Technique of the Ratio Method 59 



bushel, oats at 49.9 cents, middlings at $22.62 per ton, tankage at 

 $40 per ton, pasture at $51 per acre, and man labor at 13 cents 

 an hour, we find, by applying the same formula, that the cost of 

 producing one hundred pounds of hogs was $6.69. The straight 

 corn ratio method gave $4.87 for January of 1907, and $6.84 for 

 January of 1908, departing from the more complex ratio on the 

 minus side by 19 cents in 1907 and on the plus side by 15 cents in 

 1908. The results are so nearly alike that in the case of hogs 

 we think that it is ordinarily satisfactory to depend on corn ratios 

 alone, altho in the case of such products as milk and butter it is 

 well to include feeds other than corn and to use a method similar 

 to that just outlined. 



In order to allow the general public to judge of the merits of 

 Avage increases, strikes and price advances, it would be well if the 

 ratio method might be applied to manufacturing and mining indus- 

 tries ; for instance, in the case of coal, it might be shown (these 

 figures are purely illustrative and possibly are wide of the facts) 

 that 40 per cent of the cost of producing coal is labor, 20 per cent 

 machiner}' charge, and 40 per cent risk, interest on investment and 

 similar factors, which vary in just about the same ratio as the 

 other two factors already mentioned. Distributing this 40 per 

 cent miscellaneous charge, we get 67 per cent of the cost of produc- 

 ing coal represented by labor and 33 per cent by machinery charge. 

 Now, assume that in 1920 the labor charge has advanced over the 

 ten-year base b}' 90 per cent, and the machinery charge by 110 per 

 cent. jMultiplying 67 by 190 and 33 by 210 and adding, we find 

 that on this basis coal in 1920 should be about 94 per cent above 

 the ten-year base. If the ten-year base is $3.50 per ton, the 

 proper price for coal in 1920 should evidently be somewhere around 

 $6.80 per ton. 



Of course, it is obvious that anj'one appl} ing the ratio method 

 must be thorol}' familiar with the industry under consideration. 

 There should be, however, competent experts in whom the public 

 has confidence, to express for the benefit of the public, in ratio 

 form, the cost-of-production price of all staple products, and pos- 

 sibly labor as well. 



Our grade schools and our high schools should train their stu- 

 dents to have an appreciation of the ratio method of determining 

 prices. An appreciation of this sort developed in the minds of the 

 bulk of our people would do much to stabilize the price system, pre- 

 venting undue excesses, and yet allowing prices which cover in a 

 fair way cost of production. 



