directions at least. Easily the most important of its problems, and in some respects the most difficult, have been encountered in the regulation of the wheat and flour trade. In this paper an attempt is made to analyze these problems and to discuss the efficacy of the measures adopted to meet them.

I

THE COMMERCIAL SITUATION AND PRICE TREND DURING THE CROP YEAR, 1916-17

In 1913, in 1914, and again in 1915, the United States produced the largest wheat crops ever harvested in this country; the average for the three years was almost 900,000,000 bushels. The average exports of wheat (and flour) for the same years were almost a quarter of a million bushels; the exports for the years 1914-15 and 1915-16 were much the largest recorded during the present century. In striking contrast to these huge crops was the exceedingly disappointing harvest of 1916, which amounted to only 636,318,000 bushels. However, there was a large "carry-over" from the 1915 crop, amounting at the beginning of July, 1916, to 179,174,000 bushels, which, together with the new crop, made possible an export movement of 209,438,795 bushels during the succeeding twelve months.

It is the occurrences of these twelve months to which this paper must first give attention. The facts just recited make it evident that during the first two years of the European war this country had played a large part in the provisioning of western Europe. The neutral nations as well as the entente allies had drawn very heavily upon the United States for wheat and flour, but it had also been possible for them to draw upon the

crops of Australia, Argentine, India, etc. To a lesser extent this was possible also in 1916-17, but the growing scarcity of ocean tonnage caused greater and greater dependence upon nearer sources of supply, as Algeria and North America. The result was an extremely close adjustment of supplies and needs during the year 191617; on July 1, 1917, the United States came into the new crop year with a carry-over of only 51,078,000 bushels; the lowest figure recorded since 1909.

Not only was there a remarkably close adjustment of supplies to needs during the twelve months ending in June, 1917, but there was also, over the greater part of that period, an almost continuously mounting price level for wheat and flour. Only between November, 1916, and early February, 1917, did a net decline occur; after the first week in February there was a sharp upward swing which reached a climax about the middle of May, at a point nearly three times as high as the prices current a twelvemonth before. This peak was not maintained, but the average prices of June and July were well over twice the level of the corresponding months in 1916.

This extraordinary price increase was due to three fairly distinct factors: (1) poor crop prospects and rapidly diminishing wheat and flour stocks in the United States and Canada; (2) uncontrolled, and at times apparently reckless, buying in American markets by the representatives of the allied and neutral countries; (3) the impossibility of drawing upon the reserves of such distant regions as Argentina, Australia, and India, in appreciable quantity, owing to the ever-shrinking supply of merchant shipping resulting from the destruction of tonnage by unrestricted submarine warfare. The urgent needs of western Europe had to be met from

the scanty surplus of North America. As it has been well put: 1 "Wheat and the products of wheat became war munitions, and war munitions are bought with a ruthless disregard of all commercial factors." Under such conditions the ordinary conditions of demand and supply can hardly be said to exist at all. In a sense, the law of demand and supply was simply inoperative. There resulted an abnormal and quite unprecedented condition in the wheat and flour market of the United States during the spring of 1917. The highest price paid for cash wheat since the Civil War was reached in April; by the middle of May it had advanced nearly 50 per cent more. Curiously enough, high prices of wheat and flour had the effect of stimulating rather than checking the buying demand of American distributors and consumers. Flour consumers were frightened at the prospect of impending scarcity, and their fears were not allayed by the very gloomy reports issued by the Department of Agriculture on the condition of the winter wheat crop and the injudicious utterances of its officials and other public men concerning possible famine conditions to come. There resulted a veritable flour panic; with each successive increase in prices there was a fresh wave of hysterical buying; speculation by flour jobbers and dealers, as well as by wheat operators, was rampant. Extraordinary profits were taken, in many cases almost reluctantly taken, both by millers and grain dealers. Predictions were freely made by responsible officials that still higher prices might be expected unless the market was controlled. The buyers for the foreign governments had well-nigh cornered the market through their ownership of the May future; the market was really "oversold" and the selling interests wanted some action taken to protect them from excessive loss. Finally, on

1 By Mr. Julius H. Barnes, President of the Food Administration Grain Corporation.

May 14, under pressure from government officials and from public sentiment, the directors of the Chicago Board of Trade prohibited further trading in the May future and forced the settlement of outstanding contracts at a price fixed by a committee. With cash wheat selling at $3.45 the committee set a maximum price of $3.18 for the May contract. Subsequently speculative trading in the July and September futures was also prohibited and outstanding contracts terminated. The committee fixed the settling prices on these contracts at $2.75 and $2.45 respectively. Similar action was taken by the other important exchanges. "The moment this was done," to quote the words of a keen observer," the whole American marketing system fell like a house of glass.'

II

EVIDENT NECESSITY FOR GOVERNMENT CONTROL

In these conditions it became abundantly evident that some form of control was necessary if the situation was not to get out of hand altogether. As early as April, 1917, the Council of National Defense had summoned Mr. Herbert C. Hoover, who had discharged with signal success the perplexing and difficult task of rationing the Belgian nation, to come to the United States to undertake a similar task for his own country. Mr. Hoover arrived in Washington early in May, but found the political situation so unsettled as to make it extremely doubtful whether he could render useful public service. It is not the purpose of this paper to trace the tortuous course of the so-called Food Control Act through the debates of Congress; suffice it to say that many interests were arrayed against the appointment of a business man

1 Mr. Julius H. Barnes.

to a position of real authority in Washington. However, Mr. Hoover had the backing of the President, and he proceeded at once, tho unofficially, to the working out of plans for the effective control of the food industries which might be put into operation as soon as authority was granted to do so. The first important industry to be considered was the wheat and flour trade.

The next few months were a period of anxious waiting on the part of the commercial interests affected. Already in April the Council of Grain Exchanges had sent representatives to Washington to confer with the Secretary of Agriculture and to work out some plan of control acceptable to the government and the trade. Out of these consultations was organized the Committee of Grain Exchanges in Aid of National Defense. This committee together with a somewhat similar committee representing the western exchanges, met in conference with Mr. Hoover on May 16, and at his request submitted a tentative outline of a plan of control. This plan emphasized: the absolute necessity of direct government control of the transportation of foodstuffs (interchange of railroad cars, etc.); the fixing of a wheat price and its maintenance for the entire crop year without change; the control by the government of the distribution of the available wheat supply, and, as a means to this end, such control over terminal and country elevators as to deprive everyone, except the government, of their facilities for the storage of wheat (and rye); the discontinuance of trading in futures in wheat on the grain exchanges; and the limitation of the practices, by consumers, of buying flour far in advance, and by mills, of contracting for the sale of flour further ahead than "prompt shipment." This remarkable document foreshadowed many of the most important policies which were later adopted by the Food Administration. The