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The Factors of Price.—The price of wheat is normally determined by the world conditions of supply and demand which pertain to bread stuffs. The control exercised over price by these conditions is immediate and transient. Direct variations in price result from variations in supply or demand. Price in turn causes supply and demand to vary by reacting upon them. Such variations are, comparatively speaking, of slower action and more permanent. Legislation may also become a determining factor of price in certain countries, as, for example, when import duties on grain are established.

Supply and Demand.--Wheat and rye are the world's principal breadstuffs. There is sufficient variation in supply and demand to cause great fluctuations in price. Many causes of variation in the supply of breadstuffs exist, among which may be mentioned: (1) The great changes in climate and in abundance of rainfall to which the natural wheat and rye regions are subject; (2) the variations in acreage which result as a reaction to variations in price; (3) the increase in acreage resulting from the settlement of new countries; (4) the decrease in acreage due to planting a larger acreage of other cereals, especially corn, when there is an unusual demand for live stock feed; (5) the degree of competition, which may affect the supply at a given time or place; (6) the establishment or abolition of trade restraints by commercial treaties; (7) the hindering of transportation by war; and (8) the continuous advance of the arts of production, communication and transportation. In Europe, the average annual production of rye is approximately as great as that of wheat, while the European production of both crops taken collectively averages about 70 per cent of that of the entire world. When wheat is relatively high in price, and rye is relatively low, consumption of the latter grain increases and the demand for the former decreases.

1 For criticism and many valuable suggestions on this chapter the writer is indebted to I’rof. H. C. Ellery and Dr. J. I’case Norton. 234

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Other causes which effect a variation in the demand for wheat are: (1) War, which causes a variation in the foreign demand; (2) the standard of living is rising, and this increases the demand, especially in rye consuming countries; (3) commerce and the introduction of a foreign civilization may increase the consumption of wheat, as in some of the Oriental countries. The condition that wheat is the staple food of man in the nations of the highest civilization and of the greatest economic strength tends to keep the demand for wheat firm, while the fact that the world supply of wheat comes from all quarters of the globe tends to prevent acute scarcity of the general supply. The demand for breadstuffs taken collectively is comparatively inelastic.

The Reactions of Price.—If the price of wheat falls so low that its production becomes unprofitable there will be a tendency for capital to become engaged in the production of other crops which yield a larger return. On the other hand, there are many substitutes for wheat which are at the command of the consumer, and which he uses when the price of wheat rises too high. This lessens the demand for wheat, lowers its price, and decreases its production. Thus the forces of supply and demand always seek equilibrium. To say that the producer must get what he can for his product is not sufficient. If he does not get what is economically just, on the whole and in the long run, then he must stop producing, and his capital will seek other channels until it again receives its due return in this. The value of wheat to the consumer must on an average be high enough to cover the cost of production and the expense of distribution. As a general rule, the consumer is comparatively more free to delay purchasing than the producer is to delay marketing, and hence the interest of the latter is the more critical one. It has been said that price is “determined normally by the net cost of producing an adequate supply.” " It is true that the price of wheat cannot normally be below the cost of production. It is no less true, however, that it cannot be above what the consumer is willing and able to pay. Cost of production and value to consumer are respectively the minimum and maximum limits of price, and they are both just as essential in determining price as the numerator and

* Industrial Commission, 6:32.


denominator are in determining the value of a fraction. Historically, demand came first, while production followed and grew to such proportions as was warranted by the demand. In modern times of enterprise, however, the chain of causation may be reversed, for by decreasing the cost of production a larger supply at a lower price can be placed upon the market, and in consequence of the lower price demand increases and more wheat is consumed. Communication and Transportation become an important factor in the price of wheat wherever the market has developed beyond the most limited local conditions. Prices that were formerly awaited for 2 or 3 months are now flashed by electricity over the whole world during the same day on which they are made. A favorable location is no longer an advantage in determining prices, for all markets are affected simultaneously by a change in either supply or demand. All improvements in communication and transportation resulting in a decrease of charges tend to lower the cost and increase the amount of production permanently, and hence they enable the producer to compete more successfully in the world’s markets. If two countries have surplus wheat for export, a few cents more or less per bushel on the whole cost of moving may determine which country can sell at a price that will secure the trade. Ideally, the only difference of price which should exist between any two markets, or between what the producer receives for his wheat and what the consumer pays, is that resulting from transportation and commercial charges, and the cost of such manufacturing processes as the wheat may be put through. These are the only variations that should occur in the world price of wheat. Competition and Price.—Competition is a powerful factor in determining the specific price paid for wheat, especially that paid to the producer. By means of competition, all charges incidental to moving wheat are kept at a minimum, while the price paid for the grain is kept at a maximum. For example, at Milton, North Dakota, a non-competitive point, 2 cents less was paid per bushel for wheat than at competitive points only 6 miles distant. When the local elevator systems combine against the interests of the farmer, the only effective remedy is for the farmers to combine among themselves and enlist the interest of the railroads. When the elevator systems also combine with the railroads, the farmer seems to be quite at their mercy. It is claimed that this condition of affairs is shown to exist by the recent investigation of the Interstate Commerce Commission, and that the elevators control prices. The only remedy would seem to be for the farmers to start independent elevators, and to secure the aid of law, if necessary, to get their wheat shipped to the primary markets, where competition has generally kept up the level of prices. The proof of the latter statement is shown by the fact that the primary market with the highest level of prices has secured the traffic. Exportation and Price.—There is a tendency for exportation to decrease as population increases. When a country consumes all of the wheat which it produces, then its price of wheat is fixed within the country, provided there are no restraints to trade, and that the cost of production is not greater than the cost of importing grain. As soon as a country has a surplus for export, and receives more for exported wheat than the home price, plus the expense of exporting, exporting will increase, the home price will rise, production will increase, and the price is no longer fixed within the country. The country which buys the export may thus fix the price of wheat for the country which produces it, but such a price under normal conditions must always be higher than that which the producing country could possibly fix for itself, and consequently a benefit to the latter country. It is as a consumer of the world's surplus that England has held a position of such commanding importance in fixing the price of wheat. It has been asked whether the large combinations of grain interests can or do fix grain prices. The only conditions under which they could permanently do so in a large market would be that they have an approximately complete knowledge of the conditions of supply and demand, and that they would be far-sighted enough to fix the price in accordance with what it naturally should be under the existing conditions. The Visible Supply and Price.—The consumers of wheat always have an advantage over the producers in that demand is

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