19 percent above that of December 1933, and 47 percent above the average exchange value in March 1933. A comparison of farm prices and prices farmers pay is shown in figure 1.

The production-control programs and the marketing agreements and licenses exerted an influence upon this increase in the farm price level. This influence was noticeable particularly in the early part of the year, before the effects of the drought were reflected in a striking increase in the level of average farm prices. The average farm price advanced from 77 percent of the pre-war average in January 1934 to 86 percent in May. In September, when the full effects of the drought were felt, particularly on marketings of grain, the average rose to 103 percent. From this point it declined to 101 percent in December.

PRICE INCREASES SUPPLEMENTED BY BENEFIT PAYMENTS

These figures do not take into account the additions to farm prices made by benefit payments on seven basic commodities. These payments were financed from the processing taxes levied on the domestic allotment or domestically consumed portion of these commodities. The commodities were: Cotton, wheat, corn, hogs, tobacco, sugar, and peanuts. Proceeds of the taxes have been distributed or will be distributed as rental and benefit payments, and in a sense may be said to add 30 percent to the prices that farmers received on the domestically consumed part of these seven commodities.

Since the average farm price of these commodities was about 100 percent ofthe pre-war average, the average price equivalent including benefit payments for the domestically consumed portions was increased to about 130 percent at the close of 1934. As prices paid by farmers for the goods they buy were 126 percent of the pre-war average, farmers who participated in the adjustment programs were receiving approximately parity prices for the domestic allotments of the seven products for which production-controlled programs have been developed. However, only farmers who receive benefit payments received such returns, and the attainment of parity applies only to the domestic allotment portion of the crop.

Two observations need to be borne in mind here. While parity returns are thus being realized on domestic allotments on the average, certain commodities are still below parity, and others, at least for the time being, are above. In the commodities for which farm prices plus benefit payments are above parity, the 1934 drought has been an important factor and this gain could easily be lost if production in 1935 were normal or better.

ADVANCE IN FARM CASH INCOME

Farm cash income for 1934 is estimated at $6,100,000,000, representing an increase of about 21 percent over the farm cash income of 1933, which was $5,051,000,000, and an increase of about 41 percent over the $4,328,000,000 farm cash income of 1932. The purchasing power of 1934 income was somewhat offset by the fact that prices farmers paid for nonagricultural commodities were 13 percent higher than in 1933 and 15 percent higher than in 1932.

This increase in cash farm income does not, in whole, represent improvement in the actual condition of farmers. A part of this cash

income was derived from the forced sale, caused by the drought, of inventories of livestock and other commodities, and this part of the income did not come from normal and profitable marketing.

Cash available for living, from the 1934 cash income, after deducting wages, operating expenses, taxes, and interest, is estimated at $3,260,000,000. This compares with $2,627,000,000 in 1933, and is more than double the total of $1,463,000,000 available for living in 1932. Taxes and mortgage charges declined and about $446,000,000, or about 7.3 percent of farm cash income, was received as rental and benefit payments which did not entail the usual costs of production, thus contributing to the increase in farm cash available for living. Most of the increase in farm cash income since 1932 has been income available for raising the farmers' standard of living.

EXTENT OF IMPROVEMENT

In 1932 the money available for living could be exchanged for only about 52 percent of what the pre-war income available for living would

FIGURE 2.-Percentage change in cash receipts from the sale of farm products and rental and benefit payments, from 1932 to 1934.

buy. In 1934 the exchange value of this share of income is about 78 percent of the exchange value of cash income available for living before the war. Thus the welfare of the farmer as measured in terms of goods and services has advanced about 50 percent in 2 years.

The farm share of national income increased in 1934. Analyses of income indicate that farmers received 7.5 percent of total national income in 1932, and 10.2 percent of the total in 1934. According to these indications agriculture's share has increased about one-third since the low point in 1932.

Despite this gain, however, the population gainfully employed in farming does not yet receive an equitable share of the Nation's income. About 23 percent of the Nation's gainfully employed population is engaged in agriculture. If farmers in 1934 had received a per capita share of total national income equal to the average for the

PERCENT

past seven decades, about 13 percent of the Nation's income would have been returned to agriculture. The 1934 share then would have been about one-third larger.

The improvement in the agricultural situation in 1934 is indicated by three important measures: (1) The purchasing power of farm products; (2) the purchasing power of farmers' "net" income available for maintaining their standard of living; and (3) the farmers'

FIGURE 3.-Three measures of the agricultural situation (1910-14-100) per capita share of the national income. The changes in the agricultural situation with respect to these three measures, since 1910 and through 1934, are illustrated in figure 3.

In 1934 the purchasing power of units of farm products averaged 73 percent of the pre-war level. It had advanced to that level from a low point in March 1933 when it was 55 percent of the pre-war level.

PERCENT

PERCENT

The purchasing power of farmers' net income in 1934 was nearly 80 percent of the pre-war level, as compared with 52 percent in 1932.

The farmers' per capita share of the national income in 1934 was about 80 percent of the pre-war share, as compared with 60 percent in 1932.

RENTAL AND BENEFIT PAYMENTS 7.3 PERCENT OF ALL CASH INCOME

The agricultural adjustment programs in effect during the year had a direct effect in increased farm income, both through price increases and through disbursement of rental and benefit payments.

Rental and benefit payments including those from cotton options actually disbursed among producers under adjustment measures in 1933, totaled about $131,000,000, a little less than 2.6 percent of that year's farm cash income. In 1934 these disbursements totaled about $446,000,000, which is about 7.3 percent of the year's farm cash income.

Not only did such adjustment disbursements assume a much more important role in supporting the level of farm income in 1934, but their function as crop-income insurance became much more important because of the heavy crop and livestock losses that resulted from the drought.

FLUCTUATIONS IN TREND OF FARM INCOME

The trend of farm income fluctuated very sharply during the year. The price level was marked by violent swings. Price increases were accompanied by heavy marketings of commodities held back during the long periods of declining prices; price declines were followed by reduced marketings.

During the first half of 1934 farm income averaged approximately 50 percent higher than it did during the first quarter of 1933, just before the Agricultural Adjustment Act went into effect. (This and subsequent comparisons are adjusted for seasonal changes.) With the rise in prices during the summer, farm income increased to a point 83 percent above that of the first quarter of 1933, not including rental and benefit payments. With rental and benefit payments included, the increase was brought to 93 percent.

By November 1934 farm cash income from marketings had declined so that it was about 34 percent in excess of cash income during the first quarter of 1933, but with rental and benefit payments added to the returns from marketings, it was still 56 percent above the early 1933 income.

The decline in cash income during August, September, October, and November of 1934 was due largely to the drastic reduction in marketings which was offset only in part by the higher level of prices. Marketings of livestock, both direct and by Government purchase, were unusually heavy. This contribution to farm income, however, loses much of its significance when it is considered that through such heavy marketings much of the farmers' capital has been converted into current income.

The rise in farm cash income by July 1934 to a point 93 percent above the low level in the first quarter of 1933, and to 56 percent in November 1934 may be contrasted with the increase in factory pay

rolls, which rose during the first half of 1934 to a point about 70 percent above the early 1933 level, but declined in the fall of 1934 to a point about 50 percent above that level.

INCREASED FARM INCOME SUSTAINS BUSINESS ACTIVITY

The increased flow of purchasing power to more than 30 million consumers who live on farms served as a restorative to general business activity, and enabled the farm population to buy more industrial products. When, in the summer of 1934, a decline of industrial activity lowered the buying power of urban areas, increased farm income tended to diminish the resultant recession in retail sales and general business.

Increased farm income is clearly reflected in indexes of general business activity, and particularly in the volume of retail sales of automobiles and general merchandise in rural areas.

IV. THE PRESENT STATUS OF ADJUSTMENT

REDUCTION OF CARRY-OVERS

At the close of 1934 the problem of over-supply has disappeared, for the time being, for wheat, tobacco, corn, and hog products.

The indicated wheat carry-over for 1935 is expected to be not much above the normal 125 million bushels, as compared with nearly 400 million bushels at the beginning of the 1932-33 season.

The indicated carry-over of American cotton is expected to be about 8 million bales, as compared with 13 million bales in the 1932-33 season, and a normal carry-over of about 5 to 7 million bales.

Hog numbers are 30 percent smaller than last year and, largely because of the drought, are lower than planned under the Agricultural Adjustment Administration program.

Beef cattle numbers, since the middle of 1934, declined from the top to the bottom of the present beef-cattle cycle, because of the drought. Increases in supply during the past 6 years, which brought cattle numbers to the highest point in history, have been wiped out.

This adjustment, however, was not a controlled adjustment. Controlled adjustment regulates the number of crop acres in cultivation. Much of the reduction in 1934 production was brought about not by reduction of cultivated acreage but by a drastic reduction in yield per acre the result of the drought. The acreage planted to corn in 1934 was about 12 percent less than that planted in 1933, but the average yield per acre was 14.8 bushels as compared with 23 bushels in 1933, so that the total 1934 crop was 41 percent less. The 1934 wheat yields averaged 8.5 bushels per seeded acre and the estimated crop is about 497 million bushels, whereas on the same acreage the normal yields of 12.5 to 13 bushels per seeded acre would have produced 730 million bushels. Such drastic reductions are due to drought rather than to a controlled adjustment under the Agricultural Adjustment Act.

1934 VOLUME OF PRODUCTION

The 1934 figures on volume of agricultural production reflect both the effects of the adjustment programs and the effects of the drought. In 1934 the volume of agricultural production to be marketed and for home use was 2 percent below the average volume in the years 1919 to 1927 inclusive. The 1933 volume was 2 percent above. Volume