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Teeboical Bulletin No. 1238
flo
UNITED STATES DEPARTMENT OF AGRICULTURE
Agricmtural Research Service
Indexed by subject
in master index
P,RODUCTIVITY
OF AGRICULT,URE
Uniteu.States, 1870-1958
By Ralph A. Loomis and
Glen T. Barton
Agricultural Economists
Farm Economics Research Division
Agricultural Research Service
tfechnical Bulletin No. 1238
UNITED STATES DEPARTMENT OF AGRICULTURE
Wa8hington, D.C.
I88ued April 1961
For 8II1e by the Superillltendentof Documents, U.s. Government Printing Office
Washinglon 25, D.C. - Price 25 cents
•
PREFACE
In the social sciences, measurement of fact is both complex and
elusive. The 'phenomenon of productivity in association with the
process of .agrIcultural productlOn is dynamic and subject to varied
mterpretatlOn.
The stuely reported here is one of measurement and ana1ysis of
change in agricultural productivity. An attempt is made also to
portray concepts and measures in It meanirwful way. The report is
expected to be useful to those who formuG\te agricultural policies
and programs and as a point of departure for related research efforts.
The authors wish to express appl·cciution to many colleagues for
assif,tance in developing the concepts and obtaining the necessary
data, and for reviewing the manuscript and making constructive
suggestions. Associates within the F:trm Economics Research Divi­
sion, Agricultural Research Service, and within the Agricultural
Ma.rketing Service cooperated in making data ll.vailable.
Special ~cknowledgment is made to the staff of the Farm Income
Branch, Agricultural Economics Division, Agriculhmtl j)farketing
Service, which is responsible for the farm expenditure data that
form tJle basis for a. major part of the input serles.
The authol·S are indebted also to Dr. John 'V. Kenclrick, Professor
of Economics, The George 'Washington University, 1Vashington,
D.C. Dr. Kendrick, dmwing upon his rich experience in produc­
tivity analysis, reviewed critically the concepts and methodology
used in the study and made several suggestions for improving the
manuscript.
At the annual meeting of the American Farm Economic Associa­
tion in Ames, Iowa, August 10 to 13, 1960, the following papers relat­
in~ to measurement of input changes in agriculture were presented:
"The New USDA Index of Inputs," by Glen T. Barton and Donald
Durost, and "Measuring Inputs in Agriculture: A Critical Survey,"
by Zvi Griliches. These papers, which t\,ppen.r in the 1960 Pro­
ceedin!!S issue of the J oUl'nal of Farm Economics, provide a further
critical review of the concepts and techniques of measurement used in
the study reported here.
ill
."
CONTENTS
SUMl\IARY___________________________ ., ________________ - ________ _
THE BACKGROUND________________ - .• ----- ___ • ________________ _
GROWTH IN PRODUCTIVITY ________ ,_________________________ _
The Long-Term Perspective __________ , ___ • _____________________ _
Factor and Product Rates of Cbange __ .~ _________________________ _
CHANGING COMPOSITION OF TOTAL INPUTS _______________ _
The Role of Major Input Groups _______________________________ _
Influence of Farm Income on Changes in Inputs__________________ _
Changes in Source of Power ____________________________________ _
Growing Importance oCPurchased Feed, Seed, and Livestock______ _
FOl!C~i
aB~iII~¥,d JIrEtcHANCiiNG--piiODUCTIVITY========== =
Changing Relative Prices ______________________________________ _
Other Factors in Productivity Changes__________________________ _
IMPLICATIONS OF GROWTH IN PRODUCTIVITY_____________ _
Resources "Saved" ___ --_________ • ____________________________ _
Returns to Farmers_______________________________ -- __________ _
LITERATURE CITED __________________________________________ _
APPENDIX_____________________________________________________ _
Some Problems in Measurement of Produr.tivity __________________ _
Selection of Weights _______________________ - ________ • _________ _
Calculation of Components of Input Subgroups__________________ _
Inputs, 1870 k.1900 __________________________________________ _
A Look at Labor Price Weights ________________________________ _
Imputation of a Real Estate Input _____________________________ _
A Note on Depreciation as an InpuL ___________________________ _
Measurement of Unpaid Inputs ________________________________ _
Method of Allocating Increased Output Between Inputs and Produc­
tivity_____ --------------------- ___________________________ _
ResoUl:ce Savings Through Increased Productivity________________ _
Productivity and Parity__________________________._________.____ _
Statistical Index Series _______________ • ___ . _____ ._______________ _
IV
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PRODUCTIVITY OF AGRICULTURE
UNITED STATES, 1870-1958 1
GLEN T. BARTON, agricultural economists, Farm
Economics Research Division, Agricultural Research Service
By RALPH A. LooMIS and
SUMMARY
As defined in this analysis j a~ricultural prodt.~tivity is the ratio
of the index of total agricultural output to the index of total inputs
used in farm production.
The productivity of agriculture in the United States has increased
at an average annual rate of four-fifths of 1 percent since 1870. This
is about half the average annual rate for the economy as a whole.
In the more recent years from 1940 to 1957, agricultural productivity
increased at an average annual rate of 1.6 percent, compared with
2.3 percent for the economy as a whole.
There are many forces behind the increase in productivity of our
total farm resources. Most important is technology, the ever-chang­
ing body of knowledge, techniques, and instruments used in pro­
ducing economic goods from primary resources. Historically, changes
in technology have been accompanied by an increase in our stock of
cnpital goods. This flow of capital goods into the production process
has both enlarged our production base and permItted the substitu­
tion of capital for inputs of lesser efficiency.
Betw~en 1910 and 1957, agricultural output increased 85 percent,
whi1e invuts advanced only 22 percent. But in 1957, inputs differed
greatly m composition from those of 1910. By 1957, inputs in the
form of power machinery, mechanical equir.ment, commercial ferti­
lizer, chemicals for disease and pest contro , and prepared livestock
feeds, had largely replace~Lanimal power and greatly decreased the
relative need for land and human labor.
The change in input mix was due not only to new knowledge and
tec1molo~ical change? but also to such closely related forces as chang­
mg relatIve prices, lllcreased specialization, increased size of farm
operation, changes in institutional structures of education, credit,
transporta.tion, processing and marketing, and the economic activity,
development, and progress of the general economy. Even though its
contrioution to output cannot be isolated, each of these factors is
important in explaining the changes in productivity that have
occurred.
If we assume that one of the objectives of a society is to obtain
as high a level of living as possible with a given >1IDOunt of effort,
any Increase in the productIvity of resources used in agricultural
lData for the year 1958 are preliminary; they are Included only in the
appendix tables and in the figures.
1
2
TECHNICAL BULLETIN 123,8, U.S. DEPT. OF AGRICULTURE
production is progress. Increases in agricultural productivity con­
tribute ~o the well-being of the economy as a whole. 'With fewer
vroductlve resources per unit of output, they supply a need for
mcreased quantities of agricultural conunochties, and release re­
sources from the agricultural to the nonagricultural sector of the
economy. 'Without the increase in production efliciency fl"Om 1940
to 1957, approximately a third more resources than were actually
used would have been required to produce the 1957 volume of farm
output. \Vhen valued at the same per unit return as was received
from the production reSOUl'ces actually used in agriculture in 1957,
the resource savings resulting from changes in productivity since
1940 amounted to more than $9 billion for the year 1957.
Farmers also have benefited from the increase in efIiciency of agri­
cultural production, as well as from similar gains ill productivity in
the rest of the economy. Real income per farm family worker dou­
bled between 1910-14 and 1947-49; this is about the same as the
change in real income per employed factory worker during this period.
However, from 1947-49, a period of relatively favorable incomes for
farmworkers, to 1955-57, l:eal income per farm family worker de­
creased by 11 percent, while real income per employed factory
worker increased by 29 percent. Also, durmg the whole of the
1910-57 period, the level oiincome per farm family worker was
approximately half the level of income per employed factory worker.
The percentage change in per unit real returns to unpaid farm
inputs-labor and capltal supplied by fn.rm families-was only
slightly less than the percentage change in real income per farm
family worker from 1910-14 to 1947-49. Unpaid capital, however,
has become increasingly important in recent years. The real return
per unit of unpaid inputs decreased by 22 percent from 1947-49 to
1955-57, while income per fm;m family worker decreased by 11 per­
cent. 'With few exceptions, other than the \Vorld 'Var I, 'Vorld
'Var II, and immediate post-\VorJd "Tar II years, the actual returns
to unpaid farm labor and capital have been less than the "market"
rate of return-wages paid lured farmworkers and interest paid on
borrowed capital.
The lag in rate of clmnge in real income in recent years and the
lag in absolute level of income of farmworkers illustrates the prob­
lem of agricultural adjustment thttt faces the economy. Adjustments
in the qunntity and composition of both inputs and output in agricul­
ture have not been suffiClently rapid to balance supply and demand at
levels that will give retm:ns to the labor and eapital used in agriculture
comparable to returns of similar resources used in other sectors of the
economy. Inclusion of income to farm family workers from non­
agricultural sources, which indicates one type of adjustment in the
agricultural sector, chang~s the 11-percent decrease in re!l;lincome
per farm family worker to an increase of 4 percent from 1947-49 to
1955-57. Although adjustment is continuous in a dynamic economy,
farm income may decrease substantially when, as in recent years,
farm output expands rapidly relative to change in market demand.
However, long-term increases in r~source productivity and constant
adjustment to economic and technological forces have enabled farm­
ers to share substantially in the bene/its of our expanding and more
productive economy.
The measurement and analysis of the transformation process in
agriculture, whereby natural resources are converted to goods for
•
PRODuC'rrVITY OF AGRICULTURE
3
direct consumption, makes up 11 book of mlmy pages, some of which
are still llllwrltten. .As there are no unique imswers to many of the
problems faced in the study reported here, part of the burden rests
with the reader t.o use the materials as they fit his purpose, under­
standing the limitations and assnmptions as given.
THE BACKGROUND
This is I\, l'epOl.'t Oll measuremcnt, analysis, and intm:pretation of
United Stntes agricultural inputs and productivity in the aggregate.
The primary motivation for' the study reported here is the never­
ending search for knowledge that will help \IS impl'Ove our material
welfare. This interesti!)' expressed by research workers, farmers
and farm groups, extension workers, and policymakel's.
Ag~rew\te measlU'es of productivit.y add to the sum of 0111' knowl­
edge Dy ~ 1) serving as barometers of economic progress, (2) serving
:IS guides to adjustment
reSources, (3) providing a, framework for
formulating and evaluating poli.cy, ane! (;b) indicating problem areas
that need further research. But the film! objective of most indi­
viduals or gmups interested in productivit,y is to find ways of
increasing output per unit of input and of attaining desirable inter­
firm Ot· intcrsector transfers of production resources, thereby pro­
viding the means for raising Onr economic level of living.
To determine the movement of economic growth we must be able
to measure it. Unfortunately, many aspects of economic and related
phenomena. elMy Vl'ecise measurement. By blending quantitative
measures and quahtative judgment, however, we are ablc, for most
practical purposes, to C{nantify, analyze, unCI interpret many of the
fOt'ces which together form the complexity of economic growth. The
study reported did Hot pt'opose to exhailst the myriad phenomena
that, nct upon the agricnltural sedor of the economy; it forms an
orderly beginning to further understanding of the growth in produc­
tivity of ligriculture. Milch remains to be done, not only at the
aggregate level, but also at commodity, area, farm, and enterprise
levels.
.Measllrement of aggregate agricultural productivity depends upon
conceptually consistent measures of aggrcgate agricultural output
and input. A measure of the total volume of farm production (out­
put) av:tilable for human lise has been developed by the United
States Dep!\l'tment of Agdculture (7).2 In developing the input
sel'ies, one guide was to make it parnllel with the existing output
series so the two could 00 used to establish the Pl'Odllctivity ratio of
output pel' unit of input and to indicate the net su,vings of input
clements.
A basic concept of economics is the tmnsf:ormation process :IS
~mbodicd in the.input-olltput reI n,tionshi p. Because this relation­
ship encompasses mallY difl'erellt though related e(:ol1omic concept.s,
the defining of those concepts that are applicable to the specific
problem is essentill.l to its analysis.
The input-output prQcess is important in at least four major
problem areas: (1) The distribution of income, (2) the al1ocation
of resources, (3) the relation between. stocks and flows, and (4) the
or
•
2
Italic numbers in parentheses refer to Literature Cited, page 38.
4
TECHn'lCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE'
measurement of efficiency or productivity (5). In each of these
processes, it is necessary to translate the complexity of innumera~le
mputs and outputs of the real world into two manageable but stIll
me:mingful bodies of information. This requirement brings us face
to face with the, index-number problem, which centers around the
question of aggregating heterogeneous data. As apructical matter,
it bring's up the question of which l'elntive weights arc appropriate
for inchvidual items of output and input in measuring aggregative
changes.s
If our problem is concerned 'with the distribution of income or the
allocation of resources, we should define input nnd output in. such
a way that their sums nre equal and their ratio is U1l1ty. In the
stock-flow process, this concept may be altered so that the input­
output ratio need not be equal at any point in time, as accumulation
or depletion of stocks occurs over time. In the productivity concept,
with which this study is concerned, meaningfulness depends upon
defining input and output in such a way that their movements over
time are 110t equal. Here, aside from the problem of measuring and
,Yeighting, there arisos tho problem of determining which inputs and
outputs are com~istent with the particu1ar proc1tlCtivity concept in
question. For example, the elfort; ma.y be dIrected toward measure­
ment of "labor productivity," "capital pl'oductivity," 01' combined
labor and capital proc1uctivity.4 In any event, it is necessary to
decide and to define what has been sQlected as the "significant" inputs
and outputs. '1'he rellected change in efficiency or productiVlty 5
over time depends upon change in both the "mcluded': and "e}!.­
cluded" components. 1l
In any attempt to measmo the inpnts of a single sector of the
economy, an immediate conceptual problem is the diflicults, if not
the impossibility, of untangling the interdependency of and the ex­
change between'segments of the economy. In this study of agricul­
tural producti"ity, both output and inpnt measnres were constructed
so far as was practicable with the viewpoint that all of United States
agricultllt'C is ono large farm. Identifiable transfers of inputs from
the nonfarm to the farm sector were included as inputs) but inter-,
farm sales were excluded from both output and inputs.
The concept of inplltsused included only the resources committed
to a~ricu1ture by farmers. These inputs, which are subject to control
by ~ne de?ision~ of '~anners, Ipay be} classified as labor and tangible
caJ,)\ta.l (lI1cluchng lIltermec1mte products). For example, land,
bmldings, machinery, fertilizer, pesticides, livestock and crop inven­
tories, and purchase of production services are tangible capital in­
3 '.rhe problem or weighting inputs in any fixed-weight input index is one or
trying to det<:rmine tht! r~latiye values (or marginal productivities) in use In
some weight perioll. One attempt nt this is the geometric weighting approach,
which assumes that the general physi('al Ilrocluction function tukes the shape of
a Cobb-Douglas function. In the study l'eported, the simpler and more general
approach, which Is believ\.'d to 0" lllore uecurate, was used. It assumes that
the pdce-weights used in the weight period retiect marginal prOductivities for
the period. '.rhus, It was not necessary to restrict the theory Inyolved to the
IIssumptlon of any pllrtif'ular type of pro{luction (unction. 1<'or further elabora­
tion on geometric IIggrcglltion SeC "Selection of 'Vcights," appendix, page 41.
~ Labor productivity is the ratio of total output to labor inputs, and capital
productivity Is the ratio of total ·output to capital inputs.
~ Productivity and efficiency are used synonymously In thIs report.
II For further elnboration, sec "Some Problems in Measurement or Produc­
th'i ty," Il pnelld ix, page 40.
PRODUCTIVITY OF AGRICULTUaI
5
puts. By tmd large, intangible capital inputs !lre not included.
Expenditures for intangible capital include public, and some J?rivate,
investment in education, research, health, Ilnd social orgamzation.
Inclusion of l'e~il estate ,md personal properly taxes and production
inputs purchased directly from the nonagricultural sectors of the
9conomy means that at least some intangible capital is included in
nputs.
lTunc1amental to the problem of measurement is a system of stancl­
ards or units for comparison. The choice of the particular units for
measurement is prescribed by the common properties of the phe­
/ .nomena to be measured, by the purpose or intended use of the meas­
/ ure, and by the availability of data for measurement. The properties
of agricultural inputs are very heterogeneous. Thus there is need
/
:
for a common denominator (unit of measure) with maximum sensi­
:
tivity to these difrerences. lI'or our purpose, measure of inputs in
terms of "physical volume" was reqllll'ed, as the measure desired is
not one that attempts to show the physical contribution of anyone
input. to output, but rather to meaSl\l'e the volume or quantity or
each input, eVen though relative contrib~ltions as reflected in unit
values are used as weIghts. As for data requirements, the need is
for some unit of measure of each input that will permit aggregation.
In view of these requirements, the use of constant-dollar price
weights was adopted to permit derivation of constant-dollar yulue
estimates that can be used to measure changes in the volume of
inputs over time. But even this general approach to meaSU1'l'ment
poses problems.
For example, if varying types of units of different inputs are
multiplied by constant prices, a volume measure of inputs expressed
in constant dollars results. .As we desire to measure inputs at the
farm leyel, prices paid by farmers for inputs nrc used for this com­
putation. But in view of changes over time in the relative prices of
mputs, the purchasing power or the dollar and the input mix, prices­
pl1id weights must be changed from time to time so that the incli­
yidllal items in the input mix can be given weights in the aggregate
consistent with their clumginO' relative importnnce over time. For
the study reported, prices paid for individual inputs during 1D35-3lJ
were used as price weights for the years prior to 1lJ40, and prices
paid during 1lJ·17-49 were used as price weights for 19,1;0 and fol­
10winO' yeal'S.7 "Sulicing" of the final index series was done by using
overh~ped ca1culations for the year 1lJ40.8
This report is divided into four major ana1ytical sections, fol­
lowed by technical and statistical appendixes. First is a brief sec­
tion on the ]onrr-term trends, those from 1870 to 1957, of inputs,
output, and productivity. This is fol1owed by a section. on the input
mix, with analyses of changes and sOll1e of the economIC forces that
cause these changes. The third maj or section is on productivity i
FOr further el:\borntion on the selection of price weights see Loomis (14).
The quantity-price Ilggreg-ate$, weIghted b~' 1035·3!) prIces, tor decade inter­
vals, 187(}-1900, Ilnu for 1010-40 were expresse(l as percentages, with 1940 equal
to 100. Multiplying- these percentnges by the Index ot inputs In 10·10 based on
1W7-4!) price weights and with 1!)'17~l!) as the compllrison base, results in the
spliced imler. The flpliced Index, with n common comparison base ot 1047-49,
reflects the effect of 103G-30 prIce weights for the period 1870-19S0, nnd the
elIect ot 1!)'!7--t!) prIce weights for the perlou beginning wIth }{)40.
1
8
569560-61--2
6
'l'ECHNlICALBULLETIN 1238, U.S. DEPT. OF AGRICULTURE'
. it includes an analysis of the forces behind the changes in produc­
tivity. Both qUllutJtative nnd qualitative analysis and interpretation
are used in an effort to explain how productivity has increased. The
final section has to do with some implications of growth in pro­
ductivit.y,
As stated earlier, productivity, as used in this report, :is defined
as the ratio of the index of the volume of output to the index of
the volume of all associated tangible inputs, with both indexes
based on constant dollars. Except when rel.3rred to specifically as
the ratio of output to u. given class of input, such (l.s labor, land,
or capital, agricultural productivit.y means the ratio of the index
of total output to the index of total inputs. The measure of out­
put includes the annl1Ul production of crops and livestock available
for human consumption (7). The measure of inputs includes all
production factors that are influenced directly by decisions of
farmers-farm labor, land and service buildings, machinery and
equipment, fertilizer and lime, feed, seed, and livestock purchases,
and a group of miscellaneous production items.1l
GROWTH IN PRODUCTIVITY
The .Long-Term Perspective
To provide a 1011g-term perspective of the growth in agricultural
productivity, the agricultural input series was extended back to
1870 (fig. 1). Because of lack of data, both the input and the out­
put seI;ies were constructed at a higher level of aggregation for the
years 1870 to 1910 than for the years following uno. Also, for the
early period, data were available only at decade :intervals. For the
purpose of observing long-term trends, the estimates resulting from
the extension of the series back from 1910 to 1870 are believed to
be reliable .
.Agricultural productivity has.doubled in less than a century; from
1870 to 1957, it increased 102 percent. During the first 40 years of
this period, from 1870 to 1910, overall productivity advanced 32
percent. This compares favorably with the 34:-percC'nt increase in
the succeeding 40-YClLr period, 1910-50. Based on this comparative
advance in productivity, what is frequently referred to as the recent
"revolution" in agricultural productivity seems to be more of an
"evolution." However, from 1940 to 1957, a period of only 17
years, productivity advanced 31 percent, and in the 7 years from
1950 to 1957, productivity .increased 14 pert:!ent.
Between the Civil 1Var and 1000, agricultumlproductivity in­
creased grently. The causes of the increase in the early period
differed from those in more recent times. The early period was
one of expansion of farm production through cxten3ification, in
contrast to intensification since 1Vorld War I. The westward move­
mcnt opened up new and fertile land, and our agricultural plant
was expnnded through an :increase in labor and real estate :inputs
(fig. 2). Concul'l'ently, we shifted from primitive agricultural
9 For greater detail Qn Inputs see "Calculation of Components of Input Sub­
groups," appendix, page 44.
7
J>RODUCTIVl,TY OF AGRICU'L'rURE
A'GRICULTURALPRODUCTIVITY
%QF 1870
500 L
400
,
300
Input A
200
,,,---,"
--
lOoOl
.. J,-----------I
---.--.... ----..----."
Output per unit of input*
~__~__~__~I_~__~WW~WWllW~llW~WilllWlill~
1880
'''0,
190')
1940
1920
J-\'EA,q "":'OVtHC AVE,I,..lCEl THERE,"'TE".
A'rOTAL COM.,nEO 10 ACRICUlTURE 8" FARiltltRl.
*AVER"~f. WDT
tJECADE INTERVALS ",0 ..
,)t.u:Gm.u.
1960
JIoJtODucnytTYt
FIGO'RE 1
MAJOR INPUT GROUPS
l880
1900
1920
orCAO£ 'Hre:RV~LS JI1Il ..
HEe. ,0 (91-,.. ,
FIGURE
2
1940
,"Ii.
AC~ICUt.TUR""l.
1960
RESEARCH SERVICE
8
TECHN.ICAL BULLETIN 1238) U.S. DEPT. OF AGRICULTURB
too.ls to. the then new and relatively more efficient types of horse­
drawn machinery, such as the gang plow, grain binder, mower, cul~
tivator and seed drill. It was the technological advancement in
farm machinery in this early period that made possible the rapid
development. of the Great Plains.
Shortly after 1900, agricultural expansion began to slow down.
This lessening of expansion lasted until the mid-thirties. During
this period, total inputs continued to rise as did total output al­
though at a slower rate. Productivity changed very little for about
three decades. (See fig. 1.) This does not mean that no important
de.Yelopments occurred. About the time of ·World ·War I, mechanical
power began to replace animal power {mel human labor. The total
quantity of labor began the steady decline (interrupted by the
depresslOn) that is stIll going on, and the process of mechanizing
farms with tractors, motortrucks, lmd development of the many
new and improved farm machines was underway.
Immediately preceding the depression of the 1930's, productivity
again began to increase. It was arrested temporarily by the de­
pression years, but for the last two decades it has increased steadily.
Although total inputs have increased relatively little, total output
has increased sharply.
Average output per man-hour of labor has increased phenomenally
in recent years relative to any period prior to the 1930's (fig. 3).10
Average output per unit of real estate continues to advance as a
result of combining more and improved inputs with each unit of
land. However, the average output per unit of inputs other than
OUTPUT PER UNIT OF INPUT
%
OF 1870
500
400
300
Real Estate
200
~-~
100j.~!!~1i_~_~-~~~~?=_~~_~~~~~:~------------~~
Other inputs
o
u.
1880
,
1900
, III!III_ .... ___ - -.... _
1920
$. OEP4RTJoI.[HT OF AGlJlCUI.TURf
NEG. 6C (.)-2".
FIGURE
...
1940
- __
1960
AGR!CUlTU!tAL RESEARCH S(~VICE
3
10 ~hroughout thie report, unless epeclncnlly noted, labor input is based on
mnn-lloUI1i ot lAbor/not employmeqt.
9
PRODUCTIVITY OF AGRICULTURE,
labor and land (or in a broad sense, capital and intermediate prod­
uct inputs) has been declining Slllce the turn of the century.
Factor and Product Rates of Change
An increase. in agricultural output results from either (1) an in­
creased quantity of inputs, with no change in output per unit of
input, (2) increased productiyity of inputs, with no change or a
decrease in quantity of inputs, and (3) a combination of changes in
inputs an<l pmductivity. It is t1.pptLrent from figure I, page 7,
thllt the quantiLy of inputs has increased. It is apparent also that
the increased output has exceedecl the increase in inputs; the dif­
ferences reflect: increased productivity.
By using {tll algebraic technique employed by Mil1s (16),11 in­
creased output was divided between the portIOn resulting from
increased input and that resulting from increased productivity
(table 1).
Of the total increase in output since 1870, 56 percent has re­
sulted from increased inputs and 44: percent from increased produc­
tivity. Of even greater interest, however, is the sharp increase in
the relative contribution of productivity to growth in farm output
between the first ,~ decades (1870-1911) and the last 4Y2 decades
(1911-5G)-contl'ibutionsof approximately 30 and 70 percent, 1'e­
specti\ elY. Consistent with the above analysis of sources of change
in output, the llverage llnl111al rate of change in inputs from 1870
to 1911 was more than fOllr times the rate from 1911 to 1956­
1.77 percent as compared with 0.41 percent (table 1).
T
TABLE
1. -Sources and ann'llal rates of change in output, inputs, and
lJroduclMly, [;nited States agriculture, selr.ctul periods 1
Change in output at­
tribulllb,lc to change
Average annual rate of change in­
\l1­
J'eriod 2
I
I
Inputs
!
I
IS70-1911 __________ 1
1911-20___ -. _- .. - --J
1020-3~-----·-~---·1
_____ . ______
1045-50____________ 1
1950-56 ____________
1939-56____________
1939-J~
---I1
1911-56____
- -- - 1S70-1956 __________
Parcent
72
129
16
34
49
-9
22
31
5G
Productivity
Output
Percwi
Percent
2.45
.70
1. OS
3.05
. Sl
1. S9
1. 98
1. 34
1. 86
ZS
-29
84
66
51
100
78
69
·H
I
Inputs
Percent
1. 77
.89
. 17
1. 04
I
.. 40
-.17
.42
.41
I. 05
I
Produc~
tivity
Percent
O. 67
-.19
.91
1. 99
.41
2. 06
1. 55
.. 93
.80
I
I Based on indexes with Ul4.7-4Jl= LOO.
2 The beginning and ending yei!r of each period (except the year IS70) is the
midye/lr of 3-year averages.
-
U For a brief explanntlon of this technique, see "Method ot Allocating In­
creased Output Bctwecn Inputs and PrOductivity," nppendix, page 52.
10
'l'ECHNilCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE'
The pre-World War I and war period, 1911-20, is unique among
the time periods classified in table 1, as it is the only period in
which the average annual rate of change in productivity was nega­
tive, -0.19 percent. ~rhe annual rate of change f.or both output
and inputs was relatively low, with the latter exceeding the former
by a small amount, thus resulting in the negative productivity indi­
cator. This was a period of transition from an e:\.-tensive to a more
intensive phase of farm production. Land was still being added
to the agricultural base, but it was land chiefly in the areas of
limited rainfall. Horse lmd mule power reached its peale during
this period. Adjustments were made in the composition of output
in response to wartime demands and the aftermath of war. In
~eneral during this decade, clmnges in output resulted from changes
111 inputs, not from changes in productivity.
During the interwar period, 1920-31), inputs increased at the very
low aBnual rate of 0.17 percent, while output increased at the annual
rate of 1.08 percent. Of the changes in output, 84 percent were
attributable to increased productivity of resources. It was during
this period that mechanical power was substituted for farm-pro­
duced power.
A high annual rate of change in productivity, 1.91) percent, oc­
curred during the ·World ·War II period, 1931)-45. .A large "store­
house" of new knowledge ancl teclmology had accumulated during
the depression of the 11)30's, and favorable price relationships stimu­
lated by the war effort brought this technology into use. ·While in­
puts increased at an average annual rate of 1.04 percent, output
was stepped up to an unprecedented annual rate of increase of more
thlln 3 percent. This period was followed by postwar adjustments,
with the rate of change of both inputs and output declining to well
under half the wltl'time rate. Apparently, however, the rate in the
more recent period, 11)50-56, again gained momentum. Productivity
rates of change were up from 0.41 percent in the 1945-50 period to
2.06 percent in 11)50-56. This increase in the rate of change is asso­
ciated with lL decline in inputs but with a conf3i.derable increase in
output. The recent change in output can be at.tributed entirely to
increased productivity".
The primary signifIcance of this analysis is that it throws light on
the nature of economic progress. By increasing output per unit
of input, the agricultural sector of the economy contributes to the
economic growth and progress of the whole economy. The agri­
cultural needs of the economy are produced, not only with less lao or,
but also with fewer total inputs per unit of output. One of the
forces that has enabled the United States to enjoy an ever-increasing
level of living has been the release of a labor force from agriculture
to industry, a prime prerequisite for a growing total economy.
Economic progress within the agricultural sector is frequently
illustrated by the change over time in number of persons supported
per fll.rJllworker. A measure of tota.! agricultural output per man­
hour of farm bbor is often used as an indicator of agriculturn1
progress also (fig. 3). The equivalence of progress and output per
man-hour 01· the number of persons supported pel' worker is valid
only if the sole criterion of progress is output per unit of a single
factor of production-labor. However, if progress is equ~valent to
11
l'RODUCTIVITY OF AGRICULTURE,
the increased productivity of the entire mixture of economic inputs,
we must refer to a measure such as output per unit of total inputs.
This is particularly true in attempting to measure the productlvity
of It single sector of the economy. "As a general rule, * * * it .is
better not to limit productivity indexes that purport to measure
change in efficiency to a comparison of output with a single resource.
The broader the coveralYe of resources, generally, the better is the
productivity measure. The best measure is one that compares out­
put with the combined use of all resources" (8).
CHANGING COMPOSITION OF TOTAL INPUTS
The Role of Major Input Groups
One of the most dynamic characteristics of United States agricul­
ture is the constantly changing input mix. This is discernible only
through measurement and subsequent classification of individual in­
put in relation to total inputs. One such grouping permits viewing
the long-term changes that have occurred in the proportionate quan­
tities of the "economic trilogy," land (real estate), labor, and capi­
tal (table 2).
Following the Civil War, labor comprised about two-thirds of
the total inputs, but in recent years, it has been reduced to a third
TABLE
2.-Clwmges in composition oj input$, United States agriculture,
1870-1957
INPUTS B.-\SED ON 1935--39 PR,CE WEIGHTS
Percentage of total inputs 1
Year
I..abor
1870_________________
1880 _________________
1890_________________
1900 _________________
1910 ________________ ­
1920_________ _______
1930 _________________
1940_________________
~
Real estate
Percent
65
62
60
57
53
50
46
41
Percent
18
19
18
19
20
J8
18
18
Capital
2
Percent
17
19
22
24
27
32
36
41
Total
Percent
100
100
100
100
100
100
100
100
INPUTS BASED ON 1947-40 PRICE WEIGHTS
1940________________ _
1950 ___ --- __________ _
1957_------------- __ _
56
40
31
J<j,
15
15
100
100
100
1 The use of different price'Veights prohibits direct comparison of composition
percentages for the periods bCfo\'c and after 1940. However, changes in composi­
tion within the two price-weight periods, ] 870-1940 and 1940-57, serve to indicate
the magnitude of changes in composition or input. Comparisons of periods before
and after 1940 substantiate Ule trend in ch:J.l)ges of input mix.
2 All inputs other than labor and real estate.
12
TECHN:ICAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE'
M.AJOR INPUT GROUPS
AS PERCENTAG.E OF TOTAL INPUTS*
FAIM LAlOR
~• • • • • • • •_56~
lEAL ESTATE
• '1958
~1940
FElnUUI AND UME
1JJJ5~
01HEI
fxctUOlJ VA.LUe 0" UHE",..RM TRA.I<IS'A.CrlOHI
NU' ••!1 ( ' l-2'f1t
"O~ICULTUQ"'l.
1tt;$EA.~Ct1
SERVICE
of the total inputs. 12 Real estate has accountecl for a relatively
constant proportion of total inputs throughout the entire period.
This is consistent with the previously noted indexes of total inputs
and the real estate index. (See fig. 1.) As the volume of total in­
puts increased from 1870 to around 1910, the volume of real est.ate
mcreased at about th'3 same rate. Since 1910, the volume of total
inputs and that of real estate has continued to move at about the
same level, each increasing only slightly.
The proportion of total inputs made up of "capital" 13 has been
the counterpart of labor. After the Civil 'Var~ capital comprised
less than a fifth of total inputs, whereas in 1958, it accounted for
mor6 than half the total. The changing composition of inputs is
characterized, then, by the decreased role of labor, with real estate
changing very little and capital and intermediate inputs increasing
substantially.
Subclassification of capital and intermediate product inputs since
1940 provides a more det.ailed view of the changing input mix
(fig. 4). Inputs of mechanical power and machinery more than
1.2 As explained In the footnote to table
the..~ data for year~ prior to nnd those
2, there Ilre limitations to comparing
lIite!" 11)40 becnuse split price-weight
periods were used. Becnuse of the changing composition of inputs nnd chnnglng
relatlve prices paid for Inputs, however. the use or split price-weight periods
wns deslrnble. For further elaboration on the Importance of using split price­
weight periods. see "SelectlQIl of Wel~ht:s," IlppendIx, page 41.
nAs used here, capital includ~ all inputs except labor and real estate,
Capltnl, therefore, .,"ould Include such Intermediate products as fertlllzer and
lime, interest on livestock And crop Inventorl~. nnd farm machInery.
13
PRODUCTIVITY OF AGRICULTURE,
doubled, as a proportionate share of total inputs from 1940 to 1957,
increasing from 10 to 22 percent of total inputs. During this
period, inputs of fertilizer and lime increased from 2 to 5 percent
of the total inputs. A. third major input, the "nonfarm" inputs
associated with farmers' purchases of feed, seed, and livestock, also
more than doubled in relative importance. These data lend further
definitive support to the already established knowledge that capital
and intermediate products are mpidly being subst.ituted for labor
in agriculture.
Influence of Farm Income on Changes in Inputs
Changes in farm income have influenced capital investment in
agriculture aml thereby help to explain changes in the agricultural
input mix. In this section, a few illustrations of these relationships
are presented.
One major capital expenditure is that for motor vehicles, ma­
chinery, and equipment. .A. comparison of the movement of farm
income H and expenditures for these capital items shows a definite
positive relationship (fig. 5). The major period of exception was
the 'World 'Val' II period of 194;2-46, when the availability of
machinery was limited and purchases were low despite the high farm
income. The coefIicient of determination of the indexes of income
FARM INCOME AND
MACHINERY PURCHASES
%
OF 1910-14
Machinery purchases
*
,'~,\
",
300
I
,
'­ '",
\
\l'
200
100..........,.
o
1910
1920
• vatu., ,~cLup,,,c .oro,q
1940
1930
VEHI~t.CS.
~E'C~1TED
1950
1960
af
IUS-)' PRICEI'.
A CdH 'ffCtlP T$ fll.OM ~A"KEnHC$ P!.Ul GOV£RHIIC£HT "Ar,-fHTf, ADJUSTfD fOR CHI.1'lG£l I"; ",RICES ,.1.10.
,)oI1£Ji'[11:. t~~£;I. ~ND .~,Ct JulU.
FIQURE 5
1~ The inde.."l: of prices paid, Interest, taxes, and wage rates was used to deflate
farm income, thereby reflecting the real purchasing power of the income.
lS69:i60-61-3
14
TECHNilCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTUIiE
llnd machinery expenditures for 1910-57 shows an 1.2 of 0.71 (the
years of 1942-46 were excluded from the correlation). In efiect,
this means that 71 percent of the variation in the index of expendi­
tures for machinery is associated with the variation in the index
of income. 10
Another technique of observing the relationship between changes
in farm income and in the volumes of various inputs is to group
the years of increasing brm income, those of stable farm income,
and those of decreasing farm income, and then to observe the dif­
ierences in rates of chttnge in various inputs.
It is evident from table 3 that as farm income increases, total
inputs and major groups 0:[ inputs, except labor, increase also. Be­
cause of the strong downward trend in the quantity of labor in
agriculture the labor input shows It decrease in all periods, but it
appears to decrease more rapidly as farm income decreases. 'What
we have called capital pllrchasesin table 3, that is, the purchases
TABLE
3.-Relat,io1l.ship of cha-nges inja:rm income and e'J:penditU1'esjor
val'io'U.<; in]J'llt yrouIJS, United States, 1910-55 1
Average annual percentage change in
periods ofItem
Illereasing
income 2
Farm income 5 _____________________
'.fotal farm outpuL _________________
Total inputs 0 ______________________
Capital purchases 7_________________
Fertilizer and limc_- ________________
Feed, seed, Ilnd livestock purclllLSes s_
All farm labor inputs _______________
11.7
•G
.7
23. 8
13.0
S.1i
-.4
Stable
income 3
1.4
1.2
1.0
18.7
5. 4
4.5
-1.0
Decreasing
income •
-7.4
1.1
-.7
-10.2
-2.0
.4
-2.6
1 T3ased 011 indexes of constlLllt dollar vlllue;;;.
The direction of income move­
mentis the salllc within ellch subperiod. Percentage change was calculated from
beginning yellr to ending yCllr for ellch subperiod. 'l'hese were tot:lled and
calculated ILS an average ILnllual percentage change for each major type of illcome
period.
2 Includes the pcriods HIl5-IS, 1921-215, 1932-36, 1940-43, and 1949-51.
3 Includes the periods 1!H1-15, 1925-29, 193()-40, and HJ43-47.
4 Includes tlH) periods I!Jl8-2l, 1929-32, 1IH7-49, lLnd 1951-55.
~ CILSh receipts from murketings plus Government paymcnts.
e UILSed on the concepts used ill the body of this study, this is a capital flow
concept.
7 Annual purchases of machinery, service buildings, fences, and other improve­
ments, that is, a capital stock concept.
S Nonfarm inputs include only the portion of purchases resulting frolll process­
ings, transportiLtion, Illarketing fees, and the like. Excludes the value of inter­
farm transactions.
~5 The regression analysis of income on expenditures for machinery resulted
in values of a;:::-58 and b::::;I.37. The minus sign on the "a" value indicates
that Income must reach some minimum level beforenny expenditure is made
for machinery. Above this minimulU level. a I-percent increase in income is
associated with a 1.37 percent increase in expenditure for machinel·Y. Obvi­
ously. variables not consitlered in this simple regression IInalysis are involved
in this comple.'\: interaction. For n more thorough analysis of the relationship
between changes in farm incolUe find inveRtment ill capital stock, see Kendrick
and Jones (1S).
15
PRODUCTIVITY OF AGRICULTURE,
of machinery, equipment, service buildings, and the like, apJ-lear to
be the most sensitive of the items shown to changes in farm mcome.
.Another and somewhat broader approach that is helpful in view­
ing the complex of forces acting upon agriculture is to consider
the influence of changes in the overall economic conditions of our
economy on the agricultural economy. This might be done in many
ways. One approach would be to put in one group the years dur­
ing which the economy was expanding and in a second group the
years that depict contraction. .An indicator that may be used in
classifying periods in this way is the Gross National Procluct. 16 This
two-way classification of aggregate economic conditions and the
grouping of various agJ:icultllral measures of economic significance
for the same years results in a working hypothesis of interrelation­
ships.
In general, as the total economy expanded, agricultural income
and most input groups expanded also. Similarly, agricultural pro­
ductivity increased during periods of expansion. The opposite holds
true for peJ:iods of contraction (table 4). In those instances in which
t11e expansion or contraction was not absolute, such as the slight
contraction of labor during the expansion period and the slight
(rAnrJ}<~
4.-Relab:onship oj changes in general economic conditions,
farm inlmts, and Telateel data, United States, 1910-56 1
Percen tage change in
periods ofItem
Economic
expansion 2
Gross National Product. _____ • _________________ _
Farm income 3. ____ • __________________________ •
ToLal farm out.put. ____________ ._. _____________ _
Total inputs ___________________________________ _
Agricultural productivity _____ • ________ • ________ _
l\[achinery and equipmcnt 4_________ .••.• _________ _
Fertilizer and lime__
___ ___ ______ __ __ ___ ____ _
Fecd, seed, and Ii vcstock purchllses 5 ____ • _____ ••• _
All fllrlll labor inputs ___________________________ _
~__
Percent
13.6
7.4
2.2
.8
1.4
'1. 0
0.5
6.3
-.4
Economic
contraction
2
Percent
-5.9
-5.5
-.8
-.f)
-.2
3.1
-1.0
1.0
-2.4
I Dilta bascd on constant dollar values.
Sec Lable 3, footnote 1, for method of
cnlclliution.
2 The periods of expansion and contraction correspond to those used by Dale E.
Hathawny (31, 'PP. 51-76). The periods of expansion are 1\)11-1:5, 1914-19,
1921-23, 1924-26, 1927-29, 1932-37, 1938-44, 1946-48, 1949-53, and 1954-5f),
for a total of 32 years. The periods of contraction are 1910-11,1913-14,1920-21,
1923-24, 1926-27,1929-32, 1937-38, 19·14-46, 19-18-49, and 1953-54, for a total
of 13 years.
I Sum of receipts from mllrketings plus Government payments; includes income
from nonfurm sources, 1934~56.
4 Using the capital-flow concept.
I Excludo.s va1ue of interfarm transtlcLions.
16 The annual Gross National Product is the dollar value added to the total
economy from production of goons and services.
16
TEGHNlCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
expansion in purchase of machinery and equipment and feed, seed,
.and livestock during the contractio.n perio.d, in terms o.f degl'ee the
change is consistent with this generalizatio.n.
An alleged characteristic o.f the agricultural secto.r frequently
pointed out is that during perio.ds o.f eco.no.mic adversity, farmers
tend to. increase their inputs. The ratio.nale given for this behavio.r
is to reduce per unit Co.sts and increase vo.lume o.f o.utput to. o.ffset
the inco.me adversity. Ho.wever, the evidence given in tables 3 and
4 sho.WS the o.ppo.site tendency,l1 This suggests a need fo.r clo.ser
examinatio.n o.f this relatio.nship.
Changes in Source of Power
In additio.n to. gro.uping input data into. three bro.ad classes­
labo.r, real estate, and capital-fo.r so.me !walytical purpo.ses, it is
useful to. examine the rapid changes o.ccurring withlll the vo.latile
capital-input gro.up. This gro.up is It, co.mpo.site of many different
pro.ductio.n inputs. One o.f these is the Po.wer (o.ther than labo.r, o.r
human po.wer) used in farming.
The substitutio.n o.f capital :fo.r hlbo.r is typified by the shift fro.m
farm-pro.duced po.wer (ho.rses and mules) to. purchased mechanical
po.wer. In 1910, virtually all po.wer used. o.n farms was pro.duced
Qn farms. As late as 19'10, slightly mo.re farm-pro.duced than
mechanical po.wer was in nse, as measured in terms o.f 1935-39 co.n­
stant do.llar values. Ho.wever, the transitio.n fro.m farm-pro.duced
to. mechanical Po.wer pro.gressed rapidly after 1940, and by 1957,
abo.ut 10 percent o.f the farm po.wer was pro.duced o.n farms, as
mellsured in terms o.f 1947-49 co.nstant do.llar values.
Ano.ther way o.f illustrating the change in so.urce o.f Po.wer is to.
co.mpare the indexes o.f farm-pro.duced 18 amI mechanical Po.wer
(fig. 6). To.tal farm Po.wer has changed o.nly abo.ut 30 percent
since 1910, co.mpared with an increase in mechanical Po.wer o.f mo.re
than 70 times. Farm-pro.duced po.wer has beco.me relatively insig­
nificant. Altho.ugh indexes do. no.t measure the abso.lute vo.lume o.f
any input, the use o.f 1939-41 as a base perio.d, as in figure 6, re­
sults in the cro.ssing o.f the indexes o.f mechanical and. farm-pro.duced
power at the time perio.d (abo.ut 1940) when they were in fact
essentially equal in an abso.lute sense (again, in terms o.f 1935-39
co.nstant do.llar values).
17 The fnct that fnrm output Increased mor~ during pel'iods of stable and
decreased farm income than during periods of increased farm income (tnble 3)
Is Insufficient evidence to SUPPOl't the allegations as to the beh:lYior of farmers,
The Influence of variations in weather on output is sufficiently i~portant to
render questionable comparisons between output and Carmel' behaviornl pat­
terns, For further elaboration, see DUl'Qst and BartOli (7),
18 Farm-produced power-inputs used in rnising and maintaining farm horses
and muJe&-is not included as an input us such in the input series, Theoreti­
cally, it is included within such input.s as labor, machinery, relll estnte. and feed,
However, it is calculated in the process of computing output (see Durost and
Barton (7» and Is incorpornted here for the purpose of analyzing farm power
as an entity.
17
PRODUCTIVITY OF AGRICULTURE
POWER INPUTS
% OF 1939-41
200
100
o
1910
1920
1940
1930
1950
1960
.~'CHT~D
ay IfJS-J9 PRICES. VOLUM.!: OF .t4fCHANICAL powER ."S A.BOUT f;OUA.t TO VOLU.£
OF ,.... 'Ulo .. PftOOUC!O POWER (HORSES AHD /l4UL£.S'J HI "19 .. 11.
"'EG. 60 I' ) .. "9 1
U.1. OEP"'''T'''fNT OJ" AGRICULTU Rf
FIGURE
A.GIUCULTURA,L R~5E"'RCt1 SfRIIICE:
6
Growing Importance of Purchased Feed, Seed, and
.Livestock 19
Among the inputs supplied from the nonfarm sector is the por­
tion of feed, seed, and livestock purchases that is made up of trans­
portation charges, processinG' costs, marketing fees, and the like.
·With ever-increasing specialIzation and im~roved means of trans­
portation, this particular group of inputs is mcreasing substantially.
As a proportion of totullnputs, it increased n:om about 3 percent
in 1910 to about 11 percent in 1957.
The absolute growth of this group of nonfarm inJ?uts can be
illustrated by comparing it with fertilizer and lime m terms of
constant-dollar volume. In recent years, the volume of nonfarm
inputs associated with farmers' purchases of feed, seed, and live­
stock has been twice the volume of inputs of fertilizer and lime
combined.
The growth in this input group illustrates an important means
of stimulating adoption of technology. In effect, a convenient "pack­
age" of improved technology is present in such forms as better feed
mixtures, improved seed stock, and superior baby chicks. Adoption
is facilitated by the absence of "lumpy" capital investments, as in
the case of technology in the form of machinery and improved
buildings.
Growth in use of these inputs has also contributed substantially
to the increase in the output-mput ratio, or productivity, of agricul­
ture. Technology of this type has contributed greatly to the effi­
'"Excludes tbe \'Blue of interfarm transactions.
(See footnote 8, table 3.)
18
TECHNICAL BULLETIN 1238) U.S. DEPT. OF AGRICULTURE
ciency of production, because of the improved quality of the input
and because it is readily adaptable on It large scale.
Paid and Unpaid Inputs
The capital structure of agriculture has changed considerably
during the last few decades. There are many ways of depicting
this structural change. One is to observe the trend since 1940 of
paid versus unpaid inputs (fig. 7). 'While the jnputs furnished by
PURCHASED AND NONPURCHASED INPUTS
%
OF 1940---
.-
·------~T-~--·--·---r==---Purchased
....---••
125 ----., ..-- ... ~---~-,,~.----~':.-~ --- - .---­
,'---...-.."
.-,.-­
.,"
.'
100c---~~~---~---+------~------~
y
75
~- Nonpurchased~-
1 l.1.1.LL L L L l l -1_ ]
LJ .L
50
1960
1945
1950
1955
1940
.OP£IUTOR "NO , ... It.V lAflc)R AHO OPERArOR_owHED REA.t. (HA,TE AHD OTHER CI.l'IPL ''''PUTS
• .tLL II<Ipurs ,OTHER nOli HOHPURCHASfO
u~
s.
,,,,pun
DEP4IHwf,NT Of AGRICUlTVRF.
FIOUBII: 7
"brmer-owned" labor and capital decrer,sed 28 percent during the
1940--57 period, the cash, or purchased, inputs :increased 38 percent.!!O
This changing pattern has many significant :implications, for ex­
ample, the need for changes in agricultural credit, increased sensi­
tivity of the agricultural sector to the pvemlllevel of activity in the
entire economy, and increased interdependence of the agt:icultu1'lll
Ilnd nonagricultural sectors.
FORCES BEHIND THE CHANGING
PRODUCTIVITY
The growth in agricultural productivit.y has beell closely inter­
related .with the economic pro~re.ss of the en,tiro economy. Ill: ~he
economIC development of the umted States, lllcreased productl.Vlty
:lO Paid Inputs are synonymous with pllrcllfisell
inputs witb Donpurcbased or farmer-owned inlJUtS.
Qt'
cash inputs, as are unpaId
PRODUC1'lVl'l'Y OF AGRICULTURE
19
in the agricultural sector has released resources and facilitated in­
dustrialization. Industrialization, ill tum, has fostered and facili­
tated technological developments adaptable to agriculture and thereby
has stimulated increased productivity in agriculture. The two forces
have complemented et\ch other.
Of fundamental importance to economic development are the cul­
tural, social, legtd, and economic institutions that, fonn a sympa­
thetic atmosphere for growth. These institutions reflect a conscious
or subconscious belief of the llopulace in economic growth and the
promotion of material well-bemg. Institutions must be predictable
as to action, and resources must be available or made fwailable.
These are the basic conditions of eeonornic growth llnd progress.
Although this report; is not devoted to the development of a com­
plete set of conditions or forces essential to economic progress, the
very bJ"i(\f framework outlined above will help uS view in perspective
the inten-elationship between increased agricultut"al productivity and
overall economic growth and progress. A thorough analysis of all,
the forces behind changing agricultural productivity would neces­
sarily include the nndedying forces behind a growing economy, ancl
the extent to which they illflnence the agricultural sector. Such a
task exceeds the scope of this report. This section, therefore, is
limited to discussion of onl,\' a, few of the more important forces
that are identified closely with the growth in agriculturalproduc­
tivity.
Research, both basic and applied, produces the technology adapt­
able. to agriculture. Frequently, it is dillicult to distinguisl1 between
technological development and a change in the "quality" of a given
input. For example, the tractor is a technological development, but
an improvement ill maneuverability of the tractor might be regarded
as an lJnprovement in the quality of this :input. Even more llCbulous
is improvement in the quahty of the human agent throngh education,
t£allJl11g, and im(lroved health and llhysical condition. ,Yhether
these changes in mputs are designated as technology or quality is
important only so far as identification and measurement of cause­
effect relationships in the output-input ratio are facilitated. Tech­
nology, or change.., i1'. quality of inputs, is a major force behind
changes in productivity.
To have any effect on productivity, adaptable technology-ior eX­
ample, new tractors, seed varieties, pesticides, irrigation equipment,
mixed feeds, commercial fcrtilizC1:, and mecluU1ical harvesters-­
must be accepted and put into use by farmers and those in associated
enterprises. Adoption depends in turn upon two major ~timuli, edu­
cation and economic incentives.
In addition to research, economi.c influences may operate in several
ways to increase productivity.!!!
For example, changes in the relative prices of inpnts may cause
changes in the relative quantities of inputs llsed, Or they may canse
complete substitution of one input for another even though these
changes do not necessarily affect productivity. Also, changes in the
:u Prestigc, a1.Icvin lion of dwtlge1"y, and othcr "Jloue<:()llornic" motivations also
nffect adoptiOll of ncw technology. But jIlialysis of $~lch forccs is difficult, if
not imposslblc, (.'Specililly in the context of lin aggregate study.
20
TECHNaCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
relative prices received for agricultural products mny cause shifts
in enterprises within the firm, which in turn mlty affect inputs and
produc~lvity. Many (~ifferent price relationsl!ips a~ec~ vroduc~i:ity
by iorcmg resource adJustments toward a proftt-maXlmlzmg posItIon.
Another major force behind changing productivit.y is management.
Technology may be n.vailable and economic conditions may justify
changes in inputs, but these forces become meaningful in a produc­
tivity sense only when the farm manager acts in response to them.
Here, we are in the area of education and decision-making as they
influence <:hnnging productivity.
Two otller phenomena-size of operation and specialization-also
play major roles in productivity. These two are properly subgrouJ>s
under technology, economic, and managerial forces. They are dIS­
cussed in a following section.
Changing .Relative .Prices
Some of the major forces that. bear upon productivity have been
outlined. They were presented in order to provide the framework
within which !\nalyses of productivity may be made. In this section,
some of the important economic forces are examined in greater detail.
Variations in the relative prices f:u:mers pay for inputs cause
changes in the input mix over time. Th~ extent of the changes, the
lag in time between them, and the ultimate alteration of the input
mix vary over time. The dahl in the study reported here nre aggre­
gative. Therefore, we are concerned with adjustments to relative
prices per se, rather than with the magnitude of the change in price
required to cause adjustments. Nor arc we concerned with the time
lag between adjustments in inputs and changes in the relative prices
of inputs.
The outstanding change ill the input mix ill American agriculture
has been the movement of labor from, and the movement of labor­
sa.vin~ inputs and techniques into, agriculture. Availa. ble data throw
some .light on some of the major ·factors behind change ill tel'ms of
the costs and supply of farm labor. Affecting the supply of farm
labor are returns to labor in agriculture relative to those in the non­
agricultural sector. Direct comparison of wage rates, incomes, or
levels of living of farm and nonfarm people are difIicult to measure
and interpret. 22 Available statistical evidence, however, suggests
that. the comparative monetary returns in nonfarm versus farm em­
ployment are such as to cause a "pull" on the labor force from agri­
culture to industry (table 5). The fact that this disparity has per­
sisted through the years indicates thntin purely economic terms there
is a lag in the adjustment or mobj}jty of resources as between indus­
try and agriculture. This lag, which is.an almost endless subject for
explorution, results from a complex of social and economic forces.
i\foreover, the mere presence of an economic pull is only a necessary,
though not sufli<:ient, condition for mobility. There must also be
real opportunities for labor totmnsfer from agriculture into industry.
n F()ra c()ncilse statement on thl$ subject see "Possible J\Iethods of Improving
the Parity Formula" (83, 1111. 31-45).
21
.PRODUCTIVITY OF ~GRICULTUR~
TABLE5.-Average a,nnualnetincome from all 8o'U,rces, per capiw,
U1I,ited States, 1934.-57
Year
Noufarm
Farm
population pop,liation
1934_________
1935_________
1936 _________
1937_________
1938 _________
1939 _________
1940_________
1941. ________
1942_________
1943___ -- ____
1944_________
1945____ .-- __
DollaTS
-l65
244
228
296
239
249
262
349
500
65<1
606
720
Dollars
468
517
592
642
589
626
685
823
1,03'1
1,240
1,328
1,312
Year
1946_________
1947_________
1948_________
1949_________
1950_________
1051 _________
1052_________
1953 _________
1951 _________
1955____-- ___
195(L ________
1957 _________
Farm
Nonfllll:m
population populB~tion
DollaTS
806
825
962
767
S38
983
962
931
925
894
903
967
Dollar8
1,295
1,394
1,534
1,511
1,585
1, 763
1,849
1,902
1,849
1,975
2,056
2,082
The Farm Income Situation, :July 1958 (23).
The complex nature of the agricultural and nonagricultural labor
relationship may be depicted roughly as follows: Increased technology
in industry; increased pl'Oductivlty and earnings of industriallabol';
shift of 111.bo1' from agriculture to industry; higher wage rates for
agricultural labor.
The second facet of the labor cost-input mix picture is that of
relative costs between labor and substitute inputs. Movement of
labor out of agriculture und movement into agriculture of such
labor-saving inputs as machinery, motor vehicles, fertilizer, and im­
proved feeds· and seeds have been essentinlly simultaneous. Con­
current with these transfers of resources and acting as n stimulant
have been the changes in the relative prices of these inputs. Although
this list of forces is not exhaustive, those of industrialization, tech­
nology applicable to ngricultnre, and relative prices act dynamically
as causn,l.factors in changing the input mix.
it direct analysis of the changing relative costs leading to the shift
from -farm-produced power of 1101'8eS and mules to industrially pro­
duced mechanical power is difficult, because of data limitations and
the complexity of establishing costs for farm-produced power. An
indirect analysis, however, can be based on the assumption.Hmt horse
and mule power is more labor-intensive than mechanical power. ..As
the cost of labor increases relative to the cost of machinery, as it has
done substantially since 1040, there is un economic incentive to sub­
stitute labor-extensive inputs, mechanicllI power and machinery, ior
labor-intensive inputs, :farm-produced power (table 6),
In general, there is a positive correlation between the inputs of
power and machinery and tIle ratio of wage rates to prices paid 'for
machinery (fig. 8).23.:H .Departures from this positive relationship
S3 :rhe Index of
J. This positive
prices pllidfor machlnel'Y does not iilc1ude iDotor vehicles.
(.'Orreiation may retlect association of each of these variables
with a third variable, Income.
I
.22
TECHNilCAL lJULLETIN 1238, U.S. DEM'. OF AGRICULTURE
XABLE
6.-0hanging relative prices oj selectedfarmjactors and products,
United States agriculture, 1910~o7
[l91O-14.=100j
Ratio of-
Year
1910 _____
1911_____
1912_____
1913_____
1914 _____
1915_____
1916 _____
1911- ____
1918_____
1919___.__
192Q_____
192L ____
1922_____
1923 _____
1924_____
1925_____
1926_____
1921- ____
1928 _____
1929_____
1930 _____
193L_~ __
1932_____
1933_____
Ratio of-
Farm wage
rates to
prices paid
for
machinery
Prices
received for
all crops to
prices paid
for
fertilizer.l
96
98
101
104
101
98
104
115
114
129
145
98
108
116
117
118
119
119
119
122
116
93
73
64
107
103
100
97
93
89
98
140
128
126
130
80
107
116
126
118
101
112
108
104
91
66
5.7
76
Year
1934______
1935______
1936______
1937______
1938______
1939______
1940______
194L _____
1942______
1943______
1944______
1945______
1946______
1947______
1948______
1949______
1950______
195L____._
1952______
1953______
1954______
1955______
1956______
1957______
Farm wage
rates to
prices paid
for
machinery
69
72
76
84
82
82
84
97
120
154
183
204
213
203
184
159
155
158
163
165
.163
165
164
163
Prices
received for
aU crops to
prices paid
for
fertilizer
93
99
110
115
78
81
92
110
133
161
169
168
188
196
1,75
149
162
174
171
153
153
149
155
147
may be explained partly by noting additional dominant variables.
For example, the extreme change in the wa~-machinery price ratio
from 1920 to 1921 was of such short duratIOn (1 year) as to have
only a minor effect on machinery.inputs. T.he divergenc.e of the
"expected" relationship during World War II was due to the re­
stricted supply of farm machinery during the war years, which
prevented a large volume of machinery purchases, even though r-ela­
nve prices made such purchases economically advantageous for
farmers. Similarly, the opposite divergence immediately following
the war reflects the e~-istence of accumuJr.ted purchasing power built
up during the war and the necessity of replacing machinery that
had become depleted and obsolete during the war years.
Another major change in the input mix is the increased use of
::fertilizer. 1\s measured by constant price-weighted quantities, use
of fertilizer and lime. llas increased eightfold since 1910 and has
more than tripled since 1940. This is the greatest change in quantity
u~d Qf the major input groups. Again, examination of relative
price movements helps to explain this substantial expansion in U$e
of plant nutrients. For example, prices paid for fertilizer in 1957
I
PRODUC'l'lVITY OF
23
AGIU<WLT1]R~
MACHIN.ERY
Inpuls and Relative Prices
~ANN.UAL CHANGE
20
o
-20
Ratio of wage rates to
prices paid for machinery A
_40~uL~~uL~~~llL~~~~~~~
1910
1920
1930
• mCLUDIHG .. OTOR VEH'CLf!f.
1940
1950
1960
.0. EXCLUDING Moro" vtH'CL!S.
L:U:;,''::.,'.::,:DE:.::PA:::,"T.:.::I<::;:EN:.:.T..::,O:;.."::::AG:.:"':::.::CU:.:.;LT~U"::::E_ _ _ _ _ _ _N;.;,;E~O.60 ('1 .. ;1"2
FIGURE
j,GRICULl'URAl RESE4RCI'i SERVICE
8
were only half a~ain above the 1910-14 average price, while wage
rates for hired :m,rm labor increased 4% times during the same
period. ,~lso, the ~atio of prices received for, all. crops to prices pai.,d
for fertIlIzer has mcreased over the years, mdlcatmg an econOffilC
incentive for the increased use of 'fertilizer (table 6). As further
evidence of this relationship, changes in the ratio of prices received
for crops to prices paid for fertilizer and inputs of fertilizer are
closely associated (fig. 9).
Technology has been a major factor in accounting .for the small
relative change in fertilizer prices,for through technology new and
cheaper sources of plant nutrients have been developed. In view of
the product-factor price ratio (table 6) and the response in production
gained from its use, fertilizer has not been adopted at the individual
firm level to the point of maximizing returns. Fertilizer is only one
of an expanding group of inputs of this kind. Because of the physical
response of plant frowth to fertilizer, on many farms the increased
output per unit 0 fertilizer input is economically favorable. .AlSQ,
the use of fertilizer resultl3 in a reduction in amount of .labor and
other inputs per unit of output, through allocation of ralatively
"fixed" inputs to an increased volumr of output.
The, r01eof ch~nR'ing re~ative pI:ices as one of theforc~s behind
chan~mg~roductlYIty was Illustrated by examples of maclunery and
:fertilizer.:'! This changing price structure cannot be disassociated
115 Even though aposltlve association exists between two particulllrvariables,
Buch as price and qur.ntlty purchased, a complete analysis of caUfile an!! etrect
Would require that other varillbles be considered, For. example, association
between reilltive pl,'ice changes Ilnd various input purchases may be due to the
correlation ,of both variables with.a third val:laWe, farm Income.
24
TECHNICAL BULLE1'IN 1238 1 't.S. DEPT. OF AGRICULTURE·
FERTILIZER
Inpuls and Relative Prices
% ANNUAL CHANGE
o
_50~~~~~~~~~UL~~~~~~~~
1910
1920
1930
A'HCLUDIHC
u., S.
DEPARTMENT OF AGRICULTURE
1940
1950
1960
t..''''~
NEG. 60 (9)-2993
AGRICULTURAL RESEARCH SERVICE
FIGURE !)
from technology, as it is through technology that new and improved
inputs become available to agrIculture at !lworable prices. Agricul­
ture becomes the recipient of technolo~ical developments resulting
from activities of private industry and. publicly su{>ported institu­
tions. In many instances, inputs of improved qualIty that add to
the productivity of agriculture are transferred to agriculture at less
cost than the former lllputS.
Other Factors in Productivity Changes
Associated with, and partly because Qf, changes in the composition
of inputs, the average size of farm business has changed also. In­
creases in the scale of £arm operations, that is, control over resources
of production, is an inseparable phenomenon associated with adop­
tion of technology. Differential rates of technical innovation among
farmers enable earlier adopters t.o gain control over additional pro­
duction resources. Through the use of tractors, farm machiner:y,
fertilizer and the like, an individ.ual farm operator can utiHZ8 addI­
tional land and other capital inputs. The dynamics of this inter­
relationshi p of expansion and technolohry usually results in lower
per unit cost, partICularly of fixed inputs. Because of more efficient
use of inputs, the increases ·in size of farm business that have oc­
curred Imd are now taking place result in higher productivity for
~griculture as a whole. 26
There are several indicators of the increasing size of the farm
bushiesS. The number of farms is decreasing-it was down from
~ For more complete development of changes in scale of farm operation in
the United States, see McElveen (15).
PRODUCTIVITY OF AGRICULTURE.
25
more than 6 million in 1940 to fewer than amillion in 1957 (~6) but
the total area of land in farms has changed little. This situation
reflects an increase in number of acres per farm. Based on our esti­
mate of constant-dollar inputs (1947-49 dollars), total inputs per
farm increased by roughly a third between 1940 and 1957. For the
same period, inputs other than labor and real estate increased ap­
proximately 150 percent per farm, while power and machinery ad­
vanced by more than 200 percent per farm.
Increase in size of farm business, then, is one of the factors that
have contributed to the productivity of agriculture. This is true
because the increased size results in more efficient use of key indi­
vidual inputs. In turn, althouO'h the concept is complex, the force
behind change in size is busicaliy the availability of the inputs that
result fl·om technology, which are priced to make them profitable
for incorporation into the productIOn process. In general, these
"innovations, associated with increnses III farm size," are capital­
consuming, labor-saving, yield-increasing, amI such as to lower total
inr,uts 'per unit of output.
t;pecllllization also is associated positively ·with increased produc­
tivity. But here again, economic literature is replete with references
to the economies of specialization.
Thinking about specialization and its relationship to productivity
is facilitated by classifying specialization into "product" and "func­
tional" specializ(ttion. Product specialization refers to the trend for
most farms to produce fewer products but a larger volume of each.
Product specialIzation goes on among regions as well as among indi­
vidual farms. Functional specialization is defined as a reduction in
the number of different steps in the production process performed on
the farm. Formerly, for example, a farmer h:ttched chicks, grew
feee} for them, raised them, slau17hterecl and dressed them, and deliv­
ered them to retailers. Now he bUyS his chicks from It hatchery and
his feed ready-mixed. He sells the broilers on the farm to a processor.
The overall economic development of the country has made it both
possible und profitable for It farmer to move toward maximizing
production of the product that gives him the highest comparative
advantage. 1.'here are sound economic reasons for speciahzing in
productIOn of wheat, corn, cotton, dairy, beef, poultry, ot· some other
product. As the production process becomes more complex, it be­
comes almost essentiaI for the farmer to concentrate on production
of one or two commodities if he is to utilize economically the latest
techniques and be able to compete effectively with others.21
A mot·e subtle change in the structure of agriculture, which is both
a fot·m of and a contributor to specialization, is the upward trend of
feed, seed, and livestock purchases. Rather thlll1 permitting Jlro­
ductio.n of th~e inputs within a ¥iv.en farm 01.·ganizatlOn, th~ r~ah~ies
of comparatIve advantage result III more and more speculhzatlOn.
Impetus has been given this stl'ucturul change by the development
of means for the nonfurm sector to add to the productive efficiency
of these inputs. The increased efficiency resulting from specializa­
tion through the nonfnrmlortions of feed, seed, and livestock pur­
chases, whIch .have double in quantity since 1940, although seldom
quantified, has helped to account for the growth in productivity.
27 For elaboration on tbe Impact of specialization see Bacillnan and McEl­
veen (1).
26T:ECHNICAL BULLETIN 1235, U.s. DEPT. OF AGRICULTURE
}[:my technolo~cal :utd iru.-titutionnl de.elopments contribute to
!IDd result from the ~act of. ~~re:l.:«ed specialization.~ For exaIIlEle,
lDlpro>ed transportatIon facillties. IDcreused purehasingpower ;nth
result:ing chan..,oes in dw,umd~ mechanical and chemical aevelopments
that both enable and dictate specinlization. verticn1 integration~ and
chan~ in the marketing system are all Part of the specialization
compleX.
There is little doubt that specializ"ltion has contributed greatly to
the overall producti.ity of ~ariculture_ As in the ca....<:e of size of
farm ~u..41ess".it has done so by increasing the productive efficiency
of indi.vidua1inputs~ not the 1e-.lSt of which is management.
"E:rtemal economies'~ influence chan~ in produ<:tn;ty of a single
~tor of .the. economy_ Here a.g'.l~Il' tne qu.aIltification o.f ~ p~e­
nomenon IS difficult. But there IS httle douht that economlc :lctinbes
external to the agriculturnl production proce:::,'s re::-rut in productivity
ch~aes within ~oriculture. The de.elopment of :l n-.ln...<:pOrtation
system: an orderly banking system. stability in Go.ernment, ad­
nnces in such indu..~ies as chemicals, metals and petroleum, aU
result in what ma. be called external economies with reference to
~ariculture.
In addition to the generalized forces behind increa..<:ing agricultural
product!vity as menuoned :lboye. yet another area contributes to the
difference in the trend of conyentionally mea..<:ttred output and input.
The con.entional me:.lSUl'eSexclude, at least pactIy, inputs that result
from such activities aspublicIy supported research and education.
The inclusion of taxes on real estate and personal property in the
input series serres to include n. partial accounting of inputs that
ongina.te from education, roads: and other locally sutlpoded institu­
tions. However: all Federal sut>port of such actiyitles is excluded.
Also, the many Goyernment :letl.Yi~es o.th.er than education: and re­
search that affect both output and mput are· excluded from com-en­
tional mea.."Ure5.
By and brge, expenditures for research by industry are reflected
in the prices. ptlid. for the goods sold to the agricultural sector. This
would not be true to the extent that agricul.ture bene.fits ';indirectly~'
from industrial research. Probably there .are many instances in
which expenditures for industrial re..~tl.rch are not allOC-.lted on the
basis of eventual benefits recei.ed as. between consumina sectors of
the economy.
....
One of the many. pro~le:ns in a~y .attempt to measure in.p'uts of
research and education IS that of tliUlng~. The lag between mvest­
ment (ip.put) in research and education and the resulting influence
on output is a complex of time variations and inter-actions that cannot be "properly:: allocated ..
MO::.--t; of the "intangible" inputs of research and education are not
included .in. the data for this report Therefore: the reader should
recognize that part of the so-called productivity chunge oyer time is
due to these omissions. However, even if these inputs were includedl
a substantial in:..reuse in productivity wOllldremain because of the
reasonableness. of assuming a high marginal productivity of educa­
tion and research inputs.!!!>
:II
For' !!Ome
e~[dence.
to support
this assumption,
S€e
.Becker (2:).
)
PRODUCTIVITY OF AGRICULTUR~
27
IMPLICATIONS OF GROWTH IN PRODUCTIVITY
If we assume that a major motivation of man's economic behavior
is to obtain as hi@l a level of material Jiving as possible with a given
expenditure of euort, we may conclude that the advance in agricul­
tural productivity is progress. Food, fiber for clothing, wood, and
other outputs of the soil have been basic to man's existence. Obtain­
ing them has been man's first preoccupation since the dawn of his­
tory. In a. closed economy, means of industJ:ializing are limited,
short of raising the efficiency of agriculture suflicieritly to permit
tllC release of human and mated:.ll resources for use in the produc­
tion of goods and scrvices that supplement or add to these basic
goods. In fact, accomplishment; of the latter objective necessitates
an incl·ease in the rate of agricultural produc(ivity in excess of the
rate of incrcase in demand resulting fl"Om growth in population.
In this section, the implications of the growth in agricultural pro­
ductivity to the economy as :t whole are examined, as is the rel:l.tion
of productivity changes alld economic rctul"lls to agl.iculture.
Resources ~~Saved"
The growth in agricultul"al productivity has benefited consumers
as a group through a savillh'S in the resources necessary to Rroduce
It given output mix of agricultural commodities.
Historica ly, this
has been accomplished by the diversion of resources from agriculture
to industry.
In 1957, farm output was 36 percent greater than in l!HO. But
the total quantity of resonrces (inputs) lIsed in farm production
rose only 3 pe~·cent. This implieH an increase during this period
of 31 percent in output per unit of total input. "Vithout this gain
in productive etliciency, approximately :1, third lI1Qreresources would
have been required to produce the 1957 volume of farm output. In
terms of value, the savings of resources amounted to $9.6 billion
in 1957 alone, when the resourCeS saved are valued at the same per
unit return liS was received by the production resources actually
useel ill agriculture in I057.!!U In t<erms of value, total savings since
1910 are estimated to be around $1(1 billion. Once achieved, these
gains in production efliciency continue to benefit the general public
year aftel· year in terms of resourCe savings.
The major role of agriculture in this process of increasing pro­
ductive efficiency has been to utilize efl'ectively the technology de­
veloped outside agricuHure. Although it. is tme that some of the
efficiency has resulted from development.s within agriculture, the
major part can be traced back 1:0 the mechankal, chemical, and bio­
logic:ll areas of science. AgricultUl·e could not have progressed in
the absence of our highly developed system of education, which has
pl·ovided managerial and technical skills. Transportation, banking
and credit, and government stability Imve contributed significantly
nlso. The very fact of these interdependencies and the existence of
an environment. in which the results of specialization can be ex­
changed is the essence of economic progress.
29 Including Go\'ernlJJ~nt payments, excluding interfa,·rn transactions.
"Resource Savings Through Increased Productivity," appeDllix, page 53.
See
.28
TECHN1ICAL BULLETIN 1.238 , U.S. PEPT. OF AGRICULTURE
Growth in agricultural productivity results in problems as well
as benefits. Viewed in the perspective of centuries s changes in pro­
ductivity result only in good tidings. But in the perspective of Ii
shorter time, and certainly within recent years, increases in produc­
tivity result in outputs of some commodities that the market will
not absorb at currently acceptable prices. The feeling is growing
that this adverse effect of rapid increases in productwity on eco­
nomic returns to farmers occurs because of baSIC structural charac­
teristics in the Nation's economy which prevent intersectional re­
source adjustments, especially for labor, m the amounts needed. 30
Returns to Farmers
'Ve have examined the long-run benefits of growth in agricul­
tural productivity to the whole economy in the preceding section.
But what about farmers ~ Have they benefited from the increase
in agricultural productivity?
As consumers, farmers have benefited not only from growth in
agricultural productivity, but also from similar gains in produc­
tivity in the rest of the economy. Fabricant (8) points out that
"Real earnings per hOUl' of work in the private domestic economy
rose over the period since 1889 at an avernge annual rnte about
equal to the rate of increase in product per man-hour, and greater
than the rate of increase per weighted unit of labor and capital
combined. * * * Long-term trends m hourly earnings in individual
industries roughly paralleled the trend in the general average of
hourly earnings." The Fabricant paper also mdicates that real
hourly earnings in farming in 1957 were 2% times the earnings
in 1899.
For most, if not all, periods of comparison, the average annual
rate of change in productivity for the private domestic economy
(including agriGulture) has exceeded that for agriculture (table 7).
In recent years, however, the rate of change m productivity for
agriculture has compared more favorably with thut for the economy
as a whole than was true earlier.
7. -Average annual rate of change in. productillity for the private
domestic economy and agriculture, United States, selected periods,
TABLE
1889-1957
Period
__________________________________ _
1919-57 ______________________________________ _
1940-57 ______________________________________ _
1889-19573~
Private
domestic
economy J
Agriculture 2
Percent
Perce'lt
1.7
2.1
2. 3
O. 76
1. 16
1.62
I See (8, table 2 and table A).
Data estimates prepared by John W. n:endrick.
Private domestic economy includes agriculture.
2 Based on productivity data developed for this report.
I For agriculture, the comparison period is 1890-195i.
:10
For example, see Hendrix (11).
PRODUCTIVITY OF AGRICUL'l'URE,
!
\
29
Given, then, that productivity and reill hourly retul'llS to labor
have incl'eased over time in both the private domestic economy and
the agric1tltural sector, althou~h in the latter at It slower rate, in~
creased productivity has benehteiL farmers. Most farm lleople now
enjoy goods and services thut were not :l\'nilable to prevIOus gener~
atlons of farmers. But there is also e\Tidence that tl(Tricultural
workers lag behind industrial workers in sharing the Genefits of
increased goods and stu·vices resulting from gains in efliciency.31
In the remaining pages of this section, UII attempt is made to
appraise the .relationship of growth in agl'icultllral producti.vity to
changes in real income of ft,rulers. This task is made di1licult by
the complex interrelationships of changes in lIgl"icu]tural produc~
tivity to other forces in both agriculture and the genera] economy
which affect incomes of farmers.
As bnckgl·oUlul for the appmisal, :L simpliJied model is developed
of the interrelationships of the various forces that affect the income
of famlers and the relation of agricultural productivity to these
forces. In the context of this stuu..}', a functional model of net income
to fanners might he stated as follows:
,,"oIt,me oj' Farm Outpllt mu1tiplied by l">rices Receiyed equnls
Gross Income.
Volume of Inputs multiplied by Prices Paid equals Expenses.
Gross Income milms Expenses equals Net Income.
A further relationshil) is:
Inputs multiplie( by Productivity equals Flu:m Output.
Farm output:in 'I.·elation to demand for farm protlucts nt any given
time is one of the chief determinants of prices received by farmers.
Change in productivity, as we have demonstrated, has been a major
determinant of farm output. Thus, productivity atfects gmss income
directly through t~lC volume of products prochlced and indirectly
through IH·IC(>S n'ccl\"ed for farm products.
Producti vi!:y affects llllit costs chiefly through changes in the quan­
tity of illputs required to produce a gi\Ten volume of farlll output.
As has uoen shown, increases ill productivity, or reductions ill factor
inputs per unit of fl\rl11 ontput, have been substantial.
Productivity gains in the 1l0nfaml sector have also affected UT!it
costs ill lIgI;iculture as they have tended to lower the prices farmers
pay for inputs use(l in agricultural production. But as many ngri"
cultural inputs are demanded also by the nonagricultural sector of
the economy, the price of inputs to farmers is determined, not only
by farm demand for these inputs relative to supply prices, but also by
the demand for the inputs by the nonfarm economy.32 Demand for
many nonfarm products is increasing more rapidly than is demand
for j'arl1l products. Hence, tIllS economic force .is an important
factor in "bidding Up'l the price of inputs for farm USe.
31. Ecol\omic literature lIiJoul1(l:;; with such evilience, 1J0th nationally and inter­
n:itionnlly, 1)'01· exalllple. see Schultz (18), naup (l7), Weber (.'14,), nnd
BeJJl!rhy (.'.1).
;I~ Tn the j)I'cCl)tlilll,j section Oil changing l'datiyc prices, this "economic fOl'ce"
wa;; illllstl"utcd with l'efCl'Cllce to labor. It wus noted that for effective transfer
of I'PSOIIl"('eS, not only a disparity of; per unit l'etums, but l'l!ul opportunities
rOI· tt·unsfl!l" of n'l'Ol!l·C::CS nnd 1111111." favorable noneconomic conditions JOllst be
P1'('ilCllt,
r,o[m(;O·'~-fJl ~---'U
~
30
TECHNilCAr" BULLETIN 1238 , U.S. DEPT. OF AGRICULTURE
Also bearing upon the question of the benefits to farmers of
increased productivity is the nature of demand for farm products.
By and large, the demand for agl~icultural products is inelastic. In
the short run, demand for farm products is inelastic with respect to
price, thllt is, changes in prices of farm commodities are accom­
panied by proportionately smaller changes in quantities sold, so
that price elllsticity is less than unity. In the long run, also, so
mand for farm products is inelastic with respect to income. This
means that changes ill real income of consumers are accompanied by
proportionately smaller changes in the quantity of farm products
purclmsed. This inelasticity of demand for farm commodities enters
tnto our model through its effect on prices received and on net in­
come to agriculture as a whole.
In gen~i'!1I, however, because the market for agricultural com­
modities is cbaracterized by many producers turning out relatively
homogeneous products, the decisions of one farmer as to the volume
of production on his particular farm have no appreciable effect on
aggregate volume of farm output or on prices received. In fact, by
adoptmg technology, specializing, increasing his size of operation
and the like, he can see definite individual and frequently immediate
reductions in per unit costs. The nature of demand for farm prod­
ucts and the structure of farm markets gives rise then to a conflict
between individual and aggregate interests. Because of inelastic
demand for farm commodities III the aggregate, and because of the
individual incentive to reduce costs through means thllt expand out­
put, an apparently basic dilemma exists.3JI
With this backgrOlmd, our evaluation is restricted to an analysis
of returns to farm resources relative to nonfarm resources. The
analysis provides some insight into gains to farmers from increased
agricultural productivity and points up some aspects of the agricul­
tural resource adjustment problem ..
As noted earlier, direct comparison of agricultural and nonagri­
cultural incomes is difficult (33). Nevertheless, series on various in­
come measures for particular income groups indicate how the in­
comes of these groups in both agriculture and general economy have
changed over time.
The percentage change in real income per factory worker and
per farm family wOl'ker (from fal'ming) was essentlnlly the same
for the period-to-period comparison, 1910-14 to 1947-49 (fig. 10) .34
Real income for each kind of worker approximately doubled during
the period (table 8) .3u For this period, then, fnctory and farm
workers apparently shared proportionately in benefits resulting from
ll1creased l)roductivity.31l Perhaps we should emphnsize that this is
a comparison of percentage change in real income anel is a period­
aa Iror elabomtion on this conflict, sec Johnson and Barton (10, 11P. 39-54)
and .Tohnson and Bachmlln (12, 11P. 9-21).
34 Farm family workers include the farm operator and members of the farm
family who wor~{ without direct cash wage pn~'ment,
85l!'or definition of the Income measures used In this section of the report,
see the footnotes to table 8.
3e Real Income pel' factory worker and per farm fmnl1y workel' are not wholly
compal'able In concept. The latter Includes some returns to capital, as well as
labor, and the fonner reflects returns to labOl' only. AlsO, the effects of unem­
ployment andunderen:lployment are not reflected compm'ably in the two income
measures.
1~
I
31
PRODUCTIVITY OF ;AGRICULTURE
INDEXES OF REAL INCOME
Per Employed Foctory Worker* ond Per Farm Family Worker A
% OF 1947-49
Farm family worker
from all sources 0 ' ­
100~-------------------
50
-~..,.
"Form family worker
from (armin9 t
o
1910
• ",eo••",n.
1920
1930
1950
1940
1960
ADJUHE'D ''0" CHA.NGEI IH rHE COHSUMER rRICE INDEX.
A APJUsrto ,Olt CHAMen IN THE IHDEX PF PIitICES PAID FOIIt F ... ""Lv liVIHC.
o H£T 'NCOMe, ,,.OM
F;,,,"'NC; "LUI INCO.E I"''tO.M NONfARM .sOURcE!.
FIGURE
t
tlET ",COillE FifO" FAR_lHG.
10
to-period relationship. Even though the percentage change in l'eal
income from 1910-14 to 1947-49 was about the same for the two
income groups, the absolute income per employed factorywo:t:ker
continued to be roughly double the income from farming per ft\rm
family worker and nearly triple the income per hired farmworlmr
(table 9).
Also, it is evident from figure 10 that year-to-year income fluctua­
tions al'e greater for agricultural than for nonagricultural workers,
Following World War I and again in the early thirties, real in­
come per farm family worker dropped precipitously, l'elative to
income per employed factory wOl'ker. 37 In fact, during the decades
of the 1920's and the 1930's, change in real income per farm family
worker was low relative to that per employed factory worker, the
'former increasing only 6 percent from 1010-14 to 1025-20 while
the latter increased 28 percent (table 8). Relll income pel' employed
factory worker increased twice as much as real income per farm
family worker from 1910-14 to 1930-41.
From this analysis of change in real income, the farm family
worker was "holding his own" for tl1e period-to-period comparison,
1910-14: to 1047-40. lIe was losing gl'o~md up to the World War IT
period, but he gained rapidly during World War IT and the imme­
diate postwar years. Viewing more recent trends, however, say
that from 1947-49 to 1955-57, the story changes again. While real
37 It Is
increas~l
recognized that comparability of the two income measures would be
if 1111 estimate of unemployed factory workers could be Included in
the calculation of income per factory worj{cr. Apparently, howevet·, the advan­
tages of increased comparability are more thnn offset by (lisllIlvantages inherent
in definitions and measurements of unemployment.
32
TECHN:ICAL BULLETIN 1.238, U.S. DEPT. OF AGRICULTURE
S.-Oomparisons oj change in real income among selected
i'ncome groups, United States, selected periods, 1910-57
TABLE
Percentage change in real income per%-
Period
HHO-1·1
1\)10-14
1910-1-1
1910-14
1918-20
1925-29
1 \)39--11
lH-17-HI
1
to 1\)55-57_.
to 1\)25-21'-to HI3!J-4L_
to l!J-l7-4!L
to 1!J42-,14._
to 1\)55-57._
to 1H55-57 "
to 1n55-57 __
Employed
factory
worker 3
8]61
828
863
8102
92
105
60
29
Farm
family
worker
(from
farming)
4
83
6
31
105
99
73
40
-ll
Unit of
ullpaid
farm inputs of
labor and
capita! 5
Hired
farmworker
D
127
6
43
127
115
68
-2
26
115
91
72
33
11<1
59
0
-22
Farm
family
worker
(from all
sources) 7
(9)
(9)
(9)
(9)
(9)
(9)
42
4
1 The mujor criterion for selection of periods was reasonable comparability of
genem! economic conditions. The percentage of the labor force unemployed and
the parity ratio were used as indicators of relevant economic conditions. Excep­
tions to adherence of tltis criterion arc comparisons of the period 193!J-41 to
1955-57, for whiuh unemployment is not comparable; 1947~1\) to 1955-57, for
which the parity ratio is not comparable; and HHO-14 to 1939-41, for which
neither the parity ratio nor unemployment arc comparable.
Period
1910-14______________________ --- __________ _
1918-20___________________________________ _
1925-29___________________________________ _
1939-41 ___________________________________ _
1947-49 ___________________________________ _
1955-57 ___________________________________ _
Parltv ratio
100
10\)
91
8,1
108
83
.I
I
Perct1ltage oflabor
force une1nploved*
5.9
2.6
3. 5
13.9
4.2
4.0
*From Productivity, Prices, and Income (82, table 2, p. 87).
2 Bused on data from the Farm Income Situation (Z8) July 1958; Farm
Labor (24) January 9, 1959; and Agricultural Prices (22) October 1958 Ilnd
February 1959.
I Annual income per employed factory worker adjusted for changes in the
COllSumer price iudex.
'Total net income of farm operators from fanning (including Government
payments) divided by the number of farm family workers and adjusted for changes
in tht' indeX of prices paid for family living.
6 Total net inCOlll!! of farm f)pcratorl? from farming (including Government
payments) divided by the quantity of unpaid fllrlll inputs of labor and capital
lind IIdjusted for changes in the index of prices paid for family living. 'l'hequan­
lity of unpaid farm illput::; is the ::;um of (II) operator and family labor, valued at
constant dollar composite hired wage I'IItes. (b) interest payable on total farm
relll e:;tate, minus interest paid, valued in cf)nstant df)llars nt. interest rates on
outstanding mortgages, and (c) interest })nYllble on total non-real-estate capital,
minns interest paid, VIII ned in constant. dollars lit short-term bank-loan
intere:;t ratefi.
D Tota! expendi!·ure::; for hired labor (cash wages lind value of perquisites)
divided by the nllmber of hired workers and adjusted fQr changes in the index of
prices paid for flllllilyliving.
.. SUlIlens footnote 4, except that. income from nOllllgrieulturnl sOllrces is added
to the income from funning.
8 Based on WI3-I4 Ilverage for the beginning yeurs of the period.
v Dut:L on income frolll lIonfllrlll sOllrces not available prior to 1934.
,,1
)
<,I
t
1
1,
33
PRQDUCTIVITY QF AGRICt]J.TURE.
1.; ABLE 9. -Oomparison between absolute annual returns to agricUltural
and to i'ndulJtrial workers, United States, 19)0-57 1
;,
Average
wage per
employed
factory
worker
Year
1910_________ _______
1915
________ -~------1920 _________________
1925_________________
1930_________________
1935_________________
1940_________________
1945_________________
1950 __________ --- ____
1955_____-- __________
L957 __________ ---- ___
J910-57 ______________
1934-57 ______________
~
Dollars
552
561
1,368
1,267
1,209
1,047
1,310
2.308
3,085
3. 079
4, 284
],716
2, -J55
A"erage net income per
farm family worker fromAgricultural
SOurces
All sources
Dollar.,
Dollars
(3)
(3)
400
-116
567
689
457
538
551
1,575
1,843
1,854
2,041
960
1,410
(3)
(3)
(3)
741
876
2, \08
2,540
2,847
3,150
(3)
1,996
Average
income
per hired
farm­
worker 2
Dollars
223
236
528
382
369
269
38.4
1,085
1,150
1,356
1,516
619
913
I Based on data from Farm Incomc Situation (23) July 1958; and Farm Labor
(24) January 9, 1959.
2 Sum of cash wages and vlillle of perquisites divided by the number of hired
farmworkers.
3 Data on income from nonfarm sources not available prior to 1934.
income per factory worker increased 29 percent during this period,
real income per farm family wo.rker from farming decreased U per­
cent. This decrease in real income was asso.ciated with an increase
in output that exceeded growth in market demand, and which re­
sulted in lower prices fo.r farm products. It was also a period of
rapid rise in producti~¢ity and, as there was no decrease in inputs,
output increased by about the same propo.rtion as productivity.
Thus the complex of major forces that affect farm income-volume
o.f output, prices receiyed, and productivity-were so interrelated as
tQ,ha.ve an adverse effect on farm income.
Figure 10 also compares changes in real income per farm family
worker from both arp-iculttlral and nonagt:icultural sources with
changes in real income per emplo.yed factOl'Y worker. This m.easure
of real income to the farm family worker changes the decrease of
11 percent from 1947-49 to. 1955-57 to an increase of 4 percent
(table 8). This is still a substantially smaller increase than the
29 percent for the factory worker.
Addition of income from nonagricultural sources to income from
farming illustrates a type of resource adjustment that is occurring
lVi.thin agriculture and between agricultural and nonagricultural
sectors of the economy.3S More and .more farmers are combining
farming with part-time employment off the farm. As technology
enables them to utilize their farm resources with less labor, they
18 By anel large, the Income from nonagricultural sources added to farm In­
come for this unalysls or!glnlltesfrom wages paid furm family workers for
work performed In nonagrIcultural occupations.
34
TECHNiICAL BULLETIN 1238, U;S. DEPT. OF AGRICULTURE
INDEXES OFRE.AL INCOME
Per Employed Foctory Worker ond Per Unit 01 Nonpurchased Farm Inputs
% Of 1947-49­
100+1--------------------~
50
,..
I
Per unit of
nonpurchased inputs A
I
ill I I I II II
19.10
1920
I I I I I I I I II
LL.J...LLL..w....L-L...L-L..L.l-..L.l-..L.l-.w...w...L.LJJ..J
1930
19AO
1950
' . ~"DM ""GU. AI?JUSTED 'Ott C""~G(S IH THE CO"'SUMEIt "RICE ,HOEX.
A"lIriO OF HET 'NCOM£: 0' ~AlU. orE'UTO"s ,RO'" ","".'HC lA-DlUtT£D FOil CHAHGES'N TH~ INDEX
~O. ,~.,~y LIVIHG' TO HOHrURCHAno ,"'''UTS OF L~IOR AHO
U. So. D(P4RTM£N
r or
FIGURE
w r ,..,cn " • .10
CIoPfr.lL.
HE,C.
ACRICUlTUItE
1960
60,.)-n"
AGRICULTURAL R£SEARCH SERVICE
11
adjust either by acquiring more resources or by seeking part-time
work elsewhere. The income implications of this adjustment are
illustrated in tables Sand O. Income per farm family worker
from farming increased 40 percent from 1030-41 to 1055-57 and
decreased 11 percent from 1947-40 to 1055-57. But income per
farm family worker 'from all sources increased 42 percent in the
first period mentioned and 4 percent in the second period. This
shift in source of income is commensurate with the general eco­
nomic conditions in the agricultural and nonagricultural sectors of
the economy. The decrease in income from farming, the availability
of employment in industry, and the presence of labor-saving tech­
nology on farms were complementary forces acting to shift employ­
ment from agriculture to industry.
Thus far in this discussion of increased productivity and the
relative benelits accruing to farm and nonfarm workers,we have
allocated all net farm income to farmworkers, meaning that some
capital returns have been aUoc~ted to labOl:. .As farming combines
the use of both 1abor und capItal under smgle ownershIp, and as
the total income to farm family workers includes returns to capital
as weH as lubor, another measure of farm income may be more
appropriate. In figure 11, the change in real income per factory
worker is compared with the change in the real return from farm­
ing per unit of "unpaid" (nonpurchased) farm inputs of 1abor and
capital. In this comparison, we measure the change in income to
the farm family for their labor and capital after interest and rent
on borrowed capital are paid.30
89
See footnote 5, table 8 for a definItion of llnpaid farm inputs.
i
.j
I
35
PRODUC'I!lVI;t'Y OF AGRICULTURE,
Percentage changes in per unit real returns to unpaid inputs were
somewhat greater thtm the percentage changes in real income per
farm family worker from HHO-H to 10'17-49 (table 8). The simi­
larity of movement of the two measlll'es of income per unit is due
to the dominant position of unpaid In,bor input l'elative to unpaid
capital input during the period. However, unpaid capital has be­
come increasingly unportnnt in recent years. Consequently, the
real return per unit of unpaid inputs shows a decrease of 22 per­
cent from 1947-41) to 1055-57, when real income pel' farm family
worker decrcnsed 11 percent und real income per employed factory
worker increased 20 percent. Thus by including the entire "base"
for ng~'icultural income to farm family workol's (both labor and
capital) since 11).13-40, their real income position has become less
favorable relative to industr'ial workol's. Even though farmers
have increasillgly adoptod labor-sa.ving capital inputs, real income
per unit of unpaid lllbor and capital has declined sinco 1947-"10.40
Changes in annual real income of the farm family worl{er und
the hired fnrmworkcl' are illustrated hl figure 12. Again, the
reader is reminded that this comparison is of changes in 1'eal inoomc,
not comparisons of level or amount of real income. For the par­
ticular periods shown in table 8, the pcrcentage changes in real
INDEXES OF REAL INCOME
per Hired Form Worker and Per Form Family Worker
%
OF 1947-49-------------
*
'A,,
Form family worker
100+-------~-------------'
'"
Hired form worker A
o
1910
•
1940
1930
1920
,,,OM FA"tlIHC. AtUIJHED FOR CKAHGn
IH
1950
1960
THE ,,.,o£x Of' PRICEf PA'D fOR "~JtjILY lIVING.
A ,,,OM 1;"'IH II!'ACEt A~O peRQUISITES. ".OJUHfO FOR CHAI'/CEJ IN ,HE IHDEX OF PR'eEl ",,"10 FOR FAM'L" lIV'HC.
U. i. ,DEPA.RTMEHT Of AG'UCOL.TUIfE
FIGURE
12
40 Comparisons of Income for farm and nonfarm groups would be Improved
subst/lntially If !lata on farm income wel'e available by commercial and non­
commercial farm subgroups. AVllllllhility in this fOI'1ll of 1111 reievant aggregate
dntn used In the stutlyreportl!d wou\1I conti'lbule Immeasurahly to analyzing
both protlllctlvlty~lnqrellsing and prodUctivity-restraining forces. Koft:sky and
Grove contrlbutec1 Significantly to this classification problem (80, pp. 79-90).
36
'l'ECHNlICAL BULLETIN 1238, U.S. DEPT. OF AGRICUL'l'URE
'RETURNS TO LABOR AND CAPITAL
Compared with Parity Ratio
I
PERCENT
I
Ratio of actual to
computed returns*,
125
1,,
I
~'
1920
1930
1940
'"0M
1950
1960
."H "..
*,tCTU,U• • ~TUItHS .... TOT"L H~T 'NCOME
AGIIUCUa.rU"E ~LUS .HTEItEST ''10 ON HOH-.~AL-ESTATE Dfar.
CO."UTI'D .ErUItNJ .... "'rH O'fItATOIt AND I'AMU.Y LAaOIt VALUfD AT H,.EO ,.... ItM WAGE RArES. AHD
A'IUCE"·
''''fE"l'Ir ItAT!'f
ItIHUItH ON ,.. .....U!'It .. O.HED C"''''TAt...
0'
U.l. DHA,,'YEHT OF AGRICULTURE
NEG. 60 ("-2"7
IPIOUUE
AGRICULTURAL RE5£ARCH SERVICE:
13
income for hired workers were slightly larger than those for farm
family workers .... l
A somewhat different approach to analysis of income (returns)
to la.bor und co.pital used in agriculture is to. c.oml)are act.ual returns
to all labor und co.pito.l used in agriculturo.l production with re­
turns computed at "murket" rates for labor and capital purchased
by the ugricultural sector of the economy.... 2 The market rate of
return for labor was assumed to be the composite hourly wage rate
for hired farm labor. The market rate for real estate capital was
assumed to be the mortgage interest rate on outstanding mortgages;
for all other capital, it was assumed to be the short-term interest
l'lltes on bank loans.
With few exceptions between the years uno and 1940, the actual
retm:ns to labor and capital were less than the computed return
(fig. 13). During and immediately following 'YorId 'Val' il, the
actual returns exceeded the computed returns. From 1953 to 1957,
the reverse relationship prevo.iled. On the average for the entire
1910-57 period, ine actual returns were 4: percent less than the com­
puted returns.-43 Thus on the average for the whole period, farmers
did not receive quite market rates of return~prevailing interest
~ Real Income pel' hlreel worket· WIIS calculated as a ratio of expenditures
for hired workers (lncltullng perquisites) and the nnmber of hired workers,
adjusted for changes In the Index of. prices paid fOl' family living. Indexes of
real Income per hired worker lind of hirel} wage rates (deflated) followed the
same general trend from 1010 to 1957.
oUTwo Important distinctions between this analysis and those pl'eceding it
l\re (1) the use of current dollar data, ancI (2) the inclusion .of all labor and
capital In lieu of unpaid labor and capital only.
43 See appendix table 15.
.
1
!
PRODUCTIVITY OF AGRIOULTURE
..
•
...
37
rates and hired men's wages-on their owned capital and operator
and family Jabor.
A comparison of the movements of the ratio of actual returns and
computed returns to the parity ratio (fig. 13) illustrates the strong
positive relationshil? between returns to labor and capital and the
level of prices receIved for farm commodities relative to the level
of prices paid for production items and goods and services used in
family living.44
1Vhen the parity ratio is 100 or greater, the per unit returns to
unpaid labor and Cltpital in agriculture usually are equal to or
greater than the wage rates of hired workers and the m!trket rates
of .interest on borrowed capital. But with few exceptions, when
the parity ratio is less than 100, the total returns to unpaid labor
and capital in agriculture do not provide both hired wage rates to
unpaid labor and market rates of interest on owned capItal. This
does not necessarily bear directly upon the income positIOn of agri­
cultural labor and capital relative to that of indllstriul workers.
If the market costs of hired :farm labor and borrowed capital moved
upward nt the same rate as returns to industrial workers, the
relation between computed returns to agriculture and returns to in­
dustrial workers would not change .
To return to the original question, what specific benefits have
farmers had frol11 increases in agricultural productivity? Until
recent years for the early twenties and early thirties, the rate of
change in real income for agricultural workers has been about the
same as that for employed factory workers. Since about 1950, the
rate of change in real income ol these two groups has spread to
the disadvantage of the agricultural worker. Also, aside from rates
of change in real income, a substantial difference in the ab~olute in­
come ]e,'<,>] continues to exist .
Over the period covered in our analysis, adjustments in farm
inputs and output Imve not been sufilciently rapid to provide per
unit returns to lItbor and capital employed in agriculture equivlL­
lent to per unit returns of comparable resources employed in the
rest of the economy.
Our simplified model illustrates the relationship of productivity
to the income of farmers through pointing out the role of various
forces-basically the supply, demand, and price relationships of in­
puts and Ol.ltput withil.l agriculture; the interrelationships of agri­
culture with the general economy; and the conflict of individual
versus group decisions in agriculture. 45 Given the objective of maxi­
.. As the components of the ratio of actual· to computed returns are expressed
In current dollars and the components of the parity ratio in current prices, and
as both are l'I~f1ections of a short-run supply-(1emand situation, comparing these
two ratios produces a logical shOl:tcrun comparison.
Actunl aggregate returns to fill labor and capital are based on market rates
of return per unit of paifl labor and capital and residual rates of returns per
unit of unpaid labor and capital. Computed aggregate returns to all labor
and Cllpltnl arc bnse(l on market rates of r{)tUl:n per unit of both paid and
unpaid labor and capital. The ratio of actual to computed aggregate returns
to a]] labor and cnpitlll is shown in figure 13.
'" It is recognized that this simplified anlllysis does not consider II]] the im­
portant factors that a1f~t the relationship of productivity and income. For
example, the agricultural and nonag(icuUIlI:lll sectors of th(' economy function
under different mnr./{et strnctures, primat:lly with respect to competltiv~
structure.
­
G601S60-61-G
38
'rECHNIlCAL BULLETIN 1238,
u.s.
DEPT. OF AGRICULTURE
mizing consumption with a given expenditure of resources (both
human and material), the root of the agricultural adjustment prob­
lem is not one of dampening the rate of increase of agricultural
productivity. Rather, it is a problem of creating an economic strnc­
turn that will permit increases in productivity and at the same time
permit the flow of resources toward their maximum return position,
both within agriculture and between agriculture and the nonfarm
sectors of the economy.
LITERATURE CITED
(1)
BACHMAN, K. L., and McELVEEN, J. V.
1958. TRENDS IN KINDS AND SIZES OF FARMS. U.S. Dept. Agr. Yearbook
1958: 302-309, mus.
(2) BECKER, G. S.
1959. INVESTMENT IN EDUCATION. Nat!. Bur. Econ. Res. Ann. Rpt.
1958 (39): 38-40.
(3) BELLERBY, J. R., and associates.
1956. AGRICULTURE AND INDUSTRY: RELATIVE INCOME.
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
369 pp.
London.
BLACK, J. D., and MUDGETT, B. D.
1938. RESEARCH IN AGRICULTURAL INDEX NUMBERS-SCOPE AND METHOD.
Soeial Sci. Res. Council Bul. 10, 152 pp. New York.
BOULDING, K. E.
1958. SOME DIFFICULTIES IN THE CONCEPT OF ECONOMIC INPUTS. Paper
presented at the Conference on Research on Income and
Wealth, Natl. Bur. Econ. Res., Inc. New York City, October
17-18,1958. Nat!. Bur. Econ. Res., inc., ~ew York. (Mimeo­
graphed.)
COOPER, M. R., BARTON, G. T., and BRODELL, A. P.
1947. PROGRESS OF FARM MECHANIZATION. U.S. Dept. Agr. Misc. Pub.
630, 101 pp., mus.
DUROST, D. D., and BARTON, G. T.
1959. CHANGING SOURCES OF FARM OUTPUT. U.S. Dept. Agr. Prod. Res.
Rpt. 36, 57 pp., mus. 1960.
FABRICANT, SOLOMON.
1959. BASIC FACTS ON PRODUCTIVITY CHANGE. Nat!. Bur. Econ. Res.
Occas. Paper 63, 49 pp. [New York.]
GRILICHES, ZVI.
.
1957. SPECIFIC....TION BIAS IN ESTIMATES OF PRODUCTION FUNCTIONS.
Jour. Farm Econ. 39(1): 8-20.
HEADY, E. 0., DIESSLIN, H. G., JENSEN, H. R., and JOHNl\ON, G. L., editors.
1958. AGRICULTUE..\L AD.TUSTMENT PROBLEMS IN A GROWING ECONOMY.
North Central Farm Mangt. Res. Com. 315 pp., illus. Iowa
State Univ. Press, Ames, Iowa.
HENDRIX, W. E.
1959. INCOIllE IMPROVEMENT PROSPECTS IN LOW INCOME AREAS. Paper
presented at the annual meeting of the American Farm Eco­
nomic Association, Ithaca, N.Y., August 23-26, 1959. Jour.
Farm Econ. (In Press.)
IOWA STATE UNIVERSITY CENTER FOR AGRICULTURAL ADJUSTMENTS.
1959. PROBLEMS AND POLICIES OF AMERICAN AGRICULTURE. [Papers
presented at conference sponsored by the Center for Agricul­
tural Adjustments of the Division of AgriCUlture, Iowa Stat,e
College, October 27-31, 1958.] 460 pp., illus. Iowa State
Univ. Press, Ames, Iowa.
KENDRICK, J. W., and JONES, C. E.
1953. FARM CAPITAL OUTLAYS AND STOCK. U.S. Bur. Foreign and Dom.
Com., Survey Cur. Business 33 (8): 16-23, illus.
LOOMIS, R. A.
1957. EFFECT OF WEIGHT-PERIOD SELECTION ON JlIEASUREMENT.OF AGRI­
CULTURAL PRODUCTION INPUTS. Agr. Econ. Res. 9(4): 129­
136, mus.
McELVEEN, J. V.
1957. FAMILY FARMS IN A CHANGING ECONOMY. U. S. Dept. Agr.,
Agr. Inform. Bu!. 171, 94 pp., mus.
1
.i
.":"RODUCTIVITY OF AGRICULTURE.
(16)
(17)
(18)
(19)
(20)
(21)
(22)
.
39
MILLS, F. C.
1952. PRODUCTIVITY AND ECONOMIC PROGRESS. Natl. Bur. Econ. Res.
Occas. Paper 38, 36 pp. (New York.)
RAUP, P. M.
1956. THE INCOME POSIT1O.N OF WEST GER~IAN AGRICULTURE: A REVIEW
NOTE. Jour. Farm Econ. 38 (4): 1048-1054.
SCHULTZ, T. W.
1945. AGRICULTURE IN AN UNSTABLE ECONOMY. 299 pp., illus. New
York.
STOUT, T. T., and RUTTAN, V. W.
1958. REGlOl';AL l'ATTERNS OF TEC1lNOI,OGICAL CHANGE IN AMERlCAN
AGRICULTURE. Jour. Farm Econ. 40 (2): 196-207, ilIus.
TOSTLEBE, A. S.
HIS7. C",PITAL IN AGRICULTURE, ITS FORMATION AND FINANCING SINCE
1870. A study by the National Bureau of Economic Research.
232 pp., ilIus. Princeton, N.J.
TOWNE, M. W., and RASMUSSEN, W. D.
1957. FARM GROSS PRODUC1' AND GROSS INVES'fAIENT DURING THE 19TH
CENTURY. Paper prepared for the Conference on Research
in Ineome and Wealth, Natl. Bur. Econ. Res., Inc., Sep-t.ember
1957. Nat!. Bur. Econ. Res., rnc., New York, 85 pp. (Mimeo­
graphed.)
U.S. AGRICULTURAL MARKETING SERVICE.
1956-59. AGRICULTURAL PRICES, MAY 1956; OCTOBER 1958; FEBRUARY
1950; AND IIIARCH 1959. Washington, [D.C.] (Mimeographed.)
(23)
1958-59.
(24)
(25)
(26)
(27)
(28)
THE FARM INCOME SITUATION, JULY 1958; JULY 1950.
[D.C.l
Washington,
1959. FAn~I LABOR, JANUARY 1950. Washington, [D.C.l [Mimeographed.]
- - - - - Cnol' REPORTING BOARD.
1938-59. LIVESTOCK AND POULTRY INVENTORY tnJANUARY 1, NUMBER,
VALU~, AND CLASSES.
(Anllual.) washington, [D.C.]
- - - - - CROP REPORTING BOARD.
1957-58. NUMBER OF FARMS BY STATES, 1910-56, NOVEMBER 1957; Sup.
February 1958. Washington, [D.C.}
U.S. AGRICULTURAL RESEARCH SERVICE.
1959. CURRENT DEVELOPJlIENTS IN TIlE FARM REAL ESTATE l>lARKET.
U.S. Agr. Res. Servo ARS 43-101 (CD-52), 35 pp., mus.
- - - - - F ARIII .ECONOMICS RESEARCH DIVISION.
1957. AGRICULTURAL FINANCE REVIEW. Vol. 19, 136 pp., illus.
(29)
1959.
(30)
(31)
(32)
(33)
CHANGES IN FARM PRODUCTION AND EFFICIENCY. U. S. Dept.
Agr. Statis. Bul. 233. Revised September 1959.
UNITED STATES CONGRESS, JOINT ECONOMIC COMlIIITTEE.
1957. POLICY FOR COMMERCIAL AGRICULTURE. ITS RELATION TO
ECONOMIC GRoW'fn AND STABILITY. [Papers submitted by
panelists appearing before the subcommittee on Agricultural
Policy.] U. S. Cong., 85th, 1st sess., Joint Eeon. Pript, 864
pp., iUus. Washington, U.S. Govt. Print. Off.
-1957.
- - ­ PRODUCTIVITY, PRICES, AND INCOlIE.
U.S. Cong., 85th, 1st sess.,
Joint Committee Print, 281 pp., illus. Washington, U.S.
Govt. Pril1t. Off.
UNITED STATES DEI>ARTMENT OF AGRICULTURE
1957. JIIAJOR STATISTICAL SE:nIES OF TilE U.S. DEPARTMEN'l' OF AGRI­
CULTURE. HOW THEY ARE CONSTRUC'fEP AND USED. U.S.
Dept. Agr. Handb. 118, vols. 2 and 3.
----­
1957.
(34)
POSSIBLE IIlETHODS OF IMPROVING THE PAmTY FORMULA. Report
of the Secretary of Agriculture, pursuant to Sect. 605 of the
Agriculture Act of 1956. U.S. Cong., 85th, 1st sess., S.Doc.
18,64 pp., illus. Washington, U.S. Govt.Print. Off.
WEBER, HILDE
1955. DIE LAl';DWIRTSCHAFT IN DER VOLltSWlRTSCliAFTLICHEN ENTWIClt­
LUNG. Ber. uber Landw., vol. 161, 104 pp., ill~s.
40
TECHNIICAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
APPENDIX
There are no unique m~thods by which productivity can be meas­
ured. But a detailed explanation of some of the techniques used in
the study reported and of some of the implications and alternatives
of these techniques may be useful.
.,.
.
Some Problems in Measurement of Productivity
Many stubborn conceptual and empirical problems must be faced
in atternptin~ to answer the general question, "What has been the
magnitude of. change ill. agricultu~'al productivity 1" ~rhe presence
of heterogeneIty among mputs nnn outputs, the necessIty of aggre­
gating unlike components, the continuous procession of change in
the Iluture and composition uf components, the index-number prob­
lem of weighting, selection of the "significant" components to in­
sure consistency with the measurement objective, and so on, are all
problems for which there are no unique solutions.
As the initial objective of the study was to measure change in
efficiency or pmductivity, it was essential that output and input
units be selected in such a wtty that nny variance in their relation­
ship over time would be reflected in the measurement process; that
is, so that movement of inputs and outputs would not be propor­
tionate. If total inputs were to equal total output, as is true with
current values, then the productivity ratio (output per unit of in­
put) would always be unity, and the results would not be relevant
to the original question. The significant components are defined as
"economic" input components; that is, economic in the sense of
scarcity.46
The problems of heterogeneity and ag~regntion have a conceptu­
ally partial solution, one of simply weIghting all components by
some common denominator. Selecting a common denominator, how­
ever, leads into the problem of index numbers. The most logical
unit for weighting is value (price), yet relative prices do not meet
the test of constancy required of a weighting factor. Furthermore,
the composition of the component inputs is never constant. These
problems were not solved in this research effort, nor can they be,
but their limitations were minimized. This was done by selecting
price weights representative of the period to which they were a p­
plied and using two sets of relative price weights for different
periods of extreme variation in input composition and relative price.
Ideally, the relative prices used for wet~hting components would
represent a period of competitive equilibrmm, for they would then
also represent the marginal and average productivities. As a con­
dition of competitive equilibrium has not existed in fact, some of
the divergence of the output and input aggregates may be move­
ment toward or away from equilibrium.
The measure of change in productivity used in the study reported
wa3 change in the ratio of a value of output to a value of all corre­
46 The fact that data are not ayailable in sufficiently definitive form for some
economic inputs of intangible eapit.lIl. for instan('c, publicly supported research
and diffusion of knowledge, probAbly results in a Slight upward bias in our
productiVity measure, if the intangible inputs .ha\'e risen r(!lativeto tangible
Inputs.
..
.,
PRODUCTIVITY OF AGRICULTURE
"
.',
41
sponding tangible inputs at 1935-39 prices (for 1870-1939), and at
1947-49 prices (for 1940-58), with the quantities of output and
inputs varying from year to year. All the identifiable and measur­
able economic components were included. The chief omission was
that of intangible capital inputs. As relative prices were held con­
stant and quantity alone was permitted to vary, the measure of
change may be referred to as change in physical productivity.
Although departures of the pattern of relative prices from that used
in the weight period are one catl8e of changes in quantities of out­
put and input, the changing relative prices are not in and of
themselves changes in phYSICal efficiency. The sense in which
physical efficiency is used here does not mean physical in the "non­
destructability of energy" sense as used in physics; it means rather
that tl1e only variable is quantity.
Selection of Weights
A.
Price Weights
Problems involved in selecting the price weights to be used in
measuring agricultural inputs were considered before inputs were
measured statistically. The results of this analysis (14) are sum­
marized briefly here.
Laspayre's weighted aggregative formula was considered to be the
most appropriate formula for use in calculating index numbers of
inputs.47 Average cost rates (prices paid by farmers) were used
as weights.
Since prices were used asweigl1ts and since relative prices of
inputs may change considerably o.ver time, the purpose in testing
various price-weigbt periods was to determine which period was
most representative or deviated least from actual price relationships
during the span of years for which the price weights were used.
Determination of the span of years for which a particular fixed­
price weight is used is subject to statistical testing and judgment
concerning such factors as major changes in relative prices of in­
puts, major changes in composition of inputs, the increase in use­
fulness that results from adhering to conventional periods, com­
parability of general levels of economic activity for the economy as
a whole, and so on.
Several technl<J.ues were used in testing the appropriateness of
different price-wClght periods from 1910 to date. The periods tested
were 1910-14, 1925-29, 1935-39, average of 1925-29 and 1935-39,
1937-41, 1939-41, 1947-49, 1952-54, and 1957, although not all tests
were applied to all periods. One test used involved calculation of
the combined quantity-pl,'ice aggreg-ates of selected inputs using dif­
ferent price weights, indexing the results, and comparing the
movements of the various composite indexes. TIle quantity-price
data were analyzed also to determine the influence of changes in
quantity of eacI1 input factor and of each price-weight period on the
final index of combined. inputs.
Changes in relative prices of inputs were evaluated in several ways.
For example, the movement of various input prices as compared
ot1 Social Science Research Council Bulletin No. 10 was used as a general
reference on the theory of index numbers (4).
42
TECHNIICAL BULLETIN U38, U.S. DEPT. OF AGRICULTURE
TOT AL INPUTS
Computed Wilh Different Price Weights
.% QF 1935-39
125
,
1947 -49 weights
100
75UL~~~~~~~~~~~~~~~~'~
1910
1920
1940
1930
NEG••0 C'i-29U
U.1. DEPARTMENT OF AGRICULTURE
FIGUltE
1950
1960
AGRICULTUflAL RESEARCH SERViCE
14
with the movement of wage rates was traced to learn the relative
stability of movements. Also, the simple arithmetic averages of in­
put prices for various weight periods were compared with tIle
averages for the entire span of years. Although the price level per
se would have no effect on the relative magnitude of index num­
i"S, changes in the price lev,,el nre llssociated with relative price
changes. Therefore, significant changes in the price level were
taken into consideration; tllls was one reason for changing price
weights at the year 1940.
Based on these statistical tests, knowledge of general economic
conditions since 1910, and other judgment factors, it appeared that
1935-39 price weights for the years 1910-39 and 1947-49 price
weights for the years since 1939 were suitable weights for purposes
of the study reported. The major change in relative prices of in­
puts was the sharp increase in the relative price of labor, which
began about 1940.
All testing was done using only a parthtl coverage-probably 80
percent or more-of inputs. 48 As a followup, after the total input
measure was developed, the effects on the fmal total input index of
three different price-weight periods were tested to make certain
that partial coverage of mputs had not influenced unduly the orig­
inal analysis. Price weights for 1910-14, 1935-39, 1947-49, and
1957 were used to cnlculate quantity-price aggregates, which in turn
were indexed (fig. 14."9 The general slope of each index sllifted
be,
.. The selected
ing depreciation,
.. The index of
011 1!)47-49 price
inputs include labor, machinery depreciation, fertilizer, build­
and real estate.
inputs using 1957 price weights is enough like the index: based
weights to ma~e a graphic comparison impractical.
i
i\
<.
PRODUCllVU!l:: OF' AGRICULTURE
43
up;wa;rd, pt~culn.rly alter' about 1V40. ~s result .w!1S e~ec~d
because the mputs that were not cov:e~d m the o~O"JIluI testmo­
but were included in the followup (such as pesticides and feed., see;f,
and livestock purchases) are inputs ~hat have increased mpiilly.
especially since. 1940. The spread between the indexes was ;not
cIl!ln~d appreciaoly~ Thus the e.vidence borne out by the tests
blL.«ed on only partial cov~ae of inputs was supported.,
B.
Prod'uctiOD,; Elasticity Weights 50
Recent liteI:'J.ture' on the aggregation problem. of index num­
bers sufYgests geometric weighting of inputs by their "ela...<:ticities
of proJ'uction.,ll For example, see' Griliches (9) and Stout and
Ruttan (19). The arguments for: geometric weighting rest on the
nssumptious at (L Cobb-D?l1gIn;s p~Od'lction fu~ction for. 0I11;pUts as
a whole. But SUdl a ra.twnalizatlOn has two faults. Fu-st. 3. pro­
duction function is a pn.y:ricuL not u; 1Jaliue concept.. Even if there
were such 11 physiC:I.! rehtionship at the aggregate level,. it could
not be estimated \:}y nsing: value outputs and vulue inputs. The
output-input moo is bruseti by a determinable factor as may !Je. seen
from the simple expression that follows:
Let the physical production function be
(1)
Y -K*LaCP
.in which Y i:;u.g;,;rega,te output. L ag!ITega.te labor inPu.ts, and C
~agregate capital mputs. Under neutr;! technological change. a and
fl. which can be interpreted as elasticities oE production, are constant
over time, bu.t K* changes. As values rather than It pure" quantities
are used in most index-number problems, the value measure corre­
sponding to the pilrameter K* would be derived from the relation~
(2)
in which p is the price of output, and land c- the prices of labor and
capitul, respectively.
The inde..'t of productivity is now
(3)
l'
l.
Y
(-lacP)La CtJ
p
.
Therefore,. t.he productivity index that measures neutral technological
change is biased by the factor l~P' Even if the extraordinary
pmfits ilre zero, that is, if pY=1L+dJ, the ratio need not and ordi­
narilv does not. equal one.
SeCond,. the Cob~Douglasfunction is of questiOImble utility for
rept'e-<:eIlting the techniques of production in mUltiproduct firms.
Not only does geometric weighting not. solve the problem of ag­
gregating heterogeneous inputs, it adds bilL.<:es of its own.. This 15
not to say that arithmetic aggregation solves all problems,. but it is
-Tbe authors are indebted to Richard H. Day, Flum Economics Resenrch
Division,. .£RS, llIld Horace L. Pnteroaugh, formerly Farm Economics Research
Division, .:tRS, for the brief evallUlpon of geometriC llIld arithmetic weIghting.
44
TECHNIICAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
more general than geometric weighting and data for its use are more
readily available.
Calculatic)D of Components of Input Subgroups 51
Farm Labor.-Total man-hours of hired and operator and family
labor times the weight-period value of composite houdy wage rates
(cash wages plus an allowance for perquisites). The estimate of
labor input is the series develol)ed by the Farm Economics Research
Division, Agricultural Researc 1 Service, giving the number of man­
hours used annually for all farmwork (3£, Vol. 2, 29). The com­
posite hourly cash wage rate is published for the years 1948 to date
by the Agricultural Marketing Service (~4). F or years before
1948, the cash wage rate is based on unpublished data derived by
E.'V. Grove, formerly with the Fal'JIl Income Branch, Agricultural
~farketing Service. The hourly v[due of perquisites was derived by
dividing the to~ll value of perquisites (~3) by the totn,} number of
man-hours of hired labol". The nwnbel' of man-hours of hired htbor
was derived by dividing the total cash expenditure for hired labor (~3)
by the hourly cash wage rate (~4). ,
Real Estate.-Interest on land and service buildings; deprecia­
tion, repairs, and accidental damage on service buildings; and graz­
ing fees on land not in farms but included in farm operations.
Operator dwellings are excluded as a production input.
The value. of farm real estate (excluding operator d weIlings) in
the weight period (27), multiplied by the interest rate on outstand­
ing farm real estate mortgage loans in the weight period (~8) yields
the constant dollar input of interest on real estate for the weight
period. The average of this weight-period input multiplied by the
Tostlebe index 52 of changes in physical volume of real estate (gO)
yields the. computed constant dollar input of interest on real estate
for any glven year.
For current-dollar values of depreciation on service buildings cal­
culated by the declinin~ balance method; accidental damage to
service buildings, an estllnate covering losses from fire, wind, and
hail not provided for by depreciation allowances; repairs on serv­
ice buildings; Ilnd grazing fees on Federal lands, see The Farm
Income Situation (~3). Current-dollar vaJues of depreciation and
accidental damage on service buildings were deflated by an index of
construction costs. Repairs on service buildings were deflated by the
index of prices paid for building und fencing materials (g£). Graz­
ing fees were deflated by the index of prices paid, interest, taxes,
and wage rates (g~).
M eahanical POWe1' al1d M (l()hvne1y.-Interest on the inventory value
of automobiles, motortrucks, tractors, and other farm machinery;
61 Many of the !lata used in. the measurement of inputs originated from un­
published sources within the Agricultural lleseal'ch Service and the Agricultural
Mnrketing Service, or lire published only in aggregutes that bad to be separated
for purposes of tbis study.
62 In developing the Index of changes in quantity of farm real estate, Tostlebe
multiplied appropriate constant prices by estimated quantities of various farm
real estate categories. For all except the 11 Western States, he used a classifi­
Improved I!nd unimproved lan(l. JJ'or the 11 Western States, he used
cation
a classification of irrigated, (li:yf,arruing, ;\Ild grazing land. FOl' greater detail
on the methodology used by TostJebe see (20).
of
PRODUCTIVITY OF
AGRICULTUR~
45
depreciation, repairs, parts, and tires on these items; license and
insurance on automobiles and motortrucks ; fuel, oil, and electricity
used for production; and blacksmithing, hardw~\re, small hand tools,
and harness and saddlery. All inputs applicable to automobiles
include only the production portion-50 percent for the years 1942,­
45 and 40 percent for all oth('lr years.
Interest on capital invested in farm machinery was calculated by
mUltiplying the constant-donar value of inventories by the com­
mercial bl,m!\: "short-term" 01' "operating loan" interest rate (fJ8)
of the price-weight period. The constant-dollar vttlue of inventory
for the various classes oifarm machinery was calculated by de­
flating the current-dollar value of inventories by the indexes of
prices paid for the classes of machinery.
Depreciation was calculated by the declining balance method, in
which a constant percentage representing the annual rate of con­
sumption of each type of machinery is applied to the constant­
dollar inventory value of the item at the beginning of each year.
In effect, this technique is an estimate of the outItLy that would be
required if farmers were to replace exactly the equipment used dur­
ing the year.
Current-dollar expenditures for repairs and parts of automobiles
and motortrucks were deflated by indexes of prices paid for these
items. License and insurance for automobiles and motortrucks were
deflated by the index of prices paid, interest, taxes, and wage rates
(73£). Current-donal' expenditures for fuel and oil were deflated by
indexes of prices paid for these items. Expenditures for black­
smithing and hardware, harness and saddlery, and small 11and tools
were deflated by the index of prices paid for farm supplies (13fJ).63
Fertilizer and Li1lle.-The number of tons of plant nutrients (139)
mUltiplied by the weight-period composite price paid for all plant
nutrients. The composite price paid for plant nutrients was cal­
culated by dividing total expenditures for fertilizer (133) by the
total number of tons of plant nutrients used. A similar technique
and the same sources were used in calculating the input of lime.
Feed, Seed, amd Live8tocl~ Purl'chases.-That portion of feed, seed,
and livestock purchases resulting from activities of the nonfarm
sector; for example, feed and seed processing, transportation, chicks
prodllced by commercial hatcheries, marketing service charges, and
so on.
For each item, it was first necessary to divide the total purchases
into two parts-the part representing interfarm transactions and
that representing a direct contribution from the nonfarm sector.
The percentages comprising the contribution of the nonfarm sector
multiplied by the total value of purchases for eHeh component, de­
flated by appropriate prices-paid indexes yielded the constant-dollar
inputs of feed, seed, and livestock pllr<~hases resulting from non­
farm sector activities.
Basically, the technique of separating the interfarm value of pur­
chases from the nonfarm portion was to find the difference between
the value of the commodities when pl.·iced at prices received by
1>.1 Data on machinery inputs originllting from commercial (!llstom farmwork
tlrllls were not .llvallllble .and therefore were not i<,)cluded as an input. Custom
work done by fnrmers, however, was included as I).n input.
1169560-61-6
46
'l'ECHN1ICAL BULLE'I'IN 1238, U.S. DEP'l'. OF AGRICUL'l'URE~
farmers and the value when priced at prices paid by farmers. This
d.iiference represents the value added to the commodities by activities
of the nonfarm sector. Briefly, then, quantities of feed, seed, and
livestock sold each year multiplied by prices received for each com­
modity in the weight period, subtracted from quantities of feed, seed,
and hvestock purchased. each year multiplied by prices paid for
each item in the weight period, equals the constant-dollar value of
the nonfarm portion of feed, seed, and livestock purchases.
M,t.scellaneous.-This gro!lpof inputs includes: real estate and
personal property taxes; interest 011 livestock and crop inventories;
mtCl"Cst on operating capital; ini:erest on horse and mule inventory;
livestock mlu:keting and milk-hauling charges (excluding that meas­
ured in the feed, seed, and livestock purchases subgroup); containers;
fire, wind, and crop hail insurance; greenhouse and nursery supplies;
binding materials; pesticides; irri~ation operation and maintenance;
sorgo and sllgarcane tolls; veterlllal'Y; dairy supplies; telephone
(production portion) ; and ginning charges.
Ourrent-dollar values of real estate and personal pl'operty taxes
(133) Were deflated by the index of prices paid, intm:est, taxe~, and
wage rates (1313). The constant-dollar value of the hvestock mvell­
tory was calculated by multiplying the inventory quantities of the
several classes of livestock by the per head value of each class in the
weight period (135, 130). These constant-dollar values multiplied by
the intei'est rate Qn short-term credit gave the interest 011 livestock
inventories. Constant-dollat' values of crop inventories are calculated
by multiplying the quantities of each crop by the prices received for
each crop in the weight period. These values multiplied by the
interest rate on short-term credit gave the interest on crop inven­
tories.
Interest on operating capital was calculatecl by deflating the quan­
tity of operating capital by the index of prices paid, interest, taxes,
and wage rates (~~). nnd mUltiplying this constant-dollnr value by
the interest rate on short-term credit. Expenditures for other mis­
cellaneolls inputs, such as binding material, irrigation operation and
maintenance, veterinary, dairy supplies, telephone, and so OIl were
deflated by the indexes of prices paid for these items. If a particu­
lar prices-paid index was not available, some other reasonably appro­
priate index of prices paid was used as a deflator.
Inputs, 1870 to 1900
The methodology of extending- the input series back to 1870 was
essentially the same as that used in measuring inputs from 1910 to
date, nlthough less detailed data were available for the former.
Because of the absence of data, it was necessary also to estimate
inputs for decade intervals only. Thus a higher degree of aggrega­
tion was used; estimates of inputs wem made for each of the six
major subgroups rather than for components of the subgroups.
The effect OJi the aggregate index. of using 1910-14 price weights
was compared with the effect of using 1935-39 price weights. As
the differellce was negligible, 1930-39 price weights were used, there­
by avoiding splicing into the index developed for 1!H0 to 1939.
. The data for the perio(} 1870-1900 Ilre less reliable than those fQr
,
\i
PRODUCTIVITY OF AGRICULTURE
.\
·11
47
the years 1910 to date. Nevertheless, extension of the series back
to 1870 was done with thoroughness and the series thus extended
WI\S usc"fu1 in observing long-term trends.
In a sense, the estimates of inputs for each of the subgroups for
the 1870-1900 period were "splIced" to the 1910-58 data by sub­
groups through overlapped calculations for the year 1010. The
techniques used in developing estimates of the individual subgroups
for the 1870-1900 period are as follows:
Farln Lab01'.-An estimate of total farm employment was avail­
able by decade intervals back to 1870 (0). The farm-labor input was
extencled back to 1870 on the basis of the 1910 relationship of farm
employment (:0 man-hour inputs, which implies constancy of average
hOllrs worked pel' year.
Real Esta.te.-Tostlebe developed an estimate of the volume of farm
renl estate by decade intervals back tn 1870 (130), The real estate
input was extended 011 the basis of the 1010 relationship of the
Tostlebc measure of vol nine of ):el\l estate to the input of rel\l estate.
J[eclwnical P01.oe?' (£n(i J[aohine1'!/.-An estimate of the volume of
implements and machinm'y was available in 'l'ostlebe's work (130),
The power and machine-ry input was estimated for decade intervals
back to 1870 on the basis of the 1!H0 relationship of the volume of
machinery to the input of machinery.
FertiliZe?' an(l Li71le,~Est1mates of expenditures for fertilizer and
lime for decade intervals of the 1Dth century were made by Towne
and Rasmussen (161). The fertilizer and lime input was extended
back to 1870 on the basis of the HHO l'eltltionship bet.weell expendi­
tures for twd quantities of fertilizer and lime.
Feed, Seed, a1ul Livestoa7~ Pm'olw,soes.-Estimates of livestock in­
ventory for decade intervals from the Tostlebe work and the Hno
relationship of livestock inventory to the nonfarm feed and livestock
inputs were used in deriving the 1870 to 1900 feed and livestock
inputs. The nonfarm seed inputs for 1870 to 1900 were based on the
1!)10 relationship of ]:md used for crops to nonfarm seed inputs,
Mi.'1oaUaneou8 hwuts.-The composite estimate for miscellaneous
inputs from 1870 to 11)00 .is based OIl separate estimates, calculated
essentially as wer<~ the input subgroups, for interest on livestock,
crops, and horses and mules; rea1 estate nnd personal property taxes;
and interest on operating capital.
A Look at Labor Price Weights
The unpaid portion of the labor input is an imputed value. As
there is ))0 market price from which to select weights, an opportunity
cost was used in calculating the input indexes. The composite hourly
wage rate, plus perquisites, for hirecl labor 'was used as the price
weight for the unpnid family [md opemtor labor, as weUus for hired
labor. This part of the llppendix is intended to illustrate the effect
on the index of tota1 inputs of llsing different price weights for
family and operator labor.
Relatively more ...v eight was given to operatol'und family labor
by arbitrlll:ily inCl'Msillg by 40 percent the composite hourly wa~
mte. Also l'eltLtively less weight wus assigned by decreasmg tne
composite hourly wage rate ,10 percent. The effect of these varying
48TECHNlIOAL BULLETIN 1238) U.S. DEPT. OF AGRICULTURE
price weights for operator and iamily labor on the inde,X" of total
mputs is shown below:
H ollrly wage rate assigned
to operator and family
labor (dollars)
0.932
*.666
.400
Change in total inputs,
1.940 to 1957 (pel"Cent)
Change in output per unit
of input, 1940 to 1957
(percent)
-5
3
44
13
21
~n
• The weight actually used in the input index, based on the 11).17-40 average.
This weight was also used for hired labor in ench of the three wage-rate
situations.
Because of the dominant role of unpaid labor in total agricultural
input$, selection of adequate price weights for the labor input was
especially imrortant. These calculations indicate the change in the
index of tota inputs that may occur from varying price weights of
the unpaid labor input.
The usc of wages of hired labor per hour as a ,veight probably
means that the relative price of unpaid labor is understated. This
is especially true because of oUr inability to measure directly the
management inputs of farm operators, 'which are probably increasing
in quantity. If the weight for unpaid labor were increased, the
index of total inputs would rise less rapidly and the index of outpqt
per unit of input would rise more rapidly than the published indexes.
This probable upward bias in the total input index anci the down­
ward bias in the productivity index may be counteracted, at least
partly, by our inability to incorporate fully improvements over time
in the quality of inputs.
t.
Imputation of a Real Estate Input
The purpose of this discussion is to compare the results of two
methods of imputing an input for the capital invested in agricultural
real estate. The price weights for real estate that were used in the
published indexes were based on average interest rates on outstand­
111g farm real estate mortgages clm·ing each of the weight periods
1035-30 and 1047-40.
An additional source of real estate price "weights, which some
economists may prefer, is net rent payable on agricultural real
estate. Net rent was used as the prIce weight for real estate to
determine what efl'ect this alternative price weight would have on
the index of total agricultural inputs.
Net rent payable may be defined as the gross rent payable on
rented farm real estate, with expenses paid by the landlord, suchl1s
those for taxes, fertilizer and seed, subtracted.
Several steps. were taken in calculating net. rent payable on ttl]
agricultural real estate. The values of rented real estate, all real
estate, :wei net rent pa.yable on rented real estate were available.
By dividing the value of rent payable on rented real estate by the
percentage that rented real estate is of all real estate, the net rent
payable on all real estate was obtained. The net rent payable on
all real estate in the weight period (s) multiplied by the index of the
quantity of real estate gave the constant-dollar value of net rent
pa~able on ullagricultural real estate.
To permit a dIrect comparison, the same price-weight periods were
used 111 the net rent payable concept as III the mortgage interest
C.'
l
f
c.
PRoDucrrIVITY OF AGRICULTURE
49
concept. The difference between the index of total inputs in which
the real estate component is imputed on the basis of mortgage inter­
est and the index incorl)orating the net rent concept was insignificant.
In most years, the inc exes are identical; in other years, the differ­
ence is only one index point.
In using 1035-30 price relntionships, the relative weight of real
estate in the aggregate composite of inputs is essentially the sarno
whether the mortgage interest rate or the net rent method of impu­
tation is used. 'l'he 10-1ii-<,i:O price relationships result in a slightly
higher relative 'weight for real estate imputed by the net rcnt method.
Howevcr, as the voll\me of real estate chnnges so little, a sli~ht
variation in the relative weight assigned to real estate has an inSIg­
nificant e/red 011 the composIte index of jnputs.
In each of these methods of imputing a real estate input, the
index of the quanti!;y of farm real estate as developed by Tostlebe
was used as the measure of change in the quantity of real estate (20).
This measure has certain limitations. To a large extent, it depends
upon census data, which in turn has changed the definition of a
farm, the concept. of wha!; constitutes imp~'oved and unimproved
land, and so on. There is also the possibillty that improvements to
real estate were covered inadequately in recent years. Despite these
imperfections, the Tost1ebe index is the best available measure of
changes in the (fllalltHy of farm real estate. Also, because the quan­
tity changes so little, the limitations have little or no effect on the
aggregate input index.
'Yhether changes in the inherent fertility of the soil were positive
or negative, they were not included in the aggregate productivity
meaSllre. To the extent to W11ic1.1 inherent fertility has been depleted,
the aggregate productivity measUre may be biased downward, and
to the extent to which inherent. fertility 1U1S been uugmented, the
aggregate productivity measure may be biased upward.
A Note ou Depreciatiou as an Iuput
)
Capital in the form of buildings, machinery, and equipment IS
subject. to c1eprecintion and obsolescence as a function of use and
time. As sncll, any accounting ofproc1uction inputs must include
some estimate of the amount-or value of the capital goods that are
consumed in the production process. The method of incorporating
this input, as Hsed in the main body of this report, was to use a
declining balance method of depreciation. In effect, this amounts
to allocating II certain percentage of the annual real inventory value
of each sl1ch capitnl item as an'input for that yem;. The particular
percentage u»ed was based on the expected productive life of the
Item illvo]yedF' One mlLy ask, Is t11is technique of measurement
applicable to the input measurement concept? For example, there
jslittle reason to believe that the contribution of a tractor to output
after each year's lise is 18.5 pcrccnt less than it was the previous yenr.
A relnlccl line of questioning might be whether the capital items
in question should be carried nt some kind of constant "perfol'm­
ance" level for a period of years and then be depreciated rapidly.
'l'o fest. an extrcme situation, depreciation from 1040 to 1057 was
M
FOl' n more complete I!..'i:planation sec Agricultul'e Hnndbook No. 118 (3g,
Vol. 3).
50
TECHN1ICAL BULLE.TIN 12~'8,
u.s.
DEPT. OF AGRICULTURE
~liminated 'from the input series. Under this condition, total inputs
decreased 3 ~rcent 'from 1940 to 1957, instead of Vrwl'easing 3 per­
cent as shown in the final series, and productivity increased 40 in­
stead ()f 31 percent. These variations are based on the assumption
of no capital consumption, which is illogical. This illustrates the
fact tha.t very substantial changes would be necessary in the quantity
of depreciation allowed before significant changes would occur in the
indElxes of total inpu~s and productivity. The precise method of
calculating depreciation is not imJ?ortant, as net capital stock and
depreciation are complementary estImates. Any error in one is offset
in the other.
Measurement of Unpaid Inputs
The inputs that are cOllventiontLUy referred to as unpaid or non­
cash inputs are operator and famfly lnbor plus farmer-owned or
:farnler-supplied capital inputs. Although the measurement ill physi­
cal terms per se of each of these inputs presents some problems, the
l~ole of judgment is magnified when it comes to wmghting these
items by constant prices to enable aggregation. As these inputs are
not bou~ht and sold as are most other input!':!, what prices are most
approprIate for use as weights~
The three most common techniques of deriving prices for unpaid
labor and capital are: (1) Deducting from gross income all ex­
~nses other than unpaid labor and capital, leaving a residual to the
composite unpaid fuctors; (2) assi~ing to unpaid labor and capital
tlleprices pmd for the labor and capital thnt are purchased and used
in the way most similar to that of the unpuid inputs-the hired farm
labor and capitul bOI;rowed for agriculturul purposes; und (3) using
a combination of these two methods, thut is, deducting from the com­
posite residual either lubor Or capital cu]culttted at prices arrived at
through method 2, the rest of the resid.uul becoming associated with
either unpaid labor or cupital, as the cuse may be. :Method 2 was
used for the study repOl·ted; thut is, hired farm wage rates and inter­
est rates on borrowed capital were used us price weights for unpaid
labor and capital respectively.
The number of nMtl-hours of unpaid operator undfamily labor is
the difference oetween the total number of man-hours and the number
of hired man-hours. The numb~r of hired man-hours was calculated
by dividing total cash farm wages by houdy average cash wage rates
for hiredlllbor (fJ3) and (fJ4). 55 The number of man-hours of un­
paid oJ?erator and family labor multiplied by the wage rate for hired
labor, lllcluding perqllisites, gave the constant-dollar qllantity-price
aggregate :for unpaid labor.1i6
Unpaid capital was cOIl1puted sepllrately 'for relll estate and non­
real-estate capital, using interest rates on outstanding mortgage in­
debtedness and short-term bank-loan interest rates, respectively. Un­
paid interest on real estate capital was calculated by deducting mort­
55 Wage rlltes for the years 1010--47 are based on dllta dedved by E. W. Grove,
formerly Bead, Fm:lD Income Estimates Section, Farm Income Branch, Agricul­
tural Marketing Service.
IiO An 1Iiternative method of !;eparutlng the total number of man-hours of
labor into the numbers paid and unpaid is to divide the total number into the
numbers paid lind unpllid in the SUllie pl"opoi:tion liS given in the employment
series for family IIml hired workeI·s. The clitrel'eJ1Ce in results of the two
methods is negligible.
!
I
J
51
PRODUCTIVITY OF AGRICULTURE
ga~ interest paid (~3) and net rent and Government payments to
nonfarm landlords (~3) from total interest payable G7 .on total real
estate capital. CU1:rent-dollar vo.1ues were used in these calculations.
Unpaid mterest was then expressed as a percentage of total interest
payable. These percentages multiplied by interest on total real estate
in constant-dollar values gave the unpaid interest on real estate
capital in constant-donar values.
Unpaid interest on non-real-estate capital wos calculated in the
same general way as was real estate capital. Table 10 shows several
statistical measures relating to unpaid inputs. GB
•
'l'J\DLE
1O.-Unpaid inputs, United States agriculture, 1910-fi7
Indexes, 1947-,19= 100
Year
_.
1910____
1911- ___
1912 ____
1913 ____
191'1- ___
1915 ____
1916 ____
1911- ___
1918____
1919 ____
1920 ____
1921- ___
1922____
1923 ____
1924____
1925 ____
1926 ____
1921- ___
1928 ____
1929 ____
1930_- __
1931- ___
1932____
1933 ____
1934 ____
1935 ____
1936 ____
1937 ____
1938____
1939 ____
1940____
Total
unpaid
inputs
130
133
135
133
137
133
132
132
136
135
139
130
130
131
132
135
136
130
133
133
136
138
136
131
119
120
117
127
119
117
114
Unpaid
labor
illPllts
141
146
148
145
150
146
144
150
154
151
152
139
146
148
151
155
154
148
151
150
150
154
149
148
129
134
128
141
128
128
125
Percentage based on 1935-39
price weights that-
I
Unpaid
capital
inputs
97
97
98
99
98
99
96
87
92
92
101
100
88
88
86
87
89
87
88
91
97
98
97
90
88
84
88
87
93
87
85
Unpaid
inputs
arc of
total
inputs
60
60
60
59
59
58
57
56
57
56
56
54
53
54
53
54
53
52
52
52
53
55
55
54
53
52
50
51
49
47
45
Unpaid
labor
is of total
unpaid
inputs
69
70
70
69
70
69
70
73
72
72
70
68
72
72
73
73
73
72
72
72
70
71
70
71
69
71
69
71
68
69
69
Unpaid
capital
is of total
unpaid
inputs
31
30
30
31
30
31
30
27
28
28
30
32
28
28
27
27
27
28
28
28
30
29
30
29
31
29
31
29
32
31
31
fi7 Total interest payable on real estate capital is the product of total value
of real estnte (2'1') and average interest rate paid on outstanding mortgage
loans (28). Total iptercFlt payable on non-real-estate capital is the product of
the total value of non-real-estlltc capital, compiled from (20) nnd unpublished
sources, and the interest rate on short-term credit.
fiB Changes in the quantity of unpaid inputs are functions largely of changes
in input mix and the net wQl;'th positilm. of farmers.
52
TECHNiICAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
TABLE
lO.-Unpaid inputs, United States ag'riculture, 1B10-57-Con.
Indexes, 1947-49==100
Percentage based on 1947-49
price weights that-
l
Year
Total
unpaid
inputs
1940 ____
194L ___
1942_. ___
1943 ____
19H____
1945 ____
194,6 ____
1947 ____
1948 ____
1949 ____
1950____
1951- ___
1952____
1953 ____
1954____
1955 ____
1956 ____
1951- ___ ,
11,1
108
110
112
U5
112
106
100
100
100
95
97
96
9,l
00
80
86
82
Unpaid
labor
inputs
125
121
124
124
126
118
112
104
100
96
90
92
88
8,1
78
75
71
65
Unpaid
capital
inputs
85
75
74
81
85
95
89
92
98
110
108
112
117
121
121
125
124
125
Unpaid
inputs
are of
total
inputs
54
51
50
51
52
52
49
4.7
46
45
4.3
43
4,2
42
41
40
39
38
Unpaid
labor
is of total
unpaid
inputs
.,
Unpaid
capital
is of total
unpaid
inputs
79
81
81
80
71l
76
77
75
73
69
69
68
66
64
63
61
60
58
21
19
19
20
21
24
23
25
27
31
31
32
34
36
37
39
40
42
1 Indexes of quantity-price aggregates, using 1935-3\1 price weights for thc years
1910-39 and 1947-,19 price weights for t.he years 19'10-57. The indexes are
spliced at 1940. Sec pages 50-51 for elaboration on the method of ealculating
unpaid inputs.
Method of Allocating Increased Output Between
Inputs and Productivity 69
The pure input component of the increment to output between
two periods is the increase in output that would have resulted from
the given increase in inputs, had the inputs been at the same level
of productivity in the periods compared. Similarly, the pure pro­
ductivity component of the increment to output is the increase in
outllUt that would have resulted from the given gain in produc­
tiVIty, had inputs remained equal in the two periods compared. Also,
interaction between the clmnges in input and productivity com­
ponents contributes to the increased increment of output. The sum
of these. three components is equal to the total increment to output.
This relationship can be expressed both diagrammatically and
algebraically.
69 For further references on this technique see Mills (16), and Durost and
Barton (7).
PRODUCTIVITY OF AGRICULTURE.
Let
53
O=Oll~put
X- Productivity
~Y
1---------------1------1
Y=Inputs
Y
v
x
In allocating increased output betwecn inputs and productivity,
three steps WCl'e taken:
(1) The portion or output associated with pure change in inputs
was estimated (X~Y),
(2) 'fhe portion of output associated with pure change in produc­
tivity was estimated (Y~X),
(3) 1'he portion of output associated with the interaction of
components--tbe change in inputs combined with the change
in productivity--was estimated (~X~Y), Assuming li.."learity,
half of tbe interaction is associated with the change in inputs
and half with the change in productivity,
The total increment in output associated with the change in inputs
is given by:
(4)
'fhe total increment in output associated with the change in
productivity is givcn by:
(5)
The sum or these two increments is (;he total change in output:
(6)
(X~Y)
+ (Y~X) + (~X~Y)=~O
Resource Savings Through Increased Productivity
..
An increase in the overall productivity of agriculture implies that
fewer resources are required to produce a given output than would
be required in the absence of such an increase. The dollar magni­
tude of this resource saving can be approximated .
The approximation is based on the premise that the resources
saved receive the same per unit return as was received by the pro­
ductionresources actually used in a given year. By considering
the gross farm income as the return available for distribution among
all the factor inputs, we have a basis for estimating per unit re­
turn to all factor inputs.
54
TECHNiICAL lJULLETIN 1238, U.S. DEPT. OF AGRICULTURE
The iJl'Oss farm income figure as published (~9) includes the
value of interfarm sllles. To make the gross farm income con­
sistent with the input concept, which does not include interfarm
transactions as inputs, interfarm sales are deducted from gross
Jarm income. This adjusted income figure for the year for which
savings are calculated, multiplied by the chauge in productivity be­
tween two periods, yields the doUar value of inputs SIWed as a
result of increased productivity.60
The adjusted 1957 gross income is obtaincd as follows:
Million dollars
Total gross farm incomc ________________________________ ------ __,.- 35,088
Less interfarm sale!}: 1
55 percent of all feed purchased_________________________ 2,246
53 percent of all seed purchased________________________
283
90 percent of all livestock purchased____________________ 1,752
Adjusted gross income for distribution to all inputs__________ 30,807
1 Only that part of interfarm sales that originates on farms need be deducted.
The value of inputs saved is as follows:
61
194D to 1957
Productivity, 1957=113
Pl"Oductivity, 1940= 86
131, or a 31-perccnt increase
in output per unit of input. Thus, had there been no change in
productivity between 1940 and 1957, it would have taken 31 percent
more inputs than were actually used to produce the 1957 output.
Therefore, 31 percent multiplied by $30,807 million equals $9,550
million saved, with inputs valued at 1957 rates of return.
1910 to 1957
Productivity, 1957=113
153, or a 53-percent increase
Productivity, 1910= 74
in output per unit of input. Thus, had there been no change in
productivity between 1910 and 1957, it would have taken 53 percent
more inputs than were actually used to produce the 1957 output.
'fherefore, 53 percent multiplied by $30,807 million equals $16,328
million saved, with inputs valued at 1957 rates of return.
f"!
OOBecause this method of calculating resource savings Is sensitive to small
changes In productivity, the years selected for comparison should have magni­
tudes of output and inputs (amI thereby productivity) that are close to the
magnitudes of the long-run trends of these components. This applies particu­
larly to the output component because of the occasional extreme influence of
weather on output.
II Because of thc index number' problem it is recognized that· the estimates of
value of inputs saved llrc rough approximations, particularly the long-term com­
parisons of 1910-57.
i
PRODUafIVl'fY OF AGRICULTURE,
55
Productivity and. Parity
,
.
,.
.,
..
From time to timc, investigations of possible methods of improv­
ing the parity formula are made (33). Among thc many ways of
changing the formula, adjusting the parity indcx. by an index of
productivity has been considcred. Theoretically, this adjustment
takes into consideration not only changes in prices paid for inputs
but also changes in the per unit. productivity of resources used in the
farm production process. The specific purpose of this appendix is
to explore. this pai'ticulll!' application of the productivity indcx,
to learn whether it is llpplicllble Its an efllciency moc1ifiet' within the
existing parity formula context.
A Iliunbcr of basic considerations rclate to un efficiency modifier.
For cXflmple, the way in which it is incorporated into the formulll
influences the distribution of the economic gains from improved pcr
unit efficiency.02 For purposes of jJlustration, the modifier is ap­
plied to parity for prices received, with 1D40 as thc base pel'iod,
and with the full weight of chllnge-an increase of 31 percent-in
producth-jty from 1940 to 1D57 applied. Of coursc) if the adjust­
ment were givell full weight in the parity formula for some other
period, a quitc different result would be obtained.
To modify the parity formula, by n productivity index, it is first
essential to make certain that the coverage of the output and prices­
received series and that of the input and prices-paid series are the
same. To a large extent, this is true for the output and prices­
received series. It is not true, howcver, for the input and prices­
paid sedes. The prices-paid series used in the parity formula
includes only those items purchased by farmers. But the input
series used in the measure of productivity includes items purchased
plus the unpaid portions of capital and labor.
To illustrate the effect of this difference in coverage OT the input.
and the prices-paid series, a rough estimnte is made of the effect of
!ldjusting the prices-paid index to include the unpaid capital and
labor inputs.
If the efficiency modifier 03 is applied to th~parity formula before
the prices-paid index is adjusted, it will yield one effect. If ap­
plied after adjustment, 1t will yield 111lOther effect. The contention
here is that as the input and prices-paid indexes do not hnve the
same coverage, it is necessary to adjust the prices-paid index before
the productivity index can be used as an efficiency modifier.
The t:tbulation that follows gives thc necessary indexes for tcsting
the efl'ect on the prices-received index of applying the modifier before
and after adjusting the prices-paid index.
6~
63
For furthel' elaboration sec Senate DQ<:ument 18 (8.'1).
Defined as the chnnge in productivity between two points in time.
56
TECHNICAL BULLETL.'\[ 1238, U.S. DEPT. OF AGRICULTURE
Index 1
Prices received 3 __________ -- ___
ETices paid (purchascd inputs)4 __
Unpaid capital (real estllte) 5 _____
Unpaid labor (wage rates)G______
Adjusted prices-paid index ______
1940
100
100
100
100
--,------
1957
Relative
quantity
weights in
19,10 2
Adjusted
indexes
for 1957
Percent
235 ------------ -----------231
146
63
298
33
11
,133
26
113
292
-------- .. -----------
I The selected indexes are expressed with 1940 equal to 100 for the convenience
of showing change from a uniform base index.
I Based on estimated distribution of total gross farm income to the cash and
noncash inputs.
I Composite prices-received index for all farm commodities (22).
'Composite index of prices paid, interest, tuxes, and wage rates (22).
I Index of farm real estate vulue per acre (27).
o Index of hired farm wage rates (22).
If the efficiency modifier is applied before the prices-paid index is
adjusted:
Pnrity for prices received in 1957=231
Change in productivity, 1940-57=31%
231 X (1.00-.31)=159
~~~=68%, or a decrease or
32 percent in prices received,
if an efficiency modifier were applied.
If the efficiency modifier is applied after the prices-:paid index is
adjusted:
Parity for prices received in 1957 =292
Change in productivity, 1940-57=31 %
292X (1.00-.31)=201
~~!=86%,
or a decrease of 14 percent in prices received,
if an efficiency modifier were applied.
It is apparent, therefore, that using the productivity index to
adjust the existing parity formula would result in !1 considerably
greater (the difference between 32 and 14 percent, or 18 percentage
points) reduction in prices received than if the parity formuln, were
first modified to incorporate an index of prices paid with coverage
similar to the index of inputs.
Not only must the coverage of output, inputs, and price series
be comparable in order to utIlize an efliciency modifier, but weight­
ing must be consistent also. The price indexes used in the parity
ratio have fixed-year quantity weights, whereas the implicit price
indexes of our productivity analYSIS have chiefly given-year quan­
tity weights. This results in different movements in the implicit
prlce indexes of productivity analysis as compared with the price
mdexes used in the parity ratio.
This brief outline can only touch upon the general problems of
developing an efficiency modIfier and the even more complex prob­
lems of relating productivity and income data. No endorsement
~!
. .. t
0-4
57
PRODUCTIVITY OF AGRICULTURE
of the application of an efficiency modifier to the parity formula is
intended. Furthermore, although its importance was recognized,
the task of analyzing completely the interrelationships of produc­
tivity, prices, and income is of such magnitude as to be beyond the
objectives of the study reported.
Statistical Inde?, Series
The following indexes have a common comparison base-year peri­
od, that is, the average of 1947-49 equals 100. The indexes can be
converted to any comparison base I?eriod desired by dividing the
individual index numbers of a partIcular series by the average of
the index numbers of the desired base period of that series~
The indexes for the years 1870 through 1910 are shown in table
11 and those covering the years 1910 through 1958 in tables 12
through 16.
In addition to the index series, a table is included showing the
quantity-price aggregates of total inputs and major input sub­
groups. The input indexes are based on these quantity-price aggre­
gates.
In a study of this kind data are obtained from many sources.
Many of these data are revised periodically as additional informa­
tion becomes available. Therefore, not an the latest revisions can
be incorporated in the analyses of such a complex study as the one
reported here. The data within the text and the text tables are pre­
liminary for the years 1956-57. Nor are some minor revisions in
the farm output index in the early. forties reflected in the text. But
all revisions of data as of August 1959 are incorporated in the illus­
trations throughout the report and in the appendix tables. The
effect of revisions is minor, and for all practical purposes, they do
not change the content of the analyses.
TABLE
ll.-Selected indexes, for decade intervals} United States agri­
culture) 1870-1910
[llH7-49 = 100)
1870
Index series
Farm outpuL_________________
Production inputs _____________
Productivity__________________
Farm labor ___________________
Farm real eBtatc ____________ ~_
All inputs other than labor and
real eBtate ________________
~_
1880
1890
1900
1910
43
63
68
116
66
77
41
37
53
70
100
56
127
79
61
82
74
135
93
13
18
2,1
31
39
23
41
56
80
56
73
58
TECHNiICAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE'
TA.BLE
12.-Indexes oj output, inputs, and productivity, United States
agriculture, 1910~fj8
[1947-49=100J
Farm Producoutput tion
inputs
Year
l>roductivity
Year
Farm Produc- Producoutput tioll
tivity
inputs
._­
1910__
19H_______
1912__ •____
1913_______
1914_______
1915_______
1916_______
1917_______
1918_______
191.9_______
1920_______
192L______
1922_______
1923_______
1924_______
1925_______
1926_______
1927______
1928______
1929__ ---1930__
193'-_____
1932__ _....
1933__
1934______
_-
61
59
66
60
66
68
62
65
66
66
70
62
68
li9
68
70
73
72
75
74
72
79
76
70
60
82
8,1
80
86
89
88
89
89
91
91
93
90
92
92
94
95
97
95
97
98
97
96
93
91
86
U
70
77
70
7-1
77
70
73
73
73
75
60
74
75
72
74
75
76
77
76
74
82
82
77
70
1935______
193!L_____
1937______
1938______
193!L ____
1940_______
19,1'-______
1942_______
19,13_______
19,1<1_______
1945_______
l!).HL _____
1947_______
19,18_______
1949_______
1950_______
195'-______
1952_______
1953_______
1954_______
19.55_______
195!L_____
19.51-______
1958_______
72
65
82
7!)
79
82
85
96
9,1
97
95
98
95
104
101
101
104
108
109
109
113
114
114
124
88
89
94
91
94
97
97
101
101
101
99
99
99
100
101
82
73
87
87
84
85
88
95
93
96
90
99
96
104
100
lOL
100
104
104
103
102
102
102
100
101
100
104
J06
107
HI
112
114
123
PRODUCTIVITY OF
TABLE
59
AGRlCULTUR~
l3.-Indexes oj major input subgroups, United States agri­
culture, 1910-SS
[L!l47-49= 100]
Year
1910________
1911 ________
1912________
1913________
19IL _______
1915________
191(L _______
1917_______ •
]918________
1919 ________
1920 ________
]921 ________
1922________
1923 ________
1924________
HI25 ________
1926________
1927 ________
1928________
1929________
1930________
1931. _______
1932 ________
1933 ________
1934 ________
] 93i'i ________
1936________
1937________
1938 ________
1939________
1940________
1941. _______
19·J2________
1943________
1944________
]945 ____ ---_
1946________
1947________
1948________
19'!9 ________
1950 ________
] 95L _______
1952 ________
1953 ________
1954________
1955 ________
1956________
1957 ________
1958________
Farm
Jabor
135
137
139
138
142
139
138
142
144
141
143
132
137
138
139
142
143
137
139
138
137
140
135
135
121
126
122
132
123
123
122
]20
123
121
120
113
108
103
100
97
90
91
86
33
78
76
72
68
66
Fnrm
real
estate
93
92
!H
95
Uli
97
97
{Iii
94
95
fl7
fI'l
95
96
fl5
!H
95
96
97
98
96
9'1
91
92
91
94
9,1
95
96
97
98
98
96
9,1
93
93
96
98
101
101
103
]04
]05
105
106
106
105
105
105
Mechanical
power and Fertilizer
machinery and lime
28
30
31
32
34
3·1
37
31l
'li
,12
,14
4.4
43
44
,J4
45
,18
50
52
53
55
52
48
".4
44
45
48
52
55
55
58
In
66
69
70
74
80
89
100
111
118
127
133
134
135
136
137
138
137
20
23
22
24
27
20
18
21
22
23
28
20
23
26
28
31
31
30
36
36
36
28
19
21
25
29
35
41
39
41
48
52
58
66
75
78
92
97
98
105
118
126
139
143
152
IS\}
158
163
166
Feed, seed,
and
livestock
purchuses
22
19
21
23
21
21
24
20
31
28
32
35
33
33
42
38
40
39
40
38
37
32
34
34
33
32
43
40
42
52
63
65
80
88
90
101
97
102
101
97
101
112
113
112
115
120
128
130
141
Miscellaneous
71
73
75
78
80
83
8L
79
80
81
85
91
fll
91
91
90
93
93
94
96
96
99
100
97
88
84
87
86
89
92
93
94
95
97
97
97
98
99
97
104
108
112
112
115
115
120
124
122
127
60
(JrECHNICAL BULLETIN J.238, U.S. DEPT. OF AGRICULTURE
TABLE 14.~Qualltity-price
aggregates jor major input subgroups and
total inputs, United States agriculture, 1910-58
I~PUTS
Year
Farm
labor I
BASED
Farm
real
estate
o~
1!l3a-39 1,'RICE WEIGlfl'S
Meehanieal
power
and
maehin­
cry
Ferti­
lizer
and
lime
Feeu,
seed,
and
livestock
pur­
chases
Miseel­
laneous
Total
inputs
dol. Mil. dol. Mil. dol. Mil. dol. Mil. dol. Mil. dol.
1910 ________ Mil. dol. Mil.
8, 281
234
1,113
139
1,671
705
-H9
191L _______ -',
8,420
I, 159
153
199
740
4,511
1,658
1912________ 4,570
22,1
8,605
147
1, 191
789
1,684
1913________ 4,512
23,1
8,658
1,230
162
818
1,702
1914 ________ 4,650
8,889
228
1,260
847
18.'3
1, 721
1915 ________ 4,556
8,822
227
I, 299
134
1,741
865
1916________ 4,529
8,855
254
I, 276
925
123
1, 748
1917. _______ 4,655
8,966
212
I, 246
141
978
1,734
1918 _______ ­ 4,718
9, 176
1,259
326
150
1,696
1,027
1919________ 4,631
9,134
297
1, 275
160
1,069
I, 702
1920 ________ 4, 703
9,398
192
329
1,328
1,104
1, 742
192L_______ 4,338
9,091
372
1,439
135
1,110
1,697
1922________ 4,488
9,219
346
1,439
159
1,071
1, 716
1923________ 4,520
9,298
347
1,440
179
1,092
1, 720
1924 ________ 4,571
9,474.
441
1,442
192
1,714
1,114
1925________ 4,665
9,535
1,427
1, J.l2
208
400
1, 69~
1926________ 4,680
9,677
415
I, 461
211
1,204
1,706
1927________ 4,498
'il,560
406
1,460
204
1,721
1,271
1928 ________ 4, 578
9, 752
1,478
242
-115
1,736
1,303
1929________ 4,539
9, 795
400
1,505
245
1,346
1,760
1930 ________ 4,492
9, 734
1,50·1
388
1,726
1,375
249
193L _______ 4,592
9,673
334
1,542
192
1,692
1,321
1932________ 4,431
9,345
1, 568
354
1, 215
130
1,6'17
1933________ 4,420
9, 211
1,514
360
144
I, 657
1,116
1934________ 3,965
8,612
339
1,399
172
1,648
1,089
1935 ________ 4,126
8, 785
1,314
329
200
I, 131
1,685
1936________ '1,006
8,955
1,379
448
236
1,690
1,196
1937._______ 4,331
9,421
425
1,352
278
1,324
1,711
1938 ________
442
1,402
9, 230
2fH
1, 720
1,369
4,033
1939________ 4,053
9,460
281
544
1,455
1, 737
1,390
1940 ________ 4,012
9,699
1, ,164
1,466
328
663
I, 766
Seetootnote at end or table.
61
PRODUCTIVITY OF AGRICULTURE
H.-Quantity-price agg1'egate8 lor major input subgroup8 and
total inputs, United States agricUlture, 1910-58-Continued
TABLE
INPUTS BASED ON 1~7-.11 PRICE WEI<H~TS
Year
1940________
1941-_______
1942________
1943________
19·14________
1945________
1946________
1947 ________
1948________
1949 ________
1950________
1951 ________
1952________
1953________
1954________
1955________
1956________
1957________
1958________
Farm
labor 1
Farm
real
estate
Mcch:mical
power
Ilnd
nillchin­
cry
Ferti­
lizer
Ilnd
lime
Fced,
seed,
and
livestock
Miscel­
lllllCOUS
Total
inputs
pur­
chases
Mil. dol. Mil. dol. l'llil. dol. Mil. cIol. Mil.dol. Mil.dol. Mil. dol.
13,631
13,349
13, 707
13,518
13,429
12,548
12,0'13
11,452
11,211
10, 790
10,081
10,103
9,607
9,255
8, 729
8,492
,.080
i, ;;78
7,395
3,485
3,4.',9
3,419
3,3'18
3,290
3,283
3, ,114
3,480
3,568
3,589
3,651
3,674
3,727
3, 723
3,758
3, 757
3,718
3, 727
3,737
2,305
2, ·125
2,615
2,723
2,7!n
2,920
3, 176
3,520
3,987
4,397
4,689
5,030
5,262
5,326
5,3,10
5,389
5,455
5,461
5,438
393
430
483
542
619
6,11
757
800
8U
865
977
1,0·10
1,151
1,180
I, 256
I, 284
1,307
1,341
1,367
1,296
1,330
1,639
1, 793
1,830
2,063
1,972
2,075
2,072
1,980
2,073
2,287
2,309
2,282
2,356
2,444
2,606
2,647
2,890
3,071
3,110
3,113
3, lIH
3,182
3,191
3, 215
3, 250
3, 196
3,428
3,568
3,678
3,692
3, 775
3, 784
3,9·17
4,095
4,009
4, 172
24, 181
24, 103
24,976
25,115
25, 141
24,646
24,577
24,577
24,845
25,049
25,039
25,812
25, 748
25,541
25, 223
25,313
25,261
24, 763
24,999
1 An index of farm labor based on quantity-price aggregatcs may differ, to the
extent of one index point for any given YCllr, from an index based on unweighted
man-hours of labor. This slight difference is caused by "rounding" numbers. The
index of farm labor, shown in appendix table 13, coincides with the index of farm
labor 118 published in "Changes in Farm Production and Efficiency" (29) .
...
62
TECHNiCAL BULLETIN 1238, U.S. DEPT. OF AGRICULTURE
TABLE
I5.-Income SMres to all labor and capital, computed and
residual, United States agriculture, 1910-58
Year
191o____
191L___
1912_____
1913_____
1914..____
191L ___
1916____
1917_____
1918-___
1919____
1920_____
1921..___
1922_____
1923_____
1924.____
192L___
1926_____
1921..___
1928_____
1929_____
1930_____
1931.____
1932_____
1933_____
1934..____
1935_____
1936..___
1937_____
1938_____
1939_____
1940_____
19·1L ___
1942_____
1943_____
1944_____
1945____
1946.. ___
1941... __
1948_____
1949_____
1950_____
1951_____
1952_____
1953_____
1954..___
1955_____
1956_____
1957_____
1958_____
1910-58__
f
i
Income to labor com- Income to capital comProportion
puted at market rates puted at market rates Combined
actulli
labor and
returns
capital
arc of
Computed Residual Computed Residual computed computed
to labor I to capital' to capitllil to labor 2
returns
Percent
59
72
61
68
6·1
60
61
48
M
59
76
88
77
78
82
69
77
76
76
75
92
93
101
79
72
53
64
59
67
66
64
54
50
54
63
63
55
55
51
62
54
53
56
52
59
62
63
60
52
65
Percent
41
28
39
32
36
40
31l
52
46
41
2·1
12
23
22
18
31
23
24
Z,l
25
8
7
-1
21
28
47
36
41
33
3·1
36
46
50
4(i
37
37
45
45
49
38
46
47
44
38
41
38
37
40
48
34
Percent
52
62
52
61
57
56
55
35
38
39
50
85
62
56
5.4
43
47
46
45
45
59
66
81
51l
54
34
40
31
39
36
36
27
21
22
24
24
22
23
24
32
30
31
36
,10
31l
43
41
42
41
4·1
Percent
48
38
48
39
43
4:1
45
65
62
61
50
15
38
44
46
57
53
54
55
55
41
34
III
41
46
66
60
69
61
64
64
73
79
78
76
76
78
77
76
68
70
69
64
60
61
57
59
58
59
56
Percent
111
134
113
129
121
116
116
83
92
98
126
173
139
134
136
112
124
122
121
120
151
159
182
138
126
87
104
90
106
102
100
81
71
76
86
88
77
78
74
94
85
84
92
101
99
106
104
103
113
109
,
i
Percent
90
75
88
78
83
86
86
120
109
102
79
58
72
75
74
89
81
82
83
83
66
63
55
72
79
115
96
111
94
98
100
123
141
132
116
114
130
128
135
106
118
119
109
99
101
94
96
97
108
96
i
-.'I
"
Computed income to labor and capital calculated at Illarket rates for hired
farm labor and interest on borrowed capital, ,respectively.
2 Residual share of actual returns after allowing computed income to the other
factor. Actual returns are total net income from agriculture, as published in
:J;he Farm Income Situation (:ea, July 1959, table 4), plus interest on non-realestate debt.
.
I
i
"
I
~
!
j,
~
I
PRODU~IVITY
TA~LE 16.~Inde.xe8
63
OF AGRICULTURE
oj real i1lcome jor selected income groups, United
States, 1910-58 1
[1947-49=100]
Unpaid production
inputs
Year
Quantity
1910_______________
1911 _______________
1912_______________
1913_______________
1914____________ - __
1915_______________
1916_______________
1917______________
1918_______________
1919_______________
1920_______________
1921 __________ ____
1922_______________
1923_______________
1924_______________
1925_______________
1926_______________
1927_______________
1928_______________
1929_______________
1930_______________
1931 _______________
1932_______________
1933_______________
1934 _______________
1935_______________
1936_______________
1937_______________
1938_______________
1939_______________
1940_______________
1941_______________
1942_______________
1943_­ _____________
194.4_______________
~
~
1945_-------------­
1946_______________
1947_______________
1948_______ -------­
1949_______________
1950_­_____________
1951_______________
1952______________1953_____________ -­
1954_______________
1955_______________
1956___ •___________
1957_______________
1958________ .-----­
1 Seefootnotcs, table
nata nQt av~pl~.
I
130
133
1:35
133
l:l7
133
132
132
136
135
139
130
130
131
1:32
135
136
130
133
133
136
138
136
131
119
120
117
127
119
117
114.
108
110
112
115
112
106
100
100
100
95
97
96
94
90
89
87
82
82
Relll
income
per unit
51
40
52
4.4
46
48
47
68
60
52
39
25
34
39
37
49
43
45
46
45
35
31
23
29
32
56
47
58
48
50
52
74
96
101
92
96
112
104
112
84
95
99
94
83
82
78
77
80
95
8 for definition of
Annual real income per­
Employed
fnctory
worker
Farm family worker
fromFarming
(2)
(2)
(2)
measlJrC8
50
49
48
50
51
55
56
58
55
57
62
62
62
61
63
65
65
62
61
56
58
61
65
70
75
70
77
76
89
99
110
1J6
109
100
98
99
102
109
110
113
119
118
127
131
130
128
in this table.
52
41
.55
46
50
50
48
71
65
56
42
26
36
41
40
54
49
49
52
54
40
35
25
31
31
55
47
65
52
55
57
80
106
112
106
109
117
102
III
87
94
105
102
92
90
86
91
92
112
All
sources
(:I)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
38
56
M,
69
59
65
68
88
110
1J4
110
109
113
101
107
92
97
105
107
101
98
99
108
107
120