Change to traditional agriculture

Author: (American) Schultz
Publisher:
Publish Date: 1999-01-01
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 myths when the economic foundation for increased production is treated as an art. Nowadays, policymakers in one country after another are as adept at making decisions as farmers once were who planted crops based on the phases of the moon. Agriculture is one of the oldest productive activities in a settled society, yet surprisingly, people know little about the incentives for saving and investment in places where farmers are constrained by traditional agriculture. What is even more surprising is that economics has regressed in analyzing 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 a component of the inputs and knowledge they control, with almost no incentives to increase the stock of reproducible capital through saving and investment. 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 task of investment—in human and physical capital. Food and agricultural issues have repeatedly been used as testing grounds for new concepts and analytical tools. Diminishing returns to labor and physical capital relative to land, and Ricardian rent, are examples. Starting with Engel's statistical demand-income elasticity and later Henry Schultz's immortal research, as well as the studies of Girshick, Haavelmo, Stone, Tobin, Buck, Houthakker, and Goreux, are also examples. Recently, Nerlove's explanation of the value of distributional lags has been tested, Griliches's particular emphasis on production functions, and Griliches's examination of the cost and social benefits of new inputs like hybrid corn have all been tested. In this book's research, 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 on the topic. However, I quickly realized that although many documents on the characteristics of poor countries' agriculture were available, they were generally irrelevant to the fundamental economic issues at the core of this book's research. Therefore, I decided to include the bibliography as an appendix rather than listing it separately. As a result, many of the published references I cited represent views and arguments 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, our discussions were highly beneficial. My colleagues Zvi Griliches, D. Gale Johnson, and Dale W. Jorgenson read the main chapters of this book and their criticisms were invaluable. Vernon W. Ruttan read the entire draft and I accepted almost all of his suggestions. Abraham Bergson, Richard A. Musgrave, and Lloyd Reynolds raised some useful questions. My wife Esther W. Schultz proofread the typescript, checked the bibliography, and repeatedly helped me realize that what I thought was clear was actually not expressed as clearly as I believed. 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 between 1961 and 1962. But even more gratefully, I want to acknowledge the oral transmission I am indebted to, which is part of the seminar on special topics in the Department of Economics at the University of Chicago.