A Base in the 1920-29 Period for Farm Price Studies

Abstract

Index numbers of farm prices serve many useful ends, the most important of which is undoubtedly the development of a statistical tool to measure the position of the agricultural industry relative to that of other industries, as well as to measure its own position at a given time relative to its position at some other period in its history. From purely a theoretical point of view, then, one base period should serve as well as another, since we are interested chiefly in relative comparisons. On the other hand, important considerations of a practical nature must influence the choice of a base period if the farm price series built upon it is to be most useful. It is the purpose of this manuscript to develop a number of factors which appear to favor the selection of a post-war base period for farm price studies. Specifically, the data presented will support the five-year period 1924-28 as a base; however, the majority of the argument following can be applied to any period during the decade of the 1920's with but minor qualifications. Although the manuscript is built largely around Indiana price and index comparisons, it is felt these data will be typical of the North Central states, and in the main, of the remainder of the country. The more in the past the base period, the less concrete is its meaning, even in the minds of those older individuals whose business experience antedates the base period. Ideally, considering this point alone, the base period should be as recent as is consistent with other important considerations. The majority of farmers and other people who use farm price index series today have entered business since 1910-14. A large proportion of trained agricultural economists, whether teacher, extension or research workers, are unable to connect any experience of their own with the 1910-14 period. A person under 45 years of age today is unlikely to have had any business experience during those years. Few students in agricultural colleges today even lived during the pre-war period. A survey of slightly over 100 students in the freshman farm accounting course at Purdue University this year showed that 99 per cent were born after 1914, while 78 per cent were born after 1918. These ratios are probably typical of the entire country. The majority of present day graduate students were very young, if indeed they had yet been born, during the 1910-14 period. Even at its best, the picture of pre-war normality