Agricultural Prices
BY
HENRY A. WALLACE
Associate Editor of Wallaces’ Farmer
[Illustration: [Logo]]
WALLACE PUBLISHING COMPANY
Eleventh and Walnut Sts.
Des Moines, Iowa
Publishers of Wallaces’ Farmer
Copyright 1920
By the Wallace Publishing Company
All Rights Reserved
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PREFACE
This book is written for all those who may be interested in the matter
of prices of agricultural products, but more especially for the farmers
of the corn belt states, students of agricultural colleges, county
agricultural agents, and leaders of farm organizations. Its purpose is
to promote a better understanding of the factors which influence prices
of farm products and stimulate an intelligent interest in statistical
economics.
Aside from a rather small number of specialists at the larger terminal
markets, few of the people who buy or sell farm products have any very
definite ideas concerning the legitimate price-making forces. A better
understanding of such forces by farmers generally should in itself
gradually bring about prices which will approach more nearly cost of
production, and tend to reduce the violent fluctuations above and below
the compensatory average.
A careful study of the facts herein set forth should aid leaders of farm
organizations to avoid costly mistakes which too often result from hasty
and ill-considered action.
While not written primarily for economists, I trust many of them may
find something of practical value in the matter herein. They may,
perhaps, feel that at times I have not been as respectful as they would
like toward many of the ideas of the classical school, but I have no
apologies to offer on this score. In anticipation of possible criticism
of my treatment of cost of production, I shall ask them to remember that
I use “cost of production” as a ratio concept (if need be, a shifting
ratio) and not as a cost-accounting concept. I may say, also, that I
hold to no particular philosophy of economics unless a very firm belief
in the utility of thoro mathematical price studies might be considered
as constituting the basis of a philosophy.
While the book is frankly written from the farmer’s point of view, there
is no bias whatsoever to the mathematics used, and it is believed that
so far as it may influence opinion and practice, the results will in the
long run benefit both farm producer and city consumer.
Students who may take up this book for serious study will get the
greatest good from it by following prices of agricultural products from
day to day and month to month, and noting when the relationship is
normal and when abnormal. In this way they will acquire habits of
intelligent observation of price trends that should prove of very great
value to them when they get into business for themselves.
If this book is used as a college text, it is hoped that it will be by
classes which are especially concerned in applying statistical laws to
agricultural prices. Such classes should have free access to calculating
machines, multiplying tables, etc., and should make a serious effort to
work out various ratios and also to work out supply and demand laws for
various farm products by means of correlation coefficients, lines of
regression, etc. The tables given in the appendix should be of some
value as a source of raw material. For further material, it is suggested
that the Year Books of the United States Department of Agriculture, the
Monthly Crop Reporters of the Bureau of Crop Estimates, and the Reports
of the Chicago Board of Trade be consulted. A good book on correlation
coefficients, etc., is Yule’s Theory of Statistics. The teacher of the
suggested class in agricultural price statistics should simplify the
mathematics to mere method, not concerning himself or his pupils with
the theory back of it all. Wherever possible, the teacher should study
very carefully the January and April, 1919, volumes of The Review of
Economic Statistics, published by the Harvard University Press. The
methods as exemplified in these volumes can very profitably be applied
to the field of agricultural prices.
Acknowledgement is made to Professors J. M. Evvard and E. G. Nourse, of
the Iowa State College, and to Professor F. A. Pearson, of the
University of Illinois, for criticisms and helpful suggestions.
HENRY A. WALLACE.
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TABLE OF CONTENTS
PART I.
Our Present Price-Registering System 7
The Three Price-Making Forces 11
Criticism of Our Price-Making System 15
Supply and Demand 20
Can “Price” Make “Supply and Demand”? 22
Cost of Production 26
Ratio Method of Determining Cost of Producing Hogs 30
Supply and Demand Versus Cost of Production 36
Cattle Prices and the Ratio Method 39
Packer Prices and the Ratio Method 41
Milk Price Determination 44
Cost of Producing Crops 49
Consumers’ Ratios 52
Technique of the Ratio Method 57
Limitations of the Ratio Method 60
Retail and Wholesale Prices 62
Pork Exports the Barometer of Corn Belt Prosperity 64
Corn Belt Land Values and the Cost of Producing Corn 72
Price Stability and Soil Fertility 74
Measuring Total Crop Production 75