# 1922 Encyclopædia Britannica/Prices

Prices.—In the following article, which should be read in connexion with those under Cost of Living and Wages, the changes in prices of commodities during the years 1910–20 are considered with special reference to the United Kingdom. An account of the American system for controlling prices in the United States is appended.

(I.) Wholesale Prices in General.—The movement of wholesale prices in general is measured by the method of index numbers. The prices of commodities for which definite market quotations for definite grades exist are selected as typical in their changes of prices in general, a year or longer period is chosen as base, the price of each commodity is equated to 100 at the base period and the price in other years expressed proportionately, such numbers being called price ratios. (Thus if the price of wheat in the base period was 60s. and in another year 45s., the price ratio in the latter year would be written as 75.) Then either factors are chosen expressing the relative importance of the commodities as determined by the total sum spent on them in a period or some other criterion, and each price ratio is multiplied by the corresponding factor, the sum of the products is divided by the sum of the factors and the resulting quotient is the index number of wholesale prices for that year; or the more important commodities are represented by two or more price quotations and the resulting price ratios are simply averaged to obtain the index number. There are many variants of method and there has been much controversy on every detail of the process; in fact, however, the precision of the result depends not to any great extent on the particular method followed, but principally on (i.) the number of independent prices included and (ii.) on the dispersion of the various price ratios in the year to which the index number refers, so that when prices are moving on the whole in the same proportion the index number is more accurate than when some are moving rapidly upwards and others are stationary or falling. In normal times when changes are moderate it has been shown both from theoretical considerations and by comparing the numbers obtained by various methods that the precision of the method is high, but during the war period the movements were rapid and unequal, the conditions of accuracy were lost and no very precise measurement could be obtained. The object of the method of index numbers is to average away the variations due to the special conditions of supply and demand of particular commodities, and to obtain a resultant which measures the effect on prices of general causes, such as the supply of currency.

It is found in practice that the necessity for restricting price quotations to those of commodities for which the same grade and quality is in the market in large quantities through a long period of years restricts the choice greatly, and limits it to raw materials or articles in an elementary state of manufacture. In some cases the price used is based on the average value of all grades of the commodities (e.g. of wheat, of tea, of coal), imported or exported, but this introduces a possibility of error since the average may change owing to a change in the relative quantities of high and low grades independently of any change in price. The three index numbers of wholesale prices in use in the United Kingdom are the Board of Trade's, the Economist's, and the Statist's (formerly Sauerbeck's); the first uses average values to some extent and applies factors to the price ratios to allow for the relative importance of commodities, the second and third use market quotations of definite qualities of goods and take a simple average of the price ratios.

Table I. exhibits the general movement in the twelve years before the World War, and shows how little the variation of method affects the result in this period. The year 1903 is taken as the starting point, since it is after the great fall of prices ending in 1896 and the subsequent rise and the inflation of 1900-1, and may be regarded as a normal year.

Table I.—Movement of wholesale prices in the United Kingdom 1903-13.
(In each case the index number of 1913 is equated to 100.)

 Year Board ofTrade Index No. Sauerbeck's Index No. Economist Index No. 1903 83 82 79 1904 84 83 81 1905 84 85 81 1906 87 91 88 1907 91 94 93 1908 89 86 83 1909 90 87 84 1910 94 92 90 1911 94 94 95 1912 99 100 108 1913 100 100 100 1914 — 97 96 .mw-parser-output .nowrap,.mw-parser-output .nowrap a:before,.mw-parser-output .nowrap .selflink:before{white-space:nowrap} Jan.-June

Sauerbeck's index numbers for 1903 on the same basis for separate groups of commodities were:—Vegetable food 90; animal food 85; sugar, tea, coffee, 86; minerals 74; textiles 79; sundry materials 83. Wholesale prices had therefore been rising from 1902-13 (with a short inflation and depression in 1906-8), but tended downwards in the first half of 1914.

Table II.Statist monthly index numbers.
Average Jan. to July 1914 taken as 100.

End of  1914   1915   1916   1917   1918   1919   1920   1921

 Jan. ${\displaystyle \scriptstyle {\left.{\begin{matrix}\ \\\\\ \\\ \\\ \\\ \\\ \ \end{matrix}}\right\}\,}}$ Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
100 117 150 193 225 233 298 239
122 154 199 227 227 317 220
126 158 205 228 224 316 215
128 163 209 230 224 323 206
130 164 212 231 235 316 196
129 159 218 233 242 311 189
129 158 214 233 250 309
106 130 163 213 237 258 308
108 131 163 214 239 260 302
109 133 173 219 239 272 291
108 137 183 222 237 280 272
111 143 187 225 237 285 252
 Average for year— 1915 1916 1917 1918 1919 1920 1921 Statist 131 164 212 233 249 301 — Economist 128 167 212 234 244 298 — Board of Trade 127 164 214 235 261 327 —

Immediately after the declaration of war in 1914 prices began to rise, and with certain interruptions continued to mount up till the spring of 1920, when the index numbers reached their maximum (Statist 323, end of April; Economist 326, end of March; Board of Trade 357, average of July). Till Oct. 1917 the increases showed a remarkable regularity averaging 2% monthly, equivalent cumulatively to 27% per annum; on this scale the index in the successive Octobers would reach in 1914 106, in 1915 135, in 1916 171, in 1917 217 and in 1918 258, numbers which (except the last) are in close agreement with those shown in the table. This was, however, a definite seasonal movement superimposed on this regularity; in the first three or four months of each year prices moved up with special rapidity, while in the summer the increase was slackened and in some cases was replaced by a fall. The check in the increase in the summer of 1917, following a specially rapid rise, is attributable to the control of prices which by that date was general. From Aug. 1917 prices continued to rise in spite of control till Sept. 1918, but the rise in these 13 months aggregated to only 13% (239 against 213). After the Armistice prices fell slowly for five months, during the season in which in previous years the increase had been specially rapid, but expectations of a permanent fall were not realized; in the year beginning April 1919 the index rose from 224 to 323 or 44%.

From the beginning of the war till July 1919 the Statist and Economist index numbers are in close agreement, except that the Economist shows a more rapid rise for twelve months from Oct. 1916 and less increase in the late autumn of 1917, but there is disagreement as to the dates and amount of the increase after July 1919. At that date the three index numbers agree in estimating the whole increase in five years at 148, 149 or 150%. The following table shows the divergence in subsequent months:—

Table III. Monthly index numbers, July 1919 taken as 100.

 Board of Trade Economist Statist 1919 Board of Trade Board of Trade Board of Trade July 100 100 100 Aug. 106 101 103 Sept. 110 102 104 Oct. 115 105 109 Nov. 120 108 112 Dec. 123 114 114 1920 Jan. 127 120 119 Feb. 131 127 126 March 133 130 127 April 133 128 129 May 132 128 126 June 140 122 124 July 144 122 123 Aug. 135 120 123 Sept. 137 119 120 Oct. 134 111 116 Nov. 129 102 108 Dec. 125 92 100

The earlier agreement is more remarkable than the later discrepancies, for the conditions of accuracy named above were not present during the war when prices were moving rapidly and quotations for the usual qualities of goods were often unobtainable. It is important to emphasize this uncertainty, for it is the fact that exact measurements of general price changes cannot be made in times of disturbance, and indeed it is difficult even to define the quantity we wish to measure; tendencies can be observed clearly, but only rough measurements can be made and fine comparisons lead to error. The maximum level was reached in March 1920 by the Economist index number, in April by the Statist, in July by the Board of Trade. By Dec. 1920 the Board of Trade index was back at the level of the beginning of 1920, that of the Statist at the level of July 1919, and that of the Economist at the level of May 1919. The difference is mainly due to the varying proportions given to cereals and textiles, which had fallen rapidly, and to meat and minerals which had fallen little in the three numbers.

Table IV. (from the Monthly Bulletin of Statistics of the Supreme Economic Council, vol. ii., No. 5) shows the index numbers for several countries.

Table IV.—Index numbers of wholesale prices.

 United Kingdom Canada U.S.A. France Italy Japan Sweden Netherlands Denmark Norway Australia Statist Official Bradstreet's Statistique Générale Bacchi Bank of Japan Svensk Handelstidning Official Finanztidende Okonomiks Revue Official 1913 100 100 100 100 100 100 100 100 100 — — 1914 101 100 97 103 95 95½ 116 106 134 100 100 1915 126 109 108 141 133 97 145 149 149 — 141 1916 159½ 134 130 190 200 117 185 233 206 — 132 1917 206 175 172 263 306 148½ 244 298 284 — 146 1918 226½ 205 204 341 409 196 339 398 292 — 170 1919 242 216 204 358 366 239 330 306 340 — 180 1920 Jan. 289 248 227 489 504 301 319 293 — 334 203 Feb. 306 253½ 226 525 556 314 342 289 — 344 206 Mar. 308 258 225½ 557 619 322 354 290 — 351 209 April 313 261 226 591 679 301 354 296 — 354 217 May 306 263 216 553 659 272 361 297 — 371 225 June 301 258 211 495 615 248 366 297 383 384 233 July 299½ 256 205 498 613 239 363 301 385 411 234 Aug. 298 244 196 504 632 235 365 290 394 418 236 Sept. 293 241 184 528 660 231 362 288 398 427 230 Oct. 282 234 171 504 662 226 346 283 403 422 215 Nov. 263 224½ 148 463 658 221 331 260 374 404 208 Dec. 244 214 138 437 634 206 299 233 341 377 197

The prices are of course measured in the currency of each country. In every case there is a fall in the last months of 1920.

(II.) Wholesale Prices of Selected Commodities.—When we come to commodities separately, the measurements can be made more exactly subject to the two following qualifications. During the war period the ordinary sources of supply were so disturbed that pre-war kinds and qualities were no longer in the market (in the Economist index number only 19 out of the 44 quotations included were not subject to some modification of kind); and a statement of prices is generally taken as meaning the price at which a purchaser can obtain the goods he desires and at which a merchant is willing to sell, but in the time of control and rationing these conditions did not obtain, and the price was fixed by other conditions than those which influence a free market.

Table V. is based on the prices tabulated in the Journal of the Royal Statistical Society, July 1920, pp. 640-5, by the editor of the Statist. The index numbers have been recast, the average price in 1913 being taken as 100 for each commodity; the totals have been obtained by grouping together the separate entries on the same plan as in the original, but the change in base year affects the results, which thus differ from those given in Table II. in the same way as if the weights had been changed.

Table V.Statist index numbers. Averages for each year.

 1913 1915 1916 1917 1918 1919 1920 Vegetable food Wheat English Gazette 100 170 184 239 229 229 253 American 100 164 185 229 215 205 253 Flour, Town made white or G.R. 100 160 172 192 153 153 216 Barley, English Gazette 100 137 189 238 217 278 330 Oats, English Gazette 100 162 180 270 258 274 301 Maize, American mixed 100 175 223 304 332 334 383 Potatoes, good English 100 120 197 239 183 254 311 Rice, Rangoon 100 162 206 309 320 313 501 Total 100 156 192 252 238 255 319 Animal food Beef: Carcase, London Central meat market Prime 100 134 150 194 191 200 231 Middling 100 139 157 206 211 220 257 Mutton: Carcase, London Central meat market Prime 100 121 151 185 176 184 233 Middling 100 126 154 195 196 203 258 Pork: Carcase, London Central meat market 100 129 160 200 234 233 306 Bacon, Waterford 100 121 143 192 237 248 311 Butter, Friesland 100 118 161 181 208 212 253 Total 100 127 154 193 208 214 264 Tropical food Sugar West-Indian* 100 151 255 332 347 404 611 Beet* 100 ‡ 180‡ ‡ 239‡ ‡ 267‡ 279 361 689 Java 100 172 244 301 327 400 687 Coffee East India* 100 97 96 117 159 180 183 Rio* 100 84 94 109 130 215 210 Tea Congou, common* 100 167 160 338 418 270 a 225a Indian, good medium† 100 127 130 185 194 182 114 Average Import* 100 122 125 § 162§ 166 171 165 Total* 100 143 182 241 269 300 432 Total Food 100 143 186 228 233 250 322

It is at once evident that the various prices have not followed the same course; the extremes in 1919 are tin, whose price rose only 28% in 6 years, and Russian flax, where the rise is 323%. This great divergence of itself shows that the general index number cannot have great precision; but in the absence of means of improving it, we cannot do better than take this number (shown in the line “Grand Total” in Table V.) as measuring the general inflation of wholesale prices.

The prices as recorded are the resultants of at least five nearly distinct forces, viz. the general inflation of prices, the conditions of supply and demand for the separate commodities, the control of supply, the control of prices, the change of quality. In 1915 and 1916 the principal increases may be traced to the diminution or difficulty of supply (cereals, sugar, flax) or to acuteness of demand (wool) or to both (timber). In 1917-8 the prices of nearly all commodities whose supply was threatened or for which the demand was increased were controlled. The quality was changed definitely in the case of flour and indirectly when the prices are averages of several grades as in the cases of meat, flax, leather and timber.

Table V.Continued.

 1913 1915 1916 1917 1918 1919 1920 Minerals Iron Scottish Pig* 100 109 137 146 154 215 326 Cleveland Pig* 100 112 142 154 163 235 357 Common Bars 100 136 177 177 181 249 366 Copper Chili Bars 100 107 170 183 170 135 143 English Tough Cake† 100 112 182 185 171 135 153 Tin, Straits 100 82 91 118 165 128 150 Lead, English Pig 100 125 170 169 169 154 209 Coal Wallsend in London 100 § 143§ § 128§ § 128§ 156 211 149 Newcastle Steam† 100 136 266 194 216 293 332 Average Export 100 122 177 193 219 331 572 Total 100 118 150 160 174 205 276 Textiles Cotton Middling American 100 84 128 236 318 280 330 Fair Dhollerah 100 77 123 240 301 259 248 Flax Petrograd* 100 176 226 333 a 353a a 353a a 353a Russian, Average Import* 100 161 207 368§ 379 423 837 Hemp Manila, Fair roping*. 100 120 172 266 313 185 207 Petrograd, clean* 100 159 187 278 439 388 385 Jute, good medium 100 80 117 149 148 189 169 Wool Merino, Port Philip* 100 119 182 258 262 372 444 Merino, Adelaide* 100 114 174 245 247 338 337 English, Lincoln half-hogs 100 140 162 169 152 183 178 Silk, Tsatlee 100 89 148 195 234 236 351 Total 100 112 156 214 269 272 320 Miscellaneous Hides River Plate, dry* 100 105 119 162 163 182 166 River Plate, salted* 100 116 139 167 149 206 192 Average Import price* 100 116 135 180 185 198 233 Leather Dressing hides* 100 147 145 179 168 187 223 Average import price* 100 113 140 179 170 211 370 Tallow, town 100 108 138 181 242 255 218 Oil Palm 100 98 126 130 127 197 198 Olive 100 104 120 234 400 a 404a a 404a Linseed* 100 122 167 228 257 375 356 Linseed* 100 126 176 247 288 306 345 Petroleum, refined 100 105 141 190 252 204 298 Soda, crystals 100 102 166 189 174 249 317 Nitrate of Soda 100 110 156 217 237 216 215 Indigo, Bengal 100 486 486 373 327 332 527 Timber Hewn, average import* 100 147 205 244 268 344 400 Sawn, average import* 100 150 236 333 430 369 416 Total 100 148 182 217 247 268 312 Total Materials 100 129 165 201 234 252 304 Grand Total 100 135 170 212 234 251 312 Silver‡ 100 86 114 151 172 207 223

*The entries in these cases of similar commodities are averaged before inclusion in the index numbers.

†These commodities are not included in the Statist index numbers.

‡Comparative values.

§Approximate prices.aNominal prices.

Food.—The price of wheat rose immediately after the beginning of the war, and with it the prices of flour, oats, maize and rice. The prices were checked by the establishment of a government system of purchase at the end of 1916 and by the control of the prices of home-grown cereals in 1917; with this system flour of mixed materials was substituted for wheat-flour and the product sold at a price kept constant and relatively low, by the help of a subsidy beginning in the autumn of 1917. In the case of wheat and flour, the subsidy and control continued till the beginning of 1921 but the prices rose; the prices of other cereals increased very rapidly from the autumn of 1919. An attempt was made to control the consumption of oats in 1917-8, otherwise cereals were not rationed. The wholesale price of potatoes was fixed from time to time, the Government undertaking to make good growers losses, but the price was changed so frequently that the control had little effect.

Early in the war the price of imported meat increased more rapidly than that of home-killed, till in 1917 there was little difference between their retail prices. On the whole the price of meat increased less than that of commodities in general. Prices were fixed in Aug. 1917 and consumption was rationed early in 1918; after the Armistice control was gradually relaxed; but prices of beef and mutton changed very little during the two years after the first fixing of them. The prices of Irish bacon quoted are hardly typical; in 1917 a great quantity of American bacon of inferior quality was bought by the Government, who had difficulty in selling it at a price which covered the cost. The demand for high-class bacon could not be met, and its price after 1917 rose more rapidly than that of butcher's meat. The line in the table relating to imported butter is perhaps misleading since the supply was insignificant, and its inclusion unduly depresses the average; for the records of milk and its products we must depend on retail prices. Taken together the prices of animal food increased at a lower rate than the general average of prices except in 1916-7.

The price of sugar was of course dominated by the cutting off of the continental supply, and its increase was greater than that of any commodity always obtainable included in the table. The Government took over the whole supply at the beginning of the war and issued it at a fixed price; the control continued till 1921. There was no shortage of supply of coffee nor of tea (except in the autumn of 1917), and their prices rose relatively little.

When all food prices are grouped together as in the table, it is seen that they rose till 1917 more rapidly than the average for materials, but that the increase from 1913 to 1918, and to 1919 was the same in the two groups.

Materials.—The prices of different kinds of coal increased at different rates prior to the general control of coal mines which took effect early in 1917; with the stoppage of export of coal the supply was adequate even for the increased use in the manufacture of pig-iron, and the restriction in consumption from 1917 was only necessary to economize labour in the mines. For domestic and manufacturing use the price rose but slowly till 1919 and generally less than for goods in general. Iron and steel began to come under control as early as June 1915 with the initiation of the Ministry of Munitions, and their use was severely restricted for all civil purposes, so that there was no free market for more than three years. The prices were actually fixed in Nov. 1917, a government subsidy being given to steel and to pig-iron makers to meet any extra costs. The subsidies were withdrawn early in 1919 and the price of pig-iron rose from £4 15s. to £8 a ton, the pre-war level having been £2 11s. Reconstruction and repairs, for many years in arrear, caused a great demand for iron and steel, and in July 1920 pig-iron was 320% and steel rails were 283% dearer than in 1914; prices fell slowly in the autumn of 1920 (Birkett: “Iron & Steel Trades during the War,” Statistical Journal, May 1920). Copper, tin and lead showed no special inflation and were relatively cheap in 1919.

Cotton followed an exceptional course. With the cutting off of Germany from the market the price fell considerably in the first months of the war and was below the pre-war level till nearly the end of 1915. Presumably in consequence of the restriction of shipping, a rapid rise began in the autumn of 1916, and at the date of the Armistice cotton was at three times its pre-war price; then there was a perceptible fall for some months, but this was followed by a great increase, the reason of which has not been explained, which brought American cotton early in 1920 to more than four times its cost in July 1914; the reaction from this inflation gave the first indication in 1920 that the general index number was about to move downwards. Both yarn and piece goods rose more rapidly than raw cotton, especially in 1919-20.

The price of wool also fell after the outbreak of war, but the great demand for the Allied armies soon turned the scale and English wool especially became rapidly dearer in 1915. From June 1916 the Government took steps to assume ownership of all the wool it required and to control the rest; the distribution to manufacturers and prices was arranged by an intricate system involving the Government, wool-brokers and manufacturers (Zimmern: Economic Journal, March 1918). The price was very high in 1917-8 and rose rapidly in 1919 when the civilian demand for replenishing their wardrobes and households was acute, and the prices of yarn and manufactured goods outpaced even raw materials. There was no definite fall till 1920. As regards flax, the cutting off of the Russian supply and the Government demand for linen in airships caused linen to be practically unobtainable by civilians, and the shortage naturally continued long after the war. Jute and silk were less affected.

The variations in the movements shown under the heading “Miscellaneous” can in general be explained by known conditions of supply and demand. The supply of petroleum proved to be sufficient for war needs. The Statist index number is vitiated by the exclusion of rubber. Owing to the development of plantations before the war the supply was even excessive; the price was rarely more than 20% higher than in July 1914 and after the Armistice was lower.

(III.) Retail Prices of Food in the United Kingdom.—Accurate and useful statements of retail prices are in general only obtainable with respect to food, in part because most attention has been directed to recurrent and necessary domestic expenditure, in part because it is less easy to define the unit of purchase in the case of clothes and manufactured goods. The cost of other necessary items of expenditure is considered in the article Cost of Living, and this section deals with food alone.

The following tables show the average prices paid by the working classes in the United Kingdom, the result of the monthly collection of information by the Ministry of Labour (formerly by the Board of Trade) published in each issue of the Labour Gazette, and described in detail in the issue of March 1920. The general movement in retail prices was similar to that of wholesale, that is, a nearly regular increase (23% cumulatively per annum) took place for three years after the outbreak of war, then for more than a year the rise was checked by control and rationing; there was a temporary fall in the spring of 1919, followed by a rise which became rapid in the summer and autumn of 1920 and a fall after Nov. 1920.

Table VI.—Average Retail Prices in the United Kingdom of the Principal Foods as recorded* at the beginning of each month in the Labour Gazette.

1914 1915 1916 1917 1918 1919 1920 1921
 July Dec.
 July Dec.
 July Dec.
 July Dec.
 July Dec.
 July Dec.
 July Dec.
June

lb.
Flour lb.
Beef
British lb.
Imported  lb.
Mutton
British lb.
Imported lb.
Bacon lb.
Milk qt.
Cheese
Imported lb.
Butter lb.
Margarine lb.
Sugar lb.
 Potatoes 7
lb.
Tea lb.
 s. d. s. d. 5 ¾ 6 ½ 10 ½ 1 0 8 8 ¾ 6 7 ¼ 8 ¼ 8 ¾ 5 ½ 6 ½ 11 ¼ 1 0 3 ½ 3 ½ 8 ¾ 9 ½ 1 2 ¼ 1 3 ½ 7 ¼ 7 ¼ 2 3 ½ 4 ¾ 4 1 6 ½ 1 8 ¾
 s. d. s. d. 8 8 1 3 1 3 ¼ 11 ¾ 11 ¾ 9 9 ¼ 10 ¾ 11 8 8 ¼ 1 1 ¼ 1 2 ½ 3 ¾ 4 ½ 11 ½ 11 ¼ 1 4 ½ 1 7 7 ¼ 7 ½ 3 ½ 4 4 ¾ 4 ½ 1 11 2 3 ½
 s. d. s. d. 8 ¾ 10 1 4 ½ 1 7 ½ 1 1 ¾ 1 1 ¾ 11 ½ 11 1 1 ½ 1 1 ¾ 11 ¼ 11 1 3 ½ 1 5 ½ 4 ½ 5 ¼ 1 1 ¼ 1 2 ½ 1 7 2 0 8 ¼ 8 ¾ 5 ¼ 5 ½ 7 ½ 10 ¼ 2 3 ¾ 2 3 ¾
 s. d. s. d. 11 ½ 9 1 10 1 4 1 4 ½ 1 3 ½ 1 1 ¾ 1 1 ½ 1 5 ½ 1 3 1 2 1 1 ½ 1 8 ¼ 2 2 ¼ 5 ½ 6 ¾ 1 7 ½ 1 4 ¾ 2 0 2 4 ½ 11 ¾ 11 ½ 5 ¾ 6 11 ¾ 6 ¾ 2 8 3 1 ½
 s. d. s. d. 9 9 1 4 1 4 1 3 ½ 1 5 ½ 1 3 ½ 1 5 ½ 1 3 1 4 ¾ 1 3 1 5 ¼ 2 3 2 3 5 ½ 8 ½ 1 5 1 8 2 5 ½ 2 6 1 0 1 0 7 7 7 ½ 7 ¼ 2 8 2 8
 s. d. s. d. 9 9 ½ 1 4 1 4 1 3 ½ 1 6 1 1 ½ 1 2 ¾ 1 3 ¼ 1 5 ¼ 1 1 1 0 2 3 2 4 ½ 6 ½ 10 ¾ 1 6 1 6 2 6 2 6 ¼ 11 ¾ 1 1 7 8 8 ¾ 10 ½ 2 6 ¼ 2 9 ¾
 s. d. s. d. 1 0 ½ 1 4 1 11 2 6 ¼ 1 6 1 9 1 0 ¾ 1 0 ¾ 1 5 ¼ 1 11 10 ½ 11 ¼ 2 6 2 9 ¾ 7 ¾ 10 ¼ 1 8 ½ 1 9 2 11 ¼ 3 3 ¾ 1 2 1 1 ¾ 1 2 10 1 3 ¼ 11 ½ 2 10 ¾ 2 8 ¾
 s. d. 1 1 ½ 2 0 ¾ 1 8 ¾ 1 0 1 10 11 2 2 ¼ 7 ¾ 1 7 ½ 2 2 9 1 7 ¾ 8 ¾ 2 6 ½

*The prices from Dec. 1914 to Dec. 1918 are calculated from the percentage changes recorded.

Notes.—The prices of meat are the means between two entries in each case and not the average prices of the carcases. They should only be used for comparative purposes, and not taken to be the average price of all meat bought.

In general the records are the average for the commodities as bought in shops and stores used by the working class.

Table VII.—Average of Retail Food Price-Changes in the United Kingdom as computed in the Labour Gazette.

(The average on the 1st or 2nd of each month is expressed as a percentage of the average in July 1914.)

 1914 1915 1916 1917 1918 1919 1920 1921 January — 118 145 187 206 230 236 278 February — 122 147 189 208 230 235 263 March — 124 148 192 207 220 233 249 April — 124 149 194 206 213 235 238 May — 126 155 198 207 207 246 232 June — 132 159 202 208 204 255 218 July 100 132½ 161 204 210 209 258 220 August — 134 160 202 218 217 262 — September 110 135 165 206 216 216 267 — October 112 140 168 197 229 222 270 — November 113 141 178 206 233 231 291 — December 116 144 184 205 229 234 282 — Average for year — 131 160 198 215 219 256 — Wholesale food index* (Statist) — 142 173 225 231 245 308 —

*Second quarter of 1914 taken as 100.

Table VII. shows the average of the movements as combined from the data in Table VI. (together with the prices of fish and eggs) by the Ministry of Labour, each item being given the importance estimated from a pre-war standard budget of expenditure. For the relation of this computation to the cost of living see Cost of Living. Except for making facile generalizations the detailed table is more important than the summary.

The price of bread rose intermittently, but on the whole rapidly till Sept. 1917, when its price was exactly double that of July 1914. The rate of extraction of flour from grain was controlled from the autumn of 1916, and government regulation flour containing an admixture of wheat, maize, rice and other cereals in varying proportions alone was used in the three years 1917-8-9, and during this period the price is not that of a commodity of constant quality. In Sept. 1917 the Government fixed the price at 9d. for the 4-lb. loaf, became the sole purchasers of the necessary cereals, regulated the price to millers and bakers and met the deficit by a subsidy. The price was raised to 9½d. in Sept. 1919 to meet bakers' increased expenses, and at subsequent dates again raised with the increasing price of wheat till it reached 1s. 4d.; when wheat fell in the latter part of 1920 the subsidy was gradually reduced to zero and the price of bread maintained; in 1921 the price fell, and was 1s. 1½d. from April to July. Flour followed nearly the same course as bread.

The retail prices of meat were determined by the wholesale prices already discussed. Imported meat remained for three and a half years at 2d. or 3d. a lb. lower than British meat, but since the price of the latter was nearly doubled, the percentage increase of the former was much greater. The Ministry of Food fixed wholesale prices and the retailer's margin in September 1917 and subsequently the distinction in price between British and imported meat was removed. Rationing was gradually introduced, and was nearly universal from April 1918 to May 1919. Purchasers were restricted also to the kind of meat that was available from time to time. During the period of control and till the summer of 1920 prices fluctuated little, but after control was removed imported meat became cheaper than British, and with a rise in the latter in 1920 the pre-war proportion between the two was nearly restored. Home meat was at its maximum (at about two and a half times its pre-war level) in the autumn of 1920 and did not fall at all considerably till after May 1921.

Prior to 1914 the corresponding numbers, for London only, are 1910 and 1911 98, 1912 and 1913 103. (See article Cost of Living for further analysis, and for comparative figures for other countries.)

The price of bacon rose rather more slowly in the opening years of the war, but rapidly in the summer of 1917 till it was 140% above the pre-war price. In Nov. 1917 importers' and dealers' prices were fixed, and in July 1918 the regulations extended to retail prices; during this period large supplies of generally inferior bacon were received from America, and rationing was only necessary for a few months. The price after being stationary for two years rose during 1920 till it reached three times the level of July 1914.

After 1915 the price of milk was markedly seasonal, while before the war it was generally retailed at the same price nearly all the year round. No change took place till the autumn of 1915, when the price rose 1d. a qt., and in the following autumn another ¾d., and in neither case was there a fall in the spring; in the autumn of 1917 it reached nearly twice the pre-war price, and in subsequent years fell in the spring and rose in the winter to successively higher points, the maximum (10¾d.) being reached in Jan. 1920. Maximum prices were in force from the autumn of 1917 till Jan. 1920, but they were not reached in all localities. The great rise in the price of milk must be attributed to the high cost of cattle food, which was very scarce in the period of restricted imports; elaborate arrangements were made to increase the supply by curtailing the consumption of cream and the manufacture of butter and cheese. Milk was not rationed except by informal local arrangements. Not much attention should be paid to the prices of butter and cheese after 1916, since during a long period they were not freely obtainable, and the Government having taken control distributed them at prices which would meet their cost. Butter was rationed with margarine.

The price of margarine rose little till 1917, while its consumption increased greatly owing to the want of butter. A shortage of supply was felt suddenly at Christmas 1917, and the Ministry of Food took control and presently assumed ownership of the supply of its constituents and the factories in which it was made. The quality was greatly improved, as compared with that in 1914, and its importance as food became very great in view of the difficulty of obtaining sufficient fatty substances from other sources. The price was fixed in Nov. 1917 at 1s. (1s. 4d. for oleomargarine) and changed little till the end of 1920. In May 1919 the price was left free.

The whole supply and distribution of sugar was taken over by the Government at the beginning of the war and control was continued till 1921. Sugar was distributed through the ordinary channels in such amounts as were available and traders began early to ration their customers. Official rationing (generally at 8 oz. per person) developed in 1917 and its success encouraged the Government to develop the general scheme of rationing meat, fats and some other foods in 1918; rationing of sugar gradually became obsolescent in 1919. The price rose considerably at irregular intervals as shown in the table till in Jan. 1920 it was seven times as dear as before the war.

Potatoes became dear after 1916 and afterwards fluctuated strongly upwards in sympathy with other agricultural produce and the price of manures, and in relation to the supply of each season. The high prices, however, were not universally felt owing to the development of the cultivation of private allotments especially early in 1918.

The supply of tea was ample except for a short period in the autumn of 1917. At that date the Government took control of the supplies and provided a uniform blend to be retailed at 2s. 8d. per lb. The rise in price was less on the whole than that of any other commodity shown in the table.

Other less important foods often showed a greater increase in price than those already named, especially since there was a run on them during the time of restriction and shipping facilities were given rather to the more necessary imports. Eggs in particular became scarce and dear owing to the failure of the European supply and the scarcity of poultry food.

No general comparison of wholesale and retail prices is possible, for want of adequate records of the wholesale prices of manufactured goods and of retail prices of articles other than food. In the case of food, however, the figures are sufficiently typical and accurate to allow of a general comparison, but not to permit accurate detailed measurements. The two index numbers shown depend on nearly the same range of foods, but the bread subsidy lowers the retail prices by about 10 points in 1918-20.

Table VIII. Wholesale and retail prices of food. (Statist and Labour Gazette index numbers.)

 Year Quarters Wholesale (Statist) Retail (Labour Gazette) 1914 1st & 2nd* 100 100 4th 118 116 1915 1st 134 123 2nd 144 130 3rd 142 136 4th 144 143 1916 1st 159 148 2nd 173 158 3rd 169 164 4th 195 183 1917 1st 218 192 2nd 232 201 3rd 221 203 4th 222 206 1918 1st 230 207 2nd 227 208 3rd 234 221 4th 247 231 1919 1st 236 221 2nd 233 207 3rd 244 218 4th 264 234 1920 1st 292 234 2nd 328 253 3rd 326 268 4th 290 284 1921 1st 246 250

*July 1914 for retail prices.

In Table VIII. the retail prices for the first quarter of each year are the averages for the 1st of Feb., March, April and so throughout the year. Wholesale and retail prices include those of controlled goods, and in the case of wheat, flour and bread are affected by the bread subsidy. The table shows that retail prices rose in sympathy with wholesale prices during the first three years of the war, but the rise on the whole was less, and the accelerated rise in the spring of each year was only marked in wholesale prices. As prices became more and more rigidly controlled in 1917, and some commodities were rationed in 1918, wholesale prices fell or remained nearly stationary, while retail prices rose very slowly.

(A. L. Bo.)

Price-Control in United States.—During the World War price-fixing agencies in the United States were numerous, and the arrangements made were often informal. Many prices were controlled indirectly; but when this control was to any degree international the result was a “fixed price.”

Prices were more or less formally fixed by various departments or branches of the U.S. Government for at least 110 important products, each of which required a separate price-fixing operation. This was exclusive of repetitions or renewals at later periods, which often involved as much work and study as the original decisions. The following is a partial list of products for which prices were fixed by some government agency or sanction. They are arranged in general in the order in which the prices were fixed, although no pretence to accuracy in this regard is claimed. Food products are not covered in detail, and no attempt has been made to mention them in order:—

Hides
Coal, bituminous
Coal, semi-bituminous
Pig iron
Steel plates
Steel, structural
Wheat
Ship timbers
Pine, yellow
Steel billets
Sugar
Sardines
Bar iron
Pipe, cast-iron
Castor oil
Aluminium
Coal, anthracite
Coke
Copper
Molasses (imported)
Manila fibre
Retail lumber (eastern cities)
Platinum
Hemlock
Pine, white
Spruce, eastern
Paper, newsprint
Manganese ore
Copper, ingot, electrolytic
Copper wire
Iron ore
Nitric acid
Cotton linters
Cotton goods
Cotton yarns
Denims (Mass.)
Drillings (Mass.)
Ginghams (Amoskeag)
Print cloths
Sheetings, bleached
Sheetings, brown
Hemp
Steel rails
Nickel
Tin plate
Wire, barbed, galvanized
Wire, plain, annealed
Ammonia
Douglas fir
Arsenic
Ammonium sulphate
Alcohol, wood
Acetic acid
Nitrate of soda
Silver
Zinc, sheets and plates
Binder twine
Castor beans
Sashes and doors
Linters (munition)
Quebracho extract
Cement, Portland
Sulphur
Rubber
Wool
Acetate of lime
Quicksilver
Iridium
Hogs
Leather, harness
Prunes, California
Raisins, California
Carbon tetrachloride
Formaldehyde
Chlorine gas, liquid
Toluol
Phenol
Picric acid
Sulphuric acid
Tickings (Amoskeag)
Flour, wheat
Rice
Building tile
Crushed stone
Sand and gravel
Charcoal
Leather, sole
Glycerine (dynamite)
Cottonseed meal
Cottonseed oil
Wool grease
Burlap
Tin, pig
Tree nails, locust
Cotton compress rates
Birch logs
Brick, common
Wallboard
Food products

Without attempting a complete list, it may be stated that food products whose prices were regulated included flour, bread, sugar, live stock, meat, poultry, dairy products (including retail milk prices), oleomargarine, cottonseed and its products, canned foods, dried foods, rice and rice flour, feeds and coffee. The prices that were first formally fixed by the Government fall chiefly in the basic raw-materials group. A more shortsighted policy might have begun by regulating prices of articles which figure most conspicuously in public consumption.

In some cases prices were fixed for Government purchases alone, for example, nickel, quicksilver, sulphuric acid, cement, New England spruce and other lumber. In others the prices were fixed for the Government and made available to the public in a contingent way; for example, in the case of hemlock lumber it was provided that any quantity of the commodity which, in the judgment of the lumber director of the War Industries Board, could be released for the commercial market might be sold to the public, subject to the maximum price fixed for the Government. In still other cases for example, copper and raw sugar purchases by the Allied Governments were included in the scope of price-fixing for the U.S. Government; and in a few instances, as purchases for the use of the railways of the United States, the prices were specifically fixed, although they did not apply to the public. Prices were sometimes fixed for single branches of the Government, as in the case of oil products for the navy and cow-hide splits for the quartermaster's corps of the army. Prices were even fixed by the U.S. Government to apply to purchases by the Allied Governments only, as was the case with fuel oil, gasoline and kerosene.

The President, however, early took a firm stand for the principle that prices charged by producers should be the same to the public and to the Government, and, with the exception of prices on certain purchases made by Government departments, rapid progress was made during 1918 in carrying out this policy. Thus the prices fixed for pine, fir lumber and cement, which at first applied only to direct Government purchases, were extended to the public. It proved to be highly important as a practical matter that prices under similar conditions of purchase should be the same to all. The existence in the commercial market of prices that were higher than those paid for Government purchases made it difficult for the Government to secure prompt deliveries. Moreover, such a situation often defeated the purpose of price-fixing, because large purchases might be made by private concerns producing more or less directly for the Government.

The period of price-fixing began about the middle of 1917, and came to a nearly complete standstill with the signing of the Armistice. Among the earliest commodities to be affected by the price-fixing activities of the Government were lumber, coal, wheat, sugar and canned foods. Lumber prices for the Government alone were fixed by arrangement with the Council of National Defense on June 18 1917, and approved by the Secretary of War; coal prices for the navy were fixed on June 19 1917. The Food and Fuel Control Act on Aug. 10 1917 set a minimum price on the wheat crop of 1918. Bituminous coal prices at the mine were fixed by executive order on Aug. 21 1917. Nine days later came the President's announcement of a $2.20 basic price on wheat “to be paid in Government purchases.” The price of copper was fixed in September. Relatively few prices were fixed after Nov. 1918, although those fixed prior to that time extended well over into 1919. Prices, as fixed, were allowed to expire in spite of the fact that in several important cases the representatives of the industry concerned asked that the existing price be continued. On Dec. 11 1918 the War Industries Board issued a statement to the effect that, since it would cease to function after Jan. 1 1919, no new price agreements would be entered into by the Price-Fixing Committee and that all prices theretofore fixed would be allowed to expire by limitation. Several commodities, the cost of which had not been immediately ascertainable, had been taken in large quantities by the Government at prices subject to later determination. For example, during the latter part of Jan. and the early part of Feb. 1919, the Price-Fixing Committee of the War Industries Board fixed prices on common brick and on wall board. Inasmuch as the Food and Fuel Administrations depended for their powers upon the Act of Aug. 10 1917, which applied “during the war,” they functioned longer, but became practically inoperative early in 1919. Of the various agencies through which prices were fixed the following are without doubt the most important: Congress, which by direct legislation fixed a minimum price for wheat and for silver; the President, acting under authority granted by Congress, who fixed prices for coal and wheat; the War Industries Board, created by the President July 28 1917, under authority from Congress, which Board through its Price-Fixing Committee fixed numerous prices from Sept. 1917 to Nov. 1918 (as late as Jan. and Feb. 1919 several cases of price-fixing for commodities bought at tentative prices were awaiting cost determination); the U.S. Food Administration, established in Aug. 1917, which fixed prices of hogs, meat, flour, sugar, binder twine, etc.; local food administrators and sub-agencies, such as the Sugar Equalization Board and the U.S. Food Administration Grain Corporation, which fixed many prices; the U.S. Fuel Administration, established in Sept. 1917, which fixed prices of coal, coke, etc.; the War Trade Board, which fixed prices of rubber, quebracho extract and manila fibre; the Federal Trade Commission, which fixed the prices of newsprint paper; the Emergency Fleet Corporation of the U.S. Shipping Board, which fixed the price of ship timbers and locust tree nails; the U.S. Shipping Board which fixed ocean freight rates; the International Nitrate Executive Committee, which fixed the price of nitrate of soda; the Food Purchase Board, which fixed prices of canned foods, etc., for the army and navy; various army and navy departments, which fixed prices of gasoline and fuel oil, zinc oxide, automatic sprinklers, sashes and doors, castor oil, etc.; the Appraisal Boards of the army and navy, which fixed prices in cases of dissent from prices named in commandeering orders; and the U.S. Railroad Administration, which took steps to fix reasonable prices of locomotives and cars. As time went on a tendency toward greater uniformity and centralization of procedure developed within the price-fixing mechanism. This tendency was seen in an increasing amount of work thrown upon the War Industries Board and the Federal Trade Commission, the former naming a price based largely upon the cost findings of the latter. In initiating price-fixing no systematic plan was followed and prices were at first fixed sporadically. Various Governmental powers were resorted to and were applied by numerous agencies, using diverse means for carrying out the decisions or agreements which they reached. In some cases prices were fixed under special authority, conferred directly by Act of Congress, and limited by the provision of such Act to specified commodities. Thus by section 14 of the Act of Congress of Aug. 10 1917, already referred to, the President was empowered to fix “a reasonable guaranteed price for wheat.” Accordingly on Aug. 30 the President, acting upon the recommendation of a committee appointed by himself, promulgated a price of$2.20 per bus. for No. 1 northern spring wheat at Chicago. The same law, commonly known as the Lever Act, authorized and empowered the President to license importers, producers or distributors of “any necessaries, in order to carry into effect any of the purposes of this Act”; and, if he found unreasonable any storage charges, commissions or profits, to revoke licences and make findings as to reasonable profits, etc. Section 10 of the Act authorized him to requisition necessary foods, feeds, fuels and other supplies. Section 11 gave him power to purchase and sell at reasonable cash prices wheat, flour, meal, beans and potatoes. The power under this Act ran to the President, and the Fuel Administrator and Food Administrator acted under “executive orders.” On the other hand, the War Industries Board acted under less specific authority proceeding from the general war powers of the President. Thus the prices fixed for steel, copper, lumber and other commodities by the Price-Fixing Committee of the War Industries Board were in theory approved by the President before being publicly announced. In some cases, however, such as retail lumber prices in certain eastern cities, the prices were announced without formal approval by the President.

Various methods of applying price control were tried. Prices may be fixed both directly and indirectly. As a rule, each commodity the price of which it was desired to fix was taken up directly and a specific price made for its purchase; but in some cases reliance was placed upon indirect control of the price of one commodity through direct control of the price of another. A most interesting and important phase of indirect price-fixing activities lay in the attempts to restrain prices by controlling consumption, as in the cases of tin, platinum, coal, sugar, wheat and meat. These efforts culminated in rationing in the case of sugar and the requirement of purchase of substitutes in the case of wheat or flour. Steps were taken, also, to prevent waste and to improve methods of production, for example, cleaner threshing of wheat. Most of such “conservation” measures are to be approved without reserve. Closely connected with the conservation phase as seen in control of demand, rationing, etc., were stabilization and pooling. But pooling, while partly used to facilitate rationing (as in the case of sugar), may also be used to keep prices up, either locally or throughout the entire market. In at least three cases, wheat, sugar and tin, the Government entered upon a pooling programme for the purpose of stabilizing prices. Stabilization is a term which implies mixed motives, a considerable part of its purpose commonly being to maintain or keep up prices, at least in a part of the field. This was the case with the Sugar Equalization Board and the tin pool, and the Government's Grain Corporation.

The degree of precision with which prices were fixed varied widely from commodity to commodity, ranging from a loosely determined maximum price to a careful determination of the definite price to be charged for a particular commodity in the case of a particular purchase. As a rule, only maximum prices were fixed, although in a majority of cases the price named as a maximum was the one which actually prevailed. This was not infrequently taken for granted by the price-fixing agency. In some important cases, however, the actual market price fell below the maximum named by the Government. This was true of zinc plates and sheets and certain kinds of lumber. Also, in the case of rubber, a price was named by the War Trade Board as a maximum, which was considerably higher than the market price. As has been already noted, a minimum price was fixed for wheat, the reason being that it was desired to guarantee the market in this case and thus encourage production. The price of hogs was fixed on the basis of a positive minimum after the failure of the attempt to maintain the price on the basis of a fixed ratio to corn. Wheat also furnishes a case in which both a maximum and a minimum price were specifically fixed. Obviously a result similar to that obtained by naming a price may be gained by limiting profits or gross margins. Thus, an effort was made to restrict the profits of the meat-packers to 2½% on sales, and in the case of the five largest packers a maximum margin on meat of 9% on investment was named. The flour millers were limited to a profit of 25 cents per barrel. Dealers in cotton-seed and peanuts, both ginners and others, were limited, beginning July 1 1918, to a margin of $3.00 per ton over cost (not replacement value). This method was also largely used by the Fuel Administration in an attempt to regulate the price of coal to consumers, and in Sept. 1917 this agency announced its plan for fixing the maximum gross margins of retail dealers in coal and coke. Each dealer was authorized to add to the average margin for 1915 between his delivered cost price of coal or coke and the price charged consumers, 30% to cover increased expenses provided the gross margin thus arrived at did not exceed his average for July 1917. Fixed rates of commission or margins of profit were imposed also on dealers in newsprint paper, retail lumber and other commodities. In addition to the above methods, there was the attempt to fix retail prices directly by publishing fair prices, as was done for groceries by the local “price interpreting boards” set up by the Food Administration. Price-fixing by restricting margins passed into the realm of hopes and aspirations in such cases as the earlier regulation of the lake-forwarders by the Fuel Administration, and the cotton-ginners by the Food Administration, for in these cases the producers were merely urged to charge “reasonable” prices. Much the same may be said of the somewhat tentative moves made by the Oil Division of the Fuel Administration toward fixing the price of petroleum and its products. In July 1918 the Oil Director made some proposals with regard to fixing the differential between the prices of crude and those of refined products; and in Aug. he announced a plan to stabilize the price of crude oil, stating his belief that this would prevent radical changes in the price of refined products. It does not appear, however, that the plan had any appreciable effect. From the foregoing it would appear that there were three chief types of price-fixing:—(1) maximum prices, in the case of basic staples which had wide public interest, often recognized as “pegged” prices when any scarcity or rapidly advancing cost existed; (2) definite prices, (a) to encourage production by guaranteeing returns, (b) Government purchases (direct or indirect) in the nature of single transactions; (3) margins, (a) absolute amount per unit, (b) percentage on sales, cost, or investment; this method being used when it was desired to cover the distribution of products, the marketing of which was not integrated with manufacture. The minimum price, strictly speaking, was the exception, but is logically associated with the definite price, which is both maximum and minimum. Another distinction of some importance in fixing prices depended upon the place at which the price named was to apply. Some prices were made on an f.o.b. factory basis, while others were on a delivered basis. The practice prevailing in the industry was partly followed. The tendency, however, was to fix prices on an f.o.b. factory or mill basis, a natural tendency when the price is based on cost. In a majority of cases, prices came to be made f.o.b. the producer's plant. In many cases, however, prices were quoted f.o.b. some market basing point. This was notably true of copper, which was always quoted f.o.b. New York, although the metal was secured from mines in Michigan, Montana and Arizona, and refined at various seaboard points. In the case of commodities produced in several competing areas there was often a tendency to quote prices on a delivered basis. Prices delivered were fixed for New England spruce, Pennsylvania hemlock, cement, hollow building tile, iron and steel scrap, and oil products for the navy. The situation in the case of hollow building tile furnishes some explanation of this tendency. The chief producing area for this commodity was centred in Ohio, while there were other producing territories in the south, in New Jersey and elsewhere. In order to stabilize market conditions and to divide the market, the representatives of the industry desired to fix prices on a delivered basis. In this way, by fixing a delivered price sufficiently low, the low-cost producers in Ohio were prevented from coming too far east with their product; while, if the price had been fixed f.o.b. the plant, there would have been no limit to the area covered by the low-cost producer, except cost of freight and desire for profit. Had the war continued much longer, there can be little doubt that adjustments in railway rates would have become an important part of the price-fixing programme. Special railway service was given in a number of instances as a direct part of price-fixing, as, for example, the arrangements made to furnish transportation to the Douglas fir lumber mills for the purpose of relieving them of accumulations of low-grade lumber. In the case of price-fixing for manganese ore produced in the United States, an integral part of the scheme was the application of special railway rates. When a controlling part of the supply of any given product is produced by concerns which are not completely integrated, especially as to the earlier stages of the industry, it is practically necessary, in price-fixing, to control the price of the chief semi-finished products; but when a controlling proportion of a product comes from producers who are more or less completely integrated, this necessity does not exist, although some protection may be required for independent producers in the earlier stages. Also when the object is to protect the consumer of products which are distributed by separate wholesale and retail agencies, it is necessary to control the wholesale and retail prices as well as the price f.o.b. factory or mill. Prices were fixed for various periods of time, but in general it may be said that on account of changing conditions the periods were short. Perhaps the period most frequently chosen was three months. A much shorter period would have created too much risk and uncertainty in marketing, to say nothing of the strain upon the price-fixing machinery; while a longer period was not, as a rule, desired by the representatives of the industries, especially during a period of increasing costs. Various exceptions might be cited, such as the case of wheat, in which the price was fixed for the crop of a given season. The prices of meat and coal were fixed for indefinite periods, and the same was true of manganese ore. Various bases for determining the reasonable maximum price to be fixed were used, but it may be said that, on the whole, the prevailing tendency was to fix prices on the basis of cost, a reasonable allowance being added for profits. In this connexion the Federal Trade Commission did important work in ascertaining from the books of the producers the actual cost of production and the investment. In the ordinary case of price-fixing, the gist of the method used by the Price-Fixing Committee was as follows: First, some estimate was made of the probable quantity of the product wanted, which, of course, involved a knowledge of the stocks on hand. Second, the quantity which each producer could turn out was ascertained. Third, each producer's cost of production was computed for the most recent period available. Fourth, the average investment involved in the production of the commodity was determined and reduced to the basis of investment per unit of product. The first three of these items bear directly upon the determination of the representative or marginal producers for price-fixing purposes. The fundamental question in fixing prices that are based on cost, is the determination of what may be called the “marginal cost.” This cost may be explained as follows: it is frequently the case that when the several individual costs for a group of producers are accurately ascertained and are ranged in their order from low to high, there will be a variation among them of 100%, the high cost being double that of the low cost. Ordinarily the bulk of the production comes from those producers whose costs are below the average, though this is not always the case. It does not follow, however, that the average cost gives the basis for a fair price. If 25%, or even 10%, of the production comes from high-cost producers and the entire output is needed, the average cost cannot be the basis of price. It is true that in many cases prices were fixed on the basis of average cost, both by the War Industries Board and by other price-fixing agencies; but as time went on methods were perfected, and the practice of taking a “representative cost” developed. This representative cost was very similar to what the economist calls the marginal cost, meaning the cost at which the highest-cost producer is able to produce without loss at a given price. Yearly and Quarterly U.S. Fixed Prices, 1913-8.  Year COAL, bituminous per ton COPPER, electrolytic per lb. LUMBER,Southern yellow pine timbers 6 in. x 8 in. x 16 ft.per M. PIG IRON, Bessemerper ton SUGAR, fine granulated in bags orbarrels FLOUR,standard patent bar. 196 lb. BEEF,freshnativecarcass (Chicago) WOOL,Ohio fine unwashed per lb. LEATHER shoe upper 2nd gradeper sq. ft. 1913$1.18 $0.15$14.46 $17.13$0.0428 $4.58$0.1295 $0.238$0.194 1914 1.16 .13 12.87 14.89 .0471 5.09 .1364 .250 .209 Quarters First 1.16 .14 13.21 15.04 .0389 4.57 .1300 .229 .205 Second 1.17 .14 13.42 14.90 .0395 4.55 .1322 .248 .205 Third 1.16 .12 13.14 14.90 .0583 5.34 .1402 .271 .218 Fourth 1.16 .12 11.71 14.71 .0523 5.86 .1435 .251 .215 1915 1.13 .17 12.90 15.78 .0556 6.66 .1289 .300 .205 Quarters First 1.16 .14 11.64 14.56 .0538 7.34 .1229 .298 .214 Second 1.12 .18 12.21 14.61 .0585 7.39 .1214 .291 .201 Third 1.11 .18 12.46 15.91 .0546 6.22 .1330 .301 .200 Fourth 1.14 .19 15.31 18.03 .0552 5.74 .1375 .308 .204 1916 1.24 .28 15.76 23.88 .0688 7.26 .1382 .352 .275 Quarters First 1.17 .26 15.92 21.61 .0610 6.32 .1375 .328 .216 Second 1.20 .28 15.21 21.95 .0729 6.05 .1388 .335 .246 Third 1.21 .27 15.21 22.05 .0696 7.37 .1388 .351 .265 Fourth 1.40 .31 16.71 29.93 .0712 9.26 .1375 .396 .375 1917 2.07 .29 21.75 43.60 .0771 11.39 .1672 .664 .385 Quarters First 1.47 .33 17.42 36.48 .0686 9.29 .1431 .485 .428 Second 2.40 .32 22.14 47.18 .0788 13.57 .1606 .598 .410 Third 2.24 .27 23.89 53.51 .0797 12.39 .1762 .745 .355 Fourth 2.17 .23 23.53 37.25 .0814 10.34 .1888 .750 .350 1918 2.56 .24 25.51 36.66 .0779 10.14 .2213 .740 .359 Quarters First 2.20 .23 25.14 37.25 .0735 10.15 .1750 .750 .351 Second 2.71 .23 25.92 36.21 .0730 9.79 .2227 .746 .350 Third 2.67 .26 25.42 36.60 .0769 10.39 .2423 .746 .360 Fourth 2.67 .25 25.57 36.60 .0882 10.21 .2450 .720 .375

Of the conditions which facilitate the determination of a reasonable marginal cost for price-fixing, a knowledge of the requirements of the market, or in war-time a knowledge of the needs of the Government and its agencies, is most important. Price-fixing in the United States was handicapped by uncertainty as to the quantity which it was desired to have produced, which uncertainty was in some cases due both to ignorance of the available stocks and to uncertainty as to future requirements. While prices were generally fixed on the basis of cost, there were necessarily many exceptions. Sometimes no costs were available. Sometimes cost was only partly available as a basis, as in the case of “joint products” and of products for which complete cost data did not exist. Sometimes, again, no effort was made to use cost, as in the case of substitutes whose prices were fixed on the basis of the commodity in the place of which they might be used. In a few instances the price was fixed without regard to cost, merely on the basis of preëxisting prices, such prices being taken for what was presumably a normal period. Perhaps the chief difficulty in most cases was to ascertain a fair return on investment. This phase of the matter was never satisfactorily dealt with by any U.S. price-fixing agency during the war. The Federal Trade Commission in connexion with its cost findings frequently reported to the Price-Fixing Committee of the War Industries Board a figure representing the investment, but time did not permit the careful investigation that would have been necessary to ascertain the actual money invested, nor was the attitude of the price-fixing agency, as a rule, one which favoured the strict construction of “investment.” In general, it may be said that in a majority of the price-fixing operations of the War Industries Board, some consideration was given to the estimated investment, and that in such cases the figure used was one which lay somewhere between the book value claimed by the companies concerned and the actual net investment made. On the other hand, a majority of the price-fixing operations of such agencies as the Food Administration appear to have been made on the basis of a margin (interest and profits) per unit of product, determined upon with reference to past experience. And of course, exceptions to any usual practice were at times necessary.

In general there were three chief purposes in fixing prices: (1) to secure production of needed commodities; (2) to prevent social unrest by checking profiteering, coordinating food prices and wages, and stabilizing industrial conditions; (3) to assure Government economy of purchase. The greatest success was attained with regard to the first purpose. The accomplishment of the second, which was more vague, is difficult to measure, but appears considerable. The most that can be said concerning the third is that things might have been worse had there been no price-fixing.

The table on page 148 shows the yearly and quarterly average prices of important articles whose prices were regulated.

On the whole, it may be said that price-fixing in the United States suffered from the lack of a programme. No adequate study was made of interrelations between commodities or of the various complicated factors affecting demand and supply. No general principles were formulated. Too frequently, each step was taken up as a separate proposition. Much trouble would have been saved by a better understanding among the different price-fixing agencies and by the adoption of certain broad fundamental principles, such as the basis for determining marginal cost and the basis for determining investment. There should have been a general board of strategy to supervise the entire price-fixing programme and to coördinate it with the Government's fiscal arrangements and with the various steps taken to control the production and consumption through priorities and rationing. Some progress was made in this direction, but it remains true that the price-fixing operations were not sufficiently correlated with taxation and borrowing (inflation) on the one hand, and with rationing and priorities on the other.

(L. H. H.)