LIMITATIONS OF THE RATIO METHOD 



HE ratio method, while astonishingly accurate as a method for 

 A ascertaining production costs, is not infallible. In the case 

 of hogs and corn, for example, the ratio has remained constant, 

 decade by decade, for sixty years. It is always conceivable, how- 

 ever, that a change in production methods will come which will 

 enable farmers to produce hogs for less than the 11.5-bushel ratio. 

 It is also conceivable that as population increases, there will be a 

 smaller premium put on meat and a greater premium put on grain, 

 with the result that the standard ratio will fall below eleven bushels. 

 But in any event the change will be slow, and in all probability 

 the ratio of the fifty years from 1925 to 1975 will not fall below 

 11 bushels. 



In the case of such products as butter, where improvements in 

 method count for more than in the case of hogs, there is more like- 

 lihood of the standard ratio changing as time goes on. In the case 

 of such standard crops as corn and wheat, there is small probabil- 

 ity of great change in the standard ratios. Any undue and pro- 

 longed profit will be promptly absorbed by land values and labor 

 wages. 



About the only technological improvement which would throw 

 the standard ratios altogether out of line would be the discovery of 

 how to make food out of air and water by manufacturing processes. 



The ratio method, when used in price fixing, rather than in 

 price judging, is open to several objections. Under a laissez faire 

 system it may be necessary for months at a time to cater to the 

 consumers by selling food at below the ratio or cost-of-production 

 price. And again it is possible for months at a time to gouge the 

 consumer by selling food above the ratio or cost-of-production 

 price It is only as farmers, consumers and business men become 

 educated to the desirability of prices more nearly approximating 

 cost of production that the ratio system can be used extensively 

 in actual price fixing. When it is so used, there will be less like- 

 lihood of over-production on the one hand and under-production 

 on the other hand. 



Wherever the ratio system comes to be used in actual price 

 fixing, it will be open to the criticism that prices will start pyra- 

 miding. For example, in the case of hogs and corn, a guaranteed 

 ratio may increase the price of corn, and this in turn the price of 

 hogs, and so on in a never-ending climb. The reverse is also imag- 



