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Abstract
Establishment of parity prices by way of the unit of purchasing power approach—the
concept on which, the parity formula is now based—may not adequately reflect parity of
incomes and living standards for farmers. This is true especially if the norm or base
period is far back in the past, and if radical changes have occurred in the demand for,
and the cost structures of, many farm commodities. Recognition of such limitations
has led to a second general approach to the measurement of parity—a formula that involves
parity income, with prices derived from this formula. The income approach
received Corgressional recognition, and resulted in a definition of parity income in the
Soil Conservation and Domestic Allotment Act of 1936, revised in the Agricultural Act
of 1938. Later, it was replaced with a definition in the Agricultural Act of 1948 that
was substantially different. This parity concept centers generally on the relation between
the incomes of farm people and those of nonfarm people. In the measurement of
such parity two basic approaches have been used. One involves the maintenance of a
historical income ratio that would provide farmers with incomes and living standards
proportionate to those of nonfarmers; the other would establish the standard of equal
incomes or living standards as between farmers and nonfarmers. In the first approach,
the ratio of farm to non,f arm income in recent years has been at parity or above, compared
with the historical base of 1910-14. The second approach, on the other hand, yields a
very substantial differential as between farm and nonfarm incomes, although differences
in the purchasing power of the farm dollar versus the nonfarm dollar would probably
narrow the gap appreciably. This paper bears on the second of these approaches, that is,
the comparison of income differences, especially with respect to the regional variations
between the incomes of farm-operator families and those of the nonfarm population.