130

AGRICULTURAL ECONOMICS
a\ways go b) pric e cons iderations . Allocat ion
of evidence ngai nst Schultz's conc lusion based
reso urce s in their case can be more or less perfe Scnapur and Pcnajachcl studies. 0
ct . n
Som e later studies. e.g., those sgnductcd b}
Desai K ab1on and Joh\. Soni and few others have (B) Doctrine of Zero Value Labo ur in Agricultur,
show n that a\\oc ation of reso urce s is not perfect The other important characte ristic of traditional
in
a traditiona\ agricuhure. Soni \ study also_ show agriculture, according to Schult?, is the non-c
s xistcnc,
that resource a\\ocati@ is better in the post-grcr.1 of zero valu e labour in such an agriculture.
1
revo \utio n era (i.e. in a dynamic agricultur~ than
in Exis tence of zero value labour in agricultur,
the pre-green revolutio n e ra. A ...s,.tud y concernin
g means that if some sccmingly_act ive labourers
an tJl_§l Afric_an kO\lD try conducted by Madani
has shill ed from agric ulture lo the other secto
art
a\so shown that a\\ocation of resources is better rs or !he
in economy, or if they are simply asked not to work
a non-traditional agric ulture than in a traditiona in
l agriculture, the agr~ltuaj_Q_roc!__uction will not suffer
agriculture. Lipton has criticised Schu lt1 on anot her
at aJ I. And this is despite the fact that all workers
count. According to him, a fam1cr in a traditiona
l engaged in_ agricultureJ rc assumed to be
agriculture may not be a profi t maximiser as has been ..£9uall~
efficient. The reason for no change in agricuhura
assumed by Schu ltz. He may be a risk minimise l
r. productio n even after these labourers have
Tht: two objectives rcsl!lt in two dilterent typc ceased
sof· to work in agri cult_ure_ is that
resource allocations. their marginal
productiv ity is egual IQ_zero (or even negative). l he}
fhc siLe of the f~rm also innuence s the actually contribute nothing to agricultur
al.p_rS2duclion
allocation of r_esources. Small farms are g_enerally Qff They on ly look bu~ butJ
in fact. only relieve othm
the market. The r~sQurC,C_a)l~ aLion ~ o t be perfect from wor~ The port ion of agric
ultural labour which
in their case. cont ributes noth ing to agric ultural production, 1s
Again, the resource allocation is likely to be called zeto valu clab our or disguisedly unemplo)ed
imperfect if the land is culti vated by tenants buuh labou r. II has been su_ggested by many writers. li~r
e
decision maki ng power regarding produc_tion is with t-Jurkse that there is a Jiuge amounl of zero value i
the owne rs of the land . The clash of interests of the labour in the agricultural sector of under-developed
two panics will hinder the optimwn use oue sources. countries and the agriculture in most of t~esc
Small farm s and the institutioJLof tenancy of the countries, judged according to the definition gi~en
type described above may not prevent an agricultur by Schultz, is also traditional in character. (The "'ord.
e
from becoming tradi tional but will cenainly_ work disguised unemployment was used for the first u~e
against the optimum allo_catiou.Q[resources. by Mrs. Joan Robinso n to describe workers 10
deve loped countries who accepted inferiar jobs "hen
The fact of the matter is thf!Lthe decis ion making
about resource allocation in agriculture is a very viewed in the light of their capabilities.)
complicated pro~ess. Many factors influence such Many othe r economists also fee l th~t. th~
a decision. Nature of marketing facilities, degree of disguisedly unemployed labou r exists in tradiuonn
certainty about yield and prices, business acumen agriculture.
of the farmer, customary production, domestic need
s Schultz, however, has ques tioned the exis1cncc in
etc., are some of other factors, besides the experienc
e of disguised unemployment or·zero value lab0°.' ,
of the fanner, which influ ence the allocation of such
economies. He in ·order to elaoorate I11·•5 v1e1in•
resources. Their influence can be more as well as re,er c
s to the followl!lg three economic • ·tuauons,
less in a traditional agriculture than in a non- this rega si ·
rd :
traditional agriculture.
(a) Wh~re marg inal produc11.v1t) . 0 f labOUf
. quil~
So, we cannot completely support the Schultzian enga
ged in agric ulture is very IQW but ~s 1JC(
hypothesis about resources allocation in a traditiona
l comparable with that of labour enga~c~ : 01i11!0
agriculture. Much depends upon factors other than sectors, 15 0. 11n,afl)
after cost
those which Schultz had considered and these factors consideration. of trans fer of labour5 5 111
Such a situation ex i l
do not seem to be spec ifically related to a particular backward '
econom ies.
type of agricultur e. There is mounting emp of 1:11iour,
irical (b) Whe re marg inal prod uctiv ity
 I RICULTURE
12 9
RMING TRADITIONAL AG ,
rRANSFO tit ut io na l fra m ew or k in whi(.. h pr od uc ti on
ins
a drau ght anim al, an
a piece of land, , sa vin g and investment take pla ce
, etc.,
wo rk , col lls um pti on
o is wi lling lo so c ial
IJctor .! g ·lianncl 01 a ~vorker wh . ye d, as g iv en in s tu di es ma d e by t~
·gauon c y factor 1s unemplo y re la te·s to a
llfll · nernployed. If an
of fac tor is a~ hr op o log ist s. Th e fir st s tud
If an y unit given
~r~l'J~~:~p loyed voluntarily. Gu ate ma lan Ind ian co mmunity, Pe najac he l, as
1115 • ble for empl oy me nt bu t is so m eh ow sm by Sol Tax and the other to
an
. t. in Pw ,ny Ca pil ali
3~at 1a for employm en lagew5enaruir,
lo)1ed , it could offer itself·11 do an d agric ultural community in an Indian vil
P · · co me wn a Village
unem
Th effect will be that 1ls pu ce w1 as. giv en , in Th e Econom ic Organisation of
ge? price of that _factor Hopper.
th/equilibrium with the ~~an es tab lis he d. in No r1h Central India ~ v id
wi ll be re-
and its margina l producl1v1ty th ~a pit al as err ing to data available in these stu
dies,
ab ov e, for bo By ref
This is true, as indicated ina l re turns to
Sc hu lt7 conclud es tha l th e marg on
11ell as for lab
our.
va rio us fac tor s em plo ye d in ag ric ultural pro ducti
als o proves
1 ' jui) Perfec
t allocati on of res ources l to their prices.
in po or ag ric ull uc .al . ec onomies, under are equa unities
tha1 even no _d e.. artb of hu h7 fee ls tha t these 1wo comm
c es , th er e is Pr of. Sc
normal circumstan poor ag ric ultural
·r
en trepre ne urs. are typ ical of a large class of ric ulture is
I(
successful
o J.! np lie s co mm un iti es. Al the sa me tim e, the ir ag ort
(iv) Perfect all Q9tio n of.:
. resources ali
, tra dit ion al, as pe r his de finition. He also fin ds supp
rio us products change lusions in the studies cond
ucted by John
that if the relative prices of va ge . Fa rm ers for his co nc s &
t the resources allocation wi ll
also chan
ve Lo ss ing s Bu ck , Ba ue r & Yamey, Yo lopoulo
the prnducts..who..s__e relati d by a few other economist
s.
r~ will direct the resources toTh is impli ca tio n is ve ry Nu ge nt an
the
~1 prices ha ve go ne up . ssi o~ tha t In thi s co nn ec tio n, Prof. Schultz re fe rs to
the ge neral im pre rs made by E. O.
e1. 1 imponant because ge ne rally do analysis of 6 classes of Indian farme
ion al ag ric ult ure y in factor
~: farmers in any tradit s. Fo r the m, He ad y wh ich indicates mu ch ine fficienc
ice ch an ge ltz, the Indian data
>r,, not respond po sitively to Qr no t a mo de._o f allocation . Acco rding to Schu
y of lif e an d t ·of land are
.~~, agriculture is on ly a wa sis , on the co ntr ary , reg ard ing month ly wage rat es and ren very
maki ng money. This hypothe qu ite str on g un erl y un rel iab le an d the interest rates vary
motiv e is d
implies that the business ur e an d wi de ly an d as su ch , the res u Its ba sed on dara use
traditional ag ricult meaning less. Differe nces
between the
itnl among the farmers in aft er tak ing by He ad y are
rhey, too , try to maximis.e Lile
iL. pro fi1.s... l co sts of fac tors
om; ma rgi na l return s and the margina
rhe prices into consideration
. to Sc hult1., could
(as fou nd by I lcady), accord ing ultur al
ns of !ht: ·cffic~cnt ex ist only in a sit ua ti on of rapid agric
While discussing implicatio time,
hy po the sis ', Sc hu lt z ma kes two po in~ s devc lopmcnl, which wa s nor the ca!.>e at the
but poor s
ibrium implied by thi this stu dy was made .
abo ut the na ture of equil int s ou t th al Re ga rd in g
ce , he po m of Sc hultz':.; Vi ew s
h) po1hes is. In the first instan Cr iti cis
consid~ration , oD:IY J.h c (A .2) hultz
the ~i lib riu m takes into Pe rfe ct Al loc ati on of Reso urces : Although Sc
tive fac tors .. It is n? t ppon ers for the thesis tha
t al location
11hl'~ ~ llLSlock of pr od uc fac tor s in co uld fin d su ricu lture,
s to these perfect in a_tradit1rmal ag
concerned wi th the addition ly o_n of res ou rce s is . Dunn
ation is based on t go ne un challenged. J.M
fuiure. Second ly the all oc and als~ on his vie ws ha ve no
questioned
the £.~ kno~ le.dg_e of the farm ersf the va rio us and V.P. Nows hir va ni, fo r example, ha ve ds of
the curre nt tec hnica l · <cffi c1encY
· O •
f the the sis pu t for th b) Sc hultz on gro un
specifica lly cartie u_lt~ ns ; po int.
Producti ve assets. Schultz I pro pe s o me 1ho do log y use d b) Sc hult1. to pro ve hie
h · . dy bv David
agam · st lhe use of a di ffe rent tee 111cavledgc !>Upcrio r Moreover, data used in rhe Sc napur stu
4• k . r;s ou rccs
the r:,actor~ of producti on or o, no ,
a~ a no rm for 1lop pN , to pro ve efficient al location of
• s . ..
t0 the one possessed by the ,armer ,f•1hc resources whic h Schult1. quotes _to support his
r, own thesis
· •ca lly testing the pe rfectness o conclus ion ori en t d,
cmprn ha w been com,idered to be gh le ·
allocat ion in a traditional ag
ricullure .
c r IJ op pc r scl cc Lcd mainl y thasc farmers (hi c ass
In ord , uts
( /th e
, ,1,e ,i\ •
11JP ". ·, .· ,: Sc hu ll ;,, •r·,i.1,,d1 r<, o f vr-11 age Scnapur) who pu rcha\ ed inp
il.J .b) Pr rw //1 1 .m pp or tos hypo thcsrS, 1. 10 · l} for
va lid ity of hi P
.
cc
_
• from 1hc mar_l-ct an
d pr.oCUK~ tJic QUlputmain
to Pro ve the o.d • • · • ... th e
j- UlL ri ;i,
f.!c I lnl
the - marke t,_ I he) \\ ere lar- • er , \\ 110 \\Ould
LC l •

-----
rna kes use of the da ta on.
~ ' l rc . 1,~.....
orn - -actrvr -
~9 -ll - -
cos ts and return s or n1_ill!>[
- t
132
AGRCULTURALECONOM~S

lh1.: C'>; ,-.1cn1..I.' ol ,cro , alu1.: labour 111 traditional activity at a nearby site. 1 he 1,wo ex ample~ pertain
,\~r\1.ll llurc ~chul\1 qucc;\1on-. lhe \-::tl1u il) ur both 10 ( ") ~OJl.'>lruCl ion o ( a caad 10 Peru_an9 (h1
con'itruction work in a city in Brazi l. Schultz found
i\ccnrdm g to I c\.. ;rn ~ the \\\ O rcal!ons arc ~ha~ a ~ It of withdrawal of labour from agriculture
l I l l ,1ctor ma, kcl 1mp1.:1 lcction2.,.. and (2) l.imitcs!_ in these two cases, agricultural production in these
tcchnicol c,ub-.tj_tulab11it)' of fac to!:.§.. ractor market countries dec lined. Schu ltz thus concludes that
1mpcrlcc11nn~ arc likcl) tn kau Lu cxcc.ss...!iupply of ma rg inal pr oduc t iv it y of labour eng aged in
1.:cr\:\111 lac1nr, csp~cmll) \ub1.2ur wlll:.n compared with
agriculture is positive. He \.\TOie in 19561 ··1knov. of
th1.:1r tkmand in certain parl!:> of the ccono111y. Further.
no evidence for any poor country anywhere that
,rthe variou, factors arc substitutable for each other would even suggest that a transfer of some small
on\) upto a certain limit and thereafter, they become
fraction say 5% of the exi sting labour force out of
comp\cmcnHuy in nature. one of them may not be
agriculture, with other things equal. could be made
full) used s1mpl) because the other factor is li mited
,vithout reducing its production.'·
m c;uppl) Labour can be one of such unused factors.
According to EcJu'lu-5 . 1.: , en_the highly labour In his later book, "Transforming trad itional
m1cnc;1, c techmquc-, in agriculture require some agriculture" he also cites the ex.ample 0Li □ 011eoza
mm,mum amounl of capita l and that amJ.lWlLoi.capilal )hat raged in Ind ia in an epidem ic fonn in I9 I 8- I 9 10
ma) not be a, a1lable in a backward agricultural show that ze ro va lue labour does not ex is1 in
cconom~. thus lea, mg the e,i stillg labour panly traditional agriculture.
unu11 llc;cd
Influenza took a toll of about 20 million peopk
Schult7 disputes both of these explanations. m India. Th is ~oQ_stituted about 6% of the population
\\'hik he di<.po\e, of the fITTt argument by simply in 19 18-1 9. Relatively speaking. the incidence of death
~a) ing that man-1.'. t im_perfcct1ons dcsc.ribed by Eckau!) among the active workers was substantially higher.
are not rele\'ant for explai ning the doctrine of zero
According to Schultz. whereas the active labour
value labour. he questions the , alidit) of the second
force in agricu lture declined by 8% as a result of
one. He quotes V_lIL<;!' ,.. ho sa} s. " I find it impossible
to concei, e a fa rm of any kind on which, other this epidemic, the area sown was lower by 3.8% in
factors of production being held constant in quantity 1919-20 as compared with 19 I 6-1 7 (used as a base
and even in form as well, it would not be possible by Schultz). Schultz assumed that area sown was
by known method,;, to obtain some addition to the the best proxy for the agriculrural production and
crop by using add itional labour in more careful therefore inferred that production 100 would ha, e
selection and planting of lhe seed , more intensive fallen because of decline in area sown. Schultz found
we_eding: cultiva1io~, thinning and mulching. more that the percentage decline in area sown was 1.he
pamstaktng harvcstrng, gleaning and cleaning of the largest in Western and Northern pan of Lhe counrn,
cr~p:" _Schultz th~,;, also quelitions the assumption where the devastation caused by the epidemic was
of limited technical substitutabi lity of factors in relatively larger.
agriculture, Through such examples, Schultz has rried to
(8. II) Evidence by Schultz to prove that zero value pro~~ th at marg inal productivity of labour in
la bour docs not c>.is l in traditional lradit1onal agriculture is not zero and as such. thl•re
agriculture is ~0 di sgui sed unemp loyment in traditional
1
agriculture •
Schull~ has tried to adduce evidence to prove
that there 1s no zero value labour in traditional (B. Ill) Cr iticism of Sc hult z's views llbout
agriculture. In the first instance, he has cited two disguised unemployment
examples from Latin American countries where labour Many argumen1s haw been put fonh to proH'
was wi1hdrawn from neighbouring fanns in order to ~hat Schultz's vie\\ s about disg uisi:-d unemplo) flll' " 1
meet the increased demand for labour for construction in t ra d.lliona · 1 agricultural are wrong. Some O f t Il es~

•
• It is
•
interesting
•
10 note 1ha1 Schull/ hns. at one ~1011c
0 •
bc1·,1.:., c:d th at d1~ou,
. .~ ,,t ~ ---
,,,i:~
d d · · 0 c~,,nN
\\Ith trod111onal ogncu1turc (See ll .N. Report entitled Measures f · " . c, un1.:111p1O)mc nt I c, ,s1 I trii•,.
J 957). or Dc,·ctopmcnt of ll ndcr-dcnlopcd Coun
..
TRANSFORMING TRADIT IONAL AG RICULT UHE
engaged in agriculture is lower than that of labour
engc1ged in other sect~rs of th~ econom y when cost
of transfer of labour 1s taken into conside ration. It
may otherwise, be quit<;. big!) This is what we u od
in develope d econom ic~ This implies that ilicr.e. is
excess of labour io..lbe agricultura l sector and that
is should be transfer red to non-agr icultural sector.
(c) Margina l product ivity o f a pan of the labour
engaged in th~gricultural_sector.Jl; Lero.
Schultz does not bel ieve that the third situation
exists in a traditional agrif!!.IUlfe. Acco.rding to him ,
it can be ven'._lo~ (as in s ituation 'a') but can never
be zero and .any- trans fer o( lab.ourJ rom the
agricultural sector to the non-agricultura l sector wi ll
alwa)S, reduce to tal production in the agricu ltural
sector.
(8. 1) Schultz's views about the reasons for the
impression that zero va lue labour exists in
traditional agriculture
Schultz has tried to show that there is no zero
value labour in a traditio nal agriculture and he has
given some evidenc e to substantiate his views. But
before doing that, he has taken pains to show that
the notion of zero value labour in agriculture has
been conceived on the basis of some wrong empirica l
as well as theoreti cal ana lys is. G
1 "'
1C(t 1 lJ l' f•
(I.a) Empiric al R easons 5e.q,.,~("U.( 1, "f\P-"1 ,
According to Schultz , the follow ing facts have
given rise to the idea that zero val ue labour ex ists in
traditional agriculture :
{I) During the Great Depress ion of the thirtie~.
the highly industrialised countrie s suffered from mass
unemployment. Many factor ies were either closed
down or they had to cons ideraly reduce their
product ion. In the predo min antly agric ultura l
countries, there was no ev idence of unemployment ,
even though these countries, too, were hit hard by
the Great Depress.ion. It was felt by many economists
that, as during depress ion, unempl oyment was bound
to be there in these econom ies as well, the only
'logical' conclus ion that could be derived under such
circu msta nces, was th at in s uch eco nomi es
~ne_rnployment instead o f being open, as it obtained
tn industrial econom ies remaine d concealed or
'disguised'. Such a view ~ersists ti ll now. According
10
~chultz, there was no questio n of unemployment
during depress ion in the agricultural sector si mply
13 1
because no farm (unlik e 1h1.: fa1..to 111.:-. ) wil., 1..lo-.1.:cJ
down Agricultura l produu ion wai., almi,-.1 th1.: !ialllc
during dcprei.,-. iun "" 11 ' "'" in 1hc period pri,;t.cdtn g
dcprc-.s ion.
(11) Th£ proponents of tJ1c doctrine o f 1.cro value
labour in agricul tu re, accordin g lo Schult, , have
treated agricu lture a-. a perenni al cH. t.upatw n,
calculated the hour<, of wurk pul in by :t w0rker
during one year and then u dculat<.:d tin: numbcr of
days put in by a worker on the ha~1:, o f IO hour'>
per day. Obviouc;ly, these ca lcul a11on.., would 1nd1t.alc
under-employment of a worker for quite a -.ignilica n1
pan of the year. They have ignc>rc<l the c;ca'>onal
character of agriculture and al!.o the fact that 1hc
lack of work during ofl ..ca:,on cannot be con'> idcrc<l
as unemployme nt so far as the part1culur seusoncil
occupat ion is concerned. /\econ.ling 10 <,chult, , afte r
the total number of days tor whic h the labourer has
worked on a fam1 , hav~ bt.:en calcula1cd 111 the way
described above ii should have been compared on ly
with the number of days fo r which the work is earned
on in agricu lture, due to i1 s c;casonal nature.: (and
not with 365 days ofa year) if the deg.rr..:e of concea led
unemployment of labour wa~ 10 be calcu lat ed.
(iii) Pronoun cement s b) certain agricu ltural
expens from advanced countr ir..:s part1cula1 ly the
U.S.A. have also strength ened this impres..,ion about
existence of zero value labour in backward agricullurnl
economies. These experts have found that evi.:n rn
their own country, there is surplu!) of labour which
needs to be transferred from the agricu ltural -.ct.tor
to the non-agr icultural sector ( We may note hac
that according to Schultz, this is not a s ign ol
existence of zero value labour in advanced economics
bul only indicates that margina l produc11vity or k1bour
in the agricultural sector is Jes!) than thil_t of liJQi)Ur
in the non agricultural sector). ~i~h !j__Uch view~ cibout
their own econom ics, when thc'ic experts find the
workers in backward agricult ure. idl ing away thei r
time, they become fully convi nced about thl.! tr
disguised ~nemployment. They, in fac t, conclude that
not only labour but cve_1! ot~er fac tors like land.
equipment, animals etc. arc Lmtler-employed.
(J.b) Theore tical Basis
Schultz feels that besides wrong intcrprc li\11011
of certain facts, wrong theoretical deductio n 100,
has led to the be lief that ;,.cro value labour exists in
traditional agriculture. For example, a<, Schult, point,
out, ~ ~a4.Lhas given two tltcorc1ical rca, ons fo1
1J I
h1.•1. ,l\l'•,· he 111,,I-.I.', ., po" n" c con1r1hution tl, output.
II ,1 cc,1,1111 pc1cc11l,1g.l' ol lobN11 ,._ tal-.c11 off onl)
110111 th1..· lnmll) l',11m,. the prnducuon will 1101sufTer
h ..:t,1\1~1.· mo,1 ptllbJbl~ 011I~ the ,cro value labour
\\11\ lw tni..l'I\,,n ,r
But \,,hllurl.'rs Jrc tal-.en oIT from
th1: ,11,.?.11cuhum\ ~ccto, irrcspccti, c of the fact whether
the) :m.· \\Orkmg ,.m thc11 o\\ns fonns or 011 some
othrr frmns. :is hired hands. production can suffer
,\l kn$t on thl' farm ::. using hired labour. This cfTect
inn, c,cn pa-;ist for n \,n,g time if labour is not
WI) mnb,k N,)\, . nature. through innuenza. did not
m.1\...,· an~ dist111C tio11 between the family labour and
the h11'.'d l,,bour Pro<luctmn could accordingly suffer.
$ch111l1. h.1d 1g1mn·<l the fact thnt labour is not vel')
mohik from fann tn l.1m1 If loss of hired labour had
bct·11 full~ m:idc up b~ the mO\ ement of some surplus
t.,bour fwm the famll ~ fanns. production might no1
h,n .: f.ilkn JI all
Again. according 10 Sen. Schultz took the fall
111 :\Cleag:c undt•r crops :is a sign of fall in output.
.\ ccordmg. ll.' 1nm. it i:- quite possible that total output
incn:J,e~ de,pllc J fal I in acreage.
11111 There 1s a kdmg among some economists
ta~ alrt•JJ~ 111d1cated) that Schultz's whole thesis
concerning zero ,alue labour (as ,,e ll as that
concerning pcrfrct allocation of resources) is
conclus1on onented . As "e shall see later. Schultz
has put forth the suggestion that the only way to
transfonn the tradit1ona1 agriculture is to adopt new
tcchnolog~ for production Now. output in any
,ec:tor can be increased either b) ( I) removing the
m isalloca11on of resources. thus eliminating all
,.,.asteful use of resources. (2) b) using unutilised
resources and (3) b) changing the input-output
relationships. ,.e.. through change in technology .
Schull1_ in his keenness to emphasise the importance
of the third a lternative, tried to rule out the
possibali~ of application of fi rst two methods. So,
he, some how or other, tried to arrive at the
conclusions that (a) 1here is no misallocat ion of
resources in agriculture and also no open
unemployment tn agriculture. and (b) there are no
disguised I) unemplo) ed resources in agriculture.
Nm,. ,, ith regard 10 (b) as above, one could
agree wtth Schultz so far as the supply of capital
assets \\ as concerned. No farme r would like to have
more of a capital asset if return from it is not
commensurate with its cost. As such, norma_lly. there
is no chance o f there being any surplus or
AGAICULTUAAL ECONOMICS
disguisedly unemployed capital a~c;e1. But the same
argument cannot hold good for labour. Labour
besi des being a faclor of production is also ~
constituent of the society. Acquisition of this factor
is not governed only by ilS contribut ion<i towards
production. A son or a daughter is needed becauc;e
of social, emotional , religious and many olher
considerations. Their creat ion is not governed by
cost-return considerations only (as ic; the case with
capital or other product ive assets) and there is every
possibi lily that the total population of a country
and therefore. lhe labour force may become more
than what is needed to handle the other available
prod ucti ve reso urces profit ably. Under such
circumstances, the existence of zero-value labour in
a traditional agriculture is not at all 'iUrprising
S ECTION Il l : SCHU LTZ'S SUGG ESTIONS
FOR TRA NS FORMING TRADITIONA L
AGRJCULTURE
According 10 Schul tz, traditiona l agncu!rural
indicates an equilibriwn:wjlh..auQ~Y..!.tivatiou.reTT],amang
static fnr a long time. This equ ilibrium in tum implies
that any further increase in the quantity of ,.arJOlH
factors of production based upon this static art of
cultivation will only reduce tbe__profits alread~ being
earned at the equilibrium level Not only is there a,
equality between the marginal returns and the cost
of various factors of product ion in rradit1ona'
agriculture, lhe marginal returns themselves are aM
gu1te low when compared with those of factors u~d
in non-trad itional agriculture (Or to put in Schulu's
terminology, cost of income streams in tradir,ona
agriculture is relatively quite high, when compa·.1
with that in modern agricu lrure) Incenti ves for furn!.'!
.investment in the existing fac1ors of production •
traditional agriculture, thus lotall> d1c;appear Ard as
a result, increase in production comes to an end
Citing an example of traditiona l agrrcuhurc in
Guatemala tn which there had been linle ncl fonna' on
of reproducible capital for a long time, Schult1 sa~'
that the real reason for such an investment bcha~ our
in this communit}' was not that there was no h.t!J>l of
thrift among such commun ities or there ~e-r: r,o
entrepreneurs to take advantage of the inve«1rM1'11
opportunities that presented themselves. The r...~I
reason lay in the lack of profit.able inve\trr-efll
opportunities as explained earlier. So, ifrhc trad ,· ~I
. I
agncu lure is to be transformed, steps have t< cc ,,.
Laken Lo encourage the u5e of factors which ar r
TRANSFORMING T RADITIONAL AGRICULTURE
r . :l' follows .
;l l ' ~
(iJ Scl1u1t1·s assen ion that 1hcrc is no zero value
labour in a 1rad1tio11al agri:ulturc has been challenged
11 emp irica l grounds. l· or example, Mellor and
~tt:"cn·s sllld) in rhai land. Maj umdar and Oesai's
~tudic:i 111 India and Rosenle in-Rodan·s study in
Sou1hcrn Ital). t<.1a11t.lclbaum·s stud) o f Yugoslavia
& Gn..-ecc c1c. and U.N.O. Comminee's repo11 on India,
p3~is1on and Pl11hppi11cs bcai ample evidence of L.cro
mJrg111JI p1oduc1i"i1y of labour. ·c1ltho11gh 1hcsc
studies a're 1w1 pl..'rfcctl) free from ~omt· conccptu;i l
mor~ Nas11 Ahmad Khan in IQ6 I and Gcorgescu-
Rocgcn in 1960. too. supported the vie" that
disguised unc111plo) mc11t e, istcd in undcr•dnclopcd
o,cr•populatcd countries.
(ii) It has been poi nted b) Bhagwat I and
Chakravnrti that main argument advanced by Schultz
10 prove that the re is no zero value labour or in
other words. disguised unemployment in a traditional
agriculture 1s that "he n the labour had bee n
withdrawn from agricu lture in a particu lar region,
production " as found 10 have falle n. They poinl
out that such a tendency can appear even in an
agriculture \\ ith disguised unemP.loyment if cer1ain
t)pes of fam, ing arrangements exist there in. They
e:-.plain their point of view ,~ ith an example. Suppose
a family consists of N ., .L agricull_!.! ral workers. N
workers work on their o~n farm ~ d the (N , I)th
worker \\orks as a hired labourer on some_other farm.
Suppose. N v.orkers. have an earning of Rs. X from
agriculture. each gen ing Rs. X/N as his share. (N ➔
I)th ,, orker also is supposed to be gen ing his wages
equal to Rs. X'N. Now. suppose 1here is some surplus
(zero value) labour among lhe N workers working
on the family farm. (Disguised unemploymenl exists
only on family farms.) Suppose one of them takes
up some off fann job or dies. Tola I agricultural outpul
on the fa milv farm does not fa ll as the outgoing
labourer was' a zero" valu~ labourer. Share of each
remaining worker wi ll now increase 10 Rs. X/(N- 1).
This increase in earning is likely to affecl the wages
~hat are demanded by the worker of th is fam ily who
is working as a hired labourer on ano1her fa rm. He
m~y now demand higher wages. Ir such a situation
arises in a general way as it mighl have happened
111
case of in fluenL.a in India. supply price of workers
working as hired agriculiural labourer's is likely ro
increase This wi.11 result in less employment of hired
l~bour and co11sequcn1 ly production on farms, using
hired labour. will fa ll. Total production in agriculture
133
will thus fa ll, eve n wh e n th e re is d isgu ised
unemployment in the agricultural sector, when some
labourers are no longer available to work there.
Mellor, too, has arrived at the conc lusion that
in a tradi tional agriculture, even when there is
d isg ui sed un empl oyme nt in the ru ra l sector.
agricultural production wi ll fa ll wh en labour is
withdrawn from agriculture.
(iii) Bhagvati and Chakravart i have, in fac t.
refe rred 10 a study by Shakuntla Mehra. It was found
by the latter tha1 Schu ll zian co nc lus ions tha t
agricult ural production in India fell after the epidemic
0f innucnza were al so not correct. According ro
Mehra, if we look at 1he whole year. after the attack
of innuen1.a, the dala regarding produc tion did show
a downward tren_d . HO\~e~r. if we look only at the
first half of the year after the epidemic, the production
did not decline at all. This only means that decline
in productio n was not due to fa ll in work ing
popu lation but due to some other causes.
(M Ghatak cS!!liectures that decline in area under
cultivation after inr.uenza may be due 10 a fa ll in
demand for agricult ural products because of a
decrease in population. The decline in area under
cultivation may have nothing to do with the reduction
in 1he avail abil it) of labour with pos it ive margina l
productivi ty.
(v) In fact, some ec;onornists ha , e not accepted
the ouLbreak of influenza. even as a sui,table example
for the purpose. Influenza did not wipe out a port ion
of the popu lation only. Rather, it unseMled the whole
nation. All fa milies were unnerved. No wonder in
such a case. even t_hose workers who were in the
category of non-zero labour could not contribute
thei r bes1 10 agricultu ra l product ion ,rnd the
production, accordingly. dec li ned
(vi) Sen has questioned Schultz's conclusions
on another count. Not only does he quesrion the
accuracy of data used by Schultz. (SchultL has
ignored product ion in some of the provinces without
ass igning any reason) but also questi ons the
methodology used for arri ving at his conclusions.
Sen also fee ls that Schultz J1as nol paid any allention
to the way. the population is taken off the agricu ltural
sector by an epidemic. Surplus (i e dic;guisl'al)
unemployed) labour exists only on fami ly fanns. A
hired labourer is always a non-zero ,:iluc labourer.
The employer pays him wages 0111) because he
contributes someth ing to production. I le is hired
:rn AORICUI TURAL ECONOMICS

n11d,1um, arc llc cc,,:11 \ ln1 1hci1.rlkclivc us~ :mu because of two rcc1-;on". 1-'ir., tly , a .,privau.: a11en
1\ llfil,1hll ily ·,- • C, ' \
may not have s;1I ~ t _~i_m.:cc; nnd even .m~·
1
Sdrnll, i, uf lhl.' vie" \hill thl!rc a1c tlm:c 1101 ht.: tempt ed to pr_o v1d1.: Jor a well CU!!!Qpcd
or
1111po,1am :,lcpli i11volv1.!ll ill 1h1.: pr01:c:;:, ult imutc lnborntoi:y_or a w1.:ll lramcd ~,arr lo carry on research
, upply nf the 11e\\ fac tors 10 th1.: pl!opk who have a vent ure which may take many year~ of hard
labour to reach a succcssf ul conclusion c1nd ma}
h) 11,e 1hem I hc:-l! .,re (11) u:scw:ch a11d_g~v1.:19p.mcnL
eve n so me t imcs prove lo taJly unproducti\•e
ol lit.:\\ inn\1ts. (I>) 1.lci1r.iblllio11 of new i11r,n1ts__to
Secondly. the ~ odits of u succ1,;s~ ful research arc
c11l1 iva\m"i and (I') Dc't.clopmcJ1LoLl!..xicrniou sciv iccs
nol going lo accrue tot.ally to the firm conducting
lt11 1\lc m:w inputs We Jcscribc these stcr s in -,omc
the research even if it holds a patent right for it~
deL11\ in the pnrng.raphs that fo llow :
techno logy or for the product. Part of these benefit\
{lU.i) HC!S<'fl rrl, '""' l)el'e/opumlf of New arc likely to now to the other firms or to the
h 1ct11n hy tl, r S11ppfler.,· :/\ccoruing to Schult , , in con,;;umcrs. /\ pri vate rirm may, therefore, be
1hc p1c-;c111 day world. science and technology play unwilling to take up a research project. On the other
a crucial 1olc in the mod\.~m isation or trndi tional hand, the state or a non-profi t mak ing agency has
ag11cuh111 c llowcvc, . Schull,. has n feeli ng thnt a~ no such considerations. For them, lhc concept of
the .,rt of culti vation in a trndi1ional agriculture is profit has altogether a d ifferent meaning. Bcncftl to
~1.11ic ro, a long t im1.:. it may not bt.: pussibk to any member of the soc i1cty is, in fac t, a part of tht'
devclnp .1 11c\, foctor or produc1ion fro m within . 111 profit accuring to the s1ate or a non-profit making
lw; , irn , 111s desirable to impgrl_lhc nl.!w facL01s as agency. Their concept of profit is thus quite "idc.
well a, the tcchnolo~y !or their dcvdopmcnt rrom and therefore, they may not hes itate to take up a
thm,c cou111ric!> which have motkrni scd th eir . research projec t even when it appears to be Lotall}
ag, icuhtm: This will be the least costl y method of unpro fit ab le for a private agency.
p1 ocurmg a new factor.
So, according to Sc hult z, research for IL
/\lier importing these inputs into the country, <levelopment/adaptat ion of new inputs should bt'
these should be adapted \o the physical conditions the responsibility of the state or state supported
Q.Llbc impQiling, country. This is necessary because non-profit making agenc ies.
the physical conditions undcr which the given fac tor
was original!) deve loped, can be quite different from Schultz considers research and consequenl
thost.· obtaining in the importing country. There may deve lopment/adaptation of new fact ors of production
as only the first step in the policy of transforming
be dilforences in soil, climate etc. This. in other words
means that straight away use of the input, aflcr it~ traditional agriculture. According to him, c ~1}
import , may not be very productive and pro li1able. q;x.e,lopmcnt pro 0 rammc in India duringJhc fi lies
Research and development faci lities !1ave, therefore, fai led despite theJarge...s.c.ale cxpansi.on of exren~ion
to be provided on on extensive scale so that imported servi ces s imp ly beca use no ne_w in puts "ere
input can be ;:tdaptcd and produced according 10 developed in the cuun.t.cy. He feeJ~ h:it educating
the requirements of the agricultural sector of the the rural people is all ri1ght but "such an in\'csrm~nt
inp111-impor1 ing country. must be built around the product ion and e,ren5ion
Wit h regard to the provision of research and
?f new knowled-ge backed by req uisite supply_for
11s applications.' '
development faci liti es, Schultz mises_ an impgrtant
question. It is : who shoutd.m:ovide these faci lit ies? (B.l. ii) Th e Distribution of Nell' J11put.s :
s
The state or the private agencies? Schultz sugge~ts As uming that the new inputs suiting the ph) s,ca~
that so far as the basic research and even a part of conditions of agriculture have been developed. ihl
, • ' • r; 111r1r
Lhc applied research is concerned, it should be can~ d next step 1s to set up an mfrastructure ,or
on in the state run public laboratories or by the distribution.
non-profit mak ing agencies supported by 1·he slat~. ..l · 1. ut 11rhO
1-iere
--1 •
agam, Schultz is quite pa, 1,culnr aL1~ thl'
I le is douhtful about the effectiveness of the role should take up the responsibility for rnnt-ing 1J
played ~yJhe private pro fit making agencies in •inputs available • • \\'OU
to the farmers. This ques110 11 1 r
carrying on the basic research. He holds such a view n0 t I,ave arisen · · the inputs wel'e nlrend), JJOP11 "
1f

\
 --· --
\f!ANSFOAMING TR AD ITIO
NA L AG RIC ULT UR E
•t'onal in character and which fil.J 135
tnldI I be _Same lime,. and how much to produce. The farm
are also more• pro duct1.yc_ 11l
. ,I' ers are supplied
.lerms o""" co· ~s~ .... __
, the th e inputs by · the m te and in
existing ones. return~ they are
Aceording to Schultz, pr9blem of expected to delive r a p~rt_o f the
prQduce toJhe.state..
transforming Working of cajlective an d. ,s
uadiuonal agriculture, js basica_ ta te _f a~ ia is
ll_y ~ pro~lem of an example of command approach.
creating new investment opportunt
tles m agriculture. According to Schultz, market app
And this is possible only when the roach is better
equilibrium of than the command_~o ach. In
the traditio nal agd cul tur eJs disJur market M?Pr~ach,. _
bed through the the farmers who are the ultimate
introduction of_ne,w...aAd at the. jud~ of the efficiency
same time more of a factor are given full freedom
productiv~ fa5:tors of producti~n i~ to...decide whether.
agr
also imphes that the art of cultwauon i~ulture. l}lis to use ito rllO tand if yes, in wh
~t quantity. I~ case
will undergo a of command approach, the new
change . Ac cor din g to Sc hu ltz inputs are rationed
, agr icu ltu ral _~ out to the farmers for com pul
transformat ion will follow only_ ~ry !JSe. !!l such a
a tt.chnological case,'"" the loc!l_conditjons of the
uansformatiQ!l:..._And techn9l,Qgical ..sail are, totall)'_
tran
as per Schultz, implies the intr.oduct io_n sforn,atiQD , !&!!_o~~ According to Schu!tz.jhe
..situat.io.ojn case.
of some ne'-! of command approach ca!!_be CO
factors of production or of some l!ll>ared to ab sen ~
new agricultural landlordism. This is especially
practices or o{ some new skillu nd so when the stat~
sometimes even owns all t~ ea ns....Q.f production
the dropping of some of them fro and when ev~n
m the process of the land betonas to the-State. All
cultivation. types of incentives
on the part of the producers and
Schultz has made various sugges ...even their skills
tions, in order are lost.
to ensure that new and more eff
icient factors of After recommending mar~et_,!pp.r
production are used by the farmers ~ h. SchuUz
to take agriculture suggests other steps wh icfl- wjll
oot of its traditional rut. accelerate the PilCC..
of agricu ltural tran;;formation .
' The following paragr aph s
de scr ibe these
suggestions. (B) The Process of Transformatio
n
Accw:ding to Schultz, 08 " .the
(A) Market approach Vs Comm
and state or the
approach society has been at?le to ide ntify_th
c..fa.c1ors or skills
The first point thaLSchultz makes wh ich constitute technological tran
,~ ~ith regard sfo.rmation, the
to the policy that sl\Qutd be adq.pte maj or problem that comes up isJlow
d to en~ure that to acquire, adapt
the new f a ~ are_!!i_ed by the fan and make them acceptable to the
of this policy can be either the ma
ner~ TheJ>asis Ac cor din g to Sch ult z.,_ the wh
faoners f.or use.
rket app roach or ole process of
the command approach. Mark~ e!_ transfo rmation can be explained
oa
that the fanners should beJe.flfi:~ e ch impli~s of and demand for the new fac
in terms of supply
cide whether tors. It has to be
to adopt a new factor or no1. Let the ensured that on the one han<!,
m beg ~ided by new factors o(
the profitability of o;w factor s, as E_roduction wh ich ~ real!Y more...
the market for determined by pr.Ofilablc;Jh~n the
ces . Th e res pon sib ilil.)'._of the traditional factors so.Jar Lil use.
are made.a.Y1lllable
Government, und e.r __m ark ~p pro in the market and on the otb.er..
ach , should be .t.he demanders of
~fi ned only to measures for dev such fa~!ors ie., the fanners wh
elop_ntelll and o~r ~ s_o far usin_g
!t' 1o n ofn e~ agricultural ini)"uts~ the traditional factors , are also wil
.QublicitY about ling ta accept them .
d_~ve\opme_nt of necessary s.ki Only then, these factors will be
lh... through actually used in
~i on and training, pro~ision
of
c~e
such other measures. But, in no ~~ ap. creclj!_
agricultural production.
the farrne~s Schultz, in the first instance,
-~ be coerced tou ie the ne w inp dis~usses the
uts.__t:1exico IS problems and suggestions connec
~ to be a fine example of market approach.
ted w1th supply
of new factors .
~case of command approach, the
farmers who (8.1.) Sup ply of the Ne w
- . to be the ultimate adopters of Facton
the new factors On
• ;"P ly directed to use them. They the s~pply ...side, the ultim~tc obj ~ct
have no choice is..to
dee·~ regard. It is the state that takes
tsion about what to produce, how the
ensure that ·the new factors are
ultimate ~ d tha
to produce
a~ lab le
t too, at u:asonab1c pnces, Bo
e
'"t~p~
TRANSFORMING T RADITIONI\L I\GHICUL fURE
" ,th th~ producer-... I11 I hnt ca'-L'. :Ill) ng1.•. r1cy wou Id
hl' "tll111g. 10 .1eccp1t the job l,l'tlb tributing thei.nputc;.
1lo" c, er. in case or uistribut ion of a new input, st i11
untl':-tcd by the tLScrs. ce11ain dinicultics crop up.
The demand for the input mny be very lim ited i11 the
begi nning.. On the ot her hand. cost or Cllll") into the
mnrl-.c1 ma) be quite high. r he cost or cntf't into the
market consists or : (,,<1 the cost _QJ nd~1ptali~u. Some:
cost may h:1w 10 bl! 111cu1-rcd tor nuupting the input
10 the needs of the local community even ii" the basic
111odilic::itions in the input have been incorporated
m the state tin:im:cd pub Iic laboratories or by the
s1a1e supported non-profit making agenc ies (/,) SQS.1
oipr.QYl d1ng lnf'orma1ion to the users about the new
Jrm.1lLThis cost ma) be quite high in a backward
economy because of low level of literacy obtai ning
there . In such an economy, effect ive use of'
newspapers. technical journals etc., cannot be made
for giving pub lic ity to the ne,v input and (c) other
costs 9r enti;, . Some expend iture, for t:xamplc, may
ha,c to be incurred in order to meet the opposition
from well c nJrenche d ves ted int ere sts. T he
distributors may face opposition from the suppliers
or traditional inputs. This, in tum, may take the fom1
of obstacles at the political or social plane.
Because or these ditliculties. Schultz suggests
that in the initial stages, the distribution or new inputs
should be taken up by the state or by non-profit
making agenc ies. T hese agencies may be local
~xperimental stations, philanthropic foundations like
~ d tQ!!!l_datu:rn jn Jnd ia..L-or some governmental
agencies etc.
Once these agencies have been able to g':!nerate
a demand for the new inputs, private profit-making
!inns may take over the job of distributing these
inputs.
(8.1.iii) The Deve/opme11t of Exte11sio11 Services :
Availability of a new p11ysical input is of no use if
the fam1ers do not have any knowledge about the
method fo r its use or about its effectiveness etc.
Even when the new input takes the form of an
agricultura l practice only, there is a need for an
agency to convey information about it to the farmers.
There is, thus, a need for a we ll developed extension
service for passing on the new scientific knowledge
to the producers. Schultz fee ls that due to high costs
involved, the extension \\/Ork may be taken up by
the state itself.
137
So, on the supply ~idc. overall :suggestion given
by Sch11lt1 is thut the dcvc lop111cnt or adapration or
new inputs (nml the research necessary fo r it ) should
he ca1ricd 0 11 e ither by the state ru n laborntorie!, or
by the state supported non-pro fit making institut ion!.>.
Extcnc; ion services should he nl<;o run hy the state.
Thi.! distribut ion of new physicnl input s should be
unJcrlnk en by the stal e or non -pro fi t making
ins1i1111io11s only in the initinl stages. Al a Inter sl!lgc,
the private fim1s <;hou ld 1c1ke up the job of distributing
the inpu ts.
(ll.11) Dcmnnd for New Faclors : Not only ha.,
the state 10 mnkc cc11ain that the new factors M c
availohle in the market and the U!>crs arc made aware
of the ir avai labi lity, bu t ii c1lso has 10 ensure that
the users arc willing IQ. use it. Or in other words, ii
has 10 !>ec that n dcJ11and_ is _grn~atcd for 1hem.
In the first instance, Sch ultz tri es to dispe l a
few misconceptions about the factors promoting or
hi ndering the use of new inpub. For example.
according to him. it i::, wrong lo assume that farm ers
in Iradi Iiona I agr icu It ure, 1}IC..S \l.lradiliClll.b.o_urui.LhaL
they ~ ~t _Qc_ williu.g_JQ L~c the ncv. inputs. He
says, " The notionJ hat a lt __[armcrs ;,lJ.:S: hanq_cuffed
~Y 1racli1ion, mak.ing_iumpossib lc Jm _them LO
rnoder!!ise agrjcl!_lturc belongs 10 a rcaJm.o.LmytJ1.··
Sim ilarly, he points out that di fferences in the
acceptability of new inputs by fanners. in trad itional
agriculture do not correspond to the differenc~~ j n
educalio1t or in the personal it}' of the fa nncrs or in
their social environment. He asserts that fann crs in
India, f>eru on Panajachel_community in Guatemal<!.. .
'a~e as ready to ~cept and ~ traduce changes in
a!,.rriculture as those III more advanced countries. What
is necessary is the ava ilabil ity of normal economic
iJ1centjves for tbe change. Stud ies by Dhararn Narain_
?nd Raj Krishao in India als.Q_confi rm th is. We ma)
also quote a w..cllJ<oown lndiruLSfientist, M. S.
,Swamjnathan in support of S~hultz. I le says. in
connection with the green revolution in Ind ia, "The
wheat example clearly g_isproved old notions_on the
conservatism of Jann1i1g_ community and their lack
of interest in new fi ndings and esta blished beyond
doubt that our peasants wil l take 10 new technology
speedily and efficiently provided they arc convinced
that technology is economically c;oL111d and they nrc
enabled to adopt it through appropriate input supply
and extension activities."
 .,
l TRANSF
ORMING TRADITIONAL AGAICULTURE
TION tV : CRITI CAL APPRAISAL OF
SE~ SUGGEST IONS MADE BY SCHULTZ
HI TO TRANSFORM TRAD ITIONAL
AGRICULTURE
\\'e must admit that basic suggestions put fonb
b, Schullz. 10 transfonn a_gric~lrure a[_e unas~ail~ble.
io bod) \\ ill disagr~e wllh htm s~ far as his views
Qr
about tht' introdJl~llQJJ__ ne,.,, mputs. or ab_o.ut
in,esrments in lmman be10gs are concerned His
,ie" s about the role Qf tlw._SJa.te in making the new
inputs available is ?lso a~cept_a_!>le. !he recent green
revolution in lndia which JS ma10ly due_to---1.fil
adoption of MW se~d-cum-fertilizer technology
confim1s the va lidity of Schu1tz·s suggestions.
Similarly, with the help of hi-s analysis. we can also
ex-plain \\'b.) cro_r~s_of..r:up_~s spent on agricultural
dmlopment during the f i ~ Q f planning
mIndia failed llLhring_ab.o..LJI a sigoi Geant increase
in agnculruralproduttion. Investment in conventional
inputs was not very productive.
Ho\\ever. this does not mean 1ha1 5-chultz's
analysis doe__s not_s.u.ffer .-from-any infirmities. His
definit ion of tracLitional agriculture and the
· " implications of s_uch a definition a r ~ o question.
:r
=
(We have alrgdy__exam.ined these implications in
details. For paucity of space we are not repeating
then here)
His2.!!ggestions for traasformin2 traditional
agriculture too, ar~ not comprehensive~
In the first instance, his un.due bias for market
approach se™-. to revea l an i1i,qlogi~al 1ilt_!<!tper
lhanan assessment of economic realitv. In Lhe initial
Sia · . •
ges of agncuin1ral transformation, the stare may
have 10 undertake many other acti.Yilies_.in the form
of controls and imervention than what has been
~uggested by Sch ultz. lijnanci.aLand material
~ ur".49:faiu.cagpmy are limi1ed. These have to
~ used in the OQtimil manner. 'o n ly a planned
onomv with f . . ..
\\'II
1 '.' • a set o national and sectoral pnonties.
ach1e~ t.hi .1.. • •
lllea - - .S_O..vJecttve. A fre e market economy
10 a~s _llnCJ>=0rdinated_decisions. This can often lead
for l'. imbalance between the supply and demand
,actors _ · th . the economy in question. In other words, his
no1ont •n e present case, the new inputs,
level rat lh_e national level but also at the regional
~Upp~rt tat7 intervention in the form of minimum
of new prices of agricultural crops, ceiling prices
restricitPUtS, rationing of new inputs as well as
Provisioon o_n movement of certain inputs and
l n of input subsidies etc., will be needed for
139
correcting these imbalances.
Moreover, market approach does not ensure a
complete hannony between the social welfare and
private interest or between the national interests and
the regional interests. Th is can be ensured only
through a central planning. According to W.A. Lewis.
' ·The market economy, left to itself, gives the wrong
answers in under-developed countries. Prices do not
correctly renect relative costs. Opportu nit ies of
reducing risk. through co-ordinar,ed action are
neglected."
Again. Schultz has totally ignored the role of
institutional reforms. in the trans formation o f
traditional agriculture. This constitutes a serious
omission from his thesis.
Further, Schult z has tota ll y ignored 1he
diITerences in , arious poor econom ies with regard
to their factor endowments. infra-structure necessaT)
for development. degree of commercia Iisation. ex1en1
of monetisation. administrative efficiency, etc. These
differences do aITect the extent of final use of the
new input.
Further. to rreat a farmer, onl) as an economic
man, is also open to question. There are many non-
economic barriers to technologica l change. Rel igious
beliefs. conservatism and fatal istic anitude of the
farmers. their tendency to rreat agriculture only as a
way of life. etc. can act as hindrance for adoption of
new inputs. Eicher is totally right when he sasy.
" Building the complex complementary package of
programmes (for technological change) is a major
challenge: · -
On the whole, we can say that Schultz's analysis
will surely be helpful in laying dovm correct priorities
for agricultural development and in selecting the
correct means to achieve the desired ends. But to
say that his suggest ions are all comprehensive and
are universally applicable to all economies with
traditional agriculture, will amount to an exaggeration.
Some additional steps have to be added and some
others dropped from the package proposed by
Schultz, so that it becomes completely relevant for
suggestions wi ll have to be ' adapted' to the social
and economic conditions prevailing in the given poor
economy before steps are taken to implement them.
Of course, his core suggestions of improving the
quality of both material and human cnp itnl for
transforming traditional agriculrure \\ 111 .:ii" o~s SW) .
 AGRICULTURAL EC0t10 1,11r,
, ,

Schultz. lhen points out that the basic factor (C) Importance of nrq uircd ~kill'l in A~ncult11r;sl
miring the use of new inputs is purely economic Transformation
character. h is the profitability of lhe new inputs It may be noted that availability of a n~w input
al wi\\ generate a demand for th em. And and even its acceptability by the fa rmer<, may .,,111
rofltabi\ity of a non-traditional input, according to fail to produce th e de'i ired rc\u ll \ /\ dd11i11nal
chu\\1. depends upon two factors namely, the supply knowledge and skills arc required for the u,e of ncv.
,rice of the new input and its prospective yield. (It inputs. If the farmers arc not imparted the nccc<M,rf
, i\\ be interesting to note here that Keynes has knowledge or if they themselves arc unwill ing t<i
tleµended upon the quantitative value of these very acquire it. the new input may not be u\cd at 11 11
factors, to detem1ine the marginal efficiency or capital). This becomes more important when the new inr,w.
A lin\e explanation of these factors follows : happen to be technically far <iuperior to exi'>ting one·,
This 1s the reason.why Schultz lays much empha\i·,
(B.ll.i) Supp(►' Price of-New lnpt1L'i: It is obviou~
on 1hc acqu isition of knowledge and 1,kill<l while
that profitability of an input ~ends upon its price
s11ggesting va rio us measure~ for tran ~forming
and the earnings through it. SchullLfeels that even
tradit ional agriculture. There was a lime when
when an input is profit~ble in a developed country,
agricultural production could be incrca<:>ed by bringing
it ma) not be so in an under-developed country
more land under cultivation. However, <,uch a c,itwi11on
because the new mput may be relatively more cosily
does not obtain now in most of the underdeveloped
due to some specific reasons. For example, the scale
countries. Land frontiers have already been reached
of production for the new input may be small in lite
Now the total product ion can be increased only b>
beginning, thus depriving it of th~ e ~es of
increasing the productivity of various factor<i of
large scale production ; or the jnpul is b.e.ing
production. And for this purpose, the quality of
distributed by the J)rivat~ finns and therefore involves
material capital as well as otf the human capi tal, ha~
some additional cost of distribution in the initial ;age.
to be improved. According to Schul12, better quaht~
If the use of new input requires some new knowledge
of materia l and human capital has. in man) ca\e<.
and skills, this too will add to the supply price of
more than neutralised the unfavourable difference,
the input. A_ll this points to an important policy
in the quality of land
measure. 11 1s that in the initial stages, it may be
necessary for the Government to _s..ub..sidise the Improvement in quality of human capital impht:,
production as well as the distribution of the new that knowledge and skills of the farm ers should be
inpu1s. increased. According to Schultz, this objective cat
. (B.11.ii) Pros~ective_Yield: Besides UJ&...s.uppl~ -~~~;h;:,e: ~n th~ee ways. These a~c _( ,~
pnce o[ the ~w input, 1ts_p!:Qs~ive yield is the .0 , ( 11 ) _ O.!.!_ th e JQb train ing 1hrou-~
t
other factor that will be consi_dere9__Q),'. the farmers gemonS ration, sp.~c1al sho~ te!!!L.courscs, vocation;i
to detennine its profitabi lity. The input is new and school~ etc and (111) school ing._L\ccording 10 Schult7~
the farmers have not been convinced about the schooling i.e.• imparting of genera l education b th-
t
earnings from this input. Tpere is unc~.n~intY..1Q. far ~eS form of investment in human capital. Analy!ling
as its yield is concerned.. They are ignoranl aboul ~rm data_for Japan, he found a positive rcla11on.1hip
the fluctuations in the yield of the new inp,uL from , tween nee output and the education of rice grower
1 says ·'Th · ·
re
year to year because of change in weather diseases ' ere is little doubt that where agricultur:il
insects etc. TI1e farmers will discount the p~ospectiv~ - g~owth dep~ nd5 upon technically superior foctors
yield of the new input for these factors and then ? production , the level of educati on plrl)', an
important role·· The ·d h f · I 1n
compare the resultant value with its supply price in HOII d · rap, growt o agn cu turc
order to determine its profitability. Obviously this nd
an a Denmark in uhe last quarter of I9th
. . . century and in ls I d · bk
implies that the clauned demonstrated yield of the b rae uring 1950s was poS\I
. . . ecause of large inv t · h 1· thn~"
input should be quite high not only for compensating . . es ment m sc oo mg 1n •
countries Studies b G ·i· h d o· ·I ·arl•
the fanners for its higher price when compared with b . · Y n 1c es an 1sser c t.:, :
.. . ring out the role of s h00 1· O f· f: eople in
that of the trad1t1onal inputs bu1 also for allowing the g h Of . c mg ann P 3 .
for future uncertainties. rowt agricul tural production in " notJ~
countries.
 12
CHAPTER
-= MELLOR 'S THEORY OF
AGRICULTURAL DEVELOPMENT
\ kllor "s bool- en111led ·T he Econ omics o f and labour force per fann is highe r than 1hat in high
\::' , ulrural De, t'lopment' appeared in 1966 , e two income countries. Prod uctivity, prod uction and net
,;m 3fla Srhu llz's ' Tran sfon ning Trad i1ional income lend to be low on these fa rms. Resource
\ fn(ul nm·· " ~ published . In his book . Mel lor alloca1ion in such an agric ulrure, is perfect. He
l'~0 ~ug~ esb "a) s a nd mea ns 10
trans form foll ows Schu ltz in this regard.
1TJJ1t1l,nJI agric uhur e into mod em agric ulture and
h Land and labour are the princ ipal inputs of a
he. m pans. agree s " ith "hat Schu ltz had put fon traditional agricu lture. f he capital in 1rad11 1onal
n hb l'l\)f1!- Ho,, c, er. at lhe same 1ime. his appro
ach
agric ulture is in th e form o f crud e tools and
1~ m(w pragm at ic and e,1en sive 1han
that of Schu llz.
implements. bullocks, and it (i e, the capital) ha~ a
ver; IO\\ prod ucti vi l) . It 1s. in fact. a d irect
URA L
SECTIO~ ~ : STA GES OF AG RIC ULT embodiment of labour and is, therefore. not VCI)
DEVELOPME NT prod ucti ve. Use of more labour on a given farm
of diminishing marginal productivil).
Bas1call~. accord mg 10 Mellor. from the po int of fo llO\\S the law
fanners in a traditional agricu lture gene rally
\1e,, of de,e lopm ent. agric ulture of an economy can As such,
: show an inclin ation to increase the size of their farm
be found 10 be in one of the fo llowing three phas es
beca use. thereby, the)' can add to their income more
( I) Trad itiona l Agric ultur e. than what they will gel by appl)'ing more labou r to
C) Technolog ical! ) Dyna mic Agri culru re
- Low the ell.ist ing farm. This will increase the producti, 11)
Capi tal Tech nolog ). of Jabour as well. However. for the agricu llural secto r
and as a whole, the incre ase 111 land and capital tal.es
labou r
High place very slowl y. So the use of additional
13) Technoloe -icalh. Dvna . mic Agriculture - whic h the growing popu lation prov ides. is lhe onl)
Cap11al Techno log) . source of increased produ cton and incom e.
Paragraph that fo llow desc n be the main features
ol agricu lture in these phas es. One impo rtant point ho" ever, ma) be noled.
Total production wi ll increase in this way but average
(A. I) Trad ition al Agri cultu re . . per labourer as well as income per
• • 1 gricu
lture implies a produ ction
For t>.1ell or. tradi llona a . lture " ilh to,, labourer " iII fal I.
·
111 tensi ve agn cunant agric ulture.
back \\ ard. lab our 1 No doub 1. some non-1rad itional input s like
me~ e l~:r.~ ~fon of tradi1 ional
produ ctivi r) . II IS not fenilizers have been used in trad11ional agriculture.
as 1s implied b) Schu lt.I. s However. their impact on total production has been
· ·
aoriculrure ·.
~ ·I I though the orgamsa11on negl igible because the other complementary inputs
1_0 Mt:~ or. untries (i e. in tradi1ional .
Acco rding ,ncomc co
. 1
. I are not used in such an agric ullure
ca .
or ,anns 111 °".
• r. phys1
se of differenc~s in
agriculture) vane s becal~acto rs ihev have something Mello r furth er points out that various incenti, cs
· nd cultu ra •· · · r:
~ll 11 is that most of these r:,arms created b) land
reforms and other meas ures fo r
economic 3
· comm on as we ·
e.....-. on whic h bulk of labouhr ,orce
. increasing producton prove ineITec1ive if the other
prod uctive com plem entar ) inpu ts lik e seeds,
111 fr
casan t ,.., ...s
are P •nwn t and ev en capital come om t I e• same
cides etc .. are not used along \\ ith fen ilizers.
.
mana g1.: d These farm s are general!) smal in size pesti
househo l
14 1
 'S THEORY OF AGRICULTURAL DEVELOPMENT
MELLO A
llor makes an important observation about
~ \ulil)' map. We have already pointed out with traditional needs, and (c) Income forfora adynamic
1 farmer
the ,so . ·1· .
ording 10 Mellor, an 1so-u11 1ty curve 1s convex
(hat acC r. h .
origin 0 . MelIor ,urt er points out that so
to thC . • • d. .
as the farmer 1s operating m a tra 1t1onal
longculture, his h1'gh .
er 1so-ull·11ty
· curve, w1·11 always
ahgn" a greater convexity to the origin O. We know
so . h
ihat in a traditional agncu 1lure, t e wants of thc
,,..,,er arc also tradition bound and are inflexible. In
'"''"
,uch a situation, as he moves on to a higher iso-
uuhl) curve, he, in fact, moves closer to the maximum
le,cl of satisfaction that he can have because of his
tradition bound wants. Such a movement, in tum,
icmpts the farmer to attach more importance to liesure
than to work. In other words he likes to get the
same amount of goods and services by using
relatively less units of his labour when he has moved
on to a higher iso-utility curve. That is to say, he
nowwants to get more of goods and services, for
m ~ additional unit of his labour when compared
"ith the earlier situation. This will make every higher
iso-utility curve more and more convex to the origin
1111 he is able to get all the goods necessary to satisfy
his tradition bound needs.
In Fig. I , Linc S' Y ' indicates the maximum
amount of goods and services which a fanner should
have, 10 satisfy his tradition bound needs. The
curves Z and Y originate below this line and at
o~c point or the other, intersect the line S'Y'. Upto
th1s point as we can
see. the convexity of Y curve is
greater than the convexity of Z curve.
.~ ellor makes use of this assertion that in a
lrad111onal agr·ICUIt ure, a h'1g her .ISO-Ut ·l1lty
· curve .IS
lmoorc ~onvex to the origin O when compared with a
wcr 1so-
level f util ity curve, to show that at the equilibrium
inth Ia~~ur use, there is always under-employment
O
this poct~aditi~nal agriculture. (We shall be explaining
int a little later).
(d) Th
Mellor d' ree types of Income levels : Before
on ranns'~cusses the equilibrium level of labour use
among thin traditional agriculture, he distinguishes
value of ::t l~vels of income as indicated by the
(a) ihe erial goods and services. These are :
b.iotogicaJIevel of · •
. income which ensures only the
clothing sh subsistence i. e, the minimum food,
hUJtiao 1ire eher and other essentials for maintaining
\hows th .0 0 a replacement basis. OYO in the diagram
:~bsis1enc~sle~:~el , ( b) _The culturally defined
'uPPer lirn•t · In ~ e diagram, Y' on Y-axis shows
10 Mellor . 1 of
this level of income. According
. in a t d' .
ra 1t1onal agriculture, Y' should
143
indicate the maximum level of income
society. Income beyond Y' is associated with a
dynamic society whose needs and hence the standard
of living, goes on changing.
On the bas1s
. f . . . . II
o this d1stmct1on Mc or suggests
that the analysis of labour use in a tradit ional
agriculture will normally be relevant only upto an
income level indicated by Y'.
(e) Equilibriu m level of Labour Use :
According to Mellor, the farms in traditional
agriculture can be broadly of two .types, namely (a)
those which provide, at the maximum, the biological
subsistence and (b) those which provide. at the
maximum, the culturally defined subsistence income.
So far as the farms providing biological
subsistence, i.e., type (a) farms are concerned.
according to Mellor, the family labour will be utilised.
on such farms, till its marginal productivity falls to
zero.
On the larger farms, the equilibrium leve l of
labour use wi ll be determined b} the point of
tangency between the production possibility curve
for the given farm and one of the iso-utility curves in
the iso-utility map. This is because the ultimate
objective of a farmer earning beyond the
subsidstence level through production is to get the
maximum utility from his labour or, in other words. to
be on the highest possible iso-utiliry curve, while
remaining at the same time, on pentaing to his farm
the production possibility curve, pertaining to his
farm.
fig. I . shorn of sophistications as included in
the original diagram given by Mellor, shows that as
the production possibility curves move beyond B.
the equilibrium point of labour use shows a
movement towards the right implying that less and
less labour wi ll be employed when the size of the
farm increases. Mellor claims that this assertion is
certainly correct upto the income level Y'- the
maximum level generally associated with traditional
agriculture.
Production possibility curve A and B refer to
subsistence or below subsistence farms and it is
only here that the labour is used till its marginal
productivity is equal to zero.
As increase in production in traditional
agriculture, comes mainly through the use of more
labour, Mellor feels that the effect of various
governmental policies, on output will depend, to a
14 2 AGRICULTURAL ECONOMICS

According to him. institutional changes ,\ithout As the law of diminishing marginal returns ro the
be ing accompanied b} technologica l changes \\ ill variable input begins operating in agriculture from
not be "e~ effecti\ e the very beginn ing. the total product increases at a
decreasing rate and reaches a max imum when the
(A. 1.i.) There is always under-employment in marginal return to labour becomes zero. This is true
traditional agriculture whether the size of the farm is large or small. The
According to Mellor. there is much under- only difference is that larger the farm. higher will be
employment in traditional agriculture. This need nol the production possibility curve. The production
be because of the ex istence of Zero value labour in possibility curves for various farms are given in
the agricultural sector taken as a whole. Rather. diagram I. All of them (A to G) start from point c in
this is because of the fact that the land is unequally the diagram and are concave to the origin 0 . Point
distributed among the fannc rs and that while the 0 is used to show full work (Zero leisure) along X·
fanners \\Orking on subsistence farms may be pushing axis.
the use of their famil) labour upto a point where its (b) /so-utility curw : A particular iso-utility
marginal productivity is equal to zero, the farmers curve represents various combinations of value of
operating bigger fanns will have the option lo choose
material goods and services (agricultural and those
between leisure and work because of their higher
incomes and. in fact . they will use still less labour
obtained through exchange with agricultural goods)
when their income increases. as a result of of a further on the one hand, and the work on the other. which
increase in the size of their fann. In this way, use of give a farmer, the same amount of satisfaction. As
less labour on large farms results in under- every increase in goods and services is presumed
employment of labour. to yield less and less utility, more so, in a traditional
Mellor uses the following analytical tools 10 agriculture (because of tradition bound production
explain this assenion. technology and a tradition bound consumption
pattern) every additional dose of work (representing
(a) Tiu production possibility curve : Mellor negative utility) will need to be combined with a
uses th)s tenn to denote the relationship, between successi~ely increasing amount of material goods
~abour input and the total output which is expressed
in tams of value of agricultural goods or of the an~ serv~ces (representing positive utility) if the total
comb1~ation of agricultural and non-agricultural sa11s_fac11on from labour and material goods and
goods 1f the former are panly exchanged for the latter. services has to remain the same. In other words. an
is_o-utility curve is convex to the origin O in the
diagram where goods and services have been
measured along Y-axis and work (lack of leisure) is
measured along cO, in the direction of O.
U)
w
u F . (c~ /so-utility map : Following the conctpl of
>
a:
an_1_ndifference map. Mellor, uses the tool of an iso-
w utihty ~ap for a farmer. to determine the optimum
U)
0 E- -- use of his labour. We know that an iso-utility cun-e
z
< represents a particular level of satisfaction for the
C/) o,- - --
§v·i--:::c:----- - ~-
farmer. As there are infinite levels of satisfaction.
there will be infinite number of iso-utility curves.
each representing a particular level of satisfaction.
If all these iso-utility curves are shown on a graph.
'~~ shall get what is called an iso-utility map. In
: ts map, a higher iso-utility curve will show a higher
;vel of net satisfaction (positive satisfaction obt.lined
om .the goods and services produced minus the
negative satisfaction caused by the use of labour
0 C
to prnduce these goods and services).
MAN TIME
. ~~llor assumes that each farmer has the som<'
Fig. I Production Poss1hih1y curves and lso-utilit,
cunes · •s; ;.til_ity map. In Fig. I. curves T 10 7 sho\, 11 port
0 I IS ISO-utility map.
l.,.,. --
J , THEORY OF AGRICULTURAL DEVELOPMENT
~ELLOAS 145

n~:
(b)
E uragtme11t of researcll : Research these scarce inputs are complementary to each other
suitable for a given region, should be and therefore, there is a need for a proper co-
progra::;~0 'improve the productivity of various ordination in their supply. Further, these cannot be
~dopt Sometimes, the research findings prove supplied by the farmers themselves and therefore,
~P~;5°uate for development because these are not have to be provided by the society.
ina qly adapted to the needs of th e region. Mellor also feels that as the suitability of these
:~;~ing to MeUor,. "fa~lure to carry resear~~ to inputs depends upon the area where these are to be
the point of final apphcauon under farm cond ,t10ns used, an area study for their use is nece!lsary. MelJor
probably explains far more of the non-acceptance is very particular about regional diagnostic studies
0 f the technological " change than more commonly because he feels that only such studies will help in
cited cultural factors. optimum combination of various resources ~ d~ffere?t
(iii) Supply of physical inputs of new a11d reg ions. According to him , ge neral1sat1?n 1s
;,,,provtd forms : New me~ods and materia_ls _are hazardous. Mellor is very certain about one-thing. It
required to increase production. New crop vanet1es, is that for any region, a focused research and
improved breeds of live stock, inorganic fert!liz~rs, educaion will always yield high returns.
insecticides etc., are necessary. Proper organisation Besides the aforementioned measures, Mellor
for their supply and distribution is called for. Some like Schultz, lays much emphasis on the creation of
of these inputs may have to be imported. This is a broad ran oe of educational institutions. He says,
because new plants for their production may need "The rate ofincrease in a ricultural production will.
6
large amount of capital. in practice, normally be limited by the rate at w~ich
Most of these inputs have to be supplied in a trained personnel can be provided to operate various
package if these are to be quite productive. Further, developmental institutions."
lhe necessary infrastructure for their development The progress of agriculture in this phase is a
and fo~ making thes.! acceptable, is also necessary. continuous process. Production increases, not only
(i,) Setting up of Jns1i1u1io11s I~ s_er~ice due to the use of new innovations but also because
lfrlcultural production : Many ancillary ms_tltutions of re-employment of resources saved through the
are required to help in the increase of a~n~ultu_ral use of these innovations, back into agricu lture.
production. These include institutions d_ist r_ibu_tmg b h
nd st This phase uses new techn o Iogy ut t e
modem inputs, marketing institutions a m iru_t•?ns technology is not heavily capital oriented. The new
processing additional agricultural _o ~tput, p~ovidi~g b ·
credit, those providing and servicing ag_r •~ultl~ral inputs are complementary to labour. La our 1s rare1y
nd I t10n substituted by capital in this phase. If it is displaced,
machinery, transport services a loca imga it is displaced only to be put back in the production
facilities etc.
process.
(t,) Development of Communication system 1o
t,t,Janners lllllke cholca : New alternatives_ always (A.3) Technologically Dynamic Agriculture- High
appear .m a dynamic· • Iture. For different
• agricu .d. Capital Technology
geographical regions extension services for gui mg
, d consd of new Mellor does not discuss this phase of agricultural
the farmers about the pros an • puts
alternatives in the form of change in •
development in de tail. As th e 2nd phase of
techniques, practices etc., should be set up. . agricu ltura l development ga ins momentum. entry in
. . . II t chnical innovations, this phase becomes imminent. En try into this phase
No doubt, 1mt1a Y, e d ted in some also stipulates that the non-agricultural sector has
viatd·
J - mg
1 t
arge re urns, can be a op
h aforementioned already developed to some extent. The capital
&eopaphical regions e~en ~he~ tm:nted. However, formation in th e 2nd ph ase of agri c ultural
llleasures (i to iv) remain ununp ~ the hase II of development has been such as has enabled both
these become indispe~sable ,fide sp~ead. Mellor the sectors 10 grow.
agricultural development ,s to ~e :vd changes. in fact,
This stage appears when in the non-agricultural
feels that all the above, menu?nin uts which when
sector, institutions come into ex istence which create
themselves represent _scare; ~raditional capital
used in combination with la ourducitivity of these labour-saving mechanical innovations and facilit ies
and land will increase the pro_ of the view that for • produci ng, distributin 0° and se rvici ng of
traditional inputs too. Mellor is agricultural machinery and thus increase labou r
 AGr➔ICUL TUHAL ECONOMICS
\44
• • ·
'II -1gricuIt urc i, ncte'>'>ttry to 111crc<1,e
111o u1Cfll l'ltl 1It 111 '
l,\l c.c e\ ll'III. on hlm thc,c poltc1e" at lccl the U'il' ul • ()ril\
i

1h1s mcomt· then 11can help thl' 111111-acnLulturi.:

1.,l~llllf \ J\,ll ""' 0 11 .,g.n cuhu1,II 1111..omc~ ,mt! rc- .
d,..,trihut1011 ol l,rnd can mcrca,c 11tc ll'il' l11 l.100111. \ CCIOT.
Mellor i, of the , ,ew that 1rad111un,II agriculture.
( A. I.ti) RaC'k" ard S lo pin l! ~upl~ C ur_"' for , it tniion ,, ill not shed 11c, 1rad11wnal
A~rirnltu rnl Prntluction In n Trnditional A~ncu ltun.' 111 IhC pre<,C llI ' . . I
.
character II 1c 11 t<> 1·iw lf For agricult ural dcvc . opmcnt,
Accord in\! 10 '\ k llm. the ag.greg,tle ,uppl) cun c 1•11ven1111en 1 It •1., 10 fo rmulate a poltc, \\h1ch aum at
d '
Im U\!.rtcuhur;I produce , m trad111011al ug.r1culll~rl'. 1" C"1hc comp Iex b11I rotcnl ia II) pro UCII \ C proCC'i\ 0 f
b,, c\..~,ani s\opmg The c,p\,llhll inn f()1 1hi'> Ile.., 111 technolog1cal change
the opcrauo n of oppl), 1ng subsrnul tl~ll anti IIIC(\1.1:c
cm~cts on the use uf IJbour "hen agncultu rnl prn.: l" (A.2) 'f rc hnologkally Dyna mic AgrkulltJrc- l) H'
change Accordtng to ~k \lor. lugh pncc'i 01 Capital Technology
agricuhu rnl produce " 111 pa~uJtk ihc farmers m Only agriculture. in this phase, can h~lp ihc n~n-
t~ditionnl agriculture lo put in more labour (1e. rcd~cc agricu ltural scc1or. In th is phase. nc,, inputs w11h
leisure) in o;dcr to incrca...c the ag,ricultuml produc11on high marginal producti , !'>and compl~mcnt~~
to
(Positive sub~111u1ion etTi.:ct on lnbour use). However, labour arc used in agricult ure. I hc1~ U!>c
also
as the demand for non-agrn:ul1ural protlu~ls. o~ ~he cncoura ues the U!>C o f tradi ti onal in pu t~
b~
part of the fonne rs m 1r.1d1ti?nal ag~cul~ure, ~~ t~ d111on increasin0g their • •
margina l productt, Il le!>. ~
· • · • I 01 her
bound and is ra1hcr 111tk::, . 1bk . a rise in 1hc1r income ,, ords 1he use of modem
input, al'>o sh.th ihe
because of increase m agricultu ral price "ill 1emp1 produ~ti on
function for lradit~onal in~ut up\\ Jrds.
the fam,ers 10 \\ Ork less (negat ive income effect on
The modern inputs. though u-;1ng more cap11al. _arc
labour uc;e) A poin1 can accortl 1ngl) be reached,
1101 high I) capitalised l he use of thc!>C mp~ll'i auns
as the pricl.', nse. "hen the 11cga11ve income effect
full) neutrah,cs 1he positive ~ub5tituti on etTcct _on at increasing the productivit~ per ac re . Some of
lahnur u,i.: and totnl prod11c11on " il l starl fal lmg these input'> arc fen iliLcr~. ne\, seed'> and ro" er.
thcri.:afkr tn 1his phase. (a) agriculture still occup1e~ the
(A.I.iii) Withdro" I of Labour from A~ricultu rl.' und dominam posi1inn in 1he econom) in terms of 111come
anti cmplo) ment . ( h) tlemand fo r agricultu_ral
its lmract on A~r icultur JI Producti on
products con111111 e, to ri se due to increasin g
(icncrall~ 11 1s ~uggc,tcd th<1t it tht•rc i!. a zero population and risinL?. income
: (c) capital for
,aluc labour 111 agriculture. it!. "ilhtlrn\\ I from industrial dcvclQpmcnt
is sca rce and returns in the
,1!.!nculturc ,, 111 not rctluLc 1hc tot,, I agricultural
mdus1rinl sector are increasing; (d) farm si1e cannot
o~tput. I IO\\ Cver. Mellor dQCS nol agree with ii. I le
be increased due to gro\\ ing popula1ion and 1he slo,~
fee ls that an) " 1thdra" al of labour from the
agricultu ral sector is likely 10 result in decline 111 pace of economic trans fo rmat ion and (e) machine~
01
total producti on. no matter, what the margina l is not used in agriculture due- 10 the a, ailabil ity
productivit)' of the withdrawn labour is Mcllor's cheap labour.
argument is that in a 1radi1iona l agricul1u re, increase According 10 Mellor, if 1h is phase is to progress
in the income of the f:mners reduces 1hc use of labour <imoothly, following steps are necessaf) . ( In (Jct;
(negative income effect). As the" ithdrawal of labour qu11e •
a few of these steps will have to be 111it1J • ICU
from the agricultural sector wi ll always mcun higher when agriculture is s1ill 1raditional
in diameter fh~
per capita income for 1he remaining labourers, ii will complex but potent ially producl
i, e proce~s ~~I
lead to fall in output. due to the rn,c of less labour. lcchnica l change to
which Me llor has refern·~·. '' 1
(This happens. as point ed out earlier. even when have to be in itiated
much before the 1rad111011~1
1he marginal produc1iv ity of labour in agriculture . Jgriculturc ac1ually re:-ichcs
the thrc,hold of secon
on many fam1s, is /.cro). phase of developm ent. )
According to Mel lor. in 1raditional pha.sc ot ('·) I~.11ca11ragem e111 of /11 :,titutiom to prti,·idl'
agriculture, 1101 much capital can be ' "ithdr,rn n from 111 • , • • • • . 1 Clll111 I~
Ctlllll'es : Mot1Ht11 on to mcrea!.e prouu tL'
nl!riculture for use in 11011-agric ullurc sector and vicc- ncce5snl).
Various ins1i1u1io nal change'- can ere,,
v~r:,a. Both sectors arc opcraling al the lo,\eSI level an environm . ent conducive 10 increase 1n pniJue Ill'"·.
Saving is IO\\ in the trad itional agricu lture because I,and re,om1., r
can be one of the measurt, !) ' n tlll'
of low prod uc1ion and low inco me and the regard.
 14fJ J, f ,I' 1, J I ,I'/.

prod11u,v11y Lt1h1rn1 rroch•~11v11y ll .,1 ·" 1111 " I ' " \ I t I It J' 1 H : ( IC I f f( ,,\ I. I. YA I.I A I HJ'\ 1)f
throu~h re~C<lrlh Ill rl,int ,111d ,1111111.,I pt wl111 I,,,,,
In apncultural r,cctnr. t11 till • 1111• 11111• ..,,fl ,l 1u11
.
\11 Lf ,( JU' \ I Ill (JI<Y

cap11al fo rmation ha•, 1,1h n pl,1u 11,•l tit, re J,,,1:.

111 , ,,rut· rl •/JC 11 "A•· ll,11 ,1;t1•, "' •I ',{I , 1 ,, ,,
J,.uJ 4. 111111. 1,111 Ntllt 111'> tl1t ".., 1c.;.•,i1dw;, d,, ',(m t ot
enouph C<1p11al I'> uv,_111 .ih lc lo , 111 •l \ l111c11 t 111
" ' aw1t11lt1111. .,,,m IIIIIC u1tl1e, , ,,, nm ;,·.. ht 1
t1w1cuhurc \ 11c of the l.11 m lt,1 111crc,,·,, d (1111· 111 auq,r. per fc<.I :illt,c.:,11,111 <,f H ~ , 111 t.A. 11 ,,.,, t ,Ir ire
mo,crncnt ol pcor,lc out o l tltl ,1v11rnh111.1I \ l <1111
At lhc \ :llllC 111nc , the d l' rllillld 1 of the 11011 ,1wicult111,1I
I ,,1,,,
le au cpt, rl1t1I 1f l,1l,tm1 ,, 1,11h1J, •. M 111,1111tie
a~µ-1c. fl lr1u .1I · u .111f '1Y) ''~1J ll1m1l p11,tJ ·'-' 'Ill 1o f;,lf
\ector on the dcrn,uhu1t1l ,c<.11,r fc,r l .1r,11,il h,1vc $'lllll ISul , al the ·.,unc 111111: he d<,t'. 11<,r 11 , •Id, , . . rt
down con, 1dcrabl}' dur 10 1h 0"11 ""· rc.J'>cd \ ,Jlr'IIIJI ,
l'J 111) ,Ji-,vJJl\.fo!(l 1111cmrloy1111:1l1 JI/ lhl "•" \. ,IL•.il
In 'iuch a !illll<1l1un. heavy 1nvc~tmcnr 111 a1•r1lul1111 e \(;.{Im (4,ce ~ bcl,, 1, J
m the fonn of machine') i, r,11hcr natural
Iii, ddir1111or1 uf1rnd111011t1I il i't tJh .rc; ru,r,
It may be pointed out 1hat according 10 Mellor,
r n,gma11c . I <,r hrm rrad,1 11 1111,l ;,;u c._, t Jrt a
the development of agriculture ~hould follow the
biuJwi.11d <1µ/itu ltort , u\ing rrm ,1111 l:t~1Jr i.l' tJ,t m~p
order as slated above ,f ih procc,, ,, to he ~moolh
fac.l(Jr of prnduL.rion
and lcs5 painfu l llo"evcr. he al,o point, 0111 that
in '°me ca c,. a s11ua1oin c,in be ~uc.h a, may permll Ifo , u~ c,tmn, for t,.,,...f,,rrna11,,r, r,f d"J u!1wi
and al ,o nece,, ,rarc a jump from rir, r 1r1 1111.: ,~md bc\rdc,, whar \lhult1. h il i • uy;n ' tv; u• v a\,si
phase ,t. 11 happcni:d 1n ca1c of the U. \ A I he 1m1i1u1ioniJI c.m111g.c:, lih land rd11m1. .tl r,• J,C'T>eel
rcasom for th,~ '-'3!1 that II Pha\-c ol agric.ulrura l 111 rmlrh1rn~ <. rc d11 fa<.1J,111:'t ctt
dc..,,elopment implied 1hc u\e of fcrtili,..cr'> and that I le d,,e, nut condemn t1,111111a Pd dpi,111c1th ti
the fe rt1l11~r~ and 01hcr bio-chcmical inpuh in the ~thuh.t ha., done . lie , a1 -, . on till 01!,::• 1.,rnd. a
t. \ A v.ere developccl later rhan the agr1eult ural dotrr,mmc approc1c.h to non-111tcnc111 or , ; • 1:, to
machmel) A\ ciuch. 1hc U \ .A jumped ~lra1gh1 be d1"..c1\trou, . (,11\cmment 1nrtn cr i,, r r mall)
into the mechanical , e. 111 ph~ e of agricultural other i:l'> pclh of dcvdopmcnt 1o , II be .; • Cle,~
development \par\e popu la1 ron vi\-a-vrs land in wnd11ion of rapid dcvc lopmenr ·
the I; ~ A a l'>o encou raged \u brn1ut,on o f Mellor ,, qullc anal) tical ... uh ,c;.,,ml 11 ' 1 e rolt
mac.hrncry for labour
of la bour and o rht r 1n pu1 , 111 1hl rrc;ll'\ of
II is clear from the d1,lurnon of Pha\c II and dcvclopmcnt I o r C)J.amp lc ,n 1ht tr aJr tJnal
Phase Ill of agn cuhural dcvc lopmcnl rha1 v.hcmn aw rc.ultun:. total r roduu,un CcSJl be rnuca'>\;<.l '..,,~ ,(
rn Phase II, the new inpub do n,,1 rcplau: labour more lab<,ur i!> U!>cd on 1h,.11 land .,.. here t, •n.:· Jlll3l
and infact. increase the productivity of the cJmting pro<luc.1iv1t) i\ abo \ c 7J!To In the d~naw c ,.,,.t lo"
labour through their complcmc'lltarity with it, ,n ph.s-,.c Lapital LCchnu log} agncuhurt:, input'> compler"<:nw)
II I, the rnputs replace labour and rc'iult in higher to labour arc u-.cd to inc.rea ..e 1hc produll/\ 1~ of dte
productivity of the labour 1ha1 1\ , trll left rn 1hc txl\t1ng lab<, ur Thc\e input, 1ltus enw'.lr4 ge tht
agricultural 5ector. Mellor feel~ 1ha1 in g,cncral. the u, c of more labour In d)nam1<. and hr:!h rcapiw )
process o f cap ital formation and its avarlabilit) fur lcchnolog)' agric.uhurc. capital rntcO\f\C input\ 1~'
agr icu/rural 11cc1or i~ 'iuc.h rhar an economy \ hould rnach rnc') '-' hich rather , ub\ l11uc Jahour arc.> ustd
pas~ rhrough Phase II 10 Pha~e 111, rather than jump and the produ<:t ivit) of the rcmc1 1n1nl! labour. 1~
!ilraighr av.-ay to Phase Ill rncrca\c<l All thi'> ha, been <..onfim1cd ernprrsc:ill~

~ELF.CT Rt:fER[NCE~
I Mellor. J \\ ( 1966) /he• l:.conom10 of Apmulruru/ /J,·\l'lupment V•ffd & ( c, u,,10t,.,J
2 Schulv l \\ ( 1964 ) Trar11/orm117K lrad11wnol ,lyri, ulturr i.,C\o\ l la\CTI, Yale Lnt,ef'II) l'rc•
3 Mellor J \\' I 1963 J, - The l 1'1C and l'roc.luw~II) ,,( I Jrm I .imtl) I ,abou, ,n I arh \wge, ol I ._ou,,11
Journul of I urm f um11m 1e I V, ,I XI V ' C1\ IW, l •
Mellor. ) \\ . (l 'J74J, t n~anh a lhcor) 11 1 l\1•11cullur4 1 DeHlupmcrH ir II \I
" \ .. ·1,.- ,r'h
f-. John, wn ( Lcb J I J')74 J Ax.rt( ulture und f.u,nr,mu <.m,-.11,, I..1mtJon ( un u:11 1 1 1,cr,1I) Pre
J

C I 11/tJf
5 Mellor. J " aJ)(j Robert. I) ~ICH'll l /l'J~6) !ht· 1h n uf1 t onci Hur>'tnol /'mdu r r,f / urm 101<•r
d,~rfoprd I conom1e1 .Journr,/ of I arm I <IJn<Jm" 1 A.it1.t I. l 'J'fi
 224 AGRICULTURAL ECO NO MICS

zero i.e . the total ouput remains unchanged after In other words, the institut ional wage is represented
OD labour has been employed. According to this by the slope of the line OX. This wage has been
model. amount of labour DA is redundant and any called an institutional wage because wage at this
part of it can be taken away without any loss of level can be maintained only due to the operation
production in the agricultural sector. of some institut ional or non-market forces. If market
forces operate, labourers with zero marginal physical
p INDUSTRIAL SECTOR productivity wi ll not gets this wage. The institutional
s· wage (expressed in tenns of food grains) is assumed
10 be the minimum. which a labourer in the
agricult ural sector or the one transferred to the
x· industria l sector must get at any time.
In Fig. 1.3 we can locale a point of labour use
on OA where the marginal productivity of labour
and this institutional wage are equal to each other.
o~ __._____._,_ ___.__.,____ __. w
This point obviously is P where the slope of the
POPULATION - line OX and the slope of the total product curve are
equal to each other. This is the point beyond which,
Fig . I . I towards A, the marginal physical productivity of
labour is lower than the institutional wage. Following
N AGRICULTURAL SECTOR the authors of this model, we can say that all labour
V
- :5 beyond this po int i. e .. P (read towards A) is
~o.8 disguised ly unemployed.
en .2- n,
~ .-...J
a.. .~ iii Before we look al Fig. 1.2 (and later on, at all
ii g :i
~"83 the three figures taken together), we must note that
~ct~ the three figures ( I. I, 1.2 and 1.3) are ' Iined up' i.e,
~ e,
A 1::----- :----,-:: : : : : :....._~~::::===-i O <C they are related 10 each other through the employment
PHASE I D PHASE I p PHASE
ONE I TWO I THREE of the total labour fo rce distributed between the
I I
- POPULATION agricultura l and the industrial sector. For example,
if the labour employed in the agricultural sector is
Fig. 1.2 OD, the ba lance of the total labour force i.e., AD is
assumed to be employed in the industrial sector.
~nd if labo~r force employed in the agricultural sector
1s OP, PA 1s the labour employed in the industrial
sector.
We may now pass on to Fig. 1.2. This figure,
though basically related to the agricultural sector,
also serves as a link with the industrial sector. It
mai_nly tri es to depict how much surplus of
agricultural producti on per labourer (Average
Ag~icultural surplus), can be re leased by the
Fig. 1.3 agncultural sector for the industrial sector at different
Diagram I poi~ts of time when labour is moving out of rhe
agricultural sector.
The Institutional Wage
Fig.1 .3. also gives us an idea about the In this figure, average agric ultural surplus
ins~irurional wage. Ir is assumed that the total released by the agricultural sector, as the labour
agncultural production is initially divided among its moves out of it, is shown along the vertical axis
total labour force so that, as per Fig. 1.3, each labourer ~N. Labour employment in the agricultural sector
gets AXIOA amount of foodgrains as his real wage. is shown on the horizontal axis OA (read towa rds
A). Curve ADU V is th e margi nal physical
 20 -
CHAPTER
RANIS-FEI M 0DEI 1

" l~C I ION A TIU: MOLWI. 11,•cio1 lhl1 1,·ll•,,111t 11, 11l·1 1ti 111 1h, 1 fi1t•1hu1 lo11 ,,11,I
Introduction lhu t n11,111, 111,;111 l 1111d11ll,11, 111 tlw"u I\\ 11 ,r, h•f~, '"'
11h1ul11l11.i 111 1h1.1 1h1w \\hl,11 th,· dM1•l11111114•11t 111 1h,
I he: Kllnl\•I c1 Model Inc, hl n1111hw onl111"prc1 lmh1, 111111 ,N 1111 i,1111 h u.. "1•11 11'1 d111111'5 11111 ,,, ,,, ,•n
01 the prncc,~ b~ "hirh an u11t.h:rdcvcl111wd ut.0110111y 111 11111111111 htl <il'vdup11u·111 llfl' , h11\111 111 11111~111111 I
muvc, fmm o c,mdit ion ol ,rnan111lon 111111111 (1f 11tM ( I lw dl11~r11111 U1t1lfl'ih 111 lhh''-' p 111 ' " lulwlln l 11~ I tt,t
sus1aincd gro\\-lh. An undordcwl11pNJ t•conrnny, I I, 111,1 I 2, 111111 I lu I l I
ICCOrdmg to the model, i\ o lohour 11u1pl11-i, rl111011rcc-
poor economy with 11, populution m,,inl) c 11~11t,1cd
I I~ I I """l rilw'l th,· prn4. ,·,'l nl ,In Ih1p11H·111
in agriculture. 111 the inth1!\11htl "''' '"' t >W ~h11\\ •, riw , 111pl11\ 111c111
ol h1h1111r (rtrul 011111 Id) 11, tlj:111> /\11111)& 1 >I' \\1•

The model Irie~ 10 1mpruw on lhc 1hc11t'i given lllllll\Ull' •hi: 1n1tr~l11ul phy• l\·111 pn1lh1t th It} 11r
by Anhcr Lewis, conccm,n~ economic dc,ctor1m.i111 lnJ11'ilri11l l11bc111r ruut 11, , uppl)' p, Ir\' (,\ 1,~l·,) 111 h'ltl
0

through the~ of unlimited , upply 111 lnhour drnwu tern,~, In 111,, fo1111 of ln1h"1rl11 I .,;uutl-t ( ' 111 \n lll
from the agrlcultunal sector. Accordm~ 10 L~wl'l, und d' f' 1- huw lhl' 'i h llllt1 ji 111nr.il1111I 1111, ,llttl
economic dc..,clopmcnt involvc11 1h,· n:11lloca1hm ol pnH.lur 1lvlty ol h1IH1111 11, '' " llnd 111 I u"h '
surplu5 agncut1un1I labour to 11,d11111ry I he i.11rpl11s motld. S11' X'S' lt1 1h,, lnh11111 -.uppl)' c urv~, Al p1,i11t
labour mn~c'i little or neghglble contr1h11tlon 10 ·1· 1h1it 4ii uppl)' ,·111 v'-' o t lr1hl11,r "hk h 111tsh1h•, lh1111
agricultural production. h con be trnn'lferrcd io the 1hu 11s1lt:1111111111w<·h1r llllll\ up, 11.. ""'1111w,I h) I ,•\\ '"'
indus1r,al sector where it can become quite l lpto SI , lhl' '111pply of luhuur 10 1h11 lml1t'llrlul ,c, IOI
productive al a wngc cqunl to ur tied h1 the b unlhnlti:tl , ,.. 1w11ih1hk 111 w11,hu11 Wl\,tc t >S
iMtitutionnl wage: paid 10 the RSrlcullurul workcri.. I ho 1111,dcl. 111,11111111, irk.. 11, i,h•n1II) the, 11111111~
This tram.fer of labour, ni cun, 111111 waac co11111111c., pol111 It•, · 1• (ll'i ddlncil h, I ml,) 111 It h~ <tu('rl~
till the indu) IJIIII lo hour ~upply curve begin" 10 111111 r 11rve for 111d11111rl11 I h1h,1111. I\ 11 lhnl p111rp1h\", it i,
upward, 11ccc'iSH1y 111 1011!1. 111 th1• 1-111111111111 In lht1 lll,lt 1,· uh1111,I
Lewis' model, however, nr11,1y,c~ neither 1hc sector, lht! 51111r<'\\ lh1111 "hl'r,, tlw l11h1)UI l)lt\\ l'i hi
shuo11on emerging in the agriculturol "cc1or ns the thi: lndustrlnl ,cC'IOr, I<' 1'1~ I ~ .~ riN, 1.1.
transfer of lnbo11r from thi'l ,cclor 10 the lndwmlul We nrny, 111 tlrs1, 111,1~ 111 M.i. I . l In rid, f\~111'\',
sector proceeds, nor the irnpacl of this chan"e 011 1111 OA (11:nd 1101110 111 Al, thl" lnh(1111 "'"''' -.-111pk,)c,t
lhe ctewlopment of the industrial sector Ranl,-Ful 111 ••Ktlc11ll11nJ l'l llll'll'illf\' d Un on (1\•ml d0\\11\\Uf\1'1),
model considers thc•c points 1n dclllll 101r1l ph}' '4k nl 11111p111 prod11ct-d O)' l11h,11u Ill
(A. l) T he model os-iunw~ o du~cd ccu1111my nnd ll):lrku lr11iol ~,•c111r I, 111t'll'llllrtd lit is ll'i.'l\11111: d that
concludes Lhat an increase in nsric111l11nil pro<l11c1lvlty 1hc 11~rlc11l111rnl 'il'Olm PhllhlN'I only th,lllilmln'l)
can JX)Stpo,10 the upwnrd 1uml11i; _rol111 in 1hc ~urply OR('l•X I~ th\l h1l11I proll11c1l\lity c-urvo M 1~rlcultutl\l
curve for industrial lttbour ll'i dcpicrcd hy l.cwi'I, luhour. II Iii lllllillmcd lhnt 11111r»h111I p1'1dul'1lvit) vi'
l11ho 111 dccrl"l\lills IIN moru 111ut 1110 ,·11 lnbou, 1~
The model divide., ih" economy Into 1wo pnrt'I, 1,i11plo)1cd 1111J llnhll)' h t>t\'omu, , ....ru. 111 th\l n»urc
namely the agrlculiural sector nnd the lndustt 1111 uficr point ·c·
1hc 1m,r¥lnnl pl\kJm·ilvll>• of lnbl,u, i~
223
 AGRICULTURAL ECONOMIC:
226
ut in Average Agricultural Supply curve ror Industrial Labour
A change comes abo . b
Sur lus when second phase of Jransfer of 1a our With the he lp of th is model, t~e authors, first 0
p In phase II the average agricultural surpl~s all try to locate the upward turning point in Lewis
starts. · - d 1· Tots
available for the transferred labour w111 ec me'. su~ply curve of labour. For tlhis, we may have a
is simply because whereas each labourer left tn the look at Fig. I . I in which industria l sector is the focus.
agricultural sec1or continues to ~on~u~e the same
old amount (as determined by the mst1tutto~a_l wag~), But before we examine fig ure 1. 1, we should
the total agricultmal production starts declm mg _with keep in mind some important assumptions, of the
the beginni ng of the phase 11_. . ( It remamed mode l. Firstly, we should note that when a labourer
unchanged in the first phase.) So, 11 1s each member leaves the agr icultura l sector and moves to the
of 1he transferred labour force who has to suffer a industrial sector, he gets exactly the same wage, as
cut in his consumption of agricultural produce he is gening in the agricultural sector. In other words,
because of the decline in total agr icultura l in the first two phases of labour transfer, the
production. In Fig. 1.2, the average agricultural ind ustri al worker also get wages equal to the
surplus starts falling with the beginning of phase 11 institutional wages which the ir counterparts ge1 in
and declines from DY to PZ at the end of this phase.
these phases. S imilarly, a labourer, moving from the
In phase Ill. the situation changes further. In agricultural sector, to the industrial sector. in the
the first instance. the marginal physical productivity third phase will gel a wage equal to his marginal
of labour in agr icultural sector in this phase is more productivity in the agricultura l sector (and not equal
Lhan the institutional wage. So trans fer of each labour to the institutional wage).
from the agricultural sector to lhe industrial sector
in this phase will cause a greater loss in production Secondly, according to Ran is & Fei. while the
than the reduct ion in the tota l consumption labourers working in the agricultural sector get their
(calculated on the basis of institutional wage) in wages in tenns of the foodgra ins, that they produce,
agricultural sector because of this transfer. Average the industrial workers are paid wages in terms of
Agricultural surplus will, therefore, decline at a greater the industrial products that they produce.
rate.
Both-these assumption lead 10 an important
In fact, 'this decrease is further accentuated implication which is as follows.
because of the fact that in phase 111 (as explained
above), the wages earned by the labourers in the Originally every worker was get1ing his wages
agri_cult_ura_l sector are not equal to, but higher than (institutional or otherwise) in tenns of foodgrains.
lhe mst1tut1onal level and they rise with each transfer When he sh ifts to the industrial sector, he gets the
?f a l~bourer from the agricultural sector to the sa~e wage as he was originally getting in the
mdustnal sector. So, there will be some addition t agncultural sector. But now, he is being p:iid in
the_rate of consumption of food grains in th~
agnculrural. se-ctor,
. . when compared with the situat·1011 ~enns of Industrial Products. Ran is and Fei, therefore.
w hen on Iy mst1tut1onal wages prevailed (as in h
urther assume that an industrial worker would be
I a~d phase II). This "".ill further cut into the a!r:s: paid so much wage in tenns of industrial products
agricultural surplus available for the labour transfi gd as would ensure him as much of foodgrains as he
to th~ industrial sector, in this phase. In F. e7'; would have received as his wage if he had continued
to t ·111 th
OQ is ~e marginal physical productivity c~~ · ' s ay e agricultural sector itself.
the agricultural labour (This curve corresp de of
the total productivity curve.ORCFX) L' OQon s to Now, we may have a look at Fig. 1. 1.
lh I · me shows
.d l_n th is figure, OS is the institutional wage, as is
e tota payment, in case the institutional was .d
to OP labour. So the gap between OQ r pru~:~win _ the agricult:ural sector. But here. it has t,een
curve sh?ws the additional cut in total ~ngre _an~ OQ in . n ~n terms of industria l products. This level of
surplus in phase III As a 1cu turat
. · resu 1t the a Sodhtut1onal wage, as paid in terms of indusrriol
agricultural surplus will fall at an ' verage Pr ucts is the , . per
in phase IJI. Segment 20 of th accentuated rate. Le •s ' constant' wage .at which as
1.2 shows this trend. (Curve s{zc~:,eF~YZO in Fig. w, , rhe subsistance sector (mainly the agricultuf81
the complete average agricultural I tg. 1.2 shows ::tor supplies labour to the industrial sector.) (In
surp us curve). terrn~a~:~~a~hs _th a~ follow, whenever we use th;
in st1tut1onal wage' in relation to ih

R,ANIS-FEI MODEL
productivity curve for agricullural labour, ii being
equal 10 zero in the range AD. and posilive !hereafter
(towards 0), being lhe highest when the employment
of labour in the agricultural sector is notionally lhe
minimum. AS is lhe institutional wage expressed in
terms oflhe agricultural product i.e. food grains.
(A. 2) The Tbrtt Phases Concerning Reallocat
ion
of Labour
On the basis of the movement of marginal
produclivity of labour in the agricultural sector and
its relalion with the institutional wage, the aulhors
of lhe model divide the process of reallocation of
labour between the two sectors in three phases :
Phase I is that phase of the reallocation process
in which the redundant labour in the agricullural
sector i.e., labour with zero marginal productivity is
~fer red to the industrial sector. The second phase
anvolves the transfer of that agricultural labour to
lhe industrial sector whose marginal productivity is
lower than the institutional wage . Phase three refers
to the transfer of the rest of the labour force from
the agricultural sector to the industrial sector. The
marginal productivity of agricultural labour transferre
d
more than
to the industrial sector in this phase is
the institutional wage.
. . A~cording to the assumptions of the model,
mst1tur1onal wage which is the minimum that must
be paid to all agric~ltural labourers, prevails in the
agncultural _sector m. phase I and also in phase II
where marginal physical productivity of labou
r is
Ill, in the
. In phase
I~ than the institutional wage
will be
~•cu ltura l sect~r, ~e ~revailing wage rate
being
higher than the 1nst1tut1onal wage rate, this
equal to the marginal productivity oflabour employed.
The _au~o~ of the model ~all the third phase as
one md1catmg the commercialisation of agriculture
(because wages of the agricultural labour are now
governed by the market forces).
In Fig. 1.2, phase I ends with the transfer of AD
labour to the industrial sector and phase II ends
when a total of AP labour has been transferred to
the industrial sector. Curve SYU V in Fig. 1.2 shows.
as per the assumptions of the model described in
the above paragraphs, the wage rate in the
agricultural sector. In phase I and 11, it is equal to
the institutional wage (AS). In this figure, curve
A~U V shows the marginal prod uctiv
ity of
phase II, it is
· agricultural labour. For phas e I and
225
less than the institutional wage (AS). For Phase Ill,
n
marginal produclivity of agricultural labour is show
by UV- a part of this curve. The wage curve for the
agricullural labour for this phase is also UV because,
in this phase, wages in the agricultural sector are
r.
always equal to the marginal productivity of labou
In phase Ill, law of Diminishing Marginal Productivity
operates in the reverse direction. Less the num ber
d
of workers left in the agricultural sector, higher woul
s
be the marginal productivity. This also means wage
withd rawn
will go on rising as more and more labour is
from the agricultural sector in phase Ill.
(A. 3) The Con cept of Average Agr icul
tura l
Surplus
While describing Fig ( 1.2) we had just referred
lo the concept of Average Agricultural surplus. As
the average agricultural surplus plays an important
role in the model, a detailed narration of this concept
is rather necessary.
The idea of an agricultural surplus automatically
crops up when one considers the transfer of labour
from the agricultural sector to the industrial sector.
The transferred labour has to be fed and it is
necessary to know whether it can still be provided
for consumption, at least that pan of the agricultural
production which it was consuming while it was
employed in the agricultural sector, or not.
According to the model, in phas e one, the
institutional wage prevails in the agriculture sector.
Every labourer in the agricultural sector gets for
consumption, the average amount of foodgrains
produced by the full labour force and continues to
get this very amount even when a few or all the
redundant labourers leave the agricultural sector. The
result will be that the transfer of each labourer from
the agricultural sector to the industrial sector in phase
I, will also be accompanied by a release of his own
share of foodgrains which is equal to the institutional
wage , as agricultural surplus. The average
agricultural surplus will remain constant through out
this phase and its curve will coincide with the pan
of the wage curve showing institutional wage, i.e.,
SY in Fig. 1.2. AS is the level of both the institutional
wage for the agricultural workers and also the average
agricultural surplus for the labourers to be transferred
to the industrial sector. Curve SYZ O shows
the
cultu ral surplus curv e. We
complete Average Agri
shall just explain, why this curve falls in phase 11
and phase Ill.
RANIS-FEI MODEL 227
;odustnal sector. "e shall always be implying thi 5. withdrawn from the agricultural sector. This is
constant "age, , e. OS.) because the wage of agricultural labourer in the th ird
Toe horizontal portion of the labour supply curve phase is not equal to the institutional wage bu t is
(Fig. I. I) comes to an end with the comp let ion of equal to his own marginal productivity. Points ' t'
phase I i.e.. when all the labour with zero marginal and 'X • on the curve SS ' -the labour supply curve
productivity has been transferred from the agricultural for the industrial sector in Fig. 1. 1, indicate the change
sector to the industrial sector (at point t) . This. in the slope of the curve when it enters phase 11
according to the authors of the model. is the end of and phase Ill respective ly.
the unlimited supply of labour for the industrial sector.
(A. 4) Increase in productivity of agricultural labour
Upto this point. the institutional wage paid in the
and its impact on the process of transfer of
industrial sector. in terms of industrial products, is
labour to the industrial sector
constant at OS. Wages in the industrial sector start
mo" ing upwards with the end of phase I. The Ranis and Fei have mentioned two factors which
explanation for this lies in what is happening in the can delay the upward turn in the labour supply curve
agriculrural sector as a result of transfer of labour. for the industrial sector or, in other words. keep the
supply of labour unlimited. One is the increase in
According to this model, as stated earlier, labour productivit) of agricu ltural labour and the other is
in the industrial sector is paid wages in terms of the growth in population
industrial goods. ln the first phase it is paid a wage
"hich enables it to get in exchange. an amount of We here. explain the views of the authors of
foodgrains. which is constant and is equal to the this model with regard to the increase in productivity
institutional wage itsel f. of agricultural labour. We use diagram 2 for this
purpose. Diagram 2 contains all what was included
In phase 11, the entrepreneurs in the industrial in diagram I anci aJso shows the impact of increase
sector again have to pay an equi valent of the in agricultural productiv ity of labour on the process
institutional wage to the workers transferred simply of transfer of labour from the agricultural sector 10
because institutional wage prevails in the agricultural the industrial sector. (This diagram also consists of
sector in phase II also. The transferred labour will three parts namely, Fig. 2. 1, Fig. 2.2. and Fig. 2.3.).
not accept anything lower than what it wi ll get in
the agricultural sector. lo the second phase, however, In the first instance. the authors assume that
an other change takes place. The average agricultural even if the productivity of labour increases, the
s4rplus starts falling. Its scarcity for the industrial instirutional wage, pa id in the agriculrural sector,
s~ctor, will change the terms of trade in favour of remains unchanged. It is also assumed that the total
the agriculrural sector. More of indusrrial goods labour force as well as the proportion of the zero
will be paid for the same amount of agricultural goods. value labour in the total labour force remains
This also means that a bigger basket of industrial unc hanged eve n when the product ivity of the
goods will have 10 be paid to a labourer as a wage agricultural labour increases.
so that, in real terms, it is an equivalent of the Fig. 2.3 shows the increase in labour
institutional wage prevailing in the agricultural sector. productivit) in the agriculrural sector throuoh a
• 0
The change in terms of trade with the beginning of change in the total productivity curve from the
phase II will thus give an upward tum 10 the labour original curve TPP 1 to TPP 11 and then to TPP 111 •
supply curve for the industrial sector. (In the fi rst
Fig. 2.2. shows the impact of change in
phase, the terms of trade remained unchanged
productivity of agriculh.tra l labour on (a) average
because the average agricultural surplus had remained
agricultu ral s u rplus and (b) the marginal
unchanged). In phase 111, the labour supply curve
physical productivity of agricu ltura l labou r.
for the industrial sector becomes still steeper because
of two reasons. Firstly, the average agricultural With regard to the average agricultural surplus.
surplus fa lls still further, thus further changing the we find that wi th increase in productivity of
terms of trade against indus try. Secondly, the real agricu ltural labour, the average agricultural surplus
wages in the competing agricu ltural sector start increases and it becomes more than the institutional
movi ng upwards. as more and more labour is wage even in the original first phase (S I is the end
226
AGAICULTUR AL ECONOMIC
A chan ge comes about in Average Agricul Supply curve for Industrial Labour
tural
Surplus when seco nd phase of transfer
of labour
starts. In phase 11, the average agricultura With the help of this mod el, the authors
l surplus
a,·ailable for the transferred labour will decl all , try to locate the upward turning •~ , fi rst o
ine. This point in Le .
is simpl) because whereas each labourer supply curve of labo ur. For this • WIS
left in the , we may hav .
agricultural sector continues to consum look at Fig. I. I in which industrial sector
e the same is the foce~
old amount (as detennined by the instituti
ona l wage), But before we examine figure 1.1. we
1he total agricultural production starts dec shou lc
lining with keep in mind some important assumpt
the beg inn ing of the pha se 11. ( It ions, of the
rem aine d model. Firstly, we should note that whe
unchanged in the first phase .) So. it is each n a labourer
member leaves the agricult ural sec tor and mov
of the transferred labour force who has es to the
to suffer a industrial sector, he gets exactly the sam
cut in his consumption of agricultural e wao .:,e, as
produce he is getting in the agricultural sector. In
bec a use of the dec line in tota l agr other words,
icul tura l in the first two pha ses of labour tran
production. In Fig. 1.2, the average sfer. 1he
agricultural industri a I wor ker also get wages equ
surplus starts falli ng with the beginning al to the
of phase 11 institutional wages which thei r counter
and declines from DY to PZ at the end of pans ge1 in
this phase.
these phases. Similarl y, a labourer, mov
In phase 111. the si1uation changes further. ing from the
In agricultural sector, to the industria l sect
the first instance, the marginal physical prod or. in 1he
uctivity third phase will get a wage equal to his
of labour in agricultural sector in this pha marginal
se is more productivity in the agricultural sector (and
than the institutional wage. So transfer of nor equa l
each labour to the institut iona l wage).
from the agricultural sector to the industria
l sector
in this phase will cause a greater loss in Secondly, according to Ranis & Fei, whil
production e the
than the red ucti on in the total con labourers working in the agricultural sect
sum ptio n or get their
(cal culated on the basis of inst itutiona wages in tenns of the foodgrains, that the)
l wage) in prod uce.
agricu ltural sector because of this transfer the industrial workers are paid wages
. Average in terms of
Agricultural surplus will, therefore. decline the industrial products that they produce
at a greater .
rate .
Both-these assumption lead to an impo
In fact, this decrease is further accentua rtant
ted imp lication which is as follows.
because of the fact that in phase Ill (as
explained
above), the wages earned by the labourer Originally every worker was getting his
s in the wages
agricultural sector are not equal to, but high (institutiona l or otherwise) in tenns of
the institutional level and they rise with each er than When he shifts to the industrial sector.
foodgra ins.
transfer he gets the
of a labo urer from the agricultural sect same wage as he was originally gen
or to the ing in the
industrial sector. So, there will be some agricultural sector. But now. he is bein
addition to g paid in
the rate of consumptio n of food grai tenns of Industrial Products. Ranis and Fei,
ns in the therefore.
agricultural sector, when compared with the further assume that an industrial worker
situation would be
when only institutiona l wages prevailed (as paid so much wage in terms of industria
in phase l products
I and phase 11). This will further cut into
the average as would ensure him as much of foodgrains
agricultural surplus available for the labour as he
transferred would have received as his wage if he had
to the industrial sect or, in this phase. In continued
Fig. 1.3. to stay in the agricultural sector itself.
0Q is the margina l physical productivity
curve of
the agricultural labour (Th is curve correspo Now, we may have a look at Fig. 1.1.
nds to
the total productivity curve ORCFX). Line
0Q shows In this figure, OS is the institutional wage,
the total payment, in case the institutional as is
to OP labour. So the gap between 0Q line
was paid pa,"d m. the agricult
ural sector. But here. ·it hAS t,een-
curve shows the additional cut in total agri
and 0Q shown .m terms of .mdustr,a .
l products. Th.15 level .ol1
·mst1· tutto
surplus in phase Ill. As a result, the cultural · nal wage.
as paid in terms of indUSITl8r
average products, is the ' constant' wage at whic
agricultural surplus will fall at an accentua h_as~I
ted rate. Lewis, the s~bsistance 5ector (mainly _the agn
in phase Ill. Segment 20 of the curve SY
1.2 shows this trend. (Curve SY Z0 in Fig.
Z0 in Fig. sector supplies labour to the industrial secto :' (Ill
1.2 shows .) we
the complete ave rage agricultural surplus the paragraphs that foll ow. whenever we
curve). use tht:
lcnns 'old inst itutional wag e' in relation 10
 AG AICULTURAL ECONQl •
228 ,..1cs
Fl·o 1 1 ,,Isa sho\\ ~ the! shifis in the niar
,,.1· the ori_einal Ist phase) Of courst'. 1t dcclint'S a:- ~ - ·- . . . . gina1
" I~ 1
tr,rnsferrl'd from tie ph, steal product1Vtl) curve 01 a:mcu lturnl scci
more and morl.' 13bour
\\ hcren5 th~ olll marginal produc1i vi1) curve (MP; )
Turn.tlQ
p
po,'11
15 represented by the curve rnarl,,.ed I. the neii
I.Ile marn.inal productivity curves are marked II and 111
L3
As it is assumed that the proport ion of the zero
, alue labour in the total labour force remains the
same. marginal productivi l) is alwa,s lero lor this
part of 1hc labour_f~rce .• As ~uch. alI curves sh?11 ~ng
marginal produc11v1ty of agricultural labour co1nc1de
I
I
so fbr as 1he employment of th is part of the labour
I 13: force is concerned. In Fig. :2.2 marginal produc1ivil)
w of agricultural labour is zero fo~the labour AS 1. After
0
s,. higher productivity of agn cu_lt~ral labour means
Fig 2. 1 shiftino of the margina l produc11v1ry curve 1m1ards
AGRICULTURAL SECTOR the left of 1he original curve. Th is, in other 11ords,
.\A:v. 11111
I I
I
I I I I
'\
illl.\..
MPP means th at the point of commercialisation of
agriculture , e., the beginning of phase J. ,~here
: : IT . I v• 1 /
ll 1 , , urning : • II
"' Si < 1 1 : Point : 1
~a rginal productivit) of la_bour becomes_higher
=
l
0 I I I I I
g>o ~ • -' ,t than the institutional wage. 1s reached earlier than
~ §'~
1

, : 0 s: S I I I before.
~ > -
~< ~
3 "0'3 (A. 5) The Turning Point (as defined by the authors
!:: s t.:
0 - -.:c
< ~ of the model)
A
We may now note one important poi~I . \\'e.
F,g 22 have seen that whereas increase in product,, ii~ o l
+ - POPULATION aoricultural labour pushes the end point of th e first
A _ _ _-r.::c--- - - - , - -- ,--,----:?.11 0 ::. . t) 10 the noht
,o phase (also called the shortage poin =
I-
::, through increase in avera0 e agricultural urplus, 11.
0 5
also pushes the point of ·commerc1· aI'1sa t·on
Q.
I- 1 ol
M ::,
0 .
agriculture . towards the Ie ft . A ccordin'-':o 10• the
_J
<(
I-
authors of this model. there is bound 10 be a p~rticu1~
0 increase in productivity of labour which '' il l make
I I-
· · of 11I phase
I I
I
I
I
I
I
the end of 1st phase and the begmning
i
coincide with each other. In other words, ~he pha;d
se

F19. 2 3 II will then disappear. In Fig. 2.2 this poml ts reach d

at s3 • where Ave rae.e Airicu ltura l surplus an
Diagram 2
marginal producti viry- of -labour are bOth equal 10
agricultural sector to the industrial sector. The two the institutional wane. As the average ,g a ,riculrura 1
.
additional average agricultural surplus curves marked surplus and the .mst1tut1onnl
:" . . •in th e aoricultura 1
wage 7' , ,e,
II & 111, besides the original one marl,,.ed I. show this sector arc equal to each other at I I11s . POm1· 11 3Lihl·'
change. These curves show that the average in the industrial sector will also to be e9u~I \~, in
agricultural sw-plus falls belo\\ the institut ional wage old institutiona l wage as it prevailed ongrna · ihc:
at poi nts towards the right of the original point. In h • . sector (as 1 .s always the case_) alTht'
r e industrial
other "ords, we can say that the end point of the
end point of the first phase of labo1~r trans_fcr ~int 1~
phase I itself (i e., where average agricultural surplus
authors call it the 'turning point · (ThiS p . odd
and the institutional wage are equal) shifts to the
not the same as has been referred to, 1·n the ft m(here:
right with eve·ry increase in labour productivity in
given by Lewis. This point is arrived at. a . e:iiural
the agricultural sector. S2 and S 3 indicate the new . . · a n fiCl
end points for phase I in Fig. 2.2. 1s a cen a111 amount of increase 111 =- ept in
. . ) T his
prod uct1v1ty . 1.s a very .unportanl cone