Current Economic Affairs/Chapter 4
CHAPTER IV
THE ECONOMIC POSITION OF THE AMERICAN
FARMER
The unbalancing of the ratio that previously obtained in the division of the national income, which was one of the consequences of the economic upheaval produced by the war, has had a disastrous effect upon the American farmer in the course of the post-war readjustment. Expression of this is made politically in the agrarian movement, especially in the wheat growing states, that is analogous to the populistic movement which reflected the dissatisfaction of an earlier time, also resulting from economic causes. The grounds for the present agrarian discontent are stated most concisely as the low prices received by the farmer for his products in the market; and the continued highness of the price of everything that he has to buy, which causes both his cost of living and the cost of producing his crops to continue high in relation to his proceeds. In other words, his margin between proceeds and cost of production is greatly contracted.
We are given to speaking of farmers as a whole as a major class of workers who are distinct from the town workers and are governed by different economic factors. While all of this is true, we must nevertheless make a distinction among the farmers themselves. Thus, the farmers of New York and New England who are largely engaged in raising dairy products, eggs and poultry and garden truck, the farmers of the South who raise cotton and tobacco, the farmers of the Mississippi Valley who raise wheat and corn, and the farmers of California who raise fruits operate under widely different conditions. The farmers of the South who raise a surplus of cotton for export are directly subject to European conditions, just as are the wheat farmers, who also have a surplus for export. The dairy farmers and poultry raisers of New York and New England sell in a purely domestic market and the benefit of high wages for town labor spreads to them to a certain extent. They are buyers of gram raised by the Western farmers. They, like all farmers, are affected, however, by the high wages of the labor that they have to hire and the high charges for railway transportation, which are a reflection of the high wages that the railways are constrained to pay for their labor.
There are differences also in the economic status of the farmers. Those of New York and New England are generally proprietors. In the West and South farms are operated to a greater extent by tenants. We find among them the sharp classification of croppers, tenants, part owners and full owners, whose capital increases in the order mentioned. Use has been made here of a portentous word, viz. capital. Ali farmers are capitalists, i.e., they are owners of property, although the croppers have but little. Even the tenant farmers have a good deal of capital in the form of implements and live stock, crops on hand and growing, and other assets. The owners of farms have all of these assets and in addition thereto their land and the improvements upon it.
There is to be found here the fundamental difference between agricultural workers and town workers. The farmers are wholly capitalists whose income is derived from the use of their capital plus their own work. Economically they are in the same position as the merchant who owns a shop and stock of goods and occupies himself in the merchandizing thereof. The town worker, excepting the merchant and others who use their own capital, derive their income from wages, which spring from the use of capital that is owned by others.
This broad distinction between agricultural workers and town workers is far from being precise, but it is convenient and gives rise to no misunderstanding. Of course, the worker for wages in a factory may possess some shares of stock in the company that owns it and thus be a capitalist. Even the president of a company may theoretically be merely a wage earner, but the chances are of course that he will be a capitalist through the ownership of stocks. On the other hand a large class of farm laborers are purely wage earners.
Whatever be the kind of farmer his income is derived from the sale of his products, less the direct cost of producing them. The direct cost of production includes the labor that he has to buy, the materials that he has to use, and finally the labor and material that he must apply in order to maintain the fertility of his land and the upkeep of his buildings, live stock, machinery, fences, ditches, etc. He must set aside moreover something for refunding his machinery and live stock, for in spite of proper upkeep they will eventually have to be replaced. In keeping his accounts the farmer should give himself credit for the subsistence of himself and family from the farm and also should take cognizance of appreciation or depreciation in the value of his land. Out of the margin between proceeds and costs he should find a proper remuneration for his own work. If then the ultimate margin does not show a proper return on the capital invested the latter has not been economically as fruitful as should have been. In determining that, however, he must consider the average of a series of years, for inevitably there will be good years and bad years. In all of this the economics of the farmer are identical with those of the owners of railways, factories, and of stocks of goods for distribution. The fruit of all capital goods is borne in the same way. Primarily the return is determined by the markets for the products, which are entirely outside of the influence of any single group of producers. In international markets, such as wheat, the price is determined by the actions and reactions of producers and consumers all over the world.
The primary cause for the recent and present troubles of the farmers who raise wheat and hogs is that they have not been getting high enough prices for their products, which is ascribable to international market conditions. The difficulties of the farmers who produce those things grow out of the European situation. In the words of Dr. B. M. Anderson, Jr., in the Chase Economic Bulletin of August 10, 1923:
Agriculture has become an over-expanded industry, not primarily because it has itself expanded, but because the manufacturing activity of the world has contracted. In the case of cotton there has been a corresponding contraction of agricultural output, due, of course, to the boll weevil. In the case of wheat, there has been an actual expansion of the world’s output; increased production in Canada, the United States, and other places more than compensating for the decreased production in Russia and the Danubian countries. By and large, however, the difficulty is contraction of manufacturing in the world’s manufacturing center. Western Europe, which before the war was the world’s great center of manufacturing activity and the world’s great market for farm products and raw materials, has lost her prewar primacy in this matter and has left the rest of the world out of balance. The basic reason for this lack of balance in the world is obvious.
Central and Western Europe are chaotic. Public finances are disorganized, currency systems have been wrecked, political and military movements have demoralized economic life, current production is low. Having little to sell, they are able to buy little, as they have already largely used up those credit resources with the outside world which enabled them, for six or seven years, to consume without producing and to buy without selling.
With this constraint upon the prices for his products, the only possible salvation for the Western farmer is reduction of his costs. Instead of that happening in any broad way, however, he has experienced but little abatement of costs. He is thoroughly conscious of this and of the need for economies, but in his rage and despair he does not know how to go about effecting them. He is really in the grip of economic forces that are quite beyond his control. He blames primarily the railways, for he is able to see clearly how their rates affect him. He sees that a dollar price for wheat at Chicago in 1923 means much less to him than in 1914, for the charges for carrying the wheat to Chicago have greatly increased, wherefore the net price on the farm has been correspondingly reduced. He does not understand that these increased charges are ascribable to the internal economic unbalance, which has given the wage earners in the form of higher wages a greater share of the produce of industry at the expense of the capitalists to which class he, the farmer, belongs. Having no understanding of this he flirts with the labor unions and contemplates a forcible reduction of railway rates by governmental action, which would be at the expense of other capitalists, viz. the stockholders in the railways. If consummated such an expedient might prove to be practically a confiscation of the property of the railway stockholders. Inasmuch as that would be unconstiunconstitutional, unmoral, and a lot of other adverbial things, the politicians who pretend to lead the Western farmers allege that the property of the railway stockholders has been overvalued in the interest of the malign profiteers of Wall Street and that the public should not be constrained to pay charges on their plunder. This was the inspiration of the physical valuation of the railways, instigated by Senator LaFollette. The results of that investigation by the Interstate Commerce Commission have proceeded sufficiently far to show that the aggregate physical value of the railways of the United States is in excess of what the transportation industry itself had heretofore claimed. Obviously therefore, there is no merit whatsoever in the agrarian contention for a reduction of railway rates at the expense of railway stockholders.
The Western farmers were not, of course, the victims of any deliberate deflation in 1920, as has been vociferously alleged by some of their exponents. The collapse that began about the middle of 1920 had long been foreseen by economists who knew that the extravagant post-war boom could not long continue in the face of a situation that was inherently unsound. The collapse was precipitated by the exhaustion of the credits that we had given to Europe, which withdrew Europe as a free buyer of our commodities and thus annulled a demand that had previously been contributing to the maintenance of our markets. The exhaustion of those credits and what was then going to ensue were clearly foreseen by the experts, but as is frequently the case most people refused to pay attention to them. Yet even those who did pay attention were helpless, for there could be no swift and complete liquidation on a rapidly falling market. The Federal Reserve Board was in no way responsible for the conditions. Nor were the bankers, who were on the contrary as lenient in the matters of forcing liquidation and carrying frozen credits as they could possibly be. The farmers as capitalists, suffered from this general collapse like all other capitalists, and as did wage earners also in their turn. The copper producers of the United States fell into a far worse position than did the wheat farmers, but no sympathy for them was expressed.
During the war the farmers of the United States did very well, probably better than any other great industrial class. Prices for wheat, hogs, cotton and other produce rose to unparalleled figures and the owners and operators of farm property realized great returns. Their returns were so large and attractive that there followed a wild speculation in agricultural land, the prices for which rose to extravagant figures. There were misguided speculators and investors who bought at top prices and subsequently suffered huge losses. But precisely the same thing happened to investors and speculators in the shares of copper mining companies. There is no help for the farmer at the present time in granting new credits to him, which would mean simply putting new capital into an already over-expanded industry and would induce increased agricultural production and still lower prices for farm products. In the words of Dr. B. M. Anderson, Jr., “the farmer’s present difficulty is partly due to the fact that he has had too much credit and too easy credit in the past. Greater difficulty in securing credit in the past would have lessened the evils of land speculation, and would have compelled the farmers to save more of their boom-time profits.” How successful farmers frittered away their resources by buying wild-cat stocks is notorious. In brief, the farmers of this country behaved during the boom with the same short-sightedness as other members of the capitalistic class, but on the whole with less intelligence.
The situation in agriculture in the United States is really more serious than appears on the face of things. Nearly one third of the estimated physical wealth of the country is counted in the farms together with their buildings, live stock and equipment. I have in my earlier work, and in other chapters of this one, pointed out how recent economic conditions have been, and are, causing the owners of property to let it run down owing to their being unable to keep it up, this being one of the serious consequences of labor getting a larger and larger share of the national income. With the share of property being uneconomically diminished and with labor squandering much of its proceeds in the enjoyment of a higher scale of living the national balance sheet will be bound to show that to a large extent the improved living of some of the people has been at the expense of the national principal. In this the devouring automobile has played a great part in the life of all people alike.
The conception of consumption of principal is not easily grasped. Even when it is comprehended experienced persons find difficulty in recognizing when it is happening. One of the serious duties of the consulting engineer is to make the corporation president see that his profits are not really what he imagines, owing to his failure to allow for consumption of plant. We are all prone to such blindness. In national economics we are apt to fail to see the thing at all, our vision being so narrow and our reckonings so circumscribed and imperfect. Nevertheless it is simple enough to see that if a man fails to make adequate repairs to his house owing to his diversion to automobiling of the money that should have been spent on repairs the value of his house diminishes. In other words he has been enjoying his automobile at the expense of his principal.
Another man, who does not run an automobile, is unable to maintain his house properly for the reason that his income has failed to increase and he has not the means to pay for the necessary work at inflated prices. He is suffering loss of principal just the same as the man who is wasting directly, and while that is happening to him carpenters and bricklayers and plasterers are enjoying high living. There has been more deterioration of property in this way during the last five years than we commonly think. There is absolutely no way of measuring it in the aggregate. In my estimate of the national wealth at the end of 1920 I merely indicated the need for allowance on this account.
Of course the farmer, as a property owner, was bound to be a great sufferer in this way. Recently economists of the U. S. Department of Agriculture undertook to make an expression of this, asserting that American farmers, who have been making a large production with their physical equipment in a rundown condition, must within the next 10 years save up and reinvest in the farm plant from $8,000,000,000 to $10,000,000,000 of new capital, as a conservative estimate. The official report proceeds as follows:
For three years farmers have patiently patched, mended, repaired and used makeshifts. Sometime in the coming decade the farm must have about the same replenishment and renewal of productive plant that the railroads are now going through.
Before 1933 three-fourths of the farm buildings will require new roofs and new paint. Probably a half million new houses, barns and auxiliary buildings will have to be built. Half the present mileage of fencing will have to be replaced and much new fence put up. Millions of new tile must be laid.
The haying and harvest machinery will have to be replaced almost entirely; tillage machinery in large part; wagons, harnesses, in part. Millions of new automobiles, tractors and trucks must be bought. Millions of tons of new piping, wiring, barn equipment and small tools; millions of new gas engines and stationary power appliances; millions of feet of lumber and tons of cement must all be bought.
Millions of tons of fertilizer and lime must be poured into the soil of the East and South to restore pre-war fertility. The country’s work horses are old and before 1933 almost a new crop must be raised.
The men who control great capital resources must realize agriculture’s real and unusual need for new capital, and they must realize that farming in this country is still a basic industry—an industry with a future that will pay ample returns on every dollar wisely invested. One of the rural community’s very serious problems during the next five or ten years will be debt.
There is great ground for suspicion that the farmers themselves, who are estimated to own nearly one third of the automobiles in the United States have bought and operated them at the expense of the upkeep of their principal—their roofs, fences, land fertility, etc. In doing so they have diverted demand from certain classes of raw materials and labor to other classes and thereby have contributed to the unbalancing of the old economic equilibrium and the promotion of the high prices which now plague them. The automobile manufacturer bids mechanics and materials away from other industries and waxes rich. The fertilizer manufacturers on the other hand have found themselves hard-pressed to keep out of receiverships.
Dr. L. C. Gray, in a paper in the American Economic Review, Supplement, for March, 1923, estimated the value of the farm capital of the United States at the beginning of 1920 as follows:
| Land | $54,829,563,059 |
| Buildings | 11,486,439,543 |
| Total live stock and implements | 11,608,097,736 |
| Value of crops in hand | 5,812,000,000 |
| Value of growing crops | 277,019,520 |
| Miscellaneous supplies | 300,000,000 |
| Cash to run business | 800,000,000 |
| Total | $85,113,119,858 |
In “Wealth and Income of the American People,” I estimated for the end of 1920 that there were 955,676,000 acres of farm land, worth an average of $57.45, giving a total of $54,903,586,200; and 6,450,000 sets of farm buildings, averaging $1,750, giving a total of $11,287,500,000. Dr. Gray’s estimates and my own are very close. Dr. Gray estimated live stock and implements at about 234 billion dollars more than I did, but if he includes the farmers’ automobiles, as no doubt he does, about 1.5 billion dollars of the difference is accounted for. These estimates are therefore in close concordance.
According to Dr. Gray, about 75 per cent of the farm capital that he estimated is owned by farmers who use it, the remainder being owned by landlords, about one-half of whom are retired farmers. Another class of landlords are townspeople who have inherited or acquired by marriage the ownership of farm land. Dr. Gray estimated that active farmers owned other wealth as follows:
| Cash | $3,635,690,034 |
| Stocks owned | 1,015,710,491 |
| Bonds owned | 694,083,058 |
| Town real estate | 731,176,083 |
| Household goods | 1,970,521,722 |
| Bills receivable | 1,651,999,911 |
| Miscellaneous | 134,555,959 |
| Total | $9,833,737,258 |
| Assets | Total |
| Farm capital owned by farmers | $63,818,090,465 |
| Other assets | 9,033,737,258 |
| Total assets | $72,851,827,723 |
| Liabilities | |
| Secured by farm real estate mortgage | $ 5,967,384,775 |
| Short-term indebtedness to bank | 3,455,813,034 |
| Other indebtedness | 1,605,900,211 |
| Total liabilities | $11,029,098,020 |
| Net worth | $61,822,729,703 |
Dr. Gray computed the net worth of farmers who were full owners of their property (as distinct from part owners) as averaging $13,476. If we divide the total wealth of the United States, which I have estimated at 290.6 billion dollars at the end of 1920, among 40 million workers or 25 million families, the position of the farmer respecting property does not compare unfavorably with either of these averages. Nevertheless, it is clear from all analyses that the farmer does not as a worker get enough for his annual labor; nor as a capitalist does he get adequate return upon the investment, as capital returns commonly go. “Speaking broadly,” says Dr. Gray, “the figures suggest that the accumulation of wealth in agriculture would be a very slow process without on the one hand the practice of rigid and painful thrift or on the other hand the fortunate incident of rising land values.” In this connection, however, it is well to pay attention to recent, words of Dr. David Friday, a specialist in agricultural economics, who says that a “Fundamental fact which impresses anyone who applies his mind to the agricultural situation is the wide diversity of productive efficiency which prevails among the units which the farmer employs in carrying on his business… The inefficient units with which the great mass of our farmers are still operating, and the ineffective methods which are employed by fully one-half of our 6,500,000 farmers, are the chief causes of distress among this large agricultural group. It may be economically unsound to counsel increased production for American agriculture, but only good can come from a decrease in the cost of production.”
I should not say that it would be economically unsound to counsel increased production by the farmers, who might be best advised to increase their production, but to do it in different things and by improved methods. In his present situation it is undoubtedly sound to advise the farmer to curtail his production of wheat, which he is already starting to do by cutting down his acreage under cultivation, but it is not so good advice to recommend him to reduce his aggregate production unless we are in a position to reduce the number of farmers. In that connection there would be many things to study. Wheat is relatively an easy crop to raise and the grain is easily capable of transportation, wherefore remote land may be cultivated for this purpose. The direct labor in raising the wheat crop is small. Perhaps not more than the work of 30 days per annum. The wheat raiser, like the hay-cropper, has much time for raising other things, for his own consumption at least.
It is of course cold comfort to the farmer in the present juncture to tell him that he ought to improve his methods. The advice is good, to be sure, but even if it began immediately to be generally followed there would be the passage of many years before the beneficial results would show strongly. This is analogous to telling other capitalists, and the engineers who work for and with them, that they should improve their methods in manufacturing, transportation, etc., in order that wage earners may retain their present scale of living, the main difference being that manufacturers have already attained a high degree of efficiency, while farmers have not, wherefore the road to further improveinents by engineers is not so easy.
The matter of concern to the farmer is what can be done by and for him right away. Let us be frank and say that there is nothing. He must watch the operation of economic forces and await their results just like everybody else. He is in the same position as the stockholders in industrial companies, but he is doing more complaining. Probably his situation is not so bad as he thinks and represents. Even the farmers of the northern-central group of states raise a great deal of produce other than wheat and hogs. The extent to which they continue to operate automobiles and the bill that they pay for that comfort and convenience indicate that their condition is not utterly desperate, else they would not be able to do so at all.
If conditions be left to work out in their own economic way, we may expect that the more intelligent farmers will curtail their production of wheat and hogs, and divert their attention to the growing of other things for which there is better demand. The less intelligent will simply curtail their production, and in doing less work and living not so well, will tend to contribute toward further economic impairment. The least intelligent will abandon their farms and migrate to the towns where they will find employment as laborers. The migration of farm laborers that has already been going on, which has increased the difficulties of the farm operators, is a natural development of the same order. These movements will tend to increase the supply of town labor, lower wages, lower costs of production, and in the end make it easier for those who remain on the farms. However, this will be a slow process, a process of many years. It will be a process of capital extinction or loss, or a measure of that which has already been eaten, just as became the farms in New England which were abandoned after their fertility had been exhausted.
There are things that the farmer can do if he will that would be equally sound and much quicker in their effects. He might curtail his operation of automobiles, thus releasing some of the labor that is at present engaged in making them and supplying them. He might also take a firm position in favor of the removal of economic restrictions that impair production and lead to the employment of more men for certain purposes than is needful. He might, moreover, take a firm position in favor of letting the people of Europe work for us, specifically by reducing our tariff barriers so that we may take advantage of more cheaply manufactured goods. He might, finally, urge and compel the removal of other economic restrictions, such as are outlined in a subsequent chapter of this book. He could compel those things, inasmuch as his own class combined with other classes, whose difficulties and needs are similar to his own, constitute the majority of the people in this country. Such policies would aim at the deflation of labor, and that is what the farmer needs more than anybody else. Such procedure would create disturbances and would have adverse effects upon many industries, wherefore it should be directed cautiously and with great intelligence. Anyone who imagines, however, that the inevitable readjustment of economic equilibrium is going to happen without disturbances and injuries is living in a fool’s paradise. The main things that the farmers ought to avoid are the promotion of financial fallacies and any alliance with town labor. It is the latter which has been living largely on the farmers’ principal. The farmer is economically of the capitalist class and his interest lies wholly with that class, not with wage-earning labor.