28 AGKicn.TiJtAL Prices 



liis personal cost of production of a given quantity under a given 

 set of conditions. But in the general sense, as it is commonly 

 thought of, cost of production is a will-o'-the-wisp, a creature that 

 seems to exist but really does not. 



Nevertheless, there is a rough-and-ready method of deternnn- 

 ing cost of production or just price as distinguished from laissez 

 faire or supply-and-demand price. We refer to the ratio method 

 of price determination. Over a long series of years, cost of pro- 

 duction plus a reasonable profit is rouglily expressed by the rela- 

 tionship which exists between a raw product and the finished 

 product. In rough form it may be most easily grasped in the case 

 of corn and hogs. Over any long period of years, liogs sell on the 

 Chicago market at a price per hundredweight equal to the Chicago 

 price of 11.5 bushels of corn. When hogs have sold for fourteen 

 bushels of corn, they have sold for more than cost of production 

 plus a reasonable profit, wliile, on the other hand, when they have 

 sold for nine bushels of corn, they have sold for less than cost of 

 production plus a reasonable profit. All this is not saying that 

 certain producers have not been able to make a profit when hogs 

 have sold for nine bushels of corn. Neither is it saying that cer- 

 tain producers may not have been selling at a loss when hogs sold 

 for as much as fourteen bushels of corn. It is simply saying that 

 it has required the pulling power of a price for hogs which is equal 

 to the price of 11.5 bushels of corn to keep enough men in the hog 

 business year in and year out to supply the demand of this country 

 for hog products during the past sixty years. This is Mliat we 

 mean by the ratio method of price determination. It is the only 

 practical method of deternn'ning cost of production in such a busi- 

 ness as farming, v.Iiere there are millions of producers working un- 

 der a variety of conditions. 



We have the greatest respect for the old laissez fa'irc or specu- 

 lative method of price determination. It worked very nicely under 

 competitive conditions, such as existed before the war. No one 

 knows as to whether or not times now are right for adopting a 

 different machinery thru which the law of supply and demand may 

 work. We offer the ratio method as a method which is probably 

 better adapted to a thoroly democratized co-operatjve society than 

 the old-fashioned laissez faire method, which was adapted primar- 

 ily to a competitive society. 



The spirit of the ratio method is highly technical. The ex- 

 amples given in tliis book must necessarily be simple. But in 

 actual practice, the ratio method would necessarily become quite 

 tedniical, requiring for its administration highly specialized statis- 



