THE QUARTERLY JOURNAL OF ECONOMICS FEBRUARY, 1919 PRICE-FIXING AS SEEN BY SUMMARY The three agencies that regulated prices, 205. - Differences in their methods, 206. The Price-Fixing Committee, 209.- Commodities regulated by the committee, 209. — Ground for their selection; heavy government needs, 210. Prices were fixed as maxima only, 214. Gradual elaboration and extension, 214. — Cost of production as the basis, 216.- Marginal, or "bulk-line," cost, and charts illustrating it, 218. This basis of price-fixing justified by economic theory, 222. Distinction between differences in cost based on physical causes and those based on human qualities, 222. — The real ground for stress on marginal cost was necessity of maintaining output, 228.- Special phases of some articles, lumber, cement, iron and steel, 229. - Proposals for an average or pooled price, 232. - Objections to this method, 233. Conclusion, 238. PRICE-FIXING during the war period was carried on by the government through three agencies: the Food Administration, the Fuel Administration, and the PriceFixing Committee of the War Industries Board. The first two were the earlier; they came into existence through the act of August 10, 1917, commonly known as the Lever Act. The Price-Fixing Committee, to whose doings attention will mainly be given in the following pages, was of much later date. The President created it on March 14, 1918, as a Committee of the War Industries Board. Its functions were independent of those of the Board, and it had authority to report directly to the President himself.1 Both Fuel Administration and Food Administration had from the start well-defined objects and well-defined limits. In some respects their scope was wider than that of the Price-Fixing Committee, in other respects narrower. It was narrower in that their jurisdiction, as the titles indicate, was strictly limited as regards commodities — fuel and food only. On the other hand, it was wider in that they followed the articles all the way from producer to consumer. Both undertook to regulate not only producers' prices, but the prices of wholesale and retail dealers also. Hence they immediately established large administrative forces, and dealt with problems in many ways more intricate than those of the Price-Fixing Committee. As regards the principles followed, on the other hand, the Food Administration stands in many respects apart from the other two. While it aimed, like the others, at securing fair prices and limiting profits to fair rates, the rates were fixed in most cases on a somewhat rough and ready basis, usually with regard primarily to a normal or customary percentage of return. The Fuel Administration and the Price-Fixing Committee made more systematic use of cost figures and cost accounts. It is by no means clear that their resort to elaborated cost figures led to more satisfactory results; but these figures raised general problems of a kind familiar to and not without instruction for economists. 1 The members of the Committee were: Robert S. Brookings (Chairman); B. M. Baruch, chairman of the War Industries Board; William B. Colver, chairman of the Federal Trade Commission; F. W. Taussig, chairman of the United States Tariff Commission; H. C. Stuart, chairman of the Agricultural Advisory Committee; Hugh Frayne, representing labor; H. A. Garfield, Fuel Administrator; R. H. Montgomery, representing the War Department; John M. Hancock, representing the Navy Department. R. V. Norris served as representative of the Fuel Administration during the later sessions of the Committee. Moreover, as regards one conspicuous item-wheat, and flour so far as resting on wheat the basis of regulation by the Food Administration was different from that for any other commodity. Congress virtually took the matter out of the hands of any administrative or investigative body, and settled it once for all, by enacting an unqualified guarantee for the price of wheat. That became a minimum price; whereas in all other cases the price regulations took the form of fixing a maximum only. The Lever Act guaranteed a minimum price of $2.00 for the crop of 1917-18 (that is, the crop which would begin to come to market on June 1, 1918). The minimum was later raised, under the discretionary power left to the President, to the sum of $2.20 for that crop. The Wheat Committee of 1917, it will be remembered, had fixed this same price, $2.20, for the crop which was being marketed in 1917. And the same price, as is well known, has been extended to the crop of 191819, still to come. The case was unique and remains unique. The figure of $2.20 was reached by no careful cost inquiries or statistical computations, but in consequence of an almost precipitous desire to increase the wheat supply and also to placate the farmers. Its extension to the crop season of 1918-19 is likely to trouble Congress and the country for some time to come. In many ways the wheat episode stands by itself, quite separate from the other price-regulating experiments. Another distinction between the several agencies needs to be borne in mind. Both the Fuel Administration and the Food Administration had for their first and primary object the protection of the public. The PriceFixing Committee, as will presently be explained more fully, started with the design of protecting the government, and extended its function, but gradually and slowly, toward the protection of the public also. Unlike the other two, it never extended its regulations to retail dealers and indeed in no appreciable degree to wholesale dealers. How far it might have been compelled to go in this direction had the war lasted much longer, is an open question. As matters turned out, its scope, however wide-ranging as regards the articles affected, was limited as regards the stage at which transactions were controlled. For this reason it had no large administrative machine, no great staff of officials and clerks, no enormous correspondence. By way of further preface, it may be noted that in still another important respect there was a difference between the Food Administration and the Fuel Administration on the one hand, and the Price-Fixing Committee on the other. This was in their legal position. The legal weapon was strongest in the hands of the Fuel Administration, sufficiently strong for the Food Administration, but of very uncertain efficacy for the PriceFixing Committee. The Fuel Administration had direct power under the Lever Act to fix prices. The Food Administration had an effective lever of control through its licensing power. Altho not authorized by law to fix prices, or to require from anyone the direct observance of any scale of prices, it had unlimited power to license producers and large dealers, and to withdraw licenses; and by the exercise of that power could bring recalcitrant persons to submission. The Price-Fixing Committee's legal position, however, was highly uncertain. The only weapon which the law clearly put into its hands was that of turning (by recommendation) to the President's power of commandeering supplies or a plant, the owner being then left to proceed in the courts, if so disposed, in order to secure a "fair price." There was also a possibility of further pressure through recourse to the Railroad Administration and through the application of transportation priorities in favor of persons who conformed to its instructions. But the legal powers of the Price-Fixing Committee, applicable at best only to articles needed for the use of the government, were of much less practical consequence than public opinion and patriotic spirit. The universal feeling of support to public authority in every step taken in connection with the war was the effective basis of its action. In fact, no occasion ever arose for putting to a test the nature or extent of its legal authority. The prices fixed were in all cases reached by agreement with the representatives of the several industries. In strictness they were agreed prices rather than fixed prices. The agreements were usually reached in cordial coöperation with the producers concerned, and thus were in reality voluntary. There were cases, however, in which they were agreements only in name. The representatives of some industries, tho they accepted them, did so virtually under duress. In these cases the Committee to all intents and purposes decreed prices, and was enabled to impose them, under the form of agreement, by a more or less veiled threat of commandeering, and also by the certainty that public opinion would condemn those who failed to accede. The commodities which came within the purview of the Price-Fixing Committee constituted a long and heterogeneous list. It included not only important staples like iron and steel, copper, lumber, wool, hides and leather, cotton fabrics, nitric and sulphuric acid, but also articles of less quantitative importance, like nickel, aluminum, quicksilver, zinc, brick, cement, hollow tiles, crushed stone, sand and gravel. Some account of the mode in which several of the articles were dealt |