location or distance from terminals, of $2.40 per bushel for No. 2 wheat of the crop of 1918. The Agricultural Appropriation Bill containing this amendment was passed by Congress on July 6. It was vetoed by the President.

A general 25 per cent advance in freight rates by the Railroad Administration necessitated a readjustment in the government's buying basis for the new year however. Under authority contained in an executive order of June 24th the Grain Corporation increased the prices at terminals, as announced February 21, so as to establish a minimum of $2.00 per bushel for wheat loaded upon railroad cars at country stations in the least advantageously located points in the country, with correspondingly higher prices for places less remote from market. However this is a matter beyond the scope of the present paper.

XII

Proceeding now to a consideration of the problems of the milling industry under Food Administration control, let it be recalled that the abnormal conditions which prevailed in the spring and summer of 1917 had resulted in something approaching a trade deadlock. So long as the government fair wheat price remained undetermined most mills were unwilling to buy freely and confined themselves to comparatively limited operations. During July and August the rate of milling activity for the whole country was less than 75 per cent of the normal for that season. But when the government wheat price was announced, August 30, the mills entered the buying market and as soon as wheat

1 Even in September some of the large Minneapolis mills were forced to shut down for lack of wheat.

began to move freely from the farms milling activity was resumed. A very large flour output was secured during the last four months of 1917, record figures being established for part of that period.

XIII

The result was that flour prices were greatly reduced and the gaps in the commercial stocks filled up. The agreement mills were able to absorb most of the wheat offerings at the government fair price. The limitation of profits to twenty-five cents per barrel, reënforced by the declaration of the Food Administration that profits in excess of that figure for the year's business would be deemed unreasonable, had the effect of keeping flour prices in most parts of the country approximately on the basis of the government price of wheat. During the period of vicious speculation of the spring and summer of 1917, before the regulation of the Food Administration became effective, flour prices had ranged from $12.00 to $16.00 a barrel at the mill door. Under the régime of control wholesale flour prices were reduced to from $10.00 to $11.00 a barrel for most mills. This was an achievement of the first importance, and, whatever the offsets and inadequacies, is sufficient to justify the work of the Food Administration and the Milling Division.

This method of price regulation, however, based upon cost of production plus a stipulated margin of profit per unit of output a margin which soon came to be interpreted as a minimum rather than a maximum-was clearly open to objections. It did not promote efficiency of operation; it offered dishonest and unpatriotic millers opportunity and temptation to pad their reported costs. The original suggestion of an operating

differential, to include cost as well as profit, limiting the cost figure to seventy-five cents per barrel,1 had been dropped because of the extraordinary range of costs within the industry, embracing concerns from the largest to the smallest. The profit regulation as adopted was a simple expedient of a rough and ready kind designed to meet the necessities of the situation. It was, perhaps, the only method of regulation which offered a fair chance of success. Tho surprisingly effective in the main, it led, none the less, to serious difficulties.

XIV

Some unexpected circumstances rendered the problems of regulation more complicated than had been expected. Fundamental to the entire situation was the fact that the wheat crop of 1917 was the smallest in years, smaller even than had been estimated in August when the Food Administration announced its policies of control. One effect of such a short crop was to abridge still further the scanty range of competition which the regulation had left undisturbed. The crops of England and France were also much smaller than had been expected and the gravity of the export problem was correspondingly increased. With added pressure resulting from the need of prompt flour shipments abroad it became necessary to stimulate milling activity to as rapid a rate as possible. The Food Administration had originally hoped that it would be possible to operate the mills at a fairly even rate of production through the year, but in fact a very large part of the flour production of the mill year—something like 52 per cent - had to be crowded into the four months, September, October, November, December. Yet throughout this period

1 See page 47.

2 From estimates by U. S. Food Administration, Milling Division.

domestic buying demand was insistent and far exceeded the capacity of the mills to keep pace with it.

A marked reduction in operating costs resulted from this high rate of milling activity. A peculiar consequence was that many mills found it difficult, almost impossible, to reduce their prices for flour and feed rapidly enough to keep their profit margins within the allowable maxima — twenty-five cents per barrel on flour and fifty cents per ton on feed. Flour prices, tho tending downward, did not at once fall to a basis strictly commensurate with the lowered wheat price established by the Wheat Price Committee. Wheat feed prices, especially, failed to recede; indeed they tended to advance, reflecting the high prices then current for feeding stuffs generally. Corn, oats, and cotton seed cake and meal ruled at very high prices towards the end of 1917 for various reasons. The question arose whether it would be wise to attempt to force down the price of mill feed in view of the high prices of competing feedstuffs and the scanty supply of mill feed resulting from the short wheat crop. Of course, any reduction in feed prices would tend, pro tanto, to increase flour prices. After much deliberation it was finally decided to issue rules (promulgated by the Milling Division, December 18, 1917) fixing maximum prices for mill feeds. These prices were to be calculated by each mill and were based definitely upon the cost of wheat at the mill door; the maximum wholesale price per ton for bran, in car lots bulk at mill, was set at 38 per cent of the average cost to the mill of a ton of wheat, as calculated from the prices paid during the previous month; fixed differentials based on the bran price were established for the other mill feeds.

This attempt to control feed prices proved largely abortive. To begin with, the Milling Division specifi

cally exempted outstanding feed contracts from the operation of the rule, which therefore did not become effective as to prohibition upon shipments at the old prices until a period of time had elapsed (from two to six months, as it proved) sufficient for the mills to complete the fulfillment of existing contracts. No adequate reason has been given, nor is any forthcoming, why outstanding feed contracts should have been exempted from the operation of the rule as promulgated; especially since on the very same day a rule was announced which required the cancellation of a very considerable proportion of the outstanding flour contracts. In the second place, the 38 per cent rule referred only to bulk prices in car lots, whereas many mills did a considerable feed jobbing and even retail business, especially those in the country districts. Higher prices were charged for feed sold on a jobbing or retail basis and the permissable margins for this type of service were very inexactly defined or understood. The addition of the cost of sacks increased the average price of feed by four or five dollars a ton. Again, very little attempt was made to control the activities of the feed jobbers; in the nature of the case it was difficult to bring them under effective regulation. The Milling Division regarded them as beyond its province and the other regulating agencies of the Food Administration, with the exception of the state Food Administrators, were slow to develop the machinery of control. In the face of the blighted corn crop of 1917 and the almost complete breakdown in railroad service, feed dealers could get almost any prices they asked during the winter of 1917-18. Consequently complaint of "profiteering" was very general, especially in the wheat growing regions, where the farmers felt aggrieved because, while the price of wheat had been reduced from the high quotations prevailing dur