Impact of Monetary Actions on Farm Income and Finance

Abstract

has experienced accelerating inflation. Since late 1971 average prices have risen at a rate of 5 percent per year, measured by the Gross National Product (GNP) deflator, and the wholesale price index of all commodities has risen an average of 14 percent per year. The general inflation has prompted a number of studies concerning its impact on agriculture. Most of the studies were limited to comments on the effects of inflation, rather than monetary actions on agriculture. Nevertheless, if one believes, as I do, that excessive monetary growth is the major cause of inflation, the influence of monetary actions is implied. The impact on agriculture attributed to inflation varied widely in these studies, ranging from real wealth gains to nominal and real wealth losses. One writer went so far as to conclude that inflation depressed those incomes realized from the production of feed grains, wheat, and cotton compared with income from meat animals, poultry, fruits, and vegetables [4, p. 913]. Another found a close and consistent relationship between changes in the stock of money and changes in agricultural income and investment, and concluded that agriculture is far more closely related to, and integrated with, the total economy than is currently recognized [9]. The inconsistency of the findings is a reminder of the questioning disposition of the famous French philosopher, Michael de Montaigne (1533-92), who, after years of concentration prior to writing his essays, decided that absolute facts were nonexistent. Rather than accept this pessimistic view, I suggest that most of the inconsistency reflects the difficulty in determining cause and effect relationships in agriculture and differences in the time horizon of the researchers. In agriculture, cause and effect relationships are clouded by a number of nonmonetary destabilizing elements which can have a sizable effect between the planning of production and the realization of output. Output and demand fluctuations occur as a result of unanticipated factors such as unusual weather and other natural