Economics Index and Qualifications
By Richard Bruce BA, MA, and PhC in Economics
Former Instructor St. John's University, New York City

Factories Encourage, Rather than Hinder Family Farms

Many people, including many opinion leaders, think that factories and family farms are somehow opposed to one another. This is not only wrong, it is the opposite of the truth. Where there are factories, there normally are family farms, and where there are no factories there are normally plantations, or something similar. The family farm, that is so often held up as an ideal, is to a large degree a product of the factory.

Factories have a great virtue. They provide many jobs but require very little land. Factories compete with the large land holder for labor, and by doing so they drive up wages.

Driving up wages helps the formation of small family farms two ways. First, with higher wages, the worker can save money to buy land and therefore have a farm.

Second, the higher wages lower the profits of the large landholder. As the large landholder is frequently selling his crops on international markets his output is a tiny portion of the total output. So the large landholder can not influence the price of his crops. This means he can not raise his prices when his costs go up. Those higher wages, forced on him by the competition of the factory, are not passed on to the consumer. They come out of his pocket and greatly reduce his profits.

As the profit that can be earned on land goes down, so does the value of the land, and therefore the price of the land. So the worker who aspires to be a farmer has more money to buy land, and the land costs less. The factory changes the balance of power between labor and the land holder in labor's favor. Factories do this because they require lots of labor but only require a little land.

In America, before our civil war, we saw this pattern. In the North where they had factories they had family farms, and while the South had plantations. Actually, the South had both plantations and family farms. But large plantations were a much larger part of the picture in the South.

The Frontier Exception

The story of the America before the civil war provides us with another useful bit of information. The family farm can survive, even thrive, without the factory, if the population is very low relative to the land available. Abundant land means the landholders must compete for labor, which once again raises wages. Abundant land lowers the price of land. So in a frontier situation, like America before the Civil War, workers can buy land and the family farm can thrive.

Population growth increases the labor supply and shifts power to the landholders. Land accumulates in the hands of a few and the family farm withers. So without factories, population growth dooms the small family farm. But, the factory shifts the advantage away from the large landholder and back to the worker.

Are Factory Owners Heroes?

When factories in developing countries are discussed it is frequently argued that they provide little advantage to the worker. In a limited sense, this is true. The factory owner only has to offer the worker a little better package of wages, benefits, and working conditions to attract the workers to his factory. So the worker quite reasonably does not see the factory owner who has employed him as a wonderful, generous, person. In fact, in many cases, the factory owner is not a wonderful, generous person.

But a new factory forces all the old factories to give their workers a better deal so they will not lose their workforce to the new factory. So it is not workers in the new factory, but all the workers in the established factories that receive much of the benefit of the new factory.

Similarly, the new factory drives up wages on plantations, improves the deals offered to tenant farmers, increases wages for servants, shop clerks, and a wide variety of other labor. The workers who work in the new factory receive a small portion of the benefit of that factory. It is the workers in all those other businesses, institutions, etc. who are competing with the new factory for labor who are the major beneficiaries of the new factory.

So when activists say people don't want to work in factories, they want to own their own farms, or the workers are not benefiting from the factory, I suggest you reject their arguments. The factory fosters family farms and keeps family farms going even when population rises.

Furthermore, the factory benefits workers by driving up wages. This is true even if the factory does not benefit their own workers much. Once again the factory will frequently pay its workers just slightly more than what they could earn elsewhere.

Preventing New Factories Benefits Rich

The landed gentry, established factory owners, and many other businesses that hire unskilled labor all have an incentive to prevent the new factory from being built. But it is important for the workers that the new factories are built. The new factories may force up wages, or at least keep them from falling so rapidly if population growth is rapidly increasing the supply of unskilled labor.

When a country has a huge supply of unskilled labor the resulting low wages result in more than just misery for the workers and their families, another result is high prices for farmland. Farmland, particularly farmland that is far from the cities and therefore cannot be developed as housing, is very cheap in the United States and other land rich nations with expensive labor. In places like India and Egypt farm land is many times more expensive than it is in America. We often expect everything to be cheaper in poor countries, and yes services are generally cheaper, but farmland is frequently far more expensive.

Many people think that pastoral utopias are destroyed by the "satanic mills," but the opposite is the case. The "satanic mills" create the conditions in which the pastoral utopia can grow and thrive. Family farms need factories.

How will the 3rd world develop? This popular web page lays out the growth path.

Here is an index to my other pages on economics, and a short review of my qualifications in this field.

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Last updated June 8, 2017