SUPPLY AND DEMAND vs. COST OF PRODUCTION 37 



production price. If the packing business were a monopoly under 

 government control, stabilized prices under the ratio system might 

 be paid with some degree- of satisfaction, provided we assume that 

 the governmental authorities have a real insight into market con- 

 ditions and a thoro understanding of the ratio system of price 

 judgment as related to supply and demand. Under the present re- 

 gime, however, it is difficult to see much prospect of hog prices 

 ever being stabilized, for the reason that under a laissez faire sys- 

 tem business profits result from fluctuating prices, those businesses 

 profiting most which are best organized and most long-lived, and 

 are able to take strategic positions over long periods of time. 



What would happen if cost of production were to be paid in the 

 hog market day by day, year in and year out? By cost of pro- 

 duction is meant the 11.5-bushel ratio, modified seasonally. Pack- 

 ers can think of many objections. For instance, they can conceive 

 of periods of a year or two at a time when the 11.5-bushel ratio 

 would necessitate paying the farmers more for their hogs than they 

 could get for the meat. Equally, they can see how it might be 

 that for periods of a year or two at a time, they would be able to 

 get out of the consumers a price equivalent to considerably more 

 than the 11.5-bushel ratio. Admittedly, these objections are sound 

 under present conditions ; supply-and-demand price is the only 

 price adapted to the laissez faire situation. 



If farmers as a class are to secure cost of production for their 

 hogs month after month and year after year, they must organize 

 into powerful associations to do business co-operatively. They 

 must control the supply of hogs with an iron hand and an intelli- 

 gent head. They must be willing to play fair with the consumers 

 and not charge more for their hogs than the ratio of the past 

 sixty years. In fact, it is conceivable that they might be able to 

 sell their hogs at slightly less than the 11.5-bushel ratio of the past 

 sixty years. If the organization was really powerful enough to 

 enforce the cost-of-production ratio over any period of time, the 

 market risk, which has been a very serious factor in the past, would 

 disappear. This risk has been such a factor that it is quite pos- 

 sible that farmers would be willing to produce enough hogs to sat- 

 isfy the market at an eleven-bushel ratio if the risk no longer ex- 

 isted. The author estimates that as an average of the past sixty 

 years the consuming public has been paying at least 50 cents per 

 hundredweight more than necessary for its hog products. This 

 extra 50 cents has been in the nature of risk insurance. 



It is conceivable that both farmer producers and city consumers 

 might organize to carry this risk between them, the city consumer 



