This statement has been approved for publication as a statement of the Research and Policy Committee by the members of that Committee and its drafting Subcommittee, subject to individual dissents or reservations noted herein. Those responsible are listed on the opposite page.

The Research and Policy Committee is directed by CED's bylaws to:

"Initiate studies into the principles of business policy and of public policy which will foster the full contribution by industry and commerce to the attainment and maintenance of high and secure standards of living for people in all walks of life through maximum employment and high productivity in the domestic economy."

The bylaws emphasize that:

"All research is to be thoroughly objective in character, and the approach in each instance is to be from the standpoint of the general welfare and not from that of any special political or economic group."

The Research and Policy Committee is composed of 50 Trustees from among the 200 businessmen and educators who comprise the Committee for Economic Development. It is aided by a Research Advisory Board of leading economists, a small permanent Research Staff, and by advisers chosen for their competence in the field being considered.

Each Statement on National Policy is preceded by discussions, meetings, and exchanges of memoranda, often stretching over many months. The research is undertaken by a subcommittee, with its advisers, and the full Research and Policy Committee participates in the drafting of findings and recommendations.

Except for the members of the Research and Policy Committee and the responsible subcommittee, the recommendations presented herein are not necessarily endorsed by other Trustees or by the advisers, contributors, staff members or others associated with CED.

The Research and Policy Committee offers these Statements on National Policy as an aid to clearer understanding of the steps to be taken in achieving sustained growth of the American economy. The Committee is not attempting to pass on any pending specific legislative proposals; its purpose is to urge careful consideration of the objectives set forth in the statement and of the best means of accomplishing those objectives.

Vice Chairmen  Federated Department Stores, Inc.

Chairman, Finance Committee 1 THOMAS B. McCABE.

 Scott Paper Company

 DON G. MITCHELL

THEODORE V. HOUSER, Director New York, New York

Sears, Roebuck and Co. ALFRED C. NEAL, President

J. CAMERON THOMSON Committee for Economic Development

Retired Chairman of the Board NATHANIEL A. OWINGS, Partner

Northwest Bancorporation Skidmore, Owings & Merril

PHILIP D. REED

3 FRANK ALTSCHUL New York, New York

New York, New York GEORGE RUSSELL, Executive V. P.

JERVIS J. BABB General Motors Corporation

New York New York

HARRY SC ERMAN. Chmn. of Board

1 WILLIAM BENTON, Chairman of Bd. Book-of-the-Month Club. Inc.

Encyclopacdia Britannica, Inc. GEORGE F. SMITH

MARVIN BOWER, Managing Director Johnson & Johnson

McKinsey & Company, Inc. S. ABBOT SMITH, President

W. HAROLD BRENTON, President Thomas Strahan Co.

Brenton Companies, Inc. 3 PHILIP SPORN, Chairman

1 THOMAS D. CABOT, Chmm. of Board System Development CommitteeCabot

Cabot Corporation American Electric Power Co., Inc.

PAUL F. CLARK, Chairman of Board 1 ALLAN SPROUL

John Hancock Mutual Life Ins. Co. Kentfield, Califomia

S. BAYARD COLGATE WILLIAM C. STOLK, Chairman

New York, New York American Can Company

1 EMILIO G COLLADO, Vice President 2 J. M. SYMES, Chairman

Standard O~l Company (New Jersey) The Pennsylvania Railroad Company

JOHN T. CONNOR, President WAYNE C. TAYLOR

Merck & Co., Inc. Washington, D. C.

DONALD R. DAVID, Vice Chairman ALAN H. TEMPLE

The Ford Foundatton New York, New York

NATHANAEL V. DAVIS, President 1 J. CAMERON THOMSON

Aluminium Limited Retired Chairman of the Board

3 EDMUND FITZGERALD Northwest Bancorporation

Milwaukee, Wisconsin H. C. TURNER, JR., President

MARION B. FOLSOM Tumer Construction CompanY

Eastman Kodak Company WALTER H. WHEELER, JR., Chairman

1 FRED C. FOY, Chairman Pitney-Bowes, Inc.

Koppers Company, Inc. FRAZAR B. WILDE, Board Chairman

H. J. HEINZ, 11. Chairman Connecticut General Life Insurance Co.

H. J. Heinz Company A. L. WILLIAMS, President

ROBERT HELLER, Chairman Intemational Business Machines Corp.

Robert HeUer & Associates, Inc. WALTER WILLIAMS, Chrm. of Board

THEODORE V. HOUSER, Director Continental, Inc.

Sears, Roebuck and Co. THEODORE O. YNTEMA

1 FREDERICK R. KAPPEL, Chairman Chairman, Finance Committee

American Telephone and Telegraph Co. Ford Motor Company

ROBERT J. KLEBERG, JR., President J. D. ZELLERBACH, Chrm. of Board

King Ranch, Inc. Crown Zellerbach Corp.

1. Voted to approve the policy statement but submitted memoranda of comment, reservation or dissent, or wished to be associated with memoranda of others.

2. Voted to disapprove this statement.

3. Did not participate in the voting on this statement because of absence from the country.

Agriculture Subcommittee

Chairman RALPH LAZARUS. President

W. HAROLD BRENTON, President Federated Department Stores, Inc.

Brenton Companies, Inc. FRANKLIN J. LUNDING

WALTER R. BIMSON, Chrm. of Board Chairman of the Board

Valley National Bank Jewel Tea Co., Inc.

W. HAROLD BRENTON, President AKSEL NIELSEN, Chairman

Brenton Companies, Inc. The Title Guaranty Company

H. H. COREY. Chairman of the Board FRANK A. THEIS, President

Geo. A. Hormel & Co. Simonds-Shields-Theis Grain Co.

Advisors to the Subcommittee

HENRY B. ARTHUR DALE E. HATHAWAY

Graduate School of Business Administration Depanment of Economics

Harvard University Michigan State University

RICHARD B. HEFLEBOWER THEODORE W. SCHULTZ

Department of Economics Department of Economics

Northwestem University University of Chicago

Research Advisory Board

Chairman FRITZ MACHLUP

SOLOMON FABRICANT Director, Intemational Frnance Section

Director of Research Princeton University

National Bureau of Economic Research, Inc. DON K. PRICE

Dean, Graduate School of Public Admin.

Harvard University

Vice Chairman

R A. GORDON, Chairman ALBERT REES

Department of Economics Department of Economics

University of California (Berkeley) University of Chicago

PAUL SAMUELSON

Professor of Economics

Massachusetts Institute of Technology

KENNETH E. BOULDING THOMAS C. SCHELLING

Department of Economics Center for International Affairs

University of Michigan Harvard University

EMILE DESPRES T. W. SCHULTZ

Depanment of Economics Department of Economics

Stanford University University of Chicago

SOLOMON FABRICANT ELI SHAPIRO

Director of Research Graduate School of Business Admin.

National Bureau of Economic Research, Inc. Harvard University

R. A. GORDON, Chairman HENRY WALLICH

Depanment of Economics Department of Economics

University of California (Berkeley) Yale University

CONTENTS

7. INTRODUCTION

9. I. THREE POSSIBLE APPROACHES TO THE PROBLEM

• The Laissez-Faire A pproach
• The Protectionist A pproach
• The Adaptive A pproach

15. III. ROOTS OF THE AMERICAN FARM PROBLEM

• Swiftly Rising Productivity
• Declining Use of Labor Relative to Capital
• The Slow Growth of Demand for Farm Goods
• The Low Responsiveness of Demand to Price Changes
• The Inadequate Flow of Resources Out of Farming

23. V. CONSEQUENCES OF THE POLICIES FOLLOWED SINCE 1947

25. VI. THE CHOICES BEFORE US

31. VII. A PROGRAM FOR AGRICULTURAL ADJUSTMENT

32. A. Attracting Excess Resources from Use in Farm Production
 
    An Improved Labor Market

        1. High Employment
        2. Education
        3. Mobility
                Job Information
                Retraining and Movement

    Adjustment of Agricultural Prices

45. B. Cushioning the Process of Adjusting the Resources

    Used in Farm Production
            A Cropland Adjustment Program
            A Temporary Income Protection Program
            A Temporary Soil Bank

52. VIII. OTHER REQUIREMENTS OF AGRICULTURAL POLICY

• The Export Market
• Limiting Seasonal Price Swings
• Agricultural Research
• The Use of Surpluses in Economic Development
• Farming and the Low Income Areas

61. APPENDIX A Tables 1-7

68. APPENDIX B Farms, Farm Population and Farmers 6

Rapid technological advances, and increasing capital investment, have made it possible for fewer and fewer American farmers to supply the food and fiber needs of larger and larger numbers of people. American farmers have shown great initiative and competence in responding to the opportunity thus created. They have taken up the latest production methods with a speed that amazes the administrators of agriculture in planned economies.

Net migration out of agriculture has been going on for 40 years, and at a rapid rate. Nevertheless, the movement of people from agriculture has not been fast enough to take full advantage of the opportunity that improving farm technology and increasing capital create for raising the living standards of the American people, including, of course, farmers. Costs of movement, lack of knowledge of nonfarm job opportunities, lack of training for nonfarrn work, in some periods inadequate nonfarm job opportunities, and other obstacles, have stood in the way of an adequate rate of movement out of agriculture. National agricultural policy has not focussed on removing these obstacles, but has tended itself to deter the outmovement by concealing the necessity for it.

Our purpose in this policy statement is to suggest a program that will assist farmers in making the adaptation they have been making. We hope thereby to enable farmers, both those leaving agriculture and those remaining in it, to earn higher incomes.

This is the fourth statement on American agriculture by the Research and Policy Committee of CED. The use of too many resources in agriculture, the unsatisfactory income of many farmers, the excessive government expenditures and the network of government controls that result from failure to solve the farm problem would by themselves explain our continuing interest in this subject. But we see in it something more. We see in it an example both of the costs and dangers of departing from the free market and of the positive measures needed to make the free market work well and to regain it once it has been lost. The important lessons of agriculture are that the free market is precious and that its preservation requires positive action. These lessons apply far beyond agriculture.

The Research and Policy Committee is indebted to its Agriculture Subcommittee, of which Mr. W. Harold Brenton is Chairman, for preparing a draft that approached the farm problem in a fundamental and constructive way. The Subcommittee and the Research and Policy Committee had the advice of four experts: Professor Dale Hathaway, Michigan State University, who coordinated the research; Professor Henry B. Arthur, Harvard Graduate School of Business Administration; Professor Richard B. Heflebower, Northwestern University; and Professor Theodore W. Schultz, University of Chicago. We are grateful to them.

Three studies written as background for our work will be published shortly as a Supplementary Paper of CED. They are:

• Karl A. Fox—Commercial Agriculture: Perspectives and Prospects
• Vernon W. Ruttan—The Human Resource Problem in American Agriculture
• Lawrence Witt—Potentials of New Markets for Agricultural Production.

I. THREE POSSIBLE APPROACHES
to the problem of agriculture

The problem of agriculture is not unique. It is the leading case in a large class of problems. Other problems in this class include the industry in which workers are being rapidly displaced by technological changes; the industry experiencing increased competition from imports; and the area depressed by the exhaustion of some natural resource.

    *By FRED C. FOY: "I agree with all of this paragraph except the italicized statement. It is true that in some industries or areas of the economy labor and capital cannot earn as much income as they could if employed in some other use, but who is CED to say that in this situation "too many resources" are being used. In a free economy the owner of the labor or capital must be free to decide how he wishes to use them. It will always be true that some capital will earn less than others in the market place, but their earning less does not necessarily mean that they are being wasted or should be withdrawn."

Agriculture is the largest problem in this class, as measured by the number of people involved. It is also the case in which we have the longest experience with a variety of attempts to find a solution. This experience, if properly interpreted, holds valuable lessons for dealing with other similar problems.

There are three general kinds of policy possible in the kind of situation we have described.

The Laissez-Faire Approach

If nothing is done to prevent it, the incomes of labor or capital or, usually, both in the affected industry or area will decline, at least relatively to incomes earned by similar resources elsewhere, and often absolutely. This will deter the flow of new labor and capital into the industry or area. Some of the resources engaged there will not be replaced when they are retired. Other resources engaged will move to other uses. The resources that move will raise their incomes, and the incomes of those that remain will be improved by the reduction of the resources still in the industry. This is the process upon which we normally rely for adjustment to economic change, and normally it works well. It works best — that is with the smallest and shortest decline in the incomes of resources in affected industries — when: (1) opportunities for employing labor and capital in the rest of the economy are numerous, (2) the shift of resources needed to restore incomes in the affected industry or area is relatively small, and (3) there is no serious obstacle to the movement of the resources involved. Where there is a substantial departure from these conditions it is necessary to consider other approaches.

The Protectionist Approach

This approach to the problems of an industry using too many resources attempts to sustain the incomes of persons attached to the affected industry, or area, even though the incomes they could earn by selling their product in a free market have declined. This approach usually requires government action. In some cases it can be followed by concerted action of the workers or businesses involved, although this in turn often depends upon government support or sanction. A variety of measures can be employed. For example, the government may purchase the product of the industry at prices above the free market. The government may limit the industry's production or sales in order to keep prices up. The government may, as in the marketing orders and agreements used for perishable farm products, try to support prices, and income of producers, by regulations aimed to secure "orderly marketing" of output. The government may attempt to sustain prices and income by limiting imports. The businesses and workers concerned may adopt rules limiting the introduction of new technology or holding hours of work artificially low. In particular areas the government may subsidize the continuation or introduction of industries that would be unprofitable without the subsidy. Whether such measures in fact help to sustain incomes depends upon circumstances that vary from case to case. But even where successful this approach sacrifices the basic national interest in efficiency and growth; it must be regarded as inferior to approaches that would reconcile this interest with the interests of the particular industries or areas affected. At its worst it can grossly distort the use of the nation's resources.

The Adaptive Approach

The adaptive approach utilizes positive government action to facilitate and promote the movement of labor and capital where they will be most productive and will earn the most income. Essentially this approach seeks to achieve what the laissez-faire approach would ordinarily expect to achieve, but to do it more quickly and with less deep and protracted loss of income to the persons involved than might result if no assistance were given. The adaptive approach requires improved knowledge of available employment opportunities, and measures to finance movement and retrain workers; that is, a generally improved labor market. It works best when there is a high rate of economic activity and employment.

The adaptive approach seeks to achieve adjustment to economic reality without imposing hardships, by means of programs that promote adjustment, but cushion the effects upon people and property.*

*MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *By ALLAN SPROUL, in which Messrs. EMILIO G. COLLADO, FRED C. FOY and THOMAS B. McCABE have asked to be associated: "What we are seeking is a return to economic reality without imposing unnecessary hardships upon particular people or property. Adjustments to the economic realities of a free market do impose hardships on some people some of the time. Attempts to protect everyone from hardship all of the time eventually throttle free markets."
Although the adaptive approach, like the protectionist approach, requires government action, the objectives of the government action are entirely different. The adaptive approach calls for action by government working with the free market, not against it. It seeks to achieve the results of the free market more quickly and easily, rather than to keep those results from occurring. The adaptive approach works by permitting full production, rather than by limiting production. And, government adaptive programs applied to particular industries can ordinarily be temporary, whereas protectionist government actions generate the need for their own indefinite continuance.

We seek solution of the agriculture problem in the adaptive approach

Agricultural policy in the United States has predominantly followed the protectionist approach. The history of farm policy is largely a testament of the inadequacy of that approach and of the need for much greater emphasis on the adaptive approach. It is evident that protective measures can indeed cushion the decline of incomes that would otherwise occur. But it is also evident that such measures at best do nothing to assist, and are almost certain to retard, the adjustments that would enable persons in the industry to earn incomes equivalent to those prevailing in the economy generally by using equivalent resources of labor and capital. The dependence of the affected sector upon government policies for its income is perpetuated, and with it the burdens upon the rest of the economy. These burdens show up in high taxes, or high prices, or both. In fact, in a dynamic situation both the dependence and the burdens grow, as the industry gets increasingly out of adjustment Charts 1 and 2 illustrate this.

The rest of the country becomes increasingly restive at the growing burden, continuation of the program becomes more and more uncertain, and standards of support are whittled away. The burdens on the rest of the community and the income loss to the affected industry, which is only cushioned, not eliminated, are reflections of a basic national waste. This waste results from the continued retention of labor and capital in industries and areas where they produce less of value than they could. The waste may be tangible and visible in huge stocks of commodities for which there is no use. It may be in a less visible form, as resources denied productive use. It may be still less visible in the form of commodities diverted into uses worth less than their cost. Whatever its visibility, the waste is present and is the root of the problem.

These costs and evils of too much reliance on the protectionist approach are clear in the case of agriculture. We do not conclude from this experience that it would have been desirable in the past, or is desirable now, to rely exclusively upon laissez-faire.

We conclude that agricultural policy should in the past have put much more emphasis on the adaptive approach, and should do so now. We believe that if a small fraction of the money, effort and thought devoted to protecting agriculture in the past decade had been devoted to adapting agriculture, the nation would be at least in sight of a solution today. This is the main lesson that experience offers for the future of agricultural policy. And, it is not a lesson for agricultural policy alone. It is a lesson of broad applicability in an economy facing and seeking dynamic change.*

*MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *By THOMAS D. CABOT, in which Messrs. EMILIO G. COLLADO, FRED C. FOY and J. CAMERON THOMSON have asked to be associated: "The adaptive approach is well suited for agriculture because of the size and obduracy of the problem, but this does not mean that a similar approach would necessarily be preferable for other depressed segments of the economy. Prescribing strong medication for a major ill does not indicate similar medication is advisable for a minor ill. Even if we are successful in devising a program which is a cure rather than a palliative, we may find it hard to discontinue the medicine. All government programs tend to be self-perpetuating because of the pressures from the personnel employed."
It has been common for many years to say that although the agricultural programs were unsound they were politically impossible to change. We do not know if this was true in the past. But the fact today is that the programs are being changed and will be changed further. There is no longer a question whether we shall have a change. The question is what kind of a change. This is the question to which this statement is addressed.

Swiftly Rising Productivity

        1. Total productivity has been growing very rapidly in agriculture.

The total amount of resources — land, labor and capital combined — required in agriculture to produce a given quantity of agricultural products has been falling rapidly. Chart 3 shows a 25 percent rise in farm productivity from 1950 to 1960. This indicates that total resources used declined by 20 percent, per unit of agricultural output. This resulted from large public and private outlays for research and education affecting agricultural equipment, materials and management, and quick adaptation of American farming to these improvements.

Declining Use of Labor Relative to Capital

        2. It has become efficient to use less labor, and more capital, in farming.

The amount of farm labor [Here and elsewhere, "farm labor" refers to everyone working at farming, whether proprietors or hired workers] required to produce a given amount of agricultural product has declined relatively more than the total amount of resources required. The character of technological change has been such as to make substitution of capital for labor efficient. The increase in the cost of labor relative to capital has also worked in that direction. While total resources used in agriculture per unit of agricultural output declined 20 percent from 1950 to 1960, farm labor used per unit of output declined 45 percent. (The use of nonfarm labor —and capital — as an adjunct of farm production also rose sharply. An instance is the use of industrially produced fertilizers and other chemicals.) It would have been even more efficient to have used still less farm labor.

The Slow Growth of Demand for Farm Goods

        3. The total demand for agricultural products has grown slowly, and this is typical.

In the aggregate, the quantity of agricultural products that can be sold at unchanged prices does not rise much from year to year. The American people are at a level of diet where they wish to spend only a very small percentage of any increase in their per capita incomes on increasing their food consumption. In a lesser degree this is true of textile consumption (where the growth of demand for farm-produced fibers has been further slowed by the increased use of synthetics). Thus, although there are differences from one product to another, aggregate consumer expenditure for agricultural products grows only a little more rapidly than population. (See Chart 5) Foreign markets are also important for agriculture, but contribute little to the rate of growth of demand, for two main reasons. One, in the underdeveloped countries dietary levels are low and population is growing rapidly, but these countries can spare little of their income for buying imported food. Two, the countries of Western Europe have rising incomes, but also rising productivity in their own agriculture and most of them have tight restrictions on imports of farm goods.

The Low Responsiveness of Demand to Price Changes

        4. A relatively large decline in prices of our farm products brings about only a small increase in consumption of them.

Foods are not close substitutes for other objects of consumer expenditure, so that a decline in the price of foods does not cause people to shift from buying other things to buying foods. But since food is a large item in most people’s budgets, a decline in the price of the food they have been buying does have a considerable effect on their ability to buy either more food or more of other things. For reasons mentioned above, they will spend relatively little of the saving on more food. Numerous studies show that to induce an increase in consumption of farm products as a whole by 1 percent, other things being equal, requires a price decline of about 5 percent, although consumption of particular farm products is more responsive to changes in their prices.

Rapid growth of farm productivity, and the slowness of growth of overall demand for farm products, together, means that if the resources being used in agriculture are unchanged, their product can only be sold at declining prices. The large decline in prices of farm goods needed to increase consumption substantially means that income per unit of resources used to produce the goods will fall. Income per unit of resources in agriculture can be maintained only if the amount of resources being used is reduced. And, since it has become efficient to use less labor and more capital in farming, this reduction of resources would have to be largely, perhaps exclusively, a reduction in the labor used.

The Inadequate Flow of Resources Out of Farming

        5. Resources, most importantly labor, do not flow freely out of agriculture at the rate necessary to avoid falling incomes.

The point here is not primarily that resources flow out of agriculture less easily than out of other industries, although this is probably true, but that the outflow of resources required from agriculture has been extraordinarily large relative to the resources engaged.

The resources engaged in any industry, or on the margin of entering it, are of different degrees of mobility. If we look at labor, which is the main case, we see that some workers are better informed about alternative opportunities than others, some are geographically closer to the alternatives than others, some are more adaptable by training or temperament, some are of an age or family status that makes moving easier, some are better able to finance the costs of moving, and so on. A relatively small reduction in the labor force attached to an industry will come about through the movement of the most mobile people, or simply by failure to replace people who would have moved or retired anyway. But where the reduction required is large it will depend upon the movement of fairly immobile people and is unlikely to take place rapidly enough.

Although the exodus from agriculture in the past decade or longer has been large by almost any standards (see Chart 6), it has not been large enough. Two important special factors, in addition to the large scale of the movement required, should be mentioned in explanation. First, the need for movement has been disguised by temporary upsurges of demand for agricultural products, during World War II and the Korean War, and by the price-supporting programs of the government. Second, the excessively high level of urban unemployment in the four years 1958-61 tended to keep the movement of labor out of agriculture less than it should have been.

The combination of these five conditions has resulted in a persistent excess of resources, particularly labor, in agriculture over the quantities that could have earned, by sale of their product in free markets, incomes equivalent to what similar resources could have earned in other uses. This has caused, and has been revealed by, a persistent tendency for agricultural incomes to be lower than other incomes, and to decline relative to nonfarm incomes despite large public expenditures for the support of farm incomes.

The problem of agriculture we have been describing dates back at least in some degree to the 1920s. This problem became merged in the 1930s with the problem of the effect upon American agriculture of a massive world-wide depression. In the critical situation thus created, the government initiated a variety of strong measures to support agricultural prices and incomes, the most durable of which was government purchase of agricultural products at prices above the free market levels. The rationale provided for these programs was a mixture of depression circumstances and longer-run characteristics of agriculture. However, these programs could be described as depression-oriented in two senses. First, with nonfarm unemployment extremely large and pervasive, efforts to move resources out of agriculture could not have been successful. Second, there was a reasonab]e prospect that when prosperity was regained the market would yield farm prices and incomes above the support levels and agriculture would float free of the support levels.

In fact, during World War II agricultural prices did rise above the support levels. The excess stocks accumulated in government hands under the programs of the 1930s were used up. Farm incomes were at a high level.

This condition persisted for about two years after the war while European agricultural production was low and relief and reconstruction needs were high. But in 1947 the situation changed radically, as had been clearly foreseen. (See Agriculture in an Expanding Economy. A Statement on National Policy by the Research and Policy Committee. Committee for Economic Development, 1945.)

The agricultural resources that had met wartime demands could produce much more than could be sold at the existing prices. Farm prices and incomes began to decline in 1948.

Although this decline began from high levels it was believed that if nothing were done the decline might proceed very far. Some increase of demand could be expected as population and income increased, but this would not cut much into the excess of resources engaged, as productivity was also rising.

In these circumstances a fundamental decision was made to support prices of certain farm products — the most important being corn, wheat, rice, cotton, tobacco, peanuts and dairy products 3333— above the prices at which farm products would have sold in free markets. This was to be done by government purchase of the quantities that could not be sold in private channels at the support prices. This has been the main ingredient of farm policy in the postwar period. Under this program annual Federal expenditures for farm price and income support rose from about $1 billion in 1948 to over $5 billion in 1961. By 1961 the government had accumulated stocks of farm commodities for which it had paid $9 billion. By 1962 the costs of keeping the stocks in storage were running around $ 1 billion a year.

Several changes were made in the basic program in an effort to check the rise of costs and stocks. The most important of these were:
        1. Gradual reduction of price support levels.
        2. Limitation of the acreage that could be planted to particular crops.
        3. Withdrawal of some land from cultivation through government rental.
        4. Subsidized export of some commodities, including extensive use of farm products in foreign development assistance.

None of these measures has been carried so far as to change the basic character of the program. The reduction of price support levels from 1953-54 through 1960 (see Chart 8) was so gradual it hardly narrowed the gap — except for corn and dairy products — between the support levels and the prices at which the product could be sold. Market prices were declining as productivity rose. (In 1961 support levels were raised.) Acreage removed from use in particular crops was diverted to other competitive crops. The rental of land was on too small a scale to make much difference and was carried on in a way that encouraged more intensive use of the land remaining in cultivation. The export subsidy program did help significantly to slow down the growth of stocks, but it did little to relieve the American taxpayer, especially since a large part of the exports was in effect given away.

1. Farm policy may have moderated the decline in farm incomes, per person engaged in agriculture, that would have occurred if there had been no farm program after 1947, but it has not prevented a growing gap between farm and nonfarm earnings. In addition, it has left many farmers in a situation where withdrawal of government programs would cause a sharp drop in their incomes.

2. The program has not helped most the farmers who were most in need of help. Since the attempt to support farm income has been made by way of supporting the prices of key farm goods, farmers who market the most get the most out of the support program. Smaller farmers, who market less, do not receive large amounts from the price-income support programs.

3. The support of prices has deterred the movement of resources out of agriculture. It has given farmers erroneous expectations of the earnings their labor might yield in agriculture in the future. The high support prices, plus the technological change increasing the amount of land a farmer could efficiently work, have raised land prices and misled the farmer about the income he was actually earning. These same factors, plus the financial capacity created by the higher land values, have encouraged the investment of capital in agriculture.

4. Other aspects of farm policy have done too little to bring about the withdrawal of resources from agriculture. Little of the considerable withdrawal of resources that has occurred was the result of policy.

5. Controls have diverted some land from its most economic use to less economic uses, tending to reduce efficiency in agriculture.

6. Taxpayers have borne a heavy burden which, given the character of the Federal tax system, has impeded the growth of the economy generally. In recent years Federal outlays simply for carrying accumulations of surpluses have come to about $1 billion annually.

7. The negotiating position of the United States in bargaining for freer access for American agricultural products to European markets has been impaired by the fact that the United States was subsidizing its own exports and imposing quotas to protect high domestic prices.

8. Underdeveloped countries have received more assistance from the United States in the form of more agricultural commodities than they would otherwise have received. But without these programs, and the burdens they imposed on the American taxpayer, they might have received other assistance more valuable to them and less costly to us.

9. Some segments of agriculture have been subjected to controls on their freedom of action.

The preceding summary of consequences shows that the agricultural policies of the past should not be continued. Recognition of this has been growing and is now widespread. The proliferation of suggestions for new programs is evidence of this. While the suggestions are endlessly varied and complex, we believe that real alternatives to the course we have been following fall into two general categories.

ONE ALTERNATIVE is a stringent, leak-proof control of production, so that farmers will get higher prices for a smaller volume of sales. Whether this could be effective without policing measures that would be intolerable in America is uncertain. Such a program would change the form of the burden on the nonfarm community from high taxes to high prices. It would change the evidence of waste from mounting stocks of surplus products to idle land, labor and capital, withheld from farm use and not channeled to other uses. All other consequences of the program would be essentially the same as those of the past policy.

THE OTHER—adaptive—alternative is a program to permit and induce a large, rapid movement of resources, noteably labor, out of agriculture. This is the program we recommend. In our opinion, it is the only approach that offers a solution from the standpoint either of the agricultural community or of the non-agricultural community.

We describe such a program in the rest of this statement. There are however two points of great importance that should be made here.

First, if we choose the adaptive course recommended here, we must pursue it in a large scale, vigorous, thorough-going way.

Small steps will not do. We are dealing with a big and difficult problem. We are proposing an alternative to programs that now cost $6 billion a year and involve massive government interference in the free economy. The alternative we offer will cost very much less after a short period. It will change government's role from supplanting the market to improving the market. But it will not be cheap and easy; if it were, it would not be effective.

We are recommending many governmental activities here that we would usually regard as inappropriate. The circumstances, however, are unusual. Agricultural policy has brought into being a vast field of governmental activity. These activities cannot simply be dropped; it is necessary for agricultural policy to work its way out of them. The relatively few, and in part temporary, governmental activities recommended here will, we confidently believe, enable national farm policy to work its way out of a larger number of otherwise permanent governmental operations in the economy.

Second, we must be prepared to moderate the temporary but sharp decline in farmers' incomes that would otherwise occur in the shift from the protective approach to the adaptive approach.

The program we suggest contemplates that a major part of the required adjustment in agriculture would take place over a five-year period. We recommend steps to supplement, on a diminishing scale, the incomes that farmers would earn in free markets during that period. This does not mean that no further movement of people out of agriculture will be required after the five-year transition period. As long as the rise of productivity in agriculture equals or exceeds the rise in the rest of the economy, some movement from agriculture is likely to be necessary. But after the transition period, the required movement would be on a scale that would not strain normal processes of private adjustment or require special measures of assistance. There would be a continuing, gradually emerging excess of resources in agriculture, resulting from the gradual growth of productivity and population increase, but this excess would be continuously moved out of agriculture. It would not, therefore, depress farm incomes substantially below the incomes of comparable nonfarm resources.

The transition we visualize will not bring itself about in a five-year period. Action will be required to bring it about. We believe that the transition can be effected in a five-year period if the program recommended here is pursued with vigor. A relatively short transition period depends considerably upon high employment in the nonfarm economy. But we cannot be certain that our estimate is correct. Unforeseeable developments, for example, in foreign markets or in productivity, may cause difficulties. In other words, there are uncertainties in the course we recommend. The rest of the community should be prepared to share the costs of these uncertainties, and not leave them to the farmer alone. We must watch the progress of the program and be willing, if necessary, to adjust it in ways consistent with its basic philosophy. We are confident that the direction we point out is the correct one, and while there are uncertainties about rates and amounts these uncertainties are preferable to the certain wastes and frustrations of the alternatives.*

It will be seen that we describe the agricultural problem in general and propose a general program for its solution.**

MEMORANDA OF COMMENT, RESERVATlON OR DISSENT

    *BY J. CAMERON THOMSON: "I would emphasize the possibility that the program, if adopted, may not go forward in total or as to important segments according to schedule because of the complexity of the agricultural industry, its relation to other industries, the responsibility of both government and private business, and the influence of foreign government policy on our exports. Adjustments in the timing of the program will undoubtedly have to be made and, if so, we must recognize the necessity for cushioning the drastic effects of the program on the agricultural production industry. Adjustments where necessary must be consistent with the basic objectives of the program which I feel are the continued production of an adequate, but not excessive, supply of foods and fibers through reliance on an unregimented, private agricultural production industry, utilizing to the fullest practical extent scientific and technological developments and having available adequate, competitive profit incentive."

    **BY FREDERICK R. KAPPEL: "This program represents a start toward solving some parts of the agricultural problem. However, it should not be looked upon as a complete solution. This Policy Statement deals primarily with the over-production problem, which involves the over-employment of labor, capital and land in farming and is closely related to high support prices. The policy proposals do not seem likely to have as much effect on the separate problem posed by the existence of many small, uneconomic farms, with low average income, producing little of the crop surplus but involving a substantial excess of farm labor with low incomes. In this connection, I note that the geographic areas marketing the largest volume of agricultural products and receiving the greatest amount of crop support payments are not necessarily the areas with the greatest numbers of farm workers and the lowest average farm incomes."

    **BY J. CAMERON THOMSON: "While recognizing the soundness of an overall approach related to general principles, I believe that exceptions must be made. In my opinion, it is necessary to consider at least some specific cases, in order to avoid the danger that even a sound over-all approach may not do justice in all instances. One such case is the dairy industry. Its size and its specific problems call for particular consideration. Another instance concerns wheat. No distinctions are made here among the differing problems and situations of different types of wheat. Yet there are very great differences. We use in this country only about a third of our production of white wheat, grown mainly in the Pacific northwest, and we have exported about two thirds of it, largely as surplus food, in the past decade. In the case of hard red spring wheat, annual domestic disappearance has amounted to about 80 percent of the crop, and all or nearly all of the rest has been commercially exported and paid for in dollars. Different recommendations are needed for the two crops. North Dakota gets from wheat over 40 percent of its cash receipts from farm marketings, and three quarters of its wheat crop is hard red spring wheat. I believe that when legislation is enacted to implement broad changes in our agricultural policy that this legislation will have to recognize the special considerations relating to the production of such crops as hard red spring wheat, and the effect on the economy of trying to apply generalizations to agricultural policy in particular areas with limited economic choices."

We do not have a program for hard winter wheat and a different program for long-staple cotton. Analysis and experience show that a list of programs addressed to the specific problems of specific parts of agriculture does not solve the basic problem of agriculture. At best it redistributes the problem among the parts of agriculture. There are differences within agriculture, some of which are recognized in our program and others that would have to be considered in its application. But with respect to the basic problem, the excess of resources, agriculture is a unit. Enough of the land, labor and capital in agriculture can be shifted, and is shifted from one agricultural product to another, and the products move sufficiently between one use and another, to require this total approach. An excess of resources in one part of agriculture depresses incomes throughout agriculture and withdrawal of any excess resources will improve agricultural incomes generally.

Before presenting our program for agricultural adjustment we would like to make clear our recognition that United States agriculture has been adjusting vigorously on its own, for many years, to market pressures. Our program suggests governmental action to facilitate the adjustments the American farming industry has been making privately. One of our principal reasons for thinking such a program will succeed is the evidence that American farming has exhibited a large scale readiness to adapt to change; an adaptiveness that marks our farm industry as a vigorous participant in the free enterprise system. This evidence may be seen in Tables 1, 2, 4 and 6 in Appendix A, and in Charts 3, 4, and 6.

We have noted that agriculture's chief need is a reduction of the number of people in agriculture. Farmers have been moving out of agriculture, on a grand scale, for at least 40 years.

It is equally evident (see Chart 4) that the farmer in the United States has devoted a great part of his earnings and energies to the purchase of machinery and the use of advanced techniques, thereby (see Chart 3) contributing markedly through high farm productivity to the nation's potential overall economic efficiency. The program we are proposing is aimed at realization — for the farmer's benefit and the nation's — of the full potential of United States agricultural efficiency.*

MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *BY ALLAN SPROUL, in which Messrs. FRED C. FOY and THOMAS B. McCABE have asked to be associated: "I am disturbed by this tribute to American agriculture, not because I would subtract from agriculture's great accomplishments, but because the same thought is better phrased in the introduction to the Statement and because its repetition in this form at this point could suggest to those who favor present programs that we can keep on in the way we have been going and eventually work out of the mess we are in. It should at least be emphasized that the progress which has been made by agriculture in adjusting to market pressures in recent years has been made largely despite government efforts to protect it from these pressures."

A. Policies and Programs for Attracting Excess Resources out of Farming

Getting excess resources out of use in farming is fundamental to the solution of the farm problem, and the fundamental condition for doing this is

                An Improved Labor Market

Under this subject we consider:
        Education of farm youths, and
        Labor mobility
            - Job information
            - Training in needed skills
            - Defraying the costs of moving

Within a framework of general high employment
Next, the program makes recommendations for

                Adjustment of Agricultural Prices

After which, we come to the second major part of the Adaptive Program for Agriculture

B. Cushioning the Process of Adjustment
by means of three transitional programs
        – A Cropland Adjustment Program
        – An Income Protection Program :`
        – A Temporary Soil Bank

First and fundamentally, we propose a set of measures designed to bring about a condition in which:

1. A much smaller total quantity of resources will be used in agricultural production;

2. This smaller total of resources at use in farm production will be composed of a much smaller amount of labor, and, possibly, somewhat less capital;

3. Production per unit of resources used in agriculture will be higher;

4. Earnings per unit of resources used in agriculture will be higher, on the average, and these earnings will be obtained through sale of farm products without government subsidy or support.

Adjustment of farming to this condition is basic to solution of the farm problem.

Second, we propose a set of temporary, transitional measures designed to:

1. Prevent a sharp decline in farm incomes, and

2. Avoid further additions to stocks of farm goods, while the basic adjustment to the condition sketched above is being brought about.*

MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *BY FRED C. FOY: "I congratulate the Agriculture Subcommittee on putting forward a plan for:

a. the restoration of a profitable free market in agriculture, and

b. releasing the taxpayer of a burden which has been costing him many unnecessary billions of dollars a year.

"I am disappointed, however, to find the CED again going on record in favor of a 'mixed' economy.

"I refer to such ideas as the one that it is possible for some unnamed entity to decide that some industry is 'using too many resources'; that the economy will be improved 'by government working with the free market'; that in an economy, changing in other areas than agriculture, the adaptive approach, which 'calls for action by government,' is necessary and desirable; that even though the 'Price Adjustment Program' for farm products is expected to 'make farming profitable without governmental controls and to establish free markets for farm products' over a five-year period, it is desirable for government to participate and influence direction with artificial monetary inducements in the form of a Cropland Adjustment Program and a stepped-up Soil Bank Program; that to decrease government spending in one area we must recommend new spending in others (i.e., an expansion of employment services, loans for family moving costs; loans and scholarships for farm youths, payments to farmers for switching land from crops to grassland, and the permanent establishment of a non-recourse government-operated crop loan system.)

"It seems to me the Committee proposes a workable idea in the five-year price adjustment program. Is it not reasonable to suppose that with five-years' notice capital and labor marginal to farming at normal free market price levels will make its own adjustment or withdrawal?

"Would it not be better in this paper, as in its paper on 'A New Trade Policy for the United States' for CED again to take the position that special additional governmental direction or relief might be neither necessary nor desirable beyond that already available where an industry has as much as five-years to adjust itself to reduced price levels?"

It is an essential characteristic of these transitional programs that they should cushion the adjustment, but should do so in ways that do not prevent or retard the adjustment.

A. Attracting Excess Resources
from Use in Farm Production

This is the heart of the matter in agricultural adjustment. Excess resources in use in the production of farm goods is the farm problem. Everything else suggested here is for the purpose of facilitating the fundamental transaction — withdrawal of excess resources from agricultural production — or serves to hold things steady while the basic transition is taking place.

An Improved Labor Market

Some of the measures we are suggesting here are broader than the program traditionally associated with agricultural policy, or lie outside what has been the usual farm policy scope. The fact is that the well-being of agriculture cannot be assured by programs having to do only with the production and marketing of farm goods: healthy agriculture requires a healthy economy as a whole and healthy relations between the farm and nonfarm sectors. It is obvious, therefore, that the Department of Agriculture would not be called upon to administer all the programs suggested here, but that, regardless of the fact that they are suggested in connection with solving the farm problem, they should be administered by agencies best able to do so.

        1. High Employment

            The maintenance of employment opportunities in nonagricultural industry and services is an      essential condition for the most satisfactory agricultural adjustment.

In our diagnosis, the problem of getting excess resources out of agriculture is a nonfarm employment problem: resources, particularly labor, are engaged in farming when they could produce more, and earn more, outside agriculture. This implies that opportunities for their employment exist or can be created outside of agriculture. (See Appendix A, Table 4). If this were not true, the problem of agriculture would be basically different.

We believe, of course, that high and growing employment can be maintained in the nonfarm economy. We have discussed the steps necessary to achieve this result in a recent statement*

*Fiscal and Monetary Policy for High Employment. A Statement on National Policy by the Research and Policy Committee, Committee for Economic Development, January, 1962.

that emphasized:

a) The potential contribution of monetary and fiscal policy to a steady rate of growth in total expenditures for goods and services, and

b) Moderation of the rate of increase of wages and other labor costs, so that the rise of total expenditures is not absorbed by higher prices, but takes effect in raising production and employment.

The importance of high employment for a resolution of the farm problem must be emphasized. The movement of labor from agriculture has shown itself to be responsive to the state of the nonagricultural labor market (See Appendix A, Table 2). A sustained period of high employment would itself make a major contribution to agricultural adjustment, and would contribute to the success of any other measures that may be undertaken.

While emphasizing the importance of high employment in the non-agricultural economy for the speed with which agricultural adjustment can be effected, we do not mean to suggest that the other parts of the program recommended here must await the achievement of high employment or should be suspended in the event of future departures from high employment. There has been significant movement of people from agriculture even in recent years when unemployment was unsatisfactorily high, and even in such circumstances measures to facilitate the outmovement will have constructive results.*

MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *BY FREDERICK R. KAPPEL: "The problem of absorbing the increased flow of labor out of agriculture under these proposals will be formidable in view of the prospective increases in the total labor force. This adjustment may take longer than suggested in the statement unless more attention is given to increasing nonfarm job opportunities by encouraging expansion of investment and output in the private economy through tax reform and other incentives."

            2. Education

Table 3 in Appendix A shows that 44 percent of farm population is presently below the age of 20.

Here, in our opinion, is a main key to agricultural adjustment: we have an opportunity to secure long-lasting relief from the overburden of people pressing upon farm income by getting a large number of people out of agriculture before they are committed to it as a career.

It is obvious that the extent to which we may be successful in using this key will depend upon the impression the farm youth gets when he looks at the nonfarm economy with an eye to uprooting himself permanently from farming. If employment prospects off the farm are high and growing, the attraction to farm youths of training for nonfarm careers will be strong; if the current prospects for employment off the farm are not attractive, young people deciding whether to commit themselves to a career on the farm or in the nonfarm economy can be expected to decide in large numbers that the long-term prospects are best in farming. This tends to perpetuate the farm problem.

Recent studies have brought out that fewer farm youths than others (a) graduate from high school, (b) enter college, and (c) graduate from college.

Attendance of boys at school falls off sharply in countryside school districts, by comparison with the nation as a whole and with urban schools, beginning with the 16-17 year old age brackets (final years of high school):

Percent of Males Enrolled in School

(Bureau of the Census, Current Population Reports [school grades supplied]).

Place of Residence

October, 1960

RURAL Usual School

Age Groups TOTAL URBAN NONFARM FARM Grade

5 years 64.1 74.1 58.0 33.7 Kindergarten

6 years 97.8 98.8 98.0 92.7 First

7 to 9 years 99.6 99.6 99.7 99.7 2-3-4

10 eO 13 years 99.4 99.5 99.5 98.6 5-6-7-8

14 & 15 years 97.9 98.0 98.3 96.3 Fr & S, H.S.

16 & 17 years 84.5 85.1 85.4 79.7 Jr & Sr, H.S.

18 & 19 years 47.8 51.4 46.8 33.5 Fr & S, Col

20& 21 years 27.1 31.1 20.8 18.8 Jr & Sr, Col.

Table 7 in Appendix A illustrates another facet of education as it relates to farming: the United States as a whole derives 4.3 percent of its personal income from farming, and no state derives more than 26.1 percent; yet the nation devotes 44.5 percent of its vocational education funds, exclusive of funds for home economics training, to training for agriculture. In the 20 states getting the highest percentage of personal income from farming (North Dakota, 26.1 percent to Texas, 6.5 percent in Table 7 ), all but two — Arizona and Vermont — spend over half of their vocational education funds, excepting home economics, for training in the skills of farming.

This means that in many states where farming is strongest, vocational education tends to perpetuate the farm problem of too many people in agriculture by holding out extraordinary opportunities to train for farming as a vocation.

America's Resources of Specialized Talent, * gave the following summary of the relationship between the father's occupation and higher education:

Father’s Percentage of High Percentage of High

Occupation School Graduates School Graduates

Entering College Graduating from College

Professional and 67% 40%

sem~profess~onal

Managerial 50 28

White collar (clerical, 48 27

sales, service)

Factory, craftsman, 26 15

unskilled, etc.

Farmer 24 11

    *Report of the Commission on Human Resources and Advanced Training (Harper & Brothers, New York), Dael Wolfle, Director.a study published in 1954,

The tendency for farm youths to have fewer years of schooling, and the emphasis on vocational education for farming, together with the above figures showing the relatively low proportion of farm youths in colleges, indicate that it is necessary to give attention to the amount and the kind of education farm youths get below the college level.

We have three recommendations on this vital aspect of the farm problem.

a) This Committee has recommended a program for Federal aid to public education below the college level in the low income states.*

    *Paying for Better Public Schools. A Statement on National Policy by the Research and Policy Committee, Committee for Economic Development. December 1959.

If this program were put into effect, its preponderant effects in the improvement of educational attainments would be felt in lower income farm states. We once again urge adoption of this program, and rejection of proposals for aid to all states.*

*MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *By WILLIAM BENTON: "I applaud the Committee's stress on education as a main key to agricultural 'adaptation'. Again, however, as I did in the CED policy statement on education, 'Paying for Better Public Schools', I must dissent from the Committee's recommendation that Federal aid to public education be confined to the low income states. Even high income states are unlikely to reform state and local tax systems to the extent required by the imperative need for larger budgets for education."

b) Vocational education should be revamped to place its emphasis upon training in skills needed by expanding industries. This means that vocational education in farming areas should be mainly for industrial, not agricultural, skills. There is need, as this Committee has pointed out elsewhere, for an expanded Federal effort to provide research and information to help guide state education departments and local school boards in what skills are in demand or coming into demand.*

*Distressed Areas in a Growing Economy. A Statement on National Policy by the Research and Policy Committee, Committee for Economic Development. June 1961.

c) Public and private policy should take dual account of the national needs (i) to reduce the number of people committed for their livelihood to farming, and (ii) to raise the national educational attainment, by measures to bring the participation of farm youths in higher education up to the national standard. Our recommendation (a) above tends in this direction, by increasing opportunities for youths in lower-income farm states to qualify for college. There should also be a general increase in the availability on the basis of need and merit of loans and scholarship grants for college education. State and private funds for this purpose have been increasing and should continue to do so. Federal loan and scholarship funds for needy farm youths qualified for college study should be provided during the transition period in which a rapid migration from agriculture is needed. Here also, as in (a) above, major effects would be felt in lower-income farm states.

It should be recognized by all agencies, public and private, that on the average the farm youth, more often than the nonfarm youth, will have to live away from home while he is at college, and that a college education therefore tends to be more "expensive" for farm youths than for others. This should be taken into account in judging need for financial help.

            3. Mobility

Early in 1962, a Federal Manpower Development and Training Act was enacted. The objectives of the Act are to "appraise the manpower requirements and resources of the nation, and to develop and apply the information and methods needed to deal with the problems of unemployment resulting from automation and technological changes and other types of persistent unemployment."

In farming the counterpart of unemployment resulting from automation and technological changes is underemployment, or, as we have discussed it here, excess use of resources.

We are glad to see the problem of the excess use of resources in farming, particularly excess commitment of people, integrated with the general problem of the nation's manpower requirements, and the national, general need for policies to help the nation adapt to the ever-changing skill requirements of the economy.

        This coincides with our view, basic to the adaptive approach we are recommending for solution of the farm problem, that the farm problem is not unique, but is, rather, the leading case of a large class of problems where an industry is using too many resouces, and, that solution of the farm problem lies in policies tending to improve, generally and overall, the efficient use of our resources, rather than in protectionist, specialized “farm policy.”

The provisions of the new Manpower Act can be an important step in guiding and easing the movement out of farming of a large number of people in a short time, if the Act’s purposes are interpreted as applying fully and specifically to the farm problem, and if they are vigorously pursued in that light. This includes:

Job Information

The Act requires the Secretary of Labor to promote, encourage or directly engate in programs of information and communication concerning manpower requirements and improvement in the mobility of workers. We recommend additionally that:

• The Federal-State Employment Service be expanded to rural areas, and its coverage made national and regional, rather than local only, and that:
• The present farm labor service should expand its responsibility to include placement in off-farm work, instead of limiting its referrals to farm employment.

Retraining and Movement

The new Act establishes procedures for selecting and training workers for occupations requiring new skills. It specifies that workers in farm families with annual net income under $1,200 are eligible for retraining assistance under the Act. The Act provides allowances for training, subsistence, and transportation, and for Federal assistance for state and private occupational training schools.

    *BY FRED C. FOY: "There appear to be real dangers in this proposal. Such loans, if made at all, should be confined to those situations where the borrower already has a job in a nonfarm area. Otherwise the loan may result in additions to both the unemployment and relief rolls in some other area, even though the worker may, as the recommendation suggests, have completed a retraining program."

It should be emphasized that all such direct help programs should apply to farm tenants, hired hands and domestic migrant workers, as well as to farm proprietors and their families.

The basic adjustment required to solve the farm problem, adjustment of the resources used to produce farm goods, cannot be expected to take place unless the price system is permitted to signal to farmers how much is wanted, of what.*

    *The importance of the correct price signals for farm products was highlighted by recent developments in the dairy industry. During 1960, production and consumption of dairy products were about in balance and the government had to purchase only small amounts of surpluses. Then, in late 1960 and early 1961, the support price for dairy products was increased. This higher support price, together with lower feed grain prices, induced a sharp increase in the production of dairy products at a time when the demand for dairy products was not expanding. The result has been more resources in dairying, more output, and sharply increased expenditures for acquisition of surpluses to support prices of dairy products.

Therefore, it is recommended that a Price Adjustment Program be instituted.

In order that the prices of our major farm products should give the correct signals for investment and production, the prices of cotton, wheat, rice and feed grains and related products now supported should be allowed to reflect the estimated long run "adjustment price" of these products.

The adjustment price would simultaneously satisfy two conditions. First, it is a price at which the total output of the commodity can be sold to domestic consumers or in commercial export markets without government subsidy. Second, it is a price at which resources efficiently employed in agriculture, after a period of maximum freedom to move out, could earn incomes equivalent to those earned in the nonfarm economy.*

MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *BY FRED C. FOY: "The last sentence should read, 'Second, it is a price at which resources efficiently employed in agriculture, after a period of maximum freedom to move out, could earn incomes sufficient to satisfy their owners without need for governmental or other artificial support.' The idea that all earnings on invested capital or payments to labor should be equivalent throughout all segments of the economy, is highly theoretical."

For most of these commodities the adjustment price is below the present support price and is likely to remain so even after a period of stimulated out-movement. This means that at prices below the present support prices sufficient resources would prefer to remain in agriculture, rather than move out under favorable conditions, to produce as large a volume of these commodities as would be bought by consumers, at home and abroad, at these lower prices. The willingness of labor to remain in agriculture after a period of maximum opportunity to move out, with the incomes they can earn at these lower prices, will be objective evidence that these incomes are "satisfactory." It will be possible for labor to earn satisfactory incomes at lower commodity prices because output per worker will be increased by two developments: a) the number of workers will be substantially reduced, which will increase the capital each worker has to work with, and b) restrictions on output per worker will be removed.

While the adjustment price for most of the major commodities is below the present support level, it is above the price that would result if the total output that the resources now in agriculture would produce were sold in an unsupported market. Such a purely free market price would be lower than the adjustment price we have in mind because it would result from marketing crops without previous adjustment of the resources used in their production. We propose below two measures, an expanded Soil Bank and a Cropland Adjustment Program, to keep production from exceeding demand at the adjustment prices during the transition period while the basic outmovement of resources is taking place.

The purpose of setting the adjustment price is to give farmers the best possible indication of the prices they may expect to receive during and at the end of the transition period, so that those farmers who do not think they can earn incomes they regard as satisfactory at those prices can take advantage of the transition period to move out. It is not proposed that the government should support pices at the adjustment price levels after the transition period. Neither should it be expected that market prices will remain permanently at the adjustment price levels. The long-run course of agricultural prices will depend mainly upon the rate of growth of agricultural productivity and the rate of movement of resources into and out of agriculture.

We do not favor a gradual lowering of farm prices to the adjustment level, although we took a position in our statement on farm policy in 1956 favoring gradualism. Gradual price reductions in recent years have not affected the resources used in farming fast enough and have not allowed total production to flow into use. Therefore ....

    *By J. CAMERON THOMSON: “I would add to this that they should equally reflect consideration of the cost of production of supported commodities by a substantial portion of the most efficient farmers.”

Senate Document 77 86th Congress, Second Session, January 20, 1960; Economic Policies for Agriculture in the 1960's, Materials Prepared for the Joint Economic Committee, 86th Congress, 2nd Session, 1960; W. A. Cromarty, "Free Market Price Projections Based on a Formal Econometric Model" and Arnold Paulsen and Don Kaldor,"Methods, Assumptions and Results of Free Market Projections for the Livestock and Feed Economy," both in the Journal of Farm Economics, May 1961.

These prices for wheat, rice and cotton are believed to approximate the prices at which these crops would be sold in the market without further accumulation of surpluses. The suggested price for feed grains is about the level that had been maintained for feed grains for two years prior to 1961. To keep feed grain production from outrunning usage at the suggested adjustment price, we recommend below a Temporary Soil Bank, designed to hold output of feed grains below 155 million / tons a year. Consequently, although government supports of the crops designated above would continue at the adjustment price levels during the five-year adjustment period, it is not expected that the government would acquire surpluses except under exceptional and temporary circumstances.*

*MEMORANDUM OF COMMENT, RESERVATION OR DlSSENT

    *By J. CAMERON THOMSON: "I would immediately eliminate price supports on feed grains because they are used almost entirely in the production oflivestock or commercial products. Over a period of time the market for feed grains, as well as the demand for such products, should follow the market for livestock or commercial products."

The effects of the adjustment prices would reach beyond our borders. The adjustment price suggested for cotton would permit our domestic cotton mills to compete on a more even basis with foreign mills, in our markets and in foreign markets. At present, foreign mills can buy United States cotton more cheaply than can our domestic cotton producers. The same would be true of our domestic flour millers and rice exporters.

An estimate of the market adjustment price for farm products will be partly a matter of judgment as long as markets are not free and earnings in farming are too low. However, this judgment must be made, and the preferable direction of error, if any, is clear in our present situation.

Second, new resources (especially people) should be discouraged from entering agriculture, at least during the adjustment period, and the rate of entry in the longer run should not be excessive. Price supports set too high will tend to continue the errors of recent years. Therefore, the costs of errors of setting supports too low initially are virtually zero as long as the income of farm people does not suffer as a result, whereas the errors of too high a level can only be corrected at considerable expense either to farmers or the public, or both.

Given two cushioning programs discussed later—a Cropland Adjustment Program and a Temporary Soil Bank—the output of the products for which we are suggesting reduction of supports to an adjustment price should be approximately in balance with domestic and export use at the recommended prices. Where it is exceptionally advantageous to produce these crops, producers would find it profitable to expand output at the adjustment price. Such would be the case for cotton in California and wheat in certain areas of the Plains.

On the other hand, in other areas farmers would find alternatives more attractive than continued production of the crops for which supports had been lowered. In some cases the alternative would be nonfarm employment. In other cases, the alternative would be the production of farm goods for which demand is rising fast (meat, for instance, as contrasted with wheat).

A Cropland Adjustment Program

What we are recommending with respect to land use is a program designed to turn land being misused in agriculture to better agricultural use. It is not a program to take land out of farming where there is no non-agricultural alternative use, since that would be wasteful. Our suggestions concern mainly the Western Plains and Mountain area. They are designed to convert land being used for the production of crops back to grassland. It is anticipated that if wheat is priced lower, farmers in this area will have better income raising livestock on this land, once it is returned to grass, than they have as arid country wheat farmers. The object of the program we are suggesting is to assist them in converting their farms from plowland to livestock grasslands.

The extraordinary demands of World War II and the immediate postwar period brought favorable wheat prices. These prices induced a substantial expansion in wheat acreage in the United States, from a low of 57 million acres in the early war period to over 77 million acres in the late 1940's (Appendix A, Table 6). The increase in production was intensified by good weather. This expansion included a marked increase in the total acreage in the low rainfall areas of the Western Great Plains.

When wheat surpluses appeared, acreage allotments were inaugurated and land was forced out of wheat. However, in this western region grain sorghums have been developed that are an alternative dry country crop to wheat—as long as wheat and feed grain prices are maintained high enough to keep sorghum prices high. In the Plains and Mountain region harvested wheat acreage declined by 9 million acres from 1952-53 (the last years before allotments) to 1957-58. Feed grain acreage meanwhile increased by over 12 million acres. This additional 12 million acres in feed grains can produce just about the amount of surplus feed grain produced annually in recent years before 1961. Moreover, total wheat production in this region still substantially exceeds prewar production despite the acreage allotments.

A Temporary Income Protection Program

If price supports for wheat, rice, and cotton were reduced immediately to the level at which adjustment of resources would begin to take place, the income of the producers of these crops would decline sharply in the absence of any compensatory public policy. While such a quick and sharp decline in income might conceivably increase the rate at which needed adjustments took place, it would exact a high cost in terms of suffering of the farm people displaced.

The Temporary Income Protection Program would have five controlling features:

The farmer has a base period quantity of wheat, computed as above in Point 1. Let us assume that this quantity, for a particular farmer, is 1,000 bushels. The support price for wheat in 1960 was $1.78 a bushel. If the adiustment price, as described earlier, is $1.35 a bushel, this leaves a difference of 43 cents a bushel. In the first year of the program, the farmer would receive 1,000 times 43 cents, or $430. In the second year he would get 80 percent of that amount, or $344. In the third year he would get 60 percent of $430, or $258, and so on. In the sixth and succeeding years, there would be no income protection payments.

The farmer would get the income protection payments, based upon his former marketing quota, no matter how much wheat he grew, and even if he grew no wheat or grew something else.*

*MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

*By FRED C. FOY: "Payment of public funds to anyone for something not produced is economically wrong. The idea of the recommended Temporary Income Protection Payment being independent of further production of the crops in question is a serious mistake.

"If, as the farmer looks at this program, he decides it is desirable to switch in the first, or some other early year, to some other crop, the program already has achieved its purpose. To continue to pay him income based on the crops he has abandoned is simply to give him a bonus for not producing them instead of letting the probable future normal market prices be the basis for his decision as to when and whether to shift.

"In the wheat example cited, a farmer switching the first year would collect over five-years a total of $1290. for wheat he had decided not to raise at all."

This provision is essential. The farmer should decide how much wheat to produce, if any, on the basis of what is profitable for him to do at $1.35 a bushel. It is essential that receipt of the supplemental payment should not be dependent upon the production of wheat. Otherwise the supplemental payment would simply be an additional price for wheat and an additional inducement to produce wheat, beyond what would be induced by the adjustment price.

The foregoing example has assumed that the adjustment price is constant during the five-year period, but, as noted earlier, the adjustment price might be changed if circumstances indicated that it was too high or too low.

To put the above into the form of rules for the program, the income protection payments should:

A Temporary Soil Bank

The third measure for cushioning adjustment should be a Temporary Soil Bank, to prevent feed grain production from exceeding demand in the next few years.*

* MEMORANDUM OF COMMENT, RESERVATION OR DISSENT

    *By J. CAMERON THOMSON: "This section should have included a description of the present continuing soil bank programs, together with an estimate of the cost of the suggested soil bank program over the five-year transition period."

If feed utilization per animal continued at the rate of recent years, it appears that by 1965 the domestic demand for livestock products will require the use of about 165 million tons of feed grains annually, at about 1960-61 prices. This would mean that feed grain and livestock prices should stabilize at about 1960-61 levels without the accumulation of feed grain stocks. Until such time as this balance is achieved, a Soil Bank program should be utilized in order to prevent low livestock prices or continued accumulation of feed grains.

There has been much objection to the whole farm Soil Bank Program from the nonfarm people in rural communities. They have objected to the loss of sales and to the competition from farm people in the local labor market. However, the impact of the Soil Bank on adjacent communities will depend very much on the state of economic activity in the economy generally. Moreover, the program should be operated so that its impact will be minimized on individual communities or areas.*