The Economy of Rural America

Abstract

I am pleased that my good friend, Tom Hoenig, the president of the Federal Reserve Bank of Kansas City, invited me to speak to this group on the challenges facing our rural economy in the twenty-first century. The Kansas City Reserve Bank has long maintained a special commitment to monitoring developments in this segment of our society and has most recently demonstrated that commitment through its creation of a new research unit, the Center for the Study of Rural America. The new unit is much appreciated by those of us in Washington who have always looked to the Reserve Banks to provide in-depth field coverage of our complex and everevolving economy. Rural America and its relationship to the broader economy has changed enormously over time. A century ago, rural towns and villages were isolated by the high costs of conducting transactions across large distances. Goods were bulky, transportation poor, and lines of communication to points outside the local area primitive. About one-third of the American people lived on farms, which at the time were relatively self-contained economic units that purchased little from outside and consumed on the farm a good bit of what was produced. Life in rural areas tended to be stable but not very prosperous. By today’s standards, incomes were low, services minimal, and opportunities limited. Technology changed all of that, as farming and the other resource-based industries in rural areas were altered by the past century’s great waves of invention and innovation. The rise of the petroleum industry transformed the energy base of agriculture from that of animal and human labor to a system driven by gasoline and diesel fuel. Mechanization of agricultural processes, which had been pushed ahead earlier by the cotton gin, the steel plow, and the reaper, now was powered by the tractor, the combine, and a host of other types of farm machinery. Discoveries in the use of chemicals helped in plant nutrition and pest control, and the introduction of new crop varieties, such as hybrid corn, boosted yield potential enormously. Perhaps just as important, principles of organization and management that had proved successful in industry were increasingly applied to farming operations. Agricultural productivity rose dramatically as a result of the combined and cumulative effects of these innovations. Crop yields, in particular, started to surge about six decades ago, when the effects of a number of innovations seemed to converge. Apart from fluctuations related to weather, national average corn yields had been INTERNATIONAL REGIONAL SCIENCE REVIEW 24, 1: 16–20 (January 2001)