the University of Chicago Department of Economics.