Discussion On Mr. Bellerby' Paper

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<ul><li><p>Proceedings of Conference. 139 </p><p>DISCUSSION ON MR. BELLERBYS PAPER. Dr. G. S. Gouri: </p><p>I will confine myself to some remarks on the very important theoretical aspects of the paper. I would particularly like to refer t o the concept of incentive income, the most important aspect of which is the financial one. Here Ivlr. Bellerby has given us material which we can examine when considering how far financial inducements have caused farmers and farm workers to change their occupation. Coming from India I have tried to see how far this concept could be used to analyse the causes of change of occupation from agri- culture to industry. While it seems to me that the concept should have a use for general theory, I think it would be greatly limited in India mainly because the ordinary man therc has no choice of occupation; he has to choose between being a farmer and starvation. </p><p>By giving an analysis of factor payments in agriculture Mr. Bellerby provides some very useful rcsults for comparison with those of Professor Phelps Brown in the current ECU*TOWL~C Journal. Professor Brown is concerned with the share of aggregate wages in the total national income. It can be noticed that the element of stability in wages as a proportion of total income is common to both papers. But they show slight differences in movement in the course of a cycle. Mr. Bellerbys data show that the share of wages increases during depressions and decreases during booms, while Professor Browns data sometimes indicate a slight movement in the opposite direction. Since M r . Bellerbys figures refer to agricultural income alone i t is possible that different types of internal adjustment may be taking place in agriculture from those relating to prices, costs and output which Professor Brown suggests in his analysis. I think we have here the means of further research and of testing theories about income and its distribution, and I feel that if hlr. Bellerbys paper were extended with this in view i t would provide us with some interesting surprises. </p><p>C. H . Hlagbztrn:* I should likc to congratulate Mr. Bellerby on the industry which has gone into the </p><p>~naliing of this papcr. There is one point which puzzles me with regard to the position of farmers in what we have come to look upon as a period of disaster of the early SOS. In Tablc I1 you have a series of figures showing the movement in farmers real incomes over the whole period. We have become accustomed to regarding that period as disastrous for farmers, a period of crisis and financial depression, and yet apparently farmers were better off in income than in 1923-29, and a great deal better off than in the Golden Age of 1667-73. Is there a snag somewherc or havent I understood the Table? </p><p>J . it. Delicrby: The chief point, I think, is that Table I1 (col. 2) refers to the farmers incentive </p><p>income-a residual amount after deduction of interest and rent. If you look back to Table I where interest is shown (col. 4) you will see quite a different picture. The improve- ment from the Twenties to the Thirties-that is the improvement in incentive income shown in Table 11-was largely due to the fall in interest. [Table I1 has now been revised to include a new column, 2a, showing the affect of adding interest to the farmers incentive income.] </p><p>Dr. Rzrlk Cohen; If you take the last column of Table I the fall in the ratio was onIy 215 to 21 1 [201 to </p><p>186, as revised], whereas the rural retail price index fell from 153 to 135. Surely that is the big feature in the rise shown in the farmers real income. </p><p>J . R . Bellerby: </p><p>Look at 1930-2: the index is 1704 [revised to 1424-see later]. </p><p>Yes, I must accept that correction. </p><p>Dr. Ruth Cohen: Then Mr. Blagburns point still remains? </p><p>J . R . Bellerby: Yes. </p><p>~~~~ ~ </p><p>* To avoid confusion readers of the Journal should be aware that the discussion raised by Mr. Blagburn at this point related to the paper as presented a t the Conference. Arising from this discussion, several important corrections have been made to the paper as now published. </p></li><li><p>140 Agricultural Economics Society. </p><p>[Contributed later.] Tables I and I1 have been amended to allow for heavier charges for machinery and </p><p>a group of items which probably increased between the wars more than was first estimated. The revised Table I1 st i l l shows some improvement in the farmer's real income in 1930-2 compared with 1923-9, the reasons being as follows, as far as can be judged from the data SO far collected. </p><p>The chief index of the position of agriculture as a whole is the pnce level of livestock and livestock products in relation to their cost. Grain prices affect a large section of farmers, but when grain growers suffer, much of their loss is gain to livestock producers. In 1930-8 there was more input than output of grain in the agriculture of the United Kingdom, as appears from the following estimates:- </p><p>Adjusted* Imports of Gross Maize for Net </p><p>Wheat, (Adjusted for specified Barley and ' Distributive Grains </p><p>output of Feed output of </p><p>Oats. Margin). (1)-(2). </p><p>................................ .LOOO.. ............................... (1) (2) (3) </p><p>1930 . . . . . . 7,005 1 1,823 -4,818 1931 . . . . . . 5,148 11,903 - 6,755 1932 . . . . . . 8,064 13,759 - 5,695 1933 . . . . . . 11,820 12,325 - 505 1935 . . . . . . 12,670 14,611 - 1,941 1936 . . . . . . 10,863 19.514 - 8,651 1938 . . . . . . 13,096 21,240 -8,144 </p><p>1034 . . . . . . 11,061 16,001 - 4,940 </p><p>1937 . . . . . . 12,063 25,693 - 13,630 </p><p>* Production less waste on farms and less farm input of wheat, barley and oats. </p><p>During the 'Twenties livestock prices were extremely low in relation to their costs, and although there was a further price decline in 1930-2 this was offset by the great fall in the cost of feedingstuffs and fertilisers and the reduction in aggrcgate wages and interest. In addition, there were relief measures which included the de-rating of agricultural land (effective from 1930) and the levy-subsidy on wheat (1932 onwards). Under the stimulus of the sugar subsidy the farmers' gross income from sugar beet rose from L4 million in 1924 to L6.7 million in 1930, the average for 1930-8 being L5.3 million. Fairly comprehensive protective measures were adopted in the 'Thirties; bacon was safeguarded by import licence; a pig-production cycle reached a peak in 1932-33 and a higher one in 1936; there was a great advance in egg production; the Milk Marketing Board raised the price of milk and the milk and meat subsidies began in 1934. There is evidence of a decline in the size of the farmer-and-relative group in the inter-war period and this is reflected in the figures used in our estimates for 1923-38. </p><p>As regards the comparison with 1867-73, more than half the farmer-and-relative group a t that time were in Ireland and the majority of these were of the generation that personally experienced the Great Famine. There was no Golden Age in Ireland and only a slight rise above starvation level for a considerable section of the people. </p><p>E. M . H . Lloyd: About this rate of interest, I wonder if Mr. Bellerby would say how he amves a t the </p><p>proper estimate of the rate and the total interest charge. Then, I am puzzled to understand the connection between changes in interest and changes in capital value. So far as the farmer's debt is concerned, he benefits when the rate of interest falls, as he borrows on cheaper terms. What I am not clear about is how we treat the farmers who own their land, when the rate of interest falls and when there is a general rise in prices. If the farmer is able to sell his farm he makes a profit through capital appreciation. Then the subsequent farmer is landed with a higher total interest charge on the enhanced value. </p><p>This links up with the problem of rent and the return to property. I wonder how far, in the paper, the share of property is being measured simply from the movement in rents. I am puzzled about the phenomenon that high prices and inflation lead to higher prices of farms and yet rents don't rise correspondingly. </p></li><li><p>Proceedings of Conference. 141 </p><p>J . R. Bellerby: There are two points there. As far a s the first is concerned there is a real difficulty </p><p>in deciding what rate of interest should be charged on farm capital in arriving a t the return to property, so as to obtain the residual figure of incentive income. In some countries the same rate of interest is charged all the way through the series, despite the fact that the prevailing rate of interest fluctuates. That seems wrong, inasmuch as the farmer actually pays the fluctuating rate to a bank or other lender in quite a good proportion of cases. In any event, when considering a change of occupation, he estimates what can be earned in each occupation after allowing for a reasonable return on money invested. He judges this return according to the current rate of interest. We have therefore used the current rate-that is, the yield on consols plus 1 per cent.-as the right figure to apply to tenants capital in order to obtain incentive income. </p><p>The second point relates to the appreciation of capital during a period of decline in the rate of interest. If the rate of interest comes down, values tend to rise, including the value of iand, but it seems questionable whether this applies to tenants capital. The farmers assets are mainly livestock, machinery and stores or materials which have a market value not directly affected by changes in the rate of interest. In the period from the mid-Twenties to the mid-Thirties when the interest rate was falling, tenants capital did not rise in value, but fell owing to the general decline in market prices. So if one is following the principle of assessing the aggregate interest charge by making an inventory of the farmers stock and other assets and then applying the current rate of interest to the total value, one does get a considerable change in t h e amount charged over the period. In this instance the change was a very substantial fall. </p><p>In the case of increased valuation of land, that is a matter affecting landlords-but farmers generally in this country are not landlords. To get at their incentive income it seems reasonable simply to deduct an amount of rent corresponding to the actual payments made by tenants. In Table I the rent charge is net rent, the assumption being that the difference between net and gross rent is largely the wages and salaries of estate employees and is therefore deducted from aggregate farm income as part of aggregate wages. This assumption may give a bias towards over-estimation of the farmers incentive income. and is one of the points to be examined later. </p><p>M . B. Iametz: I think I am entitled to tell Mr. Bellerby how grateful we all arc for raising this </p><p>question which is going to have an increasing interest for us all. There is much stress on the ratio of the income of the agricultural labourer as compared with the industrial labourer. I t seems to me that that is a matter of social science as much as economics. What about the incentive income in agriculture as compared with industry? We have been accustomed to regard a farmer as a fellow who for some unknown reasons would be willing to carry a donkeys load and do everything far any price. But after all there is a reason for it, and I think this reason is for the social scientist to explain and not for us. Who can tell, for example, why a man who was not good enough to go to University started in business as a commercial traveller and is now earning L2,OOO or L3.000 n year, while many a learned man cannot earn one-quarter or one-fifth of that? Who can say why a man who comes out of University as a Doctor of Medicine earns L3,OOO while the same type of man in the Civil Service earns only L1,OOO. Which serves the community better, and is it all a matter of supply and demand? </p><p>It was stressed that this larger incentive income which has been discovered for the bad Thirties was partly clue to Government intervention. It was; but what about Government intervention in industry? An article in the Ecorm~~ris t recently pointed out that Government intcrvention in industry was much larger in proportion than Government support of agriculture in those bad years. I would have liked to see some data on that. 4s far as Government intervention in farming is concerned it is not so much a matter of economics as of political economics. We live in an age of shortages; we have lived through an age of revolution. In this country as well as in most of the western hemisphere, we were accustomed to treat agriculture on a basis which made agricultural earnings comparable only to the earnings of under-developed areas. The man who stayed in agriculture was not on equal terms with the man in industry. But he was on equal terms with citizens of eastern Europe. </p><p>All over the world the standard of living went up tremendously, and I think t h e present position-which may have come to stay-will bring about a complete change of outlook among economists. In fact, according to economic theory, agriculture should have been able to make up for all its losses in the Thirties and Twenties during the few fat years of the war. </p></li><li><p>142 Agricultural Economics Society. </p><p>Miss Loughlin: It seems to me that in </p><p>looking behind these figures for the causes which are altering the distribution of farm incomes we might classify them into three types. Long-term trends, changes in organisation; secondly, those which alter the distribution because of some short-term maladjustment between supply and demand, and thirdly, those which are due to changes in legislation. In America several arguments of a theoretical nature have appeared which imply that the diminishing share of land in the national income is due to changes of the first type, especially innovations. In this country nearly all the changes can be ascribed to the third cause, especially in relation to rents. In recent years I think it has been much more difficult to raise rents than to lower them. </p><p>H. M . Conacher: I should like to make a few remarks with reference to Mr. Bellerbys analysis of the </p><p>Golden Age. There is one thing I think we shobld remember, and I only realised it quite lately, that in 1890 the population of this country was only 30 million and therefore whatever may have happened more recently the whole market in 1890 was a much smaller thing than the whole market today. Therefore in one sense the depression of the Thirties should not have been so severe a s the depressions in the latter part of the 19th centnry. No doubt the reason why that was not so was that the home demand in the Thirties was decreased by the enormous uncmployment which I think it most strikingly illustrated in the fact that even the price for milk began to collapse. </p><p>To go back to the 19th century, I see that he puts the end of the Golden Age somewhere between 1874 and 1878. The period from 1854 to 1871 was a period of great wars and on the wh...</p></li></ul>