Inefficient Capital Use in Farming

Some of the inefficiency in the use of capital is believed to be due to more basic troubles.

Some farmers may not be capable of using additional capital profitably. Others may not be interested in having a more productive farm business. Their aims in life provide strong enough disincentives to farm expansion. In such cases additional capital is not necessary.

Still another reason for the inefficient use of capital has been found to be associated with the life cycle of the farm family. Traditionally, farms had to be financed every generation. The young man to start farming had to begin with a rather small operation. His business was supposed to grow as he was able to reinvest his returns and borrow additional funds. Often the demands of his family for living expenditures were too high to make any profitable investment in his business. After his children had grown up, it became possible for his farm to approach an optimum size. It continued to grow for a period but decline was inevitable due to increasing age of the operator.

Much attention has been given to the problem of transferring farms from one generation to the next. Often there existed several heirs, which resulted in fragmenting efficient farm businesses. Even if the land was passed to a son, he had to acquire the necessary capital in order to buy livestock and provide for the living of his family. As a result, no considerable investment in farm business was made. In other cases the young farmer spent several years buying out other heirs.

There is great difference among farms in solving the transfer problem. The fact remains, however, that at any time, some farms are on their way up and some on the way down. Economists believe capital productivity in agriculture to depend on this fact.

1. Is a productive farm business always the most essential aim of a farmer?

2. What three reasons for inefficient capital use on farms were mentioned in the text?

3. At what age do farmers typically reach an optimum size of their business? Why?

4. What does the problem of transferring a businessfrom one generation to the next consist in ?

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The Economics of Energy: Basic Trends

The modern economy is known to require vast amounts of energy for farms, factories, homes, and transportation. The modern dependence on fossil fuels — especially coal, oil, and natural gas — is considered to be a brief episode in human history. Since they took 300 million years to form, these resources will not be replaced to any considerable degree. Even the vast reserves of coal are expected to be used up entirely in a few centuries. As to oil, economists expect all the oil-producing countries known to use up most of their reserves in about 50 years' time. The economic use of fuels begins with the easiest and cheapest sources and then moves to less accessible costlier ones. As the best coal is used up, shafts must be sunk deeper. Similarly, oil and gas must be sought in more inaccessible places, which adds to their production costs. The present variety of sources ranges from shallow Mideast oil wells to expensive capital-intensive solar equipment. The choice of a fuel to be produced amounts to the future opportunity costs of alternative fuel sources. Note that the rising scarcity of fuel is a matter of degree. There exists a great variety of choices from cheap fuels to very expensive ones. Rather than use up all of them at once, the world is expected to move to increasing scarcity, which will take the form of rising energy prices. Moreover, investors will realize the coming scarcity and try to buy the reserves now, which in itself will send up prices. In short, the market anticipates the physical shortages, and the expected future Price increases raise the current price of fuel. Since most fuels can be replaced by others in, at least, some uses, the rise in oil prices, for example, naturally, results in a parallel rise in prices for other fuels, including coal, gas, ""clear fuel, and even firewood. And indeed, there occurred a steep rise of oil Pnces, particularly in the 1970s and 1980s. It stimulated the search for more °n deposits. Much of the effort has been focused on the ocean floors, espe- lally in remote regions. The search for gas has also been stimulated as a re- ult of the removal of some controls on the price of US gas. These added torts have brought some results. However, the marginal revenue of exploration continues to decrease. One should expect this since the cheapest, most

accessible sources were exploited decades ago. Moreover, it is costlier to transport the more remote oil and gas reserves to the market. For example, oil and gas pipelines from Alaska and large-investment projects. But eventually, no discovery, however fast, can increase the amount of fuel in the ground. This only makes it possible for us to turn the available reserves to human uses more rapidly. A rapid discovery and use of fossil fuels may, though, destroy the balance of reserves used and those conserved for future use. How much this is desirable depends on the prospects for alternative fuel sources, such as solar energy, nuclear power, fusion processes using water, and ocean tides, the profitability of those future sources is mostly unknown now. Only if other sources are going to be cheap and to meet the demands of growing population, the rapid discovery and use of oil deposits can be considered to be desirable, whereas uncertain prospects for new technology will raise oil prices rapidly now, which will be a disincentive rather than an incentive for speeding up the use of new oil.

б) Используя текст, закончите следующие предложения:

1. Economists believe oil-producing countries to use up most of their oil reserves ...

2. The choice of a fuel to be produced in future depends ...

3. At present, the price of oil rises because ...

4. A rise in oil prices results in ...

5. The search for new oil deposits is mainly done in ...

6. The marginal revenue of exploration decreases since ...

7. The rapid discovery and use of new oil deposits is desirable provided ...

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