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Agriculture’s role as a wealth generator in society remains vital

jack dewitt

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“All New Wealth Comes From The Soil.” Well, maybe not all, but that is the title of a 55-page booklet written in 1944 by Carl Wilken, the self-appointed economic analyst with the Raw Materials National Council of Sioux City, Iowa, with the subtitle “A Prosperous Post-War Era is Possible.” I first became aware of the booklet in 1969. The title intrigued me, and as a young farmer active in the Washington Wheat Growers, I ordered a copy directly from the author. The booklet came in the mail with a handwritten note from his wife, saying her deceased husband “was” the Raw Materials National Council. Apparently the “Council” died with him.

But he left a legacy in that his fight for parity prices for agricultural goods lived on for many years. He studied the ratio of farm income to national income, producing 50 years of data that showed the national income moved up and down in sync with farm income in a ratio near 7 to 1. When farm income shrank, a depressed economy was not far behind. So his conclusion, to which he testified before Congress, was farm prices should be subsidized in poor years to keep the rest of the economy healthy. His theory that every dollar of farm income multiplies seven times as it moves through the economy still lives on, as occasionally you may read references on how a local dollar spent multiplies five to seven times as it moves through a community.

The concept that land is the source of wealth is not new. David Montgomery writes in his book, Dirt: The Erosion of Civilizations, that the ancient Athenian philosopher Plato “held that the root of his city’s wealth lay in its soil.” As a result he and others were among the first conservationists, proposing that plowing be stopped on steep slopes. Montgomery’s book is a continual story of how past civilizations rose on fertile soil (Mesopotamia, Greece, Rome, Easter Island) then slowly faded into obscurity as the soil washed away. The Egyptians escaped this fate because the flooding of the Nile River brought new soil each year. Eastern Europe escaped the fate of previous peoples because they imported fertility (bird guano) and other riches from American and African colonies. The United States had the West to expand to when eastern soils washed away. Then the Dust Bowl nearly ruined the Midwest. But just in time, conservation has taken hold in the Americas and much of the rest of the world. Sustainability and regeneration of our soils is gaining respect and encouragement among farmers, politicians, industry, and consumers. Our future, I think, is secure.

But what about that multiplier? Modern economists debunked it a long time ago. In Wilken’s data period, our economy was more agrarian and less complex. Increasing worker productivity due to the plethora of new technologies since World War II has lessened the importance of agriculture to GDP. Using Wilken’s method, the ratio of average farm income to average national income in 1991 was 22.88, an obvious exaggeration. According to IMPLAN Pro (Economic Impact Analysis for Planning), the multiplier for agricultural production is near two. (IMPLAN provides multipliers for all kinds of industries, from Microsoft to coffee shops, so planners can predict the effect of new industries on their communities.)

If agriculture’s importance as a source of wealth has diminished, there is no denying it is basic. Wilken also considered other basic sources that come from the earth — coal, oil, minerals, forestry. To these we can now add renewable sources of energy — hydro, wind, solar, geothermal, wave action. All of these basic sources require labor to extract or develop, so labor is also a source of wealth. When commodities plus labor are used to build roads, dams, buildings, cars, and durable goods, these things are added to the wealth of a nation or an individual. When commodities and labor are used to produce consumables (food, many plastic items), wealth taken from earth’s resources, in the end, is consumed. Many consumable items are made from renewable resources, of course, but those made from fossil fuels and/or mined minerals are not. Our service industries are consuming industries, and are estimated to be 80 percent of our GDP. I sometimes wonder how long we can remain a rich nation when so much wealth is consumed on such things as packaging, individual delivery services, and convenient throw-away items.

Do tech industries create wealth? To the extent they add value in the manufacturing process through labor, yes. But the wealth amassed by individuals such as Bill Gates, Steve Jobs, and others is not new wealth: It is wealth accumulated from others who found their inventions useful. Their contribution to national wealth is primarily intellectual. Their products enable other people and industries to be more efficient as they produce new wealth.

Do hedge funds and commodity traders create wealth? No, their object is to buy low and sell high, thus causing someone else to lose wealth for their gain. Do banks create wealth? No, but through lending money to basic industries they enable those industries to create new wealth.

Agriculture’s role as a wealth generator in our modern economy may be diminished compared to generations past, but it is still essential. Farmers are going through a rough period right now, and it is beginning to be felt by machinery dealers and manufacturers and other businesses that depend on robust farm income. If things are not reversed soon, farmer’s distress will ripple through the economy. Wilken was correct that true wealth trickles up from the natural resource industries, not downward from industries or individuals at the top of the pyramid.

If our cities were destroyed in a disaster, such as an asteroid hit or nuclear war, it would be agriculture that would bring them back. William Jennings Bryan, the great Congressional orator who represented Nebraska in the 1890s, said it best: “Burn down your cities and leave the farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country”.

 

Jack DeWitt is a farmer-agronomist with farming experience that spans the decades since the end of horse farming to the age of GPS and precision farming. He recounts all and predicts how we can have a future world with abundant food in his book “World Food Unlimited.” A version of this article was republished from Agri-Times Northwest with permission.

Any views or opinions expressed in this article are those of the author and do not reflect those of AGDAILY. Comments on this article reflect the sole opinions of their writers.
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