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THE ORTHODOX ECONOMIC POSITION HELD BY GREAT MAJORITY.

The above views have not been generally accepted by the public at large, by State legislatures, nor by Congress. Indeed, in a number of cases in which certain privileges were given in the direction of cooperation by legislative authority with certain powers concerning regulation, there was attached to the law the statement that it was not to be interpreted as repealing or modifying the antitrust laws.

RADICAL NATURE OF GOVERNMENT BY COMMISSION.

It is perhaps not surprising that the public is slow to extend government by administrative agencies. This extension of governmental powers is the most revolutionary which has been introduced in the United States system since the adoption of the Constitution. Under the Constitution it was the theory that executive, legislative, and judicial powers were to be separate and independent. The administrative commission has general authority to make rates fair, to make service reasonable, and to make rules in regard to particular matters, which are in fact legislative functions. The commission makes inquiries in regard to violations of the law, which function is judicial. The commission administers the laws under which it is operating continuously, which function is executive. Thus the commission is an expert body combining legislative, executive, and judicial functions.

The people are suspicious of radical changes in the form of the government and are suspicious of experts, who necessarily compose the commissions, and therefore, for these reasons, have been slow to create commissions having power over industry and commerce.

PUBLIC HAS FAITH IN SUPPLY AND DEMAND AND COMPETITION.

Another reason why the public has been hesitant to accept the principles of cooperation and regulation is that the people still have faith in the law of supply and demand and in competition. They believe that if competition could be enforced through the antitrust laws, the law of supply and demand would work so as to result in fair prices. Since this has been the faith of centuries, indeed has almost the sanctity of religion, it is not surprising that the conclusion that under modern conditions it is utterly inadequate to protect the public is not readily accepted.

Even after a quarter of a century of trial of the Federal and State antitrust acts, legislatures are still sharpening the teeth of these laws, hoping that in that way they will prevent control of the market through cooperation and secure fair prices to the public.

LITTLE GAIN FROM DISSOLUTION OF TRUSTS.

When the Northern Securities, Standard Oil, American Tobacco, and other lesser organizations, were dissolved under the antitrust law, the public expected that their hopes for results would be achieved. However, after the dissolution of these and other companies, there was no decrease in prices. Indeed, in many cases the value of the stocks of the dissolved companies increased greatly in amount shortly after dissolution, and dividends went on as before.

In two instances the Federal Trade Commission has investigated the matter of prices-tobacco and gasoline. In neither case was there any decrease in price as a result of the dissolution. On the contrary, it was the rapidly advancing price of gasoline after the dissolution of the Standard Oil Co. which led to the investigation by the Federal Trade Commission.

So far as the pubiic is concerned, the important thing is the reduction of prices. If great corporations are dissolved and the public does not secure commodities at lower prices, it is difficult to see. wherein the public gains.

SUPPLY AND DEMAND AND COMPETITION VERY IMPORTANT.

In making the above statements, it is not meant to imply that supply and demand are useless as regulators of price, or that competition is not valuable. It is only meant to imply that they are inadequate. If the quantity of diamonds could be increased by tenfold, diamonds would be lower in price. The same is true in regard to ostrich feathers and sealskin coats. The rarity of the ‘article makes the price very high. But the law of supply and demand is not limited to luxuries. We know that, in the case of perishable articles, especially illustrated by vegetables, the prices vary greatly, being high at the opening of the season and low later; that is, unless artificial methods are used to keep the product out of the market. Also, supply and demand have a most important influence in the control of prices for standard commodities, such as cereals, textiles, steel, and fuels, as will be shown by later discussion.

While unquestionably the laws of supply and demand and competition are potent forces, they have become relatively less potent with rapid transportation and instantaneous communication, so that while possibly roughly adequate in the past, they are no longer adequate to control prices.

SUMMARY.

In summary, it may be said that before the world war, the public believed in the adequacy of the law of supply and demand combined with competition; and heretofore the laws that have been

enacted have been for the purpose of eliminating unfair practices and compelling competition, so that the law of supply and demand would produce the largest effect.

A smaller group held that supply and demand and competition are inadequate, and they proposed the extension of the principle of regulation applied to the public utilities to all standard articles, in which experience has shown that the market may be controlled through cooperation.

CHAPTER II.

THE ECONOMIC EFFECTS OF THE WORLD WAR.

IMMEDIATE EFFECTS OF THE DECLARATION OF WAR IN 1914.

The economic conditions before the war have been described in Chapter I. War was declared by Austria against Serbia on July 28, 1914. For a few days it was hoped that the war would be prevented from spreading, but on August 1 Germany declared war against Russia, and the world contest was on.

The immediate economic effect of the declaration of war was almost to create a panic in this country. During the week in which the war began the stock exchanges of Vienna, St. Petersburg, Rome, Brussels, Amsterdam, Antwerp, and Paris were successively closed, while the transactions at Berlin, Hamburg, and Frankfort were limited to cash. The London Stock Exchange continued operation through July 30, but was closed July 31. Billions of dollars worth of American securities were held abroad-various estimates running from $4,000,000,000 to $6,000,000,000.

The disturbed situation was such as to lead at once to the selling of American securities held abroad on the New York Stock Exchange upon a great scale, with the result of such a rapid downward movement of stocks including even those of the highest class that a panic was feared. Many of the standard stocks during the week fell from 5 to 10 points or even more. The last transactions on the New York Stock Exchange were on July 30. The closing of the New York Exchange was followed by the closing of nearly all of the important exchanges in the country, and even the boards of trade. which deal in agricultural commodities closed. Another almost immediate economic effect of the war was the exportation of gold in large amounts.

All dealing in listed stocks was prohibited by the New York Stock Exchange except at prices not lower than those which obtained at the close of the Exchange on July 30, and this was the official basis of trading until the Stock Exchange opened.

SUBSEQUENT ECONOMIC EFFECTS OF THE WAR.

While for a time the commodities markets were irregular, it was not long before there was large foreign demand for commodities, especially foods. Thus by the middle of August there was the beginning of a sharp advance for certain food commodities.

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The increasing demand for metals came more slowly, prices being little changed for a considerable time.

The advance in prices for the most important of the commodities was not excessive by July, 1915. Shortly after the middle of 1915, however, the extraordinary demand occasioned by the war began to produce an effect, and the forward movement of prices, beginning slowly, has gone on with accelerating speed until the present time. This was the inevitable consequence of the taking of tens of millions of men from productive employment in Europe, and the great additional demands for supplies necessary to equip and feed these millions of men in the field. The cereals and meats were needed for food. War materials and munitions made enormous demands for all of the metals-iron, steel, copper, lead, and zinc. Although from the outbreak of the war the central powers were in a measure cut off as export markets for the United States, the needs of the allies were so greatly enhanced as to more than counteract the partial loss of the export market for the central powers.

Gold instead of being exported was imported in steadily increasing and finally in enormous amounts. The situation had become such that the New York Stock Exchange opened on December 12. The Boston Exchange opened two days earlier, and other stock exchanges opened shortly after the New York Stock Exchange.

Probably there is no better illustration of the incapacity of the ablest business men, political economists, and men controlling legislative affairs to see into the future than that exhibited in 1914. Apparently there was no one in the country who was able to forecast in any measure the resultant economic situation, or if there was such a person his voice was not heard.

PRODUCTION, EXPORTATION, AND PRICES OF COMMODITIES.

In order that the situation may be made more concrete, the general statements which have been made regarding production, exportation, and prices, are illustrated for some of the more important commodities by tables giving the productions and exports from the United States from 1911 to 1917, inclusive, and the prices for these commodities from the beginning of the war. The cereals, meats, textiles, coal, and metals are used for the illustrations.

THE CEREALS.

The production and importation of the five important cereals, wheat, corn, oats, rye, and barley, are given in the tables below so far as figures are now available.1

1 The figures for 1911 to 1916 are from the Agricultural Year Book for 1916. The figures for 1917 are the estimates of the Secretary of Agriculture, taken from the Crop Reporter.

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