Proceedings of Conference. 139

DISCUSSION ON MR. BELLERBY’S PAPER. Dr. G. S. Gouri:

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.

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. Bellerby’s data show that the share of wages increases during depressions and decreases during booms, while Professor Brown’s data sometimes indicate a slight movement in the opposite direction. Since M r . Bellerby’s 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. Bellerby’s paper were extended with this in view i t would provide us with some interesting surprises.

C. H . Hlagbztrn:* I should likc to congratulate Mr. Bellerby on the industry which has gone into the

~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 SO’S. 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 haven’t I understood the Table?

J . it. Delicrby: The chief point, I think, is that Table I1 (col. 2) refers to the farmer’s incentive

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 farmer’s incentive income.]

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 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 farmer’s real income.

J . R . Bellerby:

Look at 1930-2: the index is 1704 [revised to 1424-see later].

Yes, I must accept that correction.

Dr. Ruth Cohen: Then Mr. Blagburn’s point still remains?

J . R . Bellerby: Yes.

~~~~ ~

* 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.

140 Agricultural Economics Society.

[Contributed later.] Tables I and I1 have been amended to allow for heavier charges for machinery and

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.

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:-

Adjusted* Imports of Gross Maize for Net

Wheat, (Adjusted for specified Barley and ' Distributive Grains

output of Feed output of

Oats. Margin). (1)-(2).

................................ .LOOO.. ............................... (1) (2) (3)

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

1034 . . . . . . 11,061 16,001 - 4,940

1937 . . . . . . 12,063 25,693 - 13,630

* Production less waste on farms and less farm input of wheat, barley and oats.

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.

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.

E. M . H . Lloyd: About this rate of interest, I wonder if Mr. Bellerby would say how he amves a t the

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.

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.

Proceedings of Conference. 141

J . R. Bellerby: There are two points there. As far a s the first is concerned there is a real difficulty

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 tenant’s capital in order to obtain incentive income.

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 tenant’s capital. The farmer’s 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, tenant’s 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 farmer’s 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.

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 farmer’s incentive income. and is one of the points to be examined later.

M . B. Iametz: I think I am entitled to tell Mr. Bellerby how grateful we all arc for raising this

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 donkey’s 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?

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.

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.

142 Agricultural Economics Society.

Miss Loughlin: It seems to me that in

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.

H. M . Conacher: I should like to make a few remarks with reference to Mr. Bellerby’s analysis of the

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.

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 whole the wars tended to cause general inflation. They had their effect in various ways. I suppose none of us remembers the Crimean war. There was one very bad winter in the Crimean war and at that time we were hoping to import from Russia and India. The misery of the working classes during that period was very grave. But the cutting off of supplies from Russia was one little element in your Golden Age. Another feature was that the first of the new foreign supplies of grain took the shape of the imported grain from the U.S.A. But you also have to remember that during all those years, when the import of American wheat was first being felt, the U.S.A. was on a paper currency and that fact gave the stimulus to export which we are so familiar with in similar circumstances in our own time.

In 1879 the U.S.A. resumed what they called British payments, but the thing that started their exports was cheap American money.

I suppose the Australian and Californian supplies of gold also had an influence in the direction of raising prices. But then there was a movement in the last quarter of the 19th century towards basing your currency on gold, and of course the new German Empire went on to gold after its successful war in France. The one monetary influence affecting the rise in prices from the 90’s onwards was the discovery of gold on the Rand, and the supply from there was a much greater and more continuous one than the Californian and Australian supply. And i t really was the greatest single element in the rise of prices in the 90’s.

There is only just one more comment I would make in regard to the rising prices, and that is to refer to the long lag in the increase of wages during that period. In 191 1 the working classes decided they were not going to stand that any longer. It is a curious reflection that when certain classes were benefiting from the general rise in prices beginning in the go’s, we were making those enormous investments of capital which also began with the 90’s and on which we pride ourselves.

A . W. Ashby: I would like to say to Mr. Conacher that the value of imports was much greater than

the value of exports from the late 60’s onwards. On a technical point in Table I. Mr. Bellerby says that he has made the income of

farmers and their relatives the residual claimant. That is equivalent to saying that he has made the interest charge the prior claimant. He could have proceeded the other way round and made the farmers and relatives the prior claimant and the interest the residual claimant. There is an interesting situation here. Look at column 11 down to 1914. The mean figure for agricultural wages is 14/9 a week. If you are looking at column 10, the farmers’ incentive income per man-week, the mean figure is about 13/11. If Mr. Bellerby had made farmers’ management and manual work the prior claimant at the same level of remuneration as was attributed to adult farm workers i t would have wiped out the interest charge entirely in one or two periods. That is to say that in one or two of these periods the farmers’ total earnings were about equal t o those of an adult farm worker.

I should like to malce a few remarks about the first Table.

Proceedings of Conference. 143

If Mr. Bellerby had been using the farmer’s work as the prior claimant in the second period after 1923 when the average wage was about 32/-, the average farm residual income works out at about 151.15. If he had been valuing the farmer’s work at about 32/-, then the interest payments would have been very much greater than shown. One should bear in mind the theoretical possibility of reversing the position in this way. I think, however. from the practical point of view, and the point of view of arriving at figures which are useful, Mr. Bellerby was correct in making interest the prior claimant and manual work of farmers and relatives and management of farmers the residual claimants.

P. M . Reason: There is one further point of comparison between columns 10 and 11 which really

relates to the standard of living of farmers’ families and agricultural labourers’ families. I think I can illustrate this most clearly by giving an example. Supposing one imagined two standard families: a farmer, his wife and one son; and an agricultural labourer, his wife and a son. Assume that the sons in each case were earning. the farmer‘s son working on the farm and the agricultural labourer’s son working at an equivalent remuneration. If we value those two families according to the values which Mr. Bcllerby has given US, taking the wife at two-thirds the value of the husband and so on, we arrive at the position where the farmer’s family-taking, say, 152 as the farmer’s incentive income as it would appear from column 10, and taking 153 as the worker‘s weekly earnings in column 3-then the farmer’s family gets k4 17s. Od. and the worker’s L5 5s. Od. Those two figures give a very different ratio fram the L2 for the farmer’s incentive income and k3 for the weekly wage. That would give a ratio in column 12 of 66. Of course Mr. Bellerby may claim that he is not attempting to measure the welfare of the families and he is only showing the monetary income on the basis of the farmer’s incentive income worked out per man-unit. Bu t there is a very considerable difference in the prosperity of those two families. If that were taken into account the ratios in column 12 would be quite materially changed.

,I. R. Bcllerby: Possibly I may be being misinterprctcd here. Column 10 is intcnded to show what

is received per man equivalent unit, with women at two-thirds and youths a t two-thirds or three-quarters. The cornparison here is betwecn the full earning individual on the wage-earning side and the full earning equivalent man on thc other side. Does the argument raised by hlr. Reason still hold on that basis?

R. H . T u c k : I wish to refer t o the general group of points headed ’ ’ Farmers‘ incentive income.”

and .in particular item (2). The comparison made leads to the conclusion that the farmer gets no positivc money

return for either management or risk. It seems to me that you can only make comparison between the incentive incomes of farmers on the one hand and the wages of wage earners on thc other hand, and then draw conclusions of this sort if you feel satisfied that the two types of individual you are comparing differ only in rcspect of the fact that one assumes managerial responsibilities and the other does not. If, however, other differences exist, you are not entitled to deduce whethcr the farmer gets any reward for management or risk or not.

J . R. Bellcrby. The point is well taken, but there is a reservation here which I tliinl; may go part

way to answerino it, assuming that any excess which arises over wages is the rcturn for the farmer’s extra e%ort. On that assumption, thcre is no positive money return for either management or risk, but the farmer is merely rewarded for working harder than the wage-earner. Whether there are any other economic distinctions of a n y importance is perhaps something to be considered.

R. H . T u c k : If you are going to say that a particular person receives some reward for a particular

activity you must mean that his total remuneration exceeds that earned by somebody, who is otherwise similar, by a margin which can be attributed to the managerial activities and the risk he assumes. If you can find two people who differ from one another in no other respect bnt in this respect, and then observe the difference in the total remuneration which each receives, you can say the reward derived by the one in respect of the risk is equal t o that difference. But if they differ in some other respect then you cannot say that the difference is to be credited to managerial work and risk. It might be accounted for by other points of difference between these two people.

144 Agricultural Economics Society.

J. R. Bellerby: Yes, I think that is logically correct, and there is in fact a tacit assumption in the

paper that other points of distinction arc not economically of great weight.

M. B. Jawetz: It seems to me that the farmer cannot get out of his risk which he accepted when he

took up farming.

W.- E. Cave: The thing that strikes me about columns 19 and 11 is the fact that up till 1933 the

farmer had practically no significant lead in income over the agricultural worker. I wonder if consideration has been given, or any value placed on the purpose which he had and the advantages which he derived from his status? He had a better house and so on. I wonder also if the effect which the possession of capital has on the farmer has been taken into account? During good times values increase and a great deal of so-called profit is taken up by increased values, whereas in the bad times the farmer notoriously lives on his losses.

J . R. Bellerby: The attempt has been made to measure anything which is measurable. We have

taken into account perquisites in so far as they are part of the output of the farm. But such things as the advantage of having a horse and going hunting, and so on, we have not included.