Inflation, Agricultural Output, and Productivity

Abstract

Why should inflation have an adverse effect upon agricultural output and productivity? Since most economists accept the view that inflation is bad and should be avoided-if doing so does not cost too much-our kneejerk reaction is that inflation has significant adverse effects upon output and productivity. True, inflation redistributes wealth and income, as most of us who work for universities and, in addition, have annuities derived from defined contributions realize. And when inflation rates reach some levels, the breakdown of confidence in money and financial institutions can have serious economic, social, and political consequences. But have the inflation rates of 10% to 15% to which we have been subjected during the past year had significant resource and productivity effects in agriculture? When I started to write this paper I was not sure how I would answer this question. Was I more sure when I finished? I leave it to you to judge. The first issue that I address is what has happened to productivity in the economy and in agriculture during the 1970s. In considering what may have happened to the growth of productivity in agriculture, we should consider that change in the context of the national picture. The available data on changes in national productivity, whether as measured by total factor productivity or by labor productivity (average labor product) show clearly that national productivity growth has been significantly slower since 1973 than in the years before. What is much less clear is why the slowdown has occurred. What do the data show? Table 1 gives data on total factor productivity for the private domestic economy and selected segments. There can be little doubt that productivity growth after 1973 was at a lower rate than in any other period since 1948. Table 2 provides similar data on labor productivity, and the general picture is the same as for total factor productivity. There are those who argue that the productivity slowdown started before 1973. Tables 1 and 2 give some support for that view, though the pre-1973 slowdown seems to have been concentrated in areas other than manufactur-