Joseph A. Schumpeter, Das «volkswirtschaftliche Einkommen» aus der Landwirtschaft (1925)

Schumpeter’s German article responds to Professor Laur’s lecture on Swiss agriculture by examining the relationship between agricultural income and national welfare. It brackets judgment on specifically Swiss conditions and asks whether policy-induced increases in a sector’s income demonstrate an economic benefit to society. Protective tariffs provide the principal example.

Deshalb will ich lediglich das allgemeine theoretische Problem behandeln, das dem speziell schweizerischen Verhältnissen gewidmeten Gedankengang des interessanten Vortrages zugrunde liegt.

English translation: I shall therefore treat merely the general theoretical problem which underlies the line of thought of the interesting lecture, a line of thought devoted to specifically Swiss conditions.

This restriction defines Schumpeter’s method: he separates propositions about producers’ responses from judgments about their desirability. The article’s three numbered sections move from price incentives through the composition of agricultural income to the inadequacy of sectoral income as a policy criterion.

The first section establishes the immediate incentive supplied by rising prices:

In jeder gegebenen Situation einer Volkswirtschaft wirkt jede Steigerung der Preise eines Produktes anregend auf den betreffenden Produktionszweig.

English translation: In every given situation of a national economy, every rise in the prices of a product acts as a stimulus upon the branch of production concerned.

Even a merely nominal increase can stimulate production unless producers immediately recognize its character. The point at which further acquisition becomes irrational, given the satisfaction already attained, generally lies beyond practical relevance for an entire productive branch. Yet the immediate incentive must be distinguished from the effects of prolonged protection:

Davon zu unterscheiden ist natürlich die auf die Dauer einschläfernde Wirkung eines durch hohe Preise gesicherten Lebensstandards und Inlandsmarktes.

English translation: To be distinguished from this, of course, is the in the long run soporific effect of a standard of living and a domestic market secured by high prices.

Protected prosperity can weaken effort over time without invalidating the initial stimulus. Both mechanisms operate in agriculture and industry, with their relative strength depending on social circumstances. Schumpeter rejects Laur’s sharp opposition between the sectors but accepts that industry generally adjusts more easily to falling prices and that agriculture may respond through more extensive cultivation.

The second section disaggregates the additional income associated with higher agricultural prices and output. Land rent can rise on unchanged acreage, whereas additional capital and labour income initially reflects the employment of more capital and labour. Higher land prices principally follow increased rents; their contribution to intensification is secondary. Diminishing returns concern both physical production conditions and the diversion of resources from increasingly valuable alternative uses. Technical progress can delay their appearance, while existing irreversible investments may allow additional inputs to yield disproportionately large gains. Schumpeter regards contemporary Austrian agriculture as illustrating the latter possibility without extending that assessment to Switzerland.

The third section contests the inference from higher agricultural income to improved national welfare. Policy can make an allocation privately profitable while leaving it economically wasteful. Even increasing returns within agriculture are inconclusive if the additional resources could produce greater benefits elsewhere. Intensification is therefore not inherently progressive; reducing labour inputs may itself constitute an advance. Objections to alternative employment, including unhealthy conditions or starvation wages, require separate investigation rather than an assumed preference for agriculture.

The accounting problem is that aggregate sectoral income fails to register consumers’ interests, competing sectors’ claims on productive resources, or profitability per unit of input within agriculture itself. Neither maximizing agricultural income nor comparing its share of total monetary income supplies an adequate policy standard.

A tariff thought experiment clarifies the distinction. Protection can raise agricultural prices and income without increasing output. Accompanying credit expansion may also raise total monetary income, although everyone except agricultural producers can be worse off. Monetary aggregates therefore cannot be read directly as measures of material improvement. Money and credit conditions influence nominal income, while changes in goods affect purchasing power; a single real-income expression also cannot readily settle cases in which supplies of some goods increase and others decrease.

Schumpeter concludes by substituting a reasoned assessment of affected interests for reliance on one aggregate. Although the presumption is against policies that force intensification, he permits two economic exceptions, apart from national-political considerations. Temporary assistance may preserve investments and production arrangements that remain rational over the longer term. Intervention may also overcome business hesitation and accelerate investments already commercially worthwhile. Policy thus retains a role, but its justification rests on viable productive capacity and beneficial investment, not the maximization of agricultural income.