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 
