ing the summer of 1917 by the action of the Food Administration, mill feed prices had remained high and in many cases had increased, even after the issue of the 38 per cent rule. There was also complaint on the part of those mills which did keep within the 38 per cent rule against those which did not; western feed was frequently selling in eastern markets at higher prices than the superior local product. It was not until towards the end of the winter that the Food Administration took any adequate action to restrain profiteering in feeds. The Enforcement Division (presently to be described) was able to do some effective work, especially in the Southwest, where conditions had been particularly bad, and considerable improvement was brought about through coöperative action by millers, jobbers, state Food Administrators and other interested parties. The difficulties of the situation were admittedly very great, but on the whole the Food Administration cannot be credited with conspicuous success in its handling of the mill feed problem.

XV

Coincidently with the issue of the 38 per cent feed price rule, the Milling Division promulgated a new rule governing the ratio of extraction of flour and feed. The September and October reports of the agreement mills had shown a prodigal use of wheat per barrel of flour produced; too much feed and too little flour were being made from a given amount of wheat. The reason was that the mills were making a relatively large proportion of expensive "high patent" flours which yield a large amount of offal as compared with the cheaper grades of "straight" flour. By the new rule the amount of wheat that might be used in making a barrel (196 pounds) of flour was reduced from a maximum of 285

pounds for the better grades, as originally established,1 to a maximum of 264 pounds for the same grades, with appropriate differentials for the lower grades - a rate of flour extraction equivalent to 74 per cent. This was avowedly a measure for conservation; the original maximum of 285 pounds, adopted in August, was, perhaps, the best that could have been fixed at the time. The great variation in character of mechanical equipment and milling skill between different mills made it impossible to insist at the outset upon more rigid standards of extraction. But the Milling Division had in the meantime systematically urged and taught the backward mills, by appropriate descriptive matter, blue prints, and the like, and through a staff of mechanical experts, so to improve their standards that the effectiveness of the entire industry was brought measurably up towards the best practice another notable achievement. It was only with the progressive improvement in mechanical equipment, which was thus stimulated, and the increasing realization by the millers generally of the need of regulation and their increasing willingness to coöperate, that the 264 pound rate became possible. Under this regulation the amount of wheat used per barrel of flour was greatly reduced.

Of greater significance, perhaps, than the increased rate of extraction was the prohibition imposed by this same rule upon the separation of flour into several grades patents, clears, straights, etc. After the effective date of the rule (December 25, 1917) not more than 5 per cent of "low grade" might be removed from the flour as ground; the remaining 95 per cent had to be sold as a uniform "straight" flour. Of course, this

1 See page 10.

This was one of the measures which Mr. Hoover had advocated from the first; the other was the establishment of a fixed operating differential to include millers' costs and profits.

played havoc with established brands, since the product of all mills was now placed upon a basis of uniformity, except, of course, as they used different kinds of wheat and could command varying grades of milling skill. However, it immensely simplified the problem of price regulation, since a standard flour now replaced the multiplicity of grades and brands which had formerly baffled attempts at direct price control.1 Thus the way was passed for the next forward step in the technique of food administration in the milling industry.

XVI

This was not to come at once, however. Further experience was necessary under the "cost plus method of price regulation, and to this we must now give attention.

Towards the end of 1917, many mills found themselves in possession of profits considerably in excess of the allowable maximum of twenty-five cents per barrel. Some had already even exceeded this rate on their entire accountable allotment for the entire season. This situation raised the question of the proper interpretation of the profits rule. Did twenty-five cents per barrel maximum profit mean twenty-five cents per barrel in each month, or twenty-five cents per barrel figured on the whole season's operations? At the outset the Food Administration took the view that if in any one month the profits of an individual mill were in excess of twentyfive cents per barrel, its selling price should be forthwith reduced so as to bring its current profits within the twenty-five-cent maximum; profits in excess of this figure were not to be accumulated in the earlier months

1 Subsequently (about March 1, 1918) even the separation of the 5 per cent of low grade was prohibited. Thereafter all flour made was required to be 100 per cent straight flour.

against decreased profits or possible losses expected to occur in subsequent months. However, the concentration of the period of maximum grinding within the first four or five months of Food Administration control indicated that profits would perhaps be very meager in the lean months to come. In other words the milling industry, always a seasonal business, was unusually compressed during this year. So great, moreover, was the variation in rate of milling activity and, therefore in costs and profits, from month to month for individual mills, that the Food Administration was forced to the conclusion that the profit limitation could not be applied strictly to each individual month or to any short period. Meanwhile the position was being strengthened of those who maintained that the limitation of profits to twentyfive cents per barrel was equivalent to a virtual guarantee of twenty-five cents per barrel as a minimum return.

XVII

Any method of regulating the price of flour upon the basis of cost plus stipulated or maximum profit is predicated upon a thoro audit of millers' costs. Partly to perform this function and partly for other reasons, the Milling Division established at its headquarters in New York an auditing department. The task, obviously, was a large and difficult one. The duties of the department were confined at first to checking the monthly cost reports, at the New York office, as regards clerical correspondencies and discrepancies. Its energies were also devoted in part to working out a system of flour mill accounting designed primarily for the use of small mills and recommending its adoption by the

1 Over 60 per cent of the total flour output of the United States for the season July 1, 1917, to June 30, 1918, was produced in the five months, September, October, November, December, January.

trade (an important reform measure, it may be added), and to exercising a general supervision over the reporting mills by correspondence. This was useful work and accomplished some positive results. Little or no actual field work or effective check on loose or dishonest practices was attempted, however. The Milling Division took the view that it was not its business to police the industry and that to discipline millers or attempt anything of the sort would perhaps defeat that spirit of voluntary coöperation which it was anxious to develop. It declined to avail itself of the facilities for independent auditing offered by the Federal Trade Commission. Towards the end of the winter the various divisional offices of the Milling Division, one in each of the nine milling centers of the United States, employed a limited number of inspectors and accountants to visit the mills, check their yields, and assist them in their accounting problems.

Not a few millers took advantage of the situation and loaded their cost reports with improper items. Some came to believe that they would never be investigated or molested if they should pad their cost reports. Such items as new construction and equipment, largely increased salaries to officers (in some cases made retroactive to include a fiscal period closed before the beginning of Food Administration control), bad debts of ancient standing, excessive depreciation charges, losses on miscellaneous outside investments, etc., were added to current costs of production and so charged to the consuming public. Under the conditions of demand which then existed prices inflated in this way could easily be obtained for the flour; in fact, flour could be sold for almost any price, limited only by the flexibility of the seller's conscience.