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, Bessemer per ton |
SUGAR, fine granulated in bags or barrels |
FLOUR, standard patent bar. 196 lb. |
BEEF, fresh native carcass (Chicago) |
WOOL, Ohio fine unwashed per lb. |
LEATHER shoe upper 2nd grade per 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
