PRICES OF FARM PRODUCTS. 7 



and 1915. The outlook for crop yields in the spring of 1920 ; how- 

 ever, was not very favorable. This resulted in a tendency to hold 

 the surplus on hand. Unusually favorable weather later and con- 

 sequent unexpected production were important causes of the sever- 

 ity of the drop in farm prices. 



The United States is subject to severe droughts. With the growth 

 in population such droughts become increasingly important. With a 

 sparse population, large numbers of animals are kept. In drought 

 3^ears some of the food that would have gone to animals is eaten by 

 human beings, and more than the msual number of animals them- 

 selves are eaten. This lessens the food shortage of a drought year and 

 allows the farmer a larger income than he would otherwise have in 

 drought years, because he then sells some of his animals that represent 

 crops of previous years. In a good year animals are increased and 

 some of the surplus feed is thus made use of. With each reduction 

 in the number of animals this reserve food supply is reduced and the 

 shock of high and low yields is felt more seriously. Thus, the greater 

 the dependence on vegetable foods the worse the effect of surplus 

 years on farm prices, and the worse the effect of poor years on indus- 

 trial conditions. Additional facilities for storage, and the increased 

 holding of crop surplus on farms to even up the good and lean years 

 are becoming more and more important. In unusually favorable 

 years, like 1920, it is especially important that the reserves held on 

 farms be increased. 



PERIODS OF OVER AND UNDER PRODUCTION. 



Violent changes in the price level result in violent changes in 

 industry. If the price of a particular product is not favorable, its 

 production is checked, but the price does not fully respond to the 

 reduced effort until the product that is already in the process of 

 production and merchandising is nearly exhausted. Prices then rise 

 and new production begins, but the new efforts at production have 

 only a limited effect on prices until the new goods have passed through 

 the process of production and merchandising. The length of time 

 that the prices of a particular product remain high or low, therefore, 

 depends largely on how long it takes from the beginning to the com- 

 pletion of the product. Other factors are, of course, involved. 



The purchasing power of hogs and horses illustrates this principle 

 as shown in Table V and figure 4. 



