COST OF PRODUCTION 



THE common man prefers to approach the question of price not 

 from the standpoint of supply and demand, but from the 

 standpoint of cost of production. The laboring man says that he 

 has no quarrel with the farmer, that in fact he is glad to pay the 

 farmer what it costs him to produce food. Most people take it 

 for granted that the just price is cost of production. In July of 

 1917, President Wilson gave his scholarly definition of a just 

 price: "By a just price I mean a price which will sustain the indus- 

 tries concerned in a high state of efficiency, provide a living for 

 those who conduct them, enable them to pay good wages and make 

 possible the expansion of their enterprises which will, from time 

 to time, become necessary, as the stupendous undertaking of this 

 great war develops." 



The idea of a just price, covering cost of production and rea- 

 sonable profit, is considerably different from market price or 

 supply-and-demand price* The market price typically alternates 

 considerably above and considerably below the production cost of 

 the bulk of the people engaged in the enterprise. For instance, 

 when prices go up and profits become larger, new people are at- 

 tracted into the business and production is increased until finally 

 there is more supply than there is demand, and then prices have 

 to go down and profits become losses, and the people who can not 

 produce except at the high prices must go out of business. Both 

 the farming world and the business world are composed of a great 

 many different men, each of whom Is chasing a profit in his own 

 way. Many of these men are very short-sighted and are lured 

 into an apparently profitable business just at the wrong time, and 

 in like manner become discouraged with an apparently unprofit- 

 able business at just the wrong time. Under the competitive re- 

 gime, it is apparent to any thoughtful business man that both in 

 business and in farming the market price or supply-and-demand 

 price is almost never the same as cost of production, but fluctuates 

 in rather rhythmical manner, now above and then below cost of 

 production, tending to equal almost exactly, over any long period 

 of years, true production cost. 



Under the market price or supply-and-demand price system as 

 it has prevailed, the constant tendency is for the wealthier people, 

 both among farmers and among business men, to increase their 

 wealth at the expense of the poorer people. Poor people who 



