HB UC-NRLF UsBs A Study of Price Control by the United States Food Administration A DISSERTATION SUBMITTED TO THE FACULTY OF PHILOSOPHY OF THE CATHOLIC UNIVERSITY OF AMERICA IN PARTIAL FULFILLMENT OF ITS REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY. BY REV. JOSEPH C. HARTLEY, O. S. A. OF THE PROVINCE OF ST. THOMAS OF VILLANOVA, VILLANOVA, PA. 1922. A Study of Price Control by the United States Food Administration A DISSERTATION SUBMITTED TO THE FACULTY OF PHILOSOPHY OF THE CATHOLIC UNIVERSITY OF AMERICA IN PARTIAL FULFILLMENT OF ITS REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY. BY REV. JOSEPH C. HARTLEY, O. S. A. OF THE PROVINCE OF ST. THOMAS OF VILLANOVA, VILLANOVA, PA. 1922. TABLE OF CONTENTS. I Preface 5 II Price Control and Price-Fixing , 7 III Beginnings of Government Control 16 IV Control of Wheat, Flour and Bread 34 V Control of Sugar 56 VI Control of Meat and Dairy Products 75 VII Control of Canned Goods 100 VIII Control of the Unlicensed Retailer 109 IX Conclusion 114 X Appendix Early Attempts at Price-Fixing. .123 XI Bibliography 136 478673 PREFACE. The United States Food Administration, during its brief war time existence became almost an international organization. As the breakdown of European food pro- duction became more and more imminent, ever increas- ing dependence was placed upon American markets. With each of the Allies striving to secure large allot- ments of foodstuffs from us, the necessity of some or- ganization to apportion amounts according to needs be- came imperitive. Never before was there greater need of handling food problems from an international view- point. Thus, in accordance with this necessity was the United States Food Administration forced to adopt policies of wider scope than those whose aim was the provision of national needs. In this country, the Food Administration's influence was everywhere felt. It dealt with problems that arose unbidden, but which affected vitally the nation at large and every individual who composed it. The worker in the factory, the man in the office, the soldier on the battle-field; producer, manufacturer and consumer all came within the scope of its jurisdiction and were af- fected more or less by its regulations and requirements. The work of this organization, the problems that it had to cope with, and the manner in which they were solved, although now stripped of their war-time importance, have their lesson to teach. The aim of this study is to present an historical ac- count of the work of the United States Food Administra- tion from an economic view-point. No attempt is made to give a complete account. When it is considered that over 300 separate commodities came under control, the size of such a task can be appreciated. Of the control of many of these commodities scarcely any written record exists. The real work of the Food Administration was 6 Preface. centered upon a few basic commodities. Of these we have made a detailed study in this work. Since this study was begun, several War Industries Bulletins have appeared. Special mention must be given to Bulletin No. 3, entitled "Government Control Over Prices," which the writer has used frequently as a guide in following the thread of a sometimes hazy narrative. Care has been taken to examine its view-point and to supply what are, perhaps, intentional omissions. In the appendix will be found a brief account of several of the most important attempts to fix prices in times past. It is hoped that this material will be of value be- cause of the comparison it affords between past and pre- sent experiences with governmental control over prices. The writer wishes to express his deep appreciation for the valuable suggestions and the timely encouragement needed in completing this task to his major professor Dr. Frank O'Hara. CHAPTER I. PRICE CONTROL AND PRICE-FIXING. The extension of governmental supervision over many of the phases of private initiative has brought to light a number of terms all of which serve to indicate the gen- eral idea of control. We are now fairly familiar with such terms as regulation, supervision, nationalization, rationing, price-fixing and ' price-control. It is chiefly with the last named term that we shall deal in this work. Control is a word of wide meaning. In general it im- plies a check or restraint placed upon a weaker organism, by a more powerful one. As exercised by the Government in an economic sense, control may indicate any degree of supervision ranging from the enforcement of a slight regulation to the. actual handling of a business itself. If some effort is made by government authority to check prices from increasing abnormally, such an effort might be termed price control. Our government's experience with prices during the war was largely an experience of price control, rather than of price fixing. Prices are fixed when an expressed amount of a commodity and no less must sell for an ex- pressed amount of money and no- more. Many of the European nations adopted this direct method of controll- ing prices; the United States, however, in deference to the traditional freedom of economic pursuit expressed itself at the outset at least, as opposed to a system of di- rect price-fixing. It was thought much more could be accomplished by enlisting the voluntary cooperation of producers, manufacturers and consumers. In the be- ginning of our war time experience with price control, therefore much emphasis was placed upon the patriotic appeal, but as the hand of the government agencies tightened their grip upon business and industry, it be- 7 8 Price Control and Price-Fixing. came evident that more reliance should be placed upon punishments and penalties and less upon the uncertain factor of voluntary agreements. With this change in the character of control, the Food Administration tended to adopt more definite measures of regulating prices: yet these measures never reached the stage of direct price- fixing. Rationing 1 though often used in conjunction with price-fixing may be considered apart from it. In fact, a system of rationing may be established without any at- tempt to fix a price. Rationing means that a certain amount of a commodity is alloted to an individual, a fam- ily, or a group during a definite period of time. In this case, the government is more concerned with the distri- bution of the commodity than with its price. The entire supply of the commodity may be then purchased or com- mandeered by authority to be distributed according to a pro-rata plan. The distribution of the article itself, how- ever, may be made through the ordinary channels of trade such as brokers, wholesalers and retailers. While price-fixing or price-control is difficult to enforce, a sys- tem of rationing may be established with well-nigh com- plete success. With its hands upon the total available supply of a commodity, a government may ration its people with almost the same ease as it pays off its em- ployees. Control of this kind, however, presupposes, production. The main difficulty to be met with in any system of control is with production itself. There are no possible means of making a man produce if he does not wish to. Pains and punishments may stimulate to some degree, but fundamentally the indi- vidual is free to produce or not to produce. Patent as this truth is, many governments have endeavored to es- tablish control without taking it into consideration. In the end failure and famine have resulted. Although theoretically control can be established with- out any reference to price, practically the price element i In the United States the stage of rationing was never fully reached ; yet some attempt was made to ration sugar, and flour. Price Control and Price-Fixing. 9 plays a large role. It is to price that the farmer and the manufacturer pays the most attention. If the farmer is assured of a reasonable price for his produce, and the manufacturer a fair margin for his output, production will not be curtailed and rationing the consumer becomes practical as far as production is concerned. A government may extend control to the rationing of its manufacturers, tradesmen and people. When the de- mand for necessities greatly exceeds the available supply, distribution of these necessities is limited only to those who can afford to pay excessive prices. At this point it should be recalled that commodity usually passes through three main stages. It is pro- duced, then manufactured and finally distributed. The producer is not the wholesaler and the manufac- turer even is not always the original producer. As an example, take tinned meat, the original producer of the beef is the farmer. The manufacturer of the corned beef or potted tongue may be and frequently is, both manufacturer and wholesaler. To a certain extent he is also a producer, for the article when it leaves his pack- ing establishment differs from that which has left the farmer. The wholesaler, on the other hand, very rarely adds to or alters the product in which he deals. His function is to buy and store in large quantities and to provide the retailer from time to time as becomes neces- sary. The wholesaler is, in effect, the agent between the producer or manufacturer and the retailer. The retailer acts as a distributor to the consumer, unless his place is taken, in a rationing scheme by officials of the Govern- ment. At just what stage in the productive process a gov- ernment should step in with control is not always easy to determine. The policy adopted will depend in great measure upon the need for state interference, the ends to be sought by such interference and the attitude of the people. When there is urgent need for conserving food- stuffs, when the abuses of hoarding and profiteering be- come widespread and when public opinion demands a 10 Price Control and Price-Fixing. remedy a government will frame its control policy to meet the evils that cause most suffering and hardship. Rationing, which is always the last resort, may be ap- plied only to manufacturers at first, and then to consum- ers. As the evils which government control are designed to correct are not confined to any particular stage of production or class, it seems to have greater possibilities of success when it is extended over the entire movement of a commodity and applied to all classes. To regulate the profits of one class, for example, while allowing other classes to reap what they can is an unfair discrimination, provided, of course, there exists no special reason for such discrimination. In not extending control from pro- ducer to consumer the beneficial effects at points re- gulated will be liable to be offset at points unregulated. The policy of voluntary cooperation pursued by the Food Administration naturally tended to lesson restric- tions. As maximum production was sought, there was a marked tendency to allow producers to go unregulated. It was thought that a strong patriotic appeal coupled with voluntary agreements would act as a restraint upon producers from taking excessive profits. The difficulty of determining excessive profits in the face of rising costs very often created the impression that these ap- peals were ineffective. Moreover, the fear that the gov- ernment might at any time assume drastic control over a business impelled many to seek for an official definition of profits for individual businesses. The Food Administra- tion likewise, realized the futility of attempting to en- force "reasonable profit regulations" without a specific determination of what these profits should be. Thus, by the very force of circumstances our policy of price con- trol gradually shaped itself. Maximum margins were declared for manufacturers, wholesalers, and brokers. These maximum were agreed to by many producers, manufacturers, and wholesalers, and thus stamped our policy as one of indirect control, rather than one of di- rect price-fixing. It will be understood from what has been said, that Price Control and Price-Fixing. 11 control, whether of articles or of price calls for some in- terference with the normal factors of production, dis- tribution and consumption. Under the operation of the ordinary laws of economics, supply and demand are au- tomatically regulated, with price as the magnet. If the supply falls off, while the demand remains stable or in- creases, there is immediately set up a current of attrac- tive forces between price and supply, which ultimately tends to bring supply into harmony with demand. When the government interferes with either the supply or the price of a commodity, it is obvious, that the same laws operate but under changed conditions. Upon the adapta- tion of the government to these changed conditions de- pends in a large measure the success or failure of any system of control. The problem of government control is essentially the same as that of monopoly control. In both cases a suffi- cient amount of the commodity must be controlled to exercise an influence upon price. The so-called Law of Monopoly Price does not tell us what price will be fixed for an article; its statement is general and more negative than positive in meaning. Monopolists can not charge any price they wish, if they seek maximum profits. Granting a more or less com- plete control of a commodity, there is still the uncon- trollable factor of demand with its fluctuations and pos- sible substitutes to deal with. Uutil the monopolist can regulate demand with the same ease as he can regulate supply, his control over price will be far from being arbitrary. While the same in many respects, govern- mental control differs from monopolistic control in this: that it does not depend upon demand for its profits. The demands of the people in the sense of their power to pur- chase are not heard, and do not have to be considered as carefully by the Government as by a private monopoly. In view of this fact, the Government has more freedom in establishing a price; it may for the time being in order to conserve an insufficient supply set its price much higher than the average market price. 12 Price Control and Price-Fixing. But the complications of government control, are ex- ceedingly great. Not one but many commodities must be controlled. The Monopolist works for his own inter- est ; government officials have an odious task to perform which opposes individual interest in behalf of general welfare. In studying different systems of price control, one be- comes aware of a difference in the degree of control ex- ercised. How far did the policy of state control extend? How drastic was the scheme of rationing and how di- rectly did the Government fix prices? What punish- ments and penalties were laid down for infractions of the law? These and kindred questions naturally suggest themselves to the mind, and will be examined with re- ference to the Lever Food Control Act in the next chap- ter. Price-fixing or Price control legislation may be (1) Direct, and (2) Indirect. Direct price-fixing comprises all those laws and regulations of the government which aim to set a specific price, whether maximum or mini- mum upon commodities. 2 Indirect price-fixing includes all other regulatory measures which may or may not re- sult in a fixed price. Control o profit margins is a typical example of the indirect method of fixing a pr^ce. The sugar refiner agrees that his margin of profit will not exceed $1.30 per hundred pounds. Now if the gov- ernment becomes a large enough purchaser of raw sugar, it can sell this to refiners at cost, to which is added the refiner's margin. If in addition, the jobber's margin for handling is determined, and added to the cost, the price of a pound of sugar to the consumer can be fixed with a fair degree of precision. The causes which induce price-fixing are usually: (1) shortage in the supply of commodities; (2) profiteering and other practices which result in hardship and suffer- ing to the consumer. It is especially during some ab- normal time, such as during a war that these causes are 2 Cf. L. H. Haney, Price-Fixing in the United States during the War. 1919, p. 3. Price Control and Price-Fixing. 13. operative in their worst forms. The instinct of self-pre- servation on the part of both consumer and dealer quickly manifests itself at the mere possibility of a shortage in foodstuffs. The consumer loses no oppor- tunity to secure as large a store of supplies as he can, while the dealer anticipating higher profits as the supply diminishes holds back his goods. 3 Thus in addition to the real shortage there is created an artificial shortage due to the actions of both consumers and dealers. It is impossible to estimate the superadded shortage which re- sults from such hoarding. During the war, it is perhaps no exaggeration to say, that stock retarded amounted to almost one third of the entire supply. Flour, sugar, coal, and potatoes are usually the first commodities to feel the result of an increasing demand. Producers, wholesalers, and manufacturers, aggravate the situation by retarding the flow of goods in order to reap speculative prices, or as in the jpa_se of manufacturers by buying in larger quantities than usual in order to protect their business. Overbuying on a rising market also induces Govern- ment control over prices. Once assured of positive short- age in a commodity with small possibility of increasing it, the producer and dealer know that prices may be deter- mined by what the public will bear. In many cases secret agreements are made between dealers for the pur- pose of maintaining high prices. That these two are the chief causes in provoking gov- ernmental control is the opinion of every group of legis- lators who have attempted to regulate prices. The Food Control Act, was the basis for the whole of war-time control of food and fuel in the United States. The act states its aim "to assure an adequate supply and equita- ble distribution, and to facilitate the movement, of foods, fuels, feeds, including fuel oils and natural gas, and fer- tilizer ingredients, tools, utensils, implements, machinery and equipment required for the actual production of 3 Cf. Food Production, Conservation and Distribution Hear ing before Committee on Agriculture, (House) May I, 1017, pp. 72-73- 14 Price Control and Price-Fixing. foods, feeds, and fuel, hereafter in this act called neces- saries; to prevent, locally or ^generally, scarcity, monopolization, hoarding, injurious speculation, manipu- lations, and private controls affecting such supply, dis- tribution, and movement; and to establish and maintain governmental control of such necessaries during the war" .... President Wilson stated the purpose of the Food Con- trol Act on May 19, 1916 as follows : "The objects sought to be served by the legislation asked for are : Full inquiry into the existing available stocks of foodstuffs and into the costs and practices of various food producing and dis- tributing trades; the prevention of all unwarranted hoarding of every kind and of the control of foodstuffs by persons who are not in any legitimate sense producers, dealers, or traders; the requisitioning, when necessary for the public use, of food supplies and of the equipment necessary for handling them properly ....". Lord Rhondda, food controller of Great Britain showed the purposes of food control in that country in his statement to the public : "My aim is to safeguard the interests of the consumer, and to do away with profiteer- ing altogether, and to prevent excessive profits of any kind the policy is to limit profits at every step from the producer to the consumer, and at the same time to regu- late supply." A distinction is sometimes made between maximum and minimum fixed prices. The maximum fixed price states the upper limit of charge for a commodity. To de- mand a higher price than the legal maximum would ren- der the seller liable to prosecution. The maximum price is designed primarily to protect consumers from ex- cessive charges. Its purpose is to limit profits, but not to such an extent that production will be curtailed. The greater the need for increased production, the higher the maximum should be fixed. In times of great shortage marginal or higher cost producers must be attracted by the promise of profits, which in normal times, they would Price Control and Price-Fixing. 15 have small possibility of getting. But to fix the maxi- mum price so as to include high cost producers increases the differential between these producers and low cost producers. By way of lessening these extra profits to the latter, a government may fix two prices a minimum for low cost producers and a maximum for high cost pro- ducers. This, however, is only an apparent solution of the difficulty. For, unless either one of these prices is specifically applied to individual producers or manu- facturers, the maximum price is taken by all. As costs vary greatly in the same line of business, fluctuate often, and are easily concealed, the difficulty of classifying pro- ducers on a cost basis is almost insuperable. The drive for further production may become so urgent, that the curbing of profits is kept in the background. A minimum price in a somewhat different sense is sometimes fixed without reference to a maximum price. In such cases it has the character of an agreement or promise on the part of the government to maintain a stated price for a commodity, even though market condi- tions might call for a lower price. On the other hand, the market price may go above the minimum price. Farmers, who are obliged to wait several months be- tween the sowing and selling of their crops, consider a fair minimum price, a protection against possible de- creases in market prices. The conspicuous instance of a minimum fixed price in this sense was that of wheat for which two dollars a bushel was guaranteed by the gov- ernment of the United States. CHAPTER II. BEGINNINGS OF GOVERNMENT CONTROL. No elaborate array of statistical data is needed to dis- cover the trend of prices from the declaration of the European war in 1914 to our own entrance into the con- flict in 1917. The trend was unmistakably upward for practically every commodity. To understand the real significance of this movement, and to measure it more carefully, will, however conduce to a better appreciation of one of the chief factors that influenced government control of food products. Price fluctuations in the United States during the quarter century preceding the outbreak of the war in Europe on July 28, 1914, were slight when compared to the sudden rises in the latter part of 1916, and the first half of 1917. A glance at the index number for "all commodities" from the year 1890 to 1914 shows the greatest variations to be a drop of 10 per cent in 1894, and a rise of 8 per cent during 1900 and again in 1902. 4 Indeed, from 1898 to 1913, there has been a steady upward tendency for prices, the culumative effect of which was large. The index number for "all commodi- ties" advanced from 69 in 1898 to 100 in 1913 5 But these rises were eclipsed both in magnitude and suddeness by those in the latter part of 1916, and in the first half of 1917. As will be seen from Table I, wholesale prices in the United States remained comparatively stable during the first year and a half of the European war. 6 Between 1915 and 1916, the increase in "building materials" was but 7 per cent, the increase in "house furnishings" 11 per cent. The greatest advances took place in food which rose 2 per cent, cloths and clothing which rose 27 per cent, 4 A comparison of Prices during the Civil War and the Pres- ent War, Mimeograph copy. War Industries Board. 1919. 5 Bureau of Labor Statistics. Bulletin, No. 149. 6 International Price Comparisons, Dept. of Commerce, p. n. 16 Beginnings of Government Control. 17 and metals and metal products which rose 51 per cent. The war had raged in Europe for nearly two years, yet the rise in "all commodities" in this country was but 23 per cent during that period. But because this general advance was unequally distributed among commodities it would most naturally be measured by the average mind by its maximum and not its minimum swing in particular commodities. TABLE I. Index numbers of Wholesale Prices, by groups of com- modities and by years, 1913 to 1917, and by years and months, 1917 and 1918. ( 1913-100) 7 * :." 1 ^ -Si 3 3 -j 2 ,2 :' oS Year and Month Average for 1913... 100 100 100 100 100 100 100 100 100 100 Average for 1914... 103 103 98 92 87 97 103 103 97 99 Average for 1915... 105 104 100 87 97 94 113 101 98 100 Average for 1916... 122 126 127 115 148 101 143 no 120 123 Average for 1917... 188 177 181 169 208 124 185 155 153 175 1917 'I'* 3fV*IVj January ........... 147 150 161 170 183 106 144 128 137 150 February .......... 150 160 162 178 190 108 146 129 138 155 March ............. 162 161 163 181 199 in 151 129 140 160 April ............... 180 182 169 178 208 114 155 151 144 171 May ............... 196 191 173 187 217 117 164 151 148 181 June ............... 196 187 179 193 239 127 165 162 153 184 July ............... 198 180 187 183 257 '132 185 165 151 185 August ............. 204 180 193 159 249 133 198 165 156 184 September .. ....... 203 178 193 155 228 134 203 165 155 182 October ............ 207 183 194 142 182 134 242 165 164 180 November ......... 211 184 202 151 173 135 232 175 165 182 December ......... 204 185 206 153 173 135 230 175 166 181 1918 January ............ 205 188 209 169 173 136 216 188 178 185 February .......... 207 186 213 171 175 137 217 188 181 187 March ............. 211 178 220 171 175 142 217 188 184 187 April ............... 217 179 230 170 176 145 214 188 193 191 7 Monthly Review of the Bureau of Labor Statistics, Feb. 1918, p. 16; 1919, p. 115. 18 Beginnings of Government Control. May 212 178 234 172 177 147 209 188 197 191 June 214 179 243 171 177 148 205 192 199 193 July 221 185 249 178 183 153 202 192 192 198 August 229 191 251 178 183 156 207 227 191 202 September 236 199 251 179 183 158 206 233 195 207 October 223 199 253 179 186 157 204 233 197 204 November 219 203 253 182 186 163 201 233 207 206 December 221 207 246 183 183 163 182 233 204 206 The effect of the War upon American prices can best be noted, however, over a longer period. Using the grouping of the Bureau of Labor Statistics one finds that the average index number increased from 1913 to No- vember 1918, in the case of farm products 119 per cent; food, 103 per cent, cloths and clothing 153 per cent, metals and metal products 86 per cent, lumber and build- ing materials 63 per cent, house furnishings 133 per cent; miscellaneous articles 107 per cent. After war had been declared the rise in price levels was much more pronounced in European Countries than in the United States. In England, for example, the index number rose from 102 in 1913 to 123 in 1915, while in the United States, for the same period, the rise was but 1 per cent. In 1916 and in the early part of 19117, this mar- gin between the index numbers of the two countries in- creased. Then prices in the United States took a sudden upward swing. Once started, the rise in prices in this country was ex- traordinarily rapid. "By August, 1916, prices stood 25 per cent above the prewar level; by February, 1917, 50 per cent, by May 1917, 75 per cent, and by September 1918, 100 per cent above it." 8 The grand march of prices did not begin in this country until we had declared war. In April. 1917 the "all commodities" index number rose from 156 to 170. 9 The prices of metal rose to unprecedented heights. The weighted index number for the whole metals group made by the War Board Price Section, rose from 247 in March the month before war was declared by the United States, to 333 by July following. Basic pig iron, f . o. b. at Pitts- burgh rose from $32.25 to $52.50 in the same period; steel plates at Pittsburgh rose from $4.23 to $9 nearly 8 International Price Comparisons, Dept. of Commerce, p. 14. 9 Government Control Over Prices Bulletin No. 3, p. 29. Beginnings of Government Control. 19 800 per cent above their prewar quotation. 10 The index for the food group advanced from 142 in March 1917 to 157 in April and to 167 in July of the same year. The clothing group rose from 157 in March to 187 in July. The clothing group rose from 159 in March to 187 in July. The above figures taken from the Price Section of the War Industries Board,* show slight differences when compared with similiar index number compiled by the Bureau of Labor Statistics as shown on pages 17 and 18. The tables compiled by the War Industries Board show that farm products increased 36 points from March 1917 to July of the same year ; food rose 19 points, cloths and clothing 18 points, metals 58 points and all commodities 25 points during these five months. Retail prices, on the other hand, are a much better in- dex of the cost of living than wholesale prices. For be- tween the wholesaler and the retailer there are many items of cost which enter in the final price of the article. Retail prices over short periods of time do not fluctuate as often as wholesale prices. It can easily happen, there- fore, that reductions in wholesale prices are made sev- eral days and sometimes several weeks before retailers adjust their prices. Over long periods of time, however, retail prices tend to change in the same proportion as wholesale prices. Thus it will be seen from the follow- ing table that retail prices followed the same trend dur- ing the war as wholesale prices, with few exceptions. The data here given was collected by the Bureau of Labor Statistics, and indicates that the retail price of food on the whole in January, 1914, was five per cent higher than in January, 1913. In January, 1917, the rise over Janu- ary, 1915, amounted to 30 per cent. Between January, 1917, artd January, 1918, the rise was 33 per cent. The peak was reached in 1920 ; in January of that year prices rose 65 per cent over those of 1917 and 105 per cent over those of 1913. 10 Ibid, p. 29. * The price Section of the War Industries Board under the di- rection of Wesley C. Mitchell, included over 1,371 Commodities in its price index. 20 Beginnings of Government Control. w I/} u QQ < OP H fcg Q So 1/3 W tqU 1 d*! H< s 1 g, 5 o u >> O III .+++++ 1 +++++ 1 +++ +H-f . -*M ONVO ?*5 ON "^ ON ^OoO en vo VO tx ON ON * *-* -*O to ONVO O -" 00 ON w N ^ 1X00 M 00 ON tx Tt HH c 0< M txOO O t^ ON tovo ^ 00 to ts O O\ ON W Tj- CO tx\O <*3 O \O VO 8 .5 n 00 fO ON 'SJt 1 S - c-2 Beginnings of Government Control. 21 The following 22 articles, weighted according to the consumption of the average family, have been used in estimating the percentage of increase or decrease in prices; sirloin steak, round steak, rib roast, chuck roast, plate beef, pork chops, bacon, ham, lard, hens, flour, corn meal, eggs, butter, milk, bread, potatoes, sugar, cheese, rice, coffee, tea. 1914 1917 1918 1919 1920 1921 1922 22 Weighted Articles +5 +30 +63 +88 +105 +75 +44 These extraordinary rises in prices in the United States during the latter months of 1916 and the early part of 1917 were intensified by our entrance into the conflict. The growing shortage of food supplies, the cries of pro- fiteering, the demand on the part of the people "that something be done" were strong enough motives to urge the Government to decide upon some kind of regulation. The United States had been since the beginning of the war, the food source for the Allies. As the war con- tinued and the devastation of Europe increased, the de- mands on American markets grew with alarming magni- tude. From Table No. I it was shown that prices on the whole in the United States were comparatively stable till the latter part of 1916. That the growing demands of Europe upon our supplies was responsible in a great measure for the upward pressure on prices may be read- ily seen by noting the increase that year in exports, the greater part of which took place in the later months of the year. During the year ending with June 1914, Europe had drawn upon American markets for products, amounting to $1,471,266,488, which exceeded the export figure for 1913 by $96,738,732. During the year 1917, the Allies took from our shores $4.307,310,138 in raw materials, manufactures and foods, or almost four times the amount by value exported in 1913. That prices should rise under such sudden and enormous demand was to be expected. The increase of exports in 1915 was 33 per cent over the figure of 1913, while the increase in 1916 was 103 per cent. The wheat shortage in itself w!as a problem that might 22 Beginnings of Government Control. have called forth some form of government control. The annual wheat consumption of Great Britain, France and Italy is over 900,000,000 bushels, of which 100,000,000 bushels is ordinarily imported from the United States. Of the annual 760,000,000 bushels produced in this country the domestic consumption is about 646,000,000 bushels. European production of wheat became less and less as more men were withdrawn from agriculture. The British carrying vessels were being constantly reduced in number by submarine warfare and the number that re- mained could not be spared for the long haul to Australia for wheat. Siberian wheat was cut off by the closing of the Dardanelles. The spring of 1917 brought enormous orders from Europe for American wheat. The wheat crop of 1917 in this country was the smallest since 1911, and almost 400,000,000 bushels below that of 1916. The wheat market became the school for speculative buying which further added to the increase of prices. Before the war Great Britain imported annually about 2,060,000 short tons of sugar of which about 70 per cent was imported from Germany and Austria. During the war she found it necessary to turn to the United States and Cuba for supplies of sugar. The sugar exports from this country jumped from 96,862,462 pounds in 1913 to 1,685,195,537 pounds in 1916. This demand for sugar was bound to cause higher prices. Another factor which exercised no little influence in raising prices all over the world was the almost daily loss of tonnage. Though our own losses were compen- sated for by interned vessels, the losses of the Allies be- came so great as to almost threaten defeat. Commerce, so seriously handicapped, threw a still greater strain upon American agriculture and industries. Perhaps, the strongest reason for setting up the ma- chinery for Federal control over the prices of foodstuffs may be found in the great saving it would effect in the purchase of Government supplies for the Army and Navy. To have allowed each department of the Army and Navy to purchase its own supplies from whatever Beginnings of Government Control. 23 source it could, would have resulted in dangerous delays, unfilled orders and exorbitant prices. Moreover, each department would require a special board of experts to determine whether prices were reasonable, and to make allotments of the various contracts. The necessity of some central board, whose business it was to provide for all those contracts at prices which bore some relation to the cost of production plus a reasonable profit was in- deed, apparent. Furthermore, the question of priorities in times of such urgent need was vital. It would have been a mistaken policy, or rather the breakdown of effi- ciency, for example, to allow street cars, to have the first option upon steel, wood and furnishings, while battle- ships, submarines, and other war apparatus were with- out materials for their manufacture. As Secretary Lane said "The government must have a board that will say who comes first and what conies first; otherwise all will be confusion, and the law of competition, instead of work- ing to lower levels will work to raise them ; for instead of industries competing against each other for orders, the purchasers will be bidding against each other, as at an auction sale, as they are doing to-day." Such a board with powers of licensing purchases, might regulate and steady, or even eliminate much of the demand and thus influence prices. These requirements could have been obtained no doubt, without resorting to any policy of fixing limits on prices. The Government might have determined the price it would pay for its purchases, and allow general trade to go unregulated. The result of such a policy, how/ever, would be, either the probability of not having Govern- ment orders filled entirely, or, on the other hand, a dis- regard of the necessities of consumers, which, if applied to foodstuffs, would entail serious consequences. If the price for government purchases was above that paid, or able to be paid by consumers, its orders would be filled to the neglect of the latter. But if the Government's price was considerably lower than the market price, pro- ducers would be in no hurry to make contracts for Gov- 24 Beginnings of Government Control. ernment purchases. The purchases of the Allied Gov- ernments were also an influencing factor. As their necessities were more urgent than ours, their prices would be higher. There is fairly good evidence that greater prosperity was enjoyed by many people of the United States during the war than either before or after it. Labor, skilled and unskilled was in such a demand that workers were safe in voicing their demands for increases. There were plenty of jobs for all; even boys and girls could earn a fairly good pay. These high wages were the means of bringing to industry many 'marginal' workers, whose in- comes considerably increased the family prosperity. In most cases too, these surplus earnings went towards higher standards of living and indulgence in luxuries. It is true that for some, the cost of living advanced more rapidly than the rate in wages. But business men, manufacturers and other producers, who make up a con- siderable portion of the population, reaped higher profits than ever before and these as consumers probably did a great deal to diffuse their lucrative gains. The increased consumption of foodstuffs, shoes and clothing due to military life, also had an effect upon prices. The healthy appetites of those who spend most of their time in working or exercising in the open air leaves no doubt as to the increased consumption of food- stuffs by a large army and navy. "A soldier whether at the front or not eats about half as much again as in pri- vate life. 12 The shoes and clothing of a soldier are con- sumed more quickly than the same articles of a civilian. Though durable they are exposed to a great amount of wear and tear. Certainly as a factor in increasing prices, the additional consumption due to a large army and navy can not be overlooked. The most popular explanation of high prices during the war was contained in the one word "profiteering." Editors and declaimers did much to arouse the public against this exaggerated abuse, for the blame for high 12 The Economist, Aug. 26, 1916, p. 355- Beginnings of Government Control. 25 prices must be placed upon some one, and it was easiest to shoulder it upon 'middlemen', 'food gamblers', 'specu- lators' etc. Doubtless some increase in prices was due to the wider margins of profits taken all along the line from producer to consumer. This is, in fact, what we should have to expect. All classes received greater compensation for services during this period of inflation, and higher profits were nothing but higher wages for the business man and producer. On July 11, 1917 President Wilson issued his address on profiteering to the mine owners and manufacturers of the country. In his pronouncement the President did not touch on details nor commit himself to any particular method of control, but merely wished to direct the attention of the country to a condition that called for legislative action. The indictment of "profiteering" did not apply to all. Thousands of men were imbued with the proper spirit and sacrificed gains they could have taken with impunity. Honest dealers welcomed any Federal control which would enable them to conduct their businesses without the serious handicap which they must experience when pitted against market manupulators, food gamblers, and hoarders. 13 The fact is that profits are so uncertain and fluctuating and are influenced by so many factors which change entirely the aspect of justice in taking them, that a precise definition of profiteering is practically impos- sible. "There has been one Bureau of Washington whose aggregate expenses now run beyond a million dollars, that has seemed to make its especial business distilling into the public mind every kind of vicious idea about business . . It has sent out report after report showing the enormous profits of this or that company or trade. But what kind of profit? always the profits on the in- vested capital! Rarely, if ever have these profits been figured on gross sales. Why? Because, howeve^ large the profits cited have been on invested capital, the aver- age profits on sales have been usually less than five or six 13 Congressional Record (House), June 18, 1917, Vol. 55, p. 3794- 26 Beginnings of Government Control. per cent, often half this, and in the case of the criminal meat packers, they have often been below two per cent. And this brings us to the very heart of profiteering. (I make bold to say that the public has relatively little in- terest in the earnings upon capital, in any event). It will often happen that one dealer will make two or three times as much on his invested capital as his neighbors and competitors, and yet sell his goods to the public at a lower price, or what is the same thing, sell better goods for the same money. He will do this because he under- sells his competitors. The matter is simply this: Some merchants will turn their capital over, ten, twenty, and even twenty-five times a year (in the case of some retail grocers). Others only four or five times a year. That is their year's sales will total five, ten or more times the sum they have invested. And in general, the higher the turnover, the lower the days expenses, and therefore lower prices to the public! 14 "It will do no good, of course, to rail at lucky winners in the lottery. The public was greatly mistaken in at- tributing low prices to the "stranglehold" of wicked bondholders, and is equally mistaken to-day in attribut- ing high prices to the personal turpitude of profiteers. How can we blame a business man (especially one who as an officer of a corporation, acts in the interests of others whose capital he is managing) for getting the best prices he can ? We can not expect him to sell below the market. In fact, if market conditions cause profits to fall into his lap, he would be recreant in duty to throw them away." 15 Professor Fisher might have added to this statement an explanation of the illusory nature of profits for a go- ing concern, and show how the large profits of one period are absolutely necessary to retrieve the losses of another period. Abnormal rises in prices always create suspicion in the 14 Carl, Snyder, "Who is Profiteering?" McClure's Magazine, March, 1920, p. 23. 15 Irving Fisher, "Stabilising the Dollar," p, 59. Beginnings of Government Control. 27 minds of many of abnormal profits. A more rational ex- planation of high prices and one that eliminates much of the suspicion harbored about profiteering is that which looks to the amount of money in circulation in a country. Values are measured by prices and prices are expressed in terms of money. The value of commodities decrease when money becomes plentiful and hence prices rise. When a government issues an over supply of currency, as happens frequently in times of war, prices invariably rise. The fallacy of overlooking the expansion of money in a country and of making profiteering the cause of high prices is explained by Professor Hollander as fol- lows: Profiteering "is a symptom of the disease, not the disease itself. Profiteering is the effect, not the cause of, the high cost of living. Those who have been trying to make the American people believe that profiteering causes high prices are in a class with the quacks who will tell a. consumptive that his loss of weight is due to his high color, instead of saying that both are the symptoms of a tissue-destroying bacillus. The answer is that in- flation is due to financial mistakes of the Administration at Washington, (1) while we were getting ready for war, (2) while we were at war, and (3) after the war was over. During each of these periods, the Treasury per- mitted, and indeed, encouraged an increase in the coun- try's money supply, and the certain prospect of rising prices." 16 Turning our attention from the causes of govern- mental control over prices, we shall now consider the legislative act from which the Food Administration took its rise. The Lever Food Control Bill (H. R. 4961) passed the senate after much opposition and debate on August 10, 1917. The Lever Bill was designed to pre- vent abnormal rises in prices of foodstuffs and fuel to the consumer, to provide a plan for Army and Navy necessi- 16 Jacob H. Hollander, New York Sunday Times, May 2, 1920, "How inflation touches every man's pocket-book." 28 Beginnings of Government Control. ties and to increase our exports of food to the Allied Nations. 17 As originally constructed the bill contained provision for the fixing of both maximum and minimum prices. The Committee, however, influenced by the unsuccessful attempts of European countries with the 'minimum' struck out this feature of the plan from the Bill. 18 This Bill was under long and vexatious consideration not only in Congress but wherever its effects would be felt. Its opponents declared that it was an autocratic imposition on the American public. "It is class legisla- tion pure and simple. . You hold up the farmer as a class" (Congressman Young). 19 Senator Gore denounced it as the "sweepings" of all British and Canadian Food Acts, and predicted that if passed "it would cause losses to producers (in 1917) of $250,000,000 in wheat and $500,000,000 in corn and re- sult in famine next year through reduced production." Senator Lodge said that price fixing was as old as organ- ized society itself, but in almost every case it was a dis- mal failure. The Press leveled its guns at the measure also; the New York Evening Sun pointed out the disasters that would result from its passage namely: "reduced pro- duction, chaos in marketing, the withdrawal of capital and expert skill from the food trades, panicky buying, high prices and grievous shortage at the points of con- sumption." The Lever Bill so bombarded, was finally passed on August 10th, 1917. Pending its passage, however, Pre- sident Wilson had appointed Mr. Hoover as Food Admin- istrator on May 19, 1917. 20 As this bill is the basis for the whole of war-time control of both food and fuel, it will be of value to analyse it more fully. The sweeping control which this statute provides for 17 Congressional Record (Hous_e), June 18, 1917, Vol. 55, p. 3799 18 F. O'Hara, Catholic World, July 1917, p. 524. 19 Congressional Record (House), June 18, 1917, Vol. 55, p. 3799 20 "Food Administration," 1917, p. 6. Beginnings of Government Control. 29 can be clearly seen from its terminology. The purposes of the act are : "To assure an adequate supply and equitable distribu- tion, and to facilitate the movement, of foods, feeds, fuel, including fuel oil and natural gas, and fertilizer and fertilizer ingredients, tools, utensils, implements, ma- chinery, and equipment required for the actual pro- duction of foods, feeds, and fuel, hereafter in this act called necessaries; to prevent locally or generally scarcity, monopolization, hoarding, injurious specula- tion, manipulation and private controls affecting such supply, distributions, and movement; and to establish and maintain government control of such necessities during the war " It furthermore makes it unlawful for any person will- fully to destroy any necessaries for the purpose of en- hancing the price or restricting the supply thereof: and prohibits any arrangement or practice of limiting facili- ties for transportation, production, harvesting manufac- turing or storing. Section 5 sets forth the means to be used to prevent such evil practices. By force of this Section the Presi- dent is given authority to license the importation, manu- facture, storage, mining or distribution of any necessi- ties. In this section is contained the chief feature of the United States price control policy, and that which most distinguishes it from the policies of other European countries. "The backbone of the administration of war-time con- trol over foods lay in the license system." 21 As contained in Section 5. it gave the President authority to bring under license control any dealer in necessaries except those exempt in the law. By virtue of this section the President is empowered to control by license all busi- nesses engaged in the manufacture, importation, storage, mining or distribution of any necessaries. After a date fixed by the President, no dealer engaged in any of the above named occupations could pursue the same without 21 Government Control Over Prices, Bull. No. 3, p. 43. 30 Beginnings of Government Control. a license, exception having been made for those engaged in farming, cooperative associations of farmers, common carriers and retailers whose gross sales did not exceed $100,000 per annum. Section 6 defines necessaries and provides that any person who willingly hoards any necessaries shall upon conviction be subject to a fine not exceeding $5,000 or be imprisoned for not more than two years. Section 10, authorized the President to requisition foods, feeds, fuels, and other supplies necessary to the support of the Army or maintenance of the Navy ; when such actions take place he shall ascertain and pay a just compensation therefor. Section 14 provides that whenever the President should find that the production of wheat required stimu- lation he could determine and fix a reasonable price for wheat. A guaranteed price of not less than $2 per bushel was fixed for No. 1 Northern Spring wheat, binding till May 1, 1919. Section 18 makes the appropriation of $2,500,000 from the Treasury of the United States for the administration of the act. Section 24 determines that the Act should cease to be in effect when the existing state of war between the United States and Germany shall have terminated. The license system, as has been said, was the soul of Price Control. The system required that all dealers, producers and handlers of foodstuffs, with some excep- tions must be registered by the Food Administration and that each licensee should not receive more than a "rea- sonable margin of profit" on the "cost basis" of produc- tion. This meant that the price should be determined from the elements in the entrepreneur's cost of produc- ing the commodity. Since these costs differ widely not only for different articles but for the same article, the rule was difficult of application. Yet if the plan could carry any suggestions of fairness these difficulties had to be met and overcome. To meet these different varia- tions of the cost method of price fixing was therefore em- Beginnings of Government Control. 31 ployed. 22 . In some cases, prices were fixed after the pro- duction had been completed; in other cases, prices were fixed before the production was undertaken. Ante-pro- duction prices were fixed upon what the average costs to the producer should be, thus setting a standard of price- costs. The difficulties to be met by the price-fixing agencies were two-fold; first, the price must be high enough to insure necessary production. Secondly, the price must be low enough to prevent excessive profits. The cry of the country during the years 1917 and 1918 was for greater production to meet the demands of our own and the Allied Forces and also that of consumers. To stimulate production theoretically the cost price of the lowest and least efficient producer should be taken as a standard. Practically, however, it was found that some of the very high cost producers were so inefficient that their costs had to be disregarded. The cost chosen was often called the "bulk-line cost" that is, the cost that covered the bulk of the production. 23 This cost was usually found at the point which included from 80 per cent to 90 per cent of the production. 24 Thus the "bulk- line cost" was not necessarily the highest cost. The "cost basis" having been accepted as the rule in determining prices, it became necessary to work out a reasonable margin of profit. At first only the general principle was formulated that no dealer was entitled to, a greater per cent of profit than he made in pre-war times. Mr. Hoover in a speech before the Pittsburgh Press Club in April 18, 1918 said in part: "I do not be- lieve that any person in the United States has a right to make one cent more profit out of any employment than he could have made under pre-war conditions." The average percentage of profit was figured on the basis of the three immediate pre-war years. It soon be- 22 Simpson, K., Price-Fixing and the Theory pf Profit, Quar- terly Journal of Econ., Nov., 1919, p. 141. 23 Simpson, K M Quarterly Journal of Economics, Nov. 1919, p. 147- 24 Taussig, F., Price-Fixing as seen by a Price-Fixer, Quarterly Journal of Econ., Feb. 1919, p. 219. 32 Beginnings of Government Control. came evident, however, both to the Food Administration and to dealers that a more definite rule of profits was needed. The effectiveness of the regulation depended to a large extent upon the rigor with which it was enforced. Moreover, its lack of precision furnished opportunities for unscrupulous dealers to pad costs and thereby take large profits. With these shortcomings in mind, the Food Adminis- tration on April 6, 1918, announced a series of definite maximum margins of profit for wholesalers and retailers on the more important commodities. The plan adopted was to fix two margins; the higher margin was to be made applicable to the dealers with high costs, and the lower margin to those of lower costs. There was no thought of making these margins absolute and final. Possible exceptions might be allowed, but the burden of proof rested upon the dealer who violated them. These margins were released by the Food Administra- tion from time to time over the period from April 6, 1918 to the signing of the armistice. They covered the most important foodstuffs such as sugar, wheat, flour, bread, lard, lard substitutes, hams, bacon, condensed and evaporated milk, rice, hominy grits, oatmeal, rolled oats, beans, corn, syrup, canned goods, etc. With the system of maximum margins in operation, the Food Administration dispensed with the regular monthly reports from licenses. Efforts to reach retailers before November 7, 1918 were largely left to the associated Food Administrators in each state, and to the publicity campaigns of the nu- merous "Fair Price Committees" through the country. No severer sanction than public stigma could be held over the heads of recalcitrant retailers, until the Food Admin- istration issued on November 7, 1918 a series of retail maximums to which from time to time were added special regulations pertaining to single commodities. The special licensee regulations were issued with such rapidity and promulgated in so many different man- ners by press, by pamphlets, by notification of State Beginnings of Government Control. 33 Food Administrators, by typewritten sheet that a chronological study of these would be confusing and diffi- cult. It is much more satisfactory to arrange them ar- cording to distinct Food groups. We have seen thus far the distinction between price control, price-fixing and rationing. The Food Control Act has been outlined and special features have been noted. The following chapters will be devoted to a more detailed study of the most important food problems faced by the Food Administration during the war. It is not easy to arrange these problems with fine regard to their importance, nor is it perhaps of any advantage to do so. Chapter III will consider the control of wheat, flour and bread; Chapter IV, the control of sugar; Chapter V, the control of meat and dairy products ; and Chapter VI, the control of Canned goods. CHAPTER III. CONTROL OF WHEAT, FLOUR AND BREAD. There arose in 1917 a world-wide shortage of wheat which turned the attention of warring Europe more keenly than before to food supplies, and at the same time made the Allies greatly dependent upon American wheat production. In that year the total amount harvested in the United States was but 650,828,000 bushels, with a carry over from the preceding year of 51,078,000 bushels. The demands of the Allies for wheat were constantly in- creasing in proportion as their own production was diminishing. This will be clearly seen from the follow- ing table, which shows our wh'eat exports to France and England in 1913, 1914 and 1915. Wheat Exports from United States. 25 Country 1913 1914 1915 France 4,931,708 5,536,731 49,878,655 bu. England 27,963,980 23,414,555 55,459,328 bu. Similarly, our wheat exports to other countries in- creased. The table following shows the tremendous in- crease of wheat exports in 1915. Wheat Exports from United States to Europe. 26 1913 1914 1915 83,132,758 bu. 82,552,520 bu. 231,859,859 bu. European demand for our wheat in 1915, enormous as it was, could be satisfied because of the large yield in the United States in that year, which reached 1,025,801,000 bushels. The increase in production in 1915 over the figure for 1914 was 134,784,000 bushels. The high level reached in 1915 dropped to 639,886,000 bushels in 1916, with a carry-over of 178,203,000 bushels. This amount 25 Foreign Commerce & Navigation of U. S., 1917, p. 374. 26 Foreign Commerce & Navigation of U. S., 1917, p. 375. 34 Control of ifrheat, Flour and Bread. 35 enabled us, however, to export to Europe 160,880,000 bushels. 27 Although in the fall of the latter year, a large area of winter wheat was sown, about one third of this failed to mature because of heavy frosts. The production, thus lessened, amounted in 1917 to 650,828,000 bushels with a carry-over from the preceding year of 51,078,000 bush- els. Such a decrease of wheat-stuffs was keenly felt in Europe. The wheat situation, just outlined, confronted our leg- islators upon our own entrance into the war, and its diffi- culty and urgency, doubtless, made it the central problem in the organization of Government control of food-stuffs. It accounts also for the desire of President Wilson to in- sure greater production by providing farmers with a legally guaranteed price per bushel. The importance of this measure soon became evident, for Mr. Hoover in a report to the Food Committee estimated that the amount of wheat needed by the Allies in 1918 would reach 500 million bushels. 28 Of this amount, he hoped that the United States would be able to supply a large part. Now, the potential supply of wheat to meet this need was estimated as follows : 29 Australia 10 million bushels. Argentine 40 " Canada 100 " United States . ..200 " 350 The last figures show that, in addition to what was needed for home consumption, the United States could probably furnish the Allies with 200 million bushels. This amount, however (assuming that Australia, Argen- tine and Canada could not increase their supplies), still left a shortage for the Allies of 150 million bushels. 27 Foreign Commerce & Navigation oj U. S., 1917, p. 375. 28 Minutes of the Price-Fixing Committee, Appendix No. 40. The figure cited above included flour, bran and middlings. 29 U. S. Food Administration, Policies & Plan of Operation (Wheat, Flour, Bread), p. 7- 36 Control of Wheat, Flour and Bread. Could the United States so increase her production of wheat as to supply this desideratum? It was, furthermore, problematical whether Australia and Argentine could ship their quotas to the Allies, for German submarine warfare had already made serious ravages in shipping, and had reduced British tonnage to such an extent that vessels for long hauls were out of the question. The fact is that neither Australia nor Argen- tine exported much wheat to the Allies during 1917, 1918 and 1919. By the defect of the other potential sources of supply, the United States and Canada thus became the wheat markets for the Allies during those years. Such a demand upon our wheat fields brought with it higher prices for wheat. American and European buy- ers competed with each other in our markets, and prices rose rapidly. From March to May, 1917, the price in- creased $1 a bushel for No. 2 red winter wheat at Chicago, reaching an average for May of $2.97. No. 1 Northern spring wheat averaged $2.98 at Minneapolis for the month of May. On May 11, the price at the Chicago Board of Trade was $3.15 a bushel, at which point the Board was compelled to prohibit the trading in wheat futures and ordered a settlement of all outstand- ing contracts. 30 This was the highest price in the history of the United States, being 50 per cent beyond the maxi- mum during the Civil War. It might seem that these prices would have been suffi- cient to stimulate the farmer to increase his acreage of wheat. Few] farmers, however, had received anything like the above-named prices. The 1916 crop had long been disposed of for about $1.50 per bushel; 31 the 1917 crop would not begin to move to the market till Septem- ber. Between May and September the price might drop, and the farmer would naturally feel that speculators were reaping the fruits of his toil. With this idea in mind, then, Congress must evolve some plan to make 30 The Farmer and His Wheat, Collier's, Aug. n, 1917. 31 U. S. Food Administration, Minutes of Price-Fixing Commit- tee, Appendix, No. 13. Control of Wheat, Flour and Bread. 37 wheat culture attractive so as to insure the largest pos- sible crop for 1918. The food control act (Lever Act) was approved by the President on August 10, 1917. Congress, it is to be noted did not name a price for any other commodity but wheat for which a minimum of $2 per bushel was fixed for the 1918 wheat harvest. This price did not apply to the 1917 crop; provision had been made by Congress, however, whereby the President was authorized, should he deem it necessary, to determine a reasonable guaranteed price for the crop that was now moving to the market. The $2 guaranteed price was 26 cents per bushel lower than the market price prevailing at Chicago, when the food control act became a law. Evidently, Congress did not expect farmers to raise a bumper crop for the legally guaranteed price, but depended upon the President for a more accurate determination of that price. The farm- ers also, (about to market their 1917 crop and fearing that the price would fall) voiced their anxiety to the Pre- sident in behalf of a minimum price which should apply to the present crop. The President saw the necessity for such a step, and sought measures to make it a reality. On August 24 then (several days after the appoint- ment of the Food Administrator), President Wilson an- nounced the appointment of a committee to determine a fair price at which wheat should be purchased by the Government. This Committee on prices included the fol- lowing names : 32 Harry A. Garfield, President of the Williams College, Williamstown, Mass. Charles J. Barrett, Union City, Ga. William N. Doak, Roanoke, Va. Vice-President of the Brotherhood of Railway Trainmen. 32 Cf. Multigraph Copy of U. S. Food Administration, Minutes of the Price-Fixing Committee, p. 3. It is to be noted that Mr. Hoover took no part in the deliberations of this Committee, and expressly wished the President to make known to the public his non-interference. Cf. "Book of Information," U. S. Grain Corpo- ration, Aug. 23, 1919, p. 12. 38 Control of Wheat, Flour and Bread. Eugene E. Funk, Bloomington, 111. President of National Corn Association. , Edward F. Ladd, Fargo, N. D., President of North Dakota Agricultural College. R. Goodwin I&tt, Charleston, S. C., Secretary of Na- tional Council of Farmers' Cooperative Association. James W. Sullivan, Brooklyn, N. Y., American Federa- tion of Labor. L. J. Tabor, Barnsville, 0., Master of Ohio State Grange. Frank Taussig, Chairman of Federal Tariff Commis- sion. Theodore N. Vail, New York City, President of New England Telephone and Telegraph Co. Henry J. Waters, Manhattan, President of Kansas State Agricultural College. These men met at Washington, D. C. on August 20, 1917 and after being addressed by Mr. Hoover, set to work to outline the problem for fixing a "fair price" for wheat. Among the factors drawn up for consideration were the following: "1. Welfare of the industrial population as affected by the cost of bread. "2. The effect of high wheat prices upon the cattle rais- ing and dairy industries as the result of reduced corn acreage and the high prices of feeds. "3. The relation of American prices to the world condi- tion and the needs of our Allies. "4. The relation of the general policy to the changed conditions at the end of the war. "5. The relation of the 1917 wheat to the production prices and acreage of the 1918 wheat crop." The Committee, composed of men whose interests were widely different and whose experience of price-fixing was little, attacked the problem in the most direct manner. Time was not available for any minute search into costs and profits at every move of production. A price satis- factory to the agricultural interests must be selected, and Control of Wheat, Flour and Bread. 39 with this purpose in view, it was almost certain that the Committee could account for its existence by fixing the price high enough. But what should this price be? Representatives of the farmers lost no time in placing before the Committee the absolute necessity of a price as high as $2.50 per bushel. The farmers, they averred, had long since been imposed upon, and now when their cooperation was of supreme importance they should not be antagonized by any un- fairness. Mr. Henry J. Waters, president of Kansas State Agricultural College, in his paper read before the Com- mittee stated that if the price of wheat for the present season was not high enough, other products of the farm, forest and factory would have to be correspondingly lowered or the farmer would feel that special tax had been levied upon him for the benefit of the rest of man- kind. 33 Other represented interests, while not combined to op- pose a high price, saw the problem from the consumers view-point, and emphasized the hardships that would result from a high price for such prime necessities as wheat and flour. Little satisfaction could be gained from consulting statistics on cost. Estimates ranging from $1.41 per bushel (thus Professor G. E. Call of the Kansas State College) to $3.00 (thus Mr. I. M. Hagen, Commissioner of Agriculture in North Dakota) were not calculated to bring the Comittee to a unanimous opinion.* On August 28th, the committee, after hearing the arguments of various members, decided to arrive at a price by ballot. Three formal ballots Were taken, each of which returned the following result: four for $2.50 wheat; one for $2.30; two for $2.25; two for $2.10, two for $1.84. Informal ballots were then taken upon the following prices: $2.15; f $2.20; $2.25; $2.30. On 33 Ibid. These differences in costs rn^y be explained by taking into consideration the relative productivity of the land, differences in labor costs, and methods of cultivation. 40 Control of Wheat, Flour and Bread. August 30th, the Committee finally adopted the price of $2.20 per bushel for No. 1 Northern spring wheat at Chicago. After reporting this price to the President, it was immediately announced to the country. It will be observed that this price was a compromise between the $1.84 proposed by the labor representatives and the $2.50 advocated by the agricultural interests. Upon the President's announcement of the $2.20 price the Food Administration affirmed its intention "to use every authority given it under the food control act and the control of exports to effect the universality of this fair basis throughout the whole of the 1917 harvest year without change of fluctuation." The difference in viewpoint is at once seen between the policies of the legislative and executive branches of the Government. Congress provided a minimum price for the 1918 wheat crop ; the Food Administration adopted a definite "fair price" for the 1917 crop. The former was not to be effective for nearly a year, or until July 1, 1918 ; the latter was effective from its announcement. The former was framed as an inducement to the producer; the latter was proposed to protect both the consumer and the producer. Turning our attention now, from these preliminary considerations, we shall briefly outline the methods adopted by the Food Administration to maintain the guaranteed minimum despite factors operating for its in- crease or decrease. The first step had already been taken before the gov- ernment price had been announced. It was the pro- clamation issued by President Wilson on August 14, 1917 which required all stores and distributers of wheat and rye as well as persons manufacturing products of wheat and rye to procure licenses before September 1. The Food Administration had, a short time before explained its plan to a representative conference of 100 of the country's wheat dealers and received from them the as- surance of support. The object of the Administration, Control of Wheat, Flour and Bread 41 at the outset, was to elicit the voluntary cooperation of these men, and to depend as little as possible on the sanction of the law. General regulations applicable to all licenses became effective on November 1, 1917. These general regula- tions included the furnishing of reports, inspection of records, prohibition of unreasonable profits, prohibition of resales within the same trade, and the prohibition of speculation. In addition to these general regulations from time to time, others more specific were issued. These specific rules determined the miller's profits, prices, and differentals. The license of any miller who engaged in unfair practice could be revoked by the Food Administration. By means of this devise the govern- ment could exercise indirect control over millers and grain dealers. Although a definite price ($2.20 per bushel) had been fixed, it must not be supposed that this price was the same for every elevator in the country. It would be manifestly unfair to compel two elevators situated at un- equal distances from a primary market, to pay the same price for each bushel of wheat. The guaranteed price must be added to, in order to provide for transportation costs from the grain elevator to the market. In fact, there was nothing in the food control act, nor in the Food Administration's regulations to prevent millers from paying a higher price than the minimum for wheat. It is natural to assume also, that millers would be willing to pay a higher price and that farmers would be nothing loath to accept it. In view of these considerations, how did the Food Administration effect the universality of the "fair price?" Two methods were used : the license system and the es- tablishment of the United States Grain Corporation. The license system at this period was little more than a form. It contained great possibilities for close supervision which, were but vaguely seen. Licensees could and did purchase wheat at higher prices than that fixed by the 42 Control of Wheat, Flour and Bread government. Such action was not legally wrong ; it was simply an indication of unwillingness to cooperate with the Food Administration. With this loophole in the li- cense system it was necessary to devise a more certain plan of effecting the guaranteed minimum. Thus, was established the United States Grain Corporation. This corporation, headed by some of the country's best wheat exports, was organized on September 4, 1917 under the laws of Delaware with a capital stock of $50,000,000. The country was divided into fourteen zones, each of which had a representative agent of the Grain Corporation whose function was to buy wheat at the respective terminal, and distribute it among the various mills of the territory on the basis of their aver- age capacity. The work of this corporation was to buy all the avail- able wheat and rye surplus grown in America in 1917 and 1918* It determined the local prices for wheat at each of the 18,000 elevator points, adjusted thousands of complaints, organized the gathering of statistics, in- spected the reports handed in monthly by the licensed millers, solved disagreements in the trade and dealt with the purchasing agent of the Allies. The two chief functions of the United States Grain Corporation were (1) the purchase of wheat for the United States, and (2) the controlling of the license sys- tem. The Food administration had limited the right of the millers to store wheat and flour to a period not ex- ceeding 30 days. Trading in futures, the ordinary means by which much of the country's grain trade is handled, was prohibited during the war. It was necessary to pro- vide some means for the distribution of wheat to take the place of ordinary market speculation. The machinery evolved by the Food Administration for this purpose was the Grain Corporation. The $2.20 per bushel price provided for by the Lever The Grain Corporation continued its activities for two years after the termination of the War. Control of Wheat, Flour and Bread. 43 Act was a minimum price, which might be raised, and most likely would be raised, by the President for the next year's crop. During the early months of the year 1918 many attempts were made in Congress to increase the price of wheat to $2.50 or $2.75 a bushel. Senator Gore introduced a bill to increase the price to $2.50 per bushel, stressing the dilemma that either the price of wheat must be raised or the general level of other prices must be lowered. The dilemma was stated by the Senator thus : "If the price fixed by the Government for 1918 is high enough, then the price for 1917 was too high. I say this because the cost of producing wheat in 1918 was much greater than in 1917. 34 The leading agricultural journ- als were in accord with this effort, and pointed out that the farmers were not receiving a fair price for their wheat in view of the prices of other commodities. The Non-Partisan Leader (St. Paul), the organ of the Non- Partisan League argued that "The price of wheat in comparison with the increased cost of farming and the general increase in the cost of living, is too low." 35 Commenting on Senator Gore's Bill, a Montana farmer wrote : "Senator Gore's Bill to make the price of Wheat at the farmer's market is the fairest proposition I have yet seen. The farmers did their best to increase their fall wheat acreage with the minimum price of $2.00. But our President steps in and shatters our hope of a price that would cover the cost of production. Our crops were bad enough . . . hundreds of acres were not cut at all ... most the farmers are made to sacrifice all they have. . . while others grow rich." 36 . The opponents of the Gore Bill, however, argued that if the price of wheat was advanced to $2.50 a bushel there would be an increase in the price of flour of no less 34 Senator Gore, The Wheat Farmers' Dilemma, The Forum, p. 26. 35 The Literary Digest, March 16, 1918. 36 Outlook, April 10, 1918, p. 572. 44 Control of Wheat, Flour and Bread. than $3 a barrel, which would mean an increase of 25 per cent in bread prices. Should all our people, the oppon- ents asked, be thus imposed upon by the farmer class re- presenting but fifteen per cent of the population. On February 21, 1918 the President by a proclamation made the 1917 wheat price applicable to the 1918 harv- est. By executive order of June 21, 1918 the price of wheat was raised to $2.26 per bushel at Chicago, the 6 cent increase was made to off-set the increase in freight rates. 37 The Food Administration, then announced the follow- ing "fair prices" for "basic" wheats at the terminals designated. 38 Prices of "Basic Wheat" at Terminals for 1918 Crop. New York $2.39i/ 2 Omaha $2.18 Philadelphia 2.29 New Orleans 2.28 Baltimore 2.38% Galveston 2.28 Newport News 2.38% Tocoma 2.20 Duluth 2.221/2 Seattle 2.20 Minneapolis 2. 21% Portland 2.20 Chicago 2.26 Astoria 2.20 St. Louis 2.24 San Francisco 2.20 Kansas City 2.18 Los Angeles 2.20 Basic Wheat No. 1 Northern Spring. No. 1 Durum. " 1 Hard Winter. " 1 Hard Wheat. " 1 Red Winter. Varieties of wheat other than the "basic" grades were purchased at premiums over or discounts under the above prices. 39 37 U. S. Dept. of Agriculture, Wheat Prices Guaranteed by Congress, p. 6. 38 Official statement of the Food Administration, Aug. 22, 1918, p. 9. 39 Ibid, p. 10. Control of Wheat, Flour and Bread. 45 The premium wheats were as follows. Premium No. 1. Dark Hard Winter 2 cents. No. 1. Dark Northern Spring 2 cents. No. 1. Amber Durum 2 cents. The "Discount" wheats were as follows. No.l. Yellow Hard Winter 2 cents. No. 1. Red Spring 5 cents. No. 1. Red Walla 7 cents. No. 1. Red Durum 7 cents. No. 1. Soft White 2 cents. No. 1. White Club 4 cents. Discounts for other grades than No. 1. No. 2. Wheat 3 cents under No.l. No. 3. Wheat 7 cents under No.l. The government's guarantee, public opinion, and pa- triotism stimulated the production of wheat. This was demonstrated by the increased acreage under winter wheat. Over 42 million acres of winter wheat and over 22 million acres of spring wheat were planted. 40 This was an increase of 7 million acres over the prewar aver- ages (1904-14). The normal prewar annual export of wheat from the United States was about, on the average of 10 years preceding the European War, 110 millions bushels. It was estimated that the total export of wheat and flour (in terms of wheat) of the 1918 crop would be about 310 million bushels. 41 The export trade was handled by a separate division of the Food Administration called the Wheat Export Company. All orders from the Allied nations came to this division which could regulate the supply of Wheat products in accordance with necessity. To a large extent the policy of the Food Administration was to export flour instead of wheat. This recommendation was made by the National Federation of Millers. 42 Export of wheat 40 Department of Agriculture, Wheat Prices Guaranteed by Congress, 1918, p. 4. 41 Ibid, p. 6. 42 Report of i6th Annual Meeting of the Millers, April 12, 1918, p. 7- 46 Control of Wheat, Flour and Bread. products to countries other than the Allies was handled by the War Trade Board, and required a special license, which was issued by this body only after careful investi- gation. With such precaution little wheat or flour was exported to countries other than our Allies. The Allied Governments also realized the advantage of placing their purchases in the hands of a single buyer. Competition between countries and the agents for pri- vate concerns would thus be eliminated and a more equit- able distribution could be secured. This machinery greatly simplified trade between the United States and the Allies. On September 2, 1918, the President by proclamation fixed the price of wheat for the crop of 1919 at $2.26 per bushel at Chicago, and at the other markets at a corres- ponding price. The differentials established between the primary markets of the United States were as follows : Kansas City and Omaha. Duluth & Minneapolis. 5 cents less than basic. St. Louis. 3 " " New Orleans & Galveston, Basic 2 Buffalo. 5 cents less than basic. Baltimore & Philadelphia. 9 " " New York. 10 " In his proclamation, the President stated that he would appoint "a disinterested commission in the spring of 1919, who will secure the facts for me by that time dis- closed as the prewar average prices of wheat, of labor, and of supply costs as a basis, and from that information I shall determine whether there should be an increase in price above the present level ... I find a great conflict of opinion among various sections of the country as to the price that should be named as a minimum guaranty. It must be obvious to all, however that the factors that make for increased or decreased cost of production of next year's harvest can not be determined until the near approach of the harvest" 43 43 Official Statement of the Food Administration, Sept. 28, p. 2. Control of Wheat, Flour and Bread. 47 Criticism was again voiced against the fixed price of wheat in the hopes that the price for 1919 wheat would be raised. It must be remembered that when we em- barked into the conflict in 1917, there was great uncer- tainty as to its duration. As the struggle continued, the prevalent opinion in the United States and also in Europe held that the backbone of Germany's defence was nearly broken and that it was only a question of days when Germany would be compelled to quit. Prescinding from the propaganda element which doubtless fostered this opinion, it must be said that it was probable enough to enter into the calculations of the 1919 wheat price. The Government's wheat guaranty given for a year in ad- vance, if fixed at a high price might entail the loss of millions of dollars if peace was declared before the middle of 1920. 44 The Food Administrator estimated the government "Would lose from $300,000,000 to $500,000,000 on this wheat guaranty if peace arrives before the 1918 harvest is marketed." 45 Should peace be declared, Europe, with its tonnage released from the ser- vice of war would seek wheat from the large stores then in the Southern Hemisphere, for .prices would be much cheaper there than in the United States. Despite the possibility, however, the production of wheat must be stimulated in any contingency by a fair price. The $2.26 price, however, was retained. In defence, the President explained that a higher price would dis- locate the present wage levels and thus create an indus- trial unrest, which would be harmful to the country. The price of wheat had been kept relatively lower than the price of other foods. The effect of this was to in- crease the use of wheat, regardless of the Food Adminis- tration's appeals. By February 1918, an unduly large part of the year's crop had been consumed. On January 28, 1918, the "50-50" rule went into effect, requiring the purchase of an equal amount of other 44 Ibid, p. 2. 45 Bulletin, No. 10, p. g, U. S. Food Administration. 48 Control of Wheat, Flour and Bread. cereals with wheat flour. On February 3, bakers were required to mix 5 per cent of other cereals with wheat flour ; by February 24, the substitute was increased to 20 per cent, and in April, reached 25 per cent. These bak- ing regulations, as well as the "50-50" rule were in force, until August 28, when the bakers were placed on an 80 per cent wheat and 20 per cent substitute basis. All regulations requiring wheat substitutes were suspended on November 14. 46 The Food Administration attempted, as has been seen, to stablize the price of wheat. That it accomplished this, seems clear from the wheat quotations in any terminal market from August 30, 1917, when the "fair price" was announced, until after the signing of the armistice in November, 1918. The price of No. 2 Red Winter wheat in Chicago, for instance, varied only three fourths of a cent from September 1917, to the end of June 1918. 47 FLOUR. The natural relation between wheat and flour acts as an automatic adjustment on the market price of the latter, so that the price of flour rises or falls with the price of wheat. Following the lead of wheat, the price of flour rose quite steadily from August 1914 to Febru- ary 1915, when a slight drop took place. In May of the same year flour prices took a great ascent, partly because of an increase in European demand and partly because of the periodic rise at this time of the year. Soon after- ward, owing to the opening up of the Dardanelles the price of wheat fell and was followed by a corresponding drop in the price of flour. European demand had de- creased temporarily in the hope of being able to purchase at lower prices. During the remainder of 1915 and almost throughout 1916, flour prices remained stable. 46 Official Statement of the United States Food Administra- tion, Dec. i, 1918, p. 7. 47 Wheat & Wheat Products, War Industries Bulletin No. 10, p. 6. Control of Wheat, Flour and Bread. 49 Toward the latter part of the year, 1916, however, an acute shortage in the wheat supply was felt, which caused a rise in the prices of both wheat and flour. With the declaration of war by the United States, the price rose from $11.62 a barrel in April to $14.88 in May, and fell to $13.07 in August. This decline was occasioned by the apprehension of Government control. In Septem- ber after Government control had been established, the price dropped to $11.26, and in December was found at $10.00, around which price it remained till the first half of 1918. That the abnormal increase in the price of flour was not entirely due to shortage of wheat may be seen from the report of the Federal Trade Commission, in its in- vestigation on the profits of millers and jobbers. It found that jobbers had increased the average gross pro- fit per barrel (of car lot) from 28 cents in 1916 to 54.5 cents in the first half of 1917 ; that expenses exclusive of salaries, increased only from 10 cents to 13.5 cents ; that net profits showed an increase from 18 cents to 41 cents and that the rate of profit on investment showed an in- crease of from 31.5 per cent to 60.7 per cent. 48 It was likewise found that the profits of millers had increased from 11 cents per barrel in 1912-13 to 52 cents per bar- rel in 1916-17. These conditions seemed to point to the need for Gov- ernment regulation. The Food Administration took the situation in hand and under the license system de- vised a method of not only controlling the wheat market but also the flour market. Congress had not fixed a price for flour, and the Food Administration took the stand that it had no authority to fix prices for the same. It exercised control, nevertheless, by means of the license system. Control of the flour trade was given over to the Milling Division of the Food Administration. This Di- vision divided the country into nine zones and over each zone placed a representative agent. Millers and dis- 48 Report of the Federal Trade Commission on Milling & Job- bing, 1918, p. 7. 50 Control of Wheat, Flour and Bread. tributers were required by a proclamation of the Presi- dent's on August 14, 1917 to procure licenses in order to do business. The voluntary agreements made in regard to .the wheat trade also applied to the milling industry. The regulations in force for the wheat trade were like- wise applied to the flour trade. The only addition was a limitation of 25 cents profit on each barrel of flour. Considerable difficulty was experienced by the Food Administration in arriving at a satisfactory cost method. In the monthly reports that each miller must submit, the cost of production must be set forth as a basis for the de- termining of profits. In its report, the Federal Trade Commission objected to the cost of production plus the allowed profit on the ground that it offered a temptation to falsify reports. It was to be expected that the Food Administration could not examine and verify each report from thousands of millers throughout the country. The Federal Trade Commission had found evidence of padded reports, and the establishment of jobbing departments in some mills in order to get both a miller's and a jobber's profit on their product. These difficulties probably led to a change of policy in the Spring of 1918. Voluntary agreements were can- celled. 49 The Milling Division of the Food Administra- tion went out of existence on June 30, 1918. "Fair price" schedules then, were sent to each one of the 8,500 mills in the country. These schedules relieved the mills of the trouble of calculating prices. The plan of control included: (a) price of bulk flour and feeds, at every pro- ducing point in the United States, (b) The price of flour was based on the Government guaranteed fair price for wheat, (c) These prices were on the basis of carload sales, bulk at mill; the "fair price" list ranged from $10.65 per barrel at Boston to $9.75 at Salem, Oregon. 50 The bulk flour price for each mill was arrived at by taking the "fair price of wheat at the nearest terminal, 49 Official Statement of the Food Administration, Sept. 12, 1918. P. 7. 50 Ibid., p. II. Control of Wheat, Flour and Bread. 51 plus freight to the mill plus $1.10, called a conversion charge (to cover the cost of milling and profit), minus the feed return." 51 The miller was guided in determin- ing the price of any sale by a table of "maximum permis- sable margins" which showed him the amount he could add on certain sales. A table like the following was made out. Method of calculating maximum, delivered fair price flour per barrel. (a) Maximum fair price bulk mill as per schedule No. 000 $10.50 (b) Maximum differential, if any on sale of class C* * .25 (c) Freight charge (including freight tax) 40 (d) Cost of sacks 60 Total $11.75 All sales contracts must be copied and sent with the fair price for the particular mill to the Food Administra- tion. These new regulations simplified the flour control problem and protected buyers against the possibility of unjust prices. On January 1, 1918 the quantity of wheat which mill- ers were allowed to use for a barrel of flour was reduced from 285 pounds to 264 pounds. Two months later, only one grade of flour was permitted to be milled. On Sep- tember 1, 1918, regulations providing for the prepara- tion and marketing of a mixed flour called "Victory Flour" were enforced. The purpose of these regulations was to place the country on a mixed flour basis, without making it necessary for retailers to make combination sales of flour and substitutes. Mixed Wheat, and barley flour was in the proportion of 4 pounds of wheat to 1 pound of barley flour. Mixed wheat and corn flour was to be sold in proportion of 4 pounds of wheat flour to 1 pound of corn flour. Wheat, barley, and corn flour were mixed in proportions of 8 pounds of wheat flour to 1 51 Government Control over Prices, Bull. No. 3, p. 71. * Class C included sales of consigned flour to wholesale dealers from cars or docks; in carload lots (not delivered) 25 cents per barrel over basis. 52 Control of Wheat, Flour and Bread. pound of barley and 1 pound of corn flour. With the en- forcement of these regulations the "50-50" rule was superceded. 52 The Presidential Proclamation of October 1, 1917, be- fore referred to applied also wholesalers and retailers. Profits were controlled by means of margins established by the Food Administration. The general rule was that profits should not exceed a greater percentage than that of the prewar period. To prevent resales to wholesalers, flour was required to be kept moving in a direct line and without any unreasonable delays. Hoarding and specu- lation were prevented by limiting licensees to a 30 days supply. BREAD. By the Presidential Proclamation of November 7, 1917, bakers, and all "firms, corporations and associa- tions, who manufacture for sale bread in any form, cake, crackers, biscuits, pastry or other bakery products (ex- cepting, however those already licensed and those whose consumption of any flour and meal In the manufacture of such is, in the aggregate, less than 10 barrels a month) are hereby required to procure a license on or before February 4, 1918." 53 This regulation included hotels, restaurants, and clubs which served bread or other bakery products of their own baking. Another proclamation dated January 30, 1918 was worded in the same manner but extended the license regulation to those dealers whose monthly consumption was 3 barrels or over. 54 Bakers using less than a barrel a month could obtain a license and subject themselves to the same regulations as those who were included in the license proclamation. By doing such, these bakers were enabled to purchase wheat flour on the basis of one pound for every three 52 Official Statement of Food Administration, Sept. 12, 1918, p. 5- 53 Proclamations and Executive Orders by the President Under the Food Control Act, 1918, p. 8. 54 Ibid., p. 13. Control of Wheat, Flour and Bread. 53 pounds of wheat substitutes. In its general information to bakers the Food Admin- istration announced that it had no intention of fixing prices at which bakery products must be sold, but re- quired that the prices of these articles be fair and that the profits of the trade be reasonable. The Baking Division of the Food Administration took the initial step in control when it ordered the standard- ization of the baker's loaf. Previous to this time there had been as many as 38 different weights to bread loaves. 55 Now the minimum bread loaf was to be one pound; loaves of one and a half, two and four pounds were also allowed. The object of this regulation was to reduce the waste of flour and to limit the use of sugar and lard." 56 No more than three pounds of sugar could be used with each barrel of flour. Before this regulation was made, the average amount of sugar to a barrel of flour had been 6 pounds. The reduction of 3 pounds of sugar on each barrel would effect a saving of 100,000,000 pounds of sugar in a year. Shortening was restricted to 2 pounds per barrel, whereas previously 6 pounds could be used. The lard saved by this regulation would amount to 100,000,000 pounds a year. During August 1918, no licensed baker could use in the manufacture of his products except bread and rolls more than 70 per cent of the amount of wheat used the previous month. Wheat flour substitutes were defined as bran, shorts, and middlings, corn flour, corn meal, hominy, corn grits, barley flour, oats, oatmeal, rice, rice flour potato flour and other products of a similar nature. Rye flour was named as a partial substitute of wheat on the following basis : One fifth of the wheat flour substitutes used in any mixture may be rye flour and rye meal. To prevent waste in wheat flour and its substitutes no baker was allowed to accept unsold bakery products, or 55 The United States Food Administration, Bull. No. II, p. 2. 56 Ibid., p. 3- 54 Control of Wheat, Flour and Bread. take them in exchange for fresher supplies. The "cash and carry system," as a means of reducing the cost charges and the ultimate price to the consumer was re- commended by the Food Administration. No baker was allowed to keep on hand stocks of wheat, flour, sugar or shortening in excess of the reasonable requirements of his business for over 60 days. The Baking division prescribed as a patriotic measure the making and sale of products with 20 per cent or more of wheat flour substitutes called "Victory Bread," "Vic- tory Cake," etc. All Victory products must contain this amount of wheat substitutes, with the exception of bread and rolls the requirement for which was 25 per cent. There was a popular demand during the early stages of the bread control for a five cent loaf. Such a loaf was not considered economical by the Food Administration, as it would cost just as much to deliver as a larger loaf, and would have relatively lesser weight. 57 Public eating places were required to serve no more than 2 ounces of any kind of wheat bread or rolls, nor more than 4 ounces of muffins, corn bread, or biscuits to any person. The maximum weight for rolls was 2 ounces.- 58 Simultaneously with all these regulations, food conservation measures, such as wheatless meals and wheatless days were urged upon the public. Attractive posters met the public eye at every street corner, in every street car, in public buildings and everywhere de- manded attention. Four minute speakers travelled the country and addressed multitudes of workers during the noon hour, and in halls and assemblies at night. The services of policemen were enlisted to make a house to house canvass among the housewives to obtain pledges of conservation. The necessity of retrenchment was the subject of several letters from the Food Administrator to the church-going population. These letters were read from nearly every pulpit in the United States. The average retail price of bread rose from its custom- 57 Food Administration, Bull. 10, p. 4. 58 Food Administration, Bull, n, p. 7. Control of Wheat, Flour and Bread. 55 ary level of 5 cents per loaf to 6.4 cent on November 15, 1914. In November 1915, the price advanced to 7 cents ; in 1916. to 8.4 cents ; in 1917, to 9 cents ; and in 1918 to 9.8 cents. 59 Government control seems to have curbed the price of bread to some extent. Compared with the price level of the six months preceding Government con- trol, there was but a three per cent rise in the price of bread during the war. After the regulation of the Food Administration was removed about January 1, 1919, the price of bread advanced to 8.5 cents, or an increase of 11 per cent over its prewar average. On September 20, 1918, retail prices for bread were established by the Baking Division. The maximum price for "cash and carry," or credit and delivery was 10 cents for one pound loaf and 15 cents for one pound and a half loaf." 60 59 U. S. Food Administration, Bull. No. 11, p. 7. 60 Official Statement of Food Administration, Oct. I, 1918, p. 17. CHAPTER IV. CONTROL OF SUGAR. Of all the problems confronting the Food Administra- tion, that of the sugar shortage of 1917 and 1918, was perhaps the most complicated. In order to understand the world sugar situation during this period, it is necessary to bear in mind four factors, each of which contributed in a measure to produce and at the same time complicate the situation. First, we must remember that the United States, Canada and England were sugar importing countries be- fore the war, while France and Italy were very nearly self-supporting. Secondly, that the main sources of sup- plies to importing countries were (1) Germany and neighboring powers. (2) The West Indies, (3) The East Indies. Thirdly, that the German sources were entirely cut off; though she still had access to sugar of the sur- rounding countries. Fourthly, the loss of tonnage pro- duced a shortage of vessels, which rendered long hauls almost impossible. The best fields of Belgium, France, Germany and Austria, suffered from the ravages of war. Workmen were taken from the sugar factories and the production of sugar was seriously curtailed. European beet sugar production including that of Germany decreased from 8,243,165 tons in 1913-14 to 3,849,000 tons in 1917-18. On the other hand, the total cane sugar production in- creased from 9,839,919 tons to 12,070,000 tons during the same period. 61 61 New York Coffee & Sugar Exchange, Dec. 7, 56 Control of Sugar. 57 The following table shows the estimates of the world's sugar crop. 62 Total Cane Sugar production, (Willet & Gray Estim- ated) 1917-18 1916-17 1915-16 12,070,000 11,233,794 10,385,523 European Beet Sugar production. (Willet & Gray Es- timated) 3,849,000 4,555,407 5,209,233 U. S. Beet Sugar production (Willet & Gray Estimated) 975,000 734,577 779,756 Grand total of cane and beet sugar 16,794,000 16,523,000 16,574,577 1914-15 1913-14. 10,216,654 9,839,919 7,583,215 8,243,165 646,257 655,298 18,446,126 18,732,382 As will be seen from the table given above, the world sugar situation was not due entirely to decreased pro- duction. The sugar shortage did not begin to exist till the early part of 1917. If we compare the estimates of the total production for the two preceding years with that for 1917-18, we are forced to conclude that despite decreased production in Europe, no appreciable effect was felt in the world supply. On the other hand, sugar consumption during the war might well be expected to have increased. It has been found that soldiers under the strain and severity of war- fare and encampment have an abnormal craving for sweets. To what extent this craving was appeased we can not determine exactly, but in general it may be as- sumed that an increased consumption of sugar would ob- tain among soldiers. It is to be expected likewise that sugar would be used more extensively also by those en- gaged in other laborious occupations. Thus, in the United States during the first six months of 1917, the 62 Ibid., p. 6. 58 Control of Sugar. consumption of sugar increased 10.7 per cent; 63 the in- crease for the entire year over the preceding year was 5 per cent. This increase in consumption, was due in part to a great activity in the home canning of fruits, and vegetables in accordance with the propaganda of the Food Administration, and in part also to the fact that there had been sugar left over from the 1916 crop. 64 The per capital consumption of sugar in the United States during the years 1910-1917 was as follows : 65 1910 81.6 pounds 1914 84.29 pounds 1911 79.2 " 1915 83.83 1912 81.3 " 1916 79.34 1913 85.4 1917 84.35 We can arrive at the consumption figures of the Allies during this period by knowing first of all how much sugar each country produced, and finding how much was imported from other countries. Great Britain before the war produced no sugar herself, but imported about 80 per cent of her requirements from Germany and Austria ; cut off from this source of supply, she early en- tered the Cuban market with orders for large quantities. France produced about 228.000 tons of beet sugar in 1916-17, while Belgium's crop was about 149,000 tons. 66 The following tables shows the imports into the United Kingdom, France, and Italy from the United States and Cuba. Exports of Sugar (mostly refined) from United States to Allied Countries ; 1914-17. 1914 1915 1916 1917 United Kingdom 141,602 211,346 187,803 42,534 France 978 210,648 275,644 232,726 Italy 32,830 20,962 142,580 421,994 496,277 296,222 63 Daily Sugar Journal, Willet & Gray, July 5, 1917, p. 5. 64 Ibid., Jan. 10, 1917, p. 6. 65 Ibid., Jan. 10, 1917, p. 6. 66 Official Statement of the Food Administration, Dec. I, 1918, p. 10. Control of Sugar. 59 Exports of Sugar (mostly raw) from Cuba to Allied Countries 1914-17. 1914 1915 1916 1917 United Kingdom 293,290 402,915 619,992 789,032 France 37,636 6,811 120,196 61,243 Italy 6,285 3,823 330,926 409,716 746,473 854,098 Early in 1917, the sugar shortage began to be felt in Europe.* By necessity, these countries were placed on a * In Great Britain, for example, the sugar situation had as- sumed such gravity that in January, 1916, the Royal Commission, in order to check consumption advanced the price from 3^ d. per pound retail to 4 d., and in February issued an appeal for con- servation to the public. Not finding any decrease in consumption the Government at the end of Fe_bruary raised the price again to 4& d. Such efforts were only in part successful. The consumption in 1916 was but 15 per cent less than that of 1915 and 19 per cent less than in 1914. (Financial and Commercial Review, Jan. 19, 1917, p. 13). A system of rationing which allowed to the manufacturer and confectioner all the sugar he needed, while the consumer was obliged to go unsatisfied resulted in great inconvenience but lit- tle retrenchment. (Manchester Guardian, Sept. 2, 1916, p. 5). Re- fined sugar, whether that imported by the Government or that turned put by British refiners, was apportioned to wholesale dealers in proportion to the amount of their purchase in 1915. The wholesalers distributed to the retailers on the same principle, and the latter in turn were expected, to sell to their customers as equitably as possible. This system of apportionment was pro- ductive of much unfairness, for well-to-do customers, in spite of regulations succeeded in getting more than their relative share of the allowance. (New Stateman, March 10, 1917, p. 533). These defects were brought home to the government by numerous com- plaints, and early in 1916 remedies were sought. On January n, 1917, an order issued by the Food Controller prescribed that no manufacturer of sugar confectionery might use more than 50 per cent of the sugar used by him during corre- sponding periods of 1915. Two months later this ration was re- duced to 40 per cent, and later to 25 per cent of the amounts used in 1915. (Defense of the Realm Manual 34 ed., p. 244,421). Many retail grocers adopted the course of supplying sugar only to those persons who bought other specific commodities. Despite the government's insistence that the fixed price be adhered to, the public found that these conditioned sales were just as ex- pensive as if the grocers were permitted to sell sugar for what it would fetch. Since no definite rationing system for consumers was adopted consumers did not see why retailers should not sell them whatever amount they asked for. It became necessary at last to issue sugar registration cards, which might be deposited with any retailer. These registration cards entitled each holder to a weekly allowance of sugar proportionate to the general stocks in Great Britain at the time. The amount of sugar allowed to each person in England was about two pounds per month. France was compelled to reduce her sugar rations to only a little over one pound per month. 60 Control of Sugar. sugar ration basis. Our exports of refined sugars to the Allies decreased from 496,277 tons in 1916 to 292,222 tons in 1917 a decrease that was partly compensated for by importations of Cuban raws. 67 From the above table, it may be seen that the total amount of sugar, raw and refined, exported from the United States and Cuba, to the United Kingdom, France and Italy in 1916 was 1,242,740 tons as against 1,150,320 tons in 1917. These same countries had need of only 473,506 tons in 1916. The difference between the amount for 1917 and that of 1914 indicates the dependence of these countries in 1917 upon Cuban and American sugars. Exports from Cuba in 1912-13 to the United States were 85 per cent of her total production while Great Britain received 11 per cent; but by 1916 the situation had so changed that 26 per cent of the Island's total pro- duction of sugar went to the United Kingdom and the continent and only 70 per cent came to the United States. 68 Another cause of the American and European sugar shortage in 1917 was the great destruction of tonnage, and the consequent lack of shipping facilities to trans- port sugar from Java. Previous to the war, the United States obtained large quantities of raw sugar from the Dutch East Indies, and in certain prewar years had im- ported as much as 400,000 tons from that source. From August, 1914, this country imported practically no raw sugar from there. Great Britain likewise imported no raw sugar from Java during this period. The shortage might certainly have been relieved had ships been avail- able to make the long haul from Java. It was estimated that in December 1917, Java alone had over 900,000 tons of sugar available for export. 69 The United States Food Administration endeavored to obtain shipping to send there, but the Shipping Board could not provide ships for this purpose for obviously it would have been detri- 67 Hearings on Sugar Shortage, Dec. 1917, p. 1036. 68 Conditions in the Sugar Market, 1917, American Refining Co., p. 13. 69 Hearings on the Shortage of Sugar, p. n. Control of Sugar. 61 mental to the war aims of the country to send ships to Java when there wias insufficient tonnage for more essential purposes. In his testimony before the Senate Sub-committee in- vestigation of the shortage of sugar, Mr. Hoover de- clared that the problem was fundamentally one of ton- nage. 70 Earlier in this chapter mention was made of the in- creased consumption in the United States especially dur- ing the first half of the year 1917. There is reason to believe that much of this consumption was nothing more that hoarding on the part of consumers. During the first three months of the year strikes at the eastern refineries were given publicity by the newspapers; and rumors of famine reacted upon the fears of housewives to such an extent that "future" buying was the order of the day. 71 The increased consumption in the latter half of the year, was due to the active response of housewives to Presi- dent Wilson's appeal to "secure the conservation of sur- pluses of perishable food products." The Food Adminis- tration undertook an educational campaign for the con- serving of surplus food stocks; newspapers, periodicals and publications aided this propaganda, and indicated ways and means of preserving and canning. The heavy buying of Cuban raws by the Royal Com- missions of Great Britain was accelerated about the middle of 1917 by the introduction of a bill into Congress providing for a repeal of the drawback privilege on sugar. Besides this, an excise tax of 1^ cent a pound on sugar for export as well as for domestic consumption was also advocated. Enacted as law, these recommenda- tions would have meant an increase in the export price of refined sugar of over 11/2 cents per pound. The Allied countries, seeking the cheapest market, were thus forced into competition with the United States for Cuban cane. A public statement issued by the Food Administration 70 Ibid., pp. 549-705. 71 Conditions in the Sugar Market in 1917. American Ref. Co., 1917, p. 15. 62 Control of Sugar. observed the effect of this contemplated procedure by Congress to be a "violent speculation in Cuban sugars," that caused the price to advance from $6.77 (per hun- dred Ibs.) in the last week in June to $7.77 the first week in August." 72 It was to be expected that these causes of the sugar shortage would send prices skyward. The duty-paid, net cash price for raw sugar at New York increased steadily, with hardly a drop, from $5.89 per hundred pounds on June 1, 1917 to $7.52 per hundred pounds on August 7, 1917. The following table shows the changes in the price of raw sugar for the years 1913-1917 during the period of June 1 to August 7. Prices of Raw Sugar in Cents (duty paid at New York). 1913 1914 1915 1916 1917 June 1 3.33 3.38 4.95 6.33 5.89 July 1 3.48 3.32 4.95 6.40 6.52 August 1 3.65 3.45 4.64 6.21 6.52 August 7 3.73 3.26 4.33 5.75 7.52 On August 10, Mr. Hoover was appointed Food Ad- ministrator. Acting under the powers conferred by the Food Control Bill, he soon organized the Sugar Division Administration over which he placed Mr. George M. Ralph. Not possessing the power to fix the price of sugar directly, the Food Administration relied upon the license system to gain control of the sugar industry. In accordance with Presidential Proclamation all importers, manufacturers and refiners of sugar, sugar-sirups and molasses were obliged to secure licenses in order to carry on their business. 73 By October 1, virtually the entire sugar industry was brought under control. Another im- portant step was the suspension of all trading in sugar futures on the New York Coffee and Sugar Exchange. A third step was the extension of the export control of the 72 Official Statement of the U. S. Food Administration, Sept. 30, 1917, p. 5. 73 Proclamations and Executive Orders by the President. U. S.. Food Administration, 1918, pp. 6 & 7. Control of Sugar. 63 War Trade Board to include sugar; permission for each exportation of sugar was required by this Board. The rise in the price of Cuban sugar due to the causes already noted, produced a parallel rise in domestic beet sugars. Early in September beet sugar was sold in New York at 8*4 cents per pound wholesale, and brought from 12 to 16 cents per pound retail. At the request of Mr. Hoover, a representative body of beet sugar produc- ers met in Washington during the week ending August 26, to come to an agreement upon the price of beet sugar. After much discussion, the representatives of the beet in- dustry agreed with the Food Administration to charge not more than $7.25 per 100 pounds, New York's basis, for their entire 1917 output. An agreement was also reached with the Louisiana producers, limiting the price of the product to $7.80 per hundred pounds. 74 In October, 1917, the sugar refiners came to Washing- ton at the request of Mr. Hoover, for the purpose of agreeing upon a definite margin of profit. As was the case with many of these voluntary agreements between the Food Administration and the trade, much discussion over costs real and imaginary took place. Some refiners would place the margin as high as $1.60 per hundred pounds, but these, it appears, were in the weak minor- ity. The figure was finally placed at $1.30 per hundred pounds. 75 Another important step in the process of sugar control was the establishment, on September 21, 1917, of the In- ternational Sugar Committee. The regulation of the domestic beet and cane sugar industry affected less than one half of the entire trade. It would be futile to at- tempt to stabilize prices without taking into account prices for Cuban cane. Taking advantage of the world- wide shortage and the competitive buying between the United States and the Allies, the Cuban planters had already lifted their prices for the remainder of the 1917 crop. 74 "Sugar," Sept., 1917, p. 337. 75 "Sugar," Sept., 1917, p. 337- 64 Control of Sugar. In order to deal with this situation more effectively the International Sugar Committee made up of representa- tives of the United States, England, Italy and Canada was formed. The main purposes of this organization were to purchase from the Cuban growers sugar at uni- form and agreed prices ; to make allotments of these pur- chases to the various countries, and also to distribute that portion which had been set aside for the United States among the refiners. After considerable discussion, the refiners in this country allowed the International Sugar Committee to arrange all purchases for them. The Committee then set about the purchase of the remainder of the 1917 Cuban crop. The Cuban planters held out for $5.25 per hundred f . o. b. Cuba, while some of the American repre- sentatives, basing their estimation on the cost of produc- tion figures for Cuba were unwilling to concede more than $4.50 per hundred pounds. Meanwhile the Ameri- can people were experiencing a sugar famine such as had never before been heard of. On December 24, the differences were finally settled by an agreement whereby three-fourths of, or upon option, the entire new crop was to be sold to the International Committee at $4.60 fob. Cuban ports. 76 After adding freights, duties and other costs this price was equivalent to about $6.00 New York City. Thus far, it will be seen that three different prices for sugar were fixed: (1) beet sugar was to sell at $7.25 per hundred pounds at New York; (2) domestic cane at $7.70; while (3) Cuban cane was fixed at $6.00 New York City plus the refiners margin of $1.30 per hundred pounds. It is obvious that these discrepancies in price could not be maintained, despite agreements between the refiners and the Food Administration. The beet sugar industry varied in its cost of production from 2.6 cents per pound to 4.5 per pourfd. To limit the profits of these refiners by restricting them to a profit margin would result in a different price of sugar for every factory in 76 Joshua Bernhardt, Government Control of Sugar, 1919, p. 16, Control of Sugar. 65 the country. The consumer would have no benefit from this arrangement, because if a retail groceryman bought part of his sugar at one price and part at another, we can be assured that he would maintain the top price. The beet sugar dealers might have agreed upon a definite price and then pooled their entire output and the costs of distributing it among themselves. Such a method, however, called for an agreement among factories, which could hardly be expected. Moreover, agreements of this kind might possibly come within the Sherman Act for- biding combinations in restraint of trade. These obstacles in the way of a fixed price for beet sugar were also present with regard to cane sugar. From the testimony of Mr. Spreckels, at the Hearings on the Sugar Shortage it appears that the sugar shortage in the eastern States from October to January, 1917-18 could have been relieved, had Western refiners been will- ing to part with their surplus. There were approxi- mately 110,000 tons of raw sugar held during this period by the Western Refining Company and the California and Hawaiian Refining Company, which amount was sufficient to provide the Atlantic Coast States for at least a month. The Food Administration had fixed the price of beet sugar at $7.25 per hundred pounds at San Francisco, Boston, New York, Philadelphia and New Orleans. As this price, however, made no provision for transportation charges, Western refiners found it more profitable to keep their sugar at home. 77 In order to move these sugars East, the Food Administration was obliged to raise the price of beet sugars from $7.25 to $8.15 per hundred pounds to equal that of Louisiana cane sugar.* Many of the Eastern cities were practically bare of sugar during these months, and people experienced the barren pleasure of knowing that the price of sugar was low, without being able to purchase any. 77 Hearings on the Sugar Shortage, p. no. * The $8.15 price for beet would be equivalent to $8.35 for cane sugar, as the market price for cane sugar is always about 20 cents higher per hundred pounds than that of beet sugar. 66 Control of Sugar. As yet no guaranty of a fixed price had been given to the beet growers. The contracts made by the factories were one-sided and unfair. Their costs had doubled, many had lost money the previous year. Unless a higher price was guaranteed either by the factories or by the Pood Administration the beet growers could no longer afford to raise beets. Mass meetings were held (by the beet growers), costs of beet growing and refining were investigated for various states, and resolutions were drawn up and presented to the Food Administration. The profits made by the refiners in Southern Cali- fornia were enormous. In one instance which is quite representative, the manager and secretary of the Santa Ana Sugar Refining Company testified before the grand jury of Los Angeles County that his refinery represented an investment of $1,250,000 and that it had made a net profit for the 1915-16 crop of between $800,000 and $900,000. 78 It is unnecessary for our purposes to enter into a dis- cussion of these charges. In general, it seems fair to say that the beet growers were getting the worst of the bar- gain. The basic figure per ton received by the growers over a ten year period was $4.50. For the 1916 crop they received this price plus a bonus of $2.00 per ton. The Food Administration after some delay finally made agreements with the factories to pay $10.00 per ton for beets an indication that the growers had not been justly treated. The agreements between the sugar trade and the Gov- ernment resulted in considerable saving for consumers. \Vhile it is impossible to know exactly to what price sugar would have risen without interference, perhaps 25 cents per pound it is reasonable to think that some re- duction resulted. The sugar trade journals were unable to see why the price should be kept so low relative to other food products. The acute shortage in the East would naturally have tended to raise prices in this terri- 78 Ibid., p. 462. Mr. Hoover seemed unaware of refiners' profits when he fixed the price for beet sugar. Control of Sugar. 67 t tory, yet even during the worst periods sugar did not advance to more than 15 or 16 cents per pound, the aver- age price to the consumer of the middle Western states wias about nine cents per pound. The next important step in the evolution of the Sugar control was the creation of the Sugar Equalization Board in July 1918. In order to understand clearly the purpose for which this Board was brought into existence, it will be necessary to trace briefly the price problem that con- fronted the Food Administration at the beginning of 1918. We have already seen that the Food Administra- tion tried to stimulate the production of sugar beet and cane in the West by granting a raise in the prices to the growers, and that the growers estimating the price as inadequate, were not inclined to plant for the next year's crop. Thereupon. Mr. Hoover appointed local commit- tees in the principal beet-growing and cane-growing states to investigate costs of production with the purpose of finding out a price that would effectually stimulate without resulting in excessive profits. The Tariff Commission aided the Food Administration in this work by seeking to determine the actual costs for the beet sugar factories. In its recently published bulle- tin, 79 the Tariff Commission reports that there was a substantial increase in the prices of all the principal items entering into the production of sugar, that a rise of / 200 per cent in the filter cloth would add about $1.30 to the cost of a ton of sugar in 1918-19 above the cost in 1917-18, while a 40 per cent increase in wages of factory labor alone would add over $3 to the cost of a ton and if the rise extended to agricultural labor, as manifested by the increased cost of beets, the increased cost of a ton of sugar would be over $12. 80 From these investigations the Food Administration learned that a price of 9 cents a pound would be sufficient to cover approximately 85 per cent of the production, 79 Refined Sugar, Costs, Prices and Profits, 1920. 80 Costs of Production in the Sugar Industry, Tariff Informa- tion Series (39), p. 31. 68 Control of Sugar. and yield a profit of a cent a pound to the higher cost pro- ducers, and that 7.45 cents a pound, the price fixed for the preceding year, would have covered but 30 per cent of the production with a profit of one cent a pound to the higher cost producer of this group. The minimum price consistent with the aims of the Food Administration was 9 cents a pound. Even this price, it was felt, would compel a number of high cost producers to close their factories. It was hoped, how- ever, that this deficit would be offset by the increased production of the lower cost producers. The United States Tariff Commission also investigated the costs of the cane producers of Louisiana and found that a price of less than 10 cents for refined sugar would seriously curtail production. A situation similiar to that in the United States was also found in Hawaii where average costs had advanced from 3.06 cents in 1913-14 to 4.08 cents in 1916-17 and to 5.34 cents in 1917-18 8] A brief submitted to the Food Administration by the Cuban Mission, appointed by Governor General Monocal, stated that the price of $5.06 f. o. b. at the north ports of Cuba and $5.55 at the south ports would be required to stimulate the production of sugar for the 1918-19 crop. This price, plus duty, freight and other charges would amount to about $8.54 per 100 pounds wholesale at New York. Between the price for the Cuban sugar at New York ($8.54) and the basic price desired by the Louisiana planters and refiners ($8.82) there was a difference of 28 cents per 100 pounds. 82 This differential might be distributed either by advancing the price for Cuban cane to that of the American price or by allowing American refiners to purchase sugar at the price the Cubans were willing to accept. Either alternative however, would re- Si Ibid., p. 35. 82 History of Prices During the War. The War Industries Board, p. 83. Control of Sugar. 69 suit in enormous profits ; in the former case, to the Cuban growers ; in the latter, to the American refiners. How to solve this problem of price complexity and to arrange for more centralized form of distribution was the task facing the Food Administration in the spring of 1918. By June of the same year, Mr. Hoover came to recognize the desirability of a committee to purchase sugars "in Cuba, Peru, Mexico, Java or anywhere else at prices proper to the occasion and to make an average price to our refiners." 83 About this time the shortage became so acute that voluntary conservation could be no longer relied upon. "Therefore, wrote Mr. Hoover to the President, "We must put into effect some form of sugar rationing and a drastic control of distribution. Otherwise we shall have territorial and industrial in- justices all over the country. I propose an honor system of cards. An execution of this kind becomes at once ex- pensive for printing alone for 20,000,000 households will cost $100,000 a month to say nothing of supervision." I would propose to solve this by having the corpora- tion undertake the distribution of sugar as a part of its expenses. It seems to me fundamentally sound that the users of a commodity should pay for the cost of its dis- tribution rather than the Government." 84 President Wilson expressed his approval in a letter (June 17, 1918) to Mr. Hoover and authorized 85 the formation of a corporation to be known as the United States Sugar Equilization Board, Inc.. with a capital stock of $5,000,000 owned by the United States. The object of the board as outlined in a notice of the Food Administration on July 11, 1918 was "to absorb the high peaks of cost in sugar production and to make a small margin on the low cost of certain foreign sugars which may be purchased." Shortly after its incorporation the Equalization Board bought up all the remainder of the 1917-18 sugar crop 83 Letter to President Wilson, June, 1918. 84 Ibid. 85 Presidential Proclamation, July 8, 1918, Exhibit 16. 70 Control of Sugar. in refiners and sugar mills, still in the country, or in transit, at the old price of 7.35 cents a pound and imme- diately resold the same to its holders at the new price of 8.8 cents a pound. This transaction eliminated the con- fusion of "having the new domestic crop at the new price (9 cents a pound) and the old foreign crop at the old price (6.055 a pound for raw and 7.35 for refined) in the market at the same time." 86 The change in price went into effect on September 6, 1918. The government had made provision for the exist- ing supplies in the hands of the refiners but it remains to be seen what was done regarding the supplies held by wholesalers, jobbers, and retailers. Although pre- sumably their stock on hand was small, nevertheless the Food Administration ordered them to sell their old stocks at the former price. Till the end of the year the Equali- zation Board became the distributing agent of the re- finers, selling sugar at $7.35 per hundred. The Board absorbed the differential between this price and the price paid to the Cuban planters. 87 Having thus solved the price problem, the Board's next step was to arrange for an equitable distribution among the principal governments associated in the war. The Board was saved some trouble in this phase of its work by granting an assignment to the British Royal Commission whereby its rights to one third of the sugar purchased from the Cuban planters were assumed by the Royal Commission; from this amount the Royal Com- mission was to provide for Great Britain and the other Allies. There were other features of the Food Administra- tion's policy which attracted more attention than the de- tails related above because their success depended in part upon the publicity given them. As these activities are fresh in the minds of many, it will be sufficient to touch upon them here briefly. These activities usually 86 United States Food Administration, News Release, No. 1151 Aug. 25, 1918. 87 War Industries Board, Government Control of Prices, Bull. No. 3, p. 83. Control of Sugar. 71 centered on conservation measures. In October 1917. all users of sugars; bakers; confectioners and manufac- turers, except those engaged in the production of essen- tial food products were limited to 50 per cent of their prewar requirements. In January, as modified to meet the incoming supply of Cuban sugar, this regulation was changed to 80 per cent of the prewar requirements. A subsequent ruling provided "that such manufactures starting operations after November 1, 1917 but before April 1. 1918 would be limited to 50 per cent, of their sugar requirements and those starting after April 1, 1918. should be alloted no sugar whatever. Beginning March 15. 1918, practically all manufacturers using sugar were required to obtain certificates from the Food Administration in their respective states showing the amounts they were entitled to purchase." 88 Rationing is apt to be the source of much complaint unless it is carried out with just regard to individual re- quirements. But individual requirements in an acute shortage of a commodity, must be measured by officials. The following classifications of sugar were used by the Food Administration during July, August & September of 1918. Class A. included sugar used in sirups of all kinds, candies, cereals, cocoa, flavoring extracts etc. Manu- facturers of this class were limited during July, August and September (1918) to 50 per cent of the amount of sugar used the corresponding months of preceding year. Class B. included sugar used in canning and preserv- ing vegetables and fruits, meats and milk. Each estab- lishment of this class was allowed its full requirements, sugar used the corresponding months of preceding year, amount used in the corresponding months of the preced- ing year. Class C. included sugar used in all public eating houses, hotels, restaurants, dining cars etc. The allot- 88 Blakey, R. G., Sugar Prices and Distribution, Journal of Economics, Aug., 1918; cf. A. N. Merrit, War time control of dis- tribution of Foods, pp. 115-125. 72 Control of Sugar. ment for these during the above named months was not to exceed 3 pounds of sugar for every 90 meals served. During these same months the preceding year, or the number of meals served during June of 1918 multiplied by 3. Class D. included sugar used by manufacturers of all bakery products. To these was allowed 70 per cent of the amount used during the corresponding months of the preceding year or three times 70 per cent of the amount used during June this year. Class E. included sugar sold by retailers and others for direct consumption. Those included in this class were alloted sugar for sales to householders on the basis of 3 pounds per person, per month. The public was relied upon to decrease their consump- tion of sugar from patriotic motives. "Use less sugar" was a familiar slogan. Had sugar been abundant, it is perhaps safe to say that little conservation would have been practiced. As it was conservation was a necessity for most people, who either could not afford to indulge their tastes for sweets to the full extent at 15 to 20 cents a pound, or if they could afford the price, found it diffi- cult to obtain the article. That the comparatively low price might not be the occasion of additional indulgence on the part of the public, purchases were closely watched. The Food Administration complained in September 1918 that the war had brought about increased prosperity, which had greatly added to the purchasing power of the public, "Demand for sugar had increased, it said, in re- sponse to the increased purchasing power." At first 5 pounds were allowed to urban customers and 10 pounds to rural customers. In June 1918, these rations were curtailed to 2 and 3 pounds respectively, and retailers wfere forbidden to sell to any customer more than 3 pounds a month. From August 1 to November 1 the elasticity of demand was further exemplified by de- creasing the ration to 2 pounds, per person, per month. After November 1, it was increased to 3 pounds. With the signing of the armistice on November 11, these regu- Control of Sugar. 73 lations soon were modified and on December 1 finally dis- carded. 89 The lifting of Governmental control took place gradually, however, in order not to cause too much dis- turbance in the market. Some members of the sugar Division were strongly in favor of continuing regulation for a few months after the signing of the armistice and addressed a communication to that effect to the Presi- dent. The President gave no response to this letter, and after the middle of December the Sugar Division was dissolved. The effects of any Governmental control over food- stuffs can be judged mainly from two factors: first, the effect on production ; secondly, the effect on price. It has been asserted that the Food Administration was in some degree responsible for the sugar shortage of 1917 and 1918. As far as production was concerned, the opposite seems to be the case. The Cuban crop of 1917-18 was a record crop amounting to 3,446,083 long tons; this high level was eclipsed by the 1918-19 crops which reached almost 4,000,000 long tons. Both of these crops were produced under prices fixed by the Food Administration. The beet sugar crop of the United States in 1917-18 was 765,207 short tons, about 49,000 tons above the prewar average. The crop for 1918-19 amounted to 765.063 short tons. The Louisiana crop was 243,000 short tons in 1917-18, and 263,450 short tons in 1918-19. To what extent, the Food Administration was responsible for these increases it is not possible to say, but in view of the above figures it can not be held that the Food Admin- istration policies tended to discourage productions. 90 In time of war, it is essential to keep production as close to normal as possible, this can be done only by guaranteeing the producer a reasonable profit. A price must be set, therefore, that will provide for honest costs of production plus a fair margin of profit. Early in its career, the Sugar Division became aware of this principle 89 U. S. Food Administration, News Release 322, Nov. 28, 1918. oo Bernhardt, Joshua, Government Control of Sugar in the United States During the War, p. 711. 74 Control of Sugar, and provided a price which in its estimation was calcu- lated to fill the above requirements. We have seen that some fault was found on the part of the Louisiana plant- ers who claimed that the price determined was inade- quate. The Food Administration thereupon showed its fairness by rectifying the price. Some discontent was expressed by the public at the inconvenience entailed by the ration system, but this was only to be expected. The saving in sugar effected by the sugar restrictions re- sulted in about 75,000 tons from July to November, ac- cording to the Food Administration. This saving in- cluded the amount saved by the restrictions placed on confectionery and soft drink products. 91 If one can judge the results of the sugar control by the prices of sugar otbaining immediately after the suspension of re- gulations, no conclusion otherwise than satisfactory can be drawn. From 1914 to 1918, the average prices showed a gradual rise; the wholesale price was kept at a level by the Food Administration until the end of 1919 ; then came the speculative market of 1920 with all the talk of "shortage," and "hoarding" by speculators and even by housekeepers. In the summer of 1920 there was practically no market quotation; at some sales the price went well over 20 cents a pound. Then the bottom fell out of the market; sugar was selling below 10 cents be- fore the end of the year, and by the end of January 1921 was quoted at seven and three fourths cents. 92 91 U. S. Food Administration, News Release, 1342, Dec. 7, 1918. 92 The Literary Digest, Jan. 29, 1921, p. n. CHAPTER V. CONTROL OF MEAT AND DAIRY PRODUCTS. The world wide shortage of meat during the war was due to the constant decline of meat production in Europe. The cause of this decline was found chiefly in the diffi- culty of raising fodder upon which the production of cattle greatly depends. Production of wheat became so vital that it would have been almost suicidal to allow the farmers of Europe to devote their energies to the pro- duction of corn, oats, and other fodder needed for cattle. Early in the conflict, England, France and Germany had established fodder rations for cattle, and as the war con- tinued and larger numbers of cattle had been killed off without being replaced, the rations per animal were de- creased. England decreased her capital stock of food animals, and put some 2,400,000 acres of former grass and hay lands into grain growing. 93 In 1917, this decrease in the number of meat produc- ing animals was most notable. According to figures compiled by the Food Administration, the total net de- crease in cattle for the Western Allies and other countries including enemies during the first three years of the war, was 28,080,000 ; in sheep, 54,500,000 ; in hogs 32,425,000. Of these total amounts, the decrease for the Allies alone was 8,420,000 head of cattle, 17,500,000 sheep, 7,100,000 hogs. Early in the fall of 1917, Mr. Hoover commenting upon the meat shortage of Europe in relation to our produc- tion said that the problem was fundamentally one of ton- nage, for imported fodder required shipping far in ex- cess of the tonnoge that would be required to import equal amounts of animal products. 94 The supply of 93 G. Soule, 'The Meat Control." The New Republic, Feb. 2, 1918, p. 13. 94 Ibid., p. 10. 75 76 Control of Meat and Dairy Products. cattle in France, in 1917, had decreased 16.6 per cent as compared with that of 1913 ; that of sheep, 33 per cent ; and that of hogs 38 per cent. The supply of cattle in England suffered a total decrease of 43.3 per cent be- tween July 1914 and July 1917. 95 The United States endeavored to cover this constant shrinkage of meat production among the Allies by in- creasing its exports to them. For the year ending June 30, 1917, our exports of fresh and pickled meats exceeded 270,000,000 pounds, or an increase of almost 3000 per cent over the pre-war average. Exports of ham and bacon increased 640,000,000 pounds as compared with the pre-war average of 303,489,000 pounds. But not only did meat production decrease in these countries, but also in the United States. In 1907 there were 51,000,000 beef cattle (excepting milck cows) in this country ; this was the high point. By 1915 the num- ber had decreased to 37,000,000. Hogs on the other hand, have shown an almost steady increase from 42,000,000 in 1896 to 64,000,000 in 1915. The situation with respect to mutton is highly complicated by the im- portance of the wool market and the tariff. In 1910 we had 57,000,000 sheep, by 1915 only 49,000,000. The war effected some increase in the meat production, but nothing in comparison to the great demand. The number of cattle increased from 37,000,000 in 1915 to 40,850,000 in 1917. 96 These decreases are very signifi- cant and serious, when the increase in population for the same period, and also the heavy demands due to war are taken into account. As the war wore on and the break-down of the Allied meat production became more serious, the Food Admin- istration turned it's attention to the problem of stimu- lating the supply. The meat problem, then, was separated into its two main factors; cattle production and hog production, each of which required special handling. Q5 War Industries Board, Bulletin No. 3, p. 88. 06 U. S. Food Administration, Bull. No. 9, p. 7; cf. also War Industries Board, Bull. No. 26, pp. 1-6. Control of Meat and Dairy Products. 77 CATTLE. For the past fifteen years, the number of cattle in the United States has decreased. From being a heavy ex- porter of meats we became, especially after the removal of the duty in 1913, an importer of fresh meats, Europe was importing her beef principally from South America, for cattle could be raised there more cheaply than in the United States. During the war, the allied nations had to depend upon the United States for a large part of their beef. Vessels could not be procured to make the long haul to Argentine for beef, thus, European demand for our beef increased tremendously. , In view of the large overseas demand for our meat products, it was evident that some effort must be taken to stimulate production. But it was scarcely possible to do this while the farmer was confronted with mounting prices for feed-stuffs on the one hand, and inadequate prices for cattle on the other. The production of cattle, unlike that of hogs, depends upon a variety of grains and feed-stuffs. The problem became, then, one of stabiliz- ing the price of these products, for uncertain prices in these materials were discouraging the cattle raisers. Of mounting costs in feed-stuffs no better example can be given than that of cotton seed cake. From its normal figure of $45 a ton, preceding the war the price had risen to $60 a ton by August, 1917. At this price many cattle raisers found it more profitable to allow their cattle to starve on their ranges. The cotton crops for the two years preceding had been relatively small. Naturally enough this tended to drive prices of cotton products up- ward. To prevent undue speculation a meeting was ar- ranged between the cattle raisers and the cottonseed in- terests, and after bitter debate, the Food Administration was able to fix the price of cottonseed cake at $50 per ton. As most of the crop had already been contracted for by cattle raisers in the North, little relief was experienced from the fixed price by the steer raisers in Texas. The 78 Control of Meat and Dairy Products. Food Administration, therefore, found it necessary to re- sort to an embargo of cottonseed from Texas, and di- rected dairymen in other parts of the country to seek their supplies from Arkansas, Louisiana and other points east of the Mississippi River. 97 On November 1, 1917, all ginners, crushers, refiners and dealers in cottonseed were placed under license. On December 7, dealers in cottonseed in car lots were limited to a fixed margin of $2 per ton and crushers' margins were limited to $13 per ton over the cost of cottonseed for products obtained from crushing. 98 The profits of the wheat feed-stuff producers were fixed in December 1917, when a series of differentials were announced by the Food Administration, based on the Government wheat price. A maximum return of 6 per cent on total gross sales was also announced for the manufacturer of mixed feeds. On individual sales, how- ever, cost of materials, manufacturing, and overhead might be taken. Other coarse grains such as rice feed, and beet pulp were controlled in like manner; definite price regulations being applied to their sales. These measures had some effect upon the prices of feed-stuffs, and thereby lessened the insecurity confronting the raisers of cattle. In addition to these regulations, conservation measures were issued by the Food Administration from time to time. A meatless day was inaugurated on November 1, 1918. Every public eating place, as well as all families were asked to pledge themselves to eat no meat on one day each week. The appeal, according to the Food Ad- ministration, resulted in a conservation of over 140,000,- 000 pounds of beef in four months." 97 D. Lawrence : "As Mr. Hoover Sees It." The Country Gen- tleman, Dec. 29, 1917, p. 27. 08 Government Control Over Prices, War Industries Board Bull. No. 3, p. in, 99 News Release of Food Administration, Feb. 22, 1918. Control of Meat and Dairy Products. 79 CONTROL OF THE MEAT PACKING INDUSTRY. There was no effort on the part of the Food Adminis- tration to fix the prices of meat and meat products either directly or indirectly. In August 1917, Mr. Hoover an- nounced to the packers that any regulations made would concern themselves with the stimulation of production, and the elimination of speculative profits. 100 The meat packing industry, for many years the object of suspicion and investigation was subject to another in- vestigation at the request of President Wilson on Feb- ruary 7, 1917. This investigation, undertaken by the Federal Trade Commission was not completed till July 3, 1918. It was asserted by the Commission then, "that the packers profits in 1917 were more than four times as great as in the average year before the European War, although their sales in dollars and cents at even the in- flated prices of last year had barely doubled." 101 The Commission estimated that the five packers, Armour and Co., Swift and Co., Cudahy and Co., Morris and Co., and Wilson and Co. handle about "half the poultry, eggs and cheese in the main channels of interstate commerce." 102 One company in 1917 handled 50,000,000 pounds of but- ter, half of which it manufactured ; the sales of another amounted to $23,861,000. Four big companies own 56 creameries and control the output of many others. Of a total production of 152,500,000 pounds of oleomar- garine in the United States in 1916, four of these packers produced 42.5 per cent. 103 In 1916, the Big Five's per- centage of slaughter, including subsidiary and affiliated companies, was as follows: Cattle 82.2 Calves 76.6 Hogs 61.2 Sheep & Lambs 86.4 100 Official Statement of the U. S. Food Administration, Sept. 12, 1918, p. 12. 101 Official Statement of the U. S. Food Administration, Sept. 12, 1918, p. 12. 102 Report on the Meat Packing Industry, Part I, p. 231. 01 Ibid., p. 223. 80 Control of Meat and Dairy Products. These facts were by no means a revelation; other in- vestigations had disclosed similiar charges against the packers. It is not surprising, then, in view of what was assumed unfair practice, to find that on September 12 the government proposed a plan to license the meat packing industry. The outstanding feature of these regulations was the limitation of profits for the larger packers and the prescribing a maximum return on gross sales for the smaller. On December 8, 1917, the regulations of the Food Administration fixed the maximum profit at 9 per cent on investment (including borrowed capital) for packers doing an annual business exceeding $100,000 and 2*/2 per cent on gross value of sales for smaller packers. 104 So many and diverse are the activities of the modern meat packing plant that it was necessary to define what activities were included under the packers license central. The entire packing industry was divided into three classes, and different regulations were applied to each. Class I included all activities directly connected with the slaughtering of live stock. In this class was also in- cluded the immediate by-products. The profits from this source were limited to 9 per cent of the investment included (borrowed capital) per year. Class II included branches of the packing industry not directly concerned with products derived from slaughtered live stock. The specialty products such as canned fruits, canned vege- tables, fish, eggs, butter, milk, cheese and groceries were placed in this class for which a maximum return on the actual investment could not exceed 15 per cent. Class III included the . activities of the packers, such as the fatten- ing and feeding of live stock, slaughtering and packing in foreign countries, and the operation of banks and loan institutions. These branches of the industry were ex- empt from any profit limitations. 105 The business investment of Classes I and II, included only investment owned by licensees and actually and 104 Regulations of Packers' Profits, United States Food Ad- ministration, Nov. 1917, p. 3. 105 Government Control Over Prices, War Industries Board, Bull. No. 3, p. 97. Control of Meat and Dairy Products. 81 necessarily used in said business. It included also the following terms: actual investment in land, buildings, machinery and equipment, the value of stocks of animals, the amount of cash on hand and other items. Unless otherwise authorized or directed by the chief of the Meat Division the licensees must estimate the value of the above-designated items according to the same methods and principles as were used by him during the year pre- ceding November 1, 1917. loti These regulations were quickly protested by the five large packers, who contended that the maximum profit of 9 per cent allowed from Class I investments might affect their borrowing capacity. 107 Mr. Hoover in reply stated that there would be no lack of confidence on the part of the banking community in the packers earning capacity, especially since the export demand for meats was greater than the country's supply. Special provisions were made to enable the Food Ad- ministration to supervise closely the business of the pack- ers in order that profit might not be concealed or diverted from the meat industry to other lines. Unreasonably large salaries or other compensations were prohibited. Licensees were required to close their books at least once in 10 weeks, and report any information relative to pro- fits, sales and investments to the Meat Division upon its request. Furthermore, any business or industry in which a licensee held half or more than half of the capital stock must present its books and records for inspection by the Food Administration whenever requested. These regulations for the meat packing industry were not as successful as the Food Administration expected. Many of the measures adopted by the Meat Division of the Food Administration were "developing discontent and criticism in sections of the producing community." 108 At the request of Mr. Hoover, a committee was then ap- 106 Cf. U. S. Food Administration, Rules and Regulations, Meat Division, 1917. 107 Commercial and Financial Chronicle, Dec. 15, 1917, p. 2325. 108 Letter of Mr. Hoover to President Wilson, Mar. 26, 1918. 82 ' Control of Meat and Dairy Products. pointed to investigate the meat packing industry and de- termine a better policy of control. The committee confirmed the value of all the existing regulations and in addition advised the licensing of the stockyards. In accordance with this suggestion, the Pre- sident issued a proclamation on June 18, 1818, which re- quired all operators of stockyards, all buyers, traders, and others who operated in connection with the stock- yards to secure licenses on or before July 25, 1918. After the signing of the armistice, it was quite natural that a reduction of foreign demand for meats should take place. We continued to ship beef to Europe for several months but as vessels became available for the trip to South America and Australia, our beef exports prac- tically ceased. The effect of this situation was felt in April, 1919, when cattle and beef prices began a consid- erable decline. PRODUCTION OF HOGS. The question of hog production was much more vital than that of cattle production ; more vital, because it in- volved one of the most urgent needs of this country and of the Allies. The world was consuming its fats at a greater rate than it was producing them. The quickest means of producing fat in large quantities is by the rais- ing of hogs. Thus, the demand for fats drew the close attention of the Food Administration to the production of hogs. Mr. Hoover was much concerned to find that whereas before 1916, 86 per cent of our hogs had been slaught- ered each year, 96 per cent were slaughtered in the fiscal year of 1916-17, and the average weight had fallen from 219 pounds to 211 pounds. 109 During the summer of 1917, it was found that many of the farmers in the United States were turning their ef- forts to the production of more profitable products than corn and hogs. They complained that market conditions were unstable and that hog raising incurred too much iog U. S. Food Administration, Bulletin No. 10, p. 12. Control of Meat and Dairy Products 83 risk and not enough profit. In order to learn the facts of the case a commission was appointed by the Food Ad- ministrator. After investigating the various phases of the pork industry, and especially the cost of hog raising to the farmer, the commission reported that the price of corn upon which hog production chiefly depended had risen more rapidly than the price of hogs. Under this condition, it would be foolish for the farmer to feed corn to his hogs, inasmuch as his labor to raise them would re- sult in a net loss. The commission recommended that a minimum price be fixed for hogs and that this minimum should be based on the prevailing price of corn. It was pointed out that the average ration of corn to hog pro- duction was about 12 bushels to 100 pounds and that in order to restore hog production to a more stable basis, a ratio of at least 13 to 1 must be maintained. 110 On October 29, 1917, two days after the report of the Commission had been handed in, the Meat Division of the Food Administration was established at Chicago under the direction of Mr. J. P. Cotton. Acting on the data of the Commission, Mr. Cotton fixed the minimum price for hogs at $15.50 per hundred weight until further notice. 111 The Meat Division, according to its own assertion, had no legal means of enforcing this price. It's influence as a purchaser for the Army and Navy, Red Cross and other associations must be relied upon to effect the actuality of any fixed price. Mr. Cotton assured the farmer, how- ever, that he could "count on getting for each 100 pounds of hog ready for the market, 13 times the average cost per bushel of the corn fed into the hogs" but at the same time wished it to be understood that, "it is not a guaran- tee backed by money. It is not a promise by the packers. It is a statement of the intention of the Food Administra- tion, which means to do justice to the farmer." 112 The packers were opposed to the 12 to 1 basis, and in a letter written to the Food Administration contended that no War Industries Board, Bull. No. 3, p. 89. in Official Statement of Food Administration, Oct. i, 1918, p. 4. 112 Ibid ut supra. 84 Control of Meat and Dairy Products. this basis might prove an unduly high price on hogs at the starting of the packing season, and would result in the lower prices probably being arrived at in the spring of the year, whereas the ordinary course of the market is the reverse. 113 The effect of the packers objection to the 13 to 1 basis, and the $15.50 price per hundredweight minimum may be judged from the prices that actually obtained throughout 1918 . Actual Average Monthly Prices of Hogs at Chicago. (per 100 pounds) 1918 1918 January $15.97 July $17.62 February 16.55 August 18.75 March 16.87 Sepember 18.37 April 16.85 October 16.75 May 16.77 November 16.62 June 16.42 December 17.00 Since the ratio method was used by the Food Admin- istration in determining the minimum price for hogs, it will be well to explain what this method was. The Ratio Method of Determining Cost of Producing Hogs. 114 The method of determining the cost of producing hogs used by the committee of seven expert swine men, dele- gated by the Food Administration to investigate the hog industry is noteworthy because it shows a marked differ- ence of procedure in arriving at cost. The method is a simple ratio between corn and hogs. It is based on the assumption that hogs are condensed corn. Without any statistical devises, swine growers came to the conclusion that the value of one hundred- weight of hog was equal to more than the value of 10 bushels of corn. In other words, they established the 113 Official Statement of the U. S. Food Administration, Nov. i, 1918, p. 7.. 114 This method of cost production was advocated by H. A. Wallace in "Wallace's Farmer" during the summer of 1917, and adopted practically without change by the Commission appointed by the Food Administration to determine the cost of production of hogs. Cf. "Agricultural Proces." H. A. Wallace, pp. 30-35. Control of Meat and Dairy Products. 85 market price of ten bushels of corn as the cost of pro- ducing each 100 pounds of hog. If they received 11 bushels of corn per 100 pounds of hog, the extra bushel might be considered as profit. A doubt might be raised as to the accuracy of this ratio used by the farmers. Figures, however, prove with reasonable exactitude the truth of the ratio. Taking the ten year period extending from 1907-1916 inclusive we find that, during that time No. 2 Chicago corn averaged 66.3 cents a bushel, whereas hogs aver- aged $7.35 per hundredweight. The ratio for this period was thus 11.4 bushels of Chicago No. 2 corn to 100 pounds of Chicago hog flesh. The uniformity of this ratio can be judged from the following table which gives the ten year average for the past 60 years, and the yearly average from 1908-1918. Average number of Bushels of Corn equal in price to 100 pounds of live hog in ten year periods from 1858 to 1917, and in year periods from 1908 to 1917. Period Ratio Period Ratio 1858-1867 10.6 1910 15.2 1868-1877 11.7 1911 11.2 1878-1887 11.0 1912 10.9 1888-1897 11.8 1913 13.2 1898-1907 12.2 1914 11.7 1908-1917 11.3 1915 9.6 1908 8.4 1916 11.5 1909 11.3 1917 9.7 It will be noticed that from the 1908-17 portion of the table, that slight fluctuations occur from year to year but that in the main, the average holds good. The same fluctuations are found also in the separate months of the year. These are seasonal periods of over-supply and scarcity of both corn and hogs. In November for instance the 1907-1916 price of corn was 67.2 cents and the price of hogs $7.23, or a ratio of 10.6 bushels to 100 pounds of hog flesh, while in March of the same ten-year period the average price of corn was 61.7 cents and the price of hogs $7.66, or an ratio of 12.4 bushels of corn for one hun- 86 Control of Meat and Dairy Products. dred pounds of hog flesh. By accurate information and calculation it has been found that there is a normal ratio for each month in the year. A difficulty here arises that seems to affect the general conclusion. As the prices of corn fluctuate from month to month and from day to day and as it requires a num- ber of months to raise hogs for the market we must weight the numbers as accurately as possible to repre- sent actual conditions. "The Committee assumed that the corn going into the making of a hog was distributed over twelve months; that during the first month over 2 per cent of this corn went into the hog or its dam; the second month, 2 per cent ; third month, 2 per cent ; fourth month, 3 per cent ; fifth month, 4 per cent ; sixth month, 6 per cent ; seventh month, 5 per cent ; eighth month 9 per cent ; ninth month, 15 per cent ; tenth month, 20 per cent ; eleventh month, 17 per cent, and twelfth month, 15 per cent. We find that during the ten year period, 1907- 1916, the average corn ratio for January was 11 bushels ; February, 11.6 bushels; March 12.4 bushels; April, 12.7 bushels; May, 12.3 bushels; June, 12.1 bushels; July 12 bushels; August, 11.8 bushels; September 11.8 bushels; October, 11.3 bushels; November 10.6 bushels and Decem- ber, 10.4 bushels." 115 Suppose, for example, we wish to find the cost of pro- ducing hogs for the Chicago market for the month of April, 1918. We begin with the corn values of April 1917 and each month consecutively till April 1918. The actual prices of No. 2 corn at Chicago for these twelve months were as follows: 144.9 cents, 163.9 cents, 170.9 cents, 200 cents, 197.2 cants, 208.6 cents, 199.2 cents, 201 cents, 173.2 cents, 180.6 cents, 174.5 cents, and 172.3 cents. Weighting these prices on the basis indicated, we get a composite value of corn of 182.5 cents. The historical ratio for the month of April is 12.7 bushels of such composite corn. Multiply 182.5 cents by 12.7 and we secure $23.18 as the cost of producing hogs 115 H. A. Wallace. Agricultural Prices, p. 32. Control of Meat and Dairy Products. 87 for the Chicago market of April 1917, under the ten year ratio method. Upon the report of the Commission the Food Admin- istration announced that it would use every means to pay the hog-raisers the equivalent of 13 bushels of corn for each 100 pounds of hog flesh during the year 1918. Since this ratio was an advance over the historical ratio of 11 bushels per hundredweight it was expected to have a strong influence toward enlivening hog production. Despite its guarantee, however the Food Administra- tion found it difficult to maintain its agreement.* An ef- fort was made, early in September 1918, to show that the 13 bushels ratio agreement was based on prices of corn at the farm and not at Chicago. This was asserted in spite of the fact that the printed announcement of the Food Administration in 1917 specifically stated Chicago prices. The difference in price to the farmers from this maneu- ver was a loss of about $2.50 per hundredweight. The Food Administration explained its position on the ground that previously agreed prices were too high for export trade. The price then fixed by the Food Admin- istration was a minimum of $15.50, which was really a ratio of 10.8 bushels. A wide-spread indignation among the hog raisers resulted from such a repudiation of its promises on the part of the Food Administration : "The committee of some fifteen men," writes Mr. Wallace, "supposedly representing the American hog producers, wihich met with the United States Food Administration in this matter, were not well educated along statistical or economic lines, and they went down to defeat in Septem- Considerable light is thrown upon the position of the Food Administration in its effort to maintain the minimum price, by comparing corn and hog prices during this period Owing to the guaranteed price for wheat, corn acreage decreased over 12 mil- lion acres between 1917 and 1918, and showed a further decline of over 4 million acres between 1918 and 1919. The effect of this was an abnormal increase in corn prices. Corn prices rose from a pre-war (July i, 1913, to June 30, 1914) average of 67 cents per bushel to $1.59 per bushel in January 1918, an increase of 133 per cent. Hog prices rose from $8.30 per hundredweight in the pre war year to $15-97 per hundredweight in January, 1918, an in- crease of 91 per cent. 88 Control of Meat and Dairy Products. ber, 1918, scarcely knowing what the Food Administra- tion had done to them." 116 The "13 to 1" ratio price basis $15.50 set by the Meat Division did not long continue to operate. In January 1913, the prices had fallen to $15.17. In February, how- ever, prices rose to an average of $16.55 around which they fluctuated till June. In August 1918, a pronounced decrease in the supply took place sending prices to $18.75. The peak was reached in September when the price advanced to $19.75. The Food Adminis- tration again assumed control and by withholding European Orders, kept prices from mounting higher. The packers agreed to maintain as far as possible a $15.55 minimum for average droves as well as to main- tain the price on the ratio of 13 to 1. On December 10, 1918, the Food Administration put into effect the zone system of marketing live stock at Chicago. According to this system hogs would be re- ceived from points within 300 miles of Chicago on Tues- days and Thursdays. Hogs shipped outside of the 300 mile limit would be bought on Mondays and Wednesdays. On Friday and Saturdays hogs were to be received from any section. The object of this regulation was to pro- vide a more uniform number of hogs each day for the market, which would thereby tend to stabilize prices. "This 300 mile zone method lasted just one month," observes Wallace's Farmer "and during that month the variation in receipts and prices was greater than in the same period (from December 10 to January 10) during any previous year." 117 In January, 1918, the average price of hogs at Chicago fell to $15.97. The Food Administration, in order to prevent the price from falling below the minimum se- cured as many orders for pork products as possible from 116 Wallace, H. A. Agricultural Prices, 1920, p. 35. 117 Wallace's Farmer, January 18, 1918, p. 76. During the same period in 1914-15 the variation in average price on different days of the week was 6 cents, in 1915-16, and in 1916-17 7 cents. During the month of experimenting with the zone system, the variation was 32 cents. Control of Meat and Dairy Products. 89 the Army and Navy and also from the Allies. In Febru- ary, the salutary effect of these solicited purchases was reflected in the price of hogs, which rose to $16.55. As early as October 1918, reports of peace circulated. Farmers began to send their stock to the market in vast numbers. This sudden supply brought a decline of from 25 to 40 cents per bushel in the price of corn, 118 and also a drop from $19.37 per hundredweight to $16.75 for hogs. The arrival of hogs at the market during the first three weeks of October was 27 per cent larger than in the corresponding month of the previous year. The fear also that large quantities of cheap corn would be shipped from Argentine and South Africa increased the proba- bility of downward prices. The post-war demands of the Allies, however, stimu- lated the price during the latter part of October to an av- erage of $16.62. An agreement was made with the pack- ers supplying government orders whereby not less than a daily minimum price of $17.50 per 100 pounds was to be paid for the average packers droves. A Committee was appointed to supervise the market and regulate the flow of hogs to the market in accordance with the ca- pacity of the various packing centers. It was expected that European nations would renew their demands for pork products long after the close of the war. During the first two months of 1919, foreign demand was brisk, but in March it notably declined. Prices, however, remained high, because hog receipts fell off. During the summer and fall of 1919, owing to the decline of European demand a most spectacular drop occured. , POULTRY AND EGGS. The poultry industry was not subject to as complete a control as other products, yet the regulations enforced were considered irksome by many producers. Early efforts were made by the Food Administration to license 118 U. S. Food Administration. News release, No. 1269. 90 Control of Meat and Dairy Products. all packers and shippers, commission merchants, whole- salers, jobbers and suppliers of hotels and institutions. The Department of Agriculture, aided the Food Admin- istration in suggesting ways and means of expanding the poultry industry. City and suburban residents, who had available plots of ground were urged to raise chickens, in order to utilize all table waste, and increase the annual egg output. Poultry raisers were interested in the cost of corn, and the price of eggs. Mr. Priebe who acted as head of the Poultry and Egg Division of the Food Administration early in November, 1917, when the price of corn was high, promised that something would be done to reduce the price of corn. Apparently his words were taken too literally, as poul- try magazines and journals were constantly reminding him throughout 1918, of his promise. 119 The average wholesale price of corn in Chicago in August 1917 was $1.92 per bushel, in September $2.07, in October $1.96, in November $2.05. Throughout the year 1918, the price ranged from $1.77 to $1.38 per bushel, as compared with 49 cents to 74 cents per bushel in 1913. 120 If prices were to be fixed at all, the poultry producers hoped that the first price fixed would be that of corn. On the other hand, eggs, firsts, and freshly gathered do not show a range in price relative to that of corn. The average wholesale price in New York in August 1917 was 38 cents per dozen ; in September 40 cents ; in October 40 cents; in November 48 cents; and in December 56 cents per dozen. In January the wholesale price reached 65 cents, and retail prices advanced to $1.00 and $1.10. In March the market broke, and the price fell to 38 cents. In April and May the average price was 34 cents a dozen. 121 The average wholesale price of dressed fowls for the 1 19 American Poultry Journal, Feb. 1918, p. 159. 120 Bulletin of Monthly Prices. Price Section of War Indus- tries Board, p. 42. 121 Ibid. p. 43. The increase in the average retail price of eggs for the period 1913-20 may be consulted from the table on p. 23. Control of Meat and Dairy Products. 91 month of August 1917 at New York was 24 cents per pound ; for September 27 cents, for October 28 cents ; for November 23 cents, and for December 26 cents. Prices ranged in 1918 from 29 cents to 35 cents per pound. The regulations of the Food Administration were de- signed to prevent waste and speculation primarily, and to control prices only by limiting margins of profit. Those handling poultry were to keep their goods moving to the consumer in as direct a line as practicable, and without unreasonable delay. Re-sales within the same trade, especially if tending to result in a higher price to the re- tailer or consumer were prohibited. The original packer or shipper, storing in a cold-storage ware-house was pro- hibited from selling frozen poultry to wholesalers at an advance of more than 6 per cent over cost. Commission merchants and wholesalers were restricted to margins not in excess of 5 per cent over cost. The maximum mar- gin allowed to original packers or shippers of storage eggs was 6 per cent over cost; while commission mer- chants and wholesalers were limited to 4 per cent over cost or 7 per cent if the eggs were candled. Poultry producers complained of the low market prices for eggs in the spring of 1918. Some asserted that Mr. Priebe, head of the Poultry and Egg Division partly brought about this drop in prices by his statement to the effect that the country was facing an egg famine. "We have got to cut down the egg consumption or else suffer a fast approaching famine. The people in the cities should do like the country folk, not buy eggs when the price is out of reach." 122 It was also stated that 80 per cent of the cold storage supply of eggs had been con- sumed between September 1 and January 1.* It was widely intimated too, that the head of the Poultry and Egg Division who was also president of a large packing concern was acting in his own interest in attempting to reduce the demand for eggs in order to glut the market early in the spring. By asking consumers not to buy 122 American Poultry Journal, Feb. 1918, p. 160. Cold storage dealers, however, did not credit this statement, and the government figures showed an increased holding of eggs of more than 20 per cent over the preceding year. 92 Control of Meat and Dairy Products. eggs, greater supply of storage eggs would be on hand, tending to reduce the price to packers for spring ship- ments. In a statement made to the Reliable Poultry Review, Mr. Priebe explained that the low price of eggs in March and April of 1918 was due to the unusually severe weather of January and February which held back the eggs and the moderate weather of March and April which sent them in large quantities to the market. 123 Much criticism was expressed against the so called Rule 15 of the Poultry & Egg Division. This rule pro- hibited licensees from trading in live or freshly killed hens and pullets. Put into effect in the latter part of February 1918, at a time when poultry raisers are ac- costomed to kill off fattened and unproductive hens for the market, it resulted in losses. Such birds would have to be fed at a loss for they "would not begin laying again for at least 60 days or more." Designed to increase the production of eggs, this regulation was felt an injustice by producers, who lost the best live poultry trade of the season. It was also claimed that packers would reap abnormal profit from the selling of storage poultry. The effect of this order was "the greatest rush to sell off both large and small farm flocks that we have ever known thousands of fowls and pullets were thrown on the mar- ket (before the regulation went into effect) and the lo- cal (Chicago) market price of live poultry dropped from 32 to 26 cents a pound." 124 On the other hand, the Food Administration estimated that at least 3,000,000 hens were saved in New York, Chicago and Boston alone. 125 The weather conditions of March and April brought about an early laying and hatching period, and by the middle of April Rule 15 was lifted. 123 Reliable Poultry Review, May 18, p. 375. 124 American Poultry Journal, March 1918, pp. 561 & 410. 125 Government Control Over Prices, p. 101. Control of Meat and Dairy Products. 93 CONTROL OF MILK. The Food Administration exercised little control over the prices and distribution of milk. In view of the fact that the problem is largely a local one, and complicated usually by State laws, the administration adopted the policy of non-interference wherever possible. Neither producers nor dealers were licensed by the administra- tion. It was only when disagreements between the milk producers associations and the dealers reached a dead- lock that the Food Administration was invited to act as mediator. As a complete study of the milk situation during the war would involve an analysis of the activities of many district commissions chosen to investigate local condi- tions, and would reveal practically the same methods of handling, it will suffice to outline the work of two of these commissions those of Chicago and of New York City. These cities are sufficiently representative as far as the milk situation was concerned, to furnish an adequate summary of the entire problem. During the past fifteen years, city distribution of milk has been largely taken over by companies. The rapid growth of these companies soon gave them a dominat- ing position in bargaining with milk producers. The number of distributors in Chicago decreased from 2,700 in 1893 to 688 in 1917, of which number, two companies were distributing approximately 40 per cent of the total. This concentration of control brought about many economies in distribution, better service and more sani- tary precautions. But at the same time, the farmer found himself at the mercy of these powerful bargaining concerns who practically dictated the price they would pay for his product. Should the farmer be unwilling to dispose of his milk at a price which he thought was un- fair, he was forced to find a customer for his product. To combat this control of distributors, there arose the Milk Producers Association of Chicago. This union first made its strength felt in April 1916, when it de- 94 Control of Meat and Dairy Products. manded an increase in the price for whole milk. Re- fusal on the part of the distributors to accede to its de- mands brought threats of "dumping" the milk. The rise was finally paid by the consumer, milk going from eight to nine cents a quart at retail. In April 1917, a similar struggle took place which resulted in ten cents a quart milk for the consumer. The price of milk depends largely upon the price of feed-stuffs. We shall note changes in the prices of both. Corn sold for 57 cents per bushel, at Chicago on May 1, 1913. In 1915, on th esame day, the average price was 76 cents; whereas the supply had increased about 13 million bushels the demand had apparently increased to a much greater extent.. In 1917, the average corn price was $1.67 and the following year reached about $1.45 per bushel. 126 Our production of oats amounted to 35,470,000 bushels in 1917, yet the price advance was almost 60 per cent higher than the preceding year, when the supply was only 20,265,000 bushels. The high level of 1917 was reduced almost 60 per cent in 1918 ; the in- crease in price was 10 per cent. No. 2 Alfalfa at Kan- sas City rose from an average prewar level of $12.19 a ton to an average price of $20.04 in 1917 and $21.29 in 1918. During November and December of these years alfalfa sold for $27.25 and $27.75 ; $26.75 and $23.25 re- spectively. In July 1917, it was estimated that feed- stuffs were selling at a level 118 higher than during the prewar year. 127 These advances correspond to the ad- vances in the general level of prices during this period, but eclipse those for food by about 20 per cent. It was only to be expected, then, that the price of milk should be correspondingly high. Both wholesale and retail milk prices appear to have been surprisingly stable till the autumn of 1916. The following table shows the relative price fluctuations in the wholesale and retail milk market for New York and Chicago. 128 126 War Industries Board. Prices of Feed & Forage, 1920, p. 7. 127 Ibid. p. 13. 128 Monthly Labor Review, Dec. 1920, p. 67. Control of Meat and Dairy Products. 95 Index Numbers of the Average Wholesale and Retail price of Milk at New York and Chicago. (Average for 1913-100) Milk, New York 1913 1914 1915 1916 1917 Fresh-Wholesale 100 86 86 86 143 Fresh-Retail* 100 100 100 100 127 Milk, Chicago Fresh-Wholesale 100 95 97 95 124 Fresh-Retail* 100 100 100 101 125 From the above table, it may be seen that the average retail price of milk did not rise in New York during the years 1915 or 1916, and that the rise in Chicago was one per cent during the year 1916. In the following year an advance of 27 per cent took place in New York, while that for Chicago was 24 per cent. As compared with the 118 per cent rise in feedstuff s, these advances in the price of milk appear insignificant. In 1917, both wholesale and retail prices of milk rose gradually. Each increase asked by the dairymen was reluctantly granted by the distributors. Finally in October, the latter refused to grant the increase asked by the dairymen. The Food Administration was then requested by both dairymen and distributors to determine what price should be paid to the farmers for milk. The first step taken by the Food Administration was the appointment of a committee to investigate costs of milk production and distribution. The committee sug- gested that contracts between producers and distributors be made on a monthly basis, instead of a period of six months, as had been customary. By means of monthly contracts, the price of milk could be kept at a ratio with the prices of feedstuffs. This suggestion, though adopted, does not appear to have relieved the situation, for further appeals were soon addressed to the Food Ad- ministration. When the producers and distributors met to sign the contracts for October 1917, the Milk Producers' Associa- * Bottled & Delivered. 96 Control of Meat and Dairy Products. tion of Chicago demanded $3.43 for each 100 pounds of milk. This demand was one cent higher than the price offered by the distributors. After some delay, the latter finally acceded. The retail price advanced from 10 to 13 cents a quart: consumption showed a decrease of about 20 per cent. Definite action was taken in November, 1917, when regional commissions were set up by the Food Adminis- tration in Boston, New York and San Francisco. These Commissions were composed of representative produc- ers, distributors and consumers in the several cities. 129 It was their duty to collect data and make investigations upon the cost of producing and distributing milk. The producers and distributors of each district voluntarily agreed to abide by the decisions of the committee, but were given the right to withdraw from any agreement upon 30 days notice. It required practically two months to hear the testi- monies of farmers, distributors and agricultural ex- perts. Production costs varied widely and the commitee found great difficulty in determining average costs. The Committee, in their report on the costs of production, advised the adoption of the formula method with various modifications to meet conditions in different districts. 130 The formula used by the Chicago Commission was known as the Modified Pearson Formula. This formula as adopted to meet the requirements of the Chicago dis- trict, comprised the following ingredients : 20 pounds of home grown grains, 24 pounds of manufactured feeds, 110 pounds of hay, and 3 hours of labor. These items were taken as correctly representing the average amount of feed and labor required to produce 100 pounds of milk. "The value of the 20 pound of grain and the 110 pounds of hay were to be determined by using farm values of hay and corn in the states of Illinois and Wis- consin reported by the Agricultural Department on the 129 Ibid. p. 107. 130 C. L. King, "The Price of Milk," p. in. Control of Meat and Dairy Products. 97 first day of the preceding month." 131 The value of 24 pounds of feed was to be computed from the prices of feed in the daily Feed Report published at Milwaukee. The value of three hours of labor was to be determined by the average going prices for farm labor paid within the Chicago District. A Committee of experts appointed to report to Mr. Hoover based its conclusions upon the records of 490 dairy farms, producing milk for city markets in six northern states. These States were: Minnesota, Michi- gan, Massachusetts, Connecticut, New York and New Jersey. As computed according to this formula, the Commis- sion, on February 2, announced that the following prices should be paid the dairymen. February $3.07; March, $2.83; April, $2.49; May, $2.04; June, $1.80; July, $2.30; August, $2.75 per hundred pounds of whole milk. The price fixed was always for 3.8 per cent milk ;* four cents was added for better fat, for each point above that mount and the same amount to be deducted for each point below 3.5 per cent. The price to consumers was to remain at twelve cents per quart, with the provision that if the prices paid to the dairymen advanced, and the distributors found them- selves unable to deliver at this price, proper increase to cover extra costs was to be added by the distributors. These prices, agreed to by six of the nine commission- ers, were proposed to the producers, but were not ac- ceptable. Two representatives of the Food Administra- tion were then called upon to review the findings of the commission. These representatives confirmed the con- clusions drawn up, but on March 1, were prevailed upon to make the price $3.10 per hundred pounds instead of $2.83 as previously determined by the Commission. The Modified Pearson Formula was in use in determin- ing the Chicago milk prices for about six months. Im- 131 Ibid. p. 113. * 3.8 per cent, milk contains the average amount of butter fat. 98 Control of Meat and Dairy Products. mediately after the withdrawal of the Food Administra- tion, the formula method was abandoned and another method adopted to secure higher prices. The milk situation in New York was treated with practically the same methods as were used in Chicago. Prices Were first fixed by the Milk Commission for Janu- ary 1918 and altered from month to month according to a formula submitted by Professor Warren and ap- proved by the Producers and the Committee. In May, 1918 however, virtually all the milk distribu- tors decided to withdraw from the agreements the fol- lowing month. Producers and distributors finding it difficult to come to any agreement by themselves, called in the Food Administration to act as mediator in arriv- ing at a fair price. The Food Administration, after a study of the situation suggested a price of $2.70 per 100 pounds of milk for the month of August and $2.90 for September. These prices were accepted and for the re- mainder of the year, the Food Administration continued to act as mediator. 132 The price fixed fof the New York district was based upon the Warren Formula: namely, that to produce 100 pounds of milk of the average butter fat (3.8 per cent) the following feed and labor units were required: 133 Grain, 33.79 pounds; Hay, 43.3 pounds; Other dry for- age, 10.8 pounds ; Ensilage, 92.2 pounds ; Other succulent food, 8.3 pounds; Human labor 3.02 hours. The formula method, while accurate as a method for ascertaining production costs, is not infallible. Though the formula may remain constant for many years, it is always conceivable that a change in production methods may come to enable farmers to produce milk at a lower price than the formula indicates. The formula method when used in price fixing is open to several objections. It may be necessary for months at a time to cater to con- sumers by selling a product below the formula, or the 132 War Industries Board Bulletin, No. 3, Government Con- trol Over Prices, p. 108. 133 C L. King, The Price of Milk, p. 119. Control of Meat and Dairy Products. 99 cost of production price. In trying to apportion the pro- fits of the year equally for each month, price fluctuations are bound to be frequent. Consumers, as a rule, prefer constant prices, which require no shift of demands as soon as prices rise, though the rise last but for a month, consumers will lessen their demand. The result will be lower profits, perhaps, than those founded upon the basis of supply and demand. Such price stabilization does not mean that farmers will receive less for their annual out- put. During the summer months, the spread must be made wide enough to create reserves against the lean months of the autumn and winter. CHAPTER VI. CONTROL OF CANNED GOODS. The Government was interested in canned goods dur- ing the war, and watched advancing prices for these goods with much concern. Large orders needed for the Army and the Navy would result in the unnecessary ex- penditure of thousands of dollars, if prices were not curbed. On April 23, 1917, the Government placed an order 134 for 35,000 cases of No. 3 tomatoes, 50,000 cases of peas, 40,000 cases of corn, 290,000 cases of string beans, 10,000 cases of asparagus, 9,000 cases of pump- kin, 9,000 cases of spinach, 9,000 cases of saurkraut, 5,000 cases of beets, and 20,000 cases of Alaska red sal- mon. This enormous demand, at a time when the supply was low, resulted in a sudden jump in prices. The bids received on this order were considered too high by the Government Buying Committee. The President, how- ever, ordered the lots to be taken over at prices which would be later determined as reasonable. 135 Three weeks later, during which time Mr. Hoover had watched the prices of canned goods, the industry was alarmed by his threat to place packers and jobbers under licensed control. Prices were too high. Goods were be- ing held for speculative profits. Unless a speedy change took place, he said, the industry would be met with regu- lated profits. This announcement had immediate effect in bringing down prices. The canners appear to have held but a small percentage of their output, the custom in the trade being to sell about 90 per cent of the pack as futures in the fall. Speculators and merchandising brokers who held the largest percentage of the remaining stock now 134 The Canning Trade, June 4, 1917, P- 10. 135 Ibid., April 23, 1917, p. 10. 100 Control of Canned Goods. 101 endeavored to unload quietly before prices dropped too much. Buyers, on the other hand, anticipating price re- gulations, were unwilling to buy any more than they had immediate need for. Later, when this scare had passed over, it was found that very little stock was in the mar- ket. Trade journals accused Mr. Hoover, in this in- stance, of undue interference, which was productive of more harm than good. Prior to our entrance into the war, price changes in canned goods had kept pace with changes in the general level of prices. Even at this time the prevailing senti- ment among the canners was that prices of canned goods were too high. 13 ' 5 But as prices continued to rise, and threats of drastic government control were spread abroad, this sentiment rapidly changed. Those who held goods sought to reap the harvest while the opportunity lasted. The Canner, a weekly journal of Chicago, exem- plifies the typical attitude of the industry at this time when it advises packers thus: "Keep your nerve and sit tight and you can get your own price for your spot toma- toes but weaken and the jobbers who are pursuing a hold-off policy will get them at prices below what they are worth." 137 The following table will show the average monthly range of prices for corn, tomatoes, peas and pumpkin during the year 1916. Monthly Range of Prices During 1917. Figures taken from issues of "The Canning Trade;" the issue nearest the 1st of each month being used. Prices quoted represent the lowest per dozen cans, in wholesale quantities f. o. b. Baltimore. See table on fol- lowing page. The profits of the packers and brokers were large dur- ing the year 1917, yet not excessive when compared with the general rise in the value of money. The Federal Trade Commission in its Report on Canned Goods says : "In 1916, 42 packers, representing invested capital 136 Ibid., May 14, 1917, p. i. 137 The Canner, March 9, 1917, p. 20. 102 Control of Canned Goods. c/) O Q 00 ON R GO H O 3 JI5 vx IN* cgcgga CO Q O O O lx 00 nQin c^m oo >o^txOMn OON * i C/3 JL >-S y w^ g ^5^ i! o X i-i 01