Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

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cated, and burdened with costly features. These are exem-
plified in my report for 1909 by a statement of the results of
a special investigation into the increased cost of fresh beef
between the slaughterer and the consumer.

It was established that in the North Atlantic States the con-
sumer's price of beef was 31.4 per cent, higher than the whole-
sale price received by the great slaughtering houses; 38 per
cent, higher in the South Atlantic States; and 39.4 per cent,
higher in the Western States. The average for the United
States was 38 per cent. It was found that the percentage of
increase was usually lower in the larger cities than in the
smaller ones and higher in the case of beef that is cheap at
wholesale than of high-priced beef. It was a safe inference
that the poorer people paid nearly twice the gross profit that
the more well-to-do people paid.

The farmer and milk prices. Another investigation into
the increase of prices in the process of distribution was made
in the last week of June, 1910. This time the object was to
discover what fraction of the consumer's price was received by
the farmer. It was a time of high prices, of high cost of


living, and the aim was to ascertain to what extent the farmer
received a return out of the high consumer's cost of farm

The investigation covered seventy-eight cities scattered
throughout the United States, and the information was con-
tributed by a large number of the Department's crop corre-
spondents and by some of its special agents who made inquiries
in all of the seventy-eight cities. The cities were divided into
geographical groups for the purpose of computing averages,
and these were combined into an average for the United States,
all after proper weighting according to importance.

Milk was one of the commodities under investigation — a
food product indispensable to a large fraction of the families
of the nation, and now a costly one to all consumers. While
it is true that the dairyman is receiving considerably more
for his milk than he did before the present era of high prices,
yet it was discovered in this investigation that throughout the
United States he receives a scant 50 per cent., or one-half of
the price paid by the consumer. The other half goes to the
railway company for carriage, to the wholesale milk dealer, if
there is one in the chain of distribution, and to the retailer who
delivers at the consumer's door.

Freight charges for carrying milk vary according to dis-
tance, but their average may be regarded as approximately
about 7 per cent, of the consumer's price. With the farmer
receiving about 50 per cent, of that price and the railroads
7 per cent, the remaining 43 per cent, of the consumer's price
is received mostly by the retailer.

The milk wagon of the retailer has a long route. It stops
at a house or two in one city block, perhaps passes several
blocks without stopping, and so proceeds to serve customers
thinly distributed along a route of miles. At the same time
the milk wagons of other retailers are covering various por-
tions of the same route, and so there is a great waste of effort
and of expense in the distribution.

The division of States in which the cost of distributing milk


from i3roduc'er to consumer is the most is the North Central
group, iu which producers receive 44 per cent, of the prices
paid by the consumer. Next in order follow the Western
States with 47 per cent., the North Atlantic States with 53 per
cent., the South Central States with 55 per cent., and the South
Atlantic States with 57 per cent.

The average price paid by consumers in the seventy-eight
cities is almost exactly 8 cents per quart. In the North At-
lantic and North Central States the average is 7.5 cents; in
the Western States, 8.9 cents; in the South Central, 9.1 cents;
and in the South Atlantic States 9.3 cents. These prices are
for the last week in June, 1910.

Size of retail unit, and of farmer's percentage [page 22],
The general fact was that the producer's percentage of the
consumer's price diminished as the quantity sold at retail was
smaller. For instance, the apple grower received 55.6 per
cent, of the consumer's price when the consumer bought by
the bushel and 66 per cent, when the purchase was by the
barrel. When the consumer bought corn by the bushel, the
farmer got 70.6 per cent, of the price, but when the purchase
was by the barrel the farmer received 81 per cent. The
strawberry grower received 48.9 per cent, of the consumer's
price in purchases by the quart and 75.9 per cent, in pur-
chases by the crate, A still better illustration is found in
the case of onions. In [purchases made] a peck at a time, the
farmer received 27.8 per cent, of the retail price ; in purchases
of a barrel, he received 58.3 per cent. ; and in purchases by
the 100 pounds, he received 69 per cent. So in the case of
oranges, when the purchase was by the dozen the grower re-
ceived 20.3 per cent, of the consumer's price, whereas when
the purchase was by the box the grower received 59.3 per cent.

Price gains from consumer's point of view [page 24], In
the consideration of this subject so far, the aspect has been
that of the producer ; the farmer thinks of the price that the
consumer pays for farna products and compares with them
the price that he himself receives. While the farmer is look-


ing forward with regard to the prices of his products, the con-
sumer is looking backward, and so regards the prices that he
pays as increases upon what the farmer gets. This aspect of
the matter may now be worth some attention.

It is establislied by the investigation of this Department
made last June that the milk consumers of seventy-eight cities
paid for milk an increase of 100.8 per cent, above the price
received by dairymen; in other words, the farmer's price was
fully doubled. The lowest increase among the geographic di-
visions was 75.5 per cent, in the South Atlantic States and the
highest was 111.9 per cent, in the Western States.

In the purchase of butter the consumer pays 15.8 per cent,
above the factory price in the case of creamery prints, 15.6
above in the case of factory tub, and 13.3 per cent, above the
factory price in the ease of renovated butter. The percent-
ages of increase among the five divisions of States do not
vary much from the averages for the United States.

Some large percentages of increase of prices were found by
the Industrial Commission — 135.3 per cent, for cabbage
bought by the head ; 100 per cent, for melons bought by the
pound, for buttermilk sold by the quart, and for oranges sold
by the crate; 260 per cent, for onions bought by the peck;
400.4 per cent, for oranges bought by the dozen; 111.1 per
cent, for strawberries bought by the quart; and 200 per cent,
for watermelons sold singly.

There were many cases of increase of consumer 's price over
farmer's price amounting to 75 per cent, and over, but under
100 per cent., and among these were 90.5 per cent, for apples
bought by the barrel and 80.6 per cent, for apples bought by
the box; 75 per cent, for chickens bought by the head; 83.4
per cent, for onions bought by the pound ; 80.5 per cent, for
potatoes bought by the bushel; 88.8 per cent, for poultry in
general bought by the pound ; 95.8 per cent for strawberries
bought by the box; 82.5 per cent, for sweet potatoes bought by
the bushel.


It may be worth while to extend the list of farm products
that are sold to consumers at a large increase above farm
prices. In the class of commodities selling for an increase of
price amounting to 50 per cent, and over but under 75 per
cent, above farm prices, may be mentioned the following in-
creases: 61.8 per cent, for cabbage bought by the pound; 66.7
per cent, for celery bought by the bunch, turnips and parsnips
bought by the bunch, and green peas bought by the quart;
54.4 per cent, for chickens bought by the pound ; 50 per cent
for eggplants bought by the crate; 68.4 per cent, for onions
bought by the bushel; 68.7 per cent, for oranges bought by
the box; 60 per cent, for potatoes bought by the peck; 59.8
per cent, for turkeys bought by the pound.

The import price of coffee in the fiscal year 1910, which
was 8 cents a pound, after the increase to 20 and 35 cents per
pound to the retailer, has risen in price to the consumer from
150 to 337.5 per cent. So with tea of the same fiscal year; its
import price of 16 cents per pound, after being increased to
50 to 70 cents per pound, cost the consumer an advance of
212.5 to 337.5 per cent.

Before assigning to middlemen the various increases of
prices, it is proper to deduct the percentage due to freight
rates. The freight charge for milk received in New York is
about 18 per cent, of the producer's price, and in Chicago
about 14.7 per cent. Of the import price of coffee, the ocean
freight charge from Rio Janeiro is 3.6 per cent. The per-
centages of farm price for which freight charges stand in the
United States may be estimated at approximately 0.9 of 1 per
cent, of the factory price for butter; 1.2 per cent, of the farm
price for clover seed; 1.6 per cent, for cotton; 1.3 per cent
for eggs; 13.6 per cent, for apples; 4.8 per cent, for beans;
14.8 per cent, for potatoes ; and 5 per cent, for sweet potatoes.
The rates for oats, rye, barley, and wheat are nearly the same,
ranging from 6 per cent, for oats to 7.3 per cent, for barley
and rye. The rate for corn is 9.2 per cent, and the average


for all grain is 7.7 per cent. For hay the percentage is 15.8
per cent. ; for cattle and hogs, 2.5 per cent. ; for live poultry,
4.5 per cent. ; and for wool, 0.6 of 1 per cent.

The farmer's task. From the details that have been pre-
sented with regard to the increase of the prices of farm
products between farmer and consumer, the conclusion is
inevitable that the consumer has no well-grounded complaint
against the farmer for the prices that he pays. The farmer
supplies the capital for production and takes the risk of his
losses; his crops are at the mercy of drought, and flood, and
heat, and frost, to say nothing of noxious insects and blighting
diseases. He supplies hard, exacting, unremitting labor. A
degree and range of information and intelligence are de-
manded by agriculture which are hardly equaled in any other
occupation. Then there is the risk of over-production and
disastrously low prices. From beginning to end the farmer
must steer dexterously to escape perils to his profits and
indeed to his capital on every hand. At last the products are
started on their way to the consumer. The railroad, gener-
ally speaking, adds a percentage of increase to the farmer's
prices that is not large. After delivery by the railroad the
products are stored a short time, are measured into the various
retail quantities, more or less small, and the dealers are rid of
them as soon as possible. The dealers have risks that are
practically small, except credit sales and such risks as grow
out of their trying to do an amount of business which is small
as compared with their number.

The problem for consumers. After consideration of the
elements of the matter, it is plain that the farmer is not
getting an exorbitant price for his products, and that the cost
of distribution from the time of delivery at destination by
the railroad to delivery to the consumer is the feature of the
problem of high prices which must present itself to the con-
sumer for treatment.

Why do not consumers buy directly from the farmers?
A distribution of farm products in this simple way has already


begun in England, where cooperative organizations of farmers
are selling by direct consignment to cooperative organizations
of consumers in cities.

Farmers' cooperative-selling associations are numerous in
this country, but cooperative-buying associations among the
people of cities and towns are few. Aside from buying asso-
ciations maintained by the farmers, hardly any exist in this
country. It is apparent, therefore, that the consumer has
much to do to work out his own salvation with regard to the
prices that he pays. Potatoes were selling last spring in some
places where there had been an overproduction for 20 cents
and in some places for even 9 cents per bushel at the farm,
while at the same time city consumers in the East were paying
50 to 75 cents per bushel, although there was nothing to pre-
vent them from combining to buy a carload or more potatoes
directly from the grower and for delivery directly to them-


[The growth of city markets where all goods are handled by middle-
men, and the buyer at retail is unacquainted with the conditions of
production and little able to judge of quality, often brings about odd
situations and what appear to be illogical prices. Many a daily paper
will furnish an example; here is one from the New York Times of June
1, 1912. Such cases are popularly explained as due to "monopoly"
trying to keep up prices by destroying the surplus. Cases of monopoly
action similar to this occur, but are the conditions in this case "mo-

While the cost of living is mounting steadily and beef is
bringing civil war prices, tons of fresh food fish are being
shipped daily from Fulton Market to Barren Island to be
made into fertilizer. For the last three weeks a steamer,
loaded with newly caught porgies, sea bass, butterfish, weak-
fish, and other varieties, has made one or more trips a day from
the offal dock. On some days more than 200 barrels of fish in
good condition have been destroyed — enough to supply 40,000
meals. On these days more fish have gone over to Barren
Island than have been sold to the retail trade in New York City.

Wholesale dealers at the Fulton Market say they have to
destroy the fish because in this city the people are afraid to
buy it at low prices. Exceptionally large catches are reported
all the way from Cape Henry, Va., to Seabright, N. J., a 300-
mile stretch of coast. One Fulton Market dealer said yester-
day that the supply of fish this year is 75 per cent, larger than
the average season. Although nearly all of this fish is han-
dled in New YorJf Harbor, the consumer in New York City is
benefited but little. One dealer estimated yesterday that not
more than 2 per cent, of the fish received here is eaten in
New York City. Other dealers placed the percentage a good



deal higher, but they ag:reed that, while fish is shipped from
New York as far West as Chieagro and St. Louis, and sold
there cheaper and in greater quantities than usual, high prices
prevail in this cit}'-, and the quantity sold here is about the
same as in ordinary seasons.

One wholesale fish dealer yesterday gave an explanation of

"The chief reason that good eating fish has to be destroyed."
he said, "is that dealers who place it on sale at low prices can-
not sell it. The average woman doesn't know how to judge
the condition of a fish, and her only test of its quality is the
price. If it is lower than she is in the habit of paying she is
afraid the fish is stale. She won't buy unless the dealer
charges two or three times what would be a fair price. Her
impression often is that, if the fish were really fit to eat, it
would have been put into cold storage, instead of being sold
cheap. This is a mistake, for cold storage is a costly process
and we do not use it any more than is necessary. We can
much better afford to sell fish outright at a lower price. At
present we are paying 25 cents a barrel to have good fresh fish
destroyed, but we lose less that way than we would by putting
it into cold storage.

"Take bluefish, for example. It is considered a luxury and
is much in request at present. For several years it had almost
disappeared from these waters. Last year it returned, and
this season it is being caught in imprecedented quantities.
We sell it from 4 to 8 cents a pound. The retailer sells it all
the way from 10 to 30 cents a pound. Those who sell it so low
as 10 cents are the peddlers and small shopkeepers. While
their fish is the same in every respect as the other, it is never-
theless under suspicion because of its cheapness. Very little
of it goes at 10 cents a pound.

"Another factor is the belief of many people in this city
that fresh fish can be obtained only on Friday. They think
what is on the market any other day is stale or left over. As
fish day only comes once a week the retailer has only one good


selling day in the week, and lie has to make a larger profit, and
he sells at an advance of from 300 to 500 per cent.

"We would rather sell at any figure than have it wasted.
It costs something like 2 cents a pound to catch the fish we
send over to Barren Island and it costs 25 cents a barrel to get
rid of it in this manner. It would be cheaper to give it away.
We cannot put it into cold storage because that would mean
a greater loss. It costs three-quarters of a cent a pound to
freeze fish and a quarter of a cent a pound for every month it
is in cold storage. And only a limited supply of cold storage
fish can be disposed of.

' ' Weakfish sells at wholesale from 2 to 5 cents a pound ; at
retail from 8 to 20 cents. Butterfish sells at wholesale from
11/4 cents a pound to 4 cents ; at retail from 8 to 20 cents. The
difference runs about the same between the wholesale and re-
tail prices of other varieties. The country peddler buys fish at
5 cents a pound and sells it at 10 cents, while in this city the
retailer, who buys at the same price, less the freight, sells at
20, 25, and 30 cents a pound. They prefer, even in excep-
tional seasons like this, to buy in small quantities and sell at
high prices, and this policy is favored by the attitude of the
consumers who suspect anything on sale at a lower price than
they are accustomed to pay. This season a fish peddler could
go about with the very best of fish and make a good profit offer-
ing it at 25 cents a panful, but, if he did, the consumers would
be so alarmed that they would demand an investigation by the
health authorities.

"The public is capricious in another respect. It has a taste
for winter fish in summer and for summer fish in winter.
When fish is in season, at its very best in condition and flavor
and at its lowest price, the demand usually shifts for some
other variety that probably is costlier and poorer in quality. ' '


[The Principles of City Land Values, by Richard M, Hurd, presi-
dent tho Lawyers' Mortgage Insurance Co., New York, 1903, contains
numerous illustrations, maps of cities, diagrams, and comparisons of
values based on wide and painstaking study. The extracts which are
printed in this book with the permission of the author, are from the
latter part of book, and give the general conclusions (page 122).]

Basis of gross business rents. While gross rents are fixed
by competition, the question arises, How do bidders determine
what they can pay ? The basis differs radically between busi-
ness property which earns income for the occupant as well as
the owner, and residence property which for the occupant
consumes income ^ only.

The gross rents of business property are gaged from the
economic standpoint, these being in the long run the normal
proportion of what property can earn for the tenant. The
proportion of gross receipts which a shopkeeper pays as rent
varies according to his ability as a tradesman, the character
and class of his business, and the location, a fair average
being from 20 to 40 per cent. The better the location for
retail trade, the higher the proportion of receipts paid for the
rent. For retail trade the location and the consequent ad-
vertising perform the vital function of selling the goods, and
the^ shopkeeper can largely devote his energies to selecting
what the people want. Similarly, though in a less marked
way, prominent otSce buildings help to advertise the business
of their tenants. On the other hand, mercantile property not

1 [Pecuniary income is here meant. Residence property occupied by a
tenant earns pecuniary income for the owner, and yiekls to the tenant an
income of uses which his money buys. — Eu.]



on traffic streets, wholesalers, etc., pay but a small proportion
of their receipts as rent, the saving, however, going to the hire
of drummers to sell goods.

The gross rents of residences. The gross rents of resi-
dences represent the proportion of income which various
classes can afford to pay for house rent. AVhile the return
for such expenditure is chiefly the satisfaction of suitable sur-
roundings, social ambition influences all classes to live in the
best neighborhoods within their reach. The proportion of
[house] rent to income varies from 15 or 20 per cent, among
the wealthy, up to 25 or 35 per cent, among tenement dwellers.

Operating expenses. Taking as gross rents the amounts
actually received and not the full rental value, from which an
allowance for vacancies must be made, we may note first the
great difference in the proportion of operating expenses ac-
cording to the class of property, this varying from 10 per cent,
for one- or two-story brick store buiUlings, up to 50 per cent,
for office buildings or apartment houses. Explaining this
difference is the fact that in office buildings and apart-
ment houses, from 20 to 25 per cent, of the rent repre-
sents the payment for services, such as light, heat, elevator,
janitors, cleaning, etc. If from gross rentals all service
charges are deducted, the other charges, taxes, insurance, re-
pairs and rent collecting, approximate in percentage quite
closely in all classes of property.

Average taxes. Average taxes vary somewhat in different
cities. Taxes on individual properties in the same city vary
more sharply owing to irregular assessing by tax officials.
Figuring the average of a large number of American cities,
taxes range from li/4 to II/2 per cent, of actual value, the
chief exceptions being in Washington, where taxes amount
to %o per cent, (the United States Government paying half the
taxes), and in San Francisco, where taxes amount to %o per
cent, (the city having no bonded debt). The chief errors of
assessors come from their overestimate of external appearances


and from the habit of following former assessment rolls, so
that quite uniformly property which has been valuable but
Avhich is deteriorating- is assessed higher than property in the
line of growth and yielding larger rents.

The cost of insurance. The cost of insurance is usually so
slight that it can be disregarded in making up the budget of
annual expenses. Eates range from 15 cents to 30 cents per
$100 per annum for first-class risks in the larger cities, 50
cents to 75 cents per $100 on first-class risks in the smaller
cities, $1.00 per $100 on stores and office buildings in the
smaller cities, and so on up.

Repairs. Leases vary in their provisions as to payment for
repairs by landlord and tenant, but if paid by the tenant the
rent is proportionately reduced. Average repairs vary from
one-half of 1 per cent, of the value of the building per annum
in the case of the highest type of fireproof buildings, 1 per
cent, for ordinary mercantile buildings, 2 per cent, for older
l)roperty or that of cheaper construction, 3 to 4 per cent, for
old tenements, and so on up in proportion to the age, character
of construction, and lack of care of the buildings.

Cost of rent collecting. The cost of rent collecting aver-
ages from 21/2 to 3 per cent, of the rent receipts in the larger
cities, according to the class of property, and about 5 per cent,
in the smaller cities, according to the class of property.
Owners who are competent to manage real estate may save
agents' commissions by so doing, but instances are not un-
common, especially as to large business property, where owners
managing their own property lose their time and from 20 to
30 per cent, of the income which an expert rental agent could
have obtained.

Operating expenses and net rents. An estimated scale of
proportion of total operating expenses and net rents would
be as follows, the cost of services where rendered, as in office
buildings, apartments and some tenements, being included in
expenses :


Expenses, Net rents,

per cent. per cent.

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 5 of 30)