16 AGKIOULTUKAL PRICES 



a greater return than large crops. In other words, the demand 

 for farm products is inelastic. The ultimate consumer wants just 

 so much of staple foods, no more, no less. If farmers raise more 

 than so much, they must accept a considerable reduction in price; 

 if they raise less, they can command an advance out of all propor- 

 tion to the shortage. The law of demand for staple farm products 

 being inelastic, small crops bring in a greater return than large 

 crops.* 



The classical economists, the people of laissez faire persuasion, 

 accept this condition as natural, as inevitable, and therefore de- 

 sirable. But is it desirable? The sharp price rise which comes 

 as a shortage becomes apparent benefits those lucky producers who 

 have supplies on hand, and especially those keen speculators who 

 first- saw the oncoming shortage and bought in anticipation. This 

 sharp price rise may overstimulate production. The high hog 

 prices in 1909-1910 stimulated the production of too many hogs, 

 and when this increased production reached market, the price was 

 $6.50 instead of the expected $8 to $10. And the low prices of 

 1911-1912 in turn begat the high prices of 1913-1914. 



The question comes, Would it not be to the public interest if, 

 in price making, more emphasis could be placed on cost of produc- 

 tion and less on the short-time working of the law of supply and 

 demand? Prices should rise with a short crop, but not to such 

 an extent as to make a short crop more profitable than a normal 

 crop. If a moderate rise in prices will not sufficiently curtail de- 

 mand, then the public should be educated to the fact that there 

 has been a drouth, and that unless they curtail their demand, there 

 will not be enough to go around. Of course, under our present 

 laissez faire attitude, every speculative business man would take 

 such a pronouncement as a "bull" statement, and the demand 

 would immediately increase instead of decrease. There is danger 

 that any attempt to make cost of production the guiding factor in 

 price determination will amount to close government supervision 

 of storage, speculation and similar market phenomena. The dis- 

 advantages of government supervision are apparent to all who 

 watched the Food Administration at work during the war. The 

 Food Administration performed a hard job remarkably well, but 

 farmers found that the officials were ignorant of agriculture, and 

 that, moreover, agricultural interests could not expect a square 

 deal except in so far as they were organized to compel a square 



"The skew curves of supply and demand, as derived by H. L. Moore, 

 in his book on "Economic Cycles," furnish mathematical proof of this 

 statement so far as corn and oats are concerned. 



