Chapter V: Part II (3)

A genuinely scientific method of applying the ratio method to hog prices would also take into consideration that hogs are to some extent made out of tankage, pasture and labor, as well as corn. Of course, these things vary in value in a rough way, in just about the same way as corn prices, and for practical purposes, the ratio between hogs and corn is probably exact enough.

As an example of a more complex application of the ratio method, assume that after thoro investigation by the farm management people, it is found that on typical farms 70 per cent of the cost of producing hogs is represented by corn, 5 per cent by tankage, 3 per cent by oats, 3 per cent by pasture, 2 per cent by middlings, 6 per cent by man labor, and 11 per cent by miscellaneous items, such as risk, interest, etc., all of which vary in about the same ratio as the other items already enumerated. Spreading the 11 per cent of miscellaneous items over the other items, we find that of the cost of producing hogs, 78 per cent is represented by corn, 3 per cent by oats, 6 per cent by tankage, 4 per cent by pasture, 2 per cent by middlings, and 7 per cent by man labor. Now, as an average of the ten-year period, 1907 to 1916, the value in the month of January, at Chicago, was 59.9 cents for corn and 43.4 cents for oats. The value of middlings on a Milwaukee basis was $22.77 per ton. The value of tankage (this is a rough estimate) was $46 per ton; the value of pasture land, $66 per acre, and the value of an hour of man labor 14.6 cents. Hogs averaged $7 per hundredweight.

According to the ratio theory, this ten-year average price of $7 per hundredweight for hogs must represent approximately cost of production. Seventy-eight per cent of $7 gives $5.46 as the share of corn in the production cost, and in like manner 21 cents is the value of the oats, 42 cents the value of the tankage, 28 cents the value of the pasture, 14 cents the value of the middlings, and 49 cents the value of the man labor. With corn at 79.9 cents a bushel, as it was during this ten-year period, and other feeds at prices as mentioned in the foregoing, it is obvious that it required, to equal one hundred pounds of hog weight, the value of 9.1 bushels of corn, one-half bushel of oats, one-two hundred and fiftieth of the value of an acre of ordinary rough pasture land, twelve pounds of middlings, eighteen pounds of tankage, and 3.4 hours of man labor. In the specific month of January, 1907, corn was worth 41.6 cents; oats, 35.4 cents; middlings, $18.37; ordinary rough pasture land, $51 per acre; tankage, $40 a ton, and man labor, 13 cents an hour. Nine bushels of corn at 41.6 cents gives $3.78; half a bushel of oats at 35.4 cents gives 18 cents; twelve pounds of middlings at $18.37 per ton gives 10 cents; one-two hundred and fiftieth of the value of an acre of ordinary pasture land, at $51 per acre, gives 20 cents; eighteen pounds of tankage at $40 per ton gives 36 cents, and 3.4 hours of man labor at 13 cents gives 44 cents. Adding, we get $5.06 as the cost of producing hogs in January, 1907. In January, 1908, with corn at 58.5 cents per 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 wage increases, strikes and price advances, it would be well if the ratio method might be applied to manufacturing and mining industries; 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 machinery 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 producing 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 by 90 per cent, and the machinery charge by 110 per cent. Multiplying 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 anyone applying the ratio method must be thoroly 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 possibly labor as well.

Our grade schools and our high schools should train their students 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, preventing undue excesses, and yet allowing prices which cover in a fair way cost of production.

LIMITATIONS OF THE RATIO METHOD

The ratio method, while astonishingly accurate as a method for ascertaining production costs, is not infallible. In the case of hogs and corn, for example, the ratio has remained constant, decade by decade, for sixty years. It is always conceivable, however, that a change in production methods will come which will enable farmers to produce hogs for less than the 11.5-bushel ratio. It is also conceivable that as population increases, there will be a smaller premium put on meat and a greater premium put on grain, with the result that the standard ratio will fall below eleven bushels. But in any event the change will be slow, and in all probability the ratio of the fifty years from 1925 to 1975 will not fall below 11 bushels.

In the case of such products as butter, where improvements in method count for more than in the case of hogs, there is more likelihood of the standard ratio changing as time goes on. In the case of such standard crops as corn and wheat, there is small probability of great change in the standard ratios. Any undue and prolonged profit will be promptly absorbed by land values and labor wages.

About the only technological improvement which would throw the standard ratios altogether out of line would be the discovery of how to make food out of air and water by manufacturing processes.

The ratio method, when used in price fixing, rather than in price judging, is open to several objections. Under a _laissez faire_ system it may be necessary for months at a time to cater to the consumers by selling food at below the ratio or cost-of-production price. And again it is possible for months at a time to gouge the consumer by selling food above the ratio or cost-of-production price. It is only as farmers, consumers and business men become educated to the desirability of prices more nearly approximating cost of production that the ratio system can be used extensively in actual price fixing. When it is so used, there will be less likelihood of over-production on the one hand and under-production on the other hand.

Wherever the ratio system comes to be used in actual price fixing, it will be open to the criticism that prices will start pyramiding. For example, in the case of hogs and corn, a guaranteed ratio may increase the price of corn, and this in turn the price of hogs, and so on in a never-ending climb. The reverse is also imaginable. In the case of fixing crop prices by ratio, it is imaginable that land values would constantly increase, and this would increase the price of crops, which again will be reflected back into land, and so on in a never-ending cycle. Economists like to dwell on situations of this kind. They are to a large extent purely imaginary. To stop a vicious rise under the ratio system, a rise which would bring about an over-production, all that would be necessary would be to very slightly lower the standard ratio. In the case of hogs, for example, it might be necessary to lower the ratio from 11.5 bushels to 11.2 bushels.

However, in all that is said concerning the ratio method of judging prices, there is no intention to prescribe any definite method of using the system. The chief function of ratios will doubtless continue to be educational. It is hoped that a knowledge of standard ratios by large numbers of people will suffice to stabilize prices at more nearly cost of production and to stabilize production at a point more nearly identical with normal demand.

RETAIL AND WHOLESALE PRICES

There has been much outcry in recent years against the retailer. Unquestionably, the retailer is working under a cumbersome distributive system which burdens the consumer with prices fully 20 per cent too high. It is commonly recognized that this extra 20 per cent does not represent retailers’ profits, but that it is used simply to perpetuate a system which will cater most effectively to the whims of indolent housewives. The cure for the system is for consumers to organize themselves into co-operative buying associations. When consumers are willing to band themselves together in such associations, to anticipate their needs of staple products by ordering ahead, it will be possible to furnish such products at very little above wholesale prices. In fact, it is conceivable that under such a regime co-operative consumers might buy of co-operative producers. All this, however, involves infinitely more foresight than the average citizen or his wife cares to exercise. Also it involves putting a vast number of small grocerymen out of business. In the long run, this will be a good thing for every one, but the immediate effect will be a great outcry against interfering with legitimate business, and the issue will be obscured by the customary smoke screen used by scared business men.

As long as we cling to our present retail system, it is worth while to know the standard differential between retail prices on the one hand and wholesale prices and farmers’ prices on the other hand. For instance, in 1913, ham quite customarily retailed at around 26 or 27 cents a pound, whereas the wholesale price at the same time was around 16 or 17 cents a pound, and farmers were selling their hogs at around 8 cents a pound. It was a fairly normal state of affairs, previous to the war, for ham to sell retail at 10 cents a pound above the wholesale price, or 18 cents or 19 cents a pound above the price of hogs. Just what the normal differential will be, now that the war is over, can not be foretold with accuracy. As long as we are on a price level twice as high as in 1914, it is obvious that the differential between retail and wholesale prices will be just about twice as great. The retailer may not pay quite twice as much to his labor, and he may not pay quite twice as much rent, but he will have to have twice as much operating capital, and his bad debts will probably be twice as great. At this writing, early in 1920, it seems obvious that the retailers should be allowed to have a differential fully 80 per cent larger than before the war, if they are to fare as well as most other classes. As a matter of fact, the retailers now seem to be selling ham at a differential of about 18 cents a pound over the wholesale price and about 36 cents a pound over the price of hogs. In the case of ham, the retailers began demanding an increased margin in May of 1917, the month after the war broke out. They kept increasing the margin as opportunity presented itself, but not till the summer of 1919 were the retailers able to widen out the differential between retail and wholesale prices sufficiently to cover the cost of doing business on a price level twice as high as in 1914.

Illustrating how the differential between farmers’ price and wholesale
and retail price widens in proportion to the higher price level.
]

The facts concerning the retail price of ham, wholesale price of ham, and price of hogs, are presented in the accompanying chart. Other retail prices are given in the appendix, and it is possible from the figures there presented to work out normal differentials for such products as wheat and wheat flour, corn and corn meal, sirloin steak and cattle, etc.

PORK EXPORTS THE BAROMETER OF CORN BELT PROSPERITY

For years we have exported from the United States more corn in the form of pork than in the form of shelled corn or corn meal. In recent years we have been exporting an average of about 40,000,000 bushels of corn in the form of corn and corn meal, whereas we have been exporting the equivalent of about 130,000,000 bushels of corn in the form of pork products. And for the year 1919 we exported the equivalent of about 350,000,000 bushels of corn in the form of pork.

There is an extraordinary sympathy between the corn and hog industries. True it is that we feed almost as much corn to our horses as we do to our hogs, but the corn which we feed to horses is for the purpose of keeping the farm plant running. The corn fed to horses does not bring in direct cash returns in the same way as the corn fed to hogs. Nearly one-third of all our corn is fed to hogs, and from the standpoint of market strategy, this third which is fed to hogs counts more than the other two-thirds. The demand for the other two-thirds by horses and cattle and by the grist mills of the towns and cities is practically stationary from one year to the next. It is the corn which is fed to hogs that varies so greatly from one year to the next.

For the first ten months of 1919, the value of the pork products exported from the United States was $778,000,000, or about one-eighth of the value of all the exports from the United States for this period. The only other product of practically equal magnitude with pork products was cotton, with a total value of $775,000,000 for the first ten months of 1919. Wheat and wheat flour, which most people think rank decidedly above the value of pork products, totaled during this period $556,000,000. Corn and corn meal exports during this period were worth an insignificant $15,000,000. Of course we are now exporting more pork products than ever before in history, but even before the war the corn belt expressed itself in international trade pre-eminently thru its exports of pork products. The ham, bacon and lard of the corn belt are comparable with the wheat of the northwest and the cotton of the south.

Before the war, we exported every year the equivalent of about five or six million hogs. Last year we exported the equivalent of thirteen or fourteen million hogs, nearly one-fifth of our total production. Exports dropped off during September, October and November, but this is a customary seasonal occurrence, and there is now the prospect of a resumption of a tremendous exportation of hog products during the winter and early summer.

The two charts printed herewith indicate the very close connection between pork exports and profits in corn raising. The chart giving the profits and losses on the average acre of corn for the past forty-five years is re-published from Wallaces’ Farmer of May 17, 1918, the profits for the years 1918 and 1919 having been added since. It will be noted that the other chart gives the exports of hog products in pounds from the United States year by year. The exports are in fiscal years, ending on June 30th. It will be noted that in a broad, general way, there is a considerable relationship between the two charts. When pork exports have been less than normal for a year or two, there is a decided tendency for corn to become unprofitable, and vice versa. Note how the big hog exports, starting in 1877 and continuing thru 1881, were accompanied by a period of unusual corn profits. Note how the falling off in hog exports, starting with 1882 and continuing until 1890, was also accompanied by unprofitable corn crops. Then there was a temporary turn for the better in both corn and hog exports in 1890 and 1891, and a sag in both until 1897, when hog exports picked up and continued to pick up to a very marked degree for several years, the change in hog exports being slowly reflected in corn profits. Generally speaking, pork exports seem to lead the way, and corn tags along behind. During the war years, however, corn seemed to move just about as fast as hog exports. The first year of really heavy hog exports was the year ending June 30, 1916, and the first corn crop to sell unusually high was that harvested in the fall of 1916. The corn crops of 1916, 1917, 1918 and 1919 have all been extraordinarily profitable, and the pork exports during these same years have been unusually heavy. Unquestionably, there is a very close relationship between hog exports and the general level of corn prices. We do not mean to say that there is a month-by-month relationship, or even a year-by-year relationship. We do mean to say, however, that it is impossible for the United States to export an unusual volume of hog products without sooner or later raising corn prices. It may take a year or two for the effect to be felt by corn, but sooner or later the influence seems to be inevitable.

Curved line indicates the normal trend of pork exports from the United
States. When the irregular line is above the curved line, pork
exports are unusually large. Large pork exports beginning with 1877
caused the corn belt prosperity beginning with 1879. Large pork
exports beginning with 1898 initiated the corn belt prosperity
beginning with 1920. The 1920 figure is a preliminary estimate.
]

Heavy hog exports make for higher corn prices, and higher corn prices make for higher values in corn belt farm land. Without much question, the fundamental cause of corn land rising so much more rapidly than land in other sections is the unusual volume of pork products starting with the year 1916. It would have been impossible for the corn market to have reached or sustained its high altitude without the prop of such tremendous hog exports. In view of the evidence presented, we make bold to say that hog exports furnish a most delicate barometer of corn belt prosperity. The huge volume of pork exports during the past three years is the explanation of corn belt land rising faster than in other sections. Iowa raises twice as many hogs as any other state, and this doubtless is the reason why land in Iowa has risen faster than in any other state.

Corn profits and losses in the twelve north central states, as
determined by the ratio method described in the chapter on “Cost of
Producing Crops.”
]

What of the future? Is there any chance that pork exports will maintain their present volume? We may as well face the issue squarely and come to the conclusion that in all probability pork exports, within three or four years, will decline to about one-third their present volume. For four or five years previous to the war, the tendency of pork exports was somewhat downward. It is reported that at that time Great Britain was buying less and less of her hog products from the United States, and that she was thinking of buying more and more of her coarser quality of hog products from China. At the present time there is considerable Chinese bacon on the English market. It is also worth while to note in this connection that the English consumption of meat is now 1,200,000 tons, which is 600,000 tons less than her pre-war consumption of meat. If England has cut down on her meat consumption one-third, the probabilities are that the continent of Europe has cut down on its meat consumption one-half. Probably never again will the world eat as much meat per capita as it did before the war. Whether we like it or not, we may as well face the probability that our pork exports are on the decline, and will not stop declining until they are down to about one-third of the 1919 volume.

And we may expect that this decline in pork exports will have some influence on corn prices, and therefore on corn land prices. The future situation is of course considerably different than that which has existed at any time during the past forty-five years. The volume of money in circulation may be such that there will be no actual decline in corn prices or in corn land prices. Just the same, we may expect that the unusually favorable position which has been enjoyed by the corn belt during the past three years will disappear with the decline in pork exports.

Previous to the war, Great Britain and Germany absorbed more of our pork exports than any other nations. Great Britain took 73 per cent of our pork exports, 86 per cent of our exports of hams and shoulders, and 36 per cent of our lard exports. Germany took 30 per cent of our lard exports and practically nothing in the way of bacon, hams or shoulders. Cuba, Holland and Belgium were the other large importers of American hog products, but these three nations together required only about one-tenth as much as Great Britain. If Great Britain cuts down her consumption of meat to two-thirds what it was before the war, she will be much more nearly self-supporting from a meat standpoint than she is now, and probably will not import from the United States more than one-half as much meat as she did before the war. Great Britain owes considerable money to the United States, and, moreover, in the future she will not get from the United States in such large measure ocean freight charges on the British merchant marine. In the old days, Great Britain had a considerable credit balance coming to her every year from the United States, and she took a large part of this in the form of pork products. Now that the situation is reversed, it is difficult to see how Great Britain can import as much in the way of hog products from the United States as she did before the war. True it is that for the year 1919 she has imported about three times as much from the United States as before the war, but once the present emergency is past, it seems obvious that Great Britain will cut her pork imports down to the minimum.

In the case of Germany, the situation is even worse. Germany, which normally took 150,000,000 pounds of lard from us every year before the war, must now pay the allied nations an indemnity every year of at least $600,000,000. In order to pay this huge sum, Germany must cut her imports down to the absolute minimum, and become extraordinarily efficient in exporting. For the next two or three years, Germany may perhaps import more lard from us than she did before the war, but, as rapidly as possible, Germany will re-establish her swine industry and reduce the imports of American lard.

We may be painting the situation too black, but we can not see how our pork exports, by the year 1925, can total to more than 800,000,000 or possibly 900,000,000 pounds, which is less than one-third the 1919 volume of exports. Of course, another war may break out in the meantime, or some other extraordinary thing may happen, but in the ordinary course of events, it would seem that our pork exports must inevitably decrease until they are considerably less than the pre-war normal. And it would seem that this decrease in pork exports will have a very considerable bearing on corn prices, which will in turn have a bearing on corn land prices. Again, we wish to say, however, that we do not necessarily believe that corn land in 1925 or 1930 will be selling cheaper than it is today. Prices of all kinds doubtless will continue to be high in 1925 and 1930, for the simple reason that inflated currency the world over will still continue. The point we are trying to make is that once hog exports decline to the pre-war normal, or less, corn belt farming will cease to enjoy the unusual advantage which it had during the war. It may for a time be relatively less profitable than farming in certain other sections of the United States.

There are many curious paradoxes in the hog export trade in the United States. While a heavy export of hog products sooner or later means high corn prices, high hog prices and corn belt prosperity generally, yet as a usual proposition, heavy hog exports do not start except in times of unusually low hog prices. The heavy exports of 1877–1881 did not start till hogs had declined below $5 a hundred, and reached their height while hogs were $3 to $4 a hundred. In 1882, when hog prices climbed to over $8 per hundred on the Chicago market, hog exports promptly fell off, and did not climb again until hog prices again went below $4 a hundred, in 1890. In early 1893, when hog prices on the Chicago market climbed up to nearly $8 a hundred again, hog exports dropped off very suddenly. They did not pick up at once in 1896, when hog prices went under $4 again, but did pick up very rapidly in 1897 and 1898, during both of which years hog prices on the Chicago market were under $4 a hundred most of the time. In 1902, there were heavy exports, in spite of the fact that hog prices were relatively high, but by 1903 the British apparently had had enough of buying high-priced pork on the American market, and they curtailed their importations very decidedly. Again, in 1910, the exceedingly high prices stopped the export demand. During the past three years there have been unprecedented exports in spite of unusually high prices. But as a matter of fact, hog prices in the United States have been cheaper during the past three years than any place else in the world. We have been selling hogs at a great bargain, or Great Britain would not have bought such tremendous quantities from us.

A thoro study of the exports of the United States month by month from January, 1903, thru the year 1914, indicates that there is a continual tendency for hog exports to be large when hog prices are low, and vice versa. The correlation coefficient between hog prices and hog exports is minus .52. There seems to be a closer correlation between hog exports and hog prices than between receipts of hogs at central markets and hog prices. The tendency has been for hog exports to be 40 per cent above normal when hog prices are 15 per cent below normal; for hog exports to be 20 per cent above normal when hog prices are 8 per cent below normal, etc. In November of 1919, when hog exports were about 40 per cent above normal, it would have appeared, therefore, that hog prices were about 15 per cent below normal. This is a long-swing tendency, and of course there are occasional exceptions. This part of the problem may be summed up to the effect that big exports start in times of low hog prices, and that these exports after a time stimulate both corn and hog prices, with the result that after a time both corn and hogs become so high in price that exports dry up, and then corn and hog prices weaken, and the whole thing starts over again. There was a continuous series of these cycles previous to the war, and it is to be expected, now that the war is over, that the phenomena will repeat themselves, altho with some added variations.

One thing we must remember is that very possibly the export trade of the United States will not count so big in the future as it has in the past. The United States has loaned something like $10,000,000,000 to foreign countries, and every year she will have hundreds of millions of dollars in interest coming her way, instead of owing hundreds of millions of dollars to countries across the water, as was the case before the war. And as long as the United States has so much money coming to her in interest charges, we must expect that eventually the United States must import more goods than she exports. This does not necessarily mean the destruction of the hog industry in the corn belt, but it may mean that it will have to shift onto a somewhat different basis. It may be that in the future we must plan on growing enough hogs only to satisfy the needs of the United States, carefully avoiding a glut which will make it essential to export any large quantity. Or it may be that the American farmer is so exceedingly efficient in the business of producing hogs that the United States will always export large quantities of pork products, even tho the balance of trade otherwise is against the United States. If we approach the problem from the standpoint of going after a large trade in hog products with foreign countries, we must put ourselves in position to produce with the utmost economy possible. “Price” talks in the export business, and we shall export large quantities of hog products whenever we are selling hogs decidedly cheaper than the rest of the world.

Just what kind of a whistle do we want, and what price are we willing to pay for it? Here is a problem which we commend to the earnest study of the research department which the National Farm Bureau Federation may some day possess.

CORN BELT LAND VALUES IN RELATION TO COST OF PRODUCING CORN

Rent or interest on the money invested in land is a legitimate item in cost of production—so far as the individual farmer is concerned. But society is likely to reach a time when it will assert the right to object to paying a price for corn which will permit of paying a very high rent, which in turn is used to support very high land values.

Society may say, in effect: Your high land values are just as vicious as watered railway stock, and you have no more right to expect a five per cent return on the inflated value than the railroads have to expect such a return on their watered stock.

Society may be expected to pay a price for corn which is established by competition between farmers in this country and in the Argentine, and by the need of Europe for our pork products. This price doubtless will bear much the same relation to the general price level as before the war. It may be high enough to permit of corn belt land values as they existed in 1920, or even higher values. Or it may be low enough to compel a reduction in corn belt values and farm-hand wages.

In the case of a severe drop in corn prices, it is conceivable but not probable that corn belt farmers will organize sufficiently to compel the return to a price high enough to maintain 1920 land values and farm-hand wages.

It is believed that under conditions of free competition it will be necessary for corn to sell for about 85 cents a bushel, on a basis of December 1st farm valuations in the corn belt in the ordinary crop year, in order to maintain land values as they existed in 1920. This means that prices might go as low as 70 cents a bushel in years of big crops, or as high as $1 in years of small crops. It is also assumed that labor at harvest, without board, will settle down to about $4.25 a day, which was the 1918 level. If labor at harvest, without board, continues at $5 a day, which was the 1919 level, it will be necessary for corn to sell for about 88 cents a bushel, on a December 1st farm basis, in order to maintain the 1920 level of land values and farm-hand wages.

It is recognized that this prediction may be wide of the mark in case farmers are able to organize themselves for selfish purposes as effectively as capital and union labor. For forty years preceding the war, the farmer paid his regular monthly labor a sweated wage, and, in effect, sold his own labor just as cheaply. During the war, the farmer had a taste of a higher standard of living, and, having had this taste, he will be loath to let farm product prices slip back to a point where he will be reduced to his former state or even lower.

It is suggested as the only effective way out of the difficulty that farmers organize into powerful bargaining organizations, which, on occasion, can practice sabotage as skillfully as capital or union labor. But, in addition, and above all, it is absolutely necessary to become extraordinarily efficient. We must continue to apply our best brains to production problems, perfecting methods which will enable us to produce corn 10 cents a bushel cheaper in Iowa than in Argentina.

PRICE STABILITY AND SOIL FERTILITY

One of the strongest arguments for more stable prices is the effect on soil fertility. While the best farmers will try to maintain the fertility of their land, no matter what may be the economic outlook, the bulk of our farming population will not make any serious efforts along this line as long as the price outlook is uncertain. When prices are advancing, the tendency is for millions of acres of farm land to find their way into the hands of speculators and investors, who hold for a rise, and who take no interest whatever in the application of lime and phosphate or the growing of clover. When prices are tending downward, there is a tendency to economize to the limit. Even those farmers who normally use fertilizers are likely to postpone purchases until next year or the year after, in the hope of lower prices. It is only under a system of relatively stable prices that we may expect really effective attention to be given to soil fertility problems by the bulk of our farmers. The quicker we can get onto a stable price level, the more effectively will the fertility of our soil be conserved.

It is common observation that live stock farming maintains the fertility of the soil more effectively than grain farming. In the corn belt, live stock farms ordinarily produce five bushels more corn per acre than grain farms. Two great obstacles to live stock farming are tenancy and price uncertainty. The man of small means who has been farming for himself for only a few years can not afford to take a chance. He does not know whether or not hogs will be at a price next year which will furnish a good market for corn, and he therefore plays safe by breeding only three or four sows, instead of the five or six which he might very well handle. Unquestionably, the farmers in the corn belt would be justified in keeping more live stock if the price of live stock should represent cost of production day by day and month by month. In fact, corn belt farmers, as an average of a five-year period, could probably afford to produce both hogs and cattle at lower relative prices than were customary before the war, if only prices were more nearly stable, if they could feel reasonably sure of getting a price more nearly representing production cost.

The maintenance of the fertility of our soil is a matter of national concern. In the long run, it is of more vital interest to the people of the cities than to the farmer. Men engaged in industrial enterprises should do what they can to favor such adjustment of prices as will make it to the advantage of the farmer to keep his land in good heart, because that will make for larger production and more economical production.

MEASURING TOTAL CROP PRODUCTION

This chapter does not follow the same line of thought as the other chapters. It has an indirect bearing, however, and we believe the suggested method of measuring total crop production to be of some value.

Small crops ordinarily bring the farming class more money than large crops. Nevertheless, in the long run big crops mean prosperity to the country as a whole. To judge just when crops as a whole are large and when they are small, a method has been devised, which may be illustrated as follows:

In 1918, the United States produced 2,582,814,000 bushels of corn, 917,100,000 bushels of wheat, 89,833,000 tons of hay, 11,700,000 bales of cotton, etc. Now, to ascertain total crop production, it is obviously impossible to add together bushels, tons, bales, etc. We can add together the value of the crops, but the price level shifts from year to year, and this method is not satisfactory.

Now, the 1907–1916 ten-year average price of corn was 61 cents, of wheat 96.2 cents, of hay $11.49 a ton, of cotton $59 a bale, etc. A ten-year average illustrates the relative economic emphasis. These prices are therefore used as constant factors, applicable to any crop year.

The 1918 corn crop of 2,582,814,000 bushels, converted into economic crop units by multiplying by 61, equals 157,500,000,000. The 1918 wheat crop of 917,100,000 bushels, multiplied by 96.2, equals 63,600,000,000. The same thing done with the thirteen leading crops gives 559,900,000,000 crop units produced by the United States in 1918, or 5,270 crop units per capita.

The per capita production of crop units since 1880 has been as follows:

══════════════════════╤═══════════╤═══════════╤═══════════
1880 5,360│1890 4,720│1900 5,820│1910 5,320
1881 4,280│1891 5,820│1901 4,470│1911 4,850
1882 5,330│1892 4,840│1902 5,480│1912 5,690
1883 5,120│1893 4,710│1903 4,930│1913 4,950
1884 5,560│1894 4,030│1904 5,220│1914 5,410
1885 5,250│1895 4,980│1905 5,200│1915 5,770
1886 4,970│1896 5,170│1906 5,560│1916 4,940
1887 4,690│1897 5,070│1907 4,940│1917 5,530
1888 5,240│1898 5,360│1908 5,220│1918 5,270
1889 5,910│1899 5,760│1909 5,100│1919 5,400
──────────────────────┼───────────┼───────────┼───────────
Decade Averages, 5,171│ 5,046│ 5,194│ 5,313
──────────────────────┴───────────┴───────────┴───────────

Note how constant has been the productive power of the United States in economic crop units per capita, decade by decade, since 1880. Note that since 1910 crop production has more than kept pace with the increase in population.

In the ’80’s we exported the equivalent of about 650 economic crop units per capita (in this we convert pork exports into corn), which left, roughly, 4,500 economic crop units per capita for home consumption. In the fiscal year ending June 30, 1919, we exported about 750 economic crop units per capita, which left, roughly, 4,500 economic crop units of the 1918 crop for home consumption. During the decade ending 1919 there has been an average of about 4,800 economic crop units per capita left for home consumption. It was probably necessary to retain more economic crop units per capita at home during the last decade than during the ’80’s, because of the smaller live stock production per capita.

From the standpoint of production per farm, there has been a tremendous increase every decade. As an average of 1880–1889, the production per farm was 66,420 units, as compared with 67,990 units for the 1890–1899 decade, 71,600 units for the 1900–1909 decade, and 81,000 units for the 1910–1919 decade. In response to the higher price level, the productivity of the average farm has constantly been increasing. If both the general price level and the price of farm crops had been the same in the 1910–1919 decade as in the 1900–1909 decade, the probabilities are that the average production per farm would have been about 73,000 economic crop units instead of 81,000. If by the 1940–1949 decade we have a population of 150,000,000, and if Dun’s index number at that time is $170, it will be necessary to pay at Chicago an average of about $1.80 for wheat, $1.15 for corn, and 65 cents for oats, in order to call forth as much production per capita as was called forth by the prices paid during the past forty years. When Dun’s index number is as low as $170 (at this writing, in early 1920, it is $244), $1.80 for wheat, etc., will be very high relatively. Rather than pay such a high relative price, the consumers of the United States will probably turn to Argentina and other countries where farmers produce food cheaply by living on a lower standard. The position of the United States, rising out of the world war, whereby she is the creditor nation of the world, will favor food importations.

It is a commonplace among business men that good crops mean good business. The effect, however, is not as close as they imagine. The short crop of 1901 did not affect the business world till 1903 and 1904. The short crops of 1892, 1893 and 1894 did not have full effect till 1895 and 1896. A single crop year which is only slightly below average may have no effect whatever on business. But when three crop years average below normal, there is almost certain to be some effect on business. From 1903 to 1919, the correlation between crops and the price of securities on the stock exchange was about .53. Professor H. L. Moore, in his book on “Economic Cycles,” finds between crop yields per acre and pig iron production a correlation coefficient of .72, pig iron production lagging about a year behind crops.

Big crops do mean good business, altho they mean prosperity to the farming class chiefly in an indirect way. A small crop generally brings farmers more money than a large crop, but small crops over a period of two or three years cause business depression and this reacts on farmers.

The problem of both business men and farmers is to devise some means of giving farmers as a class a financial interest in producing big crops rather than small crops.