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There are some issues that came up in Ravi’s Posts about Agriculture (here and here) that I think need to be addressed.

I think it is important to clarify somethings both about Economics and how it applies to the real world.

No one needs to be told that reality, is a complex, dynamic phenomenon, and to try and fathom it without resorting to some kind of simplification, inevitably leads one in circles. Engineers construct complex systems by understanding the small components, economists have a reverse engineering task on their hands, they have a complex system that is perpetually alteing itself and have to continously find generalised methods of describing that changing system.

Most of the criticisms that are levelled against economics and economists being ‘far from reality’, are in fact based on a misunderstanding of this basic problem faced by an economist.

With specific regard to Agriculture and Productivity, it is important to understand what exactly is meant by Capital. Capital in its simplest form is Past Labour; past intelligence and force that has been applied to natural resources and pre-existing capital to produce a particular Good that can be used for further production. This commodity can be translated into Money to give it a broader meaning, as is often associated with what we call ‘Capital Markets’.

The problems that have been attributed to European and American agriculture are not problems of productivity per se, they are problems of those countries’ subsidy regimes. The belief of the farmers and the governments that the payment of subsidies leading to the destruction of produce, makes everyone better off, is much like the Aztec belief that Human Sacrifice would bring in a good harvest. What is happening, is that the incentives that farmers have to make the best possible use of their resources are to a greater or lesser degree destroyed.

If, agricultural markets are allowed to function without such distortions, there would not be obscene destruction of produce and excess use of chemicals and fertilisers, however, that does not mean that there would never be huge bumper harvests (which in today’s lingo would be labeled a glut).

What is left out of many analyses is the causative factor of economic developemt - human intelligence. Bumper harvests and how to deal with them are a problem, for human ingenuity, combined with selfish instincts, to solve. Governments and subsidised farmers would typically let the grain rot in godowns, because their own money is not at stake, but a farmer would not do that to his own crop. To put it in stark terms it would be like drawing a loan from a bank and then burning all the money.

A case in point: a few weeks ago I read an article in the New York Times (link has gone pay), which talked about how a Grapefruit Growers Association, was running TV ads about the health properties of Grapefruit, and farmers have invested in crushing and bottling factories to produce grapefruit juice, which adds value to the basic product, and now they are trying to get people to consume it. I must add that these farmers were receiving subsidies for this exercise, but that the initiative came from the farmers themselves, probably because the government was not willing to bear infinite losses on their behalf.

This is by no means unique, it happens regularly. In India, NOGA (Nagpur Orange Grower’s Association), produces value added products from agricultural produce (not to mention Kissan from HLL, and Sil from Marico among others). Amongst others Amul, Aarey, NECC etc also produce, advertise and market value added and raw agricultural produce. The low value of the primary produce does not imply that value (capital) cannot be added to improve returns.

But in a strict sense if you take only the Agricultural Producers (Which alongwith Mining constitutes the ‘Primary Sector’) as constitutiong the Agricultural Sector to the exclusion of Processing Units and other types of Value Addition. As capital intensity rises (tractors, fertilisers, GM etc.) the number of people who can be gainfully employed in the agriculture sector, will have to fall. Again not a unique feature of this sector, but a generally realised outcome of the capitalist development process. It goes hand in hand with specialisation and technological development, which creates new areas of employment where none existed before, like Food Processing.

For me (a self-proclaimed aspiring economist:-) The question ‘Why can’t the present Rural Population be gainfully engaged in Agriculture?’, has been amply answered by economic theory and history. As I have commented elsewhere, it is the Ideological pre-disposition of an economist, that taints his use of economics tools. Statistics, mathematics and even economic theory on their own are rather sterile, it is the value judgements that economists carry with them a priori that determine the interpretations that they proffer. So as they say after plane crashes, “Human Error” has a large role to play.