Similar conditions, affecting every market for any commodity, may easily be discovered. Yet in spite of all these extreme fluctuations, no better test of value has been suggested than the market price in open, unrestrained competition of buyers and sellers.
The market price.—In the discussion of value so far, the term market price has been used because perfectly familiar to everyone. It is necessary, however, to call attention to the fact that price always indicates an estimate of value in units of current money. If that money itself has a fluctuating value, the same article may have at different times different prices with the same value, or the same price with different values. Thus market prices in our country during and after the civil war, in which a paper currency gave the unit of prices, cannot safely be compared with each other, and can far less be compared with prices upon a specie basis.
Even the reduction to a so-called gold basis may give misleading ideas in regard to the market, since a new element of speculation in gold enters into the calculation. In all the accompanying illustrations of fluctuating prices, this particular abnormal condition has been carefully excluded. Any fluctuations in the value of money metals, necessarily affecting the relation of market price to market value, will be treated under standards of price in [Chapter X].
Prices of farm products; the crop year.—The actual fluctuations of market prices under the law of supply and demand can be most clearly seen by a careful study in the same definite market during a period of years. For illustration here the staple products of the farm have been chosen, and the markets of Chicago and New York, as most truly representative, have furnished the facts for study. These facts are presented to the eye directly by a series of charts, each of which has been most carefully prepared from official records, and gives within narrow limits a large range of investigation. In every case involving annual crops, it seemed necessary to rearrange statistics so as to cover the actual year affected by the crop in question. September 1 was chosen as the beginning of each year, because that date is nearest the time when the new crop of the season appears in market and directly affects the price of such products in store. All calculations upon live stock have been brought to the same basis, for the reason that the supply of marketable stock is largely dependent upon the supply of feed for stock. It seems very desirable that all statistics in regard to markets and productive [pg 079] industry should be brought to a uniform year. The year given in these charts seemed best to suit the subjects treated. It is possible, however, that for all data convenience would settle upon July 1, the beginning of the fiscal year in the United States, as the best for beginning the universal statistical year. Each chart in the series, of course, requires its particular explanation.
The fluctuations of supply and prices for series of years are exhibited in the Charts [4], [5], [6], [8], [9] and [12], and these are explained in detail at the close of the chapter.
Fluctuations with season.—Every product of the farm is known to have conditions favorable or unfavorable from the mere changes of season affecting the prospective supply. Conditions equally dependent upon the seasons have something to do with demand. The result of both combined is worthy of study by farmers and dealers in farm produce, that all may get the full benefit of such knowledge as the study affords. For this purpose, charts showing the annual fluctuations of staple products in the leading markets have been carefully prepared. These may have a greater usefulness than simply to illustrate the law of supply and demand, since it is within the possibility of actual practice to in some degree modify by provident foresight the extremes of fluctuation. It is hoped that the suggestiveness of these charts may help the most enterprising farmers to adjust their practice to conditions of market.
Charts Nos. [7], [10], [11] and [13] illustrate the fluctuations as related to seasons.
Law of diminishing returns.—In considering the value [pg 080] of farm products, it is necessary to notice a natural tendency in all products of the earth toward greater cost of effort in production. This is called the law of diminishing returns, and is illustrated in every industry where the accumulations of nature are depended upon for making labor effective. Hunting, fishing and mining afford familiar illustrations of more work of the same kind for equal product.
Agriculture, however, gives the most extensive available illustration of the facts grouped under this law. In the first place, the farmer is subject to it by mere location. The product of a field near his house and barn costs less exertion than the product of a more distant field. In the second place, he is likely to have chosen for his first efforts in crop raising the land most readily yielding its fertility in crops. If he extends his operations to less productive soil, he must work more for the same product. In the third place, if a certain amount of work upon a certain field will give him twenty bushels of wheat, he must give a good deal more than twice as much work in the way of tillage and manufactured fertilizer to make a crop of forty bushels. The proof of this is clear in the disposition of farmers to buy more land instead of to increase labor upon a limited space possessed.
A specific statement of the law of diminishing returns is that in the cultivation of land an increased amount of effort under usual conditions fails to give a correspondingly increased amount of produce.