310 Agricultural Economics Society.

DISCUSSION ON DR. ENGLUND’S PAPER. D. H. Lloyd:

May I say first of all how much I enjoyed the paper. However, I wish something had been said about the farmer’s particular situation on the farm as it affects his reaction to production incentives.

I have noticed for some time now that well-versed fanners are the first to react to non-monetary appeals made to them. I t may be that the class of farmer well-versed in agricultural affairs is sufficiently secure economically to introduce production changes. There may be some connection between his degree of education and his response to incentives.

You have spoken of the need for giving a farm worker a sense of his importance, not only on the farm but in the social community at large, and I think probably the same is true of the farmer himself. In commerce it is the practice to advertise a commodity well before putting i t on the market. I would like to know how f a r you consider, as a result of your practical experience in the U.S.A., that the education of farmers to the conditions of a particular situation in which they find themselves will ensure their better response to any production incentives which you may give them.

Dr. Eric Englund: I am grateful for the question. In answering, I would like to mention briefly the

following. First, to begin with the youngest ones, there is our Club work in the States. You have here the Young Farmers’ Clubs: ours are the 4H Clubs. They have been and are splendid educational organisations not only having effect upon the young people themselves, but upon the older ones. What the youngsters learn in the Club work quite often becomes infectious to the old folk. In the general education I think i t is undoubtedly true that adult education creates an awareness of the importance of change and mental alertness. You are right in saying that what was attempted in reference to the farm workers is true in reference to the farmer himself. We have another programme which is designed to give a social recognition t o the farmer who has achieved a high standard in farming. We refer to them as “ Master Farmers.” The Advisory Service is instrumental in selecting them, and they are chosen finally by their fellow farmers-those who have made an outstanding record in one phase of farming get the award and become members of that fraternity of ” Master Farmers.”

I hope that Mr. Lloyd will undertake to produce a paper on education as an incentive.

Andrew Ashby : The title of the paper is ‘‘ Incentives,” but I suppose the negative side is disincentives.

Would Dr. Englund say something about the availability of capital as an incentive or a disincentive to production I It seems to me that farmers would be more wl ing to take risks if they had plenty of capital. Do you agree ?

Dr. Eric Englund : The agricultural credit system of the U.S.A. is based largely on the principle of aiding

the farmer to obtain the capital which he needs. There is a concept which Professor Ashby and all of you know a good deal about,

and which we call the ‘‘ agricultural ladder.” To my mind a very important incentive is the realisation that there is a road open from one’s present status to a higher status of economic well-being, The agricultural ladder, the first rung, is the workers’ status. Then comes the tenant and the part owner and the owner. The agricultural credit system was designed to assist a person t o become an owner. On the production credit side it was also the purpose to aid him t o do a larger job of production, and in that connection there is a question I would like to relate to the one on education. In making agricultural loans there is with the loans a very considerable amount of indirect education. Those who have applied for a farm loan have t o answer a lot of searching questions. I did that once myself I There is an educational conncction between the two and I don’t think there is a lot of disincentive in having capital but in having too little of it, and that prevents a farmer taking risks. The open road to progress is an element of incentive. Our lending institutions pay a lot of attention to what the possibilities are in the individual and what is the productive prospect at the other end of that loan.

H . 1). Walston: I would not disagree with what has been said about incentives and prices in the

U.S.A., though I think in this country we feel rather differently and prices do not have the same incentive here. I am supporting the contention that higher prices lead to lower production. I do think Dr. Englund over-simplifies it when he says the practical farmers always ask the question, ” Will it pay.” There are practical farmer? who ask the question,

Proceedings of Conference. 31 1

* ‘ Will we have an easier time by doing this,” not *‘ will we be richer.” I am coming to my two questions.

Do you think that your general contention, however much it applies in the U.S.A., does apply to those parts of the world-under-developed areas-which produce most of our food ? I cannot help feeling that there is a great danger that higher financial rewards in places like Africa are going to lead, and have led, if not to lower production, a t any rate to a lower amount of food coming on to the world market. That is what we are mainly interested in. There are various figures which have been produced from time to time which support that view. In the 30’s when farm prices were declining there are some figures which show that farm production in Europe went up very slightly, so that in 1931 although prices were about 55 per cent. of what they were in 1939, production was about 101 per cent. This rather suggests that if you do pay the farmer less his immediate reaction -excepting capitalist farmers-is to produce more because he has to have more money to pay his essential outgoings. Even in West Africa, although higher prices have resulted in an increased production of oil seeds, their total consumption of imported foodstuffs has gone up. I am certain that in the primary producing areas in the peasant countries what a farmer wants to do when he has more money is to eat better and have an easier time. Food is the criterion of wealth. And that means that as you make these people more prosperous they are going to eat more themselves, and less goes on to the market. They will convert their primary products into other products-unless you can stimulate their desire for coca-cola and bicycles. That is my iirst question.

My second is this. Does Dr. Englund think that increase in rents is a valuable incentive to increased production? Is it not a fact that, because we are getting our land at pre-war prices, when we have to pay three and four times the amount we did before for other things, there is a danger that we are concentrating on getting the greatest output we can from a unit of man power, machinery, and so on ? And if we want to intensify production, would not one of the greatest incentives be a boost up in the amount the farmer has to pay for his land ?

Dr. Eric Englimd: One word I notice was used by the speaker, ‘’ unless ” : Incentive to increased

production in the form of better prices in the backward areas “unless” there comes with that more taste for coca-cola, bicycles, etc. It seems to me that progress is a concept that moves in locked steps with other elements Was there ever a time in history when the larger income was a permanently isolated fact apart from the general progress ? Somebody defined economic progress as an enlargement of our ” bundle of wants,” and our correspondingly extending ability to satisfy the same.

I had a coloured worker on my farm at one time. He said he was going to quit because there were only his wife and himself to support and he was working as though he had a houseful of children. I said I could manage if he worked just three days a week instead of five, and he stayed ! But his brother had children and they went t o school. Are they going to feel the same when they grow up ? They will have a taste for other things, other than their fathers and mothers were accustomed to. I recognise the force of the point that there are differences among peoples and customs, but we cannot remake these areas overnight.

In America we have a property tax on land. The land tax in the U.S.A. now amounts to about 1 per cent. of the full sale value. I have seen examples of this. I was taking farm management down in Kansas and found a farmer clearing land next to the stream. He told me what he knew about the business. I asked him, “ Why do you clear land when prices are so low ? ” “ I am doing it,” he said, ’‘ because I have machinery and livestock enough to utilise more land and I want to farm more land without paying taxes on any more.”

W . E. Cave: In reading through the paper I was struck by the fact that while the farmer is

mentioned, and the hired worker, the land owner is not mentioned at all. Does Dr. Englund think that the different systems of land tenure in this country and the U.S.A. have any material effect on the incentives in agricultural production ?

The share cropping system is very prevalent in the part of the U.S.A. where I was. There the farm is let, the land owner providing part of the capital and receiving in return part of the produce when it is sold. In that way the land owner was naturally very interested in letting it to a tenant who was going to extract the greatest production from it. I found that it was common for the land owner to say that he got 8, 9 or 10 per cent. from his investment. In this country the tendency is for the land owner, if he has a farm, to advertise it and say he wants so much rent per acre for it. I think it is fairly general for the land owner in selecting the tenant to select one who does not want too many improvements

31 2 Agricultural Economics Society.

carried out to the buildings. And this type of farmer is usually unprogressive and a low producer. There is no incentive to a land owner to let his farm to a progressive farmer. Have you, Sir, looked a t our system of land tenure in this country and considered what effect that would have upon your point ? E. M . H. Lloyd:

I should like to pay a tribute to Dr. Englund for his paper and for his bright and sparkling introduction to it. Dr. Englund is exceptionally well qualified to discuss this subject.

My only comments will be to reinforce what Mr. Walston has said. Dr. Englund has confined his paper to a background of the U.S.A. and United Kingdom, and I wonder whether his diagnosis applies to peasant agriculture in Europe, in Africa, in the Middle East, South-East Asia, China and Japan? I agree with what Mr. Walston has said. Dr. Englund dismisses the view that falling prices and competition tend to stimulate production in agriculture.

He may be right as regards U.S.A. and industrialised countries. But in India and other undeveloped countries where the peasant is often in debt to the moneylender. the burden of the debt increases when prices fall; and unless he is to lose his land he has got to work harder, and he tends to go short himself and make his family go short. Hence before the war you got larger exports of groundnuts in periods of low prices. That raises the question, what we mean by production. If it is production for the market, there is a good deal to be said for the view that supplies on the market tend to increase as a result of low prices. We do not always know what is produced on the farm. We can only guess. Statistics of production in most countries are subject to a margin of error of a t least 10 per cent.

Another point which has some relevance in two-thirds of the world outside the U.S.A. and the industrialised cou:,tries is the population problem. On this question there is another important " unless which has to be added to the list that Dr. Englund accepted from Mr. Walston. Higher rewards for the peasant producers of two-thirds of the world will do little to increase their production per head, unless by education and improvements in child welfare they are given an incentive to raise their standard of living by limiting their families. That may be one of the important 'I unlesses " to be added. Chairman :

unhappy to accept its forecast of plenty ! E. M . Carpenter:

I don't suppose that many of us believe that there is such a thing as continuous diminishing utility of income in the absolute sense. Some of us, however, are concerned with individual farmers, and I do think that there is evidence of apparent income satiety among some farmers even in Britain. A farmer may have sufficient income to satisfy his wants in his existing consumption pattern, and in order t o change his pattern he probably needs a greater increase in income than one is inclined t o think of as being possible as a result of increased prices or efficiency. A farmer might not be prepared to make quite a small additional effort to get a small increase in income, when he would go to considerable lengths if he thought it possible to get an appreciable increase.

We might well consider that we economists can provide incentives by showing that quite large increases in income from higher production are possible and the resulting changes in consumption patterns desirable. We could point out t o farmers, who may be right in thinking only small increases possible, that they cannot escape the general consequences of waste of resources. D. B. Wallace:

In support of Dr. Englund's contentions about the effect of Income Tax on production, I would like to mention an investigation made some years ago in the Eastern Counties on farms for which we had production records both before and after the War.

Before the War, Income Tax was not normally paid on trading profits but on the annual value of the land. After 1948 all the farmers in the sample were paying tax on their profits and hence tax was linked to production. It was impossible to show by statistical analysis that there was any depression of production once Income Tax was levied on their trading profits.

A good deal has been said about the effect of the British housewife on production. On that score I am sure that the power of the British farmer's wife to govern policy is not so great as in the States. In North Norfolk there was one key item of household equipment which varied markedly north and south of a certain line-to the north there were washing machines and t o the south television sets-the line marking the limit of reception at that time.

How happy we all were to accept F.A.O.'s forecast of world shortage, and how

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R. H. Tuck: I only want to raise one small point of principle which seems to me to be relevant

to this discussion. Clearly when one is discussing incentives-and, in particular, prices- in relation to the general level of production as opposed to their influence upon the pattern of production, one is entering a very large field which cannot be discussed simply in terms of the psychology of practising farmers. That, of course, is all the more true when one goes still further afield, as has occurred, to consider the adequacy of the general level of production in relation to world needs or even the needs of a smaller unit of population. But leaving out these wider questions of population movements and so forth, there is still a sense in which the relation between price movements in particular (and other incentives) and the general level of agricultural production is not simply a question of the way in which individual practitioners react. There is also the question. at least in an economy where the whole of the productive resources are not needed for food production, of the influence-in the longer term, a t all events--of such price movements upon the proportion of productive resources engaged in producing food. For example, one might raise the income of food producers and that might, according to the psychology of these individuals, in the short run, raise or lower their production. But presumably in the longer run it will also, by attracting fresh people, have some influence upon their number, as a proportion of the total number of people productively active in the economy. In short, i t will affect the proportion of resources engaged in food production and in that way influence the general level of production-aside from the psychological reaction of people at present engaged in food producing activities.

J . H . Kirk: I thought I noticed one omission from Dr. Englund's list of incentives to greater

production: that is the pattern of prices and subsidies as it presents itself to the farmers; the relative prices of particular products and, along with that, the subsidies given for particular types of farm operations. I t is important in the U.K. because the prices of the major part of the farm produce are subject to control. The considerable increase in agri- cultural production in the U.K. since before the war owes quite as much to that set of factors as to any others.

F. D. Mills' Since the end of the war there has been a wave of enthusiasm for bonus incentive

schemes, but little reliable evidence on the fundamental question whether these schemes do in fact give rise to increased production. The difficulty is to isolate the effect of the incentive from the effect of other factors. For example, a rise in production which follows upon the introduction of an incentive scheme may be due, not so much to the incentive as to the work study which has to be made before such a scheme can be administered. Would Dr. Englund agree that a note of caution should be sounded here, as recent investi- gations have shown that quite a considerable amount of physical and mental strain is being caused by some of these incentive schemes, many of which forget that it is the whole man who does the work and not just a wage earner ? Does Dr. Englund agree that in view of the lack of evidence i t would perhaps be wiser to lay more stress on such things as housing and less on bonus incentive schemes ?

A . J . Wynne: There is one question Dr. Englund mentioned in connection with the kitchen-the

importance, as an incentive to mechanisation, of high wages for domestic staff. It is obvious that high wages paid to agricultural workers is a strong incentive to mechanisation. What are the other effects of high wages likely to be ?

J . A . Evans: I have a feeling that when Dr. Englund answered questions on education he invited

u s to worship a t the shrine of the agricultural ladder. I would like to suggest that nowadays, particularly in the U.K. where a shortage of working capital is assumed to be a common deterrent to increased production, the form of agricultural ladder wbich is most desirable is one without the old-fashioned top rung. This I presume t o be the ownership of land and the prestige that goes with it.

It is my belief that efforts by all farmers to save up and become owners would put a strong brake on increased production.

Dr. Eric Englund: I have before me a very considerable package of questions. I trust that you will

permit me to take a few liberties in the sense that if I fail to comment on some of them I shall be forgiven.

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314 Agriczlltzlral Economics Society.

It is easiest to begin with the later questions about the shortage of capital. There is one significant point, whether that last rung of the ladder is worth taking or not: I mean the achievement of land ownership. There is a considerable problem here where the number of farmen is declining, and that is in the claim which the institution of inheritance places against the property, so hard won, by those heirs who may not remain on it to farm it in the future. We have quite a few examples of that where we have tenant farmers who are very able and who achieve their economic security as tenants, and whose income is more favourable than if they undertook the great burden of paying off a mortgage on ownership.

I n connection with the first question-the connection between the ownership and production. Any system of tenure which deprives the owner and the tenant of a sense of partnership and co-unity of interest in two directions-the conservation of the land and the maintenance of its productivity and the increase of its earning power-is bad. That is where we should concentrate a great deal of attention on an effort to re-establish the connection. If a farmer does have in the owner a friendly partner, both seeing that they have a job to do together, I think i t is possible to have the ownership in one hand and the tenancy in the other without either damaging the land or causing a disincentive in production. That has been the subject of a very considerable amount of work in what we call rental contract. What form should a rental contract take to provide (a) a feeling of security on the part of the operator, (b) an incentive not t o destroy the fertility of the soil, but rather to get as much as he can out of the land and improve it ? There is much to be done on that and I think the subject is well worth considering.

On the general question which was raised as to the distinction between advanced and backward areas. Are we looking a t this in a short space of time, a year or a few years, or are we looking a t it with a longer sweep of view ? I quite see that a person who suddenly becomes the object of a windfall of new income might want to cut his working week from five t o three days, or stop altogether. I think that we are not quite warranted in assuming that that is a permanent characteristic, because there is to go with it an educational process to that higher level which advancing civilisation provides. That ties in with another question, namely, that if the income is increased the mouths are multiplied, and you are no better off than you were before. There are areas of incipient increase where we are now on the threshold of a great advance in population growth. But there is something else coming along with that, and that is the sense of social responsibility which goes with a higher standard of living. As an after-effect of advancing standards there is that longer look into the future by which each generation feels a keener responsibility for the rest.

I would not be too discouraged by that, because I am fearful of the conclusions of the opposite philosophy. We should take the risk of encouraging an increase in income. The opposite philosophy would lead to the conclusion that we must restrain the increase of income lest we produce the indication of its effect. History, I am inclined to think, does not support that point of view. There are religious considerations involved in many areas, but these make room for the higher standard for the next generation, which goes with the awareness of the worthwhileness of the individual human being and the sense of responsibility for the next generation.

They are generalisations-but human motivation is very complex. One more point-in the under-developed areas, if political circumstances permit

investment without the danger of its being liquidated, I think there is a good chance of redefining the primary producer so as to take a broader concept of that term.

I am sure I have overlooked some points but in concluding may I thank you very much for your reception of my paper.