6 BULLETIN 994, U. S. DEPARTMENT OF AGRICULTURE. 



and there is need for plain statements of facts. Reliable cost data, 

 properly presented, should go far toward doing away with much 

 of the misunderstanding now existing. 



Cost data have an important educational value to those starting 

 a farm business. Just as engineering data obtained from records 

 of experience in engineering pursuits are of value to subsequent 

 engineering projects, so farm cost data, particularly as expressed 

 in basic terms, are of value to farmers in planning the organization 

 of their farms so as to obtain the largest profits. As experience 

 accumulates in studying costs and prices, and as knowledge of the 

 forces that affect these factors of the farm business increases, there 

 should be a gradual increase in efficiency among the more backward 

 farmers 



USE OF COST OF PRODUCTION DATA IN FIXING PRICES. 



Price fixing became popular during the war, largely because of 

 the idea that it would solve a pressing economic problem. In 

 view of developments, however, it has become apparent that the 

 economic problem in question was not solved by the setting of prices. 



There may be times when the setting of prices becomes necessary 

 to stabilize the market and to insure a fair price, particularly when 

 competition ceases and a monopoly charge prevails at some point 

 in the middleman prices. However, the setting of food prices was 

 not based on this hypothesis; indeed one of the principal purposes 

 was to stimulate a larger production by making an attractive price. 

 In many cases, however, it appears that the competitive price 

 would have been more profitable to the producer and therefore 

 would have stimulated at least an equal if not a larger production. 



The problem of price fixing during the war was more difficult 

 because of the unsatisfactory character of the data available, and 

 the prevalence of the notion that cost of production was the only 

 thing that should be considered. There is an important relation 

 between cost of production and price, but it is clear that other 

 factors than cost enter into the problem. The prices of most staple 

 farm products are made by competitive forces in which market 

 demands, fluctuating supply (which itself is affected by cost of 

 production), transportation, custom, substitution, and other factors 

 have important bearings. 



There is a certain interrelation between cost and price that should 

 be kept in mind if price fixing is considered on the basis of cost. 

 An example will illustrate. With wheat at $2.50 per bushel, land 

 valued at $200 per acre, with a normal yield, will pay 5 or 6 per 

 cent, net. But 6 per cent of the land value has already been charged 

 as a rental value of land in determining the cost to the farm con- 

 cerned. Lower valued land of equal fertility and equally good 

 location will produce wheat at a lower farm cost and leave a higher 



