The name is absent

tion, but as inflation continued to increase the
farmers’ equity, the resource acquisition pro-
cess was accelerated. With no inflation, the
above average manager purchased land in
years 2, 7, 11, and 19 and with inflation pur-
chases were made in years 3, 8, 11, and 13. The
average manager’s acquisition of 80 acres more
land with inflation resulted in a real capital in-
vestment about 9 percent higher than with no
inflation.

Table 2 shows the results of the stochastic
simulation in terms of the mean net worth ac-
cumulation, mean capital investment, coeffic-
ients of variation, and number of runs which
terminated before 20 years of simulation were
completed.⁹ In general the mean values of net
worth and capital investment of the stochastic
simulations were lower than values obtained
from the deterministic simulations. Variability
tended to reduce capital investment to a great-
er extent than net worth. The initial situation
was an important factor affecting the impact
of inflation, but managerial ability had an im-
portant role in determining whether a farmer
remained in business. In 8 of 25 replications for
Farm B and 9 of 25 cases with Farm C, the
average manager was unable to attain a mini-
mally satisfactory plan for three successive
years. Usually the farmer had gone into debt to
purchase land and then experienced cash flow
difficulties. Inflation did not help the farmer of
average managerial ability very much because
7 of 25 cases, for both Farms B and C, were
terminated before 20 years of simulation were
completed. In contrast, although 8 of the 25
replications of Farm B with above average
management were terminated with no infla-
tion, none were terminated with the 3 percent
inflation. ¹⁰ This outcome suggests that infla-
tion does not substantially increase the
probability of survival of a firm with average
management.

The largest coefficients of variation with re-
spect to net worth accumulation and capital
investment occurred with Farm A, the low
resource farm. However, in only one of the
total of 100 replications did termination occur
before 20 years were completed. The larger
coefficients of variation resulted from the
effect a good year could have on net worth
accumulation and capital investment. If a good
year, or a series of good years, occurred a
farmer could commonly acquire land. More-
over, by not having as large an absolute
amount of debt as the farmer starting with B
or C, the farmer starting from situation A was
able to make debt payments and maintain
family consumption in spite of adverse results.
It was assumed a farmer could share lease
additional land if he desired. Many farmers
with limited resources, especially those of only
average managerial ability, may be unable to
obtain sufficient land on a share lease in the
real world to generate a satisfactory income.

In the real world, all prices and costs do not
increase proportionately. Land prices have
tended, at least for much of the post World
War II period, to increase faster than the gen-
eral price level and agricultural produce prices
have lagged. To represent this type of situa-
tion, it was assumed that land prices increase 5
percent annually, agricultural prices increase 1
percent and all other prices and costs inflate 3
percent annually. Table 3 shows the deter-

TABLE 3. Determistically simu-
lated TWENTY YEAR NET
WORTH ACCUMULATIONS
AND CAPITAL INVESTMENT
BY FARMERS WITH VARY-
ING MANAGERIAL ABILITY
AND INITIAL SITUATIONS’¹

^aInflation rates of 5 percent annually for land, 1 percent
for the prices of agricultural products and 3 percent for all
other prices and costs were assumed. The 3 percent
“general” rate of inflation is used to deflate.

^bNW indicates net worth and CI indicates the operator’s
capital investment.

ministically simulated net worth and the
operator’s capital investment for the three
initial situations under the different levels of
managerial ability.

As would be expected because of the low rate
of inflation of product prices, net worth ac-
cumulations of farmers were generally lower
than indicated in Tables 1 and 2. Farm A was
particularly hard hit by the differential infla-
tion. Both the average and above average
managers accumulated less than one half the
real net worth that they had attained in the
previous simulations. Although the net worth

^βAs indicated previously these were cases in which a minimally satisfactory plan could not be attained for three successive years. These cases were not included
in calculation of the mean or coefficient of variation.

^ioBecause of the way in which the stochastic simulation was performed, it was possible to apply the same sequence of variations in prices and yields to each
initial situation.

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