THE GRADES OF THE FACTORS OF PRODUCTION 123 



of these instruments, the problem of choice would be solved, 

 but this is not true. The individual valuations of given instru- 

 ments of production have a wide range above and below the 

 market valuations. 



It is this discrepancy between individual and market valua- 

 tions which makes it incorrect to take the position that one 

 dollar's worth of agricultural land, labor, or equipment is as 

 useful to the farmer as any other dollar's worth, that market 

 prices eliminate the necessity of careful selection of the grades 

 of the factors of production. It is, therefore, necessary for 

 each farmer to use great care in the choice of the productive 

 agents with which he associates himself. 



An hypothesis which has been made and which bids fair to 

 prove a practical guide is that the factors which possess high ef- 

 ficiency should usually be associated together. The high efficiency 

 land should be occupied by the high efficiency farmer operating 

 high efficiency equipments. For example, suppose the superior 

 efficiency of " A " grade land over " B " grade is due to its 

 location near the market, so that while the physical product 

 per unit of the other factors (of given efficiency) is the same as 

 on "B" land, the value of the product is twice as great on 

 " A " as on " B " grade land. Assume also that farmers " I " 

 and " II " vary also in their efficiency, which shows itself in 

 the fact that the physical product which " I " can grow on a 

 given grade of land is twice as great as that which " II " can 

 grow. Under these conditions each farmer can secure twice as 

 much product, in value, from the " A " grade land, as from the 

 " B " grade land, but the extra product is twice as great for 

 " I " as for " II." Each man can afford to pay more for " A " 

 grade land, but the one with the higher efficiency can clearly 

 afford to pay more than his less efficient competitor, and hence 

 competition will tend to give the best locations to the most 

 efficient users. 



Variations in efficiency of two pieces of land may be due 

 solely to differences in the amount of physical product per unit 

 of labor and equipment put upon them. In this case is it important 

 that the more efficient farmer operate the more efficient land ? 



