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An Analysis of Optimal Farm Capital Structure

Published online by Cambridge University Press:  28 April 2015

Wesley N. Musser ,
Fred C. White  and
John C. McKissick
Wesley N. Musser
Affiliation:
Department of Agricultural Economics, University of Georgia, Athens, Georgia
Fred C. White
Affiliation:
Department of Agricultural Economics, University of Georgia, Athens, Georgia
John C. McKissick
Affiliation:
Marketing Extension Department, University of Georgia
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Extract

Use of debt in financing agricultural firms is an issue of perennial interest. Much of this interest reflects farmers’ disastrous experience with debt during the Great Depression. The foreclosed mortgages and bankruptcies of that era reaffirmed an historical feeling that achieving a level of zero debt or financial leverage was a high priority goal. E. G. Johnson, who was Chief of the Economic and Credit Research Division of the Farm Credit Administration, articulated the position in the 1940 Yearbook of Agriculture that this goal is even more important than increasing profits: “It may be well to emphasize again that while credit properly used may help farmers to increase their income and raise their standard of living, the fact must not be overlooked that more credit will not cure all the ills of agriculture. The greatest need is to assist the farmers in getting out of debt, not deeper into it,” [6, p. 754]. As memories of the Great Depression faded, agricultural economists tended to emphasize the effect of debt on farm size and therefore net income.

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 9 , Issue 1 , July 1977 , pp. 163 - 168
Copyright
Copyright © Southern Agricultural Economics Association 1977

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References

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