256 COST OF PRODUCTION AND FARM ACCOUNTING 



values on his total income, including house rent and vegetable 

 garden. The capital value of the investment is a problem of 

 fundamental importance, just as it is in the realm of public utilities 

 and in the public regulation of rates of these utilities, particularly 

 railroads. The " vicious circle" may repeat itself here: high rates 

 mean high earnings; high earnings mean high capitalization; high 

 capitalization justifies higher rates. Why not the same circle in 

 agriculture: high priced product means high priced land; higher 

 priced land means larger capitalization; higher capitalization 

 justifies higher costs of production and higher prices. Since "cost 

 of production" is destined to figure so prominently in public 

 discussions, the question of the value placed on the land is of 

 high importance. The "market value" is now used by various 

 farm management specialists. But market value of farm land 

 depends on the market value of the product of this land. It will 

 therefore be but going in a circle to use the market value of the 

 land to determine one important element in the "cost of produc- 

 tion." Yet in the " cost-of -production " figures thus far published 

 "rent" (called interest on the investment) forms a very important 

 fraction of the cost. Economic theory and accounting practice, 

 now wide apart in this matter, must be harmonized, and some 

 agreement or compromise reached. 



Another practice in vogue among farm cost accountants, and 

 which runs counter to principles enunciated by the Federal Trade 

 Commission, is that of counting at market value farm products 

 used on the farm in further production. An example of this is 

 hay and corn fed to dairy cows to produce milk for the market. 

 It is highly probable, however, that the farm accountants are cor- 

 rect in taking the farm value of such products, rather than their 

 cost of production. Of course it usually happens that the farm 

 value is above the cost of production, although this is not always 

 the case. Price statistics show that the price of farm products 

 frequently falls below the cost of production. The farmer is 

 entitled to suffer his losses or enjoy his gains, as the case may be. 

 If the farmer can make more, in the case above, by selling his feed- 

 stuffs on the market than by selling the milk for the market, then 

 he will and ought to curtail his milk production and sell his raw 

 materials. The consumer bidding for fresh milk must compete 

 with the hay market and corn market bidding for raw corn and 

 hay. If the consumer cannot pay this competitive price, the milk 

 will not be produced, and the market for "culls" will see a few 

 more dairy cows culled from the herds and sent to the butcher. 



