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therefore, to conclude that the entire ground rent of land should be taken by taxation. The further criticism of this proposal must be left to the chapters on taxation, but it is well to have in mind the logical basis for the proposal. We must grant the truth of the assertion that rent due to pure physical scarcity is unearned, but this concession is not to be taken as a warrant for the conclusion that this income should be entirely wiped out by taxation. The word unearned is here used chiefly in an abstract ethical sense. In the economic sense, the income may be in part or in whole necessary as an incentive to the full and proper utilization of the land. The development and improvement of uses of the land is animated in large degree by just this prospect of unusually large returns. To wipe out the possibility of super-normal returns would be to deaden the incentives to the full utilization of the land. In short, although pure ground rent may be unearned in some abstract ethical sense, nevertheless in the economic sense a substantial part of it is necessary as an incentive for the best improvement and development of the resources of the land.
General Point of View.—The present chapter has been devoted mainly to basic definitions and principles. The abstract concepts involved are necessary as working tools for the analysis of the pressing problems of agriculture, mining, urban realty, water-power, and the like. The presentation of the definitions and of the technical terminology does not supply an answer to these problems, but it is essential as a means of stating the problems in the first place as a means of providing thinking tools for analysis in the second place. The following chapters on land problems bring these principles down to concrete applications, and make use of them in dealing with the tangible situations which confront modern economics. Quantitative measurements are combined with abstract principles to arrive at concrete findings on definite problems.
CARVER, T. N., Principles of Political Economy, Chapter XXXVII.
of the United States Department of Agriculture.
, , and TAUSSIG, F. W., "Principles of Economics, Volume 11, Chapters XLII-XLIV. WALKER, F. A., Political Economy, Part II, Chapter I.
PROBLEMS OF AGRICULTURE
Balance in Agricultural Relations.-Agriculture does not lead an independent and isolated existence. It is part of a larger mechanism, both physical and pecuniary, which inter-relates all branches of economic activity. The prosperity of agriculture rests upon a delicate balance between those who live on the farms and those who live in the cities. It rests upon a delicate balance between transportation, manufacture, commerce and agriculture itself. This sensitive equilibrium of the great industries may be considered under the following heads:
1. The balance of farm income with general income.
From an examination of these major phases of agricultural equilibrium, it will be found that there are no magic forces which automatically guarantee to agriculture a smooth and orderly progress. Supply and demand, although always operative, nevertheless do not maintain steadily and consistently a balanced farm prosperity. The history of agriculture is a record of alternating progress and decay on the farm. The workers of the farms attain the peak of good fortune for a time, only to be pitched down to dismay and disaster later on. The central problem of the farm is how to maintain a constant balance with all other phases of economic activity, to the end that the mutual interdependence of the farm and other industry may result in their mutual prosperity.
The Balance of Farm Income with General Income. The real income of the farmer has normally been less than the real income of the remaining industrial population. The following table compares the percentage of the total income of the United States which goes to agriculture with the percentage of the total number of persons having gainful occupations who are engaged in agriculture. This percentage comparison indicates that the farmer receives less income in proportion to population than the average of other classes of producers.
1 See American Economic Review Supplement, March, 1923, p. 137; Report of The Joint Commission of Agricultural Inquiry, 1921, Part 8, p. 51.
It will be noticed that the farmer's share of income increased materially from 1889 to 1919. Over a period of thirty years, farm income was rising proportionately to total income of the country, but farm population in proportion to total population was declining. With more income going to agriculture and with fewer people proportionately engaged in agriculture, there was a steady tendency to greater per capita income in farming. The average individual farmer was much better off in 1918 and 1919 than he had ever been before. The average income of persons engaged in agriculture from 1913 down to 1919 was about 30 per cent higher than it had been from ten to fifteen years earlier. The war period was the peak period of farm prosperity.
And yet, even in these best of days for agriculture, farm income was less per capita than the income of other producers. Agriculture has produced from 14 to 23 per cent of the national income of the United States, normally about 17 or 18 per cent, and yet more than 26 per cent of the persons gainfully employed in the United States are engaged in agriculture. During the most favorable period in American agriculture, the average per capita income on the farm was only a little more than one-half that of the people engaged in other major industries. For example, in 1918, which was a good year for the farmer, the average per capita income of the farm population was only $359 as contrasted with $677 per capita for the non-farm population. A comparison of per capita farm income with per capita non-farm income is given below: 2
In the best years, farm income is much less than the income of other classes. In the worst years, as for example in 1920, the farm income is
2 See L. C. Gray, American Economic Review Supplement, March, 1923, pp. 173-176, and Report of Joint Commission of Agricultural Inquiry, 1921, Part 1,
less than a third as much per capita as the income of other classes. Farm income undergoes violent fluctuations. In 1920 it was but little more than half what it had been in previous years. Farm incomes in 1922 were but little better than in 1920. The restoration of farm prosperity means not the restoration of farm incomes to an equality with the income of other classes, but to the ratio which prevailed from 1913 to 1919. At this ratio, farm income was only a little more than half the per capita income of other classes. The desire to escape from the low income of 1920 to 1924 has been the desire to escape the very low ratio of farm income to other income which prevailed 25 years ago. It has been the desire to recover and retain the ratio of farm income to other income which the farmer enjoyed in 1919. That ratio, although not by any means equal to other income, was nevertheless the best per capita income ever attained by the American farmer.
What is the pathway to maintenance of a high farm income? It is the maintenance of the right scarcity of farm production. Scarcity varies with the balance between agricultural and other factors. The balance of population changing by people moving from farm to city, the balance of production changing by the increase of factory hands and the decrease of farm hands, the balance of price changing by bringing the price of farm products up to a par with other prices,-all of these changes in the balance between farm and city are fundamental in determining the scarcity of farm products.
Agriculture as a broad type of industry does not yield to the farmer a profit in the business sense of the word. To the business man, profit is a reward for risk and enterprise, over and above the expenses of capital and of wages of management. But after the farmer has paid a normal rate of interest on his capital and has allowed for a salary or wage for his own labor there is nothing left for profits. As a matter of fact, after the farmer has made allowance for his necessary capital cost, the residue available as a wage for his own labor is actually less on the average than the wage paid to other leading lines of industries. For instance, it is found that if in the year 1913 the farmer had gone to work as a laborer, his average labor income would have been $444 instead of $328, as it was. If he had worked as a miner instead of as a farmer, he would have received $755 or about 70 per cent more than the income for his labor received on the farm. Hence, not only is there not on the average any profit income to the farmer, but his labor income is actually less than labor income in other leading lines of business. The farmer's only real return is a wage return, and this a small wage in comparison with those paid in other industries. The farmer is not a profit maker, but a wage earner. He belongs to the laboring classes in classification of his income. He is a capitalist only in the
3 See 0. E. Baker, American Economic Review Supplement, March, 1923. Esti. mates of farm income necessarily make some provision to include non-cash income, such as value of house rent, and of food and fuel raised on farm and consumed directly. This non-cash income amounts to about one-fifth of the farmer's gross income.
sense that he conducts an independent business and has a small capital invested in farm property. His return is not the return familiar to capitalistic business, since it contains on the average no profit reward for risk. It contains solely a very moderate reward for labor. This holds true no matter whether the farmer owns his own farm or not, for if he owns his farm as a result of his own purchase, the farm represents merely his personal savings out of labor income over a period of years.
The use of averages in measuring these factors is bound to be misleading unless the actual variations which underlie the averages are made clear. In 1919, an unusually prosperous year in the South, farmers' incomes in the South were about one-third of those in Illinois, Iowa and Nebraska. The low incomes of croppers, negroes, and poor labor on southern farms pulls down the average which the corn belt farms tend to attain. The appreciation of land value in Iowa was from $82 per acre in 1910 to $199 per acre in 1920, whereas the appreciation in New York was only from $32 to $38 per acre. In New Mexico an actual depreciation of value took place in the same decade. While certain areas are undergoing unusual depression, other areas are on the incline. These sectional variations do not destroy the significance of general averages, but must be considered in their use.
The Balance of Farm Accumulation of Wealth.-Although the farm per capita income has been only a little more than half the per capita income of other classes, the farm accumulation of wealth per capita has been about two-thirds of the wealth accumulation of other classes. In 1920, for instance, the estimated per capita net worth of the farming plass was $1,978, as compared with a per capita net worth of $3,175 for the non-farming classes.*
The accumulation of farm wealth is kept fairly well in the hands of either active or retired farm landlords. About two-thirds of all landlords are either retired farmers or active farmers. The absentee landlord has not as yet come to the point of dominating farm ownership. The typical owner is a person who is either engaged in farming or has been so engaged for the larger part of his life. Absentee ownership has not, therefore, come to be the severe problem which it is in many old world countries. The owner usually lives either on the farm or in a town not far distant and is personally known to the worker of the farm and gives some degree of personal interest and supervision to the operation of the farm.
The accumulation of farm wealth is complicated by the appreciation of land values. Although land value is not the sole form of farm wealth, nevertheless it does make up approximately 70 per cent of the total farm wealth of all kinds. The farmer's wealth is chiefly the value of his land. This value is, as previously explained, a capitalization of the earning power of the land. Every change in income, either actual or prospec
4 See estimates by L. C. Gray and W. I. King, American Economic Review Supplement, March, 1923, p. 169.