Selected readings in rural economics, comp

Front matter

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Preface

The following selections are chosen with a view to making available to the student of agricultural economics a mass of excellent material which has been published in widely different places and which, because it is so scattered, is likely to be inconvenient of access. Considerable space has been given to historical material, because a historical background seems necessary to any thorough understanding of present tendencies.

This volume is not intended to take the place of any of the manuals that are now available on the general subject of rural economy, or agricultural economics, nor is it intended to take the place of any of the treatises which are already available on any special subjects, such as rural credit, cooperation, soil management, etc. It is designed rather as a handbook to accompany some of these manuals and to amplify the student's information in the general field of rural economics.

My thanks are due to the numerous authors who have so generously given their consent to this republication of their material and to the publishers who have likewise permitted this use to be made of material, much of which has been copyrighted.

The editor hereby acknowledges his obligations to all these gentlemen and can only hope that the usefulness of the volume will in some measure justify the generosity which they have shown.

T. N. CARVER

Contents

PAGE

INTRODUCTION i

I. GENERAL PRINCIPLES

Introduction

THE STUDY OF RURAL ECONOMY

THERE is a saying that the specialist who is only a specialist is a very poor specialist. The purpose of this saying is not to discourage specialization but to make better specialists. It fits in with that ideal of education which requires that the educated man should know everything about something and something about everything. This remark applies to the agricultural specialist as well as to any other kind, and this ideal of education applies to the educated farmer as well as to any other type of educated man. In opposition to the argument for a broad education for the farmer, the question is sometimes pointedly asked — Will this or that kind of knowledge enable the farmer to grow more corn or more potatoes ? The answer is that even though it does not, it is still worth while provided it enables the corn and potatoes which he does grow to feed a better man.

It is fair to say, however, that the first attempt to broaden the farmer's education should be to broaden his knowledge of his own occupation or profession. In order to broaden his education it is necessary that he study something else besides the technical process of growing his own crops, but it is not necessary at once or in the very first instance to jump to the opposite extreme of making him skilled in all the learning of the Egyptians. It is my purpose in this discussion to argue that the first effort in broadening his education should be to give him a wide historical knowledge of agriculture as practiced in different ages of human history and different stages of civilization, and also as it is practiced at the present time in various climates and among various peoples. Such knowledge is fascinating, it is cultural, and it is practical — all in the highest degree ; it therefore has three important qualities which should entitle it to a place in any system of education. It is fascinating because it acquaints us with the basic facts of human experience, not only during that brief span of human life commonly called the historical period but during that vastly greater and more important period which lies back of the dawn of recorded history. The efforts of our ancestors for untold generations to wrest a living from nature have exercised their inventive faculties and strained their powers of reason and imagination more than any other group of problems, not even excepting those of war and religion.

By some mysterious process, or the alchemy of heredity, we have deposited somewhere in our present human nature a fundamental instinct for contrivance which delights to exercise itself in the study of these oldest human problems. Not even the city dweller, born and bred in the pent-up quarters of a town, can rid himself of these elemental human instincts. Just as the squirrel in captivity continues to obey the primal impulse to hoard ; just as the captive bird feels an impulse to migrate with the recurrence of the migratory season ; so the city dweller every spring, with the recurrence of the planting season, feels within himself an irresistible impulse to dig. Let us not be too hasty in ridiculing his feeble efforts to make things grow in a city back yard. He can no more help doing what he does than a young man can help falling in love or a young woman can help fluffing her hair when she thinks that someone is looking at her. By a similar elemental impulse the student finds a rare fascination in the study of the plow — that oldest and most perfect tool known to the human race ; and the ox yoke in its various forms — the oldest implement by means of which man has utilized other sources of power than his own muscles to do his work. The evolution of the plow and the various forms in which it is still found in operation, the multitudinous forms in which the ox yoke is fashioned, and a study of the reasons for each form are among the most fascinating subjects with which the mind can occupy itself.

INTRODUCTION 3

The study of rural economics is cultural because it has to do with men in the broadest possible sense. Men have lived without printing presses or printed books and even without books of any kind. The qualities which characterize our race were fixed before there was art or architecture. Very few, if any, changes or improvements in the race have taken place since, but, except for the lowest savage who lived exclusively by hunting and fishing, no people has ever lived without agriculture, that is, without some means of increasing the soil's capacity to produce desirable things for human consumption. I remember reading a fascinating article a few years ago on the oldest trade in the world. By "trade " was meant a specialized occupation which would exclude agriculture. The oldest trade, or specialized occupation, according to that article, was working in flint. This was fascinating because it introduced one to a very important chapter in the life of the human race. That is cultural information which gives one the widest possible knowledge of and sympathy with man in all phases of his existence and all stages of his civilization. But even the making of flint instruments is less valuable in this respect than the knowledge of the various processes by means of which man has extracted a living from the soil.

This is practical knowledge in a strict business sense, because a wide knowledge of rural economy, of the epochs in agricultural history, of the changes that have taken place, of the reasons why they have taken place, of the tendencies of the present, and of the reasons for those tendencies gives one a broader basis or a larger background for the study of the specific problems of the present than can otherwise be secured. We are now in a period of agricultural reconstruction. Far-reaching and fundamental changes are taking place. Every period of fundamental economic change is a period of strain and stress, of large success and unmerited failure. There are tides in the affairs of men, which, taken at the flood, lead on to fortune, but, it should be added, which, taken at the ebb, lead on to misfortune, to failure, to bankruptcy. Periods of rapid and fundamental change are the periods when these tides ebb and flow most powerfully. They who adjust themselves to the new conditions are carried as by a favorable tide to success. They who fail to adjust themselves are carried as by an ebbing tide to failure. It is therefore of the utmost practical importance that this broad view of rural economy and agricultural history shall be acquired by every agricultural student. It is important to the individual farmer who is charged primarily with the duty of running a successful farm in order to bring * up a successful family. To embark on an agricultural enterprise which is dying is to try to swim against the tide, whereas to embark on an enterprise which is growing is to swim with the tide. It is important also to the agricultural statesman who must, so far as government can be of assistance to our basic industry, direct the machinery of government in the interest of agriculture. To attempt by government effort to stimulate an industry which, under the natural operation of economic forces, will necessarily decay, is a waste of human effort. It is better to lend encouragement and aid to those who are growing, in order that they may grow strong and healthy, than merely to try to arrest the decay of those who are already in process of decaying.

I. GENERAL PRINCIPLES

THE INFLUENCE OF THE CROPS UPON BUSINESS IN AMERICA

By A. P. Andrew (From The Quarterly Journal of Economics, May, 1906)

FLUCTUATIONS in business prosperity result from a wide assortment of causes. They are variously attributed to epidemic states of mind, to changes in legislation, to the development of new industrial processes, to the opening of new trade routes, to excesses in banking, or, again, to changes in the methods of industrial organization. With all of these factors, men may, by taking thought, foresee in some degree their movement, and in some measure may control their outcome. Business welfare in every community depends, however, very largely upon another set of factors, whose caprices none can predict and none can govern, — factors which are closely connected with conditions of weather and of temperature. As there is no country where agriculture is not pursued or where agricultural products are not used either as foodstuffs or as raw materials, there is no country where the chance conditions of weather are not of vital consequence. Nor is the influence of the harvests confined solely to agricultural areas and occupations. It reaches far beyond the fields. It affects manufacturing and transportation interests, banking and foreign trade, and is responsible for many of the larger deviations in commercial prosperity.

The product of agriculture differs from the output of all other branches of production in being so largely independent of human regulation and so little adjustable in amount to demand. This results not merely from the dependence of the harvests upon meteorologic conditions, over which man obviously has neither control nor prophetic vision, but also from the fact that the agricultural output is in most cases produced by a far greater number of disconnected individuals. The several crops are grown upon a countless number of widely scattered farms, the owners of which in each case are of necessity ignorant for the most part of the intentions and operations of other producers. Even were there no uncertainties of weather to contend against, there would still be serious and unforeseeable maladjustments of supply because of the inability of individual producers to gauge the total output, — an inability which is obviously more marked in the case of agriculture than in either mining or manufacture.

In the following paper we shall study the influence of this peculiarly fortuitous factor upon general business, and attempt to measure the extent of its responsibility for the advances and reverses of trade in America during the past thirty or forty years.

I

One can easily discern four or five important ways in which general business conditions are likely to be affected by the success or failure of the crops.

i. In the first place the size of the crops exerts a considerable influence over the community's power to purchase other goods. If the season has been successful, the farmer is almost sure to increase his expenditures, and use at least a part of his new earnings. He may build an addition to his house or erect a new barn, or he may purchase a piano or a new buggy or new house furnishings or new clothes for himself and his family. Even if he does not use all of the additions to his income himself, but deposits some of them in the banks, they will none the less help to swell the market for other goods in the hands of other customers of the bank. If, further, on account of a plentiful harvest, the prices of food and of certain sorts of clothing are reduced, another result to be expected is that people in general outside of agricultural pursuits will have more to spend upon other things. A bountiful harvest is thus significant for almost all of the occupations in a community. It involves an immediate expansion of

THE INFLUENCE OF CROPS UPON BUSINESS J

the demand for the most varied sorts of merchandise, and the economic machine in most of its branches is apt to be stimulated to some extent through increased consumption. On the other hand, when the agricultural output fails, the farming population is at once obliged to retrench, to forego contemplated improvements in their farms, to curtail many of the usual or expected expenditures, perhaps even to withdraw deposits from banks, and so abridge the working capital of others. If, too, the prices of breadstuffs and meats rise, many of the rest of the community will have to devote a part of what they are accustomed to spend upon other things to the purchase of food. They will have to abstain from some of their usual purchases in order to buy these necessaries of life. At such times, then, not only will the industries which produce primarily for the farmers feel the pinch of reduced consumption, but other industries as well, which produce objects that in ordinary times are consumed by the masses of men. The clothing trades, for example, may be expected to feel the difference, and the liquor, tobacco, and other similar occupations are also likely to be affected.

2. In the second place the very solvency of a large part of the agricultural population, and of those connected by business relations with them, depends to a considerable degree upon the outcome of the year's harvest. Whether or not the farmer will be able to repay loans which he has contracted, whether or not he will be able to settle his bills with tradesmen and dealers, and whether or not he can pay for his agricultural machinery and farm improvements, will in many cases be decided by the size of the crop. If the crop fails, his various creditors — the banker who has lent him money, the mortgagee of his farm, the shopkeepers from whom he has bought his supplies, and any others to whom he is indebted — will either have to wait, or, if they force a settlement, will not improbably suffer losses. If these delinquencies occur upon too wide a scale, the failure in agriculture may be propagated into other fields, and bankruptcies among bankers, dealers, and manufacturers may ensue. If the harvest, on the other hand, is good, and can be marketed at profitable prices, the capital of the affiliated creditors will once more be set free and made ready for new activities.

3. In the third place, in a country where agricultural products form an important factor in the foreign commerce, the size of the crops will exert a considerable influence upon the balance of trade and the international movement of gold. The extent of the bank reserves in the great financial centers and the contraction or expansion of general credit may in consequence depend most importantly upon the output of the season's harvests. This consideration is of peculiar concern in the United States, where until quite recently two thirds or more of the total exports have consisted of such produce. 1 When the American crops are abundant, our exports very naturally tend to increase, and gold imports are apt to occur. That in turn means large cash holdings in the banks, with, under normal conditions, the accompaniments of expanding credit and buoyant trade. When, on the other hand, the crops fail, the movement of exports and of gold swings in the contrary direction, and in that event we are apt to be confronted with dwindling bank reserves, a contingent contraction of the general credit, declining business, and less activity in trade.

4. Again, the size of such crops as are not consumed in the locality of their production is of great significance for the transportation interests. One has only to observe the fluctuations in railway earnings month by month during the course of any normal year to realize how important a factor the harvests are in railway affairs. It is in the months of the harvests,, from August to December, that railway traffic and railway earnings normally reach their highest levels, the earnings not infrequently being 30 to

1 Exports of agricultural products, per cent of total exports :

891 892

893 894 895 896 897

69-73 66.02 66.23

Year

40 per cent higher in September or October than in May or June. A bumper crop in the case of a commodity like wheat, which is so largely consumed at a long distance from the place of its production, is consequently a source of great profit to the railroads concerned, while a poor crop means diminished traffic and reduced earnings.

5. Finally, the success or failure of certain crops is also of significance for those industries into which the crop enters as a raw material. A failure of the wheat crop will obviously depress the milling industry, and a failure of the cotton crop will curtail the earnings of the cotton factories, not only those in the vicinity of the cotton-growing states, but those in New or old England as well. A failure of the corn crop similarly will diminish the profits of cattle-raising, may work injury to the packing interests, and to some extent may affect also the distillers of whisky.

There are, then, five important ways in which the conditions of agriculture are likely to influence general business : (1) by affecting the community's consumption of other goods ; (2) by affecting the solvency and credit of farmers and those engaged in dealings with them ; (3) by affecting the balance of trade and the bank reserves ; (4) by affecting transportation interests ; (5) by affecting manufacturing interests for which the agricultural product is a raw material.

Obviously, the greater the proportion of the population of a country that is engaged in agriculture, the more severely the country will be affected by a sudden fluctuation in the crops ; and, as so large a proportion of the American people are occupied with agricultural pursuits, we should naturally expect the condition of the crops to be of greater influence upon trade conditions in this than in many other countries. Those who live in the large cities or are familiar only with such infertile regions as the Atlantic seaboard are apt to forget that we are still very largely an agricultural people. According to the census of 1900, out of a total of twenty-nine million persons reckoned as gainfully occupied, more than ten millions were engaged in agricultural pursuits. That is to say, more than one third of those engaged in gainful occupations were connected with farming of one or

IO READINGS IN RURAL ECONOMICS

another sort. We should naturally expect, then, the output of agriculture to be of peculiarly intimate and conspicuous influence upon general business conditions in the United States.

II

At the same time there are, needless to say, other factors than the output of our farms which may affect our prosperity, and whose influence may quite outweigh the influence of our harvests.

i. First, it will be noted that in the case of those agricultural products which belong in large degree to foreign trade the financial success or failure of the harvest in any given locality depends to some extent upon the output of the same product elsewhere. An unusually large harvest in this country, if accompanied by small harvests abroad, obviously means prosperity for the American farmers, means large exports and high prices, tends to mean incoming gold and expanding credit. But, if accompanied by excessive crops abroad and flagging demand, it means, on the other hand, extraordinarily low prices, diminished exports, and depression in agriculture, if not in general trade. We have examples of each of these situations in the period centering about 1880. In 1879 the wheat crop, the corn cropland the cotton crop were all the greatest ever known in our history up to that time. But in England and Europe the wheat crop was a failure on account of excessive rain and cold, and in India the cotton crop was a partial failure. We had then the. conditions which would naturally result in prosperity for agriculture and flourishing trade. In 1880 these conditions were repeated. All three of these crops in America exceeded even the levels of 1879, and the foreign crops again ran short. There resulted, as everyone knows, a business development rapid beyond all parallels in our previous commercial history. But note the situation only two years later. The American wheat and cotton crops in 1882 exceeded even the record-breaking totals of 1880, and the corn crop was the largest, with one exception, in our history. But in that year the countries of Europe also produced the greatest total wheat output in their history. The price of wheat in America accordingly fell, and the amount exported was strikingly diminished. The market for cotton also proved to

THE INFLUENCE OF CROPS UPON BUSINESS n

be overstocked, and the price of cotton likewise underwent a serious decline. There was no new development of business, no great revival of prosperity after the harvests of 1882. Although the crops of wheat and cotton were the most abundant that America had ever known, the following year was one of " steadily increasing depression." So also two years later, in 1884, the American wheat and corn crops once more bulked larger than ever. All previous records for their size were broken ; but here again the records of the rest of the world for output were also broken, and the price of wheat in consequence declined to the lowest level it had yet touched during the century, and the value of the total crop in the end proved less than it had been in any year since 1878. The agricultural output in America in 1884, as in 1882, would have led one to expect a fresh outburst of general activity, but the movement in the latter case as in the former was checked by the concurrent abundance abroad, and the year that followed in each case remained one of marked depression.

2» In the second place, even where the country is blessed with the desired conjunction of domestic crop abundance and foreign crop failures, the revival of business activity may be prevented by the operation of other influences.

In 1 89 1 the wheat crop failed everywhere in Europe, and this occurred on the top of two serious harvest shortages in 1889 and 1890. At the same time the American crop proved larger than ever, — proved larger, in fact, by one hundred million bushels than the record crop before that date. The export of grain ran even beyond the enormous exports of 1879 an< ^ 1880, and reached in the ensuing year the highest level ever known before or since. The cotton fields also turned out by far the largest crop on record up to that time, and our exports of cotton exceeded all precedents. The corn crop was also abundant, being, with one exception, the largest ever harvested. And yet, with all these favoring conditions, with bumper crops in all lines in this country and scant crops abroad, with record-breaking shipments of wheat and cotton, with the heaviest export trade ever known in the history of our country, and the most favorable balance of trade in a decade, there was no extraordinary outburst of activity in general trade, no such expansion of business as had occurred a dozen years before under similar circumstances. No matter what we select as a gauge of prosperity, we find the same evidence of a relatively slack development in the early nineties, as compared with either the upward movement of the early eighties or that of a decade later. We may take the statistics of the per capita foreign trade, or the railway earnings per mile, or the bank clearings, or the stock exchange transactions, or the prices of commodities and securities, and we find them all telling the same story. The maximal records of the period all fell far short of those of the preceding or those of the succeeding cycle of trade. The continued agitation of the silver question and the dwindling reserves of the Treasury, presenting as they did an ominous outlook for our monetary standard, sufficed to prevent any considerable improvement in domestic trade and manufactures, such as otherwise would have resulted from the bountiful harvests and the immense export trade. American securities held abroad began to be returned in such quantities as to counteract what would naturally have been an enormously favorable balance of indebtedness ; and American investors themselves hesitated from risking capital so long as Congress could not be depended upon to maintain the value of the country's money. There was no season of buoyant activity in 1891 and 1892. Trade continued sluggish. Congress had cast a deadening blight over business which even the plenteous bounty of nature was unable to overcome.

3. A third fact is to be noted in discussing the relations of the crops to economic cycles in a country which, like the United States, ranges over a very extensive and diversified territory, and produces in different regions several very different crops. These various crops — belonging, as they do, to different latitudes and soils, subject to very unlike conditions of weather and temperature — are by no means bound to stand or fall together. An unusually small harvest in one line may be concurrent with unprecedented abundance in another. The failure of one crop may exert a depressing influence in one part of the country, and yet be more than compensated as regards the country as a whole by expanding production and flourishing activity in another.

^HE INFLUENCE OF CROPS UPON BUSINESS 13

The three most important American crops are, respectively, corn, cotton, and wheat. Corn, although it is grown in greater or less quantities throughout the country, wherever there is tillable land, and although there are few places where it is grown exclusively, is of preponderating importance in the •' corn belt." This belt includes the northern parts of Ohio, Indiana, and Illinois, the whole of Iowa, and portions of Missouri, Kansas, and Nebraska. Cotton, our next most important crop, is much more rigidly restricted. It is produced exclusively in a compact strip of country, running along the Gulf States from eastern Texas, including the Carolinas on the east and parts of Arkansas and western Tennessee on the north. Wheat, like corn, is raised to some extent in all or most of the states (twenty-five raising winter wheat, nineteen spring wheat, and some both), but in this case also there is a distinct and comparatively limited area known as the " wheat region " in the north central river basin, and more than half of the wheat raised in the country comes from the six contiguous states, Minnesota, North and South Dakota, Kansas, Nebraska, and Missouri, the' first three growing spring wheat, the latter three winter wheat. 1

Among these three crops may occur every conceivable combination of success and failure. The crops of the Southern States may be abundant when those of the Middle West are poor, which, for instance, was the case in 1894, when the cotton yield was enormous and the production of wheat and corn fell short of earlier levels. In 1895, on the other hand, the contrary situation occurred, and we had a very short cotton crop concurring with a record-breaking output of corn. Although the wheat and corn crops belong to somewhat the same regions, they may, nevertheless, vary diametrically from each other. You may find a small wheat crop, as in 1885, or in 1896, combined in each case with a record-breaking corn crop, or vice versa a record-breaking wheat crop, as in 1901, contemporaneous with a failure of the corn crop.

And so, while one might presume, from the wide prevalence of agriculture in America and its many interrelations with transportation interests, foreign trade, banking, and other occupations,

1 See the maps in the Statistical Atlas, 1900, plates 154, 156, 158.

that the general condition of business would follow rather closely the changes in the country's crops, one can see that such a generalization is only safe when rigidly qualified and carefully applied. One must bear in mind not only that the condition of the crops elsewhere will always affect the value of our domestic crops, whatever may have been their size, but also that other conditions, such as changes in financial legislation, passed or impending, may outweigh all of the influences of agriculture upon business ; and, finally, one must remember that in a country as extensive as ours the effect of success or failure with any one kind of crop may always be largely offset by an opposite condition with some of the other crops.

Ill

Confronted with the evidence that our several crops do not always succeed or fail in the same seasons, one naturally asks which of the crops it is whose success or failure exerts the greater influence over the conditions of general business. This is a question the solution of which is. so difficult and involves the disentanglement of so many interacting factors that no one is competent to offer for it anything more decisive than a personal belief, and the best we can do here is to recall some of the points of view, most of them already mentioned, which must form the basis of that belief.