230 AGRICULTURAL PRICES AND VALORIZATION 



vidual farmers who produce the supply needed. Obviously the 

 cost of production of milk varies from farm to farm, and on the 

 same farm from month to month and from year to year. The city 

 must pay, not only for the cheapest portion of milk produced, but 

 the whole supply, including the marginal milk, i.e., the milk pro- 

 duced at greatest expense. For instance, if fifty farmers can produce 

 milk at 10 cents a quart, and fifty farmers can produce milk at 

 8 cents a quart, the city must and will pay these one hundred 

 farmers ten cents a quart, if the supply of these 100 farmers is 

 consumed by the city. That is, the city will pay ten cents a quart 

 if it wants to keep up its customary supply of milk. A "fair 

 price" maintains the most expensive units of the supply; other- 

 wise this part of the supply is not forthcoming, and the price will 

 rise with the fall in supply till the demanded supply is forthcoming. 

 One danger in price regulation by any commission is the ignoring 

 of the economic law of marginal production and marginal utility. 

 Any price control is likely to stimulate consumption and reduce 

 production. Price fixing on the " average cost of production" is 

 a foredoomed failure, even if it be not a calamity. Thus average 

 cost of producing crops commonly ignore the factor of abandoned 

 acreage. In 1917, 31 per cent of the winter wheat acreage was 

 abandoned. In Nebraska, 75 per cent was abandoned. 6 The 

 average cost of producing milk ignores that portion produced at 

 a loss. A Tompkins County, New York, survey contains this 

 statement: "Cows are the most profitable kind of live stock in 

 the county, but the average cow does not pay. A very large pro- 

 portion of the cows are being kept at a loss. The most profitable 

 farms are keeping cows that give 50 per cent more than the aver- 

 age cow." 7 Yet the city consumes the milk from the average 

 cow, and pays for it. And the price paid is the same as for milk 

 from cows above the average. In short, if milk from the "marginal 

 cow " is wanted, a fair price must pay for this marginal milk, and 

 so also for any other marginal product. 



Price Fixing, in Practice. In recent years, due to the develop- 

 ment of the cooperative movement among farmers and their con- 

 comitant advance in collective bargaining power, there have been 

 many cases of price fixing by representative groups of farmers 

 bargaining with representatives of the distributors, or with a com- 



6 United States Department of Agriculture Monthly Crop Report, May, 

 1917, p. 38. 



7 Bulletin 295. Cornell University, College of Agriculture, March 1911, 

 p. 564. 



