Armistice. Among the earliest commodities to be affected by the
price-fixing activities of the Government were lumber, coal,
wheat, sugar and canned foods. Lumber prices for the Govern-
ment alone were fixed by arrangement with the Council of
National Defense on June 18 1917, and approved by the Secretary
of War; coal prices for the navy were fixed on June 19 1917.
The Food and Fuel Control Act on Aug. 10 1917 set a minimum
price on the wheat crop of 1918. Bituminous coal prices at the
mine were fixed by executive order on Aug. 21 1917. Nine days
later came the President's announcement of a $2.20 basic price
on wheat " to be paid in Government purchases." The price of
copper was fixed in September. Relatively few prices were fixed
after Nov. 1918, although those fixed prior to that time extended
well over intoigip. Prices, as fixed, were allowed to expire in spite
of the fact that in several important cases the representatives
of the industry concerned asked that the existing price be
continued. On Dec. n 1918 the War Industries Board issued a
statement to the effect that, since it would cease to function after
Jan. i 1919, no new price agreements would be entered into by
the Price-Fixing Committee and that all prices theretofore fixed
would be allowed to expire by limitation. Several commodities,
the cost of which had not been immediately ascertainable, had
been taken in large quantities by the Government at prices sub-
ject to later determination. For example, during the latter part
of Jan. and the early part of Feb. 1919, the Price-Fixing
Committee of the War Industries Board fixed prices on common
brick and on wall board. Inasmuch as the Food and Fuel
Administrations depended for their powers upon the Act of
Aug. 10 1917, which applied " during the war," they functioned
longer, but became practically inoperative early in 1919.
Of the various agencies through which prices were fixed the
following are without doubt the most important: Congress,
which by direct legislation fixed a minimum price for wheat and for
silver; the President, acting under authority granted by Congress,
who fixed prices for coal and wheat; the War Industries Board,
created by the President July 28 191 7, under authority from Con-
gress, which Board through its Price-Fixing Committee fixed
numerous prices from Sept. 1917 to Nov. 1918 (as late as Jan.
and Feb. 1919 several cases of price-fixing for commodities bought
at tentative prices were awaiting cost determination); the U.S.
Food Administration, established in Aug. 1917, which fixed
prices of hogs, meat, flour, sugar, binder twine, etc.; local food
administrators and sub-agencies, such as the Sugar Equalization
Board and the U.S. Food Administration Grain Corporation,
which fixed many prices; the U.S. Fuel Administration, estab-
lished in Sept. 1917, which fixed prices of coal, coke, etc.; the
War Trade Board, which fixed prices of rubber, quebracho
extract and marrila fibre; the Federal Trade Commission, which
fixed the prices of newsprint paper; the Emergency Fleet Corpora-
tion of the U.S. Shipping Board, which fixed the price of ship
timbers and locust tree nails; the U.S. Shipping Board which
fixed ocean freight rates; the International Nitrate Executive
Committee, which fixed the price of nitrate of soda; the Food
Purchase Board, which fixed prices of canned foods, etc., for
the army and navy; various army and navy departments, which
fixed prices of gasoline and fuel oil, zinc oxide, automatic sprinklers,
sashes and doors, castor oil, etc.; the Appraisal Boards of the
army and navy, which fixed prices in cases of dissent from prices
named in commandeering orders; and the U.S. Railroad Adminis-
tration, which took steps to fix reasonable prices of locomotives
and cars. As time went on a tendency toward greater uniformity
and centralization of procedure developed within the price-
fixing mechanism. This tendency was seen in an increasing amount
of work thrown upon the War Industries Board and the Federal
Trade Commission, the former naming a price based largely upon
the cost findings of the latter.
In initiating price-fixing no systematic plan was followed and
prices were at first fixed sporadically. Various Governmental powers
were resorted to and were applied by numerous agencies, using diverse
means for carrying out the decisions or agreements which they reached.
In some cases prices were fixed under special authority, conferred
directly by Act of Congress, and limited by the provision of such
Act to specified commodities. Thus by section 14 of the Act of
Congress of Aug. 10 1917, already referred to, the President was
empowered to fix "a reasonable guaranteed price for wheat."
Accordingly on Aug. 30 the President, acting upon the recommenda-
tion of a committee appointed by himself, promulgated a price of
$2.20 per bus. for No. I northern spring wheat at Chicago. The same
law, commonly known as the Lever Act, authorized and empowered
the President to license importers, producers or distributors of " any
necessaries, in order to carry into effect any of the purposes of this
Act "; and, if he found unreasonable any storage charges, commis-
sions or profits, to revoke licences and make findings as to reasonable
profits, etc. Section 10 of the Act authorized him to requisition
necessary foods, feeds, fuels and other supplies. Section 1 1 gave him
PRICES
147
power to purchase and sell at reasonable cash prices wheat, flour,
meal, beans and potatoes. The power under this Act ran to the
President, and the Fuel Administrator and Food Administrator
acted under " executive orders." On the other hand, the War
Industries Board acted under less specific authority proceeding from
the general war powers of the President. Thus the prices fixed for
steel, copper, lumber and other commodities by the Price-Fixing
Committee of the War Industries Board were in theory approved by
the President before being publicly announced. In some cases, how-
ever, such as retail lumber prices in certain eastern cities, the prices
were announced without formal approval by the President.
The means of enforcing prices when " fixed," whether determined
by the price-fixing agencies or reached by agreement with the pro-
ducers, were various, ranging from appeals to the patriotism of the
trade to commandeering orders. In most cases there was in the back-
ground the possibility of the Government's taking over the industry ;
and in not a few the army or navy did commandeer plants or stocks
of merchandise. In such cases a price was named which was subject
to adjudication, first by the Board of Appraisers and then, upon
appeal, by the courts. On Dec. 24 1917 all wood chemicals (acetic
acid, alcohol, etc.) were commandeered for a period of six months
and later the commandeering order was extended to cover the second
half of 1918. Apart from purchases on army or navy account,
however, price-fixing was effected chiefly by " licences " and control
of " priorities." The Food Administration and the Fuel Administra-
tion, under the Act of Aug. 10 1917, put in force extensive systems of
licensing, under which unlicensed producers and distributors were
not allowed to engage in business, and licences were revoked, if the
regulations were disobeyed. The War Trade Board also licensed
importers of certain articles on condition that the prices which it
fixed should be observed. The administration of priorities proved to
be a major element in the price-fixing programme, and involved many
important questions. Toward the end of 1917 a priorities division
was established within the War Industries Board and a priorities
commissioner placed at its head. Representatives of the Fuel Ad-
ministration, the Railroad Administration, and the U.S. Shipping
Board were placed upon a Priorities Committee. The War Trade
Board, the Food Administration, and the army and navy were also
represented. The Price-Fixing Committee of the War Industries
Board and the Priorities Committee worked in harmony. This
was of the utmost importance, as it made possible a substantial
degree of unity of policy among the different Government pur-
chasing departments; and, through the power of the Priorities Com-
mittee over fuel and transportation, pressure could be brought
to bear upon a recalcitrant business concern for the purpose
of compelling it to adhere to fixed prices. The Priorities Com-
mittee undertook whenever necessary to administer priorities in
the production of all raw materials and finished products, save
food, feeds and fuels. The distribution of fuel was, of course,
under the supervision of the Fuel Administrator, and transpor-
tation service under the U.S. Railroad Administration, but the
Fuel and Railroad Administrators were guided largely by the
" preference list " issued by the Priorities Committee and by the
recommendations of the division chiefs of the War Industries
Board, and on the whole came to work in close relation to the
committee's general policy. The Priorities Committee, then, exer-
cised a general function of adjusting production to the needs of the
nation at war by allocating the limited supplies of fuel and basic raw
materials, and its powers were sometimes used as a club to reinforce
the authority of the Price-Fixing Committee in particular cases.
The Army and Navy Appraisal Boards were called to pass on prices
in the case of commandeer orders issued for the requirements of
those departments. When a commandeer order was to be issued the
practice developed of having the chief in charge of that division of
the War Industries Board which dealt with that commodity approve
the order in which the price was named. If, as was frequently the
case, the producers of the commodity were not satisfied with the
price, the matter was brought before the Appraisal Board. It is
important to observe that those members of the Price-Fixing Com-
mittee who represented the army and navy were also members of the
appraisal boards of these two departments.
Various methods of applying price control were tried. Prices may
be fixed both directly and indirectly. As a rule, each commodity the
price of which it was desired to fix was taken up directly and a specific
price made for its purchase; but in some cases reliance was placed
upon indirect control of the price of one commodity through direct
control of the price of another. A most interesting and important
phase of indirect price- fixing activities lay in the attempts to restrain
prices by controlling consumption, as in the cases of tin, platinum,
coal, sugar, wheat and meat. These efforts culminated in rationing
in the case of sugar and the requirement of purchase of substitutes
in the case of wheat or flour. Steps were taken, also, to prevent
waste and to improve methods of production, for example, cleaner
threshing of wheat. Most of such " conservation " measures are to
be approved without reserve. Closely connected with the conserva-
tion phase as seen in control of demand, rationing, etc., were stabili-
zation and pooling. But pooling, while partly used to facilitate
rationing (as in the case of sugar), may also be used to keep prices up,
either locally or throughout the entire market. In at least three
cases, wheat, sugar and tin, the Government entered upon a pool-
ing programme for the purpose of stabilizing prices. Stabilization
is a term which implies mixed motives, a considerable part of its
purpose commonly being to maintain or keep up prices, at least in
a part of the field. This was the case with the Sugar Equalization
Board and the tin pool, and the Government's Grain Corporation.
The degree of precision with which prices were fixed varied widely
from commodity to commodity, ranging from a loosely determined
maximum price to a careful determination of the definite price to
be charged for a particular commodity in the case of a particular
purchase. As a rule, only maximum prices were fixed, although in a
majority of cases the price named as a maximum was the one which
actually prevailed. This was not infrequently taken for granted by
the price-fixing agency. In some important cases, however, the
actual market price fell below the maximum named by the Govern-
ment. This was true of zinc plates and sheets and certain kinds of
lumber. Also, in the case of rubber, a price was named by the War
Trade Board as a maximum, which was considerably higher than the
market price. As has been already noted, a minimum price was fixed
for wheat, the reason being that it was desired to guarantee the mar-
ket in this case and thus encourage production. The price of hogs
was fixed on the basis of a positive minimum after the failure of the
attempt to maintain the price on the basis of a fixed ratio to corn.
Wheat also furnishes a case in which both a maximum and a minimum
price were specifically fixed. Obviously a result similar to that ob-
tained by naming a price may be gained by limiting profits or gross
margins. Thus, an effort was made to restrict the profits of the meat-
packers to 2 J % on sales, and in the case of the five largest packers a
maximum margin on meat of 9% on investment was named. The
flour millers were limited to a profit of 25 cents per barrel. Dealers in
cotton-seed and peanuts, both ginners and others, were limited, be-
ginning July I 1918, to a margin of $3.00 per ton over cost (not re-
placement value). This method was also largely used by the Fuel
Administration in an attempt to regulate the price of coal to con-
sumers, and in Sept. 1917 this agency announced its plan for fixing
the maximum gross margins of retail dealers in coal and coke.
Each dealer was authorized to add to the average margin for 1915
between his delivered cost price of coal or coke and the price
charged consumers, 30 % to cover increased expenses provided the
gross margin thus arrived at did not exceed his average for July
1917. Fixed rates of commission or margins of profit were im-
posed also on dealers in newsprint paper, retail lumber and other
commodities.
In addition to the above methods, there was the attempt to
fix retail prices directly by publishing fair prices, as was done
for groceries by the local price interpreting boards " set up by
the Food Administration. Price-fixing by restricting margins passed
into the realm of hopes and aspirations in such cases as the earlier
regulation of the lake-forwarders by the Fuel Administration, and
the cotton-ginners by the Food Administration, for in these cases
the producers were merely urged to charge "reasonable" prices.
Much the same may be said of the somewhat tentative moves
made by the Oil Division of the Fuel Administration toward
fixing the price of petroleum and its products. In July 1918 the
Oil Director made some proposals with regard to fixing the differ-
ential between the prices of crude and those of refined products;
and in Aug. he announced a plan to stabilize the price of crude
oil, stating his belief that this would prevent radical changes
in the price of refined products. It does not appear, however, that
the plan had any appreciable effect.
From the foregoing it would appear that there were three
chief types of price-fixing: (i) maximum prices, in the case of
basic staples which had wide public interest, often recognized
as "pegged" prices when any scarcity or rapidly advancing
cost existed; (2) definite prices, (a) to encourage production by
guaranteeing returns, (b) Government purchases (direct or
indirect) in the nature of single transactions; (3) margins, (a)
absolute amount per unit, (b) percentage on sales, cost, or in-
vestment; this method being used when it was desired to cover
the distribution of products, the marketing of which was not
integrated with manufacture. The minimum price, strictly
speaking, was the exception, but is logically associated with the
definite price, which is both maximum and minimum.
Another distinction of some importance in fixing prices depended
upon the place at which the price named was to apply. Some prices
were made on an f .o.b. factory basis, while others were on a delivered
basis. The practice prevailing in the industry was partly followed.
The tendency, however, was to fix prices on an f.o.b. factory or mill
basis, a natural tendency when the price is based on cost. In a major-
ity of cases, prices came to be made f.o.b. the producer's plant.
In many cases, however, prices were quoted f.o.b. some market
basing point. This was notably true of copper, which was always
quoted f.o.b. New York, although the metal was secured from
mines in Michigan, Montana and Arizona, and refined at various
seaboard points. In the case of commodities produced in several
competing areas there was often a tendency to quote prices on a
delivered basis. Prices delivered were fixed for New England spruce,
148
PRICES
Pennsylvania hemlock, cement, hollow building tile, iron and steel
scrap, and oil products for the navy. The situation in the case of
hollow building tile furnishes some explanation of this tendency.
The chief producing area for this commodity was centred in Ohio,
while there were other producing territories in the south, in New
Jersey and elsewhere. In order to stabilize market conditions and to
divide the market, the representatives of the industry desired to fix
prices on a delivered basis. In this way, by fixing a delivered price
sufficiently low, the low-cost producers in Ohio were prevented from
coming too far east with their product; while, if the price had been
fixed f.o.b. the plant, there would have been no limit to the area
covered by the low-cost producer, except cost of freight and desire
for profit. Had the war continued much longer, there can be little
doubt that adjustments in railway rates would have become an
important part of the price-fixing programme. Special railway
service was given in a number of instances as a direct part of price-
fixing, as, for example, the arrangements made to furnish transpor-
tation to the Douglas fir lumber mills for the purpose of relieving
them of accumulations of low-grade lumber. In the case of price-
fixing for manganese ore produced in the United States, an integral
part of the scheme was the application of special railway rates.
When a controlling part of the supply of any given product
is produced by concerns which are not completely integrated,
especially as to the earlier stages of the industry, it is practically
necessary, in price-fixing, to control the price of the chief semi-fin-
ished products; but when a controlling proportion of a product
comes from producers who are more or less completely inte-
grated, this necessity does not exist, although some protection may
be required for independent producers in the earlier stages. Also
when the object is to protect the consumer of products which are
distributed by separate wholesale and retail agencies, it is necessary
to control the wholesale and retail prices as well as the price f.o.b.
factory or mill.
Prices were fixed for various periods of time, but in general
it may be said that on account of changing conditions the
periods were short. Perhaps the period most frequently chosen
was three months. A much shorter period would have created
too much risk and uncertainty in marketing, to say nothing
of the strain upon the price-fixing machinery; while a longer
period was not, as a rule, desired by the representatives of the
industries, especially during a period of increasing costs. Various
exceptions might be cited, such as the case of wheat, in which
the price was fixed for the crop of a given season. The prices
of meat and coal were fixed for indefinite periods, and the same
was true of manganese ore. Various bases for determining the
reasonable maximum price to be fixed were used, but it may be
said that, on the whole, the prevailing tendency was to fix
prices on the basis of cost, a reasonable allowance being added
for profits. In this connexion the Federal Trade Commission did
important work in ascertaining from the books of the producers
the actual cost of production and the investment.
In the ordinary case of price-fixing, the gist of the method used by
the Price-Fixing Committee was as follows : First, some estimate was
made of the probable quantity of the product wanted, which, of
course, involved a knowledge of the stocks on hand. Second, the
quantity which each producer could turn out was ascertained.
Third, each producer's cost of production was computed for the most
recent period available. Fourth, the average investment involved
in the production of the commodity was determined and reduced to
the basis of investment per unit of product. The first three of these
items bear directly upon the determination of the representative or
marginal producers for price-fixing purposes. The fundamental
question in fixing prices that are based on cost, is the determination
of what may be called the " marginal cost." This cost may be ex-
plained as follows: it is frequently the case that when the several
individual costs for a group of producers are accurately ascertained
and are ranged in their order from low to high, there will be a varia-
tion among them of 100%, the high cost being double that of the
low cost. Ordinarily the bulk of the production comes from those
producers whose costs are below the average, though this is not al-
ways the case. It does not follow, however, that the average cost
gives the basis for a fair price. If 25%, or even 10%, of the pro-
duction comes from high-cost producers and the entire output is
needed, the average cost cannot be the basis of price. It is true that
in many cases prices were fixed on the basis of average cost, both
by the War Industries Board and by other price-fixing agencies;
but as time went on methods were perfected, and the practice of
taking a " representative cost " developed. This representative cost
was very similar to what the economist calls the marginal cost,
meaning the cost at which the highest-cost producer is able to produce
without loss at a given price.
Of the conditions which facilitate the determination of a reason-
able marginal cost for price-fixing, a knowledge of the requirements
of the market, or in war-time a knowledge of the needs of the Govern-
ment and its agencies, is most important. Price-fixing in the United
States was handicapped by uncertainty as to the quantity which it
Yearly and Quarterly U.S. Fixed Prices, 1913-8.
Year
COAL,
bituminous
per ton
COPPER,
electro-
lytic per
Ib.
LUMBER,
Southern
yellow pine
timbers
6 in. x 8 in.
x 16 ft.
per M.
PIG IRON,
Bessemer
per ton
SUGAR,
fine granu-
lated in bags
or barrels
FLOUR,
standard
patent
bar. 196
Ib.
BEEF,
fresh
native
carcass
(Chicago)
WOOL,
Ohio fine
unwashed
per Ib.
LEATHER
shoe upper
2nd grade
per sq. ft.
1913
$1.18
$0.15
$14-46
$17-13
80.0428
$4-58
$0.1295
$0.238
$0.194
I9H
1.16
'3
12.87
14.89
0471
5-09
.1364
-250
.209
Quarters
First ....
Second ....
Third ....
Fourth ....
1.16
''7
1.16
1.16
.14
.14
.12
.12
13.21
I3-42
I3-I4
11.71
15.04
14.90
14.90
14.71
.0389
0395
-0583
0523
4-57
4-55
5-34
5-86
.1300
.1322
.1402
1435
.229
.248
.271
.251
205
.205
.218
215
1915
1-13
17
12.90
15-78
0556
6.66
.1289
.300
205
Quarters
First ....
Second ....
Third ....
Fourth ....
1.16
1. 12
I. II
1.14
.14
.18
.18
.19
11.64
12.21
12.46
15.31
14.56
14.61
15-91
18.03
0538
0585
.0546
-0552
7-34
7-39
6.22
5-74
.1229
.1214
1330
1375
.298
.291
.301
.308
.214
.201
.2OO
.204
1916
1.24
.28
1576
23.88
.0688
7.26
.1382
352
275
Quarters
First ....
Second ....
Third ....
Fourth ....
1.17
1.20
I.2I
1.40
.26
.28
.27
31
I5.92
15.21
15.21
16.71
21. 6l
21-95
22.05
29.93
.0610
.0729
.0696
.0712
6.32
6.05
7-37
9.26
1375
.1388
.1388
1375
.328
335
351
39 6
.216
.246
-265
375
1917
2.O7
.29
21-75
43.60
.0771
11-39
.1672
.664
.385
Quarters ....
First ....
Second ....
Third ....
Fourth ....
1.47
2.40
2.24
2.17
33
32
.27
23
17.42
22.14
23.89
23.53
36.48
47.18
53-51
37-25
.0686
.0788
.0797
.0814
9.29
13-57
12.39
")-34
1431
.1606
.1762
.1888
485
598
745
750
.428
.410
355
350
1918
2-56
24
25-51
36.66
779
10.14
.2213
.740
359
Quarters
First ....