( 175 ) 



price is assumed to decline to perhaps 30 per cent 5 less than 

 normal, in which case the farmers' income would be 12 per 

 cent 6 below normal. Since time immemorial, proposals have 

 been made to raise both prices and incomes by reducing pro- 

 duction. This was the basis of our AAA program and of in- 

 numerable other restriction programs so widely accepted 

 throughout the world during the thirties. 



In recent years scientific studies and practical experience 

 have disproved this age-old axiom. It is true that any force 

 which reduces production raises price, but it does not follow 

 that reducing production raises income. On the average, a 

 big crop brings agriculture just about as much income as a 

 little crop. The known facts may be summarized as follows: 



Crop Price Income 



80 125 100 



100 100 100 



125 80 100 



A 20-per-cent reduction in the production of a crop raises 

 its price about 25 per cent, and a 25-per-cent increase lowers 

 prices 20 per cent. In each case the income is approximately 

 unchanged, 100. Normally, decreasing the production raises 

 price, but it does not raise a nation's agricultural income. 7 



Much of our muddled thinking is due to the fact that, al- 

 though reducing production raises price, it does not raise 



5 Erroneous assumption. 6 Erroneous conclusion. 



7 Of course, the relationships for individual crops vary somewhat from 

 this generalization. A 20-per-cent reduction in the supply of some crops raises 

 the price sufficiently to bring the farmer somewhat more dollars than a big 

 crop at a low price. For instance, a 20-per-cent decrease in the production 

 of potatoes raises prices 29 per cent and brings farmers a slightly greater 

 return than does the large crop at a lower price. The short crop brings farm- 

 ers 3 per cent more income than a normal crop and 6 per cent more than a 

 large crop. Similarly, a short crop of corn brings farmers a few more dollars 

 than a large crop. But small crops of oats, hogs, and apples bring the farmers 

 higher prices, but slightly less incomes than large crops. 



