Download chapter 02 decelerating agricultural society

Chapter Two
Decelerating agricultural society:
Theoretical and historical perspectives
Economic Growth: The New
Perspectives for Theory and Policy
Tai-Yoo Kim (Seoul National University)
and
Almas Heshmati (Sogang University)
Springer 2014
1
Copyright © 2013 Tai-Yoo Kim and Almas Heshmati
CONTENTS
 2.1 Look at the definition and characteristics of agricultural
societies.
 2.2 Look at the theories for decelerating society.
 2.3 Look at theoretical explanations about the rise of an
agricultural society and its deceleration patterns.
 2.4 Look at the growth limitations of a decelerating
agricultural society.
 2.5 Look at the deceleration of an agricultural society and its
replacement by an industrial society in Europe and the United
States.
 2.6 Look at the transition periods from the decelerating
agricultural to accelerating commercial societies.
 2.7 Summary
 2.8 References
2-1 Definition and characteristics of an agricultural society
Definition of an agricultural society
Key indicators to define an agricultural society:

Self-sufficiency

A community with natural interdependency

Key production factor: land

In Europe: Manor was the heart of the
agricultural district
2-1 Definition and characteristics of an agricultural society
Characteristics of an agricultural society
An agricultural society’s short-term production function
follows the neo-classical production function (van Bath,
1963):

Diminishing returns to scale

Y=F(Land, Labor)
Affected by regional and economic factors:

Climate, quality of soil, and the condition of the
agricultural water supply

Recovering fertility of soil after land usage

Ratio of the quantity of sown seeds to harvest

Low technology development
2-1 Definition and characteristics of an agricultural society
Characteristics of an agricultural society
Figure 2 - 1
Divergence patterns
of purchasing power
per head of milk
cows and other cattle,
1875 to 1937
Due to the inelasticity of
demand and supply, the
characteristics of
agricultural products may
cause large price
fluctuations.
Source: M. Ezekiel, The cobweb theorem, Quarterly Journal of
Economics 52 (2) (1938) 255–280
2-2 Theory of decelerating society
Viewpoint of neo-classical technical change
Figure 2 – 2A
Relationship between
output and time as seen by
shifts in APFs(Aggregate
Production Functions) over
time in an agricultural
society
Each APF reflects the
technology level at a specific
time. In a pure agricultural
society, the degree of shift in
APF is small and decreasing
over time.
2-2 Theory of decelerating society
Viewpoint of neo-classical technical change
Figure 2 – 2B
Relationship between
output and time of an
agricultural society as
seen through a
production expansion
path
The growth rate of agricultural
society is decelerating because
the annual growth of production
is gradually decreasing over
time due to sluggish technology
advancement.
2-2 Theory of decelerating society
Viewpoint of induced innovation model (Hayami and Ruttan)
Figure 2 - 3
Relationship in an
agricultural society
between output and
time per the induced
innovation model
The meta-production function
for agriculture also shows that
the economic growth rate
decreases as the movement of
the short-run production
function gets smaller due to
slow technology development.
2-3 Theoretical explanations about a decelerating
agricultural society
Debertin’s explanation of agricultural production
Figure 2 - 4
General forms of the
neo-classical
production functions
In the case of
agricultural production,
productivity drops
quickly because the rate
of production factor,
which is a fixed cost, is
high and the production
period is long (Debertin,
1986).
2-3 Theoretical explanations about a decelerating
agricultural society
Johnston and Mellor’s stage theory of agricultural
development
1st stage: development of agricultural preconditions
2nd stage: expansion of agricultural production
based on labor-intensive techniques that
rely heavily on technological innovations
3rd stage: expansion of agricultural production
based on capital-intensive and laborsaving techniques
2-3 Theoretical explanations about a decelerating
agricultural society
Hayami and Ruttan’s agricultural development theory
Technology innovation is the most important factor for
agricultural development.
The long-term trend of agricultural production is
expressed by the meta-production function.

An envelope of short-term production functions for the
period

The change between short-term production functions in
successive periods is regarded as technology
advancement
The shape of meta-production functions for a pure
agricultural society shows a decelerating form according
to time because technology innovation is very slow.
2-4 Limitations of a decelerating agricultural society
Scale-related structure problem
Figure 2 - 5
The structure of a
decelerating society
The self-sufficient
structure and the lack
of economies of scale
result in an inability to
sustain capital
accumulations in a pure
agricultural society
(Olmstead and Rhode,
1993) to develop an
economy continuously.
Source: E. Gabre–Madhin, C.B. Barrett, P. Dorosh,
Technological change and price effects in agriculture:
conceptual and comparative perspectives, markets, trade,
and institutions, Division Discussion Paper 62, International
Food Policy Research Institute, Washington, DC, 2003
2-4 Limitations of a decelerating agricultural society
Productivity-related structure problem
The traditional society inevitably experienced a growth
ceiling because of the low productivity resulting from
lack of modern technologies (Rostow, 1960):

According to the stages of economic growth hypothesis,
the transition from an agricultural to an industrial
economy moves the society to a more developed state.

Movement of productive resources from agriculture to
industry promotes economic growth (Johnston and
Mellor, 1961).
2-4 Limitations of a decelerating agricultural society
Market-related structure problem
Production of organic matters and mechanization of
agricultural production are difficult to adjust quickly in
response to changes in market conditions, and the supply is
therefore inelastic in product or price dimensions.
The relative importance of agricultural production decreases
as the economy grows, because income elasticity of
agricultural products is less than that of industrial products
(Schultz, 1953).
Equilibrium theory (Kelley, Williamson, and Cheetham, 1972;
Yamaguchi and Binswanger, 1975):
 Constraint of demand, which is attributed to low income
elasticity, acts as the fundamental limit of agricultural growth.
2-4 Limitations of a decelerating agricultural society
Institution-related structure problem of a postagricultural society
Agricultural development is confined by country-specific
institutional conditions:
 Colonial period
 Taxation, regulation, property rights, institutions, and
natural environments of each country
 Public subsidies (antitrust law exemptions in the
agricultural sector during the 1920s agricultural crisis
by US government)
Mundlak (2000) claimed that agricultural development
should be investigated not only within the sector but also
in the context of the general economy.
2-4 Limitations of a decelerating agricultural society
Position of agriculture within the economic
development theory
According to economic development theory, an
agriculture society is always the precondition for
industrialization:

Marx’s economic development theory

List’s four stages theory

Fisher and Clark’s structural change theory

Rostow’s leading industry theory
2-5 Historical perspectives on countries experiencing
a decelerating agricultural society
Agricultural production of medieval European countries
Figure 2 - 6
Agricultural output
per capita, 1300-1800
(England in 1500 =
1.00)
The agricultural
productivity per
laborer was sluggish
or decreasing during
the Middle Ages except
in England and the
Netherlands.
Source: R.C. Allen, Economic structure and agricultural productivity
in Europe, 1300–1800, European Review of Economic History 3
(2000) 1–25
2-5 Historical perspectives on countries experiencing
a decelerating agricultural society
Agricultural production of Italy:
Figure 2 - 7
Gross agricultural
product in Cuneo
Italy, 1300-1870
(1860-70=100)
The agricultural
production remained
sluggish until 1820,
just before Italy
became an industrial
society.
Source: G. Federico, P. Malanima, Progress, decline, growth:
product and productivity in Italian agriculture, 1000–2000,
Economic History Review 57 (3) (2004) 437–464
2-5 Historical perspectives on countries experiencing
a decelerating agricultural society
Total crop production of medieval England:
Figure 2 - 8
Grain output at
constant
consumption per
output, England,
1541-1860
The Industrial
Revolution helped
agricultural production
escape a decelerating
trend.
Source: G. Clark, Yields per acre in English agriculture, 1250–
1860: evidence from labour inputs, Economic History Review
44(3) (1991) 445–460
2-5 Historical perspectives on countries experiencing
a decelerating agricultural society
Agricultural productivity of the United States of America:
Figure 2 - 9
Agricultural
productivity levels of
the United States,
1775-1975
Three sub-periods until
1930 experienced
decelerating growth.
However, after the
development of
industrial technologies,
the accelerating
growth started to
emerge.
Source: D.L. Plucknett, Sources of the Next Century's New
Technology, in: J.R. Anderson (Ed.), Agricultural Technology:
Policy Issues for the International Community, CABI
Publishing, New York, 1994
2-6 Transition from an agricultural to a commercial society
Formation of a commercial society:
The commercial society appeared in Europe around the
14th century with the increase of agricultural output and
vigorous commercial activities to exchange surplus:
 Equipment and technologies related to agriculture
continued to be developed.
 The agricultural output grew.
 Commerce was initiated through the surplus supply of
agricultural products.
 Demand for imported spices and luxuries increased.
The commercial society adds value by transporting the
value created by the agricultural society to the places
where consumer utility is highest.
2-6 Transition from an agricultural to a commercial society
Development of a commercial society:
The commercial society overwhelmed medieval
European agricultural society via enlarged cities,
increased population, and expanded market
activities.
The market was activated through the trade of
agricultural surplus and the inflow of population to
the cities.
2-6 Transition from an agricultural to a commercial society
Development of a commercial society, England
Table 2.1
England:
1300
1400
1500
1600
1700
1750
1800
Estimated population distribution, 1300-1800 (millions)
Total
Urban
Rural nonagricultural
5.0
2.5
2.5
4.4
5.2
6.0
9.1
0.22
0.20
0.18
0.43
0.88
1.39
2.61
0.96
0.46
0.46
0.96
1.47
1.95
3.23`
Rural
agricultural
3.82
1.84
1.85
3.03
2.86
2.70
3.23
Source: R.C. Allen, Economic structure and agricultural productivity in Europe,
1300–1800, European Economic Review History 3 (2000) 1–25
2-6 Transition from an agricultural to a commercial society
Development of a commercial society, Netherlands
Table 2.1
Estimated population distribution, 1500-1800 (millions)
Total
Urban
Rural nonagricultural
Rural
agricultural
1500
0.95
0.28
0.13
0.54
1600
1.5
0.52
0.25
0.73
1700
1.9
0.74
0.37
0.79
1750
1.9
0.69
0.41
0.80
1800
2.14
0.73
0.54
0.87
Spain:
Source: R.C. Allen, Economic structure and agricultural productivity in Europe, 1300–1800,
European Economic Review History 3 (2000) 1–25
2-6 Transition from an agricultural to a commercial society
Development of a commercial society, Italy
Table 2.1
Italy:
1300
1400
1500
1600
1700
1750
1800
Estimated population distribution, 1300-1800 (millions)
Total
Urban
Rural nonagricultural
11.0
8.0
10.0
13.3
13.4
15.5
18.5
2.29
1.93
2.21
3.00
3.03
3.49
4.06
1.74
1.21
1.56
2.27
2.49
2.88
3.75
Rural
agricultural
6.97
4.87
6.23
8.03
7.88
9.13
10.69
Source: R.C. Allen, Economic structure and agricultural productivity in Europe, 1300–1800,
European Economic Review History 3 (2000) 1–25
2-6 Transition from an agricultural to a commercial society
Development of a commercial society
Figure 2 - 10
Development of
commerce and
exchange between
regions
The lines show flow of
goods between two
destinations. Active
cultural exchange is
another factor that
promotes a
commercial society.
Source: J.L. Abu–Lughod, Before European hegemony: the
world system A.D. 1250–1350, Oxford University Press, New
York, 1989
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 - 11
Relationship between
output and time in
an accelerating
commercial society
The accelerating
development of growth
in a commercial
society is limited
because the basis for
value creation in the
commercial society is
agriculture.
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 - 12
Limitations of
products in medieval
European commercial
society
The numbers of items
or traded products was
not enough for
sustaining acceleration.
Commercial societies
(Netherlands) went into
ruin with the advent of
the industrial society
(England).
Netherlands
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Table 2.2
Spain (Castile) debt, 1515-1667
Year
Debt (million ducats)
Interest
1515
12
0.8
1560
35
2.0
1575
50
3.8
1595
85
4.6
1623
112
5.6
1667
130
9.1
Source: C.M. Cipolla, Before the Industrial Revolution: European society and economy,
1000–1700, Routledge, London, 1993
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 - 13
Spain’s wool
exportation trend,
1540-1780
Spain was basically an
agricultural society
mainly involved in
merchant trading.
Source: C.R. Phillips, The Spanish wool trade, 1500–1780,
Journal of Economic History 42(4) (1982) 775–795
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 – 14A
Raw wool exports of
England, 1349-1540
England started to
accumulate wealth by
gradually substituting
wool with processed
goods, which yielded a
higher value-added
price.
Source: H.C. Darby, A new historical geography of England after
1600, Cambridge University Press, Cambridge, 1976
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 – 14B
Woolen clothes
exports of England,
1349-1540
England, by producing
various products
besides woolen cloths
such as steel, zinc, silk,
and glass among
others, became strong.
The development of
industry ushered in the
Industrial Revolution.
Source: H.C. Darby, A new historical geography of England after
1600, Cambridge University Press, Cambridge, 1976
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society, 1530-1619
Table 2.3 Melting furnace and steel production of England,
1530–1709
Year
No. of melting Avg. production per
furnaces
melting furnace (ton)
Total production
(1,000 ton)
1530-1539
6
200
1.2
1540-1549
22
200
4.4
1550-1559
26
200
5.2
1560-1569
44
200
8.8
1570-1579
67
200
13.4
1580-1589
76
200
15.2
1590-1599
82
200
16.4
1600-1609
89
200
17.8
1610-1619
79
215
17.0
Source: C.M. Cipolla, Before the Industrial Revolution: European society and economy,
1000–1700, Routledge, London, 1993
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society, 1620-1709
Table 2.3 Melting furnace and steel production of England,
1530–1709
Year
No. of melting Avg. production per
furnaces
melting furnace (ton)
Total production
(1,000 ton)
1620-1629
82
230
19.0
1630-1639
79
250
20.0
1640-1649
82
260
21.0
1650-1659
86
270
23.0
1660-1669
81
270
22.0
1670-1679
71
270
19.0
1680-1689
68
300
21.0
1690-1699
78
300
23.0
1700-1709
76
315
24.0
Source: C.M. Cipolla, Before the Industrial Revolution: European society and economy,
1000–1700, Routledge, London, 1993
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society, 1530-1709
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 – 15A
GDP per capita in
England, 1500-1820
GDP per capita of
England, which was
successfully
industrialized, was
growing at an
accelerated rate from
1500 to 1820.
Source: Pamuk (2008)
2-6 Transition from an agricultural to a commercial society
Limitations of a commercial society
Figure 2 – 15B
GDP per capita in
Italy and Spain, 15001820
GDP per capita of
Spain and Italy, which
had remained in
commercial societies,
had stagnated.
Source: Pamuk (2008)
2-7 Summary
• Agricultural societies have maintained a self-sufficient level of
economic activities without any particular technological
advancement.
• Also the agricultural society has a structural limit: All surplus values
are used for the maintenance of the status quo and not for the
reinvestment of surplus production.
• Therefore, the historical, general, and economic growth trends of the
agricultural society show a gradual decrease in the development rate
over time in terms of agricultural output and productivity.
• The commercial society started to accumulate capital by generating
new demand through trade. However, without development of new
products to support this process continuously, expansive
reinvestment of capital from the merchant trade cannot maintain the
accelerated growth pattern.
• Commercial countries that pursued economic development by trade
were outrun by the industrial countries that developed new products
by technology innovation.
2-8 References
•
Abu-Lughod, J.L. (1989), Before European hegemony: the world system A.D. 1250-1350, Oxford
University Press, New York.
•
Allen, R.C. (2000), Economic structure and agricultural productivity in Europe, 1300-1800, European
Review of Economic History 3, 1-25.
•
Barnes, D.M. and C.E. Ondeck (1998), The Capper-Volstead Act: opportunity today and tomorrow,
American Cooperation, National Council of Farmer Cooperatives, retrieved from
www.uwcc.wisc.edu/info/capper.html (accessed June 2009).
•
Bowler, I. (1996), Agricultural change in developed countries, Cambridge University Press, New
York.
•
Cipolla, C.M. (1993), Before the Industrial Revolution: European society and economy, 1000-1700.
Routledge, London.
•
Clark, G. (1991), Yields per acre in English agriculture, 1250-1860: evidence from labour inputs,
Economic History Review 44(3), 445-460.
•
Darby, H.C. (1976), A new historical geography of England after 1600. Cambridge University Press,
Cambridge.
•
Daugbjerg, C. (2003), Policy feedback and paradigm shift in EU agricultural policy: the effects of
the MacSharry reform on future reform, Journal of European Public Policy 10(3), 421-437.
2-8 References
•
Debertin, D.L. (1986), Agricultural production economics, Macmillan, New York.
•
Engel, E. (1895), Die lebenskosten belgischer arbeiterfamilien frueher und jetzt. Ermittelt aus
Familienhaushaltsrechnungen und vergleichend zusammengestellt. B. International Statistical
Institute Bulletin 9, 1-74. (In German)
•
Ezekiel, M. (1938), The cobweb theorem, Quarterly Journal of Economics 52(2), 255-280.
•
Federico, G. and P. Malanima (2004), Progress, decline, growth: product and productivity in Italian
agriculture, 1000-2000, Economic History Review 57(3), 437-464.
•
Gabre-Madhin, E., C.B. Barrett, and P. Dorosh (2003), Technological change and price effects in
agriculture: conceptual and comparative perspectives, markets, trade, and institutions, Division
Discussion Paper 62, International Food Policy Research Institute, Washington, DC.
•
Gardner, B.L. (2002), American agriculture in the twentieth century: how it flourished and what it
cost, Harvard University Press, Cambridge, MA.
•
Gardner, R.L. and S.E. Stefanou (1993), Economic growth and change in Bourbon Mexico,
University Press of Florida, Gainesville, FL.
•
Gollin, D., S. Parente, and R. Rogerson (2002), The role of agriculture in development, American
Economic Review 92(2), 160-164.
2-8 References
•
Gow, H.R., and J.F.M. Swinnen (1998), Up- and downstream restructuring, foreign direct
investment, and hold-up problems in agricultural transition, European Review of Agricultural
Economics 25, 331-350.
•
Griliches, Z. (1957), Hybrid corn: an exploration in the economics of technological change,
Econometrica 25, 501-522.
•
Hayami, H., V.W. Ruttan (1971), Agricultural development: an international perspective, The
Johns Hopkins University Press, Baltimore, MD.
•
Hoffman, E. and G.D. Libercap (1991), Institutional choice and the development of U.S.
agricultural policies in the 1920s, Journal of Economic History 51(2), 397-411.
•
Johnson, D.G. (1950), The nature of the supply function for agricultural products, American
Economic Review 40(4), 539 564.
•
Johnston, B.F. and J.W. Mellor (1961), The role of agriculture in economic development,
American Economic Review 51(4), 563-593.
•
Just, R.E. and R.D. Pope (2003), Agricultural risk analysis: adequacy of models, data, and
issues, American Journal of Agricultural Economics 85(5), 1249-1256.
•
Kelley, A.C., J.G. Williamson, R.J. Cheetham (1972), Dualistic economic development: theory
and history, University of Chicago Press, Chicago, IL.
2-8 References
•
Kim, S. (1995), History of international trade, Sukjung, Seoul, Korea. (in Korean)
•
Leighty, C.E. (1938), Crop rotation soils and men: yearbook of agriculture 1938, U.S. Department
of Agriculture, Government Printing Office, Washington, DC.
•
Lemoine, F. and D. Unal-Kesenci (2004), Assembly Trade and Technology Transfer: The Case of
China, World Development 32(5), 829-850.
•
Matsuyama, K. (1991), Increasing returns, industrialization, and indeterminacy of equilibrium,
Quarterly Journal of Economics 106(2), 617-650.
•
Mundlak, Y. (2000), Agriculture and economic growth: theory and measurement, Harvard
University Press, Cambridge, MA.
•
Olmstead, A.L. and P. Rhode (1993), Induced innovation in American agriculture: a
reconsideration, Journal of Political Economy 101, 100-118.
•
Pamuk, S. (2007), Estimating GDP per capita for the Ottoman Empire in a European comparative
framework, 1500-1820, retrieved from www.ekh.lu.se/ehes/paper/pamuk-lund.pdf (accessed
August 2008).
•
Phillips, C.R. (1982), The Spanish wool trade, 1500-1780, Journal of Economic History 42(4),
775-795.
2-8 References
•
Plucknett, D.L. (1994), Sources of the Next Century’s New Technology, in: J.R. Anderson (Ed.),
Agricultural Technology: Policy Issues for the International Community. CABI Publishing, New
York.
•
Rostow, W.W. (1960), The stages of economic growth, a non-communist manifesto, Cambridge
University Press, Cambridge, UK.
•
Ruttan, V.W. (1955), The impact of urban-industrial development on agriculture in the Tennessee
Valley and the Southeast, Journal of Farm Economics 37(1), 38-56.
•
Schultz, T.W. (1953), The economic organization of agriculture, McGraw-Hill, New York.
•
Schultz, T.W. (1964), Transforming traditional agriculture, Yale University Press, New Haven, CT.
•
Solow, R.M. (1957), Technical change and the aggregate production function, Review of
Economics and Statistics 39(3), 312-320.
•
Stavenhagen, R. (1982), Problemas etnicos y campesinos, Mexico: Instituto Nacional de
Indigenistas. Consejo Nacional para la Cultura y las Artes, Mexico. (In Spanish)
•
Thirtle, C.G., D.E. Schimmelpfennig, and R.F. Townsend (2002), Induced innovation in United
States agriculture, 1880-1990: time series tests and an error correction model, America Journal
of Agricultural Economics 84, 598-614.
2-8 References
•
Toffler, A. (1990), The third wave, Bantam Books, New York.
•
van Bath, B.S. (1963), The agrarian history of Western Europe, AD 500-1850, Edward Arnold,
London.
•
van Bath, B.S. (1967), The yields of different crops in relation to the seed c. 810-1820, Acta
Historiae Neerlandica 2, 26-106.
•
von Thunen, J.H. (1966), Isolated state, Pergamon Press, Oxford, UK.
•
Wallerstein, I.M. (1976), The modern world-system: capitalist agriculture and the origins of the
European world-economy in the sixteenth century, Academic Press, New York.
•
Yamaguchi, M. and H. Binswanger (1975), The role of sectoral technical change in development
of Japan, 1880-1965. American Journal of Agricultural Economics 32, 269-278.
•
Yoo, B.S. (1998), Agricultural economics, Sungkyunkwan University Press, Seoul, Korea. (In
Korean)