Land, economic change, and agricultural economics

Agricultural and Resource Economics Review, Apr 2003 by Castle, Emery N

Land and Agriculture

Land played a central role in the writings of Adam Smith, David Ricardo, and Thomas Malthus. In many respects, these classical economists were the first agricultural economists. Food production was a principal economic activity at the time they wrote, and it is not surprising they devoted considerable attention to food-land relationships. Land, labor, and capital were advanced as the principal factors of production with the justification that each factor was distinctly different from the others. This point of view dominated economic literature well into the 20th century.

David Ricardo lived from 1772 to 1823; Thomas Malthus from 1766 to 1834; and, of course, Smith's Wealth of Nations was published in 1776 (Eatwell and Newman, 1987). Food production technology changed greatly in the more developed nations during the century following the death of Malthus. It is not surprising that 20th century economists were forced to reconsider the received wisdom with respect to land and food production.

Two important milestones can be identified. One, of a conceptual nature, was the work of Frank Knight on risk and uncertainty, published in 1921. He directed attention to the importance of the human agent in adapting to risk and uncertainty, In Knight's view, there was no need to distinguish land from other forms of capital. The other milestone was empirical in nature and occurred when the economics profession came to understand that food-land relationships had changed in a fundamental way since the time of the classicists. If one wishes to date this milestone, consider 1951, when the T. W. Schultz article entitled "Declining Economic Importance of Agricultural Land" appeared in the Economic Journal.

Shortly after World War II, production economics emerged as an important part of agricultural economics. Earl Heady's The Economics of Agricultural Production and Resource Use (1952) influenced the thinking of many agricultural economists on numerous subjects, including land. Heady saw no need to give special treatment to land and, consistent with Knight, believed only labor and capital need be considered as factors of production.

The work of the agricultural production economists first focused on the farm firm and then progressed naturally to agricultural industrywide considerations. Empirical work multiplied rapidly as a result of new quantitative techniques and data processing equipment such as numerical programming and electronic computers. As a result of these developments, a subtle shift in emphasis occurred in agricultural economics research. The greatest emphasis and recognition shifted to quantitative developments, perhaps at the expense of problem identification and theoretical awareness.

The agricultural economics policy literature reflected these trends as well. Even though empirical estimates of policy effects were made possible by the use of sophisticated measurement techniques, the underlying theoretical base was remarkably predictable. Constant returns to scale, atomistic competition, and homogeneous products were often assumed, and modern welfare economics provided the normative base of assessment. Technical change typically was considered an exogenous variable, and bore responsibility for declining costs over time.