PROBLEMS OF RECONSTRUCTION THE MACMILLAN COMPANY NEW YORK ■ BOSTON • CHICAGO ■ DALLAS^ ATLANTA ■ SAN FRANCISCO MACMILLAN & CO., Limited LONDON • BOMBAY • CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA, Ltd. TORONTO PROBLEMS OF RECONSTRUCTION BY ISAAC LIPPINCOTT, Ph.D. ASSOCIATE PROFESSOR OF ECONOMICS WASHINGTON UNIVEBSITT THE MACMILLAN COMPANY 1920 All righlt reserved COPTEIGHT, 1919, Bt the macmillan company. Set up and electrotyped. Published April, 1919. J. S. Gushing Co. — Berwick & Smith Oo. Norwood, Mass., U.S.A. 1 oCd.3 U L 4 ■ CONTENTS OHAPTEB I. The Need of Reconstruction . II. Was Control. (Food Products) III. War Control. (Fuel Administration) IV. War Labor Control .... V. Other Elements of Control . VI. War Control in Foreign Countries Vn. Economic Results of the War Vin. Reconstruction in Foreign Countries PAOB 1 30 72 103 138 179 213 268 IX. A Reconstruction Plan for the United States 299 /w>w 20180 PROBLEMS OF RECONSTRUCTION CHAPTER I THE NEED OF RECONSTRUCTION From an industrial point of view the nations at war are confronted with two groups of problems. Stated briefly, the first group contains questions of concentrating industrial effort largely on war production, of diverting men, materials, and finan- cial resources to the essential industries and of cur- tailing the operations of all the rest, of regulating commerce with foreign countries, and of formulat- ing policies and methods for the accomplishment of these ends. In short, this is principally a ques- tion of development of war control with all this implies. The second group of problems arises out of the first. It involves such questions as the dissolution of the war organization, the removal of the machinery of control, the restoration of men, funds, and materials to the industries which serve the uses of peace, and the reestablishment of normal commercial relations with the outside world. The latter are post-war problems. Their prompt solution is necessary because the war has turned industrial and social life into new channels, B 1 2 PROBLEMS OF RECONSTRUCTION and because it will be necessary for us to restore the normal order as quickly as possible. These brief statements outline the task of this volume. Our purpose is first to study the growth of war control and indicate its results, and second to present some of the leading problems of recon- struction. To a considerable extent, neutral countries, also, are confronted with questions of war control and reconstruction. War measures have been enforced on many of them partly as a means of carrying out their agreements with belligerent countries regarding the distribution of imported commodi- ties. To some extent, control has been made necessary by the disturbance of their industries due to other results of the war. The requisition- ing of much of the world's shipping deprived all countries of facilities for sending commodities to market and of obtaining raw and finished prod- ucts in return. This has of necessity disturbed their industrial and commercial life.^ Even the control of foodstuffs and fuel has been made neces- sary in many neutral countries owing to the limited supplies, and in some instances investments are controlled and commerce regulated in a manner which suggests the methods of the belligerents. ^ Other tendencies may be noted. The world over, the war has afforded a stimulus to some industries, — notably to those which supply urgent war needs, — and has occasioned the depression of others. 1 Cf. Chap. 6. 2 cf. Chap. 6. THE NEED OF RECONSTRUCTION 3 In one case there has been an abnormal develop- ment, in the other an unusual depression. De- prived of raw materials from customary sources, some countries have set to work to exploit local supplies which could not be profitably developed under normal conditions of trade. ^ Likewise, manu- factures have arisen in many countries to supply home markets, where, under ordinary circumstances, the most profitable course would be to obtain the commodities from abroad. ^ The war has affected the non-participants in another way. In several notable instances it has afforded a great stimulus to industries generally. This was the course of events in the United States before its entry into the war, and it is at present the case of Japan, where industries are undergoing rapid expansion, and where the exploitation of foreign markets is meeting with unusual success.' In short, the in- fluences of the war have set industry everywhere off on a tangent. These new adjustments are, to a large extent, temporary. But it is possible that the upheaval may usher in a new period of control and protection to defend the countries against disturbances which are in prospect with the return of the old competi- tive conditions. At any event, a reconstruction problem will arise for all the nations. This brief explanation is perhaps sufficient to make clear the fact that neither war control nor reconstruction is a matter for the belligerents only. Post-war 1 Cf. Chap. 7. » Cf. Chap. 7. » Cf. Chap. 7. 4 PROBLEMS OF RECONSTRUCTION conditions will require readjustments in many countries just as at the present time some measure of regulation is necessary. In the United States the institution of a war organization has produced a number of epoch- making changes. On the side of control, such bodies have been brought into existence as the Council of National Defense, the War Industries Board, the War Trade Board, the Food, Fuel, and Railroad Administration, the War Labor Board, and the Labor Policies Board. ^ A new group of or- ganizations has thus been superimposed on the peace establishment. The effect of this control ramifies into every department of industry. We are in the midst of a new industrial order in which industrial managers no longer possess full freedom to establish their policies, and in which goods no longer flow to consumers in their customary vol- ume, nor at all times through ' their ordinary channels. Industry is firmly controlled and is made to accomplish certain purposes prescribed by the laws 'and designated by the administrative boards. What we have just said refers principally to the war organization. The operation of this war ma- chine produces important effects on industry. The stream of raw materials which, in normal times, flows to the peace industries, receives a new direc- tion. Now it moves in large volume to the indus- tries which contribute to the war, and in a smaller » Cf. Chaps. 2, 3. 4. THE NEED OF RECONSTRUCTION 5 and carefully regulated stream to those which ad- minister to the less important uses. This is true of our great raw materials such as iron, copper, lead, zinc, coal, wool, cotton, leather, and rubber. Like- wise, the loan funds, which, under normal conditions, are supplied to the peace industries for extensions, repairs, and new construction, are now divided into three parts : the first and most important part is supplied to the Government with which it meets its many obligations ; a second part is directed to the war industries ; and a third to the less impor- tant activities. A similar division is made of the available supply of labor. The significance of this process is that it builds up, under direction, a group of industries which are now of the greatest national importance, and at the same time puts an effective check upon the others which, if uncon- trolled, might compete with vitally important en- terprises for the elements of production. Will the new organization be continued into the post-war period? Has industrial society gone over permanently to the new order? With reference to the United States, there is abundant evidence to show that the war organization is regarded as temporary. In most of the war laws a definite limit is set for their termination. In the case of the Food Control Act this is the end of the war when *'the fact and date of such termination shall be ascertained and proclaimed by the President." ^ The control over exports as conferred by Title VII 1 Cf. Public No. 41, 65th Congress (H. R. 4961), p. 9. 6 PROBLEMS OF RECONSTRUCTION of the Espionage Act is limited to the war period,^ and a similar provision is made in section 11 of the Trading with the Enemy Act for the termination of import control.^ The Railway Control Act and the War Finance Corporation Act also contain definite limits for their effectiveness.^ Moreover, President Wilson has assured the country in a number of his proclamations that the laws were designated to meet manifest emergencies and that he hoped the operation of the acts would disturb the normal course of industry as little as possible. Thus, in explaining the powers asked of Con- gress to deal with the food question the President said in May 1917 : "It is proposed to draw a sharp line of distinction between the normal activities of the Government represented in the Department of Agriculture in reference to food production, con- servation, and marketing on the one hand, and the emergency activities necessitated by the war in reference to the regulation of food distribution and consumption on the other. . . . The proposed food administration is intended, of course, only to meet a manifest emergency and to continue only while the emergency lasts. Since it will be com- posed for the most part of volunteers, there need be no fear of the possibility of a permanent bureaucracy arising out of it. All control of consumption will » Cf. Public No. f24, 65th Congress (H. R. 291), p. 9. » Cf. Public No. 91, 65th Congress (H. R. 4960), p.^ 14. » Cf. Public No. 107, 65th Congress (S. 3752), p. 8; Public No. 121, 65th Congress (S. 3714), p. 10. THE NEED OF RECONSTRUCTION 7 disappear when the emergency has passed. It is with that object in view that the administration considers it to be of preeminent importance that the existing associations of producers and distributors of foodstuffs should be mobilized and made use of on a voluntary basis. . . . The last thing that any American could contemplate with equanimity would be the introduction of anything resembling Prussian autocracy into the food control in this country." * About June 26, 1917, in explaining the policy of export control, the President said : "It is important that the country should understand just what is intended in the control of exports which is about to be undertaken. . . . There will, of course, be no prohibition of exports. The normal course of trade will be interfered with as little as possible, and so far as possible, only its normal course directed. . . . This policy will be carried out, not by prohibitive regulations, therefore, but by a sys- tem of licensing exports which will be as simply organized and administered as possible, so as to constitute no impediment to the normal flow of commerce." ^ Of the same tenor was the Pres- ident's proclamation of August 27, 1917, which greatly extended export control, and a similar thought is contained in the proclamation of February 14, 1918, which put the entire foreign commerce of the United States under license.^ » Official U. S. Bulletin, May 21, 1917. p. 4, henceforth referred to asO. B. 2 0. B., June 26, 1917, p. 1. » 0. B., Aug. 28, 1917, p. 1 ; Nov. 29, 1917 ; Feb. 15, 1918, p. 1. 8 PROBLEMS OF RECONSTRUCTION From these statements it is clear that the in- tention is to dissolve the war organization as promptly as possible after the conclusion of peace. But many diflBculties will be encountered. Emer- gency measures have cut new channels in industrial and social life. New relations have been created between Government and industry, between pro- ducers and consumers, and between employers and laborers.^ The reasoning of both practical men and theorists is now based on new premises ob- tained from the war experience. In many in- stances, war measures have created a new class of vested interests, including capitalists who have founded industries under the expectation that the Government will continue to give aid and pro- tection, including, also, groups of people to whom control brings an advantage, and other groups who are afraid that unregulated readjustments to peace conditions will bring disaster to business, and in- cluding, finally, thousands of Government employees who will lose their positions when the war organiza- tion is dissolved. Besides, if war control meets with a measure of success, an argument will be provided for its continuance. Control has greatly strength- ened the position of those who formerly urged such a step and who now find it actually in practice. When the time comes, therefore, to reconstruct industrial society, the burden of proof will rest upon those who wish to make the change. Illustrations of some of these arguments may 1 Cf . Chaps. 2, 4, 6. THE NEED OF RECONSTRUCTION be obtained from our own Civil War experience. The issues of greenbacks were emergency measures. It was expected that these notes would be redeemed after the war. But their issue created a new indus- trial condition ; as a result, a considerable portion of our population found it to their interest to seek to prevent their redemption. After much contro- versy, the notes became a permanent part of our currency system in accordance with certain provi- sions of the acts of June 20, 1874, and January 14, 1875. Another illustration may be taken from our tariff history. After our experience with protec- tive tariffs from 1816 to 1833, the trend from the latter date, — with the exception of the act of 1842, — was towards a lower level of duties. The Civil War legislation changed this course of our history. Higher and higher rates were imposed to protect domestic industries burdened with heavy internal taxes until, in 1865, we had reached a high general level of duties. The war acts were emergency measures. But again, new industrial conditions were created, vested interests appeared, with the result that revision of the tariff proved a most dif- ficult matter. Indeed, after several decades, a high tariff came to be regarded as the established policy of the country. Already, there are some suggestions that the measures of the present war may be continued into the peace period. Discussing the world's food situ- ation in October 1917, Mr. Hoover is reported to 10 PROBLEMS OF RECONSTRUCTION have said that "there are two aspects from which we can consider this problem. The first is the as- pect of our immediate necessities as a war measure, and the second, the broader aspect of the world need after peace ; for conditions growing out of the war disturbance to production will have the most material effect on the whole agriculture of the world for many years subsequent to peace." We have pointed out in another place that many of Mr. Hoover's arguments used in favor of war con- trol of foodstuffs will probably be valid for the reconstruction period.^ In European countries, where statesmen have had a longer period to study these matters, definite pro- posals have been made to extend some of the war laws into the future. It is the opinion of many members of the British Labor Party that the con- trol over importation of certain important raw materials, inaugurated as a war policy, should be made a permanent part of the English industrial system.* But demands for the continuation of some features of the new order come from another source. Referring to supervision over imports and exports. Sir Albert Stanley, president of the Board of Trade, said: "The Government now controls practically the entire trade of the country, and when the war comes to an end, so complete a trans- formation will take place that it will be impossible immediately to bring the system to a stop. The » Cf. Chap. 7. « New Republic, XIV, No. 172, pt. 11, p. 9. THE NEED OF RECONSTRUCTION 11 Board of Trade has given the matter most careful consideration, and it seems that the machinery that has been gradually wound up must be gradually unwound." ^ Some persons believe that the pro- cess of "unwinding" will be a long one, and that, in consequence, the period of regulation will be of considerable duration. Concrete illustrations of the prospective regu- lations may be given. Government control over the importation of all dyestuffs into the United Kingdom for not less than ten years after the war is predicted by Sir Albert Stanley. The object is to safeguard English industries against the German producers. The proposed control is to take the form of a licensing system, and licensing authority is to be established by the Board of Trade.^ Recent reports of English committees recommend the pro- hibition of imports from all enemy countries of manufactured or semi-manufactured products of iron and steel during the reconstruction period. A committee considering the needs of the engineering trades urged the shutting off of engineering products except under license ; and similar recommendations have been made with reference to electrical goods ; the question of general control over important ex- ports and imports has also been considered.' The future control of capital issues has received 1 Com. Rept., Feb. 2, 1918, p. 442; July 29, 1918, pp. 376-377. 2 Ibid., June 24, 1918, pp. 1148-1149. 'Com. Rept.. July 29, 1918, pp. 376 ff. ; Tarifif Series No. 39, "British Control of Imports and Exports" (U. S. Dept. Com. Publica- tion), p. 6. 12 PROBLEMS OF RECONSTRUCTION some study. The needs of the war have converted the country into a great workshop for war materials ; the ordinary peace industries have been relegated to the background ; as in the United States, the war industries have been given the right of way in the supply of men and materials, and a great war establishment has been created which will serve little or no purpose when peace is restored. The country will then be confronted with the serious problem of converting back again from a war to a peace industrial basis. But there is in prospect a shortage of material and financial resources. Thus, it is suggested that the wisest course to follow is to adopt the war idea of preference, so that indus- tries which serve the most pressing peace needs shall receive the first and largest share of the avail- able resources. This, of course, implies the con- tinuation of Government direction until industry is again firmly established. This phase of the problem is stated by an Eng- lish authority as follows: "The difficulty which we foresee, and which is causing the greatest anxiety in the minds of many manufacturers, is how they are to find the working capital that will be neces- sary to enable them after the war to resume their pre-war sphere of operations, and even to extend these for the advantage of the many who will be requiring employment. The working capital, i.e., the sums required for stocks of raw materials and goods, and also for credits of customers, for the same turnout as before the war, will so long as THE NEED OF RECONSTRUCTION 13 present values hold, ... be at least double after the war. The problem is where this working cap- ital is to come from. There will be enormous de- mands upon the banks, and it is doubtful if they will have funds sufficient for the purpose. It will not be temporary loans that will be required, but loans probably for some years, until values fall. Our banking system does not lend itself to pro- viding funds upon such a basis." ^ Elsewhere it was stated: "Business men in the United States and Germany . . . have accumulated large sums for after-the-war trade. It would be impossible for a British manufacturer to compete with them if his working capital is taken either in the form of excess profits or of conscription of wealth. If the State takes the capital now, it will have to provide other capital later on, or our industries will be com- pelled to limit their operations very largely, and the business and employment will go to the foreigner." ^ Summarizing the features of British control, Professor Howard L. Gray says: "What may be the permanent significance of this government con- trol of industry cannot be foreseen. Assurance is given that all measures are temporary and that with peace the conditions of peace will be restored. What will have been created, however, is precedent and experience; and in the industrial world which emerges from the war these may have more im- portance than is at the moment anticipated."' 1 Com. Rept., Jan. 14. 1918, p. 171. * Ibid. ' Howard L. Gray, War-time Control of Industry, p. xv. 14 PROBLEMS OF RECONSTRUCTION This was written in the latter part of 1917. The English discussions quoted above are bearing out Professor Gray's predictions. At the time the promise to restore the peace status was made it was impossible to forecast the industrial results of the war. Now it has become evident that both control and other results of the conflict have cre- ated a situation which will require considerable Government intervention, at least during the period of reconstruction. It remains to be seen whether our experience will not be similar to that of England. To say that German experience has been the same as the English would not cover the whole case. Undoubtedly, many difficulties would be encountered in restoring promptly the conditions as they existed in 1914, if that were the purpose ; but one of the new features of the German situ- ation is that it is not the intention to restore the old order. Upon the basis of the war experience, and with a view to the future prospects of trade, marked changes are planned for the industrial system of the country. To quote a recent Com- merce Report: "It is only to be expected that at the end of the war all powers cannot at once take free action, and when the Government declares that the State organization will not be necessary in all directions, but that, on the contrary, it is hoped that a great part of the economic life will be free, then it is undoubtedly well not to take too optimistic a view of the size of this free domain." ^ Thus far 1 Com. Rept., June 29, 1918, p. 1226. THE NEED OF RECONSTRUCTION 15 government organization is planned for textile in- dustries, groceries, rubber, fats and oils, hides and leather, and shipping space. I We have probably said enough to indicate what the possibilities are for the prompt restoration of the kind of industrial organization that existed in 1914. In our own country we have to face not only the questions of Government relation to railroads and telegraphs, but also problems relating to the ownership and operation of shipping, the transfer of several million men from military service and war industries to the peace establishments, the financing of the restoration of the peace industries, the provisions of raw materials for new construc- tion and for manufactures, and the restoration of normal conditions in our foreign trade. In short, we must solve many important questions involved in turning industrial forces back into peace chan- nels. This is the gist of the reconstruction prob- lem. Shall we remove government control at once and allow industry to drift back to a peace basis, or shall we try to direct the process ? If the latter, what method shall we employ ? These two questions must be answered before we can begin to solve all the others. The task confronting us is enormous. It should not be undertaken lightly or upon hasty or emergency judgment. It requires most careful con- sideration, for our reconstruction measures will permanently affect the course of our industry. Fundamentally, the problem of reconstruction is to find some solution to all these questions. It is 16 PROBLEMS OF RECONSTRUCTION impossible to state now how these problems should be solved, because their solution should be based on a careful study of the war measures and their results and on the general effect of the war on in- dustry. But it is possible to state in this place what some of the general principles are that should guide us in this work. Reconstruction measures should not be designed for the benefit of any par- ticular class, interest, or industry, nor even for the benefit of any particular nation. Reconstruction is a world problem. Owing to the dependence of the parts of the world on each other, every nation is concerned with the measures of the other. The test of the reconstruction policy in every case, whether it applies within national boundaries or to international industrial relations, is that the meas- ure should be designed to guarantee and safe- guard progress. In short, the goal is the main- tenance of progress and the equitable distribution of its benefits. If it is still our opinion that in- dividual initiative and private incentive are neces- sary for that end, the spur of private interest should be strictly preserved. If it is thought that progress can be best obtained by a large measure of gov- ernment direction, that should be our course. The purpose of the study of reconstruction in every country should be to decide upon a national indus- trial policy, and our study should have progressed suflBciently by the end of the war that at least the outlines of that policy will be clearly in view. It would be unfortunate if we had to adopt more THE NEED OF RECONSTRUCTION 17 emergency legislation at the end of the war be- cause we had not made up our minds what national policy we should follow. The substance of the recommendations made in this volume is that we should constitute committees at once whose prov- ince should be to make a thorough study of all the problems involved. Abroad, for a year or more, numerous official committees have been making a concrete study of all the leading problems, and many have already made their recommendations. As a result some of the European countries know what their problems are and have a general idea of how they should be solved. We have used the term "reconstruction" as if its meaning were clear. It should be explained that the term is not synonymous with restoration or re- habilitation. It does not mean rebuilding of the waste places of France and Belgium, nor the re- habilitation of disabled soldiers and seamen. It has a broader significance. It signifies an industrial reorganization which will take into account the changes brought about by the war. The writer of the report of the subcommittee of the British Labor Party gave even a wider mean- ing to the term. To quote from the report : *'What the Labor Party looks to is a genuinely scientific reorganization of the nation's industry, no longer deflected by individual profiteering, on the basis of the common ownership of the means of produc- tion ; the equitable sharing of the proceeds among all who participate in any capacity and only among 18 PROBLEMS OF RECONSTRUCTION these, and the adoption, in particular services and occupations, of those systems and methods of ad- ministration and control that may be found, in practice, best to promote the public interest." ^ Elsewhere the report reads: "It behooves the Labor Party, in formulating its own program for reconstruction after the war, and in criticizing the various preparations and plans that are being made by the present government, to look at the problems as a whole. We have to make clear what it is that we wish to reconstruct. It is important to empha- size the fact that, whatever may be the case with regard to other political parties, our detailed prac- tical proposals proceed from definitely held prin- ciples. We need to beware of patchwork. The view of the Labor Party is that what has to be reconstructed after the war is not this or that Gov- ernment department, or this or that piece of social machinery; but, so far as Britain is concerned, society itself." ^ Apparently the author of the report is of the opinion that the time has come to make over society on the new model. But, however lofty the aim, or pure the ideal, we are not yet ready for such a thoroughgoing system of reconstruction. The old maxim natura non facit saltum is as true for social and industrial changes as for those occurring in the physical world. Habit and custom are the great stabilizers preventing society from swinging too far away from the normal. Even the most roseate 1 New Republic, XIV, No. 172, pt. 11, p. 1. * Ibid. THE NEED OF RECONSTRUCTION 19 socialist would not be happy if transported sud- denly to the world of his dreams, because he would not feel at home. Another English writer has ex- pressed a more reasonable view: "The nation's moral awakening has come," he said; "now comes the need for the moral life. Yet let us not look for miracles. Whatever the new England becomes will be the result of long and painful effort, of sac- rifice and renunciation of all kinds, made by men and women of good will ; and we shall succeed in proportion as we keep before our eyes ideals that are not so high that they 'lose themselves in the sky,' aiming at the best practicable for the present, and from that slowly working on to the best conceiv- able." ^ Most of the reconstruction committees abroad are seeking a practical solution of the per- plexing problems that have grown out of the war. Their aim is to secure a prompt and safe readjust- ment to peace conditions, to do justice to all ele- ments of society, and to promote progress. 1 After-war Problems, Earl of Cromer and others, p. 14, ed. W. H. Dawson. CHAPTER II WAR CONTROL Food Products The war has produced material changes in the industrial organization of the country. Upon the peace establishment has been superimposed a war control which ramiifies into all the important fields of industry. Not only have some of the funda- mental domestic industrial relations undergone change, but foreign economic relations as well no longer exist as before. The war statutes, with the control they impose, together with regulations in- volved in numerous voluntary measures, are only partly responsible for the new conditions. To a great extent the war itself, with its demands for men and materials, is responsible for changes quite apart from those produced by the control involved in the war laws. War creates exceptional conditions affecting trad- ing, and it is found necessary to bring the various grades of buyers and sellers under restrictions. War on a modern scale also requires the nation to husband its resources of men, materials, and credit. Conservation and economy must be practiced in these respects. All other uses than those of the nation must be diminished or postponed. More- 20 WAR CONTROL 21 over, an organization whicli suits the needs of peace is inadequate in modern war, where control over pro- duction and consumption must be largely centralized under government supervision. Industries, as well as military forces, must be mobilized. This involves the corollary that industries are organized in a way that best suits the uses of war, and the new emphasis is on the industries which serve the pur- pose of the war. These considerations raise a num- ber of important questions : What are the war measures of the United States and what changes have they produced? What other results have been the products of the war ? The answer to these questions takes us a step further in our study of reconstruction. All the while, the ultimate ques- tion looms before us : Can we get back to our former status, if that is our purpose, and can we make good use in the future of any of the industrial results of the war ? War control in the United States has been de- veloped under a relatively few acts.^ Both as a result of these statutes, and of various voluntary 1 Public No. 20, 65th Congress, S. 2133 (Amended War Risk In- surance) ; Public No. 24, 65th Congress, H. R. 291 (Espionage Act) ; Public No. 23, 65th Congress, H. R. 3971 (Urgent Deficiency Act); Public No. 50, 65th Congress, H. R. 4280 (War Tax Bill) ; Public No. 41, 65th Congress, H. R. 4961 (Food Act) ; Public No. 91, 65th Con- gress, H. R. 4960 (Trading with the Enemy Act) ; Public No. 90, 65th Congress, H. R. 5723 (Amended War Risk Insurance) ; Public No. 102, 65th Congress, S. 3389 (Housing, etc) ; Public No. 106, 65th Con- gress, S. 3754 (Daylight Saving) ; Public No. 107, 65th Congress, S. 3752 (Railway Control Bill) ; Public No. 121, 65th Congress, S. 3714 (War Finance Corporation). ££ PROBLEMS OF RECONSTRUCTION measures, control has been rapidly extended until it includes foods, feeds, fuel including fuel oil and natural gas, fertilizers, and the raw materials neces- sary for their production, and tools, implements, and machines used for the production of the above com- modities. Control also includes railways, tele- graph and telephone lines, and shipping, and the regulation of prices and profits in many industries which administer to government and civilian con- sumption. To a considerable extent, also, the supply of labor and capital is brought under con- trol ; ^ less essential uses are either not served at all, or with diminished portions. By systems of prior- ity a number of materials are ranked in order of preference, and industries and consumers are served in that order. The priority system has recently been applied to a certain extent to the supply of unskilled labor.^ Finally, not only are the imports and exports of the country under control, but American products destined for consumption in neutral countries are brought under careful super- vision, even within the neutral countries. This, of course, is worked out through cooperation with designated associations within those countries. The growth of control has produced many new indus- trial features and is pregnant with many possibil- ities for the future. The joint resolution declaring a state of war between the United States and Germany was ap- proved by the President April 6, 1917. For some 1 Cf . infra. « O. B., July 15, 1918, p. 2. WAR CONTROL 23 time before that date, however, the Council of National Defense had been at work on a prelim- inary organization of the industries of the country preparatory to war. This Council was created un- der authority of an act approved August 29, 1916.^ It was fully organized by March 3, 1917.^ The purpose of this measure as stated in section 2 was "for the coordination of the industries and resources for the national security and welfare." The Coun- cil is composed of the Secretaries of War, Navy, Interior, Agriculture, Commerce, and Labor. It is assisted by an advisory commission, appointed by the President, "consisting of not more than seven persons, each of whom shall have special knowledge of some industry, public utility, or the development of some natural resources, or be otherwise specially qualified, in the opinion of the Council, for the per- formance of the duties hereafter provided." ^ The Council and its agencies "have sought to serve as a channel through which the best professional and industrial intelligence of the country could make itself most effectively available to the government departments." ^ Thus, this organization has be- come the most important connecting link between the Government and the business of the country. Indeed, it is much more than a connecting link, for through it the Government secures cooperation with the industries, and much of the government ^ Cf. First Annual Report of the Council of National Defense, p. 6, The United States at War (Library of Congress), pp. 40 ff. ^Ibid. Ubid.,pp.S,9. * Ibid, 24 PROBLEMS OF RECONSTRUCTION control operates through some of the divisions of the Council. This is a new feature in the conduct of war. But the essential thing from our present point of view is that it creates a new relation be- tween Government and industry — a relation which enables State and industry to work in greater har- mony. To cover the field effectively, a number of com- mittees were created, subordinate to the Council. Among these were the committees on coal pro- duction, shipping, inland waterways, and women's defense work, the general munitions board, the com- mercial economy board, and the aircraft produc- tion board. The Advisory Council, also, is assisted by a large number of subordinate bodies. In many cases these are grouped by industries, the members of the committees being representatives of the par- ticular industries.^ As the Government expanded its war activities it was found necessary to create new organizations which gave opportunities for better adjustments. On July 28, 1917, the Council of National Defense, with the approval of the President, created the War Industries Board, — a body which has since developed into a large or- ganization.^ This board functions as the Govern- ment clearing house for the war industrial needs. One of its important activities is to assist the pur- chasing departments of the Army and Navy; in this activity it often acts in conjunction with the ^ First Annual Report of the Council of National Defense (1917), pp. 97 ff. » O. B., Aug. 3, 1918, p. 3. WAR CONTROL 25 Federal Trades Commission which studies costs of production and thereby provides the information upon which a reasonable price is fixed for gov- ernment purchases, those of other domestic con- sumers and the allies.^ It controls, with the assist- ance of the Export Council, the buying of the Allies. The activities of the War Industries Board also dovetail into those of other elements of the gov- ernment organization. It has recently rendered assistance to the work of the Capital Issues Com- mittee of the War Finance Corporation in an- nouncing that it would withhold priority assistance to new undertakings not essential for the public interest, *' without which new construction of the character mentioned will frequently be found im- practicable." 2 In a similar way it assists the labor administration in the conservation of labor. According to a resolution adopted by the Board at a meeting July 11, 1918: "The practice of man- ufacturers using competitive peace-time methods in the procurement of labor, resulting in the with- drawal of labor from war industries, is strongly dis- approved, and henceforth this board, through its priority division, will in proper cases withhold priority assistance from employers who persist in pursuing such methods." ^ By a very simple process, therefore, pressure is brought to bear on recalcitrant producers to obey the regulations of the various administrative bodies. ^ Cf. purchasing agreements for copper, iron, and steel, etc., O. B. • O. B., July 5, 1917, p. 16. » O. B., July 16, 1918, p. 5. 26 PROBLEMS OF RECONSTRUCTION In addition to the national body, state councils of defense were promptly formed. Like the Na- tional Council, "the State bodies are subdivided into committees dealing with many phases of de- fense work — military, publicity, transportation, finance, food, industries and labor, minerals, medi- cal, science, legal, educational, coordination of in- dependent societies." ^ On August 9, 1917, it was announced that State councils had been formed in all 48 States and in the District of Columbia. Some were created by act of the legislature and received appropriations. Most of them "extended their in- fluence by the creation of a state-wide system of local organization based on the county as the unit, but sometimes reaching down as far as the school districts and municipalities." ^ The section of the Council of National Defense on "Cooperation with States" coordinates the activities of all the bodies within the nation.^ The war has called into existence also great or- ganizations in connection with the administration of the Food, Espionage, Trading with the Enemy, and other acts. These will be discussed in con- nection with our discussion of those acts. It is probable that, sooner or later, some form of food control would have been adopted in the United States even if the country had not entered the 1 O. B., Aug. 9. 1918, p. 3. ' Ibid. For the various activities of the state councils see O. B., June 11. 1917, p. 3; June 18, 1917, p. 5; July 19, 1917, p. 11; Nov. 22, 1917, p. 3; Dec. 18, 1917, p. 3; Jan. 7, 1918, p. 3. ' First Annual Report Council of National Defense, p. 101. WAR CONTROL 27 war.* The shortage of shipping, which increased the diflSculties of England and France in obtaining food- stuffs from more remote parts of the world, in- creased their dependence on us. Meanwhile, Ameri- can stocks were diminishing.^ Both conservation and stimulation of production were urged as the im- mediate policy for this country.' This was part of Mr. Hoover's plan in April 1917. Indeed, some of Mr. Hoover's arguments for food control ap- plied as well to the conditions before we entered the war as after. He urged, for example, that the hardships of the consumer were due in part to specu- lative prices, that export prices were subject to the will of allied buyers, and that control was neces- sary on account of shipping difficulties within the United States. *'The situation is new," said Mr. Hoover; "the old distributive safeguards are torn away by isolation from the reciprocal markets abroad, the extinction of a free export market, and of free export transportation." * During the months from April to August the consumer could point to the rapid changes of prices on the grain exchanges as the source of much of his trouble. On the Chicago market, No. 1 northern spot wheat ranged from $2.05^^ to $2.93 during ' Cf. Com. and Fin. Chron., April 21, 1917. "The Administration, it is said, has long been considering the possibility that the United States might have come to the adoption of some sort of food control to insure a satisfactory conclusion of the war with Germany." 2 Com. and Fin. Chron., April 7. 1917, p. 1328. » Cong. Record, Com. and Fin. Chron.. April 7. 1917, p. 1328; April 14, 1917, p. 1447. < O. B., July 11, 1917, p. 3. 28 PROBLEMS OF RECONSTRUCTION April ; from $2.65 to $3.40 during May ; from $2.49 to $3.10 during June, and from $2.17 to $3.00 dur- ing July.^ In this connection, Mr. Hoover urged that the "unbearable increase in the margin be- tween producer and consumer is due not only to rank speculation, but more largely to the wide mar- gin of profit demanded by every link in the chain (of distribution) to assure them from the great hazards of trade in the widely fluctuating and dangerous price situation during a year when all normal stabilization has been lost through the interruption of world trade and war." * With the entrance of the United States into the war special reasons arose for control. This country was now a participant and was vitally interested in the out- come. It became necessary to lend active aid to our associates. Moreover, if effective work was to be done in this country, it was necessary to guard against the evils of industrial unrest sure to arise with mounting prices. President Wilson outlined the administration food control plan on May 19. He proposed to draw a "sharp line of distinction between the normal ac- tivities of the Government represented in the De- partment of Agriculture in reference to food pro- duction, conservation, and marketing on the one hand and the emergency activities necessitated by the war in reference to the regulation of food dis- tribution and consumption on the other." Meas- » Annual Report of tlie Chicago Board of Trade, 1917, pp. 62 ff. *0. B., July 11, 1917, p. 3. WAR CONTROL 29 ures administered through the Department of Agriculture were to be handled as in normal times; but "the powers asked for over distribution and consumption, over exports, imports, prices, pur- chases, and requisition of commodities, storing, and the like, which may require regulation during the war, will be placed in the hands of a commissioner of food administration appointed by the President and directly responsible to him." Thus, the President asked Congress for power to authorize inquiries into the existing stocks of foodstuffs, to learn costs and practices in the producing and distributing indus- tries, to prevent unwarranted hoarding, to requisi- tion when necessary food supplies for the public use. Authority was also asked to establish prices "but not in order to limit the profits of the farmers, but only to guarantee to them when necessary a minimum price which will insure them a profit where they are asked to attempt new crops, and to secure the consumer against extortion by breaking up corners and attempts at speculation when they occur by fixing temporarily a reasonable price at which middlemen must sell." ^ Even before the President announced his plan, bills began to appear in Congress covering various aspects of the food problem. A reference to their titles suggests their scope and purpose : "To regulate prices," "to authorize the fixing of prices," "to pro- hibit the use of foodstuffs in the manufacture of ^ O. B., May 21, 1917, p. 4; also quoted in Com. and Fin. Chron., May 26, 1917, p. 2072. 30 PROBLEMS OF RECONSTRUCTION alcoholic liquors," "to license corporations engaged in storing food products and in interstate trade," *'to punish speculators," "to prohibit dealing in futures," "to regulate profits," and "to punish monopolizers of food products." ^ On May 7, 1917, a bill was reported favorably in the House covering a portion of the President's plan as subsequently stated. June 11, this bill was re- placed by another ^ which, after meeting much hard sledding both in the House and Senate, finally re- ceived the President's signature August 10 as Public No. 41, — the present food-control bill. Both the list of commodities to be included and the methods of control were stumbling-blocks throughout the de- bates. It proved difficult to enact a measure which would pass muster in both houses, as is shown by the history of the bill.^ So vexing were the numerous amendments that Mr. Lever was led to exclaim on July 24 that "the delays upon this food bill almost amount to a national scandal." ^ At one time the question of one-man or three-man control threat- ened to hold up the bill. Of a similar purport was an amendment offered June 22 by Representative Montague of Virginia defining the power of the 1 Cong. Record, 65th Cong., 1st Sess., pp. 1722, 2042, 2080, 2085, 2164, 2575, 2777, 5635, 7919. 2 H. R. 4961. ^ Favorably reported June 1 1 ; amended and passed by the House, June 23. Referred to Senate committee of Agriculture and Forestry, June 25 ; amended and passed the Senate, July 21 ; House disagrees to Senate amendments and agrees to conference, July 24; conference reports in Senate and House, Aug. 2, 3. Cf. Cong. Record, 65th Cong., 1st Sess., pp. 4189, 4196, 4356, 5367, 5430-5434, 5473, 5709, 5720, 5733. * Cong. Record, 65th Cong., 1st Sess., p. 5432. WAR CONTROL 31 President as "hereinafter provided," thus specify- ing and Hmiting the control. The opponents of the proposed h'censing system for foods and fuel were able to cast 66 out of 189 against the licensing pro- vision.^ They objected to this clause on the ground that it was unconstitutional and that it gave the President legislative powers. Another attempt to limit the control of the President was in an amend- ment offered July 21 by Senator Owens of Okla- homa, providing for a joint Congressional committee on expenditures in the conduct of the war.^ This was dropped later when the President urged (July 23) that "I could only interpret the final adoption of section 23 as arising from a lack of confidence in myself." ^ President Wilson's plan, as outlined above, re- ferred only to the control of foods, but during the debates a considerable number of other articles were included by amendments. The additions in- cluded cotton, wool, leather, iron and steel, copper, and lumber. Even the regulation of prices of man- ufactured products was urged with considerable ap- proval at one time, to compensate the farmer for the control of food prices.* Amendments also provided for federal purchase and sale of flour, meal, beans, and potatoes, with provision for requi- sition for military purposes.^ Nor did coal oper- 1 Cong. Record, 65th Cong., 1st Sess., p. 5468. 2 Ibid., p. 6842. 3 Quoted from Com. and Fin. Chron., July 28, 1917, p. 341. * Cong. Record, 65th Cong., 1st Sess., p. 5433. » Ibid., pp. 3561 ff., 3937 S.. 4131 S., 5430, 5433, and provisions in the act. S2 PROBLEMS OF RECONSTRUCTION ators and oil magnates escape attention, for amend- ments provided for taking over of these indus- tries.^ "Bone dry" provisions at one time caused considerable trouble. The act as approved provided for the control of *' foods, feeds, fuel including fuel oil and natural gas, and fertilizer and fertilizer ingredients, tools, utensils, implements, machinery, and equipment re- quired for the actual production of foods, feeds, and fuel." ^ The act makes it unlawful for any person wilfully to destroy any necessaries for the purpose of enhancing the price or restricting the supply ; knowingly to commit waste or wilfully to permit preventable deterioration of any necessaries in con- nection with their production, manufacture, or dis- tribution ; to hoard, monopolize, or attempt to monopolize, either locally or generally, any neces- saries ; to engage in any discriminatory, unfair, or deceptive practice, or to make unfair or unreason- able charges in handling and dealing with any of the necessaries. It was also made unlawful to "conspire, combine, agree, or arrange with any other person, (a) to limit the facilities for transpor- tation, producing, harvesting, manufacturing, sup- plying, storing, or dealing in any necessaries; (b) to restrict the supply of any necessaries ; (c) to re- strict distribution of any necessaries ; (d) to pre- vent, limit, or lessen the manufacture or produc- tion of any necessaries in order to enhance the price 1 Cong. Record, 64th Cong., 1st Sess., pp. 3561 S., 3937 ff., 4131 S. 2 Public No. 41, Goth Cong., H. R. 49&1. WAR CONTROL 33 thereof, or (e) to exact excessive prices for any necessaries ; or to aid or abet the doing of any act made unlawful by this section." The act empowered the President, if he deemed it essential, to license the importation, manufacture, storage, mining, or distribution of any necessaries. Section 11 gives the President power under certain conditions to purchase, store, provide storage facil- ities for and to sell for cash at reasonable prices, wheat, flour, meal, beans, and potatoes. The pro- ceeds of such sales are to be used as a "revolving fund for further carrying out the purposes of this act." Power is given, under certain conditions, to requisition and take over for use or operation of the Government, any factory, packing house, oil pipe line, mine, or other plant where necessaries are produced. Authority is given, also, to guarantee the price of wheat, but "the guaranteed prices for the several standard grades of wheat for the crop of nineteen hundred and eighteen, shall be based on number one northern spring or its equivalent at not less than $2.00 per bushel at the principal in- terior primary markets." ^ The provisions of the act relating to the control of fuel are discussed in the next chapter. The act provides penalties for infraction of the law, and the President is authorized to make "such regulations and to issue such orders as are essen- tial effectively to carry out the provisions of this act." To further accomplish the purpose of the * Section 14, p. 6. 34 PROBLEMS OF RECONSTRUCTION law he may employ any agency or agencies, ac- cept the service of any persons "without compen- sation," and use other means to make the act effective.^ From this brief summary of the bill, the reader may get some idea of the changes it will produce in our present economic relations. "The whole food control system," it was said recently, "while an outgrowth of necessity, embarks the United States upon a field of enterprise which has heretofore been entirely foreign to its principles and practice of gov- ernment and which, both in the practical working of the system and in its general effect upon the governmental methods and policies, will neces- sarily have to be developed by a process of ex- periment." ^ While the student of reconstruction is interested in the methods employed in working out various phases of war control, he thinks principally of the results, for reconstruction problems grow out of the results of the war and of war control. These ques- tions will be discussed in later chapters. Accord- ing to section 24, the act is designed only as a war measure. Apparently, it will be repealed automat- ically when the fact and the date of the termination of the war with Germany are proclaimed by the President.^ The second portion of President Wilson's food plans was covered in another act dated August 10.^ 1 Sections 1, 2, p. 1. « Journal of Polit. Econ., XXV, p. 847. 8 Section 24, p. 9. * Cf . ante, p. 28. WAR CONTROL 35 This measure is significant for our present study only because it indicates another tendency in the relation of government to industry, namely, the increase of promotion or beneficial work.^ Ap- propriations were made for a number of purposes. A grant was made of $885,000 for use in prevention, control, and eradication of diseases of live stock, and for the conservation of meat, poultry, dairy, and other animal products. Also, $2,500,000 for pro- curing, storing, and furnishing seeds, the proceeds of sale to be used as a "revolving fund" until June 30, 1918. For the prevention and eradication of insects and diseases injurious to plants the ap- propriation was $441,000. Another amount, $4,348,000, was granted for "increasing food pro- duction and elimination of waste and promoting conservation of food by educational and demon- strational methods, through county, district and urban agents." Finally, the sum of $650,000 was to be devoted to miscellaneous work of the De- partment of Agriculture, including special work in making estimates of crops, aid to agents in various states supplying farm labor, for enlarging the in- formational work of the Department, and to defray expenses in printing and distributing emergency leaflets, posters, and other publications.^ Section 27 of the food act had already appropriated 1 Cf. ante, p. 28. ' Public No. 40, 65th Congress : " An Act to provide further for the National security and defense by stimulating agriculture and facilitating the distribution of agricultural products." 86 PROBLEMS OF RECONSTRUCTION $10,000,000 to purchase nitrate of soda to be dis- posed of to farmers for cash at cost.^ Some steps had already been taken to inaugurate food administration before the passage of the food control bill. On April 7, the Council of National Defense, by resolution, asked Mr. Hoover to take the chairmanship of the committee on food supply and prices.'^ His knowledge of the European situ- ation, and his work with the Belgian Relief Com- mission, promised to make his services especially valuable. As the work was outlined for the new chairman, he was to "report to the council such experiences as European governments have had, and advise as to proper methods of preventing re- currence, so far as practicable, of the evils arising out of speculative prices, and to stimulate increased production of all food supplies." ^ When President Wilson formulated his plan of food control on May 19, he stated that he had in- vited Mr. Hoover to undertake the new task of food administration and that the invitation had been accepted. The food problem of the United States, as Mr. Hoover conceived it, was "to secure the effective and economical distribution of these supplies ; to induce as large an export surplus for the benefit of our allies as we can ; to protect our requirements ; to ask the whole community to assist us in build- ing up this surplus by every effort of economy we ' Public No. 41, 65th Congress, p. 13. « Com. and Fin. Chron., April 21, 1917, p. 1555, " Ihid. WAR CONTROL 37 can devise, and to set up such machinery as will furnish this balance wheel on prices." ^ With this problem in mind, he stated the cardinal principles of control as follows : That the food problem is one of wise administration and is not expressed by the words "dictator," or "controller," but "food ad- ministrator" ; that this administration can be largely carried out through the coordination and regulation of existing legitimate distributive agencies sup- plemented by certain emergency bodies composed of representatives of producers, distributors, and consumers ; that the community should be or- ganized for voluntary conservation of foodstuffs ; that, as far as possible, all positions should be filled by volunteers ; and finally, the independent responsibility of the food administration directly under the President with the cooperation of the Departments of Agriculture, and Commerce, of the Federal Trade Commission, and of the railway execu- tives.^ In short, the essence of war administration is "centralized and single responsibility," and the "delegation of this responsibility to decentralized administrative organs." The work of the Food Administration has been largely to solve the prob- lems named above, and its policies have been the development of the "cardinal principles." The American consumer received his first in- structions in food conservation in the economy rules promulgated by Mr. Hoover on July 7. 1 Com. and Fin. Chron., June 9, 1917, p. 2301. *Ibid. 220180 38 PROBLEMS OF RECONSTRUCTION Under the caption of "Win the war by giving your daily service," the people were urged to save wheat, meat, milk, fats, sugar, and fuel. In the case of the perishable foods, the advice was to "double their use and improve your health," and to depend on local supplies as far as possible. The rules also in- volved the observance of one wheatless day a week, and the use of beef, mutton, or pork only once a day.^ All this was voluntary, of course, as the form of the statement indicates. Administration, under the new act, was inaugu- rated the same day the act was approved, namely, August 10, with the appointment of Mr. Hoover as federal food administrator.^ The principal features of American food admin- istration are the development of control through a system of licensing, special measures for meeting the wheat and sugar situation, voluntary arrange- ments with producers of the lesser essentials, and a voluntary system of conservation as applied to the ultimate consumer which involved the organization of communities for the purpose of economy. We may discuss the development of food control under these captions. According to the Food Act, the licensing system does not include retailers ; for the purpose of the law " a retailer shall be deemed to be a person, corporation, firm, or association not engaged in the wholesale business whose gross sales do not exceed 1 Com. and Fin. Cliron., July 14, 1917. p. 132. «0. B., Aug. 11, 1917, p. 1. WAR CONTROL 39 $100,000 per annum." ^ Nevertheless, the retailer, whether close to this margin or far below it, feels the pressure of the law, if he violates its provisions. Thus, about October 30, the Food Administration announced that "the licensee shall not knowingly sell any food commodity to any persons engaged in the business of selling such commodities, who shall, after this regulation goes into effect, violate the pro- visions of the act of Congress approved August 10, 1917, by making any unreasonable rate or charge in selling or otherwise handling or dealing in such commodity, or by holding, contracting for, or ar- ranging for any quantity thereof in excess of the reasonable requirements of his business for use or sale by him for a reasonable time." * This means that even the small retailers of food, of whom there are many thousands in the United States, while exempt from the licensing clause, are yet subject to other provisions of food control. They cannot hoard, monopolize, waste, or destroy necessary food products, or conspire with others to restrict pro- duction and sale. Nor can they exact excessive prices. While the law provides no penalties for this class of dealers, nevertheless they can be effectively reached by shutting off supplies from the licensees.' It is impossible for the reader to understand how thoroughly the country is covered by the licensing system without a study of some of the principal orders and proclamations. One of the earliest of 1 Public No. 41, 65th Cong., section 5, p. 3. 2 O. B., Oct. 30, 1917, p. 2. ' Ibid. 40 PROBLEMS OF RECONSTRUCTION these was dated August 14 and became effective September 1. This required all persons, corpora- tions, or associations engaged in the storage, man- ufacture, and distribution of wheat and rye to take out a license before the date named above, or suf- fer the penalties. The system was shortly extended by the proclamation effective November 1, 1917, to include producers and distributors of beef, pork, mutton, fish, poultry, eggs, milk, butter, cheese, flour, sugar, cereals, lard, beans, peas, fruits, certain vegetables, several varieties of canned goods, and other commodities.^ Bakers, hotels, restaurants, and others consuming over ten barrels of flour monthly were brought under regulation by proclamation ef- fective February 15.^ Likewise, on the same date, licenses were required of persons, firms, or corpora- tions handling commercial mixed feeds, malsters (except brewers of malt liquor who do not malt their own grain), manufacturers and distributors of copra, palm kernel oil, and peanuts, salt water fishermen not already licensed, certain canners, and producers of tomato soup, catsup, and other tomato products.* Subsequent proclamations brought un- der regulation producers and distributors of certain kinds of fish, operators of poultry and egg packing plants, ginners, buyers, etc., of cotton seed, pro- ducers of fermented beverages containing more than a certain per cent of alcohol.* The fertilizer industry 1 O. B., Oct. 10, 1917. p. 2; Nov. 1, 1917, p. 1. » Ibid., Nov. 12, 1917. » Ibid., Jan. 14, 1918, p. 8. * Ibid., May 15, 1918, p. 2. WAR CONTROL 41 was put largely under control by the proclamation effective March 20, 1918.^ On June 20, the licens- ing system was applied to trading in farm imple- ments. Licensees were required to furnish infor- mation regarding their business whenever it was deemed necessary by the Secretary of Agriculture. They were required to permit representatives of this department to inspect property and records. Unjust profits, resales within the trade without rea- sonable justification, attempts to monopolize, un- reasonable increase in prices or restriction of sup- plies, and wilful waste of farm implements were prohibited.^ In the case of fertilizers and farm implements, the administration of the orders is put in the hands of the Secretary of Agriculture. The regulations referred to above do not exhaust the list. They are given to present some idea of the extent of control inaugurated under the food act. The law also includes the control of fuel, the regu- lation of which will be discussed later. These measures are frequently designated as voluntary, but that word does not correctly describe them. When the administrator finds it necessary, he may require license of persons, firms, etc., cov- ered by the law, and licensees are subject to the prescribed penalties. Nor is the system voluntary as applied to retailers, for they too must not violate certain sections of the act lest punishment over- take them. This is brought out clearly in the 1 O. B., Feb. 27, 1918, p. 3. « Ibid., May 17, 1918. p. 1 ; June 8, 1918, p. 16. 42 PROBLEMS OF RECONSTRUCTION instructions given by Mr. Hoover on August 23, 1917, to food administrators from nineteen States who were summoned to Washington. They were advised that their work was to "correct abnor- malities that have crept into trade by reason of the world disturbance"; and that the food adminis- tration "feels justified by its experience so far in counting on the patriotic cooperation of the great bulk of business men"; but they were told that "if any persons try to exploit the country in this time of war, they should not hesitate to take steps to see that the drastic powers that Congress had conferred upon the food administration in such cases are employed." ^ The licensing system has for years been a familiar method of controlling the liquor business. The new feature is its application to the vast number of enterprises which come within the scope of the food act. Whether applied to liquor, or to foods and other products, the effectiveness of the system depends partly on the thoroughness with which the local administrators enforce the orders, and partly on an adequate information service which quickly brings to light infractions of the law. Early in the development of the system, Mr. Hoover found it necessary to learn the practices of the merchants. He therefore called upon Mr. John Skelton Wil- liams, comptroller of the currency, to request national banks in cities and towns of over 3000 population to indicate persons who might be will- » O. B., Aug. 24. 1917. p. 7; Com. and Fin. Chron., Sept. 15, 1917, p. 1059. WAR CONTROL 43 ing to collect regularly the desired information. At the end of each week they were to inform them- selves as to prices charged by retail grocers and other food dealers for thirty principal commodities and report to the food administration.^ This work was to be performed without compensation. With the development of the control program the communities have been organized to a considerable extent for informational service. Retail price cor- respondents are expected to render weekly reports to the local food administrators and to the statistical division in Washington. Where the reports are regularly and carefully prepared, the retailer whose methods are unfair has small chance of escape. The new and significant feature of this phase of control is the organization of consumers, under government direction, for their own protection. The system is full of promise, but whether used for war or post-war purposes its success depends on the readiness and persistence of the volunteer re- porters. In the case of large manufacturers and distribu- tors, requisite information is obtained both by rep- resentatives of the food administration and of the Government.^ Where costs of production are sought, the information is usually obtained through the Federal Trade Commission. We shall discuss this matter below under the caption of the price policy of the food administration. 1 O. B., Sept. 6, 1917; Com. and Fin. Chron., Sept. 8, 1917, p. 948. «0. B., July 13, 1918, p. 11. 44 PROBLEMS OF RECONSTRUCTION What has been said hitherto refers principally to the scope of the licensing system. Rules had to be worked out to prevent hoarding, waste, charging unreasonable prices, and to effect the standardi- zation of certain products. It was announced on October 31 that no licensee would be permitted to "keep on hand or have in possession or under con- trol by contract or other arrangement, at any time, food commodities in a quantity in excess of the reasonable requirements of his business for use or sale by him during the period of sixty days," or to "sell or deliver to any person any food commodities if the licensee knows, or has reason to believe, that such a sale or delivery will give to such person a supply ... in excess of his reasonable require- ments for use or for sale by him during the period of sixty days next succeeding such sale or delivery." ^ With some commodities the limit was thirty days' supply. Exceptions were made of sales to the United States and the Allies, of commodities used for seed purposes, and of certain commodities which, at certain seasons of the year, existed in consider- able abundance, such as fruits, vegetables, eggs, poultry and dairy products. No licensee was pro- hibited from having on hand less than a carload of any commodity, in addition to a carload in transit. This rule has been changed from time to time to meet new emergencies.^ The standardization of certain bakery products was announced November 11, after an investigation » 0. B., Oct. 31, 1917, p. 1. 2 Ibid. WAR CONTROL 45 by the Federal Trade Commission, representatives of the Department of Agriculture and of the Food Administration. The purpose of this new measure was to reduce the cost of public baking and dis- tributing of bread, to reduce the waste of flour, and to conserve the use of sugar and lard. The study of the Trade Commission made clear that manufacturers producing the largest number of sizes incurred the highest cost, that the large loaves were more economical than the small, that the flavor and keeping qualities were better, and that the fermentation losses were less with large than with small loaves. According to the new rules, licensees were required to produce loaves of given standard sizes, and were instructed to use flour, meal, milk, lard, and shortening in certain propor- tions. Destruction of bakery products, wilful waste, the acceptance of returned bread, and the perform- ance of anything which would circumvent the rules were proscribed.^ In the development of the price policy, the method followed by the Food Administration has been to reach the price through profits and middlemen's charges, rather than to fix prices directly. Indeed, to quote Mr. Hoover: "The food bill contains no price-fixing powers, and no price-fixing in a legal sense has been attempted, and there has been no restraint on competition below the profiteering level." ^ However, section 5 of the food act pro- 1 O. B., Nov. 12, 1917, pp. 1, 6; Nov. 16, p. 8. 2 Ibid., Dec. 27, 1917, p. 7. 46 PROBLEMS OF RECONSTRUCTION vides tKat "the President may, in lieu of any such unjust, unreasonable, discriminatory, and unfair storage charge, commission, profit, or practice, find what is a just, reasonable, non-discrimi- natory and fair storage charge, commission, profit, or practice, and in any proceeding brought in any court such order of the President shall be prima facie evidence." ^ Under the authority of this section, the President issued the proclamation of November 27, 1917, authorizing the Food Ad- ministrator "to find that a just, reasonable, and fair profit is the normal average profit which per- sons engaged in the same business and place ob- tained prior to July 1, 1914, under free competitive conditions; to indicate, if he shall see fit to do so, what margin over cost will return such a just, reasonable, and fair profit; and to take such legal steps as are authorized by said act to prohibit the taking of any greater profit." ^ In order to enforce these regulations it has been found necessary to eliminate certain trade methods which might affect costs and prices, hence the rules against unnecessary transactions, resales within the trade save for justifiable reasons, and the policy of keeping goods moving on a direct line to the con- sumer ; thereby unnecessary charges are prevented and chances of deception reduced. The adoption of the price policy named above has made radical changes in the peace-time methods. Producers of specified articles can no longer take 1 Public No. 41, pp. 2 and 3. « O. B.. Nov. 30, 1917, p. 1. WAR CONTROL 47 advantage of market changes to alter the price of these goods ; for, according to the rules, the prices must be based on the profit margin and not on market or replacement value. This principle was applied in an order effective November 1, 1917, which in- cluded beef, mutton, pork, sirups, molasses, cleaned rice and rice flour, lard and lard substitutes, various canned goods and other commodities. Thus, the order prescribed that wholesaler's profits for the given articles are to be governed "by the price he actually pays for the goods he sells, and not by the prevailing market conditions." ^ Such regulations have been rapidly extended until they cover the principal producers and distributors of "neces- saries." According to the new rules effective March 2, 1918, original storers of poultry in cold storage warehouses are allowed an advance over cost not to exceed 6 per cent; a commission merchant selling frozen poultry for an original storer may receive a commission not exceeding 5 per cent on the cost of the poultry; and a wholesaler, jobber, and supplier of hotels and institutions may receive an advance over cost to each dealer of 5 per cent, 10 per cent, and 15 per cent respectively. A similar arrangement was made with regard to eggs.^ In case of producers of canned goods, the producer was allowed a maximum margin between cost and sell- ing price; this depended on the article and the grade. For example, for corn, "No. 2, standard," the margin was 19 cents per dozen ; for "No. 2, extra » 0. B., Oct. 29, 1917, p. 3. * Ibid.. March 2, 1918, p. 2. 48 PROBLEMS OF RECONSTRUCTION^ standard," 22 cents; for "No. 2, fancy," 30 cents; and a similar arrangement for peas and tomatoes.^ These margins were based on a study by the Fed- eral Trade Commission. In many cases profit margins for commodities have been arranged after conference with the industries in question. ^ In the case of flour and feed, the Food Adminis- tration stated from time to time the prices for va- rious localities it regards as "fair." According to the original regulations, millers were allowed a maximum gross margin of 25 cents a barrel, based on their annual business. The figuration of this margin encounters considerable difficulty because of the seasonable nature of the business ; but by a recent ruling, millers who find themselves with an excess over the 25 cents at the end of the fiscal year may release themselves from the difficulty by sell- ing a sufficient amount to the Food Administration or to the Army and the Navy to liquidate the sur- plus. The accounts of millers are audited by the Enforcement Division of the Food Administration.^ Some difficulties have arisen, also, as to what ele- ments should enter into cost for the purpose of fig- uring profits ; the question is largely whether ex- cess profits taxes should be included. According to a decision sent to millers June 17, neither excess profit nor income taxes may be added. ' O. B., April 26, 1918, p. 4. ^ Ibid., Sept. 13, 1917,"p. 1; Sept. 18, p. 3; Sept. 20, p. 6; Sept. 21. n. 1; Sept. 2G, p. 1 ; Oct. 22, p. 6; Oct. 25, p. 7; March 2, 1918, p. 2; March 18, p. 1 ; April 18, p. 8; April 26, p. 4; June 6, p. 10. 8 0. B., July 13, 1918, p. 11. WAR CONTROL 49 Profit margins discussed above refer to manu- facturers, jobbers, brokers, etc. Recently, the Food Administration has announced a plan by which re- tailers, also, are to be brought within the scope of price regulation. The plan is to establish "fair price lists" to be published in practically every locality in the country. These lists are to be con- structed by committees composed of representatives of wholesalers, retailers, and consumers. Each com- mittee is to have detailed reports of actual whole- sale prices, and with the aid of these will ascertain the fair margins for retailers. By this plan, there- fore, prices to consumers will represent cost of acquisition plus a reasonable charge for handling and a fair profit.^ It was said above ^ that one of the characteristics of the food program was the method of solving the wheat and sugar problems. Wheat was selected for special treatment by the Food Administration partly because it was so designated by the Food Act, and partly because it is one of the most im- portant articles of consumption. It was deemed especially important both to stimulate production and to provide consumers with wheat products at as low a price as possible. The shortage of the domestic supply, difficulties in obtaining wheat from the customary world sources, shipping trou- bles, the growing dependence of the Allies on the United States, and the home demands for the elimination of speculation, were other factors in- » O. B., June 8, 1918, p. 1. « Cf. ante. p. 38. 50 PROBLEMS OF RECONSTRUCTION volved. Said the President in his proclamation of August 30, 1917, fixing the price of wheat: "The Food Act has given large powers for the control of storage and exchange operations, and these powers will be fully exercised. An inevitable consequence will be that financial dealings cannot follow their usual course. Whatever the advantages and dis- advantages of the ordinary machinery of trade, it cannot function well under such disturbed and abnormal conditions." ^ The committee appointed by the President to as- certain a fair price for wheat for Government pur- chases reported August 30, recommending $2.20 a bushel at Chicago for number one northern spring wheat or its equivalent. A differential was stated for the various markets. For Kansas City, for example, it was 5 cents less ; for Duluth and Min- neapolis, 3 cents less ; for St. Louis, 2 cents less ; for Buffalo, 2 cents more, and for New York, 10 cents more.^ The determination of a price for wheat which is produced under a great variety of costs was no easy matter. In solving the problem, how- ever, the committee was guided by the principle that a "fair price should be based on the cost of production for the entire country, plus a reasonable profit." In arriving at costs, they relied on esti- mates for the crop of 1917 submitted by the De- partment of Agriculture, checked by independent investigation, and by evidence submitted by the producers and their representatives. 1 O. B., Aug. 31, 1917, p. 1. 2 7j^, pp, j and 2. WAR CONTROL 51 The Food Act not only authorizes the President to purchase wheat for government account, but to guarantee the price for prospective crops. ^ In ac- cordance with this provision, on February 21, a proclamation was issued guaranteeing the price for the 1918 harvest at essentially the price named for government purchases, with slight changes due to the designation of additional terminal markets. ^ Owing to the recent establishment of new freight rates by the Railroad Administration, it has been found necessary to raise the guaranteed price. The new price in Chicago, effective July 1, is $2.26.^ Congress has changed its attitude in the method of guaranteeing the price of wheat. In a recent agricultural appropriation bill, it attempted to take this power out of the hands of the President, and fix the guaranteed price by statute. Section 14 of the act prescribed a uniform minimum price for number two northern spring wheat of $2.40 a bushel.^ The President promptly vetoed the measure, urging that the administrative method of agreeing upon a fair price "has this very great advantage, which any element of rigidity would in a large measure destroy, namely, the advantage of flexibility, of rendering pos- sible at every stage and in view of every change of experience a readjustment which will be fair alike to producer and consumer." ^ He also urged that the proposed price would add upwards of $2.00 a 1 Cf. sections 11 and 14. 2 q. B., Feb. 25, 1918, p. 1. ' Ibid., July 2, 1918, p. G. * Cf. H. R. 9054. 6 0. B., July 13, 1918, p. 5. 52 PROBLEMS OF RECONSTRUCTION barrel for flour, that it would force a corresponding increase in the price of Canadian wheat, and that the objections to the present price came mainly from sections of the country "where, unfortunately, it has in recent years proved impossible to depend on climatic conditions to produce a full crop of wheat and where, therefore, many disappointments to the farmer have proved unavoidable." ^ The arrangements for wheat in the food act made necessary the creation of a new government organ- ization. For two reasons machinery had to be de- vised for government purchase : to obtain wheat on government account and to maintain the guar- anteed minimum price. To effect the latter, it was necessary for the Government to enter the market and accept wheat at the guaranteed amount. Following the precedent of the Emergency Shipping Corporation, the President, by executive order of August 14, 1917, authorized the creation of the Food Administration Grain Corporation with a capital of $50,000,000, all of which was owned by the Government. A wheat-purchasing division and auditing division were also created, and represent- atives were appointed resident in the various markets to administer the provisions of the new order. ^ Even this large amount proved inadequate for the purposes of the act ; by another executive order, dated June 21, 1918, the capital was in- creased to $150,000,000 and the Food Administra- tion was directed to subscribe for the additional 1 0. B., July 13, 1918, p. 5. « Ibid., Aug. 16, 1917, p. 3. WAR CONTROL 53 stock in the name of the United States and to pay for same out of the funds appropriated by section 19 of the Food Act.^ The corporation is authorized to purchase at the guaranteed price all wheat offered by any producer at any primary market named in the proclamation of February 21. Remittances are made at the government price less one per cent to cover administration expenses on the basis of reported weights and grades. Thus a farmer may sell either to the grain corporation or to a com- mission merchant. Country elevators and buyers are entitled to receive fair compensation for their services in handling and marketing of grain, and the charges for such service are a necessary de- duction from the price of the wheat. ^ The sugar problem is also encumbered with peculiar difficulties. Unlike wheat, most of the raw sugar comes from outside producers. Com- petition between the United States and foreign countries for the limited supply, and the need of adjusting differences between beet and cane pro- ducers, further complicate the problem.^ On Aug- ust 27 an embargo was placed on the export of all sugar from this country. The Cuban Government promptly cooperated by embargoing sugar except to the United States and the Allies.^ Meanwhile, by a proclamation of September 7, effective October 1, importers, manufacturers, and refiners of sugar, 1 O. B., June 24, 1918, p. 1 ; June 25, 1918, p. 1. * Ibid., July 16, 1918, p. 12. 3 Ibid., Sept. 29, 1917, p. 1 ; Dec. 17, 1917, p. 6. * Ibid. 54 PROBLEMS OF RECONSTRUCTION sugar sirups, and molasses were put under license.^ The purpose of this was to regulate prices, secure equitable distribution, and prevent speculation. An international sugar committee of five members was formed to arrange for the purchase and dis- tribution of the product whether for consumption in the United States or foreign countries. The plan, also, included an agreement on the part of the re- finers to obtain raw sugar under the direction of the International Sugar Committee and to work out a margin between the cost of the raw product and the selling price of refined. A committee was also appointed to superintend the distribution of beet sugar. ^ Meanwhile, about September 29, the Food Administration announced its intention of enter- ing into negotiations with Cuban planters for the purpose of fixing a price in New York which would be satisfactory to the producer and reasonable for the American consumer.^ In the latter part of December, Mr. Hoover out- lined the steps taken to solve the sugar problem. Suspension of speculation in futures was effected largely through voluntary arrangement between the administration and producers and distributors. An agreement was also made with beet sugar pro- ducers by which the price was fixed at $7.25 and provision made for an equitable distribution of the supply. Refiners of California and Hawaii agreed to maintain the beet basis in spite of the higher price 1 With certain exceptions. Cf. O. B., Sept. 15, 1917, p. 2. 8 O. B., Sept. 29, 1917, p. 3. 3 Ibid., Sept. 29, 1917, p. 1. WAR CONTROL 55 in the East for cane sugar. Louisiana producers agreed to limit the price to $7.80 for granulated. Other measures were the limitation of profits of refiners, wholesalers, and jobbers, a widespread propaganda informing the public of the maximum price they should pay retailers, and a ruling that re- tailers charging exorbitant prices would have their supply cut off.^ Other problems remained for solution. To pre- vent injustice to refiners, it was necessary to divide the imported sugar among the various factories pro rata to their capacities. A committee of the principal producers was appointed for this purpose. It was necessary, also, to save shipping, to deter- mine the most economical sources from the trans- port point of view of all the Allies, to arrange trans- port at uniform rates, and to secure an equitable distribution of sugar among the Allies and the United States. This matter was put in the hands of a committee composed of three representatives of the French, English, and Italian governments, two representatives of American refiners, and a member of the Food Administration. By recent measures, the Food Administration proposed to reduce the price of sugar to the ultimate consumer and to obtain a better distribution of the product throughout the country. On July 11, 1918, the President created the Sugar Equalization Board, whose function is partly to accomplish the purpose 10. B., Dec. 27, 1917, pp. 7, 8; Com. and Fin. Chron., Dec. 15, 1917, p. 2325. 66 PROBLEMS OF RECONSTRUCTION just named, and partly to facilitate joint dealings with the Allies in foreign sugars and to adjust dif- ferentials in oversea freight rates. Where pro- ducers, notably of beet sugar, cannot afford to sell at the agreed profit margin, the board, under cer- tain conditions, may purchase the output at a price which will enable such plants to continue in business. The plan includes the incorporation of the board for upwards of $5,000,000, which sum will be sup- plied by the President from his special funds, and the stock will be held by the President for the United States. The purpose of this arrangement is "to absorb the high peaks of cost in sugar production and to make a small margin on the low cost of certain foreign sugars which may be purchased and thus secure an equalization of the price to the public on a lower level than will otherwise be pos- sible." ^ By this method it is hoped "to work out a price for the public upwards of one cent per pound less than would be the case if the price of sugar were advanced to a price that will cover the high peaks in costs from all quarters." Apparently, the Government is to buy sugar to protect some of the high-cost producers who would be forced out of business at the prevailing profit margin, and will recoup the loss by purchases of the low-cost product. This plan, therefore, differs materially from the method of meeting the wheat problem where the guaranteed price is supposed to cover a fair margin of profit "for the country as a whole," which in- 1 O. B., July 12, 1918, p. 1 ; Bus. Dig., July 24, 1918, p. 140. WAR CONTROL 57 terpreted means that this price covers the expenses of those farmers whose costs are highest. Owing to the increasing shortage of sugar, it be- came necessary late in the spring of 1918 to plan rigid conservation of the supply. The essential features of the order effective May 15 were the restriction of producers of less essentials to 80 per cent of their 1917 demands, and the cutting off en- tirely of supplies from producers of noti-edible prod- ucts, except that the necessary manufactures of this class received their requirements. Firms which en- tered business after April 1, 1918, were to receive no sugar, and those which increased their demands since that date were denied further supply until their stock was exhausted. Producers of ice cream and tobacco were put in a preferred class. In case of the former, it was deemed necessary to assure the consumption of the surplus of milk to encourage the dairy interest to maintain production. The con- sumption of sugar in the production of tobacco was regarded as a negligible quantity.^ Nor did conservation measures stop here. The lack of shipping, and the decrease in the amount of raw sugar from Cuba, compelled a further cut. A new order, effective July 1, divided consumers into groups. In group A, candy producers were limited to 50 per cent of their average consumption for the three months ending with September 1917 ; ice cream makers were entitled to 75 per cent. In group B, commercial canners were given their full 1 Bus. Dig., May 15, 1918, p. 655 ; O. B., May 6, 1918, p. 1. 58 PROBLEMS OF RECONSTRUCTION requirements ; in group C, public eating places were rationed on the basis of three pounds for each ninety meals served. Bakers, in group D, were entitled to 70 per cent of their average consumption for the three months ending September 1917, or as an al- ternative, 70 per cent of their consumption for June 1918; group E, — that is, retail stores, — re- ceived for July a supply equivalent to the average amount sold during the three months ending June 1918. They were forbidden to sell to others than householders without taking up the certificates of such persons. Nor could they sell more than two pounds at any one time to town consumers, and not more than five pounds to country consumers. Exception was made in the case of sugar for home canning, when twenty-five pounds could be obtained, or even a larger amount with the approval of the local food administrator. Consumers were required to certify that the product was used for canning, that they had not purchased elsewhere ; mean- while, they promised to return any unused portion.^ As with the order effective May 15, certificates were required of distributors; in case of the new order, records were kept by the retailers of house- hold purchases. Administration of the order was in the hands of local food authorities. Apparently, in putting out the order effective July 1, the Food Administration was not able to foresee the extent of the prospective shortage. New fac- tors necessitated greater economy. Among these 1 Bus. Dig., July 3, 1918, p. 30; 0. B., June 24, 1918, p. 6. WAR CONTROL 59 were the unexpected loss of upwards of fifty mil- lion pounds of sugar through submarine activity off the Atlantic coast, the larger demands of the army and navy, and the unfavorable outlook for production from American beet and cane. In ad- dition the United States was under obligatiori to sup- ply sugar to certain neutrals under its agreements. Thus it was found necessary to further restrict domestic consumption, during the period from August 1 to January 1, to two pounds per person a month. An order issued to public eating places limited the use of sugar to two pounds for each ninety meals served.^ A new feature in meeting the sugar problem was the appointment, June 25, of a sugar administrator with entire control over distribution. One of his chief functions was to devise economies and con- serve supply. A part of the new plan was to or- ganize production districts within the country, to eliminate cross hauling, and to effect a zone system comparable to that in operation for the distribution of coal. 2 The general principles of control, outlined above, are witnessed also in dealing with the meat and coffee situation. On September 12, 1917, a packer's committee, representing the several classes of pro- ducers, approved the licensing of the industry.^ The intention of the Food Administration to limit 1 O. B., July 26, 1918, p. 5. » Bus. Dig.. July 3. 1918, p. 30; July 26, 1918, pp. 5 and 7. » 0. B., Sept. 13, 1917, p. 1. 60 PROBLEMS OF RECONSTRUCTION profits of the packers was made known November 24, when it was announced that producers would be divided into two classes, namely, those with an annual business over $100,000,000 a year and those under that amount. For the first class, profits were limited to 9 per cent on their investment, ex- cept on by-products. Smaller packers were al- lowed 2^ per cent on the gross value of their sales. For purposes of profit regulation, packers of the first group were required to divide their business into three classes. On class 1 the annual profits were not to exceed 9 per cent ; nor could they ex- ceed 2i per cent on gross sales. This class included slaughtering, other food products of which at least one fourth consisted of material from slaughtered live stock, non-edible products, including hides, wool, and goats' hair, and the operation of refriger- ator cars. On class 2 a profit of 15 per cent was permitted ; included in this group were soaps, cleansing materials, glue, gelatine, glycerine, am- monia, pharmaceutical products, leather, commer- cial fertilizers, and products of horn and bone. No limitation was imposed on profits derived from class 3, which included the raising, feeding, and fattening of live stock, slaughtering and manufac- turing products in foreign countries, the operation of stock yards, loan agencies and institutions, and any other business outside the scope of classes one and two.^ 1 Com. and Fin. Chron., Dec. 15. 1917, p. 2325 ; Bus. Dig., Dec. 5, 1917, p. 447; Dec. 12, 1917, p. 489. WAR CONTROL 61 The announcement that profits were to be limited brought a protest from the packers who urged that 9 per cent might restrict their borrowing capacity, that it did not yield enough to finance expansions of plant and equipment, and that new capital could not be found for these purposes during the war. Mr. Hoover replied that investigation showed that pre- war earnings were slightly less than 9 per cent, and that insistence on more than that amount prac- tically meant a demand on consumers to pay for plant extensions. He urged, also, that "if the packers exhausted their abilities to find capital for construction out of their earnings, and that if the Government required specific extensions of plant to meet war needs, these would be considered upon their merits from time to time." ^ As in the case of other industries covered by the Food Act, packers were put under license and were for- bidden to make any change in their business which might raise the rate of profit above the amounts stated. With the meat industry, as with others, new con- ditions were continually arising to complicate the problems and to enhance the diflSculties of control. The former methods had not measured up to re- quirements and a change was found necessary. Thus, said Mr. Hoover, in a letter to the President dated March 26, 1918 : "I feel that we have reached a position with regard to the whole meat industry of the country that requires a reconsideration of 1 O. B., April 1. 1918, pp. 1, 6. 62 PROBLEMS OF RECONSTRUCTION policy. The situation is one of the most complex with which the Government has to deal, by virtue of the increasing influence that the Government purchasing has upon prices, by the necessity of pro- viding increasing supplies for the Allies, and the consequent reduction of civilian consumption and withal, the due protection of the producer and the civilian consumer." Elsewhere Mr. Hoover said : *'I recognize fully the well-founded objection to any theory of price fixing, but where the purchases of war necessities in a given commodity have reached such a volume that the purchase of these commod- ities trench into the domestic consumption, the operation of this purchasing power becomes a con- dition of price fixing and, to my mind, all theories go by the board." He suggested three possible policies. First: "To free the Government from all interest in price by abandoning direction of war purchases and to aban- don conservation measures because they may also affect price." This policy was rejected because "with growing volume of purchases the price in- fluence will be transferred to uncontrolled agencies who are themselves price fixing. . . ." Second : "To continue as at present the direction of these large purchases with a mixture of partial national policy in production and day-to-day dealing with emergency." This method was also rejected be- cause of the "intolerable situation for any govern- ment official in criticism from both producer and consumer, and with the growing volume of pur- WAR CONTROL 6S chases this criticism must increase. It permits of no constructive policy in production." ^ The third policy suggested was "to stabilize prices based upon cost of production at a fair and stimulative profit to the producer and with stabil- ization to eliminate speculative risks and wasteful practices and thus some gains for the consumer." With reference to this plan Mr. Hoover said : "This course is also fraught with dangers. It leads either to a voluntary agreement with the packers as to prices to be paid producers and charged to con- sumers from time to time or to actual operation of the packing plants by the Government. In either case the Government will need to take some finan- cial responsibility in speculative business." In con- clusion, he compared the purchases of meat prod- ucts with those of iron, steel, copper, explosives, wheat, sugar, and some other commodities. "None of these arrangements have evolved out of any governmental policy of price-fixing," said Mr. Hoover, "or any desire to interfere with the oper- ation of natural laws of trade, but are simply the result of the Government being forced into the issue of becoming the dominant purchaser and thereby, willingly or unwillingly, the price deter- miner in particular commodities." ^ He recom- mended a board to study the problem composed of the following or their representatives : the Secre- » 0. B., April 1, 1918, p. 6. ' Cf. supra. Note that this policy is recommended only as a war measure. 64 PROBLEMS OF RECONSTRUCTION tary of Agriculture, the chairman of the Federal Trade Commission, the chairman of the Tariff Board, the Secretary of Labor, and the Food Ad- ministrator.^ The committee reported May 27, 1918, recom- mending the continuation of the regulation of the packing industry by the Food Administration and against government operation "unless it should be found impossible to enforce regulatory measures." ^ Other recommendations included the auditing of packers' bi-monthly profit statements, extending the existing methods of regulating profits until July 1, a study and report by the Federal Trade Commission of reasonable margins, report by the packers of wholesale prices received for meat, and local publicity for such prices. As to retail distri- bution, it was urged that an investigation should be made for the purpose of determining "some constructive effort," and it was suggested that a committee be created for "thorough investigation of and recommendation upon the subject." ^ In the light of later developments it is possible to read between the lines of Mr. Hoover's letter to the President and see why satisfactory regulation on the existing basis was unsatisfactory. Apparently, there was a feeling that profits were greater than they should be in war times and that fixing profit margins did not solve the problem. In this con- nection the packers have recently come in for their 1 O. B., April 1, 1918, p. 6. « 75^,^ May 31, 1918, p. 1. Ubid. WAR CONTROL 65 share of indictment on the charge of profiteering. According to the report of the Federal Trade Com- mission directed to the Senate June 29, 1918 : "The power of dominant factors in a given industry in maintaining high prices and harvesting unprec- edented profits is shown in a survey of the meat packing situation. Five meat packers, Armour, Swift, Morris, Wilson, and Cudahy, and their sub- sidiary and afl&liated companies, have monopolistic control of the meat industry and are reaching for like domination in other products. Their manip- ulations of the market embrace every device that is useful to them, without regard to law. Their re- ward, expressed in terms of profit, reveals that four of these concerns have pocketed in 1915, 1916, and 1917, $140,000,000. . . . However dehcate a defi- nition is framed for 'profiteering,' these packers have preyed upon the public unconscionably." ^ Evidently, if the figures given by the packers in their reply are true, the commission has confounded "high prices" with "unprecedented profits"; for it does not necessarily follow that prices are high be- cause profits are great. In fact, the packers urged in their reply that their profit per pound was only a fractional part of a cent, and that such a small margin on the turnover was scarcely felt in the final consumer's price. The report makes clear another difficulty inherent in all profit regulation, namely, the problem of reaching the "low-cost producers." Thus, according to the report, "the 1 Senate Doc. No. 248, 65th Cong., 2d Sess., p. 7. F 66 PROBLEMS OF RECONSTRUCTION outstanding revelation which accompanies the work of cost finding is the heavy profit made by the low- cost concern under a governmental fixed price for the whole country." ^ The commission's solution for this diflSculty is found in the following state- ment from the report : *' The profiteering that cannot be got at by the restraints of conscience and the love of country can be got at by taxation." Grave questions of economic policy are involved in this statement, for the question arises whether regulation or heavy taxation which penalizes efficiency in the long run accomplishes the results of stimulat- ing production and disburdening consumers of high prices. It would easily solve the problem of high profits, but would it at the same time be a cure for high prices ? The regulation of the coffee industry was ef- fected by methods similar to those described above for other food products. On February 6, 1918, fol- lowing a conference with the members of the New York Coffee and Sugar Exchange, speculation in green coffee was prohibited by the Food Adminis- tration. Actual dealers in green coffee beans were prohibited from having on hand or under control in this country supplies more than sufficient for their 90-day requirements. The stocks permitted were in addition to those en route to foreign coun- tries, or held in foreign countries under contract. Dealers agreed to keep the product moving in as direct line as possible to consumers, and to eliminate 1 Senate Doc. No. 248, op. dt., pp. 5 and 20. WAR CONTROL 67 resales within the trade without reasonable justi- fication.^ In addition to the provision that licensees in any sale of green coffee should take no more than a reasonable profit, the limit of profit was fixed. A "reasonable profit" for an importer was an- nounced to be not more than 2^ per cent, for a jobber not to exceed 5 per cent gross margin over cost, plus brokerage or commission and the usual ex-ship or in store and shipping charges actually incurred by the licensee.' We said above that one of the features of the food plan was the development of measures of voluntary conservation. Our interest is principally in the growth of control and not in the supplementary measures. The latter, therefore, require only brief discussion. Voluntary measures apply principally to the ultimate consumer, and rest for their success on the manner in which householders cooperate with the Food Administration. As Mr. Hoover said: "The effectiveness of these rules is dependent solely upon the good-will of, and the willingness to sacrifice by, the American people. We are de- pendent upon the cooperation of the trades. We have but one police force — the American woman — and we depend upon her to organize in cooper- ation with our State and local Food Administrators to see that these rules are obeyed by that small minority who may fail." ^ There is an element of 1 O. B., March 7, 1918, p. 8 ; March 12, 1918, p. 3. » Ibid., March 12, 1918, p. 3. » Com. and Fin. Chron., Feb. 2. 1918, p. 443. 68 PROBLEMS OF RECONSTRUCTION control, however, in all these measures, as was indicated above in the case of flour and sugar. But below the minimum established by the Food Administration there are large savings that con- sumers may effect by abstinence. The purpose of voluntary measures is to promote such economies. The movement for meatless Tuesdays and wheat- less Wednesdays was started late in September 1917. Reports reaching Washington early in No- vember indicated that the observance of such measures was coming to be general. "In New York City," it was said, "out of 225 restaurants belong- ing to a certain association, 224 are observing the days for the saving of these two commodities," and "out of 66 railway dining car services in the country 47 have pledged themselves to work with the Food Administration in having meatless and wheatless days." ^ Further steps for the conservation of food were announced in the President's proclamation dated January 18. The President explained that "many causes have contributed to create the necessity for a more intensive effort on the part of our people to save food in order that we may supply our associ- ates in the war with the sustenance vitally neces- sary to them in these days of privation and stress. The reduced productivity of Europe because of the large diversion of man power to the war, the partial failure of harvests, and the elimination of the more distant markets for foodstuffs through the destruc- 1 0. B., Nov. 7, 1918, p. 4. WAR CONTROL 69 tion of shipping, places the burden of their subsistence very largely on our shoulders." ^ The proclamation called for a 30 per cent re- duction in the consumption of wheat and wheat products, and the observance of two wheatless days, namely, Monday and Wednesday, instead of Wednesday only, as heretofore. In addition to meatless Tuesday, already in vogue, the public was urged to observe one meatless meal each day and not to consume pork on Tuesdays and Saturdays. By "pork" was meant bacon, ham, lard, and other pork products, fresh or preserved. According to the new rules issued by Mr. Hoover about the same time, the new product, "Victory Bread," was to contain not less than 5 per cent of cereals other than wheat beginning February 3 ; the amount was to be increased to a minimum of 20 per cent by February 24. Millers were required to increase their milling proportion from 2 to 4 per cent, by producing the standard barrel (196 pounds) from 264 pounds of wheat. "If you bake bread at home," urged Mr. Hoover, "use wheat substitutes ; if you buy it, buy only Victory Bread." ^ Under the license regula- tions, wholesalers were required not to buy more than 70 per cent of their purchases of flour from millers as based on their purchases for the corre- sponding months of the preceding year ; their sales to retailers were prescribed as one pound of wheat flour to one pound of other cereals — the propor- tion which retailers sold to consumers. The rules » Com. and Fin. Chron., Feb. 2, 1918, p. 443. ^ jj^. 70 PROBLEMS OF RECONSTRUCTION also covered the amount of flour used in the manu- facture of macaroni, spaghetti, noodles, crackers, breakfast foods, pies, cakes, and pastry.^ The regulations were somewhat relaxed as to meat by an order of February 22, when the restrictions were lifted until April 15, in the States west of the Mississippi, on the use of mutton and lamb. Mr. Hoover announced that these products were not exported to the Allies. However, he urged absti- nence on meatless Tuesday, because if the use were confined to the other six days, it would displace a certain amount of beef and pork; whereas if mut- ton and lamb were consumed on Tuesday, an equiv- alent amount of beef and pork would be consumed on other days of the week. The Food Administra- tion announced that since the inauguration of meatless days the first of November, upwards of 140,000,000 pounds of beef had been saved through conservation measures.^ On various occasions, consumers have been asked to pledge themselves to save food products. The week beginning October 28, for example, was desig- nated "Food Pledge Week," and canvassers through- out the country undertook to obtain promises from consumers to obey the rules of economy.^ Un- doubtedly, millions of people have kept their pledges faithfully, but it would be impossible to state 1 Com. and Fin. Chron.. Feb. 2, 1918, p. 443. 2 Ibid., March 2, 1918, p. 879. 3 Bus. Dig., Nov. 7, 1917, p. 279; O. B., Nov. 2, 1917, p. 4; Nov. 9, p. 2. WAR CONTROL 71 with any degree of accuracy how much saving has resulted. It is not necessary at this point to explain how far these various methods of control depart from the prevailing order of a year ago. The new system works profound changes in the relations between government and industry, and between producers and consumers. As with former topics, the ques- tions are pressing for an answer, "What will be the result of these regulations, and what reconstruction problems do they raise?'* The answer must be postponed until we have studied other features in the development of war control. CHAPTER III DEVELOPMENT OF WAR CONTROL (Continued) Fuel Administration The Food Act conferred the authority for control not only of foods and feeds and factors necessary for their production, but also for fuel, including fuel oil and natural gas. The powers are ample for a thorough regulation of these industries. A state- ment of some of the provisions will make it clear that, as applied to fuel, these powers are more extensive than in the case of food products. According to section 25, the President is au- thorized and empowered "whenever and wherever in his judgment necessary for the efficient prosecu- tion of the war, to fix the price of coal and coke, wherever and whenever sold, either by producer or dealer, to establish rules for the regulation of and to regulate the method of production, sale, ship- ment, distribution, apportionment, or storage thereof among dealers and consumers, domestic or for- eign." ^ In the event that producers or dealers fail or neglect to conform to the prescribed regulations, or do not conduct their business efficiently under control, or manage it in a manner prejudicial to the public interest, the President is authorized "in » Public No. 41, op. cit., pp. 9, 10. 72 WAR CONTROL 7S every such case to requisition and take over the plant, or business, and all appurtenances thereof belonging to such producer or dealer as a going concern, and to operate or cause the same to be operated in such a manner and through such agency as he may direct during the period of the war or for such part of said time as in his judgment may be necessary." Provisions are made for payment in such a contingency. Further, if the President is of the opinion that he can better provide for the com- mon defense, he is empowered to "require any or all producers of coal and coke, either in any special area or in any special coal fields, or in the entire United States, to sell their products only to the United States through an agency to be designated by the President, such agency to regulate the resale of such coal and coke, and the prices thereof, and to establish rules for the regulation of and to regu- late the methods of production, shipment, distri- bution, apportionment, or storage thereof among dealers and consumers, domestic or foreign. . ." ^ The money received for the sale of coal and coke may be used as a revolving fund, at the discretion of the President, for further carrying out the pur- poses of the act. The President may direct the Federal Trade Commission to make full inquiry into the cost of production under reasonably efficient management, and in the exercise of this authority the Commission is given the power to inspect books, correspondence, and records. Thus the act con- 1 Public No. 41, op. cit., pp. 10, 11. 74 PROBLEMS OF RECONSTRUCTION veys the power to fix prices, regulate conditions of production and sale, requisition plants and prod- ucts, to purchase and sell coal and coke, and, under certain conditions, to take over production. It is evident from this brief outline that the powers of control of coal and coke are far more extensive than with food products. This is notably the case with the power to fix prices and to take over the agencies of production.^ These provisions are the cause of considerable differences in the administra- tion of fuel and food conditions. The Fuel Admin- istrator, for example, fixes prices for coal and coke, whereas the usual method in the case of food prod- ucts is to determine fair profit margins, thus reach- ing the price indirectly. In his effort to solve the fuel problems the ad- ministrator has encountered many problems peculiar to the industry. Unlike food products, it is not possible to rely to any considerable extent on sub- stitutes. The demand is for coal and coke, and one of the greatest problems is to find the supply to satisfy the ever increasing demand. The demand, moreover, has increased out of all proportions to the ability to supply all consumers. This demand arises partly from the needs of the new war indus- tries and of the increasing shipping of the United States. A part of the burden of supplying the ocean marine, formerly dependent on England, fell upon this country. Meanwhile, the severe winter of 1917-1918 greatly increased the demands of * Public No. 41, op. cii., compare with sections 4, 5, 9, 12. WAR CONTROL 75 householders ; and in addition, the needs of the peace industries always had to be considered. On the side of supply, also, special difficulties were encountered. These were largely results of the drift of mine laborers to other industries due to the higher offer of wages and better conditions, the draft, car congestion and shortage, and the periodic disruption of productive forces at the mines due largely to causes just named. Nor do the above cover all the difficulties. The Fuel Administrator has been confronted with no mere mythical Scylla and Charybdis, for on the one hand, he had to consider the dangers of public un- rest and criticism because of prices which were con- sidered unreasonable, and on the other, he had to allow producers a sufficient return to augment the supply. The production of coal, like that of the products of the field, is under the principle of in- creasing cost. Thus, price fixing encounters the difficulty of making equitable adjustments between low and high cost producers. The administrator is under the necessity of getting as large a supply as possible; but if he fixes prices too low, high-cost producers must quit; on the other hand, if the price is high enough to give the latter a chance, the low-cost producers reap unusual returns. Thus, it was inevitable from the start, that the charge of "profiteering" would arise in connection with the coal industry. To quote from the report of the Federal Trade Commission: "The situation in coal gives still another angle of view to the same prob- 76 PROBLEMS OF RECONSTRUCTION lem. Maximum prices were fixed by territorial divisions. Many of the coal producers have not taken the maximum, but, due to the fact that in a given field there is a very wide range in the cost of the coal produced in that field it follows that cer- tain low-cost producers have made very large mar- gins under the system of governmental fixed prices for the field. Many high-cost producers have made small margins. The bulk of the production, of course, enjoys the large margin. . . . Percentages of profit worked upon investment will obviously be very large in the case of low-cost companies." ^ Another diflSculty of great moment was to devise economies in the distribution of coal. This was imperative because of the need of utilizing car capacity to the fullest extent, and of saving car mileage. The prevailing method of distribution frequently necessitated supplying coal to any given community from widely separated fields, and in- volved much cross hauling. If a change in method involved obtaining the product from other than customary sources, it encountered the difficulty of depriving consumers of kinds to which they had long become accustomed. Manufacturers, moreover, re- quired a considerable variety for various industrial uses, and it was still necessary to administer to these specialized needs. The principal task of the Fuel Administrator has been to solve the problems out- lined above. In most respects, the plan of organization of the 1 Senate Doc. No. 248, op cit., p. 6. WAR CONTROL 77 Fuel Administration is analogous to that for food products. The Fuel Administrator is assisted by state and local officers acting under his direction. Early in September 1917, Mr. Garfield announced that he would choose a representative in each State and Territory and that he would appoint a com- mittee to act with the state representative in regu- lating the sale of coal. State administrators were to choose a committee of citizens to represent the Fuel Administration in each county, and in each city and town with a population over 2500. That is, state officers were chosen by the Federal Fuel Administration, and those for the local divisions by the state representative.^ One of the duties of these various committees was to ascertain and report to the Fuel Administration a reasonable retail profit margin. This included the cost of local distribution plus a reasonable dealer's profit. The price to the consumer was to include this margin, transportation charges and jobber's commissions, and the price at the mine as named by the President. Even at this early date, it was planned to compile figures of local demands so that the Fuel Administration could if necessary apportion the coal supply to meet the greatest needs. Mr. Garfield was of the opinion that a sufficient amount of coal could be put on the market at once to satisfy domestic consumers and that the supply would be made available "by voluntary arrange- 1 O. B., Sept. 8, 1917, p. 1 ; Com. and Fin. Chron., Oct. 13, 1917, p. 1455; Com. and Fin. Chron., Oct. 27, 1917, p. 1670. 78 PROBLEMS OF RECONSTRUCTION ment between the operators and those with whom they have contracts, and thus make it unneces- sary for the Fuel Administration to exercise or recommend the powers, the exercise of which is provided in the Lever Act." ^ The organization outHned above embodies the framework of the plan for fuel control. From time to time other oflScers have been added. Among these were district representatives or managers to supervise the distribution of coal from the twenty odd producing districts into which the country was divided. Their duties are made clear by the fol- lowing statement of Mr. Garfield issued December 21, 1917: "The deputy distributors are not to be confused with the fuel administrators, whose duties and responsibilities remain as heretofore. The duty of the deputy distributor is to facilitate the ship- ment of coal to meet emergencies on requests and orders from the United States Fuel Administrator and from the state fuel administrators, to make equitable allotment of such orders among oper- ators, and to keep the Fuel Administration at Washington informed of conditions in each pro- ducing district. Authority is not given to the deputy distributors to determine priority of needs, nor to prefer one consignee over another. This au- thority is reserved to the United States Fuel Admin- istrator, and when so authorized, to the state fuel administrators. It is to be noted that the agency is intended primarily to meet emergency needs. 1 O. B., Sept. 8, 1917, pp. 1, 2. WAR CONTROL 79 Under normal conditions the purchaser will be left as free as the war emergency permits to deal di- rectly with the operators producing coal." ^ Fuel administration in the United States was formally inaugurated August 23, 1917, when Mr. Harry A. Garfield was appointed Federal Fuel Ad- ministrator by executive order. The general policy of the new organization, as stated by Mr, Garfield, was "to secure the largest possible production of fuel at prices just to the producer and reasonable to the consumer." ^ Elsewhere Mr. Garfield said : *'It is the purpose of the Fuel Administration to encourage production, to utilize, as far as possible, all existing agencies, to seek the advice of experts and the cooperation of operators and miners, of in- dustrial and domestic consumers, and of all who perform a useful service in the production and distribution of coal." ' This general policy was yet to be worked out in detail. The principal concrete factors in the prospective program included the regulation of prices and profits, adjustment of dif- ferences between mine laborers and operators to prevent the work from being interrupted, planning economical methods of distribution, conservation measures, and, when necessary, plans for the sup- ply of industrial consumers in the order of their importance for the prosecution of the war. We may discuss the development of the coal program in this order. Some steps had been taken to regulate prices be- » 0. B.. Dec. 28, 1917, p. 3. » Ibid.. Sept. 6, 1917, p. 1. » Ibid. 80 PROBLEMS OF RECONSTRUCTION fore Mr. Garfield took charge. On June 28 a special committee representing upwards of four hundred coal operators agreed on reductions ranging from $1 to $5 a ton on bituminous coal produced from the mines east of the Mississippi River. This meeting had been called at the instance of the chairman of the Committee on Coal Production of the Council of National Defense. To avoid the possibility of violating the anti-trust laws, the operators agreed to place the work of price fixing in the hands of the Coal Production Committee of the Council, the Secretary of the Interior, and a representative of the Federal Trade Commission. In addition to the re- duction of prices, the committee limited commission charges of jobbers, brokers, retailers, and commis- sion men to 25 cents a ton. Thus, the consumer was to obtain coal at the mine price plus transportation expenses and the commission named. ^ The new prices called for a maximum of $3.50 a ton for domestic coal and a maximum of $3 for all other coal, f.o.b. the mines, effective July 1. One of the resolutions of the conference was to the effect "That it is the sense of this meeting that a committee of seven for each coal-producing State and an additional committee of seven appointed by the representatives of the anthracite industry be appointed by the representatives of each State now attending this convention to confer with the Secretary of the Interior, the Federal Trade Com- mission, and the Committee on Coal Production of 1 Com. and Fiu. Chron., June 30, 1917, p. 2604. WAR CONTROL 81 the Council of National Defense, to the end that production be stimulated and plans be perfected to provide adequate means of distribution, and, fur- ther, that these committees report forthwith to the Secretary of the Interior, the Federal Trade Com- mission, and the Committee on Coal Production of the Council of National Defense, costs and condi- tions surrounding the production and distribution of coal in each district, and that these committees are authorized, in their discretion, to give assent to such maximum prices for coal f.o.b. cars at the mines in the various districts as may be named by the Secretary of the Interior, the Federal Trade Commission, and the Committee on Coal Produc- tion of the Council of National Defense." ^ It is to be noted that this meeting was held before the Food Act was passed and that the resolution indicates the operators' plan for the regulation of the industry. The program, however, was promptly repudiated by Secretary Baker, as president of the Council of National Defense, on the ground that the coal- production committee was subordinate to the Coun- cil, purely advisory in character, and formed for the purpose of advising the Council of steps which might lead to the stimulation of production and better methods of distribution, and that no power had been delegated to it to deal with prices. He added that the Federal Trade Commission had been in- structed by the President to obtain costs of pro- duction of coal and that "the information I have 1 Com. and Fin. Chron., June 30. 1917, p. 2604. G 82 PROBLEMS OF RECONSTRUCTION from that and other sources, I think, justified me in believing that the price of $3 suggested, or agreed on, as a maximum is an exorbitant, unjust, and oppressive price." ^ As a sort of forerunner of federal control, the Federal Trade Commission, after an investigation of 113 retailers and 3 wholesalers in Washington, an- nounced, about August 15, that the margins were excessive and should be reduced. The Commission again encountered the same old difficulty of stating fair prices, namely, the differences in cost of han- dling by large and small dealers.^ The President's proclamation of July 9, effective July 15, prohibited the exportation, except under license, of coal, coke, fuel oils, kerosene, and gaso- line, including bunkers. In an accompanying state- ment the President declared that the policy of the Government would be first to consider American needs, and then to meet, as far as possible, the re- quirements of the Allies, and to supply neutral countries. By all means, essential commodities were to be prevented from reaching the Central Powers.^ The proclamation of August 21, issued under authority of the Food Control Act, formally put coal production and distribution under control. Prices were fixed for three classes, "run of mine," "pre- pared sizes," and "slack of screenings," covering coal produced in 29 regions, most of which were cov- 1 Com. and Fin. Chron., July 7, 1917, p. 21. 8 O. B., Aug. 15, 1917, p. 6. 8 Com. and Fin. Chron., July 14, 1917, p. 134 WAR CONTROL 8S ered by state boundaries. The prices, for example, for these three classes of coal in Pennsylvania were $2, $2.25, and $1.75, respectively. For Washing- ton state, where the prices were the highest, the amounts were $3.25, $3.50, and $3.^ Evidently, these figures were considerably lower than those agreed upon by the operators at the conference of June 28. The President announced that the prices were provisional, and were based on the "actual cost of production and are deemed to be not only fair and just but liberal as well. Under them the in- dustry should nowhere lack stimulation." ^ Sub- sequently, measures were to be devised to establish a fair and equitable control of the distribution of the supply and of prices not only at the mines but in the hands of middlemen and retailers. In a statement of August 23, the President de- fined "jobber" and stated the margins. In buying and selling bituminous coal, jobbers were not to add to their purchase price a gross margin in excess of 15 cents a ton of 2000 pounds, and the combined gross margin of any number of jobbers buying and selling a given shipment was not to exceed this amount. In the case of anthracite, where the product was sold east of Buffalo, it was not to be more than 30 cents. Combined margins on given shipments were also limited to this amount. At the same time, the price of anthracite was fixed free on board cars at certain railroads.' » O. B., Aug. 22, 1917, p. 1. a Ibid. s Ibid.. Aug, 24, 1917, pp. 1 and 2. 84 PROBLEMS OF RECONSTRUCTION These orders still left for determination retailers* margins. This feature was covered in a statement of Mr. Garfield about October 1. The maximum gross margin was understood to be the difference between the average cost of coal and coke at the retailers' yard, wharf, or siding, and the price at which they sell to consumers. According to the new plan, the retailer was to ascertain his margin for 1915, when conditions were more nearly normal. To this he was permitted to add not in excess of 30 per cent ; but in no case was the gross margin to be greater than that which prevailed during July, 1917.^ Mr. Garfield believed this policy would be fair to both retailers and consumers, and that it would remove public uncertainty regarding coal prices and also the uncertainty as to whether or not to buy. The administrator clearly recognized that in some communities the cost of handling was higher than in 1915, but he stated that when this could be demonstrated the local fuel administrators would be authorized to adjust the differences. On the other hand, changes would be made if the stated margins were too high. In any event, all demands for readjustments were to be taken up in the first instance by the resident committees appointed by the local fuel administrators.^ The general policy of regulating prices and profits is contained in the above description. Subsequent developments have been in the direction of ex- tending and defining the plan. While the method 1 O. B., Oct. 1, 1917, p. 1. * Ibid. WAR CONTROL 85 discussed above puts great power in the hands of the Fuel Administrator, it has the advantage of flexibility. Readjustments to meet local condi- tions, or new general changes, are easily accom- plished- Such flexibility, of course, is necessary, because cost conditions are constantly in the state of flux. It has been necessary, for example, to read- just coal and coke prices because of advances in wages. This was the occasion for the President's order of October 27, which added 45 cents a ton to each of the prices prescribed in the proclamation of August 21. The advance was subject to certain limitations, namely, it was not to apply to any coal sold at the mine under an existing contract contain- ing a provision for an increase in the price of coal in the case of an increase in wages paid to miners. Nor was it to apply in any district where operators and miners failed to agree upon a penalty provision satisfactory to the Fuel Administrator.^ The agree- ment covering the wage increase was effected be- tween miners and operators October 6. The ad- vance amounted to 10 cents per ton for miners, from 75 cents to $1,40 a day for laborers, and 15 per cent for yardage and dead work. Mr. Garfield estimated that this would result in an increase over the wages of April 1, 1914, of 50 per cent for miners, and of 78 per cent for the best paid laborers. But he maintained that the "increases are not in excess of the advance in the cost of living for that period." ^ 1 O. B., Oct. 29. 1917, p. 2; Mo. Rev. U. S., Bu. Lab. Stats.. Dec. 1917, p. 110. *Ibid. 86 PROBLEMS OF RECONSTRUCTION With regard to the justness of the new prices, Mr. Garfield stated that it was his understanding in fixing provisional prices that "it was intended to allow a fair profit to the operators. The public does not desire, nor is it necessary to meet the present emergency, that the coal industry should be asked to make more of a sacrifice than may reasonably be required of all staple industries. Exorbitant prices only have been the subject of concern. It needs no argument to justify congres- sional and executive action when the people of the United States are called upon to make unusual sac- rifices." ^ On the recommendation of the Fuel Administra- tor, the prices of anthracite were advanced 35 cents a ton by executive order of December 1, 1917, to cover advances in wages in that branch of the in- dustry. Unlike the policy pursued with the bitu- minous operators, the Fuel Administrator did not insist on the inclusion of the automatic penalty clause, on the ground that the Board of Conciliation appointed by ex-President Roosevelt in 1902 had handled the anthracite situation satisfactorily.^ A further development of the price policy is seen in a letter of Mr. Garfield, dated November 8, to state fuel administrators advising them to examine profits of particular retailers if it appeared that unreasonable prices were demanded. He suggested 1 0. B., Oct. 29, 1917, p. 2; Mo. Rev. U. S., Bu. Lab. Statistics, Dec. 1917. p. 110. » Bus. Dig., Dec. 19, 1917, p. 518; Com. and Fin. Chron., Dec. 8, 1917, p. 2229. WAR CONTROL Si that the local committees make careful investiga- tion of the costs of doing business by each dealer ; if it was evident that profits were unreasonable, the committee was instructed to arrive at a fair margin, send their recommendations to the Fuel Adminis- trator, who would then, if the findings were equi- table, confirm such prices, subject to appeal to the Fuel Administration. He urged, moreover, that the proper basis of figuring profits was a stated amount, rather than a percentage, since the latter method gave "the less eflScient dealer with high costs a larger actual profit than the more eflficient dealer with lower costs." ^ The purpose of a number of orders has been to reach practices of dealers who were evading the fuel orders. One method of obtaining unlawful profits was the practice of "swapping coal," by which two operators agreed to act as jobbers for each other, each collecting the margin. Sometimes a similar end was accomplished by organizing subsidiary com- panies, the purpose of which was to act as "os- tensible jobbers" of the producing companies; these collected the margins allowed by the Fuel Administration. The effect of such practices, ac- cording to Mr. Garfield, was to add from 15 to 30 cents a ton to the cost of coal to consumers. After an investigation "of every phase of the situation, which included conferences with representatives of every branch of the coal business, the Fuel Admin- istration decided that the only solution was to rec- 1 Com. and Fin. Chron., Nov. 10. 1917, p. 1853; Feb. 2, 1918, p. 452. 88 PROBLEMS OF RECONSTRUCTION ommend to the President the revocation of the regulation allowing the commission or margin to the jobber, and as a substitute the fixing of prices of coal at the mine that will enable the operator to compensate the bona fide jobber for his services." ^ A letter containing this statement was issued March 3, 1918. The problem of "additional charges" has also caused the Fuel Administration much trouble. A regulation, effective June 22, 1918, was to cover this practice. Producers, distributors and retailers were prohibited from adding to the price any trans- portation charges in excess of amoimts actually paid. Nor could they add advances in freight rates on coal or coke stored for their account, or held for their credit, unless the increase were really paid.* Many orders have been issued fixing the prices of coal and coke ; however, these contain no new prin- ciples, but are based upon those already expounded.' In addition to price and profit problems, the Fuel Administrator has had to give considerable atten- tion to questions of labor supply, and the relations between mine operators and laborers. These prob- lems are complicated by the fact that, with prices ^ Com. and Fin. Chron., March 16, 1918, p. 1088. *0. B., July 2, 1918, p. 8. ^Ibid., Oct. 1, 1917, p. 1; Nov. 21, 1917, p. 3; April 4, 1918, p. 2; June 24, 1918, p. 6; July 2, 1918, p. 8; July 8, 1918, p. 16; July 13, 1918, pp. 3, 16; Com. and Fin. Chron., Nov. 17, 1917, p. 1949; Nov. 24, 1917, p. 2053; Feb. 2, 1918, p. 452; Bus. Dig., Aug. 29, 1917, p. 1316; Dec. 12, 1917, p. 481; Dec. 19, 1917, p. 518; Feb. 27, 1918, p. 285; June 5, 1918, p. 751. WAR CONTROL 89 fixed, employers are the more reluctant to grant wage increases without assurances from the Fuel Administrator that prices can be readjusted to cover a reasonable profit. Hence the danger of strikes is greatly increased. This question was involved in the advance in prices discussed on a former page.^ The wage contract has been settled between operators and miners as heretofore, but, on several occasions, the Administrator has been compelled to exert pressure on one party or the other to prevent interruption of work at the mines. Thus, in Octo- ber 1917, when he had the question of advance of coal prices under advisement, Mr. Garfield issued a stern note to the impatient miners of the south- western fields. *' There are evidently some," he said, "who fail to understand the gravity of the situation and who do not hesitate to advocate strikes at the present time as a means of forcing the Government to at once decide whether the wage increase agreed to at the meetings recently held at Washington by the operators and miners of the Central District should justly be covered by an advance in the prices fixed by the President. The matter has been submitted to me, and all con- cerned are expected to cooperate. I am giving im- mediate and close attention to the question and hope to reach a decision at an early date. The only circumstance within my control which will delay that decision will be the violation of the spirit of the arrangement between the operators 1 Cf. ante. p. 75. 90 PROBLEMS OF RECONSTRUCTION and the miners, which was that under no circum- stances should the production of coal in the United States at the present time be allowed to diminish. If either the operators or the miners attempt to bring pressure upon me to reach a decision, I shall post- pone it and use whatever powers are necessary to compel the production of coal to meet the country's needs." ^ In a similar strain was Mr. Garfield's reply to Oklahoma operators who reported that they were unable to carry out their wage agreements unless permitted to increase prices over and above the general advance announced in the President's proc- lamation of October 27. The Fuel Administrator replied that they could choose between two alter- natives : if they were unable to operate the mines at a profit, they were to file a statement showing their 1916 and 1917 costs month by month, in which case the question would be considered ; or they could turn over the mines to the Fuel Administration for operation pending an investigation of costs. In any case, the mines were not to be shut down.^ The acceptance, on the part of miners, of the penalty clause in the President's orders of October 27 has been a stumblingblock in some cases. This regulation was to the effect that miners who struck without cause would be fined $1 a day each, and operators locking men out were to pay $2 a day for each man not working.^ The southwestern I Com. and Fin. Chron., Oct. 20, 1918, p. 1586. » Ibid., Dec. 1, 1917, p. 2139. » Ibid., Dec. 1, 1917, p. 2140. WAR CONTROL 91 miners, for example, hesitated about accepting these terms, but finally gave in. The recent development of a comprehensive plan of labor control in the United States ^ has affected the policy of the Fuel Administration. At a con- ference held in Washington in July, between Mr. Garfield and oflScers of the United Mine Workers of America, an understanding was reached by which all questions pertaining to mine labor were to remain under the jurisdiction of the Fuel Administrator.^ A bureau of labor was created, to which matters of this description are to be referred. Meanwhile, definite principles were established for guidance in the settlement of disputes ; thus all persons con- cerned may know in advance the general outlines of the prospective settlement. In general, these prin- ciples are similar to those established by the War Labor Board, and need not be discussed at this point.^ However, one of the rules is peculiar to the mine labor situation, namely, the provision that the so-called automatic penalty clause now in force is to be accepted as a cardinal principle by mine workers in collective bargaining during the war, and is to be included in all agreements as a condi- tion precedent to the allowance of any increase in the fixed prices permitted by the Fuel Adminis- tration to the operators. The penalty clause has been described on a former page.* 1 Cf. infra. 2 O. B., July 25, 1918, p. 13. * Cf. discussion of war labor control in subsequent pages. * Cf . supra. 92 PROBLEMS OF RECONSTRUCTION In another respect the Fuel Administration has found it necessary to adopt an element of the war labor program of the country. As in other indus- tries, mine operators, in their effort to obtain men, have been bidding against each other. This re- sults in unrest and shifts, which continually un- settle labor conditions at the mines, and threatens to diminish somewhat the supply of coal. To meet this situation, Mr. Garfield issued a warning that the payment of bonuses in any form is contrary to the spirit of wage agreements made by operators and miners with the President. If such bonuses were paid in the future, in violation of the terms or spirit of the agreements, the Fuel Administration would assume that mine prices were too high and a reduction would be ordered.^ On a preceding page, in outlining the contents of this chapter, we called attention to the fact that one of the concrete problems confronting the Fuel Administrator was the provision for more econom- ical methods in the distribution of coal. Pooling arrangements, to cover a limited portion of the field, were made the latter part of November 1917, when the shortage was becoming acute. On November 23, Mr. Garfield approved of the principles of the Coal Shipper's Terminal Pool Association, formed at Cleveland two days before. This organization came into existence as the result of a conference among administrators, operators, and railroad men of certain sections of the Middle West. Sub-com- 1 Wall Street Journal, Aug. 6, 1918; O. B., Aug. 6, 1918, p. 7. WAR CONTROL 9S mittees were appointed resident at Cleveland, Cincinnati, Columbus, Toledo, Pittsburgh, and De- troit, among other places, to decide the best method of shipment for various grades of coal, to eliminate cross hauling, to prevent unnecessary switching at terminals, and to take other steps to insure the prompt unloading and return of cars. The funda- mental purpose of the pool was to facilitate deliveries of coal to essential industries and to bring about a better distribution of the product.^ Some persons forecasted in this movement the development of a national coal pool which would put the nation's entire output under Government control. "The scheme under contemplation," it was said, "calls for the establishment of large regional pools which would make possible the greatest degree of effi- ciency in the distribution of coal to all sections of the country. . . . With the pooling system in ef- fect, the Government would have absolute control of all coal mines and would be able to direct sale and distribution." ^ The plan actually adopted, however, differed greatly from the one just described. As a pre- liminary to the administration plan, an order was issued December 27, paving the way for complete control of coal and coke output of the country. The order, which was to be effective immediately upon the termination of existing contracts, the majority of which expired April 1, 1918, provided that no new contracts should be made for longer 1 Com. and Fin. Chron., Dec. 1, 1917, p. 2139. * Ibid. 94 PROBLEMS OF RECONSTRUCTION than one year, that contracts were subject to can- cellation by the Fuel Administration, and that coal sold under contract was subject to requisition by the Government. One of the purposes of the order was to eliminate agreements which stood in the way of the prospective plan of regional distribution.^ The intention of inaugurating a zone system was announced by Mr. Garfield on December 26, 1917, in testimony before a Senate committee which was investigating the coal situation. According to the proposed plan, the country was to be divided into districts in charge of representatives responsible directly to the Fuel Administrator. The purpose in view was a method of distribution that would in- sure the speediest possible movement of coal from mines to consumers, and the prompt return of cars from consuming centers. Each State was to be allowed its quota of the estimated output, and the allotment was to be supplied from definitely as- signed fields. This amounted to an apportionment of the coal output of the country among the States on the basis of previous consumption. The ad- ministrator proposed to supply state officials with information as to the particular field upon which they could draw and the quantities to which they were entitled. When a State was currently receiv- ing its full allotment all further needs were to be supplied by reducing the quantities supplied to other consumers within the State.^ In announcing the zone system on March 21, the 1 Bus. Dig., Jan. 16, 1918, p. 95. ^ q g.^ Jan. 26, 1918, p. 1. WAR CONTROL 95 Fuel Administrator said that coal would be dis- tributed "under restrictions that will avoid as far as possible waste of transportation facilities, but nevertheless consistent with the greatest possible production and a proper coal supply to all coal users," and that "zones have been established so that coal supply shall be normally derived from the mines relatively near, thus preventing these ab- normal and wasteful transportation movements, in- suring more equal distribution of cars to the mines and more steady employment to mine labor." ^ In depriving the consumer of coal from distant sources, the Fuel Administrator expressed the hope that "he will realize that his using another sort of coal is an essential part of the scheme of conservation in the interest of the national defense." Under the new regulations, producers demanding coal for special purposes, such as the by-products, gas, black- smith, and metallurgical varieties, could still obtain their supply outside the zone in which they were situated. The general effect of the zoning system, according to Mr. Garfield, is to restrict eastern coals to eastern markets, filling the vacancy in the central and western states from the product of those areas. The economies of the new system are estimated in the following terms: "Bituminous coal, the move- ment of which is regulated by the zone system, is about 300,000,000 tons, or 60 per cent of the total 1 O. B., March ses, 1918, p. 8; Com. and Fin. Chron., March 30, 1918, p. 1299. 96 PROBLEMS OF RECONSTRUCTION production. Based on this production, there will be saved on the round trip from and to the mines al- most 160,000,000 car miles. This will permit the same cars to make almost 300,000 additional trips to the mines, equivalent to an increase of 5 per cent in the production." ^ A final concrete problem of great moment was to find methods of conserving the consumption of coal. Price policies stabilized prices to consumers, machin- ery for the adjustment of labor disputes tended to assure continuous production, and the zone system provided for economies in distribution ; but enough coal could not be produced to supply all consumers, and it was found necessary in addition to appor- tion the supply among the most important users. On January 9, Mr. Garfield announced the "coal budget plan," which contained the Fuel Admin- istration's measures for supplying coal to the less essential industries. In substance, the new method called for conferences with representatives of par- ticular industries, voluntary agreements with each of these groups to restrict output, and the issuance of a formal order making legal and binding upon the entire industry whatever restrictions were vol- untarily agreed upon. The essential purpose was not to close the establishments. In fact, just the reverse was the object. It was the intention, how- ever, to compel manufacturers who were not con- tributing directly to the war needs to cut down operations so that coal thus saved could be sup- 1 0. B., March 23. 1918, p. 8. WAR CONTROL 97 plied to industries ranking higher in the order of importance. Consistent with this plan, it was possible to conserve by reducing running hours, by limiting varieties of goods manufactured, by elim- ination of new products, by more efficient man- agement, and by transferring activity from non- war to war industries. Mr. Garfield made clear in his explanations that the term "essential" was relative. Manufacturers miscalled "non-essential," he maintained, "are the backbone of the country's economic system. They employ 10,000,000 workers, and from them must come the taxes and bonds which will pay for the war." ^ The percentage of reduction proposed for the various industries depended partly on the character of the business and the extent to which it con- tributed to the national welfare, and partly on the advice of the leaders as to what was a practicable and safe shrinkage in view of former business ac- tivity. At the time the statement was issued upwards of a dozen industries had agreed to restrict consumption, with a prospective saving of from 15,000,000 to 20,000,000 tons. By agreements in prospect with other industries, the Fuel Adminis- trator was of the opinion that from 36,000,000 to 50,000,000 tons of coal would be saved during the current year. One of the first groups to volunteer a reduction was the American Brewers' Association, which contributed 700,000 tons to the conservation estimates. Others followed promptly, including 1 Com. and Fin. Chron., Feb. 2, 1918, p. 451. H 98 PROBLEMS OF RECONSTRUCTION manufacturers of paints and varnish, wall paper, confectionery, artificial ice, boxboards, and glassware.^ The concrete application of the budget plan makes clear the fact that enough coal was to be supplied to the industries in question to enable them both to keep their organization under control and to con- tribute varying amounts of their products to non- war consumers. But the regulations present many perplexities and threaten grave injustice to the producers. When a manufacturer of a given class of goods, for example, is put on rations, he is apt to shift to other commodities of a similar kind and thus thwart the purpose of the orders. With the development of the plan, it has also become in- creasingly evident that even among peace com- modities some serve a more important purpose than others, and this is true even among manufacturers producing certain "lines" of goods. It is therefore necessary to discriminate in favor of the more im- portant uses. It may be remarked that the whole budget plan, with its concrete applications, suggests many features of the former illegal method of pool- ing by which the output was cut and allotted on the basis of an agreement. For the reasons named above, the Fuel Administrator has been compelled, not only to prescribe certain percentages of output, but to regulate many of the features of operation. Some of the problems named above are witnessed 1 Com. and Fin. Chron., Jan. 19, 1918, p. 2.51; Feb. 2, 1918, p. 451; Bus. Dig., Jan. 16. 1918, p. 95; Jan. 30, 1918, p. 158; O. B., Jan. 11, 1918, p. 1. WAR CONTROL 99 in the regulation of producers of clay products. Curtailment was based on the average output of the industry during the past three years. The pro- duction of stoneware was cut only 15 per cent, be- cause vitrified and glazed containers are required as receptacles for food. Sewer pipes, a factor con- tributory to public health, and drain tile, needed for agricultural purposes, were cut only 25 per cent. On the other hand, a reduction of 50 per cent was ordered for face, paving, and common brick, for terra cotta ware, and for roofing, floor, and wall tile. "These figures," said the order, "have been reached after careful investigation and represent rates of production which will be for the best inter- ests of the necessary Government work and in general for the interests of the manufacturers in- volved." ^ To prevent the less privileged pro- ducers from giving attention to other clay prod- ucts, the Fuel Administrator ordered that "no manufacturer who has for the past three years de- voted himself to a given line exclusively shall use fuel for producing any other line without written permission from the Fuel Administration." ^ Pro- ducers of common window glass were limited to 50 per cent of their output for either 1916 or 1917. Establishments not in existence, or not producing common window glass, in the years named, were prohibited from consuming fuel "in excess of that which plants of similar capacity severally required 1 O. B., April 19, 1918, p. 13. » Bus. Dig., May 15, 1918, p. 645. 100 PROBLEMS OF RECONSTRUCTION to produce one half of such common window glass produced by them during either of the years named." ^ In the case of cement manufacturers, the agreement concerning coal supply was made with the priority commissioner and other representatives of the War Industries Board, and provided that producers would be accorded preferential treatment on con- dition that they limited production to an amount sufficient to meet direct and indirect war require- ments or others of exceptional importance.^ Even the economies mentioned above have not proved sufficient to afford the country coal supply adequate to all its important needs. It has been found necessary to rate industries in order of prior- ity and to apply the clamps to household consumers. A statement from the Fuel Administrator in June 1918, explained that, from present estimates, it was evident that sufficient quantities of coal could not be transported to all parts of the country to satisfy the needs of all consumers. To prevent interference with the war program it was neces- sary, therefore, to recognize that certain classes of consumers were entitled to preference. Priority ar- rangements had been worked out in January and February, in connection with the Fuel Administra- tor's closing order, ^ and on January 31, the Pres- ident approved of a priority list as applied to con- 1 0. B., Feb. 21, 1918, p. 3. ^ j^fi^ jm^g 20, 1918, p. 2, »Com. and Fin. Chron., Jan. 5, 1918, p. 26; Jan. 19, 1918. p. 247; 240; 250; Jan. 26, pp. 354, 355, 356; Feb. 2, 1918, pp. 448, 449, 450; Feb. 9, 1918, p. 546; Feb. 16, 1918, p. 601. WAR CONTROL 101 sumers of fuel oil.^ By the new plan, however, such arrangements have been made permanent. The program as announced in June 1918, is the result of cooperation between the Fuel Administration and the War Industries Board. The latter body decides what consumers are to have preference, while the Fuel Administration controls methods of supply and records of industrial needs. Provision is made for detailed reports covering the needs of industrial consumers and institutions, and state fuel administrators are given the authority to con- trol the distribution of coal allotted to the States. To facilitate the assembling of preference lists, all consumers, except householders, were given a def- inite classification. This includes railroads, the Army and Navy, together with other departments of the Federal Government, state and county de- partments and institutions, public utilities, retail dealers, and manufacturing plants on the War Industries Board's preference list. Preference to consumers in the list is worked out by the Board. By this arrangement, the entire coal situation of the country is brought under control.^ Finally, the necessity for rigid economy has been brought home to the household consumer. Ac- cording to the plan announced in July 1918, the domestic user, also, is to be closely watched. A censorship is to be established over every order received by dealers, each order being compared with a figure "obtained by very simple yet effective 1 0. B., Feb. 5, 1918, p. 2. « Ibid., June 18, 1918, p. 12. 102 PROBLEMS OF RECONSTRUCTION formulas showing the rating of the house where the coal is to be used." ^ In doubtful cases, inspectors are to examine householder's statements with ref- erence to space to be heated and the kind of heat- ing system employed. The domestic consumer is to be allowed only the amount of coal that "scien- tific analysis shows is necessary if the requisite care is taken in the heating of the house." ^ With an insufficient supply for winter necessities looming before the country, it is deemed important to in- augurate economies wherever possible. Thus, ac- cording to the plan, the amount of fuel permitted to the consumer will not be the amount of former years, but only "so much as is scientifically found sufficient to heat his house to 68 degrees, providing every conservation rule has been obeyed." ' The impression should not be obtained from the above discussion that fuel administration is only an isolated part of the program of war control. While the saving of fuel is one of the fundamental objects, the system in many respects is consciously de- vised to supplement the work of other boards and committees whose purpose is to regulate the supply of essential raw materials, capital, labor, and ship- ping facilities. Thus the Fuel Administration is only one cog in the machinery of war control which includes among others the Food Administration, Labor Administration, the War Industries Board, War Finance Corporation, and the War Trade Board. 1 Bus. Dig., July 24, 1918, p. 133; Com. and Fin. Chron., July 13^ 1918, pp. 140 ff. ; O. B., July 8, 1918, pp. 1 and 2. * 0. B., July 8, 1918, p. 2. « Ihid., p. 1. CHAPTER IV DEVELOPMENT OF WAR CONTROL (Continued) Labor Unlike the control of food and fuel, the war labor program has been developed without the authority of statute. The program, therefore, lacks the ele- ment of compulsion which is present where control is enforced by law. But, at that, considerable pres- sure can be exerted to secure obedience to volun- tary measures. Where prices of fundamental com- modities are fixed under promise of employers not to reduce wages and to exert themselves to main- tain the output, as with iron and steel, copper and aluminum,^ and where government contracts are let under condition of observance of certain labor standards, as with army clothing,^ and, in addition, where government boards and committees bring pressure to bear through the grant or denial of priority privileges,' fairly adequate means of control are provided. Besides, with boards which command public respect examining the relations between laborers and capitalists and making recommenda- 1 Bus. Dig., Oct. 17, 1917, p. 107; Jan. 16, 1918, p. 98; O. B., Sept. 25. 1917, p. 2; Nov. 16, 1917, p. 3; Dec. 29, 1917, p. 1; March 15, 1918, p. 3; May 29, 1918, p. 5; May 31, 1918, p. 3. 2 O. B., Aug. 25, 1917, p. 1. ^ Ibid., July 16, 1918, p. 5. 103 104 PROBLEMS OF RECONSTRUCTION tions, it is probable that neither laborers nor em- ployers will risk the responsibility for any consid- erable disturbance in the face of public opinion which would quickly condemn them for lack of patriotism. The labor program, therefore, has grown principally on the voluntary basis, enforced by agreements which, in turn, rest largely for sup- port on the indirect methods named above. It might be thought that these measures are more effective with employers than with workmen, but we have had several instances where federal ad- ministrators have made clear to laborers that they must conform to government regulations. On a former page we cited Mr. Garfield's message to the miners.^ Equally stern was the method of Mr. McAdoo in dealing with the strike in the shops at Alexandria, Virginia. He made it emphatic that the Government could not be coerced or intimi- dated by any of its employees. "I cannot believe," said the Director General, "that these men knew what they were doing. They are all employees now of the United States Government. They are not employees of any railroad corporation, therefore this was a strike against the Government of the United States. It is the first time in the history of our Gov- ernment that any of its employees have attempted to strike against their Government. Such action is incredible." ^ , ^ Cf. supra, p. 84. * O. B., May 31, 1918, p. 3. In this connection note Mr. Burleson's attitude towards unions in the Post Office service. Cf. Com. and Fin. Chron., Jan. 19, 1918, pp. 256, 257. WAR CONTROL 105 In its early stages, the labor program of the coun- try was characterized by lack of comprehensive pur- pose, and even by lack of understanding of the larger problems involved/ nor has it as yet grown to include all the work of government and war in- dustries ; but many of the divisions of a compre- hensive plan are now in existence, including meas- ures for housing and welfare work, machinery for the settlement of disputes between capitalists and laborers and for the determination of labor stand- ards, and employment service for unskilled workers ; and some progress has been made in coordinating the labor problems of the different government de- partments. The larger part of this program is in the hands of Mr. William B. Wilson, Secretary of Labor, who is, in fact, the Labor Administrator. As in other fields of control, numerous problems were presented for prompt solution. Some were peculiar to the war ; others were inherent in the economic system. Regulation itself, by limiting the activity of less important industries, tended to deprive some men of an occupation, but this ill was promptly remedied because of the insatiable demand for men. On the other hand, the ques- tion of supplying the new war industries was quite a different matter. Hundreds of thousands of men with particular kinds of training were wanted at once, and the demand has continued to grow with 1 Jour. Pollt. Econ., XXVI, pp. 42.5 ff., L. C. Marshall, "The War Labor Program and its Administration"; Quart. Jour. Econ., XXXII, p. 379. 106 PROBLEMS OF RECONSTRUCTION the expansion of the war program. Incidentally, there arose the problems of housing laborers in congested areas and of preventing the migration of men from job to job because of the bidding of employers against each other. While the demand was increasing, the supply was being curtailed. The draft, for example, has re- moved several million men from productive occu- pations. Meanwhile, the shortage was aggravated by the decline of immigration. During the three years ending with 1916 the net inflow was 50,070, 125,900, and 216,400, or an average annual immi- gration of about 130,800; in 1912, 1913, and 1914, the net immigration had been 401,860, 815,300, and 769,270 respectively, or an annual average of about 662,100.^ An increasing demand, therefore, was met by a decreasing foreign supply. Another group of problems arose in connection with the distribution of laborers. Unfortunately, the machinery did not exist for the performance of this work ; thus the country was unprepared for the greatest labor readjustment it has ever been called on to make. However much there may have been in the assertion that there was no real labor shortage,^ at least the contention pointed to one of the first problems the country was called on to solve, namely, that of shifting laborers promptly to industries ' First Annual Report of the Secretary of Labor, p. 96 ; ibid., Second Annual Report, p. 149; ibid.. Third Annual Report, p. 139; ibid.. Fourth Annual Report, p. 177; ibid.. Fifth Annual Report, p. 122. * Cf. infra. WAR CONTROL 107 where they are needed. The new employment serv- ice is designed to do this, at least for miskilled labor. ^ The new labor problems involved other elements. Business prosperity invited trouble, because it was an opportune time to insist on higher wages and to strengthen the position of the unions. Stimulated by visions of unusual profits, workmen were spurred on to demand a share in the increasing productivity of industry. But if, on the one hand, they were lured to such activity, on the other, they were driven to it by the rising cost of living. Every important factor in the situation, therefore, made for labor unrest. Several collateral problems appeared in connection with the ones just mentioned. The abnormal condi- tions revealed clearly the lack of uniformity of wages and conditions even in related occupations ; mean- while, the wretched surroundings in some of the new industrial districts promoted unrest. Apparently, the feasible way of meeting the situation was to pro- vide authoritative organizations for the settlement of differences between employers and men, for the standardization of working conditions, and for the improvement of surroundings. These, also, were elements in the new labor program. Moreover, if workmen were asked to limit their demands for wages, it was certain that they would present the counter proposal for the limitation of profits and the regulation of prices. Regulation could not stop with wages ; it had to include other factors that bore directly or indirectly on the wage situation; 1 0. B., Jan. 9, 1918, p. 3. 108 PROBLEMS OF RECONSTRUCTION nor would workers be satisfied with regulation un- less it applied as well to employers. Recommendations covering most of the factors indicated above were contained in the report of the President's Mediation Commission of January 9, 1918. The Commission urged the elimination of profiteering, the recognition that some form of col- lective relationship between management and men is indispensable, the establishment of continuous administrative machinery for the orderly disposition of industrial issues and the avoidance of an at- mosphere of contention, unified direction of the labor administration of the United States for the period of the war. In addition, the Commission urged that when assured of sound labor conditions and effective means for just redress of grievances, labor in turn should surrender all practices which tend to restrict maximum output, and that the purposes of the Government, and its methods, should be brought home to the fuller understanding of labor.^ Undoubtedly, when the United States entered the war, the first thought of American labor or- ganizations was the protection of their standards, for it was thought that war injured the workmen's industrial status. From labor's point of view, the earliest policy was protection. Possibly, the lead- ing purpose in inviting representatives of English organizations for conference in the United States was to learn how they had met the problem. Thus said Mr. Samuel Gompers, President of the Amer- 1 Bus. Dig., Feb. 20, 1918, p. 255; O. B., Feb. 11, 1918, pp. 9 ff. WAR CONTROL 109 ican Federation of Labor, in addressing the con- ference : "While it is true and may be necessary that for a specific limited period of time all may be required to make heroic sacrifices, the whole history of the world has shown that in the long run this form of hysteria is detrimental not only to the cause at issue but also to the protection and the welfare of the great masses of the people." ^ And Mr. James Thomas, of the English delegation, said at the meeting May 15: "We asked the Government to see that whilst men were called upon to give their life, it was not too much to expect other people to give up some of the luxuries that they were enjoy- ing. Therefore, I am giving this illustration to show that consistent with our desire to make sac- rifices ourselves we naturally and jealously safe- guarded the interest of our own people as well as the community by insisting that the sacrifice should not be a one-sided one, but should be made by all classes of the people."^ The summary of infor- mation given by the visitors on May 18 was largely a concrete application of the principle contained in these two addresses.^ The idea received even clearer statement from Mr. Gompers when he said : "Cer- tain fundamental questions have required atten- tion, one being the effort to maintain our present economic standards — legislative and otherwise — until such a time as the Council of National Defense * British Labor's War Message to American Labor, Sen. Doc. No. 84, 65th Cong., 1st Sess., p. 12. » Ibid., p. 16. • Com. and Fin. Chron., June 10, 1917, p. 2418. 110 PROBLEMS OF RECONSTRUCTION shall request the lowering thereof because essential to the maintenance of democracy." ^ It is inter- esting to notice that President Wilson emphasized the same principle. On August 31, 1918, in inform- ing Mr. Gompers that he was unable to attend the Minneapolis conference of the Alliance for Labor and Democracy, he said : "I myself have had sym- pathy with the fears of the workers of the United States ; for the tendency of war is toward reaction, and too often military necessities have been made an excuse for the destruction of laboriously erected industrial and social standards." ^ It still remained for the unions to formulate con- cretely methods for working out the principle of protection. This was done at the meeting of the American Federation of Labor at Buffalo, Novem- ber 12 to 24. The Federation urged that in deter- mining wage rates other things than the cost of living are to be considered, and that the existing wage rate in an establishment should be consid- ered as to its equity. Moreover, in constituting boards and commissions to study questions of em- ployment and terms of labor, the Federation insisted that there should be equality of representa- tion between employers and wage earners. Fur- ther, that all new arrangements should contain a clause announcing that the right to organize is inalienable and that prevention of the exercise of ' O. B., May 28, 1917, p. 8. ' Report of Proceedings, Thirty-Seventh Annual Convention Amer- ican Federation of Labor, pp. 96, 97. WAR CONTROL 111 this right by the employer is a violation of these principles, that cooperation should exist in indus- tries, and that there should be recognition of em- ployees as a group, having common interests. This was a prerequisite of cooperation.^ Apparently, this program might have been in- terpreted to mean something more than the main- tenance of the status quo during the war period, for if the rules were accepted that other things than the cost of living were to be considered in settlement of disputes, and if proposed new wage rates were to be considered on their equity, the unions might have availed themselves of war conditions to greatly strengthen their position. An equitable adjust- ment might have been interpreted to mean not only one in which advances kept pace with the increase in expenses of living, but something more, because it might have been deemed equitable, since de- mand for labor greatly exceeded supply, that the men be given the advantage of the market conditions for labor. Moreover, the insistence on the inalien- able right of the men to organize as a fundamental principle was a great deal more than the mainte- nance of pre-war conditions, since many employers did not recognize that right, and acquiescence would have meant the sudden advance of union prin- ciples and the strengthening of the union position as the result of the war. We shall see presently how these principles are treated by the War Labor Board. ^ Report of Proceedings, Thirty-Seventh Annual Convention Amer- ican Federation of Labor, pp. 167 ff. ; Bus. Dig., Nov. 28, 1917, pp. 302 B. 112 PROBLEMS OF RECONSTRUCTION On the employer's side, it was usually urged that neither employers nor workmen should take ad- vantage of war conditions to strengthen their re- spective positions. Thus, the National Industrial Conference Board, on September 6, 1918, at the in- vitation of the Council of National Defense, sub- mitted a plan of settlement. After stating that dis- putes operate to the advantage of the enemy, and that industrial workers are as indispensable to victory as soldiers on the firing line, the Board urged the Council to accept the principle of settlement of the Anthracite Coal Strike Commission, namely, *'That no person shall be refused employment or in any way discriminated against on account of mem- bership or non-membership in any labor organiza- tion ; that there shall be no discrimination against, or interference with, any employee who is not a member of any labor organization by members of such organizations." In order to clear up the ambiguities in the Coun- cil's statement that "employers and employees in private industries should not attempt to take ad- vantage of the existing abnormal conditions to change the standards which they were unable to change under normal conditions," the Industrial Conference Board urged that demands for increased wages should be tested by the prevailing local standards of the establishment at the beginning of the war, subject to modifications to cover changes in the cost of living; that, as applied to hours, the standards should be those established by statutes, WAR CONTROL US or prevailing in the industries at the beginning of the war, subject to change on recommendation of the Council; and that as applied to "open" and "closed" shop conditions, "it shall be understood and agreed that every employer entering the period of the war with a union shop shall not by a lockout or other means undertake to alter such conditions for the duration of the war, nor shall any com- bination of workmen undertake during a like period to 'close' an 'open' shop." ^ Thus the principles were stated. The most press- ing problem, as seen at this stage, was to rid indus- try of conflicts arising out of questions of wages, hours, and working conditions, and most of the emphasis during the early months of the war was on this feature. The Council of National Defense was not organized for this purpose, but it could take the initiative in providing the general means of settlement. The principal labor committee of the Advisory Commission was the Committee on Labor, of which Mr. Gompers was chairman, and cooper- ating with it were the sub-committees on mediation and conciliation, wages and hours, on women in in- dustry, and on welfare work.^ As the name of the larger organization indicates, the function of these cooperating bodies was to advise the Council. The earliest plans for the adjustment of disputes, inaugurated in the early part of August 1917, were designed to operate in particular groups or classes 1 Com. and Fin. Chron., Sept. 29, 1917, pp. 1271, 1272. * First Annual Report of the Council of National Defense, pp. 113 £f I 114 PROBLEMS OF RECONSTRUCTION of industries, with little thought of a comprehen- sive program which should include all the important elements affecting the labor situation and which should cover all the war activities of the country. It was not until January that the larger plan began to take form. Thus, separate bodies were ap- pointed to settle troubles in plants having con- tracts with the Government, among longshoremen and their employers, in the shipbuilding industry, and in the establishments of the Government. Nor was there anything particularly new in the prin- ciples involved in the settlements, except that a little more care was taken to prevent disputes from arising, and the new arrangements anticipated strikes and lockouts by providing in advance agreements which in all likelihood would prevent their occurrence. On August 9, 1917, the Council of National De- fense announced its intention of appointing a Labor Adjustment Commission to decide issues in private plants working on government contracts.^ It was composed of nine members, three each representing the Government, employers, and workmen. The Commission was empowered to appoint committees, provided these were composed of the three elements represented in the Commission. All contractors and subcontractors were subject to the eight hour law of June 19, 1912, or March 3, 1913. Wages were to be computed on a basic day rate of eight hours' work with overtime rates at not less than » Com. and Fin. Chron., Aug. 11, 1917, p. 566; O. B., Aug. 10, 1917, p. 2. WAR CONTROL 115 time and one half for overtime. The Department of Labor of its own initiative could appoint mediators, who were to endeavor to bring about a satisfactory settlement. In the event of failure, the issue was to be brought before the Commission. The compel- ling element was found in the provision that "every contractor and subcontractor shall agree to accept and abide by the decision of the Labor Adjust- ment Commission or labor adjustment committees, as the case may be, and every worker accepting em- ployment in any plant within the jurisdiction of the Adjustment Commission shall do so with the definite understanding and agreement that he will accept and abide by the decisions of the Adjustment Com- mission or the adjustment committee, as the case may be, in the settlement of any question affecting labor submitted to it for adjudication." ^ On August 10, an inter-departmental committee was announced, whose function was to adjust the scale of wages of employees in government plants. It was composed of representatives of the Depart- ments of Navy, Army, and Labor. In determining wages for the next twelve months, the committee announced that it would take as a basis for govern- ment pay the average wage paid in any given com- munity. In some instances, the United States was paying more, in others less, than the average rate. It was expected that this policy would tend toward an equalization of the amount paid by the Govern- ment and private interests.^ 1 Cora, and Fin. Chron., Au«. 11, 1917. p. 566. 2 Ibid., Aug. 18, 1917, p. 6GC. 116 PROBLEMS OF RECONSTRUCTION The threatened strike among longshoremen was the occasion for the appointment, August 29, of a commission to settle disputes between workmen of this description and their employers. As with the Adjustment Commission outlined above, provision was made for representation of the Government, employers, and men, with the addition of a member from the Committee on Shipping of the Council of National Defense. Besides the national body, there were to be local commissions in each important port, composed, like the central body, of representatives of the various interests. The memorandum of agreement provided for negotiation on the basis of the union scale of wages in force at each port on August 1, 1917; consideration was to be given to special circumstances arising since that date which might affect wages, hours, and working conditions. All differences which arose in particular ports were to be settled, if possible, by the local commission. If that failed, the case could be taken for review to the National Commission. At all events, the work was to continue without interruption pending the action of both local and national bodies. Finally, all adjust- ments of wages, hours, and conditions by the National Commission were made binding on all parties.^ In shipbuilding, also, as in the other industries discussed above, the method followed was to pro- vide for settlement without reference to any gen- eral labor plan. A body, — the Shipbuilding Labor Adjustment Board, — was constituted to deal with 1 Louis B. Wehle, Quart. Jour. Econ., XXXII, pp. 130, 140. WAR CONTROL 117 this particular industry. Indeed, the plan was worked out hastily so that it might be available for the settlement of pending strikes. According to the agreement of August 20, the new organization was to be composed of three members representing the public, the workmen, and the Fleet Corporation. Provision was made for an examiner in each of the geographical districts selected jointly by employers and representatives of labor organizations. The duty of this official was to settle the disputes locally if possible, otherwise to refer them to the national body.^ The Adjustment Board apparently had little or no influence in the settlement of the San Francisco strike. The trouble had been pending since August 14, when the strike was formally voted, but was delayed through the influence of some of the leaders until September 18 ; final settlement was not reached until September 26. According to the press dispatches, the principal factors respon- sible for the adjustment were the willingness of the Government to go any length to prevent delays in the shipbuilding program, and an offer by the Shipping Board to share the added expense to the shipbuilders, caused by the adoption of the new wage scale. Accordingly, the Government's pro- posal, which the San Francisco shipbuilders later accepted, provided that it would pay half of any wage increase where the companies did not make in ex- cess of 10 per cent profit on the commandeered ships.^ » Louis B. Wehle, Quart. Jour. Econ.. XXXII. pp. 128, 137. « Com. and Fin. Chron.. Sept. 29, 1917, p. 1267. 118 PROBLEMS OF RECONSTRUCTION During the months immediately succeeding this settlement the Adjustment Board took up its task, and has since met with a good measure of success in the settlement of disputes.^ On April 19, 1918, the Board announced material changes in its rule of practice. One of the new problems attacked was to prevent shipbuilding artisans from drifting from place to place in quest of more favorable oppor- tunities, but this task could only be accomplished by standardizing wages and conditions of work. The Board was of the opinion that the plants on the Great Lakes and northern Atlantic seaboard were in the same competitive area, and that substantial justice would be done the men if the conditions within these regions were made uniform. Thus, it was decided to establish for the yards on the Great Lakes the same wage scale, hours, and other regula- tions that prevailed in the East. The new scale ad- vanced substantially the pay of artisans in a num- ber of the Lake's crafts, but to avoid trouble due to possible reductions, it was provided that the wages of no individual employee should be lowered as a result of the change. The new arrangement was made retroactive to April 1, except where otherwise agreed upon in writing by the yard owners and their employees.^ With reference to the settlements of disputes, the new plan provided for the selection of three mem- bers by each craft by secret ballot. These men 1 Quart. Jour. Econ., XXXII, pp. 339 £F. » O. B., April 26, 1918, pp. 12, 13. WAR CONTROL 119 constituted a shop committee. Grievances were first taken to the shop foreman or general foreman, thence to higher officials of the company, and ul- timately, in the event of failure lower down, to an examiner appointed by the shipbuilding Labor Ad- justment Board. ^ The same general method employed in the ship- building industry and with the longshoremen, namely, the settlement of labor problems for the industry, without reference to a general plan, was followed also with the railroads. Even the re- cruiting program for unskilled labor was not applied to this industry.^ In a statement of February 21, Director-General McAdoo defined the position of the Government with reference to railway labor. He stated that the broad question of wages and hours would be passed upon and reported to the Director-General as promptly as possible by the Railroad Wage Com- mission. Pending its investigation, all requests involving a revision of schedules and general ques- tions affecting wages and hours would be held in abeyance. In any event, should an advance in wages be granted on the basis of the Commission's report, it would be retroactive to January 1, 1918.^ The statement added that "no discrimination will be made in the employment, retention, or conditions of employment of employees because of member- ship or non-membership in labor organizations." ^ J O. B., April 26, 1918, p. 12. 2 Cf. infra. * Mon. Rev. U. S. Bu. of Lab. Sta., April, 1918, p. 110. * Ibid. 120 PROBLEMS OF RECONSTRUCTION With reference to labor, the first important step taken by the Railroad Administration was the ap- pointment of a Railroad Wage Commission about January 18. This body was authorized to study the whole field of railway labor in the United States, compensation of persons in the railroad service, re- lation of railway wages to wages in other industries, conditions in different parts of the country, special emergencies affecting wages because of the war, and the relation between different classes of railway labor. ^ The appointment of the commission was the outcome of a large number of complaints and demands of employees pending before the managers for some time past. In March, the Railway Board of Adjustment was created, largely for the purpose of settling con- troversies. This board was composed of eight members, four representing the railroads, selected by the regional directors, and paid by the railroads, and four representing the brotherhoods and com- pensated by them. Disagreements were to be handled in the first instance by local committees of employees and local oflScers of the roads ; in case of failure to arrive at a settlement, the issue was to be transferred up the line to the Director of the Divi- sion of Labor of the Railroad Administration, who, in turn, presented the case to the Board of Adjustment. If a majority vote could not be obtained from this body, final decision rested with the Director-General.^ 1 O. B., Jan. 19, 1918, p. 1 ; Com. and Fin. Chron., Jan. 5, 1918, p. 38; Jan. 26, 1918, p. 365. * O. B., March 25, p. 2. WAR CONTROL 121 The Railroad Wage Commission issued its report on May 8, recommending advances which totaled upwards of $300,000,000 and covered upwards of 2,000,000 employees. The reason assigned for the advance was to adjust wages to the new cost of living.^ The Director-General's order of May 26 embodied most of the recommendations of the Com- mission. Two principles were clearly recognized, namely, the basic eight hour day, and the pay- ment of equal wages to negroes and white employees performing the same work. The increase affected principally the shop trades, such as machinists, boilermakers, and blacksmiths. A minimum rate of 55 cents an hour was established, and modifica- tions made which increased the pay of common laborers 1^ cents an hour over the rate of Decem- ber 31, 1917, in case the recommendations of the Commission were less than that amount.^ The methods discussed above refer to particular industries or groups of industries. While the plan covered an important part of the field, it left labor conditions in many industries unregulated, and at that, it emphasized only one element of control, namely, the relations between employers and men. The necessity existed for a plan which not only as- sured industrial peace, but at the same time brought within the scope of administration all the important factors which affected the country's war produc- 1 Bus. Dig., May 15, 1918, p. G53. ^Ibid.. June 5, 1918. pp. 758-759; Com. and Fin. Chron., May 11, 1918, p. 1972; Ma^y 18, 1918, p. 2086; June 1, 1918, p. 2267. 122 PROBLEMS OF RECONSTRUCTION tion plans ; hence the demand for a larger pro- gram. On January 8, President Wilson announced his approval of a program of war labor administration which had previously been submitted by Secretary Baker, as chairman of the Council of National De- fense, and by Secretary of Labor Wilson. Six groups of activities were outlined. The new plan included, first, means of furnishing an adequate and stable supply of labor to the war industries, which, in turn, required a satisfactory system of labor exchanges, methods for training workers, an agency for determining priority demands, and agencies to administer the dilution of skilled labor. Second, machinery to provide for the immediate and equi- table adjustment of disputes in accordance with prin- ciples to be agreed upon by laborers and capitalists. A third factor included methods of safeguarding the conditions of labor in the production of war products, with particular reference to sanitary conditions in the establishments, safety provisions, and care of women and children. The fourth group of activities covered conditions of living, including housing and transportation. In addition, the new plan called for an agency to assemble data for the information of officials in perfecting their labor plans ; and finally, an information and educational division, the function of which was to develop public sentiment, secure an exchange of information between the de- partments of the labor administration, and to pro- mote in industrial plants "local machinery helpful in WAR CONTROL 123 carrying out the national labor program." ^ Pres- ident Wilson requested the Secretary of Labor to take charge of the proposed labor administration and to select the appropriate means for carrying it out. The upshot of this plan, therefore, was to put into the hands of Secretary Wilson the task of formulating a broad labor policy for the country. The Secretary promptly called to his assistance an Advisory Council to work out the details of the new administration.^ He also urged the appointment of a War Labor Conference Board, composed of rep- resentatives of laborers and employers, to formulate principles for the settlement of disputes. This body reported March 29, stating principles and recommending the creation of a National War Labor Board to deal with the questions involved. The leading products of the labor policy inaugurated in January are summarized in the activities of the War Labor Board approved by the President April 8, 1918, and of the War Labor Policies Board in- augurated about May 20.' The principles mentioned above are a sort of constitution to which all decisions under the juris- diction of the Labor Board must be referred for validation. Undoubtedly, neither employers nor laborers are fully satisfied with these measures, but 1 Mon. Rev. U. S. Bu. Lab. Sta., Feb. 1918. pp. 78 ff. ; O. B., Jan. 9. 1918, p. 3; Bus. Dig., Jan. 16, 1918, p. 99. *0. B., Jan. 16. 1918, p. 8; Com. and Fin. Chron.. Jan. 26, 1918, p. 357; Jour. Polit. Econ.. XXVI, pp. 442 ff. « Cf. infra, j 124 PROBLEMS OF RECONSTRUCTION" since many of the leaders of industry and labor have given their assent to the plan, it commands their support. It has the advantage of giving a uniform policy of settlement which is workable at least during war times, and, of course, to the ex- tent that it succeeds, it has the great advantage of preventing industrial disturbances. The four principles stated by the Conference Board were the following : First. "The right of workers to organize in trade unions and to bargain collectively through chosen representatives is recognized and affirmed. This right shall not be denied, abridged, or inter- fered with by the employers in any manner whatso- ever." Second. "The right of employers to organize in associations of groups and to bargain collectively through chosen representatives is recognized and affirmed. This right shall not be denied, abridged, or interfered with by the workers in any manner whatsoever." Third. "Employers should not discharge workers for membership in trade unions, nor for legitimate trade union activities." Fourth. "The workers, in the exercise of their right to organize, shall not use coercive measures of any kind to induce persons to join their organiza- tions, nor to induce employers to bargain or deal therewith." ^ In explanation of these principles the Confer- 1 O. B., April 1, 1918, p. 7. WAR CONTROL 125 ence Board said that in establishments where union shops exist, the same shall continue, and union standards as to wages, hours, and other conditions shall be maintained. On the other hand, in estab- lishments where union and non-union men and women worked together, and where the employers meet only with employees or their representatives, the continuance of such conditions was not to be deemed a grievance. But this declaration was not to be interpreted as denying the right or discourag- ing the practice of forming unions.^ The functions and powers of the National War Labor Board were to bring about a settlement by mediation and conciliation of controversies arising in industries necessary for the effective prosecution of the war; to do the same thing for similar con- troversies in other fields of national activity where delays might be detrimental to production ; to sum- mon the parties to the controversy for hearing and action ; and to provide the machinery for settle- ment. This machinery included, in addition to the National War Labor Board, local committees chosen by the Board, resident in important industrial centers. Disputes which local committees could not decide were to be referred to the national body, and in the event of failure here to secure unanimous decision, the Board was to choose an umpire by "unanimous vote"; failing such a choice, the name of the umpire was to be drawn from a list of ten "suitable and disinterested persons to be nomi- 1 O. B., April 1, 1918, p. 7. 126 PROBLEMS OF RECONSTRUCTION nated for the purpose by the President of the United States." ^ It will be recalled that on April 8, President Wilson formally approved of this policy and appointed former President William H. Taft and Hon. Frank P. Walsh joint chairmen of the new board to represent the public, and five mem- bers each to represent employers and workmen.* On July 12, the President announced the names of ten persons who were to act as umpires.' To the student of reconstruction problems, the most important question arising in connection with this program is how the new arrangements have changed the old system. Mr. Walsh was of the opinion that the program is an important concession to the principles of industrial democracy. Com- menting on the War Labor Board and its prospec- tive activities, he said: *'The local committees of mediation and conciliation of the National War Labor Board will constitute the forums of indus- trial peace in the United States. . . . These princi- ples secure to the employer maximum production and guarantee to the worker his right to organization, healthy growi:h of the principles of democracy as applied to industry, and the highest protection of his economic welfare." * It is certainly true that the War Labor Board has emphatically affirmed the right of the men to or- ganize, and has given strong support to collective bargaining, although this principle is not as fully 1 O. B., April 1. 1918 p. 1. ' Ibid., April 10, 1918, p. S. « Ibid., July 15, 1918, p. 1. * Ibid.. May 18, 1918, p. 6. WAR CONTROL 127 recognized as the unions desire, since it is not with the unions that employers are asked to deal, but with organizations of workmen within the shop. Indeed, while the employer is not to deny the right of the men to organize, nor to prevent them from doing so, he is not required to recognize the union. ^ The Western Union Telegraph case illus- trates this point. Mr. Taft, at the suggestion of Mr. Walsh, submitted to the company the proposi- tion that the company receive "a committee of its own men only who desire individually, or in a group composed of the employees," to present requests for betterment of conditions, and that "the Western Union should not be required in any way to deal with the union or to recognize it." ^ In other respects, the new plan seems to make larger conces- sions than are actually obtained. Thus, the unions would undoubtedly insist that much of the force is taken out of collective bargaining by denying them the use of coercive measures. The policy, therefore, is only a part concession to union principles ; on the other hand, as we have already indicated, the new plan subtracts somewhat from the employer's former position of strength because it grants to the men the right to organize, and many have availed them- selves of this grant. Both the plan and principles bear the marks of compromise in which each side, at least for the period of the war, has yielded some- thing for the sake of industrial peace. The full ' O. B., April 1. 1918, pp. 1 and 7. » Ibid.. June 4, 1918, p. 6. 128 PROBLEMS OF RECONSTRUCTION significance of the policies of the War Labor Board cannot be known until its measures are more fully developed. In the recent work of the Board, we have some in- dications of the directions in which the decisions will run. In a controversy at the plant of the General Electric Company at Pittsfield, Massachusetts, the action of the Board required the company to aban- don the system of individual contracts. It was an- nounced that the staff of the Board would devise a system of elections by which the workers could choose committees to represent them in dealing with the company.^ In a wage case, involving upwards of 3000 workers at Waynesboro, Pennsylvania, the Board fixed 40 cents an hour as the minimum rate to be paid to any class of men, including com- mon laborers, and announced that it had under consideration the determination of the living wage which, under its principles, must be the minimum rate to permit the worker and his family to sub- sist in health and reasonable comfort.^ Thus far, the Board has declined to attack the problem of the national minimum. According to an announce- ment about August 1, the policy to be adopted is to settle the minimum in each particular case as it arises.^ The notable case in which the Labor Board has failed to obtain a settlement is the instance of the Western Union Telegraph Company referred to above. The failure, no doubt, hastened the taking 1 O. B., July 1. 1918. p. 2. « Ibid., July 15, 1918, p. 8, » Ibid.. Aug. 1, 1918, p. 1. WAR CONTROL 129 over of the company by the Government. Funda- mental principles were involved, as is indicated by the statement of both sides to the controversy. "The company," according to Mr. Newcomb Carle- ton, the president, "also offered to cooperate with the War Labor Board in the development of an or- ganization to be confined to the Western Union em- ployees, thus giving the employees an opportunity for collective bargaining, and agreeing to submit all differences between the company and this organ- ization to arbitration by the National War Labor Board." ^ To this policy Mr. Taft replied: "I do not think our principles include the closed non- union shop in the status quo to be maintained. . . . You deny to a majority of your employees a right to join a labor union." ^ The Western Union was willing to permit an organization within the com- pany and collective bargaining with this, but refused to deal with an outside organization ; the Board in- sisted on the right of the men to organize, but it did not urge the company to deal with the union. The other organization to which was entrusted the task of working out the broad outlines of a labor policy for the country is the War Labor Policies Board. The distinction between the activities of the two organizations is made clear by Mr. Felix Frankfurter, chairman of the Policies Board. The War Labor Board, according to this exposition, is "judicial and legislative-judicial in the sense that it ^ The Western Union and the War Labor Board (published by the company), p. 10; O. B., June 4, 1918, p. 6. 'Ibid. K 130 PROBLEMS OF RECONSTRUCTION will be a court of appeal where one or more of its enunciated principles are involved in dispute, even as between appellant and any branch or board of the Government, and legislative at such times as the establishment of a new principle to govern in- dustrial relations is in contemplation. The so- called Taft- Walsh board is a court of adjustment of differences between employer and employee, with final jurisdiction in cases where its governing prin- ciples are in question." ^ The Policies Board, on the other hand, is princi- pally an administrative body. Its functions are to determine directly for war industries, and indirectly for non-war industries, questions involving the dis- tribution of labor, wages, hours, and working con- ditions. In case of government production, its decisions are executed by the various production departments of the Government. The execution is direct, also, for industries involved in war work. For non-war industries, the regulations are worked out through, the War Industries Board, which, by virtue of its control over the flow of essential raw materials, can bring effective pressure to bear on such industries. Thus, the Policies Board num- bers among its duties the development of plans for a unified administration, and brings together and coordinates the methods of the various government departments in dealing with labor problems related to production. It is not concerned with disagree- ments between employers and men, since the gov- 1 O. B., May 17, 1918, p. 13; ibid., June 8, 1918, p. 13. WAR CONTROL 131 eminent departments represented on the Board are themselves large employers of labor.^ One of the earliest tasks of the new board was to standardize wages of men employed in the service of the United States. In the latter part of June the Policies Board passed a resolution to the effect that "wages paid by government departments and con- tractors engaged in war work should, after confer- ence with representatives of labor and industrial management, be stabilized by this board." ^ The Committee on Standardization was instructed to proceed with its work "with all possible expedi- tion." In the latter part of July, the scope of this work was extended to cover the whole country. "Wage standardization," according to the Board, "merely extends the familiar method of wage fixing to cover the entire nation. What has been done in many industries the War Labor Policies Board is planning to do for the whole people. But, although wage standardization admittedly follows familiar precedent, it is solely a war measure." ' Thus far, the Board has consulted representatives of the metal trades unions and employers, and employers and men in the building trades. The task of stand- ardization has just begun, and the easiest part, — the plans, — represent the chief accomplishment. Undoubtedly, many snags and shoals lie in this course, and the end of the standardization journey is yet a long way off. 1 0. B., May 17, 1918, p. 13. * Ibid., June 25, 1918, p. 4. » Ibid.. July 25, 1918, p. 12. 132 PROBLEMS OF RECONSTRUCTION In other respects the policy has a more certain conclusion. No serious difficulty is encountered in preventing competitive bidding between war and non-war industries for labor; thus, the resolution of the War Industries Board of July 11, to the effect that this Board, through its priority division, will withhold preference from manufacturers whose bidding attracts men from war industries, promises a successful outcome.^ Recently the Policies Board has been disturbed by disquieting rumors that its action would make impossible a change in rates of wages and working conditions pending its study of the problems of standardization. To make clear that this was not the case, the Board stated that it had definitely adopted the principles of the War Labor Board, and restated these principles at considerable length.^ The Policies Board has, also, defined its attitude towards women's work. While recognizing that substitution is necessary, the Board urged that "a clearly defined policy is needed which shall de- termine what kinds of work women should per- form, how they should best be introduced, under what conditions they should be employed, and what work they should perform." ^ It then laid down the rules that the shortage of labor in essential war industries should be met in part by further intro- duction of women, but that, as far as possible, women shall be employed in occupations most easily filled 1 O. B., July 16, 1918, p. 5. 2 /j^^ July 22, 1918, p. 15. 3 Ibid., July 17, p. 10. WAR CONTROL 133 by them, such as clerical and accounting work in manufacturing and mercantile establishments ; that women should not be employed to replace men in occupations clearly unfit for them, as in pool rooms, saloons, mines, smelters, quarries, and glass works ; and that where women are engaged in industries involving special hazards, special care shall be taken to guard their health, comfort, and safety. The Board also urged that the recruiting of women into occupations hitherto held by men should not be made a pretext for unnecessarily replacing men; that the recruiting of young mothers for war work should be discouraged, and that where women are employed in such new occupations as street car and messenger service, it should be done under special regulations as to hours of work and night service.^ One more activity of the new labor administra- tion needs discussion. It will be recalled that early in January, in submitting the outlines for the new labor plan. Secretaries Baker and Wilson urged as one of the elements of the program an adequate em- ployment service, which would supply labor for the war industries. 2 Prior to January 8, 1915, the Division of Infor- mation of the Bureau of Immigration had been con- ducting an employment service in a limited way in one branch office in New York City. On the date just named, Secretary Wilson extended the scope of the employment work, with the intention of con- necting it with various local agencies over the 1 O. B., July 17, p. 10. 2 Cf. supra, p. 122. 134 PROBLEMS OF RECONSTRUCTION country.^ In the latter part of 1917, under the stimulus of the war demands, the service was further amplified, and a new agency, known as the United States Public Service Reserve, was organized. All of this work, however, fell far short of meeting the country's problem of labor supply. As a prelim- inary to a more extensive service. Secretary Wilson, about December 19, announced the transfer of the United States Employment Service from the Bureau of Immigration to the oflSce of the Secretary of Labor.2 Forthwith, the work took on a new as- pect, and before the end of April, the Secretary was able to announce that upwards of 170 branch offices were in existence in the United States.' The serv- ice assumed still more definite form in June, when the Employment Service undertook the responsi- bility of organizing the supply of cargo handlers in the important ports of the country. The method inaugurated for New York was for the Shipping Board, the Quartermaster's Corps of the Army, the Navy Department, and the Railroad Administra- tion to send daily notices to the central office giving the schedule of ship arrivals for the coming day, the maximum number of men required for prompt dis- charge of the cargoes, and the hour and the place that they should report. With this information the central office undertook to supply the men. The same arrangement was to prevail for loading of vessels.^ » Mon. Rev. U. S. Bu. of Lab. Sta., Sept. 1917, pp. 80 ff. « O. B., Dec. 19, 1918, p. 3. « Ibid., April 17, 1918, p. 8. 1 im., June 17, 1918, p. 8. ' WAR CONTROL 135 After conference with employment managers, rep- resentatives of state employment agencies, and officials of the United States service, the Depart- ment of Labor announced in July its plan for re- cruiting unskilled labor. This work, covering the needs of the war industries of the entire country, was to be centralized in the Department. In re- sponse to the request of the Secretary of Labor, President Wilson asked employers to refrain from recruiting unskilled labor after August 1, except through the employment service of the Depart- ment of Labor. ^ A definite organization was pro- vided for the work, and provision was made to allot the supply to meet the most pressing needs. The plan called for the appointment of community boards in each of the important industrial centers, composed of representatives of the federal service and of employers and workmen. The principal duty of these boards was to decide on the relative needs of local establishments and to prorate the supply. To facilitate distribution of laborers and to learn the prospective demands of war industries, order blanks were mailed to employers, requesting prompt statement of their needs to designated state officers. No promise was made that the supply would be forthcoming, for, in the event of a real shortage, it would be necessary to distribute laborers where they were most needed. The pro- gram did not include all industries. Exceptions 1 Bus. Dig., July 3, 1918, p. 25 ; Com. and Fin. Chron., June 22, 1918, pp. 2618 ff. 136 PROBLEMS OF RECONSTRUCTION were made in case of labor for railroads, farms, and establishments employing less than 100 men, and of labor which was not solicited. Nor did it apply to non-war industries, except that such manufacturers were urged not to offer superior inducements to attract men from war industries. Employers who possessed a field force were permitted to use it only under authorization from the federal employment service,^ and in the case of war industries, adver- tising of any description for unskilled labor was prohibited. Possibly, the Department is looking forward to a time in the near future when the supply of skilled labor also will be brought under regulation. In an announcement which appeared about August 1, it was stated that "for the time being "no restrictions are placed on employers recruiting their own skilled labor, except that they are not to conduct their work so as to cause labor unrest.^ It is hardly possible to grasp the significance of these new departures in the labor policy of the country. They are announced as war measures, and they are voluntary with respect to the fact that they are usually reached by agreement among the parties concerned. But there freedom ends. Once principles are established, and once a method of procedure is agreed upon, the various federal agencies cooperating with the Department of Labor bring » O. B., July 9, 1918, p. 5; July 15, 1918, p. 2; July 22, 1918, p. 3; Aug. 1. 1918, p. 3. 2 Ibid., Aug. 1, 1918, p. 3. WAR CONTROL 137 varying degrees of pressure to bear upon employers to obey the restrictions. No one believes that we can, or that we should, go back to the old methods. Undoubtedly, there is much in the new order that is worthy of preservation, provided it is adminis- tered so as not to interfere too seriously with free- dom of action. But the whole program is too new, and its operations are not sufficiently tested, to permit a present judgment. For these reasons, the new program requires careful thought before its elements are adopted as a permanent part of our system. It should be the duty of some reconstruc- tion committee to go over the whole plan and study its workings for the purpose of weeding out its bad features and of preserving the good. CHAPTER V DEVELOPMENT OF WAR CONTROL {Continued) Other Elements of Control The measures discussed in the last three chapters by no means exhaust the subjects of control. With a war waged on the modern scale, it is necessary to put the country's whole industrial strength behind the war machine ; thus every important factor of manufacture and commerce that may contribute to that end is brought under regulation. This is the outstanding feature of modern warfare. The meas- ures previously discussed refer principally to domes- tic affairs and have for their purpose the prevention of undue rises in prices, stimulation of production, a better organization of some of the factors of pro- duction, and the prevention of obstructions to in- dustry because of misunderstandings between em- ployers and laborers. Control did not stop here. It has developed to include foreign commerce, in- cluding exports and imports, capital issues, inland and foreign shipping facilities, government pur- chases, and the flow of essential raw materials to the industries. In a few cases regulation covers the standardization of commodities for domestic con- sumption. And withal, there has been developed an interesting system of inter-allied cooperation by 138 WAR CONTROL 139 which, as far as possible, the warring nations put their resources at the command of their associates, and honor the request of each other to control the movement of goods where their own interests are concerned. Control is thus far reaching and com- plete. It includes not only industry within our own border, but relations with associates and neutrals.^ Now that the system is under way it seems simple enough, but it has produced enormous changes in the old relations and creates problems of the first moment for the reconstruction period and even for later times. For some time before the United States entered the war, England had developed a method of con- trolling her foreign commerce for the purpose of conserving shipping and essential materials, limit- ing domestic consumption, keeping down her un- favorable trade balances, notably with the United States, diverting her industrial activities to war ends, and, of course, preventing important raw materials from reaching her enemies. The move- ment of goods to Holland, Denmark, Scandinavia, and Spain was put under careful regulation. In most cases, commodities were consigned to respon- sible associations, or to governments themselves, under promise that they would be disposed of only as England prescribed. For example, a procla- mation of December 23, 1916, required that, with certain exceptions, all articles exported to Holland were to be consigned to the Dutch government, or 1 WaU St. Jour., July 29, 1918. 140 PROBLEMS OF RECONSTRUCTION to diplomatic and consular oflScers, with the per- mission of the Ministry of Foreign Affairs, or the Netherlands Overseas Trust. ^ The Trust, on the other hand, undertook to faithfully discharge its obligations. In a circular of April 1917, it called attention to the fact that licenses were issued for the purpose of bringing in goods for home consump- tion exclusively, and that storage of goods was strictly against the provisions. It was pointed out that the return of peace would not release goods imported under trust, but that these would be held subject to the non-exportation agreements.^ Similar methods were applied by England to her commerce with the United States. Rubber, nickel, wool, and leather, among other commodities, could be obtained by our merchants and manufacturers only by conforming to English regulations. To give one example ; in the case of rubber, our pro- ducers obtained the raw product by agreement with the British War Trade Department. To make sure that the finished products should have no other des- tination than Britain permitted, it was required, as a condition for obtaining the raw materials, that the finished products should be exported to neutral European countries by way of England or, by sub- sequent arrangements, via Halifax.^ The prior development of England's machinery of 1 Com. Rept., Dec. 28, 1916, p. 1169; for other illustrations see Com. Rept. Dec. 5, 1916, p. 866; Jan. 3, 1917, p. 17; Jan. 9. 1917, p. 97; July 7, 1917, p. 65; Aug. 18. 1917, p. 641. 2 Ibid., April 30, 1917, p. 390. » Com. and Fin. Chron., June 16, 1917, p. 2419. WAR CONTROL 141 foreign trade control made our task relatively simple. We have profited by her experience and have availed ourselves of various foreign organizations which have come into existence as a result of her regula- tions. Indeed, in many instances, we are cooper- ating with England, as with our other associates, in the development of war trade control. The authority for the regulation of our own foreign commerce is contained in the Espionage Act of June 15, 1917, which referred to exports, and in the Trading with the Enemy Act of October 6, 1917, which conferred the power of control over imports also.^ From time to time, the President's proclamations have designated ofiicials whose duty it is to put into effect the provisions of the acts, and have named the commodities to which the license system is to be applied, and indicated the countries to which commodities could or could not be shipped.^ It will be observed that these measures are not matters of customs regulation. As such they would not be possible under our Constitution. They are war measures designed partly to regulate the des- tination of trade, and partly to promote various other war purposes. Title VII, Section 1, of the Espionage Act makes the following provisions: "Whenever during the present war the President shall find that the public safety shall so require, and shall make proclamation thereof, it shall be unlawful to export from or ship 1 Public No. 24, 65th Congress (II. R. 291) ; Public No. 91 (H. R. 4960), 2 Cf. infra. 142 PROBLEMS OF RECONSTRUCTION from or take out of the United States to any country named in such proclamation any article or articles mentioned in such proclamation, except at such time or times, and under such regulations and orders, and subject to such limitations and exceptions as the President shall prescribe, until otherwise ordered by the President or by Congress; Provided, however, that no preference shall be given to the ports of one State over those of another." ^ Penalties for viola- tion of the law include a fine not to exceed $10,000, or in the case of natural persons, imprisonment for not more than two years, or both fine and imprison- ment ; the goods may be seized and forfeited to the United States ; and any officer, director, or agent of a corporation who participates in the violation of the law is subject to fine and imprisonment. The wording of Section 11 of the Trading with the Enemy Act is nearly like that of the portion of the Espionage Act just quoted, except that the word "import" appears in the place of "export." The combined effect of the two laws, therefore, is to pro- vide regulation for commerce entering and leaving the country. In addition, the Trading with the Enemy Act provides for control in other important respects. It is authority for the regulation of enemy insurance companies doing business in the United States, for the appointment and activities of an alien enemy property custodian, for the use of enemy patents, trade-marks, prints, etc., and for the regu- lation of certain financial transactions.^ 1 Public No. ii, op. ciL, pp. 9 and 10. 2 Public No. 91, op. cit. WAR CONTROL 148 It needs no explanation to make clear the vast extent of control involved in these measures. As far as commodities are concerned, the laws reach not only merchants, but thousands of manufacturers as well, because a considerable part of our imports is composed of raw materials which supply our indus- tries and give employment to our laborers ; the bulk of our exports, also, is composed of products of our factories. The influence of this control, therefore, is felt throughout the industrial structure. A feature which is not made clear by a statement of the laws is the power they contain of regulating certain kinds of commerce within neutral countries. If we can deny such neutrals the use of our essen- tial commodities, we can lay down conditions for their use in manufacture and commerce, and we can make their receipt a condition for the disposition of many commodities of neutral production.^ This, indeed, is what we do in many instances. In effect, we not only regulate our own commerce, but pre- scribe rules for the guidance of neutrals with respect to the commodities they receive from us. Again, this is one of the unique features of modern war control. The reader, undoubtedly, asks what the results will be; we must postpone the answer to a later chapter. ^ In most respects, the reasons which have led to the enactment of these laws are the same as involved in English control.^ In the words of the War Trade ^ Cf. English measures with Sweden, Com. Rept., July 7, 1917, p. 65. 2 Cf. infra. Chap. VII. 3 cf. supra, p. 139. 144 PROBLEMS OF RECONSTRUCTION Board: "The military situation and the tonnage situation have made increasingly apparent the ne- cessity of instituting a complete and thorough- going control of all our exports and imports." ^ The reasons are the demand for tonnage to trans- port our armies, munitions, and commodities to Eu- rope, the need of conservation of goods for the use of ourselves and our allies, the need of supplying certain Central and South American countries de- pendent upon us for products, and the prevention of our commodities from reaching Germany. Where shipping is directed largely to Europe, the amount of space allotted for trade elsewhere is limited and must therefore be used for imports which answer our most pressing needs. Unlike English control, it is not necessary for us to regulate commerce to keep down an unfavorable balance of trade, because the balance is already heavily in our favor ; nor is it necessary to use the pruning knife on the masses to cut their consumption of foreign goods. Our principal reasons are the conservation of goods and tonnage and the prevention of commerce with the enemy. Before the passage of the Trading with the Enemy Act the organization charged with the control of exports was the Exports Administrative Board, es- tablished by executive order on August 21, 1917.^ Two months before this date, the President, by executive order, had established the Exports Coun- cil, composed of the Secretary of State, the Secretary ^ Rules and Regulations of the War Trade Board, No. 2 (May 1918), p. 9. » Ibid., No. 1 (Nov. 1917), p. 5. WAR CONTROL 145 of Agriculture, the Secretary of Commerce, and the Food Administrator, and vested it with the authority of formulating policies for the consideration of the President, and for making recommendations neces- sary to carry out the act. In accordance with this order, the Secretary of Commerce organized the Division of Export, licensed as a division of the Bureau of Foreign and Domestic Commerce. Through this division were issued licenses in ac-^ cordance with the orders and regulations issued from time to time by the President.^ The passage of the Trading with the Enemy Act made necessary a change of organization. A new body, the War Trade Board, was established by an order of October 12, 1917; it took over the func- tions of the Exports Administrative Board and ob- tained other functions to suit the new situation.^ Meanwhile, there was created the War Trade Coun- cil, composed of the Secretaries of State, Treasury, Agriculture, Commerce, and the Food Administrator, to act in an advisory capacity to the President.^ On October 12, the President also designated the oflBcers who were to make concrete applications of the various powers conferred by the Trading with the Enemy Act.* As one might conclude from the above, a number of the members of the War Trade Board are representatives of the various secretaries named above and of the Food Administrator.^ 1 Rules and Regulations of the War Trade Board, No. 2 (May 1918), p. 6. 2 75^^ pp 5 and 42. ^ /^,y^ p, 43 * Ibid., pp. 42 and 43. ^ Ilnd., No. 1 (Nov. 1917), p. 2. L 146 PROBLEMS OF RECONSTRUCTION The machinery was now ready for the work of control. The next step was to designate the com- modities to be put under license, and to indicate the countries with which trade was permissible. This was done by the President's proclamations of July 9 and August 27, 1917.^ According to the former proclamation, the following commodities could be exported only under license: "Coal, coke, fuel oils, kerosene and gasoline, including bunkers, food grains, flour and meal therefrom, fodder and feeds, meat and fats ; pig iron and scrap steel ; f erro- manganese ; fertilizers ; arms, ammunition, and ex- plosives." A long list of regions was indicated to which these commodities could not be shipped except by permission.^ The proclamation of August 27 greatly extended the list of commodities placed under the license system. In explaining the latter proclamation, President Wilson said: "The purpose and effect of this proc- lamation is not export prohibition but merely ex- port control. It is not the intention to interfere unnecessarily with our foreign trade; but our own domestic needs must be adequately safeguarded, and there is the added duty of meeting the neces- sities of all the nations at war with the Imperial German Government. After those needs are met, it is our wish and intention to minister to the needs of the neutral nations as far as our resources permit. This task will be discharged without other than the ^ Rules and Regulations of the War Trade Board, No. 1 (Nov. 1917), pp. 6, 11, 12. »Ibid. WAR CONTROL 147 very proper qualification that the liberation of our surplus products shall not be made the occasion of benefit to the enemy, either directly or indirectly." ^ On September 7, 1917, the President issued a proclamation forbidding the export of coin, bullion, and currency to all countries mentioned in the proclamation of August 27, except with the consent of the Federal Reserve Board, and subject to the approval of the Secretary of the Treasury.^ Two other proclamations, namely, of November 28, 1917, and February 14, 1918, have placed the entire foreign commerce of the United States under the license system. From an administrative point of view, there is undoubtedly a great advantage in requiring licenses for all articles entering our foreign trade. Since November 28, 1917, import licenses were required for many of the basic raw materials, and importers were familiar with the method of pro- curing them. The added inconvenience of applying for licenses for all importations was negligible in com- parison to the advantages obtained. Thus the ques- tion as to what did or did not require license, which was a cause of uncertainty and delay, was obvi- ated.' The War Trade Board added that "the ben- efits to be derived from this license system are numerous, one of the most obvious being that the present control over the disposition and use of raw materials, which are now being imported under license, will be extended to all materials, so that if at * Rules and Regulations of the War Trade Board, No. 1 (Nov. 1917), p. 13. * Ibid., p. 22. 3 Ibid., No. 2 (May 1918), p. 62, 148 PROBLEMS OF RECONSTRUCTION any time a shortage exists or appears imminent in any imported material the supply thereof may be directed to the uses most vital to our martial requirements." ^ In addition, these arrangements were most effective in preventing commodities from reaching the enemy. Said the Board: "To stamp out all activities among such agencies and to safeguard our well-intentioned citizens from dealing with them, we must proceed with the utmost prompt- ness and vigor. The forms of activity of these con- cerns and the subtle and intricate methods pursued by them are innumerable, but are invariably directed, either by furnishing information, smuggling supplies through the blockade, providing credits, or hoard- ing for post-war purposes, to give aid and comfort to the enemy." ^ The administration of this control has also re- sulted in two other interesting developments, namely, the voluntary organization of many trades, such as rubber, wool, jute, and tin, to act as consignees when this becomes necessary, and in other respects to co- operate with the War Trade Board, both in making its orders effective and in preserving the organiza- tion and welfare of the trade ; ^ the other develop- ment is the rationing or allotting a limited supply of raw products among producers so that each may have a fair share. Unlike many of the committees of the Council of National Defense which were formed to deal only 1 Rules and Regulations of the War Trade Board, No. 2 (May 1918), p. 62. a Ibid. ' Ibid., p. 63. WAR CONTROL 149 with the war industries, the war service committees just referred to are committees of the industries themselves.^ In many instances these were brought into existence through the influence of the Chamber of Commerce of the United States. Organizations of industries and trades are nothing new in this country.^ Indeed, they have existed for many years and are designed for various purposes, ranging from the very general work of promoting the in- dustrial interest of a locality, or of a given group of industries, to the more concrete work of regulating trade practices, fixing prices and conditions of sale, limiting output, and many other purposes, some of which have been adjudged contrary to our laws. The war service committees, however, are primarily emergency war organizations. Their activity looks two ways ; on the one hand, they keep a watchful eye on the conditions of their industry, and on the other, they serve as the point of contact between the industry as a whole and the Government. The program of the Rubber Association of America illustrates some of these functions. Its purposes are to represent the trade in relations with the Gov- ernment, to assist the Government in obtaining in- formation as to the capacity of the rubber trade in serving the needs of the Government, to cooperate in the standardization of products for government use, and to put before the Government the needs * Nation's Business, Feb. 1918, p. 12. * Commercial Organizations in the United States, Special Agent Series No. 79. 150 PROBLEMS OF RECONSTRUCTION of the industry.^ Many other committees of this description have been formed, both in this country and in England.^ In some respects they forecast a new relation between government and industry, in which the essential characteristic is that of co- operation. The second development named above is con- nected with the growth of the war service committees, because it is through these that the arrangements are made effective. Apportioning and allotting of the product becomes necessary when only a limited supply of raw materials is permitted to come into the country. Some industries would be forced to close if the diminished import were delivered only to a few plants. Since it is the purpose of regu- lation to disturb industry as little as possible, the principle implies giving to each a fair proportion of the restricted supply, hence the need of apportion- ment.^ When the Government, in November 1917, decided to control the import of tin, the task of distributing the product was placed in the hands of the Sub-committee on Tin of the American Iron and Steel Institute. The committee worked under the authority and control of the Government.* No person was permitted to import tin through the Institute except on guarantee not to use it for speculative purposes or exportation. The Institute 1 Bus. Dig., Jan. 30, 1918, p. 163. « Nation's Business, Feb. 1918, pp. 12 ff . ; Nov. 1917, p. 39 ; Bus. Dig., Dec. 12, 1917, p. 495; O. B., Dec. 15, 1917, p. 3. « Cf. infra. * Bus. Dig., Nov. 28, 1917, p. 410. WAR CONTROL 151 kept records of all tin imported and released to con- sumers, including data necessary to indicate final disposition and consumption. From time to time reports were required of importers and dealers to serve as a basis for future control of the industry. It was expected that by concentrating control in the hands of the Institute importation would be expedited and the market stabilized.^ The recent methods of administering the control of rubber suggest a similar procedure. The import was limited temporarily at the rate of 100,000 tons a year, or to 25,000 tons a quarter. Representatives of the trade were consulted in making this arrange- ment, and the Government availed itself of the offices of the Rubber Association in making known to the trade the method of allocation. The nation's requirements were to be taken care of first ; the re- mainder of the supply was to be allotted to manu- facturers on the basis of a certain fraction of their » Com. and Fin. Chron., Nov. 24, 1917, p. 2050. Illustrating this method Mr. Clarence M. Wooley of the War Trade Board said : "If a consignment of pig tin is to come into the country, the license provided that the consignee shall be the Sub-committee on Pig Tin of the Amer- ican Iron and Steel Institute, a committee appointed for that express purpose by the members of the tin industry. When the goods arrive at the port of entry, the licensee presents to that committee a form of guarantee as specified by the War Trade Board, and if this is in proper form, the consignee, which in this instance is the Sub-committee on Pig Tin, indorses over or releases to the licensee, or ultimate receiver of the goods, the bill of lading; whereupon the latter may take delivery of the consignment at the customs house. . . . These committees, which act as consignees, have no right or power to claim for themselves or for the Government any arbitrary prerogative." Cf. Nation's Business, March, 1918, p. 11. 152 PROBLEMS OF RECONSTRUCTION last year's requirements.^ The reader cannot fail to recognize, both in the terms employed in these orders and in the procedure, much that suggests methods of pooling which were long ago declared un- lawful. It should be pointed out, however, that the purposes of the old pooling arrangements were largely to limit the supply in order to keep up the price, while the present object is to make a limited supply go round. The control of foreign commerce was not com- plete with only the regulation of commodities, coin, bullion, and currency. Without the control of ex- change also it was impossible to prevent our financial resources from being used for enemy benefit, nor was it possible to control fluctuations of exchange. Another step, therefore, was to place foreign ex- change under control. This was done by executive order dated January 29, 1917. Secretary McAdoo explained that "the purpose of the order is to place dealers in foreign exchange and in the sale of secu- rities or foreign account under such control as will prevent the use of the banking facilities and the markets of the United States for the benefit of its enemies." ^ Dealers were divided into classes de- pending on the nature of their business. They were required to register, to make declaration that the business passing through their hands did not give 1 O. B., May 8, 1918, p. 1 ; ibid.. May 9, 1918. p. 2; Bus. Dig., May 15, 1918, p. 653; ibid.. May 22, 1918, p. 681; Com. and Fin. Chron., May 11, 1918, p. 1960; Wall Street Jour., Aug. 1, 1918. » Com. and Fin. Chron., Feb. 2, 1918, p. 438 ; Feb. 9, 1918, pp. 541 ff. WAR CONTROL 153 assistance to the enemy, and to render weekly statements indicating the general trend of trans- actions in the exchange market. The regulation was put in the hands of the Federal Reserve Board. We have pointed out that the control of com- merce included not only commodities entering and leaving our borders, but to a considerable extent the destination and use of our materials in foreign coun- tries. Control is effected through the license sys- tem. Whether goods are destined for distribution through branches or agencies of American houses abroad, or through foreign agencies, the War Trade Board requires rigid adherence to the terms of the contract, so that commodities may be disposed of only under the regulations. Said the War Trade Board: "Shippers should bear in mind that there is more than a legal obligation resting upon them when they sign this contract, and they will be asked to show any proof they may have that it can be carried out. . . . When goods are received at their destination abroad by the branch or agent of the ship- per, they must not be resold or exported from such foreign country without complying with the regu- lations." ^ The agreements contain the provisions that "the merchandise so exported will be sold only under such rules and regulations as the Amer- ican Consul having jurisdiction over the territory to which the goods are shipped or the War Trade Board may from time to time promulgate," and that 1 Rules and Regulations of the War Trade Board, No. 2 (May 1918), p. 42. 154 PROBLEMS OF RECONSTRUCTION "the guarantor, when called upon to do so, will furnish to either the War Trade Board or any American Consul full statements of any transaction, together with any books, papers, or memoranda showing the facts in connection therewith." ^ Other methods are provided where goods are not sold through American agencies. In the case of Switzerland, the procedure, as described in May 1918, was for the purchaser to apply to the Societe Suisse de Surveillance Economique at Berne for the privilege of importing certain commodities. When this permission was granted, the S. S. S. cabled its action to the Legation of Switzerland at Washing- ton. The American exporter filed his application with the Swiss Legation, which checked the S. S. S. permit and, if satisfactory, indorsed the application to the War Trade Board.^ Licenses granted by the Board were forwarded to the Legation, which, in turn, notified the applicant and ultimately delivered the license to him. In the case of Holland, the control has been ad- ministered chiefly through the Netherlands Over- seas Trust (N. O. T.). This is a private Dutch cor- poration which makes agreements with the Allies whereby goods imported from overseas are con- sumed in Holland.^ The trade organizations within Holland, however, have undergone several changes. ^ Rules and Regulations of the War Trade Board, No. 2 (May 1918), p. 42. » Ibid.. Bus. Dig., March 6, 1918, p. 326; Com. Rept., Jan. 4, 1916, p. 177; April 5, 1916, p. 63. » Com. Rept., June 28, 1918, p. 1202. WAR CONTROL 155 In the latter half of 1917 the Dutch Export Com- pany was formed, partly to supplement the work of the N. O. T. and for other purposes, such as sim- plifying export control, providing possible means for equitable taxation, coordinating Holland's export policy with her policy of domestic distribution, and enabling the country better to bargain with foreign countries for the needed imports.^ Recently, a new organization has been proposed, namely, the Neth- erlands Import and Export Company, which is to work in close harmony with the N. 0. T. Accord- ing to the proposed measures, the latter will con- tinue to guarantee the consumption in Holland of commodities imported from abroad, while the former organization, among other things, is to be responsible for the granting of permits for importation. These illustrations are sufficient to show the method of controlling our commerce with neutrals. Arrange- ments have been made also with Denmark, Norway, Sweden, and Spain, by which American products are consigned to responsible parties under guarantee that the goods will be disposed of only as prescribed by our regulations.^ The control of commerce with the countries to the 1 Com. Kept., Oct. 24, 1917, p. 324; Nov. 20, 1917, p. 690; June 28, 1918. pp. 1202 ff.; Com. Rept. (Supplement), June 22, 1918, p. 5. 2 For arrangements with Norway see War Trade Board Journal No. 11, July 1918, pp. 5, 6; Wall Street .lour., Feb. 25, 1918; O. B., May 4, 1918, p. 1; May 10, 1918, p. 553; .Tune 3, 1918, p. 854; W. T. B. R. 126. For Denmark see Com. Rept., May 22, 1918, p. 706 ; O. B., March 23, 1918, p. 3; War Trade Board .Journal, No. 11, July 1918, p. 6. For arrangement with Spain see O. B., March 9, 1918, p. 1. 156 PROBLEMS OF RECONSTRUCTION south of us is on a different basis. Here the prin- cipal problem is to supply the regions which have long been dependent on us for certain products. Thus, to lessen the hardships caused by our war control, the War Trade Board permits the export of some articles, which we sorely need, when the evi- dence submitted with the application for license justifies the shipment.^ In the case of imports from the southern countries, one of the chief problems is to conserve tonnage. With this end in view, the War Trade Board, on July 18, announced that by an ar- rangement with the United States Shipping Board a vessel had been allotted to carry coffee from Brazil to New Orleans. Import licenses covering ship- ments on this vessel were allotted by the Board to importers of record for the calendar years 1916 and 1917. Importers were instructed to notify the Board of their requirements.^ The upshot of these many measures is that the principal factors affecting our foreign commerce are brought under control. Imports and exports are subject to license, the consumption of our products in neutral countries is carefully guarded, measures are taken to supply dependent countries of South and Central America, and machinery is perfected to accomplish these ends. The control of capital issues involves quite a dif- ferent problem. While the principal purpose is to 1 Journal of the War Trade Board, No. 1, Nov. 15, 1917, p. 3. « W. T. B. R. 170. For Cuba cf. O. B., Jan. 10, 1918, p. 1 ; Feb. 21, 1918, p. 4; May 13, 1918, p. 1. WAR CONTROL 157 conserve credit for war uses, this policy accom- plishes other desirable results, since it discourages the production of luxuries, restricts investments in less important enterprises, and thereby saves materials and labor for the more important war uses. "There is not an unlimited supply of credit, or of goods, or of man power," said Mr. W. P. G. Harding, gover- nor of the Federal Reserve Board. "Wherever pos- sible, such resources should be conserved and set aside for the use of labor, of transportation, of material, and reserves which ought to be kept free for the use of the Government." ^ Considering the future problems of reconstruction. Governor Hard- ing said : "Conservation of our commodities and of our gold — preservation of our economic strength — is of the greatest importance in making provision for the period of readjustment which will follow the reestablishment of peace. The country having the largest supply of goods and gold available at the end of the war will find itself in the best strategic position for controlling the markets of the world." ^ Restrictions on the use of capital, therefore, ac- cording to Governor Harding, serve two purposes : while they strengthen our war program, at the same time they conserve our industrial power for the coming period of reconstruction. The control of capital issues was forecasted in Secretary McAdoo's letter early in December to Mr. E. A. Deeds of Dayton, Ohio, president of the Miami Conservancy District. Mr. Deeds had in- 1 Federal Reserve Bulletin, Aug. 1918, pp. 686, 687. * Ibid. 158 PROBLEMS OF RECONSTRUCTION quired of the Secretary regarding the expediency of expending upwards of $25,000,000 on a flood con- trol project. To this letter Mr. McAdoo replied : *'It is my hope that others charged with similar responsibilities in respect to the financing of enter- prises, both public and private, will make it their practice to consult with the Secretary of the Treas- ury before undertaking any new financing or, indeed, before making commitments or expenditures which would require to be financed by borrowing." ^ In his annual report dated December 3, 1917, Secre- tary McAdoo urged strongly the importance of avoiding unnecessary expenditures in both public and private enterprises,^ but he pointed out that he had no authority to disapprove of new financial transactions.^ However, requests for advice came in large numbers from corporation executives, bankers, and municipal oflScials, and the burden of the new work grew so rapidly that the Secretary in January requested the Federal Reserve Board to assume the responsibility of passing on proposals submitted to them. The Board took up its new duties on January 14, and voted to appoint a capital issues committee and to provide the necessary staff to carry on the work.^ Subsequently, committees were appointed for the twelve Federal Reserve Dis- tricts. The plan of operation of the committee was 1 O. B., Dec. 10, 1917, p. 3. * Annual Report of the Secretary of the Treasury (1917), pp. 1, 2. 3 0. B., Jan. 12, 1918, p. 1; Federal Reserve Bulletin, Feb. 1918^ p. 72; ibid., Aug. 1918, pp. 704 ff. < Federal Reserve Bulletin, Aug. 1918, pp. 704, 705. WAR CONTROL 169 that of the EngKsh capital issues committee; that is, it accomplished its work through the voluntary cooperation of the enterprise concerned. At first the committee advised that it would consider indus- trial and public utility issues of $500,000 and over, and municipal issues of $250,000 and over, but urged a conference even on issues for smaller amounts. Subsequently, the amount for both classes was re- duced to $100,000. Some of the fundamental prin- ciples adopted were that favorable action would be taken only where state, county, municipal, cor- porate, or individual financing involved projects which would contribute to the successful prosecu- tion of the war, or which were essential to the public health or welfare ; as to irrigation and drainage proj- ects, favorable consideration would be given only to those of great economic or military importance and from which definite results could be secured in time to be of assistance during the war. As a rule, the committee approved only of projects which were likely to bring results within a year, except where government departments advised that work ought to be undertaken extending beyond that period, and where uncompleted enterprises were in need of financial aid. Favorable consid- eration was also given to refunding operations, and also to the funding of capital expenditures in- curred prior to February 1, provided that "the committee might deviate from this policy if avail- able cash assets reasonably might be used for the payment of such debts in whole or in part, or exces- 160 PROBLEMS OF RECONSTRUCTION sive cash distributions to shareholders were con- templated, or in cases where the requirements of the corporation could be met in some other manner without risk or hardship." ^ According to the committee's report of July 17, forty-six meetings were held and 361 applications were passed upon, aggregating upwards of $478,458,300.^ As indicated above, these measures were volun- tary. No doubt the accomplishments were even greater than the figures above would suggest, for, as the committee urged, its very existence, and the campaign of education which it inaugurated, dis- couraged at the source commitments for capital expenditures, and thereby conserved material, labor, and credit for essential industries and for the uses of the Government.' Nevertheless, pressure, which in many instances amounted to prohibition, could be employed by other departments of Government control. This could easily be accomplished, for example, through the priority privileges of the War Industries Board. Indeed, the Board an- nounced in March that all new undertakings not essential for the public interest, and not contribut- ing either directly or indirectly toward winning the war, would be discouraged, notwithstanding they were of local importance and of a character which should in normal times meet with every encourage- ment.* At this time the Board passed a resolution 1 Federal Reserve Bulletin, Aug. 1918, pp. 706, 707. 2 Ibid., p. 708. 3 iiid^^ p. 708. * O. B., March 27, 1918, p. 5. ' WAR CONTROL 161 to the effect that "in fairness to those interested therein notice is hereby given that this Board will withhold from such projects priority assistance, without which new construction of the character mentioned will frequently be found impracticable, and that this notice shall be given wide publicity, that all parties interested in such undertakings may be fully apprised of the difficulties and delays to which they will be subjected and embark upon them at their peril." ^ The creation of the War Finance Corporation un- der authority of the act of April 5, 1918, provided a new arrangement for capital issues.^ According to Title 11, section 200 of the law, "there is hereby created a committee to be known as the 'Capital Issues Committee,' hereinafter called the Com- mittee, and to be composed of seven members to be appointed by the President of the United States, by and with the advice and consent of the Senate. At least three of the members shall be members of the Federal Reserve Board." This committee, ^ O. B., March 27, 1918, p. 5. This resolution was approved by the National Association of Manufacturers on May 21, 1918 ; cf. O. B., June 10, 1918, p. 4. Early in February 1918, Secretary McAdoo issued an announcement discouraging the building of dwellings ; cf . O. B., Feb. 5, 1918, p. 1. In May manufacturers, except those engaged in industries necessary for the prosecution of the war, were urged to extinguish their debts rather than borrow even to increase capacity or output; mer- chants, also, were discouraged from carrying large stocks of fashionable and luxury articles and of those for mere comfort ; cf . O. B., May G, 1918, p. 3. The Federal Reserve Board in April urged the conservation of bank credit; cf. Federal Reserve Bulletin, April 1918, pp. 263 ff. !« Public No. 121, 65th Congress (S. 3714). M 162 PROBLEMS OF RECONSTRUCTION therefore, takes the place of the former voluntary body acting under the auspices of the Federal Re- serve Board. Members not otherwise receiving compensation from the United States are to receive a salary of $7500 a year; in the event that mem- bers are serving in other departments they are to receive the difference between their compensation in such departments and the amount named above. The terms of office of the several members are to be determined by the President. The committee is authorized "under rules and regulations to be pre- scribed by it from time to time, to investigate, pass upon, and determine whether it is compatible with the national interest that there should be sold or offered for sale or for subscription any issue, or any part of any issue, of securities hereafter issued by any person, firm, corporation, or association, the total or aggregate par or face value of which issue and any other securities issued by the same person, firm, corporation, or association since the passage of this Act is in excess of $100,000." ^ The committee is not to pass upon borrowing for current account, or for renewing or refunding of indebtedness exist- ing at the time the act was passed ; nor is it au- thorized to act on the resale of securities where the committee has determined that such process is com- patible with the national interest. Railroad securi- ties and bonds of the War Finance Corporation are also excluded from its jurisdiction. ^ All the authority contemplated under the sections of the 1 Public No. 121, op. ciL, p. 9. " Ibid. WAR CONTROL 16S act outlined above is to be brought to an end six months after the termination of the war, as indi- cated by the President's proclamation. Like the old capital issues committee, the new body is to be represented by local organizations in each of the twelve federal reserve districts. An- nouncement to this effect was made July 16.^ Each of the district organizations is composed of a number of bankers and business men. It is the intention of the new committee to have the district bodies act definitely upon applications for the issue of securities amounting to $100,000 or less, and to advise the main committee at Washington where applications involve larger amounts. According to the an- nouncement of Chairman Charles S. Hamlin of the central organization,^ "the Capital Issues Com- mittee also has the benefit of the advice of all other departments and branches of the Government, in- cluding the Food, Fuel, and Railway Administra- tion, the War Industries Board and other agencies having knowledge of the requirements of essential war industries." It is obvious from this announce- ment that there will be cooperation among the various government factors of control, and that thereby the regulations will be all the more effective. For its guidance, the Committee will undoubtedly adopt fundamental principles similar to those em- ployed by the old committee,^ but because of its more certain sources of information, through the 1 Wall St. Jour., July 16, 1918. « Ibid. ' Cf. ante, p. 159. 164 PROBLEMS OF RECONSTRUCTION government departments, its work will be far more thorough than that of its predecessor. The sections discussed above are a part of the act which authorizes the creation of the War Finance Corporation. It goes without saying that this organization is a part of the war policy of the United States. There has been much criticism of the new measure ; the question has been raised as to its necessity ; more recently doubts have arisen as to how the corporation should exercise its functions.^ But much of the fear of the prospective power of the corporation seems to be based on the new prin- ciples involved rather than on a forecast of the work it will actually be called on to accomplish. It is optional with the borrower whether he uses its facilities or not ; with the Capital Issues Commit- tee carefully scrutinizing issues, only those industries essential for the national interest will be able to ob- tain assistance. Indeed, to date, nearly five months after the passage of the act, there has been but small demand for its assistance. The aggregate of the large loans is only about $41, 655, 000.^ The real danger lies in the fact that the principle of govern- mental aid in financing of industries once having iWall St. Jour., Jan. 31, 1918; March 4, 1918; March 12, 1918; March 19, 1918; April 4, 1918; April 22, 1918; May 29, 1918; June 6, 1918; June 13, 1918; August 10, 1918; Economic World, Feb. 2, 1918, p. 147; Bulletin of the Nat. City Bank (N. Y.), Feb. 1918, p. 6; Com. and Fin. Chron., Feb. 2, 1918, p. 439; Feb. 9, 1918, p. 541 ; Feb. 16, 1918, p. 654; March 2, 1918, p. 868; March 16, 1918, p. 1081; March 23, 1918. p. 1188. » Wall St. Jour., Aug. 16, 1918. WAR CONTROL 165 been established during the war period, the War Finance Corporation may be continued for recon- struction purposes, or that some similar institution may be inaugurated to aid the financing of industry. According to the terms of the act, the Corporation is to have a capital of $500,000,000, all of which is to be subscribed by the United States.^ The man- agement of the institution is in the hands of a board of directors composed of the Secretary of the Treas- ury, who is chairman, and four other members chosen by the President with the consent of the Senate. The organization has many of the cus- tomary powers of other corporations ; ^ in addition, it is authorized under certain conditions to make advances to banks and trust companies which have outstanding any loan or loans to establishments whose operations are necessary or contributory to the prosecution of the war, or where such banks or trust companies have rendered financial assistance to such industries. Under certain conditions, the Cor- poration may make advances to banks of various descriptions and to building and loan associations. In exceptional cases it may loan directly to persons, firms, corporations, or associations where the loan contributes to the war ends of the Government. It is authorized to buy and sell United States bonds, to issue bonds of its own, and the federal reserve banks are empowered to discount the direct obli- gations of the Corporation and to issue federal re- serve notes on such security. The bonds of the 1 Public No. 121, op. cit., sec. 2. 2 jhi^_^ ggc. 6. 166 PROBLEMS OF RECONSTRUCTION Corporation are exempt from taxation. Meanwhile the United States is not responsible for its debts. ^ Secretary McAdoo explained that this measure is intended primarily to enable banks, including na- tional and state banks and trust companies, to con- tinue to furnish essential credits for enterprises which are necessary or contributory to the prosecution of the war. He urged that government borrowing tended to preempt the credit facilities of the banks and thereby to curtail their customary assistance to industries, that the federal reserve banks were not authorized to handle the business required of the Corporation, and that this institution was designed as an emergency measure to fill the gap. He be- lieved that the mere existence of the machinery provided by the act would of itself maintain con- fidence to such an extent that the aid of the Cor- poration would be called for only in a relatively few cases. ^ Subsequently, the officials of the Corpo- ration explained that "an erroneous impression seems to exist in certain quarters that the Corpora- tion is intended primarily to make direct advances to borrowers under the 'exceptional cases' clause of the act. This, however, is not the purpose of the act, which was designed primarily to enable credit to be extended by the War Finance Corporation through the banks of the country to 'war indus- tries,' that is, to those industries whose operations are necessary or contributory to the war." ' It 1 Public No. 121, op.cit., sec. 7 to 16. * O. B., Feb. 2, 1918, pp. 1 and 7. » Ibid., June 6, 1918, p. 16. WAR CONTROL 167 may be added in this connection, that the Secretary, in August, announced that the War Finance Cor- poration would make direct loans to individuals, firms, and corporations whose principal business is raising of livestock. The authority for this policy is the *' exceptional clause." ^ The Federal Re- serve Banks of Kansas City and Dallas were designated agencies for this business. We said in the outline of this chapter that one of the objects of federal control was means of com- munication. Prior to the taking over of the rail- roads by the Government, the transportation sys- tems of the country were managed by the Railroad War Board organized under a resolution adopted by the chief executive ofiicers of the principal roads at a convention held on April 11, 1917 ; this action was subsequently ratified by the various railway cor- porations. The purpose of this body was to co- ordinate the operation of the railroads into a "con- tinental railway system" to aid the Government during the war.^ Innumerable problems were en- countered, and the growing difficulties became all the more apparent with the advance of the winter of 1917-1918. Included in the list were questions of rates, wages, priorities, and the raising of capital needed to improve the roads. Indeed, there was in addition the immediate and pressing problem of the ability of the roads to handle the tremendous traffic offered as one of the results of the war. The Rail- » Wall St. Jour., Aug. 17, 1918. « O. B., Jan. 2, 1918, p. 5. 168 PROBLEMS OF RECONSTRUCTION road War Board admitted that "trying conditions are certain to develop this winter because of the in- abihty of the carriers to take care of the increasing traffic," and that "the transportation situation is becoming the subject of growing pubhc uneasiness and agitation." Therefore, the Board deemed it proper to "make pubhc a frank statement and ex- planation of the facts and indicate some of the means which it believes should be used in dealing with the situation." ^ One part of the plan was the elimination from transportation in whole or in part of upwards of 450 articles which the Board believed could be dispensed with without any serious inconvenience.^ Federal control was brought a step nearer as a result of the report of the Interstate Commerce Commission directed to Congress on December 1. Two methods of meeting the situation were sug- gested. First, the operation of the roads as a unit by the carriers themselves. This was rejected, for, according to the Commission, "in the effort along this line initiated early in this year they are re- stricted by state and federal law, and the idea is the antithesis of that which heretofore has con- trolled their activities." * The alternative method was the "operation as a unit by the President dur- ing the period of the war as a war measure under the war powers vested in him by the Constitution and those which have been or may be conferred by 1 O. B., Nov. 20. 1917, p. 1 ; Bus. Dig., Nov. 28, 1917. p. 380. « O. B., Dec. 6, 1917, p. 6. s /j^^/. WAR CONTROL 169 the Congress." ^ Meanwhile, the Federal Trade Commission added its contribution to the solution of the problem by confirming the statement of the Interstate Commerce Commission that "the coal industry is paralyzing the industries of the country, and that the coal industry itself is paralyzed by the failure of transportation." ^ There was no question that the outlook was bad and that federal control was inevitable. Unified operation was already forecasted in the plan of the railroads themselves announced late in November by which all the available facilities east of Chicago were to be pooled to the extent necessary to furnish the maximum freight movement.^ Under authority of the act of August 29, 1916, President Wilson, by proclamation of December 26, 1917, authorized federal control of the railroads.^ The proclama- tion covered "each and every system of transporta- tion and the appurtenances thereof located wholly or in part within the boundaries of the continen- tal United States and consisting of railroads, and owned or controlled systems of coastwise and inland transportation, engaged in general transportation, whether operated by steam or by electric power, including also terminals, terminal companies, and terminal associations, sleeping and parlor cars, private cars and private car lines, elevators, ware- houses, telegraph and telephone lines, and all other equipment and appurtenances commonly used or 1 O. B., Dec. 6, 1917, p. 6. « Bus. Dig., Nov. 28, 1917, p. 380. « Ibid., Dec. 14, 1917, p. 6. ■» Cf. Public No. 242, 64th Cong. 170 PROBLEMS OF RECONSTRUCTION operated as a part of such rail and water systems of transportation. . . ." ^ Street railways and inter- urban lines were not included in the proclamation, but the President announced that, if later the step were necessary, these might be taken over also. President Wilson explained that federal control of railroads was "imperatively necessary," that this was a war of resources as well as of men, and that complete mobilization of the resources of the coun- try required that the transportation systems should be organized and employed under a single authority.^ Secretary McAdoo was appointed Director-Gen- eral of the railroads, and a new organization was effected by which control was unified under his direc- tion. Subsequently, the Railroad Control Act of March 21, 1918, provided the financial arrange- ments while the roads are under Government man- agement. This act authorized the President to make agreements with the carriers and to guarantee just compensation, which was not to exceed a sum equivalent to the average annual railway operating income for the three years ending June 30, 1917.^ Any income in excess of that amount is to remain the property of the United States. All agreements are to contain appropriate provisions for the main- tenance, repair, renewals, and depreciation of the properties, for the creation of reserve funds in con- nection with such arrangements, and for adequate accounting and adjustment charges so that the 1 O. B., Dec. 27, 1917, pp. 1 and 2. » Ibid. 8 Public No. 107, 65th Cong. (S. 3752), p. 1. WAR CONTROL 171 property of each carrier "may be returned to it in substantially as good repair and in substantially as complete equipment as it was in at the beginning of federal control." ^ In the case of railroads in the hands of receivers, or with expenditures for additions and equipment not reflected in their operating income, the President is to make such agreements for compensation as will be just under the circumstances. The act provides a "revolving fund" of $500,000,000 to be used to pay the ex- penses of federal control, to give a just recompense to the owners, to provide for motive power, terminals, cars, and other necessary equipment. The President may direct carriers to make improvements ; he may initiate rates, fares, charges, classifications, and regu- lations by filing the same with the Interstate Com- merce Commission ; he may also select appropriate agencies for carrying out the provisions of the act. Federal control, as provided by the act, is to con- tinue through the war period and for a reasonable time thereafter, but not longer than a year and nine months after the treaty of peace as indicated by the President's proclamation.^ The Director-General has recently announced his policy of railroad administration. This includes "the service of the public," which implies the main- tenance and improvement of the railroad properties to afford adequate transportation at the lowest cost. A second element in the policy is the pro- 1 Public No. 107, erAh Cong. (S. 3752), p. 2. ' Ibid., sections 2 to 12. 172 PROBLEMS OF RECONSTRUCTION motion of a spirit of sympathy and better under- standing between the employees and the railroad administration, and between the administration and the public; and a third element involves the ef- fecting of sound economies. This last, according to the Director-General, includes elimination of superfluous expenditures, payment of a fair living wage for services rendered, purchase of materials and equipment at the lowest price consistent with reasonable profits to producers, standardizing equip- ment, direct routeing of freight wherever possible, intensive employment of all equipment, and a careful scientific study of the results obtained.^ Another step in extending federal control over the communication system of the country was taken on July 22, 1918, when the President by proclamation took over the telegraph and telephone systems, and directed that the control should be exercised by the Postmaster-General. Authority for this measure was granted by joint resolution of Congress on July 16, 1918.2 The control of the shipping and shipbuilding pro- gram of the United States is under the direction of the Shipping Board. This organization was au- thorized by the act of September 7, 1916,^ and was designed originally as a part of the administrative machinery of the Government to promote the de- velopment of an American merchant marine and to iQ. B., June 19, 1918, pp. 1 and 4. ^Ibid.. July 24, 1918, p. 1. » Public No. 260, 64th Congress (H. R. 15455), Sect. 3. WAR CONTROL 173 regulate foreign and domestic shipping.^ The needs of the war, however, have brought new functions to this body. Training men for various branches of the marine service, requisitioning and control of vessels under the jurisdiction of the United States, and the direction of the shipbuilding program of the United States are among its new duties. On April 16, 1917, the Board organized the United States Emergency Fleet Corporation under the laws of the District of Columbia with a capital of $50,000,000.^ The magnitude of the operations of this agency is indicated by the fact that on December 1, 1917, it was supervising the construction of 1118 vessels in 116 shipyards, and disbursing for this work over a billion dollars a year.^ This signifies that sub- stantially all the shipbuilding of the country, ex- cept naval vessels, is under its control. In com- mandeering vessels the Board has followed chiefly two principles, namely, that the United States "was entitled to the privilege of serving the allied cause under her own rather than under a foreign flag," hence the commandeered ships have been retained by this country; and second, that the "former owners of vessels building for American account and commandeered on August 3, 1917, should be given an opportunity to resume title on the com- pletion of such vessels, provided they would sur- render to the Board the use of such vessels, for the ' First Annual Report of the United States Shipping Board (1917), p. 6. » Ibid., p. 7, 'Ibid., p. 10. 174 PROBLEMS OF RECONSTRUCTION period of the war and six months thereafter, at the requisition rate estabhshed by the Board, and pro- vided further that they^would reimburse the Board for all expenditures incurred in completing the vessels, including the cost of speeding up construc- tion, and would waive all claims arising out of the act of requisitioning." ^ The conservation and price-fixing measures hith- erto discussed refer principally to domestic consum- ers; but these regulations scarcely touch another field where control in war times is necessary. This is the field of government purchase. Here, con- trol is designed to obtain commodities at a reason- able advance above cost, to secure a steady supply and a scale of preference for government orders ; hence the policies of price fixing, priorities, and standardization . Prices and conditions of sale are fixed from time to time for a number of great commodities, such as iron and steel, copper, zinc, aluminum, timber, leather, wool, and cotton goods. The customary process is for the Federal Trade Commission to ob- tain the cost of production of the goods in question and on this basis the War Industries Board agrees on a price with the representatives of the industry.^ The price fixing committee of this Board was cre- ated in March 1918 and charged with the duty of passing on the price of all basic raw materials.^ 1 First Annual Report of the U. S. Shipping Board (1917), p. 10. Cf. also Rules and Regulations of the U. S. Shipping Board (August 1917). » Cf. ante, p. 24. » O. B., March 19, 1918, p. 1 ; Bus. Dig., March 27, 1918, p. 423. WAR CONTROL 175 Many agreements contain other than price arrange- ments. For example, in the case of steel, the con- tract provided that there should be no reduction in wages, that the stipulated price applied not only to government purchases, but also to those of the Allies and the American consumer, and that the steel men should exert themselves to keep production at the maximum.^ Many other agreements contain similar stipulations. ^ Priority arrangements are necessary because of the limited supply of certain factors of production. The preference idea is widely applied in organizing the country for war. Indeed, much of the regula- tion of commerce and of the supply of labor partakes of this idea. In short, both industrial and domestic consumers are graded in relation to the war needs of the country. The notable instance of the appli- cation of this principle is with iron and steel. Ow- ing to the great importance of the product and to the limited supply, it is necessary to prescribe the order in which certain articles shall be supplied. By a recent arrangement, steel products are di- vided into five general groups. Class AA comprises only emergency work of an exceptional and urgent nature; Class A covers all other war work; Class » O. B., Sept. 25, 1917, p. 2. * The following references for 1917 : O. B., Aug. 7, p. 2; Aug. 9, p. 1 Sept. 21, p. 1 ; Sept. 25, p. 2; Oct. 9, p. 7; Nov. 6, p. 3; Dec. 29, p. 1 The following for 1918: Jan. 11, p. 2; March 5, p. 3; May 2, p. 2 May 9, p. 12; May 29, pp. 2 and 5 ; June 10, pp. 1 and 8; July 5, p. 4 July 23, p. 1. Bus. Dig., Oct., 1917, p. 107; Nov. 14, 1917, p. 320 Jan. 16. 1918, p. 98; Jan. 23, 1918, p. 135. 176 PROBLEMS OF RECONSTRUCTION B includes work which, while not primarily for war purposes, is essential for the national welfare ; Class C comprises all orders not covered by priority cer- tificates or not taking an automatic rating; all other work falls in Class D.^ To make sure that the orders will be filled in their rank of importance these classes are defined with considerable minute- ness. As early as February 4, 1918, the War In- dustries Board, for the purpose of expediting pro- duction, inaugurated an extensive system of prior- ities, applying not only to iron and steel, but among others to copper, chemicals, cotton duck, and woolen cloth.2 Standardization has been tried on a limited scale in the United States. It is largely a conservation measure designed to cut down the number of styles or classes of products and thus save capital, labor, and materials, and effect various economies in manu- facture and distribution. As in the case of price control, it is effected by agreement with the repre- sentatives of the industries concerned. Among the commodities to which it has been applied are farm implements, certain kinds of clothing, shoes, auto- mobile rims and tires, furnaces, and metal beds.^ A brief survey of this chapter, and of the three immediately preceding, reminds the reader that the present industrial arrangements are very different 1 O. B., July 6, 1918, p. 9; July 31, 1918, p. 9. »Bus. Dig., Feb. 13, 1918, p. 221. SO. B., June 17, 1918, p. 2; June 19, 1918, p. 16; June 26, 1918, p. 3; July 1, 1918, p. 9; July 12, 1918, p. 2; July 16, 1918, p. 3; July 19, 1918, p. 6; July 23, 1918, p. 8. WAR CONTROL 177 from those to which he was accustomed less than two years ago. Whether one is a manufacturer, merchant, consumer, or worker in any field, the effect of war control Is encountered almost every waking hour. In short, the world in which we now live is characterized by regulations and restrictions to which we were not accustomed at the beginning of this conflict and to which no previous war had introduced us. A marked change has resulted in the method of conducting wars. As President Wil- son has said, "This is a war of resources no less than of men." ^ Mobilization involves not only men, but industries and materials, and necessitates cur- tailments and restraints, and a control which makes these effective. If regulations encompass us, it is largely because our activities are not isolated, and because the industrial and social forces which enter our local sphere are the same forces which are work- ing the world round. The complexity of social re- lations causes regulations to become all the more penetrating, for the reason that no branch of indus- try, no field of economic endeavor, is independent of others. The developments of the past half century have produced a social cooperation which did not exist before, and this, in turn, has increased the de- pendence of man on man, industry on industry, and regions of the world on other regions. Hence control to be complete and effective must expand without limit. Regulation is a " bourne "from which " no trav- eler returns." Starting in a limited way, it ramifies 1 O. B., Dec. 27, 1918, p. 1. N 178 PROBLEMS OF RECONSTRUCTION indefinitely, and must do so, to check each new movement arising to escape the impending control. For evidence, witness the ever increasing demands of government commissions which are constantly confronted with new forces they are unable to mas- ter. For these reasons, among others, a thorough study of the problems of reconstruction is imper- ative; for if we adopt the principle of control as a peace policy we shall be hurried on rapidly to a regime in which government interference will be even more comprehensive than in war times. One might conclude from the foregoing paragraph that the war measures of the United States find their counterpart in Europe, and since industries and com- merce of all countries are intimately related, even neutrals, far and near, have been forced to adopt some measure of control. This, indeed, is the case. One more brief task confronts us before we study the results of the war and the related problems of re- construction, namely, a survey of war measures in other countries. CHAPTER VI WAR CONTROL IN FOREIGN COUNTRIES War control is not an isolated phenomenon. It is not peculiar to the United States, nor even to the belligerents; it is a feature of all countries where the malignant influences of the war have been felt. Distant regions have been compelled to conserve supplies to protect their industries and consumers. In many instances, the diversion of shipping has been the cause of food shortage; hence the need of conservation measures. Sometimes the regulations of the belligerents have been the cause of financial troubles ; hence measures to protect national credit. Meanwhile, there has been a scant supply of manu- factured goods in all countries ; stocks have run down and prices have risen ; this has often been the occasion for regulation to conserve a limited supply and to prevent extortionate prices. In any case, the unusual conditions have suddenly caused inter- vention by the governments in the hope of alleviat- ing the industrial evils incident to the war. Among the belligerents, regulation covers about the same list of activities as in the United States. It thus includes foodstuffs, fuel, essential raw materials, shipping and foreign commerce, and the relations between employers and workmen. Prices 179 180 PROBLEMS OF RECONSTRUCTION and profits, and the flow of foods to consumers, are everywhere brought under regulation. The policies of requisition, of priority, and of government purchase and distribution of certain commodities of prime importance characterize the war measures of all belligerent countries. In some instances, ration- ing both of foodstuffs and industrial raw materials has been adopted on a considerable scale. Indeed, the need of control has been much greater in the European countries than in the United States, owing to the limited supply of commodities for both civil- ian and military consumption. In the case of European neutrals, control has been made necessary by the commercial policy adopted by the belligerents. Where neutrals were rationed, it was necessary to devise means for rigid economy. The neutrals, moreover, were compelled to establish some sort of organization to make effective their agreements for the distribution of products obtained by consent of the countries at war. We have previously discussed the American method of regu- lating commerce with Germany's neighbors.^ A similar policy has been employed by England, France, and Germany. Such organizations as the Netherlands Overseas Trust and the Swiss associa- tions are compelled to control the products allotted to them,^ otherwise the exporting countries would 1 Cf. ante, p. 154. » Com. Rept., March 24, 1915, p. 1186; Aug. 13. 1915. p. 753; Oct. 27, 1915, p. 386; Nov. 2, 1915, p. 466; Nov. 26, 1915, p. 785; Aug. 29, 1917, p. 16; June 28, 1918, pp. 1202-1203; Bus. Dig., Sept. 12, 1917, p. 1432. WAR CONTROL IN FOREIGN COUNTRIES 181 be loath to send them further suppHes. In addi- tion, the commercial agreements by which neutrals engage to deliver a portion of their supplies of cer- tain products to belligerents in return for commer- cial favors make supervision necessary. Thus, even non-combatants are surrounded with conditions which make government intervention inevitable. It is no doubt true that the neutrals have volun- tarily adopted some measures for their own pro- tection. Shortly after the outbreak of the war the Swedish government decided to purchase 120,000 tons of wheat as an emergency measure.^ In June 1917, the same country prohibited the export of a long list of commodities, including pork, fish^ fruits, certain vegetables, certain chemicals, textiles and wearing apparel, iron, steel, copper, lead, and zinc.^ About the same time, Sweden requisitioned all sup- plies of peas and pea flour in excess of 500 kilos, fixed the maximum price of peas, and prohibited their use in the feeding of animals ; ' the use of flour, starch, and bran for industrial purposes was prohibited, except with the permission of the Agri- cultural Commission. Other measures included the requisition of fodder and cotton.'* Early in the war Norway prohibited the export of surgical instru- ments and has since greatly enlarged the list of non- exportable goods. ^ To assist the fishing industry, » Com. Rept., Jan. 4, 1915, p. 31. 2 O. R., June 21, 1917, p. 3. « Ibid., June 27, 1917, p. 4. * Ibid., Sept. 29, 1917, p. 4; Jan. 9, 1918, p. 16. B Com. Rept., March 24, 1915, p. 1185; July 5, 1918, p. 57. 182 PROBLEMS OF RECONSTRUCTION ' the Norwegian government made large purchases through one of its commissions and provided for the sale of the product.^ Denmark and Holland have also come in for a large share of regulation.^ It was an obvious outcome of the war that British dominions should regulate commerce and industry both for their own good and for thei benefit of the mother country. At an early date, control was inaugurated in New Zealand, Australia, South Africa, India, and Canada. New Zealand, for ex- ample, in the spring of 1917, prohibited the export of wheat, flour, meat, hides, pelts, and wool, except by permission of the Minister of Customs.^ Late in 1916, through the good offices of the New Zealand government, the meat producers of the country formed an agreement with the British government by which England was to take the entire exportable surplus of meat from October 20 until at least three months after the close of the war.* Similar ar- rangements were made with Australia for the sup- ply of wool, and with Egypt for cotton.^ Early in the war, India put restrictions on certain exports and has since extended the list ; imports, also, were regulated.^ In August 1917, the export of 1 Cora. Rept., July 5, 1918, p. 57. 2 Ibid., Sept. 15, 1915, p. 1307; July 2, 1918, p. 2; O. B., Aug. 21, 1917, p. 1. 3 Com. Rept., Dec. 27, 1916, p. 1161 ; O. B., July 6, 1917, p. 3. * Ibid. B Com. Rept., Dec. 15, 1916, p. 1009; Bus. Dig., Dec. 19, 1917, p. 516. 6 Daily Consular and Trade Reports, Nov. 23, 1914, p. 865 ; Com. Rept., Jan. 24, 1917, p. 1 ; Aug. 17, 1918, p. 647. WAR CONTROL IN FOREIGN COUNTRIES 183 gold was prohibited, except under license, in order to protect the credit and currency conditions of the country. Canada, also, embarked on an extensive system of control.^ One interesting measure puts a ban on idleness. An Order in Council of April 4, 1918, requires every male person in the Dominion between the ages of 16 and 60 to be engaged in some useful occupation. ^ This suggests the laws of several of our own States and the more recent regu- lations of the national government.^ The policy of control has been inaugurated in the Federated Malay States, in Siam, and in some of the South American countries.^ In Uruguay, for example, regulation of foodstuffs is in the hands of the National Subsistence Board created by the law of December 20, 1917.^ Apparently, from the terms of the law, prices are fixed by the government on the recommendation of the Board. Prices of bread and flour were fixed by decrees of April 15 and May 7, and various other products have been regulated from time to time. As with other unfortunate neighbors of belligerent countries, Spain has suffered many hardships, and has sought to alleviate her conditions by emergency 1 Com. Rept., March 30, 1916, p. 1249; June 13, 1918, p. 1002; July 31, 1918, p. 401; Bus. Dig., Dec. 5, 1917, pp. 446-447; O. B., Sept. 18, 1917, p. 4. 2 O. B., May 16, 1918, p. 6; Bus. Dig., May 8, 1918, p. 620. »Bus. Dig., Dec. 12, 1917, p. 482; Mo. Rev. U. S. Bu. Lab. Sta., Sept., 1917, pp. 113-11.5; O. B., Feb. 9, 1918, p. 5. * Com. Rept., March 25, 1915, p. 1201 ; O. B., May 31, 1917, p. 3. 6 Com. Rept., July 5. 1918, p. 62; July 25, 1918, p. 326. 184 PROBLEMS OF RECONSTRUCTION control. War regulations cover railroads, shipping, food, certain essential raw materials, and manufac- tured products. By a law of February 18, 1915, which was limited in operation to one year, the gov- ernment was authorized to provide the country with necessary food products and raw materials. Sub- sequently, a new law continued the leading provi- sions of the Act of 1915 and, in addition, authorized the acquisition by the Treasury of certain ali- mentary products and raw materials, and provided for sale at regulated prices.^ An act of October 4, 1917, made provision for a Commissary-General, who is given power to buy foreign wheat, regulate its price and distribution, and to restrict consump- tion. ^ The Spanish railroads encountered difficulties which made regulation necessary. The cessation of much of the coastwise trade, on account of high freight rates, threw an additional burden on the in- ternal transportation system, which it was not able to bear, partly owing to the impossibility of obtain- ing additional rolling stock. The government, therefore, adopted a system of control. By a royal order of September 21, 1916, a special committee was appointed to serve under the supervision of the Director-General of Public Works. This body was authorized to give preference to coal, natural fer- tilizers, and to other commodities of great impor- tance for agriculture and manufacture.^ Regulation 1 Com. Rept., Dec. 23, 1916, p. 1129. [^ O. B., Nov. 22, 1917, p. 1. » Com. Rept., Jan. 11, 1917, p. 130. WAR CONTROL IN FOREIGN COUNTRIES 185 was also extended to the cotton industry. Early in 1918 a committee was given power to establish rules governing imports, to distribute stocks of materials to the factories, to fix prices, and to advise the gov- ernment regarding rules to be applied to the indus- try.^ Meanwhile, Spain has applied the rationing system to other countries. According to a royal order, published April 24, 1918, the export of olive oil of recognized brands is to be supplied to Amer- ican countries on the basis of shipments during the years from 1912 to 1916. No country is to be al- lowed more than its share. All exports of the prod- uct are subject to control, and licenses are revocable at any time by the National Commission on Sup- plies.^ Among the belligerents, Italy has adopted a full schedule of regulations. Her greater distance from the sources of supply of some of the leading food- stuffs and raw materials for manufactures made her situation more critical than any of the more western countries of Europe. Besides, on account of the shortage of shipping, it was diflScult for her to mar- ket her own products. While the task of organizing for war was therefore unusually great, on the other hand, the question of meeting her obligations abroad, due in part to the inability to dispose of her com- modities, caused trouble. The food supply was, of course, a matter of first concern. In addition to the customary price regulations, Italy, by a minis- terial decree of May 30, 1917, made obligatory the 1 O. B., April 25, 1918, p. 6. 2 75^^.^ May 2, 1918, p. 3. 186 PROBLEMS OF RECONSTRUCTION declaration of crops of wheat, rye, oats, and barley. Proprietors, lessees, and cultivators were required not only to declare the entire amount harvested, but to state the portion set aside for seed purposes and for the pay of operators of threshing machines. Definite information was demanded, so that the farmer had small chance of evasion. He was to state the commune in which his property was lo- cated, the location within the commune, the name of the title holder, the amount of cereals harvested, the amount required for seed, the number of persons and dependents in his household, and the location of the warehouse in which his grain was stored.^ Unlike control in the United States, regulation reached the farmers ; it was designed to prevent the withholding or misusing of supplies. When the prospect of shortage in 1918 became evident, Italy adopted more rigid measures. The government made obligatory the cultivation of cer- tain staples on areas in excess of those farmed the preceding year. It was decreed that, during 1918, an additional 74,000 acres should be put under cul- tivation. That a fair allotment might be made, a certain specified additional area was assigned to the several provinces. Meanwhile, the cultivation of potatoes, corn, and vegetables was given preference over certain other crops, such as clover and forage.^ An order of July 30, 1917, required a certain pro- portion of flour to be obtained from wheat, and pro- hibited the elimination in the milling process of any 1 O. B., July 9, 1917, p. 4. a Ibid., April 26, 1918, p. 5. ' WAR CONTROL IN FOREIGN COUNTRIES 187 other substance than bran. Health officers were required to make frequent tours of inspection to repress adulteration and to prevent divergencies from the regulations.^ Shortly after Italy entered the war, the govern- ment took up the sugar problem. A commission was created in the Ministry of Agriculture to regu- late consumption ; government inspectors were ap- pointed at all refineries. Sugar could not be dis- patched or delivered without official sanction. The commission was authorized to allot monthly the supply for each province both for direct consump- tion and for manufacture. Local officials, in turn, carried out the regulations within the districts. The manufacture of any product containing sugar was prohibited unless the producer obtained a license.' Foreign trade was also brought under control. To conserve tonnage, and to prevent an embar- rassing exchange situation, the Italian government early in the war prohibited the import of many luxuries.^ The list has been extended from time to time. A decree of May 26, 1918, put all imports under license, except commodities intended for the use of the nation. Imprisonment, fines, and con- fiscation of property were prescribed in case of violation of the decrees.^ Effective control of » 0. B., Sept. 12, 1917, p. 4. » Com. Rept., Dec. 6, 1916, p. 881. »Ibid., June 22. 1915, p. 1313; June 8, 1916, p. 913. * Ibid., June 17, 1918, p. 1041. 188 PROBLEMS OF RECONSTRUCTION foreign commerce also involved the control of ex- change. This step was taken early in 1918, when a National Institute of Exchange was created to take charge of the many operations connected with for- eign financial transactions. This body is to pur- chase securities, foreign drafts and notes, to collect the proceeds of securities sold abroad, and to cash coupons.^ In short, the Institute is to have a mo- nopoly of the foreign exchange business, for the pur- pose both of stabilizing the rate of the lira and of protecting the financial resources of the country. The Institute is administered by a council of about nine members, of whom two are nominated jointly by the Ministers of the Treasury and of Commerce and Labor, three are representatives of the banks of issue, and the remaining members are selected from other credit institutions which are permitted to participate in the association. Among domestic industries, the manufactures of cottons and woolens were promptly brought under regulation. These industries are of the greatest importance both for civilian and military purposes ; it was therefore deemed necessary to stabilize prices and to secure an adequate distribution of the prod- ucts among all classes of consumers. According to an official announcement of August 29, 1917, the government proposed to create a committee on the cotton industry as a part of the Ministry of Industry, Commerce, and Labor. Its functions were to pro- vide for supplies of raw materials, regulate produc- 1 O. B., Feb. 6, 1918, p. 7; Bus. Dig., May 8, 1918, p. 618. WAR CONTROL IN FOREIGN COUNTRIES 189 tion so as to secure fair prices and a satisfactory dis- tribution of the products among civilian and army consumers, and to see that exports were maintained as far as possible, because it was deemed wise to support a certain amount of foreign commerce in the national interest.^ In the case of wool, both the existing stock and the prospective clip were requisitioned in May 1917. The decree provided for assembling depots to which the new season's output was to be taken ; growers were to be reimbursed the cost of transportation plus a reasonable amount for wool.^ By a decree made public August 4, 1917, a central committee on the woolen industry was created, consisting of not more than fifteen members, and composed of civil and military officials and representatives of the industry. The powers and functions were similar to those of the cotton committee. Authority was given to requisition factories and provide for their operation. The committee was expected to control production and distribution of woolens for the civil population and to standardize certain products.^ A system of control was also established for the boot and shoe industry. As with cottons and woolens, the agency of control was a central com- mittee acting under the direction of the Ministry of Industry, Commerce, and Labor. One object in view was to supply foot-wear to the civilian popula- tion at fair prices. The Ministry was authorized to 1 O. B., Oct. 24, 1917, p. 4. ^ Ibid., June 26, 1917, p. 4. » Bus. Dig., Oct. 17, 1917, p. 150; O. B., Sept. 7, 1917, p. 2. 190 PROBLEMS OF RECONSTRUCTION order the production of standard styles, to deter- mine prices, and to allot production among the factories. Raw materials were to be delivered to the establishments in proportion to the assignment of orders. Thus, the Ministry was to determine "the types of foot-wear which may be put upon the market, rules deemed opportune for rendering con- sumption proportionate to output, and regulations so that foot-wear made in conformity with this de- cree shall be sold at prices favoring the poorer classes." ^ Products were to bear on the outside a stamp indicating the selling price and the name of the factory at which production took place. Even imported boots and shoes, after December 1, 1917, were to be stamped. A report from the American consul at Milan in the latter part of this year indi- cated that the largest shoe establishments had be- gun to manufacture standard products, that the government had inaugurated a system of sales of shoes to the public, and that stores had been estab- lished in the principal cities which were engaged exclusively in the sale of standard shoes. The business was controlled by government authorities.^ In view of the food shortage, the regulation of public eating places was inevitable. By a decree of the Commissary-General, made public the latter part of 1917, restaurants, hotels, and other public rooms in which food was consumed were required to serve bread in slices of not more than two cen- timeters thickness, and not exceeding eighty grams 1 O. B., Dec. 31, 1917, p. 9. * Ibid., Jan. 9, 1918, p. 4. WAR CONTROL IN FOREIGN COUNTRIES 191 for each meal. Mayors of the communes were ex- pected to compile lists of refreshment rooms. In such places, the bread portion was not to exceed 150 grams. If, however, the commune had previously established individual rations, in accordance with the decree of September 11, 1917, the amount of bread served was to be not more than half the as- signed ration. The consumption of cold meats, or indeed, of meat in any form as a preliminary course, was prohibited.^ The substance of all these measures, therefore, is that commodities of vital importance for the national welfare are brought under close regulation. This, of course, includes food products, essential raw mate- rials, and leading manufactured goods. Systems of preference and of standardization are adopted as war measures, and in important instances, both household and industrial consumers are rationed. The committees frequently number among their members not only civilian and military authorities, but representatives of the industries. In any event, control is administered under authority of the state. The war measures of England, France, and Ger- many have included in every instance a thorough regulation of the consumption of food products. All of these countries are largely dependent on the outside world for the leading cereals, and for a con- siderable part of their supply of meat, to say noth- ing of their dependence on the tropical and sub- 1 O. B., Dec. 31, 1917, p. 9. 192 PROBLEMS OF RECONSTRUCTION tropical regions for sugar, coffee, and a number of kinds of raw materials for the manufacture of oils. In view of the impending shortage, these countries were driven promptly to conservation measures. The decrees, which are constantly undergoing re- vision to suit new conditions, contain an endless variety of regulations. Usually, control becomes more exacting, so that the tendencies are away from voluntary measures originally contemplated, and in the direction of compulsion in various forms. The English food policy, according to Lord Rhondda, the Food Controller, contains the follow- ing principles: "My aim," said the controller, *'is to safeguard the interests of the consumer, to do away with profiteering altogether, and to prevent excessive profits of any kind. The framework of our machinery is formed on the civil service. They are the administrators, but in all cases we secure the best available business men to advise them, as well as a number of expert committees dealing with almost every food commodity. The policy is to limit the profits at every step from the producer to the consumer, and at the same time to regulate the supply." ^ Some of the purposes outlined above are accom- plished through a costing department which ascer- tains the profits of manufacturers and retailers of foods. For the purposes of administration, the 1 Mo. Rev. U. S. Bu. Lab. Sta.. Dec. 1917, p. 101. For a study of the development of British food control see Howard L. Gray, "War Time Control of Industry," Chap. VIII passim. WAR CONTROL IN FOREIGN COUNTRIES 193 country is divided into separate areas, and for each of these a leading firm of accountants has been ap- pointed. Reasonable profits, based on pre-war rates, are added to the present cost, and price limits ar- ranged on this basis, after a consultation with the trades concerned. Great Britain is divided into six- teen food divisions, consisting of as many counties. Each division is under the jurisdiction of a com- missioner appointed by the food controller. Again, in each division, the borough, or the urban or rural councils, or other local authorities, appoint local food committees with limited powers to carry out the price and distribution regulations promulgated from headquarters.^ Meanwhile, tradesmen are registered with their local committees ; if a merchant fails to observe the regulations he is struck off the list, which means that he is prevented from further trading. Orders fixing and amending prices are communicated to local committees ; the trades and the public are informed through the daily press. The work of inspection is performed by men sent out from head- quarters. Penalties for violations of the regula- tions include a fine not to exceed £100, or imprison- ment not to exceed six months with or without hard labor, or both fine and imprisonment.^ Lord Rhondda has explained that "while the prices of practically all essential foods are now under control 1 Mo. Rev. U. S. Bu. Lab. Sta., Dec. 1917, p. 101 ; Com. Rept., May 1, 1917, pp. 407 ff. » Mo. Rev. U. S. Bu. Lab. Sta., Dec. 1917, p. 101. O 194 PROBLEMS OF RECONSTRUCTION no compulsory rationing is imposed on the general public, although all public eating places are rationed as to the amount of meat, flour, bread, and sugar which may be used every week on the basis of an average for each meal." ^ He announced that after December 30, 1917, only half a pound of sugar per capita a week would be permitted. This amount is to be obtained by means of a system by which each consuming householder, or each con- sumer, registers with a specified retailer and secures from the local food committee a card entitling him to his ration. The retailer is required to keep a record of deliveries to prevent consumers from ob- taining more than their share. In addition to regulations affecting household consumers, a system of control has been inaugurated applying to manufacturers of food products. With reference to wheat products, "flour made from wheat must be straight-run flour, milled to 81 per cent extraction, and it is compulsory to mix in twenty per cent of flour from other cereals and pulse, and it is permissible to mix in up to fifty per cent, while no bread may be sold unless twelve hours old." ^ The amount of sugar used by manufac- turers is also limited. As a rule, the use of foodstuffs for industrial purposes and for feeding animals is prohibited. Besides these regulations, appeals are made to the public to economize. An interesting feature of British food regulation was the reduction in the price of the quartern loaf, which was made 1 Mo. Rev. U. S. Bu. Lab. Sta., Dec. 1917, p. 101. « Ibid. WAR CONTROL IN FOREIGN COUNTRIES 195 possible through the subsidizing of flour. ^ As with American regulations, great care is taken to pre- vent price control from discouraging production. The reader may observe from this discussion that British regulations have many points in common with our own. Indeed, many of our lessons were learned from that country. The German food situation presented many serious problems. Largely isolated from the principal food- producing countries, she was put to many shifts to make her own resources produce the required supply. The government took the matter of food control in hand almost from the start. Simultaneously with the declaration of war, the military authorities in the respective districts established maximum retail prices for the principal food products.^ Shortly, in many of the cities, ordinances of a similar purport were passed. This step was necessary in view of the rapid depletion of stocks, and the disposition to hoard with its attending evils. Among the first measures in Germany was a law fixing maximum prices, including the authority to confiscate food products if dealers refused to sell at the stipulated prices. Maximum wholesale prices per metric ton 1 Mo. Rev. U. S. Lab. Sta., Dec. 1917, pp. 100-101 ; for further dis- cussion see Mo. Rev. U. S. Bu. Lab. Sta., July 1917, pp. 69-78; ibid., Nov. 1917, pp. 91-104; Com. Rept., Dec. 7, 1916, p. 897; Dec. 13, 1916, p. 977; Jan. 11, 1917, p. 129; Nov. 22, 1917, p. 721; Bus. Dig., Dec. 12, 1917, p. 486; Feb. 6, 1918, p. 18; Economic World, Dec. 22, 1917, p. 819; Com. and Fin. Chron., May 5, 1917, p. 1758; Sept. 8, 1917, p. 967; Oct. 6, 1917, p. 1366; Howard L. Gray, op. ciL « Com. Rept., Jan. 16, 1915, p. 230. 196 PROBLEIMS OF RECONSTRUCTION for cereals sold in Berlin were fixed by an act of October 28, 1914.^ About the same time a number of conservation laws were enacted ; one of these pro- vided that flour used in the baking of bread should be mixed with a certain per cent of rye substitute, and in the case of rye bread, from five to twenty per cent of potato flour was to be substituted. Meanwhile, the production of certain other bakery products was put under regulation.^ As early as January 28, 1915, the American vice-consul at Berlin reported that the government was employ- ing every possible means to regulate the use and to conserve the supply of foodstuffs ; among other measures, advertisements were placed in street cars and on bill boards urging the people to be sparing.' By a law of February 1, 1915, authority was given to seize for public use all grain and flour in the empire through the newly created war grain company. Ac- cording to the plan, this organization was to dis- tribute supplies to communities in proportion to population, and the communities, in turn, were to arrange for distribution to companies and private individuals. This program, of course, involved mills and bakeries in the meshes of control.^ About the same time, it was decided to apportion the bread supply by means of cards. Berlin, for example, was to be divided into some 170 districts. Bread cards were not transferable; they were good for only one week, and penalties were prescribed for 1 Com. Rept., Jan. 16, 1915, p. 230. « Ibid. 3 75f(/,, March 3, 1915, p. 869. * Ibid. WAR CONTROL IN FOREIGN COUNTRIES 197 their misuse.^ Following these early measures, the country has gone more and more to the rationing system. According to the plan which prevailed during the latter part of 1917, food rations were generally fixed for the whole empire by the Imperial War Food Bureau, although in practice the rations apportioned to the civilian population varied greatly from locality to locality and were usually dependent on the local food supply.^ The growing food shortage forced other conserva- tion measures on the country. The war kitchen as an instrument of war economy is now well known both in Germany and in England. While other purposes were involved in their establishment, such as the saving of fuel, labor, and the by-products of cooking, they were adopted chiefly because of their prospective economies in the distribution of food. They were of notable value in the provisioning of the poorer portions of the population. A person who obtained supplies from a war kitchen was re- quired to surrender tickets to cover the kind and amount of food delivered to him. The rules on the ticket indicated the conditions under which the holder was entitled to receive food.^ Numerous trying problems have arisen in con- nection with the administration of the food pro- gram. It has been next to impossible to make a satisfactory distribution of the limited supply among military, industrial, and agricultural classes ; 1 Com. Kept., March 9, 1915, p. 976. 2 Mo. Rev. Bu. Lab. Sta., Jan. 1918, pp. 91 ff. » Ibid. 198 PROBLEMS OF RECONSTRUCTION the problem of stimulating the supply while restrict- ing the price has not been solved ; it has been im- possible to devise any kind of regulation which would compel the agricultural classes to bear their share of the burdens involved in food control. Meanwhile, the shortage of feed raised problems as to the dis- position of livestock ; slaughtering on a considerable scale would promptly curtail the supply of milk and fats as well as meat, and would otherwise affect the food problem. The following quotation reveals an unexpected method of evading the regulations : *' People now go out," said a report, "not merely to buy but to steal food and to take it forcibly ; they have the effrontery to help themselves to standing field and garden crops, often long before these are ripe. The injury to the farmers and to our future supply is obvious." ^ Recently, there has been some discussion of grad- ing food prices on the basis of income. This plan, however, was abandoned because it raised more problems than it solved. It was clearly recog- nized that the incomes and status of a considerable part of the population are constantly changing, and that no price arrangement which attempted to adjust the payment for commodities to the scale of income could be effected with any show of justice.^ 1 Mo. Rev. U. S. Bii. Lab. Stca., Jan. 1918, pp. Ql'S., cf., also, the Review for July 1917, pp. 66-69; Dec. 1917, pp. 99-101; Jan. 1918, pp. 91-95. ' Ibid., p. 9t ; for a summary comparison of English, German, and American methods of food control see Bus. Dig., Nov. 21, 1917, p. 359; O. B., Sept. 24, 1917, p. 5 ; Mo. Rev. Bu. Lab. Sta., Dec. 1917, p. 100. WAR CONTROL IN FOREIGN COUNTRIES 199 As with other belligerents, war control in Ger- many comprehends price and profit regulation, con- trol of the flow of raw materials to the industries, and machinery for the adjustment of disputes be- tween laborers and employers. Shortly after the outbreak of the war, the German Federal Council issued an order effective December 14, 1914, estab- lishing maximum prices for copper, scrap brass, scrap bronze, aluminum, nickel, antimony, tin, and zinc ; and iron and steel were shortly added to the list.^ Later regulations brought all important mate- rials under price regulation. The war policy of course includes the requisitioning of important materials for government use. Other measures include the closing of non-essential establishments and the transfer of their industrial energies to the produc- tion of war materials ; meanwhile, plants are com- bined under central management and raw materials are allocated under government direction to the dif- ferent factories. Indeed, much of the war organi- zation in Germany is probably designed partly as a reconstruction measure in order to put the country in a position to resume promptly its former peace activities. A feature of post-war industrial organ- ization will be, therefore, extensive state control over some of the most important economic activities.^ In the case of England, war control comprehends » Com. Rept., Jan. 16, 1915, p. 232. 2 Ibid., May 16, 1917, p. 611 ; Oct. 25, 1917, p. 346; Jan. 9, 1918, p. 100; March 22, 1918, p. 1101 ; April 18, 1918, p. 251 ; June 20, 1918, p. 1226; July 16, 1918, p. 205. 200 PROBLEMS OF RECONSTRUCTION the requisition of a number of products and their allotment to establishments for use in prescribed ways, government purchase and distribution of a number of commodities, such as cotton, wool, and leather, the control of capital issues, mobilization of securities for the national use, and regulation of exchange transactions.^ Immediately after the out- break of the war the government assumed control of the railroads and subsequently took charge of coal mines. ^ In short, as in other countries, con- trol has been extended to almost every enterprise of national importance. In meeting the labor situation governments every- where have been compelled to intervene in the re- lations between employers and workmen, both for the purpose of maintaining industrial peace and for securing the largest possible productivity from in- dustry. With millions of men in military service, labor for industrial purposes has become one of the scarce factors of production ; hence the need of en- couraging every man to work as hard as possible. In England, the solution of such problems presented peculiar difficulties. Not only is unionization more complete than in other countries, but the trades have become enmeshed in traditions which are directly opposed to maximum effort on the part of ^ For references to these measures see Com. Rept., May 26, 1916, p. 755; June 20, 1916, p. 1073; June 29, 1916, p. 1201; Dec. 8, 1916, p. 913; Dec. 18, 1916, p. 1053; July 3, 1917, p. 24; Sept. 29, 1917, p. 1202; Jan. 30, 1917, p. 385; Feb. 2, 1917, p. 433; July 22, 1918, p. 1 (Supplement); July 24, 1918, p. 306; Aug. 2, 1918, p. 433. * Howard, ojp. cit., pp. 1 and 2, and 61 ff. WAR CONTROL IN FOREIGN COUNTRIES 201 workmen. These customs were related not only to questions of wages and hours of work, but com- prehended minute regulations of all the relations that workmen believe are significant for their wel- fare ; but one of the most difficult of all to localize and combat was the issue as to " what amount of out- put by different employees should be considered a fair day's work, not to be considerably exceeded." ^ With the advent of the war, with its tremendous demands upon human energy, the policy of "going easy" had to be suspended. This was one of the first war labor problems to be attacked in England. The Treasury agreement of March 1915 was to the effect that "the trade unions were of the opinion that during the war period the relaxation of the present trade practices was imperative, and that each union should be recommended to take into favorable consideration such changes in working conditions or trade customs as might be necessary, with the view of increasing the output of munitions or of war equipment." The unions made this concession on the conditions that any departure from their established rules was only for the period of the war, that all workmen who had joined the colors should have priority of employment after the war, that the rate paid to substituted laborers should be the same as would normally be paid to workmen engaged in similar work, that a record should be kept of changes from the pre-war conditions, and 1 Mo. Rev. U. S. Bu. Lab. Sta., June 1917, p. 823; Bulletin No. 237, U. S. Bu. Lab. Sta., pp. 105 ff. 202 PROBLEMS OF RECONSTRUCTION finally, that before any change was inaugurated during the war the workmen concerned should be given notice and should be afforded an opportunity for conference among their fellows.^ The Munitions of War Act of July 2, 1915, amended January 27, 1916, and August 21, 1917, provided much of the machinery for labor regulation during the war. The provision designed to pre- vent the migration of labor from occupation to oc- cupation is contained in section 7 of the original act. Workmen in munitions plants, or in other es- sential industries, were required to obtain a leaving certificate on giving up their job.^ Employers were prohibited from accepting men without certificates, if the men had been employed within the past six weeks, or for any other time indicated by the Min- ister of Munitions, in munitions works or other essential industries. In the event that workmen thought that employers unfairly refused to grant certificates, the issue was to be taken to a munitions tribunal, and either workmen or their representa- tives were permitted to present the complaint. Amendment to the original act shortly became necessary. It was difficult to interpret a number of ambiguous terms ; moreover, many skilled work- men found that the provisions of the law prevented them from improving their condition by seeking positions elsewhere as skilled workmen, as foremen, or as instructors for the new industrial recruits. » Mo. Rev. U. S. Bu. Lab. Sta., June 1917. p. 823. « Ibid., of. also issues of Sept. 1917, p. 127, and Nov. 1917, p. 63. WAR CONTROL IN FOREIGN COUNTRIES 203 Indeed, many curious anomalies developed as a re- sult of the operation of the law ; it not infrequently happened that former unskilled workmen were able to earn higher wages than skilled workmen engaged under the terms of the Munitions Act. The amend- ments were designed to correct these difficulties. But, even with the changes, the act failed to give satisfaction.^ The report of the Commission of Inquiry into Industrial Unrest, published about August 1917, urged that the operation of the act was undoubtedly a serious cause of unrest. A par- ticular grievance was the section which restricted the workmen's freedom of movement. The Commission advised that if the leaving certificate restrictions were abolished one of the chief causes of dissatisfac- tion would be removed.^ The certificate feature was eliminated by an order effective October 15, 1917. Thereafter, any workman engaged in the manufac- ture of munitions was free to leave his position on giving his employer a week's notice, or such other notice as was provided in the employment contract.^ Under British war regulations, the government may use a certain amount of compulsion in dealing with strikes. The Munitions Act, referred to above, makes strikes and lockouts illegal and provides for compulsory arbitration. Another source of power is the Defense of the Realm regulations which make ** incitement to strike, or rather an attempt to in- 1 Mo. Rev. U. S. Bu. Lab. Sta., June 1917, pp. 821-822; Nov. 1917, p. 63; Dec. 1917, p. 57. , .« Ibid., Oct. 1917, p. 35. 3 Ibid., Dec. 1917, p. 68. 204 PROBLEMS OF RECONSTRUCTION terfere with the output of munitions of war, a serious misdemeanor, punishable with very heavy penalty." ^ In order to'prevent undue delays in the settlement of grievances, the Minister of Munitions is empowered by the Munitions Act to prescribe the time within which any dispute is to be reported. Tribunals are directed to make their award without delay, — if possible, within fourteen days after the case is presented. If the Minister of Munitions is satisfied that the award is binding on the majority of employers in a given industry, he may direct that the award shall be binding on any or all employers, or persons, in the industry, either without modi- fication, or subject to such changes as he may deem necessary. No workman engaged in the manu- facture of munitions may be discharged on the ground that he is a member of a trade union. ^ The effectiveness of the compulsory features of the Munitions Act has been called into question. It has been urged, for example, that "so far as the first of these powers is concerned {i.e., compulsory arbitration), it would appear that the existence of the powers has in a large number of cases prevented minor strikes from occurring. It is, of course, a truism to say that without the patriotic feeling of the workmen the act would have had no effect, but it is obvious that the act was possible only because it did represent something of the feelings of the 1 Mo. Rev. Bu. Lab. Sta., June 1917, p. 821 ; Howard, op. cit., p. 52; Bus. Dig., Oct. 10, 1917, p. 71. 2 Mo. Rev. U. S. Bu. Lab. Sta., Nov. 1917, p. 63. WAR CONTROL IN FOREIGN COUNTRIES 205 people. Apparently the Munitions Act was passed because the country was ready for the Munitions Act, and was prepared to accept the principles which it laid down." ^ The machinery for shifting men from the less essential to the war industries was provided by the Department of National Service. In substance, the director-general of this service undertook to form a pool of male labor to be used both to replace men who were withdrawn from the munitions and other important industries for military service, and to supply men from other sources to the war industries.^ To accomplish the latter purpose two lists were provided, one of "restricted occupations," and the other of "trades and occupations of primary im- portance." ' Laborers from the first group were to supply as far as possible the growing needs of the second. The plan also provided that, in place of a general appeal for volunteers for service in any work they might be assigned to, there should be a direct and special appeal to the various trades to administer the program of substitution through joint committees of employers and workmen in each organized trade. If the trade was not well or- ganized, the work was to be performed by local national service committees. The "substitution volunteers" were to be allocated to the important industries by the substitution officers of the national service. Rules were established covering the trans- 1 Mo. Rev. U. S. Bu. Lab. Sta., June 1917, p. 821. « Ibid., p. 835. « Ibid., pp. 835 ff. 206 PROBLEMS OF RECONSTRUCTION fer of men from occupation to occupation, wages, allowances for subsistence and travel, and for out- of-work allowances.^ In Germany, the war labor legislation is con- tained in the Auxiliary Service Act and in supple- mentary orders and regulations.^ One of the pur- poses of these measures was to mobilize civil labor for war production. The law places great restric- tions on the movement of laborers and gives the military authorities large control over the whole labor situation. Every male German citizen be- tween the ages of seventeen and sixty, who is not in service with the armed forces, is subject to the national auxiliary service for the period of the war. This service includes employment by public au- thorities, in public institutions or establishments, in war industries, in agriculture and forestry, in nursing the sick, and in war organizations of all kinds. It was left to the War Office, in cooperation with imperial or state authorities, to decide to what extent the number of persons employed by public authority was excessive. Boards created for the district of each general command, or for parts of such districts, have power to decide whether the occupation is important and to what extent the number of laborers employed exceeds the current needs. These boards are composed of a military officer as chairman, two higher state officials, — one of whom is from the factory inspection service, 1 Mo. Rev. U. S. Bu. Lab. Sta., July 1917, pp. 25 ff. 2 Ibid., April 1918, pp. 89 ff. WAR CONTROL IN FOREIGN COUNTRIES 207 — and two employers' and two workmen's repre- sentatives. A Board of Appeals is created in the War Office, likewise constituted of representatives of civil and military authorities and of representa- tives of employers and workmen. Persons subject to auxiliary service may be requisitioned for the national auxiliary service. As a rule, the requisi- tions operate first through a request for volun- teers, but failing this, persons may be called by a special summons in writing. According to the law, no one can give employment to a person subject to auxiliary service, who has been employed during the past two weeks in any essential occupation, un- less such employee shows a leaving certificate indi- cating that he left the position with the consent of his employer. In the event the employer refuses to grant the certificate, the workman may appeal his case to designated authorities. The laws provide for permanent workmen's committees, whose func- tions are to promote good will among the men and between employers and workmen. These com- mittees are also charged with the duty of bringing to the attention of employers proposals, wishes, and complaints of workmen. The plan calls for ar- bitration and for the enforcement of the awards. Persons who do not comply with the orders assign- ing them to an occupation, and employers who ac- cept workmen in contravention of the law, are sub- ject to heavy penalties.^ The French measures for the prevention of in- » Mo. Rev. Bu. Lab. Sta., April 1918, pp. 89 fE. 208 PROBLEMS OF RECONSTRUCTION dustrial disputes are contained in a decree of the Minister of War dated September 17, 1917.^ Pro- vision is made for permanent committees of arbitra- tion and conciliation, composed of an equal number of representatives of employers and workmen. If the committee fails to reach a decision, an umpire is chosen ; should the committee fail to agree on the selection of an umpire, the Minister of War is to make the choice. Workmen may be placed under requisition, or employers' establishments may be requisitioned, as the case may be, if the award is not accepted.^ In a former chapter we discussed at some length the American war time foreign commercial policy. We may refer briefly to similar measures abroad. The principal considerations in establishing control are the shortage of tonnage, the necessity of giving priority to shipments of food and important raw materials for manufactures, the enforcement of economy in personal expenditures, and the need of speeding up the war industries.^ Control, as in the United States, covers both imports and exports. In England, the authority for the restriction of imports is contained in the Customs Consolidation Act of 1876, which provides that "the importation of arms, ammunition, gunpowder, or any other goods may be prohibited by proclamation or by Order in Council." ^ War control over imports 1 Mo. Rev. Bu. Lab. Sta., Jan. 1918, pp. 73-74. 2 Mo. Rev. U. S. Bu. Lab. Sta., Jan. 1918, pp. 73-75. ' Tariff Series No. 39, p. 3 (U. S. Department of Commerce Pub.). * Ibid. WAR CONTROL IN FOREIGN COUNTRIES 209 was inaugurated September 30, 1914, when restric- tions were imposed on commerce in sugar. The regulations have been extended from time to time, until at present they cover hundreds of materials entering into the commerce of the country.^ In April 1916, the Board of Trade organized the De- partment of Import Restrictions to administer the licensing system as applied to imports. War control has occasioned great hardships to many British industries which were dependent on outside sources for raw materials. Some ameliora- tion of the rigors of the system has been obtained, however, by rationing of industries, which affords each establishment an opportunity to obtain a por- tion of the limited supply. By this system, the amount of the commodity imported in a particular year, or in a given period, is taken as the standard for calculations. Regular importers may receive a license to obtain a given percentage of their pur- chases for that time. "A simple plan for rationing is occasionally carried out through a representative trade committee, which receives notice of the amount of goods allotted to the trade and attends to the distribution among manufacturers or dealers." ^ The earliest export measures were adopted under ^ Tariff Series, No. 39, op. cit., pp. 6-10; Daily Consular and Trade Rept., Nov. 30, 1914, p. 950; Com. Kept., Feb. 17, 1916, p. 658; Feb. 19, 1916, p. 689; March 11, 1916, p. 978; March 24, 1916, p. 1169; June 5, 1916, p. 865; Dec. 7, 1916, p. 897; Dec. 8, 1916, p. 915; Dec. 18, 1916, p. 1041; Dec. 22, 1916, p. 1105; Jan. 8, 1917, p. 81; Bus. Dig., March 27, 1918, p. 414; O. B., July 6, 1917, p. 7. * Tariff Series, No. 39, op. cit., p. 4. P 210 PROBLEMS OF RECONSTRUCTION the authority of section 8 of the Customs and In- land Revenue Act of 1879, and the Exportation of Arms Act of 1900. An enactment of 1914 provided that royal proclamations "may be varied or added to by an order made by the Lords of the Council on the recommendation of the Board of Trade." ^ As in the case of imports, the lists have been ex- tended from time to time, until a great variety of commodities is brought within the scope of regula- tion.2 Recently, such goods have been grouped into three classes, namely, Class A, covering ex- ports "to all destinations," Class B, "to all ports and destinations abroad other than ports and des- tinations in British possessions and protectorates," and Class C, "to all destinations in European and Asiatic Russia and in other foreign countries in Europe and on the Mediterranean Sea, other than France and French possessions, Italy and Italian possessions, Spain and Portugal, and to all ports in such foreign countries." ^ In order to prevent commodities from reaching the enemy. Great Britain also makes special arrange- ments with the neutrals. England also cooperates with her associates in the war in enforcing foreign trade regulations. By agreement with France, for example, "a British office in Paris grants licenses for shipments of French goods to the United King- 1 Tariff Series, No. 39, op. cit, p. 10. ^Ibid., pp. 13-32; Daily Consular and Trade Rept., Oct. 14, 1914, p. 242; Com. Rept., Feb. 15, 1915, p. 633; Jan. 8, 1916, p. 106; O. B., Nov. 3, 1917, p. 4; Bus. Dig., Jan. 16, 1918, p. 102. » Tariff Series, No. 39, op. cit., p. 13; Com. Rept., Jan. 19, 1917, p. 1. WAR CONTROL IN FOREIGN COUNTRIES 211 dom, and a French office in London has correspond- ing powers. Not all goods are subject to this un- limited privilege of admission ; certain articles make up a list of reserved goods which are either pro- hibited or subject to a percentage limitation." ^ Before the entrance of the United States into the war, the British government recognized certain organizations in this country, such as the Textile Alliance, as agencies for the distribution of goods which Great Britain permitted to be exported to this country. With the development of American control such arrangements are unnecessary, because the home trade organizations operate under the ad- ministration of our own War Trade Board.^ France also regulates imports and exports, and controls commerce with neutrals, by measures sim- ilar to those of the United States and Great Britain.^ The original authority for such control is found in the laws of August 22, 1791, and of December 17, 1814 ; an act of August 17, 1915, amplifies the provi- sions of these old laws to suit the new conditions.^ Early in the war, Germany adopted the policy of prohibiting the export of commodities needed at 1 Tarijff Series, No. 39, oy. cit., pp. 5, 11. nbid.; Com. Rept., Jan. 14, 1915, p. 195; July 10, 1915, p. 153; O. B., Dec. 15, 1917, p. 3; Feb. 18, 1918, p. 2. ' Cf . Marius Dujardin, La Reglementation des Exportations et des Importations pendant la Guerre, pp. 65-105; 113-122; 139-142; 152 S.; R. Pommereuil, La Guerre Economique (1914-1917), pp. 210-280; see Supplement No. 1 (1917) and Supplement No. 2 (1917) by the same author; see, also, Ponimereuil's La Guerre Economique, 1914-1918, (ed. 1918), which brings the account of the regulations down to date. * Pommereuil, op. cit. (1917), pp. 48, 49 ; Dujardin, op. cit., pp. 10-21. 212 PROBLEMS OF RECONSTRUCTION home.^ The blockade, to a large extent, makes im- port and export control unnecessary. Still, Ger- many has trade with the surrounding neutrals, and trade with these countries is regulated by measures which suggest the policy of England and the United States. The foreign trade policy of Germany also includes agreements with neutrals by which she obtains desired commodities in exchange for important goods she has to offer, such as potash, coal, dyes, medicines, and limited quantities of iron and steel and machinery.' 1 Com. Rept., March 24, 1915, p. 1192; March 2, 1916, p. 849. » Cf. WaU St. Jour., April 2, 1918. CHAPTER VII ECONOMIC RESULTS OF THE WAR We are now in a position to study some of the leading economic results of the war. This task was impossible until we had learned something of war measures both at home and abroad, because indus- trial changes since the war began are largely an out- come of our efforts to prepare for the conflict and make it successful. One group of results, therefore, is the direct outcome of war control. But there are other consequences of great importance not imme- diately related to war regulations. Industry every- where in the world has been disturbed. Our study in this chapter, therefore, must refer to two groups of results, namely, those growing out of war policies, and those developing from other causes. Recon- struction, it may be said, is necessary because the war has produced abnormal conditions. An un- usual situation exists, and it is the purpose of re- construction policies to restore an effective peace organization with as little friction and loss as pos- sible. No doubt one of the first features which im- presses the reader is the change of relation between the government and industry. It is obvious also that labor, capital, and industrial organization have 213 214 PROBLEMS OF RECONSTRUCTION come in for their share of the war's disturbance. Foreign trade relations, also, have been seriously- affected ; and finally, a result that is apt to escape our attention is the effect of the war on industrial development in countries not engaged in the con- flict. Reconstruction problems arise in all these fields. We may study the results of the war in the order just named. In the previous chapters we have shown that governments are taking a much more direct and active interest in industrial affairs than ever be- fore. Almost every enterprise that might affect the war program is watched and controlled. This is not intended as a criticism of government inter- vention. As the administrators have frequently pointed out, the abrupt disturbance of industrial life by the war has affected the functioning of economic forces. They are still at work, but they produce different results under abnormal conditions. It takes time to establish a new equilibrium ; but, during the war period, we cannot wait for the uncontrolled adjustment to take place ; hence the need of control. This is the justification of govern- ment intervention in economic affairs during the war. Granted the value of control as a war policy, the fact must not be overlooked that the results which flow from it create one of the greatest of the after- war problems. One of the most obvious results has been the strengthening of the position of those who favor closer government control over industry as a per- ECONOMIC RESULTS OF THE WAR 215 manent policy. They can say now that a vast or- ganization has been built up, that it is in full oper- ation, and that it has met with measurable success. We do not have to look far for an illustration. In the now well-known report on reconstruction by the sub-committee of the British Labor Party it is urged that '*the members of the Labor party, themselves actually working by hand or by brain, in close contact with the facts, have perhaps at all times a more accurate appreciation of what is practicable, in industry as in politics, than those who depend solely on academic instruction or are biased by great possessions. But to-day no man dares to say that anything is impracticable. The war has scared the old political parties right out of their dogmas, has taught every statesman and every government of- ficial, to his enduring surprise, how very much more can be done along the lines that we have laid down than he had ever before thought possible." ^ Nothing could put the point clearer than this. Any one who wishes to return to a semblance of the old order finds the burden of proof resting heavily on his shoulders. That government control is here, and that it works, is a long sharp sword in this scabbard of arguments. Elsewhere the report con- tinues : "Meanwhile, however, we ought not to throw away the valuable experience now gained by the government in its assumption of the importa- tion of wheat, wool, metals, and other commodities, and in its control of shipping, woolen, leather, 1 Quoted from "New Republic," XIV, No. 172, pt. 11, pp. 3-4. 216 PROBLEMS OF RECONSTRUCTION clothing, boot and shoe, milling, baking, butchering, and other industries. . . . The people will be extremely foolish if they ever allow their indis- pensable industries to slip back into the unfettered control of private capitalists, who are, actually at the instance of the government itself, now rapidly combining, trade by trade, into monopolistic trusts, which may presently become as ruthless in their extortion as the worst American examples." ^ To those who have long advocated close govern- ment control as a permanent policy and who are loath to see the present measures relaxed, there have been added large numbers of converts who were dissatisfied with the system as it existed before the war, and who are willing to give the new policy further trial. It needs no clairvoyant vision to foresee that this particular outcome of the war has provided a plank for some party platform, if not the platform itself. It is not necessary to reiterate the argument that the war has engendered in many people a new frame of mind, in which the wish to continue government control is one of the dominant characteristics. That we have not discussed these matters to any considerable extent in the United States is due to the fact that we have not as yet given serious thought to our after-war problems. Besides those who favor the present methods of regulation as a permanent institution, and who have found in the war the occasion for urging this policy, there are others who advocate the continuance of 1 Quoted from "New Republic," XIV, No. 172, pt. 11, p. 9. ECONOMIC RESULTS OF THE WAR £17 some measure of control during the reconstruction period. In a former chapter we referred to a bill before the English Parliament proposing to extend the present import regulations for three years after the war.^ This demand for deviation from the old policy is due to the commercial disturbances result- ing from the conflict. The purpose is partly to prevent "dumping" of commodities on the English markets, partly to protect some of the new industries against foreign competition, and partly to tide the country over the uncertain period after the conclu- sion of peace. The question is raised whether this does not constitute the entering wedge for a new commercial policy in which import control, and later possibly the regulation of exports, is to be used as a weapon of defense, analogous to protective tariffs. Such measures would be easier to administer than customs duties, and would have a more immediate and far-reaching effect. If this is the ultimate out- come, the war will have given us a new system of foreign trade control. Again, in the United States, serious consideration has not been given to such matters ; but the adop- tion of this plan abroad would disturb the freedom of economic intercourse and possibly make necessary a similar policy in this country. At any event, there is good reason to believe that the continuance of foreign trade regulation will find supporters in America. In fact, some of Mr. Hoover's arguments urged in favor of the inauguration of the food plan ' Cf. ante, p. 11. 218 PROBLEMS OF RECONSTRUCTION will be valid for the reconstruction period. This will be true of his plea that "the old distributive safeguards are torn away by isolation from the reciprocal markets abroad," and that the free ex- port market has been extinguished.^ Indeed, we may forecast fluctuating prices due to the unusual demand of European countries for our products, the existence of "wide margins of profits" among all grades of producers and distributors, and possibly the continuance of large scale foreign government buying.* Free and open competitive markets may not exist again for some years. Moreover, when it is considered that the machinery for foreign trade regulation is already in existence, and that the public has been trained to the new methods, it can be un- derstood that the advocates of continued control have a substantial basis of argument. Not only have the war measures given many people a new attitude towards government control, but they have also resulted in the building up of a great industrial war organization. In view of our discussions in former chapters it is not necessary to do more than summarize what has been accomplished in this field. Nor is it necessary to argue that all of this is new to our experience and much of it is foreign to the spirit of our institutions. However, it is a war-created necessity. The program is pro- 1 Cf. ante, p. 36. 2 Com. Rcpt., Dec. 27, 1917, p. 1177; Jan. 10, 1918, p. 116; Feb. 2, 1918, p. 442 ; May 16, 1918, p. 611 ; June 29, 1918, p. 1226 ; July 6 1918, p. 66 ; July 16, 1918, p. 205. ECONOMIC RESULTS OF THE WAR 219 fessedly an emergency arrangement, and it has been adopted as sucli.^ But this implies the task of get- ting rid of it. This explanation indicates one of the fields in which reconstruction must take place. By way of summary it may be said that a great war establishment, designed to regulate every kind of activity that may have any bearing on the success of the war, has been superimposed on the peace organization. Because of the intricate nature of industrial relations, there is scarcely an industry which has not been affected in some way by this control. The new organization includes regulation of prices of a vast number of essential commodities, fixing of profit margins, regulation of the flow of goods to consumers, arrangements by which a def- inite order of consumption is established for many commodities, measures for the promotion of econ- omy, rigid repression of some industries and en- couragement of others, the control of investments and of foreign commerce. Control thus includes foodstuffs and fuels, and implements necessary for their production, railroads, telegraph and telephone lines, shipping, the regulation of the supply of un- skilled labor, and tribunals for the settlement of disputes between employers and laborers. So vast is this program, and so rapidly are new elements added to it, that the organization can scarcely be grasped as a whole, and the significance of the changes constantly escapes attention. We have al- ready shown that this control is a world-wide 1 Cf. Chap. I. 220 PROBLEMS OF RECONSTRUCTION phenomenon.^ The problems growing out of it, therefore, are not peculiar to the United States. It follows from this that our plans for reconstruction must consider changes both in this country and abroad. What we have just said refers principally to the machinery of control. It is impossible to under- stand the results of the war without observing this machinery in action. Boards, commissions, and committees are only devices for the accomplishment of certain industrial aims. They are, indeed, a new kind of organization, but society is most af- fected not by the creation of new machinery, but by its products. Unfortunately, we have no way of ascertaining now in any adequate way what these products are. In fact, war control is constantly producing new results. However, it is possible to suggest in a general way what some of the effects of regulation are. No part of this machinery is destined to produce greater economic results than that which regulates priorities and capital issues. This, in fact, is the process designed to stimulate the transformation from a peace to a war basis. The effect of these regu- lations is to divert investments and materials into industries which serve either war purposes or great national interests. Certain groups of activities are purposely stimulated, others are purposely depressed. Many illustrations could be given. The large war demands for steel make it necessary to rigidly re- 1 Cf. Chap. I. ECONOMIC RESULTS OF THE WAR 221 strict the manufacture of many kinds of tools, machines, and hardware. A study of some of the priority and conservation measures of the War Industries Board gives a clear idea of the efiFects of these regulations.^ In July 1918, it was announced as one of the results of an investigation by the Con- servation Division of the Board that it was found advisable to discontinue the manufacture of up- wards of 3000 types of agricultural implements. This was a conservation measure with several ob- jects in view, but the most important was saving in the consumption of steel. The result was the con- centration of manufacture on a relatively small number of types and the elimination of all the rest.^ This is not an isolated case. Other notable cases of limitation of output are found in such great indus- tries as the manufacture of automobiles, and the production of building materials, and of course the erection of buildings which do not now serve an important national purpose.^ Besides the effects of the regulations on manufactures, the limitations on the use of materials and funds cause a postponement of many public utility works and other enterprises of a public character which are not now of a press- ing social need. Deprived of funds and of necessary materials, many of the less important industries are in serious 1 O. B., June 7, 1918, p. 1 ; June 24, 1918, p. 12; July 31, 1918. pp. 9-16. '^ Ibid.. My 16, 1918, p. 13. »Wall St. Jour., March 11, 1918; April 4, 1918; AprU 8, 1918; April 11, 1918; May 3, 1918; May 4, 1918; May 9, 1918. 222 PROBLEMS OF RECONSTRUCTION straits. Not only are their markets seriously af- fected, but their equipment is deteriorating, their standards of efficiency are reduced, and their work- ing force is being disorganized. This presents the picture of that great group of industries which do not serve a war purpose. The other picture that must be compared with it portrays the phenomenal development of those industries which are producing the most essential commodities. Provided as abun- dantly as our resources will permit with labor, funds, and materials, they are experiencing rapid growth. In many instances they are equipped with special- ized kinds of machinery and supplied with labor trained in particular ways ; they have built up great organizations which are serving the peculiar needs of the war. Thus the machinery of control accomplishes its purpose of assisting industries in "going over" to the war basis. The reorganization of this great structure constitutes one of the gravest of the after- war problems. Whether this is to be done under the direction of the Government, or whether industries are to be permitted to make the readjustments without the intervention of the State, is one of the most important reconstruction issues both in America and abroad. War control has both stimulated and directed an industrial transformation that would have taken place unaided. But other industrial changes of considerable moment have occurred which are not directly due to government direction. These are partly the result of the demand for war materials, ECONOMIC RESULTS OF THE WAR 223 and partly the consequence of economic shifts made necessary by the stoppage of old sources of supply. The upshot of this development is the growth of some enterprises that were formerly of small im- portance, and the creation throughout the world of certain new industries. The demands of the war have given a great stimulus to the production of tungsten, molybdenum, vanadium, mercury, alumi- num, sulphur, and potash, of a number of vegetable oils, and of certain kinds of chemicals ; the pro- duction on a large scale of chemical porcelain and heavy chemicals in the United States, and of dye- stuffs and toys in this and other countries is one of the results of the war's disturbance.^ Many substitutes of more or less permanent value result from the same cause. ^ Considerable amounts of capital have been invested in these new industries, and workmen trained to new occupations. Ques- tions will arise as to whether it is worth while to preserve such enterprises by some measures of control or protection, or whether they should be left to the fortunes of post-war competition. Sim- ilar issues will be raised in connection with the 1 Daily Con. and Trade Rept., Oct. 22, 1914, p. 396; Dec. 14, 1914, p. 1150; Com. Rept., May 6, 1915, p. 609; Jan. 3, 1917, p. 23; Dec. 20, 1916, p. 1080; Jan. 8, 1917, p. 90; Jan. 15, 1917, p. 180; Jan. 24, 1917, p. 314; Jan. 29, 1917, p. 371; Wall St. Jour.. March 12, 1918; Bus. Dig., Sept. 19, 1917, p. 1487; Sept. 26, 1917, p. 1551 ; Oct. 30, 1917, p. 225; Nov. 28, 1917, p. 408; Dec. 26, 1917, p. 573; Jan. 16, 1918, p. 92; Jan. 23, 1918, p. 126; Feb. 6, 1918, p. 181; March 13, 1918, p. 346; March 20, 1918, p. 366; March 27, 1918, p. 405. 2 Com. Rept., Jan. 8, 1917, p. 89; Jan. 10, 1917, p. 10; Jan. 11, 1917, p. 130; July 13, 1918, p. 161 ; O. B., April 27, 1918, p. 5. 224 PROBLEMS OF RECONSTRUCTION production of air crafts, shipbuilding, certain kinds of raw materials, chemicals and explosives. Some countries, possibly, will attempt to retain some of the industries developed by the war, and the prob- lem will be presented of finding domestic and foreign markets for the output. War control is destined to affect the future of many industries in another way. With many com- modities, the enforced limitation on consumption has only checked the demand for the time being, — a result comparable to the confining of a running stream behind a dam. It is probable, for example, that the restrictions on the manufacture of many kinds of tools and implements will result in a cumu- lative demand in the future. This may also be the case with the great automobile industry, where thousands of people have been forced to forego ownership sheerly because of the restriction of the supply, and where thousands of others whose cars are wearing out will demand automobiles. In a number of countries the emergencies of the war have caused rigid restriction of building operations, — except for war purposes, — with the result that the building program has not been able to keep pace with current needs. ^ This demand must be met promptly after the war. Of more importance is the effect of the war on the world's stock of es- sential raw materials. The success in converting iCom. Rept., Nov. 17. 1917, p. C57; O. B., April 12, 1918, p. 2; Bus. Dig., Jan. 16, 1918, p. 77; Feb. 6, 1918, p. 187; April 10, 1918, p. 480; May 15, 1918, p. 049; O. B., June 21, 1918, p. 2. ECONOMIC RESULTS OF THE WAR 225 back from a war to a peace basis will depend to a large extent upon the rapidity with which the de- pleted stocks are restored. In some countries, special committees are studying this phase of post- war problems.^ No element of economic life has experienced more significant changes than labor. Great shifts have occurred here as in other departments of in- dustry, for the reason that one of the objects of control has been to divert laborers, as well as funds and materials, to the most important uses.^ Some- times this process involved only the transfer of skilled workers from one plant to another where they followed the same trade ; but frequently the shift made necessary the training of men for new occupations. Such was the case with shipbuild- ing, and in the production of air crafts, munitions, and certain kinds of tools and machines. Besides, it has been necessary to train many additional workmen for some of the old machine trades, for the reason that the present supply was not adequate for war production. The significance of this change is that hundreds of thousands of workmen have been given special training in some industries far beyond the needs of peace production. The supply of this grade of labor after the war will then greatly ex- ceed the demand, with no possibility whatever of equalizing the two elements. Another perplexing 1 Com. Rcpt., Dec. 28, 1917, p. 1194; March 6, 1918, pp. 854 ff.; Bus. Dig., Dec. 26, 1917, p. 661. « Cf. Chap. IV. Q 226 PROBLEMS OF RECONSTRUCTION problem for post-war solution arises from the fact that many workers have been raised from the grade of unskilled to skilled laborers, with all that means for wages, standards of living, and improved outlook for themselves and their families. The return of such men to the unskilled group would be a social loss. Nor will they permit a depression of their present standards without resorting to the customary methods of resistance. A more obvious result of the war is the increase of wages for all classes of laborers. In many instances the increase has been only nominal, because the cost of living has also advanced ; but a survey of the industrial field would probably reveal the fact that many work- men are actually better off now than in 1914. It goes without saying that no post-war policy which fails to take into account the effect of the prospec- tive changes on this group will avoid the evils of labor unrest. The mere mention of the effect of the withdrawal for military service of several mil- lion men, of the introduction of a large number of women into industry, and of the employment of thousands of persons in the war organization of the government, suggests readjustment problems which must be solved promptly upon the conclusion of the war. It can scarcely be maintained that the war has established anywhere in the world a new principle governing the relation of labor and capital. It is true that in some cases governments have taken over certain industries, but usually this has been ECONOMIC RESULTS OF THE WAR 227 done with the expressed or implied promise to re- turn the properties to the owners after the war.^ Thus there appears to be no intention of establish- ing collective ownership. On the contrary, the war labor problems have been worked out chiefly on the basis of the maintenance of the wages system. Here, also, it is not clear that the war policies promise anything permanent in promoting a better spirit of cooperation between labor and capital. Uninter- rupted work is maintained by bringing great pres- sure to bear on all parties, and this, no doubt, re- quires considerable sacrifice for every one con- cerned, — to employers, because they fear that they will be forced to lose ground in their contest with labor, and to laborers, because they are unable to exploit the present emergency to gain additions to their status. For another reason the policy of con- trol does not offer anything permanent ; it has not met with unqualified success.^ Where it works, the patriotic motive has been the strongest of all in- centives. There will be no occasion for an appeal to this sentiment after the war, with the result that the problem of industrial relationships will have to be worked out on its merits with due regard for the interests of labor, capital, and consuming public. It is true, as we have indicated in a former chapter, that the war labor administration has apparently strengthened the position of the unions by giving support to the principles of collective bargaining » Cf. ante. p. 171. 2 Cf . ante, p. 128. 228 PROBLEMS OF RECONSTRUCTION and the right of the men to organize.^ But the ultimate outcome of this policy is veiled in uncer- tainty. For the unions, it may turn out to be a two-edged sword which may cut for or against them. Since employers are not required to recognize unions, but only to bargain collectively with men within their establishments, the war labor policies may mark the beginning of a system of shop or- ganizations quite independent of the larger unions, and having very little in common with them. Such development would weaken the influence of the greater unions. This result, however, is pure con- jecture, because no tendency in this direction can be noticed at present. Whatever the outcome of the war labor policies may be, the relations of labor and capital should be given particular study, when the time comes to consider the questions of indus- trial reconstruction. This will be necessary for two reasons : it will be in the interest of efiicient pro- duction, because the lack of understanding between employers and men promotes the drift of laborers from occupation to occupation, lowers the produc- tivity of the men, and makes for industrial unrest, with all its unfortunate consequences. In the second place, if sharp competition is in prospect in the future, the country with most satisfactory labor policies will have the best chances for success. In another field, the results of the war may be learned with greater certainty. While industrial combination and government regulation of big busi- 1 Cf . Chap. IV. ECONOMIC RESULTS OF THE WAR 229 ness are matters of several decades of experience, the war promises to yield new developments in both these fields. Two results may be noted : first, the closer cooperation between government and in- dustry, and second, a new movement in the direc- tion of combination. These changes are almost world-wide phenomena. Whatever may have been the former attitude of our government towards business, during the war, at least, the policy of disrupting the large organizations could not be followed. The country needed all the support it could get from the large units ; thus the war policy has been, on the one hand, to suspend most of the prosecutions of combinations,^ and on the other, to encourage closer cooperation within given indus- tries. The demands of the war made the latter policy necessary. In making surveys of industrial resources, in fixing prices for government purchases, in distributing orders among plants, and in en- forcing the regulations, it would have been impos- sible to deal with industries as separate entities. The most effective method was to call together the representatives of the groups, and with their aid ac- complish the results just named. Cooperation was necessary for another reason. It would have been impossible to secure economy in men and materials by dealing with the industries separately, for it was unreasonable to expect that the managers of a given enterprise would have been willing to make sacri- fices unless they were assured that similar sacrifices 1 Bus. Dig., May 8, 1918, p. 612. 230 PROBLEMS OF RECONSTRUCTION were made by others within their group. Thus, ac- cording to the Chairman of the Commercial Econ- omy section of the Council of National Defense : "It must be realized that business men in any one field must join in the common effort, because under competitive conditions it will naturally be impos- sible for one merchant to economize extensively without giving his competitors an unfair advan- tage." ^ A third need for cooperation between government and business developed out of the ad- ministration of import control. The apportionment of a limited supply of raw materials brought in from the outside, and the enforcement of rules covering the use and distribution of the finished products, could best be accomplished by the indus- tries themselves. Thus there developed the policy of pooling a limited supply, and of apportionment among the plants in rough approximation to their capacities. This is accomplished by the com- mittees composed of representatives of the indus- tries under authority of the Government.^ This movement in the direction of closer associa- tion among business units for cooperation with the Government began shortly after this country en- tered the war, and has continued, largely under the direction of the Chamber of Commerce of the United States, until all the important industries possess an organization.^ There is a difference, of » O. B., May 12, 1917, p. 5. ^- Cf. ante, p. 150. »0. B.. May 24, 1917, p. 3; June 7, 1917, p. 3; June 21, 1917, p. 4; June 25, 1917, p. 8; June 29, 1917, p. 1 ; July 18, 1917, p. 2; Sept. 10, ECONOMIC RESULTS OF THE WAR 231 course, between such associations and others that in times past have been declared unlawful under our anti-trust statutes. In the present case, there is no question about conspiracy, monopoly, and re- straint of trade. The purpose of these organizations is the accomplishment of certain ends desired by the Government, and incidentally the promotion of the interests of the trade. ^ But the significant fea- ture is that it is left largely to the representatives of the industry to see that the regulations are made effective. There is a promise in this develop- ment of a new attitude of Government to industry, wherein the relation will be characterized by a spirit of cooperation rather than by dissociated regulation. In the case of business combinations, the results of the war are more marked abroad than in the United States. Both the occasion and the in- centive for further growth of this movement are lacking in this country. Here, many of the essen- tial industries are already organized on a huge scale, and in the case of the less essential industries, the uncertainties surrounding production tend to dis- courage combination. Nevertheless, there has been some progress in this direction, notably among banks, which are apparently preparing for after-war 1917, p. 8; Sept. 14, 1917, p. 1; Sept. 26, 1917, p. 3; Sept. 26, 1917, p. 1; Oct. 4, 1917, p. 1 ; Dec. 1, 1917, p. 2; Dec. 8, 1917, p. 1; Dec. 15, 1917, p. 3; Jan. 7, 1918, p. 1; Feb. 18, 1918. p. 2: May 1, 1918, p. 5; Junel3, 1918, p.8; Bus. Dig., Oct. 17, 1917, p. 138; Dec. 12, 1917. p. 495; Jan. 30, 1918, p. 163; Apr. 24, 1918, p. 549. ^ Cf. ante, p. 151. 232 PROBLEMS OF RECONSTRUCTION commerce, and among some manufacturers and mer- chants, who have availed themselves of the new ex- port trade act.^ In the European countries the reason for combination is found chiefly in the de- sire to prepare for post-war competition. The case for England has been presented as follows: "The financing of our industries (after the war) will be immensely facilitated by trade organization. Dur- ing the war we have seen our productive industries organized on a large scale and under the control of the State. Both organization and control were forced upon us by the war. As regards State con- trol, I hope and believe the necessity for it is tem- porary. As to trade organization, I firmly believe that the necessity for it will remain after the war. . . . The day of small industries on individual lines is gone. Our manufacturers and traders must organ- ize for united effort. This will have the closest bearing on questions of finance. An unstable, un- organized industry is the despair of bankers. I have confidence in stating that an industry organized on large lines has seldom lacked financial support in this country, and in spite of the financial stringency we shall doubtless have to face, it is not likely to suflFer in the near future." ^ English banks seem to be in the van of the com- bination movement. We may glean from the ex- iCf. Com. Rept., Aug. 19, 1918, p. 659; Wall St. Jour., May 7, 1918. Note, in this connection, the combination of the express com- panies. The taking over of the railroads virtually amounts to combina- tion under government control. « O. B., Jan. 9, 1918, p. 8. ECONOMIC RESULTS OF THE WAR 233 pressions of the financiers that this is a step in the direction of preparedness, for upon the credit in- stitutions will fall the great burden of providing re- sources for the reconstruction of English industries. The bankers are undoubtedly keeping an eye on similar developments in Germany, and at the same time are preparing for the financing of English trade and industry after the war.^ The results of English combinations during the past year may be summarized in the statement of deposits of the five leading English banks : London Joint City and Midland, with deposits amounting to $1,459,950,000 ; Lloyd's, with $1,430,751,000 ; London County, West- minster and Parr's, with $1,070,300,000; Barclay's, with $1,031,698,000; and National Provincial and Union, with $875,970,000.2 ^j-^js development has not taken place without opposition and without serious thought on the part of the English public. There is some fear of a "money trust." Mean- while, opposition has been notably strong on the part of the discount houses, which desire as broad a market as possible for commercial bills. Banking combinations seem to meet with approval where they "secure an extension of area, or where de- signed to secure important new facilities for the public," but they are not approved when they pro- vide "no better facilities, but simply give pre- »Com. Rcpt., June 25, 1918, p. 1157; Wall St. Jour., March 16, 1918. * Com. Rept., Aug. 15, 1917. p. 606; Nov. 24, 1917, p. 764; Dec. 29, 1917, p. 1206; Feb. 1, 1918, p. 417; March 2, 1918. p. 804; April 1, 1918, p. 1; June 25, 1918, pp. 1156-1157; Aug. 9, 1918, p. 536. 234 PROBLEMS OF RECONSTRUCTION dominance due to size." ^ A committee appointed by the British Treasury on March 11, 1917, reported in favor of a "statutory committee representing the Treasury Department and the Board of Trade, which should have the power to approve or disap- prove proposed amalgamations," ^ Combination is also going on in industrial fields. Indeed, this policy has been urged upon industries by some representatives of the Government.^ A report from the American Consul at Birmingham, dated September 19, 1917, makes this point clear : " ' The policy of the Board of Trade, after investi- gating the question,' he said,^ ' was that if British manufacturers were going to increase their export trade after the war, if they were even going to re- gain the trade lost, it was essential to get together in some sort of a trade combination. They were prepared to face the question of trusts or combines. If they were to make a stand against combinations in other countries, it would be necessary for them to adopt methods somewhat similar to those which were employed abroad.' " ^ Another government representative ® announced at the same time that "the department had instructed him to take steps which would assist the formation of a trade asso- ciation of brass masters. The form of the com- » Com. Rept., June 25, 1918, p. 1156. « Ibid. 8 New Republic, XIV, No. 172, pt. 11, p. 9. * Mr. L. A. Paish, representing the Department of Commercial In- telligence. B Com. Rept., Oct. 11, 1917, p. 148. ' Mr. C. Hamilton Wickes, British Trade Commissioner in Canada. ECONOMIC RESULTS OF THE WAR 235 bination — the cartel or the full merger type — was a matter for themselves. If they were to live in the trade after the war, against the organized com- petition of Germany, America, and Japan, it was essential that they combine. If they did not com- bine they would go under." ^ The advantages of combination, as seen by these men, were standard- ization of products, elimination of many types, systematic investigation by the organization of "any definite market they wanted to attack," and the power afforded to "dump" products on foreign markets.'^ On May 8, 1918, our Consul at Bir- mingham announced that "the brass trade has also drawn up a project for the establishment of the cooperative principle, the object of which is to set up a central buying organization and also a cen- tral export selling agency. The scheme has met with unanimous approval among those connected with the industry." ^ A part of the plan of the proposed association was to provide machinery for the settlement of labor disputes "on a wider basis than has been the case in the past." "* Workmen's associations were cooperating with the brass masters with this end in view. The war has stimulated another type of cooper- ation among the English steel producers. Great Britain was formerly dependent on Germany for supplies of tungsten. In order to provide them- selves with an independent source of supply, upwards 1 Com. Rept., Oct. 11, 1917, p. 148. * Ihid. 3 Ihid., June 1, 1918, p. 839. « Ibid. 236 PROBLEMS OF RECONSTRUCTION of thirty of the largest British steel manufacturers formed a company known as the High Speed Steel Alloys (Ltd.) with a view to exploiting the resources of some of the Dominions. Permanent laboratories were established at Tavoy, Burma, and the manu- facturers proposed the erection of a plant to refine the minerals.^ Even closer cooperation is in pros- pect for the steel industry. In the early part of 1918, the United Steel Companies Limited was formed, embracing a number of formerly independ- ent enterprises. The American Consul at Sheffield announced on April 11 of this year that "it is the general impression in Sheffield that the present combination is only the nucleus of a much larger combination, which will ultimately embrace rolling mills and allied trades generally." ^ In a measure, the prospective economies are the inviting causes of the movement, but many British manufacturers foresee the necessity for combined action both to strengthen the industries during the reconstruction period, and to regain their markets abroad in com- petition with the large establishments of foreign countries. Combinations have taken place in a number of other industries, not the least interest- ing of which is that of the London milk dealers, composed of many of the large limited companies, several smaller ones, and many private concerns.' The capital is upwards of $20,000,000. The com- » Com. Rept.. Jan. 3, 1017. p. 23; Jan. 29, 1917, p. 371. 2 Ibid., May 9, 1918, p. 536. ^Ibid., Nov. 2, 1917, p. 456. ECONOMIC RESULTS OF THE WAR 237 bination is due chiefly to the exigencies of the war. Thus, the need of saving labor and capital due partly to the British regulations, economies in deliveries, the difficulties involved in apportioning and dis- tributing a limited supply of milk, and financial difficulties, were some of the causes involved. An organization of a more general kind is the Federation of British Industries, formed as a result of a meeting, on July 20, 1916, of many representa- tives of British industries. The objects in view were "cooperation of manufacturers with labor, with the Government, and with each other in sup- port of their common interests." ^ Among the many effects of the war on British industry, there- fore, we are to add the great stimulus it has given to cooperation and to the promotion of large-scale production. A similar tendency characterizes the war period in German industry. While combination has been a notable feature in Germany for a number of years, the exigencies of the war have given not only a new impetus, but also a new bent to the move- ment. The tremendous demands for arms and munitions of all kinds could only be supplied from her own establishments. Hence, the great need of conserving both men and materials and of estab- lishing industry on the most effective basis. This could best be accomplished by concentration. In the case of other industries also, the problems in- volved in obtaining labor and funds offered solution 1 Com. Rept.. Sept. 12, 1916, p. 967. 238 PROBLEMS OF RECONSTRUCTION through greater economies. Besides, the country was cut off from suppHes of important raw mate- rials. Confronted with these difficulties the policy adopted was the concentration of industrial efforts in a relatively few selected plants, the allocation to these of the limited supply of materials, and the closing of other establishments with provisions either for stock ownership in the operating plants by the stockholders in the factories that were closed, or a promise of remuneration of some sort at the close of the war.^ In short, along with the policy of cur- tailment went that of combination. In many in- stances combination became not only necessary but compulsory. According to Mr. Chauncey Depew Snow : "In war time the concentration of individual cartels into syndicates, proceeded with much greater impetus, and a new phenomenon appeared, in the formation of so-called compulsory cartels. The gov- ernment had entire control over all the industries that had any particular war significance. With little or no regard for ' hurt trade, ' factories in par- ticular industries were closed up, and production concentrated in such factories and such centers as were economical. Machinery was transported to whatever point It could be used to best advantage, and workers were steered by the oflScials to centers where they were most needed. The government itself formed certain big government companies, such as the War Grain Company, to control the ^ Misc. Series, No. 65, German Trade and the War, Snow and Krai (Dept. Com. publication), pp. 55 ff. ECONOMIC RESULTS OF THE WAR 239 grain trade; and in these cases such trades became government monopolies. The first of the com- pulsory syndicates seems to have been the boot and shoe industry. This was followed early in 1917, by the compulsory syndication of the soap industry." ^ Since that time other new syndicates have been brought into existence, and the agreements of many of the older ones have been extended.^ If the war made necessary this policy, the future difficulties of obtaining raw materials and shipping, and the need of organizing most effectively to re- gain lost markets will probably require a continu- ation of this method. Already the plans include combinations under government direction for the purchase of materials abroad, and selling combina- tions as of old, except under more careful govern- ment supervision. Many of the industries may remain in the hands of the Government, which will endeavor, through such monopolies, to lighten the burden of taxation.^ German plans for the future include another form of associative enterprise which suggests such organizations as the British Trade Corporation and the American International Cor- poration. The German organization is known as the Company for International Enterprise. Its prin- 1 Printer's Ink, April 25, 1918, pp. 77 ff. (C. D. Snow, German Monop- olies as Trade Weapons). » Com. Rept., Nov. 6, 1915, p. 531; Dec. 31, 1917. p. 1229; May 6, 1918, p. 489; May 7, 1918, p. 507; June 1, 1918, p. 847; Bus. Dig., Nov. 7, 1917, pp. 262 ff. ; March 27, 1918, pp. 404, 414, 422; May 8, 1918, p. 605; May 15, 1918, p. 048; May 22, 1918, p. 661. 3 Printer's Ink, April 25, 1918, pp. 77 ff. 240 PROBLEMS OF RECONSTRUCTION cipal purpose is to lend financial support to German enterprises abroad, and in some cases to purchase such enterprises.^ Some of its activities will include the operation of street and steam railways, the con- struction of irrigation, harbor, and electric works, building of factories of every description, and the exploitation of plantations and ore fields. It is expected that the organization will establish sub- sidiaries and extend credit to all manner of enter- prises. All this, to be sure, is for the promotion of German trade and for the development of German industries. Among the firms represented on the board of directors of the new company are such well- known organizations as the North German Bank, the Dresdner Bank, Hamburg-American Line, Rhen- ish Westphalian Coal Syndicate, Siemens and Schu- kert, and some of the Krupp interests.^ The war has also stimulated the combination movement in other belligerent and in neutral coun- tries.' The policy of export control of England, France, and the United States has been partly re- sponsible for collective action within neutral coun- tries to control trade ; but in addition, there is a growing tendency to project large organizations, often under the supervision of the State, for the purchase of important commodities. The purchase 1 Com. Rept., April 16, 1918, p. 219. « Ibid.. May 4, 1918, p. 1G5. 'Ibid.. Dec. 11, 1915, p. 996; Dec. 27, 1915, p. 1185; Jan. 4, 1917, p. S8; March 3, 1917, p. 847; April 16, 1918, p. 213; May 14, 1918, p. 599; June 29, 1918, p. 1 (Supplement) ; July 20, 1918, p. 8 (Supple- ment) ; July 20, 1918, p. 259. ECONOMIC RESULTS OF THE WAR 241 of nitrates by our own Department of Agriculture for sale to American farmers is an illustration of this policy as applied to the United States, and an ex- ample on even a larger scale is the purchase of food- stuffs and certain raw materials for the United States and her associates through an American government agency.^ England affords a number of illustrations of this policy as applied to war condi- tions, and a similar example is found in the French consortium, or syndicate, which acts in behalf of the Government.^ These lessons, taught by the war, will probably be applied extensively in the future. Thus, an American commercial attache writing from Paris in July 1918 announced that "the American manufacturer who looks forward to selling articles needed for the reconstruction of the destroyed indus- tries of France should prepare for a revolutionary change of French methods of purchasing when the war ends. Instead of selling to thousands of in- dividual buyers the materials each will need to re- build his destroyed or damaged factory the American manufacturer will deal with a small number of cen- tral purchasing agencies, representing groups of French manufacturers engaged in the same or re- lated industries and assisted by the credit of the French government." ^ In some instances, the State may assume the responsibility of supplying 10. B., July 11, 1917, p. 3; Sept. 12, 1917. p. 4; Sept. 26, 1917, p. 7; Sept. 29, 1917, p. 2; Nov. 28, 1917, p. 9. » Com. Rept., Sept. 12, 1918, pp. 965 ff. » 76Mi., Aug. 27, 1918, p. 773. B 242 PROBLEISIS OF RECONSTRUCTION stricken manufacturers with raw materials, machin- ery, and tools ; in this case, purchases may be put in the hands of a central bureau under the control of the Government. Similar measures are in prospect for Belgium where the Comptoir National pour la Reprise de I'Activite Economique has been created to aid in the reconstruction of the country.^ It will assist in the purchase of tools, machinery, and raw materials. It is expected that this organization will not only be of material aid in the reconstruction of Belgium, but that it will alleviate the sufferings of the working classes by enabling them to go to work promptly in the reconstructed shops. The organization is interested in all branches of indus- try, since practically all branches are in need of rehabilitation. The upshot of this development is the grouping of industries in combinations, or cooperation among industries, on a scale that the world has never known before. Frequently such organizations come into existence with the sanction of the Government; sometimes they are under the direct supervision of the Government. Organization has moved on apace. We are passing beyond the bounds of even "super- organization" to something larger and more power- ful. Combined into great compact units, the in- dustries of some of these nations present a solid front to foreign buyers and sellers. This forecasts a new competition in the foreign field in which in- dividuals no longer compete with individuals. The 1 Com. Rept., June 6, 1918, p. 897. ECONOMIC RESULTS OF THE WAR 243 competitors are combined groups of industries. Competition tends to become national unit com- petition, and the individual business enterprise drops into the background. Evidently, the power of such organizations both for conquest and for destruction is greater than ever before. This de- velopment gives a new aspect to foreign trade policies and imposes a serious task on those who are to recommend our reconstruction plans. The war has affected the industries of the nations in another way. Import and export regulations have been powerful factors in affecting old trade rela- tions.^ But added to these are the distorting effects of the lack of shipping, the depression of some kinds of industries throughout the world owing to the in- ability to market the products, the stimulation of other industries within national boundaries because of the curtailment of the customary sources of supplies from the great manufacturing countries, and the unusual opportunities given to some of the neutrals to develop their trade because of the re- moval of competition on the part of the belligerents. To a large extent, trade has been diverted into new channels,^ some industries have been greatly stimu- lated in every part of the world, and others have been depressed. In the case of our own trade, there has been a marked shifting of the character of imports and exports.^ The rigid restrictions on » Cf. ante. p. 180. 2 Americas, Jan. 1918, pp. 1 ff. ; Bus. Dig., Feb. 20, 1918, '248 ff. ; Daily Cons, and Trade Reports, Oct. 7, 1914, p. 117; Nov. ii.'S, 1914, p. 8C5 ; Com. Rept., Mar. 2, 1915, p. 859. » Ibid., Dec. 11, 191(), p. 952. 244 PROBLEMS OF RECONSTRUCTION foreign lending by the richer nations has checked industrial growth in many of the poorer countries. The development of plantations, railways, port facilities, industries, and mineral deposits has been checked, unless these contributed in some impor- tant way to the resources of the belligerents. Many illustrations could be given of all these results. A brief study of the changes that have taken place in English foreign loans suggests the effect of the war on those countries that have formerly depended on British capital for development. In 1913 the capital publicly subscribed in the London market for investment in the dominions amounted to about $370,000,000; in 1915, to approximately $108,000,- 000 ; in the former year, the subscriptions for foreign loans amounted to $410,000,000, but in the latter to only $203,000,000, of which, in 1915, the amount extended to France was $116,000,000.^ A detailed study of the reports shows that many foreign coun- tries were shut off altogether.* The extent to which government borrowing absorbed the resources of the London market is indicated by the fact that of capital subscriptions aggregating $3,374,755,000 in 1916, the Government was charged with $3,352,300,000.8 The course of French loans is quite like that of the British ; meanwhile, German lending abroad, except to her allies, came to an end, 1 Com. Rept., July 19, 1915, p. 305; Feb. 3, 1916, p. 469; Aug. 3, 1916, p. 434. » Ibid., Feb. 3, 1916, p. 469. 3 Ibid.. Aug. 3, 1916, p. 434. ECONOMIC RESULTS OF THE WAR 245 and the United States has advanced relatively small amounts for the development of resources and in- dustries of countries beyond its borders. It is quite in accord with the figures given above that the re- ports that come from many parts of the world in- dicate a slowing down of construction works of all descriptions.^ On the other hand, there is considerable evidence to show that certain kinds of industries throughout the world have been stimulated by war conditions. This, of course, is notably the case of those enter- prises that contribute to the war whether these are situated within the belligerent countries or in the borders of some of the nearer neutrals. The stimu- lating effect of the war on certain industries in the United States, England, France, and Germany is well known. With regard to Italy, an American consul recently reported that "the war has injected new life into the manufacturing industries of Italy. The greatest progress is seen in the chemical, elec- trical, and metallurgical industries, which now pro- duce hundreds of articles that before the war had to be obtained from abroad. In all lines of indus- try, however, consolidations of companies, increases of capital, and extensions of existing plants are the order of the day." ^ At a recent exhibition in Lon- iCom. Rept.. Nov. 22, 1916. p. 718; Aug. 6, 1917. p. 6 (Supple- ment); Com. Rept., Aug. 21. 1918, p. 696; Bus. Dig., Feb. 13, 1918, p. 216; March 13, 1918, p. 357. » Com. Rept., April 26, 1918, p. 353; May 25, 1918, p. 760; July 20, 1918 (Supplement), p. 3; Economic World, May 4, 1918, p. 622; Bus. Dig., May 29, 1918, p. 715. 246 PROBLEMS OF RECONSTRUCTION don were displayed hundreds of commodities, the products of industries that have arisen since 1914.^ Germany has taken special pride not only in her new commodities, but also in a great variety of substitutes brought into existence as the result of the war.* The difficulties in obtaining products from cus- tomary sources have compelled enterprise all over the world to establish industries locally to supply wants. Some notable instances are new manufac- tures of iron and steel, textiles, boots and shoes, food products, machine parts, and the construction of ships. Referring to South American countries, a recent Commerce Report contains the following : *'The serious dislocation of trade occasioned in vir- tually all Latin American countries by the war has in the case of Brazil brought about changes of such far-reaching significance as to mark a new period of growth in the industrial and commercial life of that country." Elsewhere it was said: "The war has caused a marked increase in the demand for Ar- gentine wheat, meat, wool and for Chilean nitrates and copper; and since these products represent the bulk of the exports of those countries, their total exports have expanded remarkably." ^ Indeed, in many of the countries there has been a marked tendency in the direction of diversification of indus- 1 Com. Rept., Sept. 10, 1918, p. 936. 2 Ibid., Dec. 20, 191G, p. 1078; Jan. 8, 1917, p. 89; Jan. 10, 1917, p. 10; July 13, 1918, p. 161; O. B., Sept. 25, 1917, p. 2; April 27, 1918, p. 5; Sept. 10, 1918, p. 942. « Com. Rept., Aug. 26, 1918, pp. 756 ff. ECONOMIC RESULTS OF THE WAR 247 tries and towards self-sufficiency in the production of a number of commodities. This is indicated by reports from South Africa, AustraHa, Norway, Sweden, Denmark, to say nothing of some of the South American countries.^ Such developments are significant not only because they give these coun- tries new industries, but because of their prospective effect on the future course of trade, and on the com- mercial policies of these countries after the war. We may forecast a considerable extension of the pro- tective system as a method of defending the new industries, and possibly the use of some of the new methods of import and export control for the same purpose. We have reserved the case of Japan for separate study. Industrial transformation in this country has been greater than in any other outside the war zone. This is shown to some extent by the growth of her commerce. Her imports which declined from $363,622,000 in 1913 to $296,974,000 in 1914 rose to $516,343,000 in 1917; and exports declining from $315,281,000 in 1913 to $294,664,000 in 1914 rose to $799,098,000 in 1917.2 That the imports were contributing more and more to the manufac- turing industry of the country is indicated by the 1 Daily Cons, and Trade Reports, Oct. 12, 1914, p. 204 ; Com. Rept., Oct. 20, 1917, p. 282; Feb. 7, 1918, p. 507; Com. Rept., Feb. 23, 1918, p. 1 (Supplement) ; May 11, 1918, p. 5C1 ; May 29, 1918, p. 808; July 17, 1918, p. 214; July 19, 1918, pp. 1-3 (Supplement); Aug. 14, 1918, p. 596 ; Aug. 15, 1918, p. 613 ; Aug. 16, 1918, pp. 62G, 636 ; Aug. 21, 1918, p. 694; Aug. 22, 1918, pp. 705, 708; O. B.. Sept. 21, 1917, p. 5. « Com. Kept., Feb. 19, 1918, pp. 665-666. 248 PROBLEMS OF RECONSTRUCTION fact that the largest increase was found in raw materials and partly manufactured goods, and of these raw cotton and steel plates were among the most notable instances of growth. While prior to the war the imports of raw materials were gaining steadily at the expense of manufactured goods, this movement has become more marked since 1914.^ Indeed, one might reach this conclusion from the fact that many new industries have been founded in the last four years. This development has taken place in the production of chemicals, iron and steel, zinc, aluminum, and lead, in the manufacture of textiles, paints, oils, boots and shoes, to name only some of the most important.^ Meanwhile, there has been a notable change in the character of new investments. While interest formerly centered in such enterprises as banking, railways, and the elec- trical industries, the new capital is being invested in iron works, paper mills, the manufacture of drugs and dyes, paints, textiles, and to some extent in the exploitation of foreign mineral and agricultural resources.' Shortly after the beginning of the war the country inaugurated an ambitious plan of expansion. As early as November 12, 1914, at an extraordinary meeting of the Yokohama Chamber of Commerce res- olutions were adopted requesting the various min- isters to urge upon the Government the extension » Com. Rept., Feb. 19, 1919, pp. 665-666. » Ibid., Dec. 22, 1917, pp. 1123 ff. » Ibid., May 17, 1916, p. 632; Sept. 8, 1916, pp. 923 S. ECONOMIC RESULTS OF THE WAR 249 of Japanese steamship service to Italy, Spain, and Portugal in order to encourage direct trade with those countries, to establish a legation in Argentina, and to negotiate commercial treaties with Russia with the intent of securing lower import duties into that country.^ Early in 1915 the South Sea Associ- ation was formed for the purpose of investigating the industrial and social conditions of the South Sea Islands and of familiarizing the consumers of that part of the world with Japanese goods. ^ Mean- while, the business interests of Japan are reaching out for trade in New Zealand, Australia, South Africa, and in South and Central America. A bus- iness commission visited South Africa early in 1917 to investigate trade conditions.' It was announced that Japan could use a number of products of that part of the world, such as wool, mohair, asbestos, and tobacco. The Japanese consul was said to have announced that the export trade from South Africa to his country had a "great future." ^ The imports from Japan into this section increased from $520,000 in 1912 to $1,830,000 during the first nine months of 1916.^ This country is further laying the foun- dation for future industrial and commercial develop- 1 Daily Cons, and Trade Reports, Dec. 31, 1914, p. 1391. 2 Cora. Rept., March 11, 1915, p. 999. ^Ibid., Dec. 31, 1915, p. 1267; Aug. 17, 1916, p. 628; Sept. 29. 1916, p. 1215; Oct. 14, 1916, p. 187; Dec. 21, 1916, p. 1093; Dec. 23, 1916, p. 1136; Feb. 5, 1917, p. 473; Feb. 20, 1917, p. 697; March 31, 1917, p. 1214; April 27, 1917, p. 354; May 15, 1917, p. 542; May 17, 1917, p. 626; Aug. 20, 1917, p. 071. * Ibid.. Jan. 13, 1917, p. 165. 6 Ibid., Feb. 5, 1917, p. 473. 250 PROBLEMS OF RECONSTRUCTION ment by founding branch banks in many of the im- portant industrial centers of the world, by seeking the development of independent sources of raw materials, such as iron ore, cotton, wool, and wheat, and by developing her merchant marine.^ At the same time, efforts are being made to improve the quality of Japanese exports and to protect the brands. For this purpose encouragement is given to the formation of trade guilds one of whose func- tions is to inspect goods destined for export.^ In sum, the effect of the war on Japan has been greatly to stimulate enterprise, to afford the occasion for the establishment of many new industries and for the extension of many old ones, and to greatly strengthen her financial and industrial position. In their effort to reestablish trade in many of the world markets the western countries will now en- counter a strong competitor. In the field of general commercial policy the war promises to yield important results. Unfortunately, many of the plans for the future deviate from the old 1 Com. Rept, Sept. 2, 1915, p. 1118; July 22, 1916, p. 282; Oct. 17, 1916, p. 212; Nov. 28, 1916, p. 793; Jan. 25, 1917, p. 330; Jan. 30, 1917, p. 392; Feb. 19, 1917, p. 673; Feb. 24, 1917, p. 740; March 7, 1917, p. 866; March 12, 1917, p. 9.32; March 27, 1917, p. 1141 ; July 10, 1917, p. 106; Nov. 5, 1917. p. 487; Feb. 28, 1918, p. 775; March 5, 1918, p. 836; March 8, 1918, p. 894; June 17, 1918, p. 1049; June 24. 1918, p. 1146; June 25, 1918, p. 1154; Aug. 29, 1918, p. 681; Bankers' Magazine, Nov. 28, 1917, p. 414; Bus. Dig., Nov. 24, 1917, p. 313; Bus. Dig., April 24, 1918, p. 550; O. B., Oct. 4, 1917, p. 3; Oct. 30, 1917, p. 5; Dec. 18, 1917, p. 7; Jan. 31, 1918, p. 1; Feb. 9, 1918, p. 6; April 4, 1918, p. 15. » Com. Rept., March 3, 1917, p. 847; Aug. 2, 1917, p. 425; Jan. 28, 1918, p. 368. ECONOMIC RESULTS OF THE WAR 251 freedom of intercourse. They portend rather com- mercial wars in which trade rivals will be purposely handicapped. Boycotts, methods of retaliation, preferential treatment of certain favored sections, and new commercial alliances among the great nations, are some of the proposals. The reconstruc- tion plans of most of the European countries call for an extensive overhauling of the old trade policies always with the view of regulation and control. The war methods of the belligerents of controlling exports and imports have introduced new ways of regulating commerce and have resulted in the estab- lishment of a great organization to make the regula- tions effective. It is difficult to foretell what the ultimate results will be, but already we have indica- tions that some countries will continue the war-time methods. The proposed English legislation has been referred to on a former page.^ Many British manufacturers look with apprehension on such measures, and with good cause, because they have felt severely the repression of war control and realize fully what regulation means. Many would prefer to take their chances with post-war com- petition if only the State would let them alone. But the Government may take the position that this is a necessary course, at least for several years. Another British measure for post-war regulation is aimed at German control of certain essential raw materials. The Nonferrous Metal Act was intro- duced into the House of Commons in November 1 Cf. ante, p. 10. 252 PROBLEMS OF RECONSTRUCTION 1917 ; it received royal assent February 6, 1918.* The title of the law indicates that its purpose is to restrict "temporarily the persons who may engage in business connected with certain nonferrous metals and metallic ores." The persons referred to, as the act subsequently shows, are those of enemy national- ity or enemy connections. The measure includes zinc, copper, tin, lead, nickel, aluminum, and other nonferrous metals and ores which the Board of Trade may designate by order. It is not lawful "for any company, firm, or individual after the expiration of six months from the passing of this act, or such longer period as the Board of Trade may generally or in any particular case allow, to carry on the business of winning, extracting, smelt- ing, dressing, refining, or dealing by way of whole- sale trade in metal or metallic ore to which this act applies, unless licensed to do so by the Board of Trade." ^ Licenses are to be granted in prescribed form after certain requirements are fulfilled, in- cluding the furnishing of information and the pay- ment of a small fee. Under certain prescribed con- ditions, enemy status or enemy connections justify the refusal of a license. Even the definite limit set for the duration of this act will probably carry the control into the peace period ; but at the discretion of the Board the act may be made operative for an indefinite time. 1 Com. Rept., April 1, 1918, pp. 4-6. 2 Americas. December 1917, pp. 16 ff. ; Bus. Dig., May 13, 1918, pp. 353-354. ECONOMIC RESULTS OF THE WAR 253 Such measures have temporary control for their object. But other plans, such as the proposed customs union of Austria-Hungary and Germany, the Paris Economic Pact, and the program of eco- nomic imion of the British empire, are expected to be more or less permanent, and if fully worked out would bring about a new situation in foreign trade relations. These arrangements are designed to es- tablish trade alignments with varying degrees of preference for the members of the groups. Such measures would divide a considerable part of the world into economic spheres of interest ; within each sphere the members would be given certain advantages ; those outside would suffer such handi- caps as the alliance was able to impose, or at least, would be denied valuable privileges. Trade would not even move freely within the groups, because the members would be bound by their treaty agree- ments to grant preferences regardless of world market conditions. Such measures would impose much greater restrictions on commerce than those which prevailed in pre-war days. On October 21, 1915, the Vienna Chamber of Commerce unanimously adopted a declaration of policy in regard to the future economic relations with the German empire.^ Some members of the Chamber were of the opinion that the prospective industrial upheaval which would result from the iCom. Rept., Feb. 11, 191G, pp. 582-583; Mi.sc. Series, No. 65 (Bu. For. and Dom. Com.), p. 141, Snow and Krai, German Trade after the War. 254 PROBLEMS OF RECONSTRUCTION war made it necessary for Austria-Hungary to sup- plement her military and political alliance with Ger- many with an economic union. It was hoped that such a union would make the Central Powers more independent of their opponents with reference to foodstuffs, raw materials, and industrial products, and would enable them to defend with greater energy their commercial interests in the markets of the world. The proposed treaty was to have the longest pos- sible duration. This policy was to be regulated by a unified plan by which the two empires would act as a unit in negotiating commercial treaties. Mutual support would enable them to bring their economic powers to full development, lower their costs of pro- duction, enable industry to become more specialized, and secure for both countries an increasing share of international commerce. Said the resolution: "In order to secure the necessary freedom of action for the conclusion of such a treaty, it is requisite that the two Governments, in consideration of their respective economic needs, shall agree upon their common commercial demands even before the be- ginning of peace negotiations. Especially is it to be desired that the commercial union of the Central Powers shall be recognized in the peace treaties with other States, and that every claim to most favored nation treatment shall be excluded at the outset." ^ This is a remarkable document when it is remem- bered that certain portions of Austria-Hungary are 1 Com. Rept., Feb. 11, 1916, pp. 582-583. ECONOMIC RESULTS OF THE WAR 255 in great fear of the industrial power of Germany. Commenting further upon the plan a French writer said recently: "It appears that the Germans and the Austrians have decided to erect certain portions of Austrian territory into market zones reserved to Austrian cartels. The grouping into cartels of all establishments in the same industry both in Ger- many and Austria in effect makes possible the de- limitation of exclusive markets. Here we see an ideal regime of free competition. All of Austria- Hungary and Germany, one might add, all of Europe, will live henceforth under a regime of monopoly in the form of trusts and cartels." ^ The statement of this program makes sufficiently clear what its elements are. A considerable part of the most productive portion of Europe is to be drawn together in close economic union to bargain for commercial privileges with the rest of the world. It is a combination of nations both for the promo- tion of home industries and for foreign commercial conquest. Their collective power is to be used to obtain the best terms possible and to grant favor sparingly in return. Meanwhile, the demands of the two empires are to be based on a survey of their industrial needs. The plan, of course, involves bar- gaining enforced by all the pressure that these powers can bring to bear. The Allies' Economic Pact presents another aspect of international commercial agreements. From June ^ Bernard Lavergne, L'Union Commerciale des Allies Aprls la Guerre, pp. 1-2, note. 256 PROBLEMS OF RECONSTRUCTION 14 to 17, 1916, representatives of the Allied Govern- ments met at Paris for the purpose of fulfilling the mandate of the Paris conference of March 28, 1916, to give "practical expression to their solidarity of views and interests, and of proposing to their re- spective Governments the appropriate measures for realizing this solidarity." ^ The Nonferrous Metal Act, discussed on a former page, was a bit of legisla- tion passed in conformity with this plan. The read- ing of the pact seems to indicate that it is a de- fensive alliance. Thus the concluding resolution states that: "Whereas for the purposes of their common defense against the enemy the Allied Powers have agreed to adopt a common economic policy, on the lines laid down in the Resolutions which have been passed, and whereas it is recognized that the effectiveness of this policy depends absolutely upon these Resolutions being put into operation forth- with, the Representatives of the Allied Governments undertake to recommend their respective Govern- ments to take without delay all the measures, whether temporary or permanent, requisite for giv- ing full and complete effect to this policy forthwith, and to communicate to each other the decisions arrived at to attain that object." ^ The Pact provides three groups of policies ; namely, for the war period, for the transitory or reconstruc- tion period, and permanent measures of mutual assistance and collaboration among the Allies. ^ Recommendations of the Economic Conference of the Allies (Lon- don, Cd. 8271). p. 6. * Ibid., p. 8. ECONOMIC RESULTS OF THE WAR 257 The essence of this document, as one may gather from a study of its provisions, is to put the Allies on an economic defensive against malicious German methods of trade. We are interested principally in the permanent measures, since these will affect the future relations among the nations. However, we may present briefly the reconstruction policy. The principal factors under this caption are the con- servation of the resources of the Allies for each other's benefit, the denial to enemy countries of favored nation treatment, prevention of pursuit by the enemies of certain professions and industries which concern national defense and economic independence, and the fixing by agreement of a period "during which the commerce of the enemy powers shall be sub- mitted to special treatment and the goods originating in their countries shall be subjected either to pro- hibitions or to a special regime of an effective char- acter." ^ While many of these provisions are vague, their evident purpose is defense. The Allies are con- fronted with two possibilities, both unfavorable, namely, the determination of Germany, even when defeated, to secure economic domination ; and second, the necessary sacrifice of industrial and trade advantages to aid the other parties to the agreement. It is a question of choice between two evils. If the threat of German domination is great, self-sacrifice is the better of the two policies. As ' Recommendations of the Economic Conference of the Allies (Lon- don, Cd. 8271), pp. 6-7. s 2o8 PROBLEMS OF RECONSTRUCTION long as world commerce is surrounded with threats, trading cannot be free, and defensive methods are necessary. Whether the reconstruction measures of the Allies will succeed depends largely on their will- ingness to make the sacrifices involved in the policy. The permanent measures may be grouped under three titles. They include means for making the Allies independent of their enemies as regards raw materials and manufactured articles essential for the normal development of their economic activities, methods for promoting trade among the Allies, and provisions for uniform laws covering patents, trademarks, and copyrights. None of these meas- ures have a hostile intent. They do not indicate the purpose of aggression, at least as they are stated. Indeed, the third provision, if carried out, will tend to promote more friendly relations by removing some of the causes of misunderstanding. It is a step in the direction of greater uniformity in the conditions of trade. The first policy is undoubtedly inspired by the revelation of German methods of expansion, and is justifiable as a means of defense. Its scope, moreover, is limited, for it covers only the essentials for "normal development," however that may be interpreted. It is expected, under this title, that the Allies will adopt certain measures to secure independence of Germany in the case of raw materials, and commercial and financial or- ganization. The policy also contemplates State assistance for certain enterprises of a specially de- sirable character, such as the promotion of scientific ECONOMIC RESULTS OF THE WAR 259 research, and special plans for the development of national resources and industries. Possibly, the policy also involves customs duties ''of a temporary or permanent character." Said the Pact: "What- ever may be the methods adopted, the object aimed at by the Allies is to increase production within their territories as a whole to a sufficient extent to enable them to maintain and develop their economic position and independence in relation to enemy countries." ^ All of this section, in short, is a sort of declaration of economic independence of Germany. The dangers of the situation make this necessary. The Paris Pact is an illustration of some of the new policies called into existence by the war. It is doubtful whether the proposed measures can be largely carried out, and it is regrettable that they are deemed necessary, but they are an incident of present trade rivalries and are an indication of the kind of measures that will be advocated where inter- national traders stand in need of protection against the unfair methods of their opponents. In this con- nection, the opinion of an English authority is to the point : "As regards the special case of Germany, I am, of course, of opinion that, until peace is con- cluded, a vigorous trade war is not merely justifi- able, but is imposed by the necessities of the case. I may go farther than this and say that even after the war, if the political institutions of Germany re- main unchanged, if they still constitute a menace to ' Recommendations of the Economic Conference of the Allies (Lon- don, Cd. 8271), pp. 6-8. 260 PROBLEMS OF RECONSTRUCTION the peace of the world, and if the German Govern- ment still continues to adopt commercial methods for the attainment of political objects and military advantages, the trade war may justifiably be con- tinued and economic considerations may, while such a state of things lasts, remain in abeyance. . . . If we should in the future have to deal with a changed Germany, any attempt to boycott that country would involve our losing a good customer and at the same time debarring ourselves from using such of the products of Germany as may profitably and advantageously be imported into this country." ^ The policies discussed above cover arrangements among groups of nations. In addition, there are suggestions of closer economic union among some of the European neutrals and among some of the South American countries embodying the principles of preference. Meanwhile, the war has stimulated discussions of plans of another description which promise to affect international trade in another way. We refer to the discussions favoring closer economic union among the elements of the British empire. This program is not new, but the circum- stances of the war give it a peculiar interest. In the summer of 1918, the Imperial War Con- ference and the Imperial War Cabinet held impor- tant sessions in London, at which matters of im- perial policy were presented. The reports of the meetings were meager, but from the proposals made ^ The Earl of Cromer and others, After War Problems, pp. 23-iMi. ECONOMIC RESULTS OF THE WAR 261 public we may gather the drift of the discussions. One important topic for debate was the future con- trol of raw materials within British dominions. It was announced that arrangements were being made with representatives of the dominions for the con- trol of such products as a basis for negotiation with the Allies for joint action after the war. It was stated that this was one of the most serious of the post-war problems. Some definite progress had been made in Great Britain with the view of making the future regulations effective.^ The Nonferrous Metal Act was discussed, and the dominions were requested to enact laws similar to those of England. In addition, there were various proposals relating to effective means for the development of the trade of the empire, including such matters as transport, news service, parcels post, statistics, and emigration. Apparently, the question of imperial preference tariffs received little or no consideration. ^ Other parts of the empire have been discussing elements of the policy outlined above. Resolutions adopted at a meeting of the Chamber of Com- merce of South Africa on September 12, 1916, favored a substantial rebate in favor of the prod- ucts and manufactures of the British empire, the principle of customs preference to British allies pro- vided they granted reciprocal favors, reciprocal tariff relations with other countries, and special tariff arrangements against the products of enemy 1 Com. Rept., Aug. 24, 1918, pp. 737 B. » Ibid., p. 740. 262 PROBLEMS OF RECONSTRUCTION countries.^ Early in 1917, the South African Cham- ber of Manufactures approved of the objects of the British Empire Producers' Association, and passed resolutions urging cooperation to create a self-suf- ficing empire embodying the principle of prefer- ence.2 At an earlier date, a similar organization in Canada advocated a "fraternal and cooperative spirit between Canada and her sister dominions and colonies and the empire." ^ An even larger plan of imperial union has been discussed from time to time since the beginning of the war. Some of the leading elements are the establishment by government ownership, or by sub- sidy, of several great lines of steamships connect- ing various parts of the empire; an inter-imperial plan for harbor development; a system of govern- ment rate regulation covering shipping and marine insurance on routes between ports of the empire; government control of at least one cable and tele- graph line; encouragements for an extensive plan of scientific and technical research ; preferential employment of British capital and of British com- mercial institutions in the development of the re- sources of the empire ; a British trade corporation to assist in the expansion of imperial commerce ; exten- sive development of the industries of the colonies ; reorganization of the system of intelligence; an empire sj^stem of preference for British industry in ' Com. Rept., Dec. 15, 1916, p. 1021. ^Ibid., May 21, 1917, p. 687. 8 Ibid., May 19, 1915, p. 809. ECONOMIC RESULTS OF THE WAR 263 the supply of raw materials in which the empire has a monopoly, or a dominant position; and the ex- clusion of non-British influence from public com- modity and financial markets.^ The inauguration of some of the elements of this policy would raise serious problems for other coun- tries. Measures on the part of Great Britain and her dominions to exclude outsiders from the enor- mous benefits of their markets would have an im- portant effect on industry everywhere in the world. Some of the elements in this plan are for the pur- pose of empire development, and in the normal course of events, would redound to the benefit of foreign industry and commerce; but the reverse would be the case with the application of the principle of pref- erence whether adopted for commodities, shipping, insurance, or capital. Undoubtedly, the adoption of this element of the program, if the purpose is to dis- criminate against foreigners, would encounter many diflBculties. It probably involves the imposition by Great Britain of a general tariff, and this in itself would encounter opposition. Besides, preferences which seriously discriminated against the outside world would invite evasions.^ Other important is- sues are involved, namely, the probable unwiUing- ness of the dominions to relax their protective sys- tem in the face of the great manufacturing power of England, the added burden to English industries which would result from a duty on raw materials, 1 Americas, Feb. 1918, pp. 1 ff . ; Bus. Dig.. April 10, 1918, pp. 472 ff. * After War Problems, op. cit., p. 20. 264 PROBLEMS OF RECONSTRUCTION and the unfavorable effect of the preferential ar- rangements on British commerce with the outside world. The larger part of English and dominions* trade is foreign, and it is not probable that a prefer- ence system would be adopted that would threaten the most productive part of this commerce.^ But in whatever manner the plan is developed it will afiFect the commerce of other countries, and it must, therefore, be studied by such countries in framing their reconstruction policies. No discussion of the results of the war would be complete without reference to the revelations of German methods of economic expansion. Reac- tions on these methods are largely responsible for the new turn taken by the commercial policies of some of the nations. Recent writings of French and English authorities contain a scathing indictment of the German system.' Dibblee, for example, sum- marizes the eflFects of economic penetration as fol- lows : "The most astonishing achievement of Ger- man successful aggression occurred, perhaps, in Italy, where, by the foundation of the Banca Com- merciale Italiana, the whole commercial life of Italy has been enslaved, and in spite of the European war is still under German domination. An interest- ing fact in the case of Italy is that the stranglehold * After War Problems, op. cit., pp. 25-27; G. B. Dibblee, Germany's Economic Position, pp. 65-73. ' Henri Hauser, Les Mfithodes Allemandes d'Expansion Economique, passim; G. B. Dibblee, Germany's Economic Position, pp. 49 ff. ; Maurice Millioud, Ruling Caste and Frenzied Trade in Germany, pp. 79 £f. ; E. J. Dillon, Why Italy Went to War, passim. ECONOMIC RESULTS OF THE WAR 265 obtained by Germany on her commerce was effected by means of using the money of the ItaHan people themselves, who hold 64 per cent of the share capital of the Banca Commerciale, while less than 5 per cent is held by Germany itself. Yet the whole power remains in the hands of an energetic minority of German directors. Switzerland, commercially speaking, is now treated as little better than a Ger- man province, and Russia, in fact, was so much in the grip of German industrialism that she was not able to exert her full strength until almost two years after the beginning of the present war." ^ The same story is told of Spain. "Wherever a factory or a factory site is offered for sale," said an American writer, "the jBrst and best bidders are Germans, If there is the slightest likelihood of a mining property being put on the market the owners get a polite inquiry from an interested Teuton. If the output of farm, orchard, flock or herd is to be sold, you will discover the Germans are hotfoot after it. Advertise a water-power project and almost before the paper is on the street a representative of Ale- mania — the Spanish for Germany — is on the job. All this means that by every known device of pre- paredness the German is getting ready to do bus- iness in Spain in a big way when the war is over." * In South America a powerful campaign is in prog- ress to discredit the products of the United States and other countries. German banks are already ^ Dibblee, op. cit., pp. 47, 48. * Saturday Evening Post, March 16, 1918, p. 98. 266 PROBLEMS OF RECONSTRUCTION firmly rooted in the soil, and the increased German influence in Spain is to be made use of after the war to prosecute the fight against German trade rivals. The inclusion of a large number of firms in the enemy trading list of the United States and its associates is a step to thwart this influence.^ Some of the principal methods of unfair competi- tion as employed by Germany are commercial es- pionage, "dumping," stifling of competitors' indus- trial opportunities through various methods of mo- nopolistic control, misbranding of goods to conceal their origin, production and sale of imitations, prop- aganda designed to disparage the commodities of competitors and to create ill will for a nation and its products, and the control of advertising and of piv- otal materials. One of the fortunate results of the war has been to bring into glaring spotlight these various methods as practiced by Germany and thus to afford the knowledge for devising defensive measures, A general survey of the results of the war would show both gains and losses. It is true that the world stock of essential materials has been depleted, that the machinery in many industries is wearing out through inability to make repairs, that the peace organization has been badly disrupted, and that much wealth has been consumed in ways which do not contribute to industrial progress. But, on the other hand, Industrial enterprise the world over has ^ Cumulative Supplement to the Enemy Trading List, No. 2 (March 15, 1918, pp. 8-20). ECONOMIC RESULTS OF THE WAR 267 received a great stimulus. This is seen in the movement favoring technical and scientific research, in the promotion of better business organization, in the development in many countries of keener insight into business problems, in the discovery of many new commercial products, and in the promise of better cooperation between Governments and indus- try. No plan of reconstruction would be adequate which proposed only to repair the losses of the war. The utilization of the principal gains of the conflict are just as essential to any reconstruction program as the recovery of losses and the orderly establish- ment of a new peace order. CHAPTER VIII RECONSTRUCTION m FOREIGN COUNTRIES The European countries have taken the lead in framing reconstruction policies. They have already developed extensive plans and have done something to give these plans concrete and definite application. It is fully recognized abroad that extensive read- justments must be made immediately after the con- clusion of peace, that some measures must be worked out beforehand, that emergency laws will not satisfy the new conditions, and that the wisest plan is to subject the whole after- war economic situation to thorough study. For this purpose the work is put in the hands of specially constituted bodies who are well equipped for the task. They are studying these problems in a scientific way with the expectation that their recommendations will be followed by the Governments in framing the post-war policy. Since we must look to European countries for our earliest lessons in drawing up our reconstruction system, and since what they do will necessarily affect us, we should study at some length their proposed re- construction measures. As a rule, this study of reconstruction is in charge of some specially appointed body, separate from the war organization, aided by numerous committees 268 IN FOREIGN COUNTRIES £69 whose function is to work out various aspects of the after- war problems. We shall discuss presently, in considerable detail, the plans of England and Ger- many ; but it is helpful at this point to outline the steps taken in these and other countries. In England the work is in the hands of the Min- istry of Reconstruction which is aided by numerous subcommittees. Somewhat the same method is followed in Germany. Late in 1916, the Office of the Imperial Commissary for Transition Economy undertook the task of framing a reconstruction policy. Its earliest functions were to study prob- lems related to the supply of foodstuffs and raw materials, exchange matters, and the distribution of tonnage. The Imperial Ministry of Economics was created on October 21, 1917, and the Imperial Com- missary was made subordinate to it.^ More re- cently, a greater council has been created composed of upwards of 250 members who are competent to speak with authority on the various matters that will confront the country after the war. This body is known as the Transition Economy Parliament.^ It is divided into some twenty subcommittees for the study of particular problems. Of all the belligerents Belgium is in the most cry- ing need of a carefully planned policy of recon- struction. Practically the whole industrial and social structure has been destroyed, and it will be necessary to construct a new organization as soon as possible so that the stricken country may resume 1 Board of Trade Journal, Jan. 31, 1918, pp. 123 ff. « Ibid. 270 PROBLEMS OF RECONSTRUCTION promptly its varied activities. Early in January 1918, the King of Belgium created a Ministry of Economic Affairs charged with the duty of making preparation for this work. According to the plan, this new department is assisted by a council com- posed of about 50 members connected with the in- dustrial and social life of the country.^ To a large extent, an organization created about the first of May 1918, known as the Comptoir National pour la Reprise de I'Activite Economique en Belgique, will make provision for the material reconstruction of the country. This body is to help restore industry and trade by assisting in the purchase of tools and raw materials and by directing the reorganization of the industries.* Since the whole economic life of the country has to be restored, the Comptoir is inter- ested in practically everything that contributes in a material way to that end. It will probably super- vise, or control the purchase of building materials, leather, textiles, farm implements, chemical products, electrical supplies, and many other commodities needed for the prompt reestablishment of business. In Italy, also, post-war problems are receiving active consideration. In May 1918, the Italian Government established a central and two auxiliary commissions, the first of the subcommissions to deal with administrative, judicial, and social questions, and the second to study industrial, commercial, and » Com. Rept., June 6, 1918, p. 897; O. B., Jan. 15, 1918, p. 8; Bus. Dig., Feb. 13, 1918, p. 221. * Com. Rept., June 6, 1918, p. 898. IN FOREIGN COUNTRIES 271 agricultural problems. The plan was to divide the auxiliary commissions into sections to be determined by the president of the cabinet, who, with the chair- men of the commissions and the directors of the groups, will constitute the central commission. Officials of the civil service, and others peculiarly fitted to discuss specific questions may be invited to sit in counsel with the subcommittees. It is expected that the central commission will draft the general program to be followed, apportion the ques- tions to be studied among the subcommittees, and on the basis of their recommendations draw up a report for the Parliament.^ In the case of Spain, the Minister of Public Works has recently outlined an extensive program for the economic reconstruction of that country. The plan includes the nationalization of trunk rail- ways, and changes in legislation in regard to second- ary railroad systems ; regulations of concessions granted for the exploitation of the large water- courses ; extensive budgeting for public works ; a modification of regulations in regard to mining; the creation of an agricultural credit organization ; and the "creation of an organization which will forthwith prepare the economic life of Spain both for the period of transition between war and peace and for the lines of policy which have to be fol- lowed after the war." ^ It is the intention of the Government to take a more active part in the eco- 1 Com. Rept., June 6, 1918, p. 902; O. B.. June 11, 1918, p. 16. 2 Com. Rept., Aug. 28, 1918, p. 788. 272 PROBLEMS OF RECONSTRUCTION nomic life of the country than ever before. The Min- ister maintained that all his projects tend in the di- rection of increased intervention by the State and of an economic nationalism which he considered to be absolutely indispensable in order that Spain, at the end of the war, may not be economically invaded and financially despoiled. According to the proposed policy, concessions both for mines and water power which the State may grant must be limited to pri- vate individuals and to enterprises which are dom- iciled in Spain. The purpose is not so much to re- ject the aid of foreign capital in the exploitation of the resources of the country as to render foreign assistance unnecessary. At any event, it is the opinion of the Minister that where foreign capital is invested in the country the enterprises should be strictly regulated by Spanish laws, and that the bus- iness developed in Spain should be subject to na- tional administrative and fiscal legislation.^ Other countries have planned a more or less ex- tensive system of reconstruction. In the case of belligerents, these often include measures for the restoration of soldiers to occupations, provisions for raw materials and credit, and plans for adequate housing of the laboring population. In many in- stances there is a strong movement in favor of im- proved methods of education and for state aid for scientific and technical research. Throughout the world, where countries have begun to plan for the future, an extensive program of foreign trade de- 1 Com. Rept., Aug. 28, 1918, p. 789. IN FOREIGN COUNTRIES 273 velopment is in contemplation.^ In Holland, or- ganizations have recently been created for the study of both concrete and general trade problems. The Commission for Economic Politics, installed by the Minister of Agriculture, Industry, and Com- merce is to investigate various economic questions. The specific task of studying commercial develop- ment is in the hands of an Advisory Commission for the Foreign Economic Information Service, cre- ated on July 2, 1918, by the Minister of Foreign Affairs. The Commission is to act as an advisory body to the Minister and is specifically charged with the duty of obtaining the maximum benefits from the Netherlands Foreign Service.^ Thus far, the plans of the Commission make provisions for the estab- lishment in foreign countries of chief consular of- ficers who will be afforded facilities for traveling about their districts in order to acquaint themselves with consular personnel and general economic con- ditions, for training of consular officers, and for the creation of a new kind of consul, — a so-called gen- eral consular officer, or consul general at large ; the plans also make provision for special experts, or technical advisers, to be attached to the various legations for assistance in particular cases.' We have already referred to the commercial ex- pansion of Japan since the beginning of the war. A new foreign bureau has recently been formed by the commercial interests of the city of Yokohama. 1 Com. Rept., Jan. 5, 1917, p. 54; April 3, 1918, p. 38. » Ibid., Sept. 3, 1918, p. 853. ^ Ibid. T 274 PROBLEMS OF RECONSTRUCTION This organization is said to be the forerunner of a great commercial museum to be built in that city in the near future. An extensive campaign for trade development is in prospect. There is to be an in- vestigation of the foreign trade of Japan, a collec- tion and exhibition of commercial products for the purpose of familiarizing home producers with the customs, tastes, and manners of the people with whom Japanese merchants propose to deal, and occasional exhibits for the study of foreign mer- chandise.^ The Yokohama Chamber of Commerce has recently urged the Government to send abroad technical and industrial commissioners to study economic conditions in many of the important manufacturing centers of the world. Of all the countries, England has probably in- augurated the most thoroughgoing plans for recon- struction, and we may therefore look to this country for the most instructive examples. In Septem- ber 1918, Hon. Christopher Addison, Minister of Reconstruction, stated as the fundamental aims of the work "better cooperation between capital and labor ; better conditions of life ; better train- ing; and better industrial methods." ^ This is only a meager summary of the plan, and it gives no idea of the machinery by means of which these ends are to be obtained. Such machinery, however, is in existence, and we shall study it shortly. As an in- troduction to the study of British plans we may point 1 Cora. Rept., Aug. 21, 1918, pp. 700-701. " Ibid., Nov. 16, 1918, pp. 652-653. IN FOREIGN COUNTRIES 275 out the estimate of the Minister of Reconstruction of the effect of the war on the British frame of mind. Thus, said the Minister, the war "has re- moved some of our narrowness of vision ; it has made us reahze that a good many of our class prej- udices are wholly artificial and harmful. It has also shown very clearly that this country has never made as much use as it ought to have made of brains." ^ It was the opinion of the Minister that hereafter industrial progress will demand a closer relation be- tween the factory and the laboratory, that the number of trained experts ought to be increased, and that there had been too much "stand-offish- ness" between the business of the community and the educational authorities. He recommended changes in all these respects. In a measure, this indicates the spirit of the reconstruction movement in England. The fundamental principle which is to form the basis of the new work is found in the pro- posed cooperation among all classes interested in production, including industrial managers, experts, educational authorities, capitalists, and laborers. The new order which is to be evolved out of the turmoil of the war is to be based on a thorough study of these relations. A complete survey of prospective industrial conditions is, of course, es- sential for any reconstruction plan and an impor- tant part of the work of the committees is to make this survey. Since the English post-war plans are more thor- 1 Com. Rept., Nov. 16, 1918, pp. 652-653. 276 PROBLEMS OF RECONSTRUCTION oughly organized than any of those that have come to us, it is profitable to study them in some detail. First, we may present the outline of the organi- zation. According to a recent announcement of the Minister of Reconstruction, some 87 committees, fall- ing into 15 groups, have been appointed to deal with as many general phases of post-war conditions. The summary given below indicates the scope of the work : ^ (I). Trade development, under which grouping are five committees dealing with general aspects, and nine dealing with specific phases of the situation. (II). Finance, with two committees. (III). Raw materials, with six committees. (IV). Coal and power, with two committees and four subcommittees. (V). Intelligence, with two committees. (VI). Scientific and industrial research, with two research boards, five standing committees, seven re- search committees, four inquiry committees, and three provisional organization committees. (VII). Demobilization and disposal of stores, with eight committees. (VIII). Labor and employment, with two com- mittees. (IX). Agriculture and forestry, with four com- mittees. (X). Public administration, with six committees. (XI). Housing, with four committees. (XII). Education, with eight committees and commissions. 1 Com. Rept., March 6, 1918, p. 854. IN FOREIGN COUNTRIES 277 (XIII). Aliens, with two committees. (XIV). Legal, with three committees. (XV). Miscellaneous, with three committees. It is possible to give in greater detail the work prescribed for some of the leading committees. Within the Trade Development group are the com- mittees on Commercial and Industrial Policy, Bel- gian Trade, Trade Relations after the War, Chem- ical Trades, Engineering Trades, and the Industrial Development Commission which is studying eco- nomic problems of India, and the Dominions Royal Commission. The last named body is charged with the task of reporting on (a) the natural resources of the five self-governing dominions and the best means of developing these resources ; (b) the trade of these parts of the Empire with the United King- dom, with each other, and with the rest of the world ; (c) their requirements, and those of the United Kingdom in the matter of food and raw materials, together with the available sources of supply. This body is to make recommendations consistent with the existing fiscal policy by which the trade of the dominions with each other and with the United Kingdom may be improved and extended. The commission which is studying industrial affairs in India has two important tasks : the first is to learn the new possibilities for the investment of Indian capital in trade and industry ; and the second, to ascertain whether the Government can give direct encouragement in any form to industry. The purposes of the Belgian Trade Committee £78 PROBLEMS OF RECONSTRUCTION are to recommend methods of improving trade re- lations between Belgium and the United King- dom. The function of the Committee on Trade Re- lations after the War is to "investigate the general questions of trade relations after the war with a view to the successful promotion of British trade, and also with the object of devising measures for the prevention of effective resumption of Ger- many's policy of peaceful penetration." Among the tasks of the committees in the Fi- nancial Group is the study of the financial resources of the United Kingdom particularly for the purpose of ascertaining whether such facilities "for trade by means of existing banking and other financial in- stitutions will be adequate to meet the needs of British industry during the period immediately fol- lowing the termination of the war, and, if not, by what emergency arrangements they should be sup- plemented, regard being had in particular to the special assistance which may be necessary (a) to facilitate the conversion of works and factories now engaged upon war work to normal production ; (6) to meet the exceptional demands for raw materials arising from the depletion of stocks." ^ Another committee in this group is to recommend methods of liquidating debts arising out of the administra- tion of enemy property.^ The group of committees charged with the task of studying the raw material situation is performing a most important function, for the prompt and or- 1 Com. Rept., March 6, 1918, p. 854. « Ibid. IN FOREIGN COUNTRIES 279 derly reestablishment of industry will depend as much on supplies of materials as upon financial facilities. Special bodies are investigating the ques- tions of cotton growing within the Empire, the sup- ply of edible and oil-producing nuts and seeds, and the supply of nitrogen products ; another com- mittee in this group is investigating the general question of supplies. Some of its duties are to re- port upon (a) the nature and amount of supplies of materials and foodstuffs which, in the committee's opinion, will be required by the United Kingdom during the period which will elapse between the termination of the war and the restoration of nor- mal conditions of trade ; (6) the probable require- ments of India, the dominions, and the Crown Col- onies for such supplies at the close of hostilities ; (c) the probable requirements of belligerents and neu- trals for such supplies ; (d) the sources from which, and the conditions under which, such supplies can be obtained and transported, and, in particular, the extent to which they might be obtained from the United Kingdom, or within the Empire, or from neu- tral countries ; {e) whether it will be necessary to exercise government control after the war, and if so, the character of that control.^ The list of duties assigned to other committees covers an extensive range of inquiries designed to reveal the industrial conditions the country will have to face. The in- vestigations will give the information necessary to serve as a basis for the reconstruction program, 1 Com. Rept., March 6, 1918, p. 856. 280 PROBLEMS OF RECONSTRUCTION We should miss entirely the spirit of English re- construction if we did not understand the emphasis laid on education and industrial and scientific re- search. These are corner stones in the new indus- trial and social structure. The study of the educa- tional system is in the interest both of liberal education and of training for industry ; the purpose is to provide the student with the equipment for better social living and for more efficient production. Thus, the work of the committees covers practically the whole range of education. The investigations include questions of adult education, the training of children who have been abnormally employed dur- ing the war; they include a study of the methods of teaching languages and sciences ; the question of teachers' salaries is also made the object of special investigation ; one of the aims is to learn the causes of the differences in rates of pay in respect to local- ities, duties, qualifications, sex, or any other con- sideration that may have a bearing on the question.^ In the case of research, the work is in the hands of upwards of twenty committees. In some instances, these bodies only survey the field for the purpose of giving advice as to the direction in which investi- gations are most likely to prove fruitful. In other cases their duty is to direct the work. The leading fields covered by the research bodies are fuel, food, building materials, cements for lenses, tungsten, lubricants, and the electrical, cotton, woolen, and worsted industries. The Cold Storage Research 1 Com. Rept., March 6, 1918, pp. 857, 861. IN FOREIGN COUNTRIES 281 Board was appointed to organize and control inves- I ligations of problems related to the preservation of foodstuffs. The Standing Committee on Engineer- ing, Metallurgy, Mining, and Glass and Optical In- struments is to act in an advisory capacity in ref- erence to research in the industries suggested by the title of the committee. In the case of cotton, wool- ens, and worsteds, the committees are only provi- sional ; their particular duty is to organize research associations for each of these industries.^ Demobilization problems are among the first that must be solved. Men must be restored to industry in an orderly way, and war materials must be dis- posed of. The Government now possesses hundreds of millions of dollars* worth of materials in the form of arms, munitions, supplies, and scrap which must be located, inventoried, and stored until they can be disposed of. A particularly difficult problem will arise in connection with the future employment of men now engaged in the army, in government offices, and in the war industries. The future industrial peace depends in a large measure upon the success with which these problems are solved. Positions will be waiting for some; for others jobs must be found. Possibly, men who are needed at once in industry will be promptly discharged from the army; others may be retained under arms long enough for the newly established peace industries to absorb them. This phase of reconstruction work is in the hands of the Demobilization Coordination 1 Com. Rept., March 6, 1918, p. 858. 282 PROBLEMS OF RECONSTRUCTION Committee, representing the Admiralty, the War Office, and the Minister of Labor. With reference to war materials, the work of formulating plans for the future is in the hands of the Disposal of War Stores Advisory Board. Its duty is to "expedite the preparation of necessary inventories of property and goods of all descriptions held by the Government departments, and to consider and advise upon the disposal, or alternate form of use, of any property or goods which have or may become, during or on the termination of the war, surplus to the requirements of any department for the purposes of that depart- ment." 1 Some of the committees concerned with industry and trade have rendered partial reports. From these it is clear that at least three general policies will be advocated, namely, the utilization of the principal industrial gains of the war, the promotion of a larger measure of national self-sufficiency in the production both of raw materials and manufactured products, and some means of defense against foreign competi- tion during the reconstruction period. A recent re- port on the iron and steel industry distinguishes the policy for the years immediately following the con- clusion of peace from that for the period when in- dustry shall have become firmly settled. The com- mittee recommends, during the reconstruction period, the prohibition of all imports of manufac- tured or semi-manufactured products of iron and steel from present enemy countries. It urges, more- 1 Com. Rept., March 6, 1918, p. 859. IN FOREIGN COUNTRIES 283 over, that no raw materials be sent to present enemy countries from British dominions or colonies, and that enemy countries shall not be supplied from mineral or other resources under British control. Likewise, with reference to shipping, the committee urged that British ships shall not carry raw mate- rials or manufactured iron and steel from neutral ports to ports in present enemy countries, or to neu- tral ports for ultimate shipment to such countries, and it advised that careful consideration should be given to the question of permitting vessels of Eng- land's enemies to carry goods to and from British ports and to coal in any of the British stations. If these recommendations are carried out, the post- war resurrection of the German iron and steel trade will encounter almost insurmountable handicaps ; indeed, her domestic industry will be seriously crip- pled, for Germany depends on British possessions for some of the essential materials that enter into the production of steel. Restrictions on coaling priv- ileges would cripple German shipping in many parts of the world. Looking ahead to the period when normal condi- tions shall have been restored, the committee rec- ommended that an "imperative function of na- tional policy" demanded the continued develop- ment of the British iron and steel business and the rendering of the Empire as independent as possible of foreign sources of supply. A number of measures were suggested as remedies for "dumping." It was possible, for example, to initiate legislation like that 284 PROBLEMS OF RECONSTRUCTION of Canada; or the importation of iron and steel which did not bear a clear mark of origin could be prohibited. Another way of reaching the same evil was to require foreign syndicates to obtain a license before disposing of their wares in England, The terms of the license, of course, could require that products should not be sold in England at lower prices than in the home country. British consuls abroad could be depended upon to provide the home department with the information needed for the administration of the license system.^ The committee representing the engineering trades made similar recommendations. In order to facil- itate the reestablishment of home industry after the war, the committee was of the opinion that the im- portation of enemy products should be prohibited for one year, except under license. To encourage trade among the Allies the committee suggested cer- tain concessions on the one hand, and on the other additional duties on the products of enemy coun- tries. Meanwhile, it was urged that some govern- ment department should be assigned the task of exercising special vigilance over manufactures es- sential for the national safety, such as tungsten and magnetos, and that the development of raw mate- rials within the Empire for such industries should receive special government support.^ In the case of the electrical trades, a committee 1 Com. Rept., July 29, 1918, pp. 376-377 ; British Trade after the War, Cd. 8275, p. 38. (In Continuation of Parliamentary Paper, Cd. 8181 of 1916.) »Com. Rept., July 29, 1918, p. 377. EST FOREIGN COUNTRIES 285 having this study in hand took the point of view that the importation of enemy products should be prohibited for three years after the conclusion of peace, except that such goods might be brought in under license after one year. But whatever the source of imports, duties should be high enough to afford British manufacturers adequate protection. As in the case of iron and steel, measures were urged to protect the home industry against "dump- ing." Even a more radical policy was recommended to prevent the interference of enemy capitalists with British industries. Thus, any concern engaged in electrical or related industries, if controlled directly or indirectly by foreign capital, should be prevented from continuing trade within the Empire unless specially authorized to operate its business, and unless its constitution was made public. Ac- cording to the committee's recommendation, legis- lation should provide that no more than 25 per cent of the capital of any electrical or related enterprise should be held, either directly or indirectly, by enemy subscribers or agents. All goods produced in foreign countries by companies controlled by enemy capital, or under enemy direction, were to be treated as enemy products.^ In connection with reconstruction policies there has been considerable discussion of amendment of the Companies Acts of Great Britain so as to pre- vent interference with British industries through that form of penetration which aims at control » Com. Rept., July 29, 1918, p. 377. 286 PROBLEMS OF RECONSTRUCTION through share ownership. There is great diflBculty, however, in devising a satisfactory poHcy. Any plan for the regulation of investments encounters the objection of interfering with the freedom and openness of the markets, and of tending to deprive British enterprises of the support of foreign capital. A recent report to the Board of Trade and to the Minister of Reconstruction reviewed the possibilities of legislation and came to the conclusions that, with few exceptions, regulation was not necessary.^ Witnesses examined by the committee were of all shades of opinion, from those who favored dis- closure of enemy holdings to those who emphatically opposed such proceedings. The committee ad- vised that one of the great difficulties involved in disclosure was that shares were frequently held in trust, and that it would be practically impossible to require sufficiently frequent declarations to take care of new transfers of stock. To require that stock be forfeited, if transferred to aliens, appeared to the committee to be neither practicable nor advisable. As to the suggestion that British control of an in- dustry was assured if British boards of directors were maintained, the committee replied that there was no way of guarding against alien influence over British directors. The committee suggested as a feasible method of regulation the division of com- panies into three classes, designated A, B, and C. Class A was composed of enterprises in which alien influence had no significance. In such industries 1 Com. Rept., Sept. 11, 1918, p. 948. m FOREIGN COUNTRIES 287 regulation was not necessary. Foreign capital for these industries probably was obtained from coun- tries against whom discriminatory restrictions should not be imposed. Any distinction among aliens as to nationality would be undesirable, since such a distinction would involve the disclosure of alien ownership, and this would both require complicated machinery and would impede investments in Brit- ish securities. At any event, should it be deemed advisable to discriminate against aliens, the com- mittee thought that restrictions should be limited to a very brief period after the conclusion of peace. As to industries included in Class B, — compre- hending shipping enterprises, — a different method of treatment was urged. Here, the committee sug- gested the amendment of the Merchant Shipping Act of 1894 so as to exclude shipping corporations whose stock was owned largely by aliens. But the total exclusion of aliens was not regarded essential to the national safety. Possibly a limit of 20 per cent might be a safe proportion. "If this limit is to be adopted," said the committee, "it would be necessary to provide for disclosure of nationality and against the allotment or transfer of shares above the prescribed limit. Bearer shares must consequently be forbidden." ^ In the case of Class C, covering "key industries," the committee recommended special supervision by the Board of Trade. No attempt was made to de- fine "key industries," but the committee thought » Com. Rept., Sept. 11, 1918, p. 949. 288 PROBLEMS OF RECONSTRUCTION that it was possible to define by statute in general terms the characteristics of such industries and leave the application in particular cases to a body like the Board of Trade. It was recommended that the Board be authorized to inquire at any time whether a company in Class A was carrying on a "key in- dustry," and if such was the case, this enterprise should be listed in Class C and become subject to all the regulations of that class. The 20 per cent limit suggested for the shipping industry was also recommended for Class C. From the point of view of general commercial policy, English opinion is undergoing change. Sev- eral important conditions are responsible for this ; among the causes we may name the desire to carry out some of the leading provisions of the Paris Economic Pact, to foster closer economic relations with different parts of the Empire, and the need of obtaining more revenue in the least burdensome way to meet the huge war debt. The general trend of inquiries with reference to the future of British trade may be obtained from the following questions pro- posed for the consideration of the Committee on Commercial and Industrial Policy.^ The list con- tained the following questions : (a) What industries are essential to the future of the Empire, and what steps should be taken to maintain or establish them? (b) What steps should be taken to re- cover home and foreign trade lost during the war and to secure new markets? (c) To what extent, 1 Com. Rept., Nov. 2, 1918, p. 458. EST FOREIGN COUNTRIES 289 and by what means, can the resources of the Em- pire be developed? (d) To what extent, and by what means, can the sources of raw materials within the Empire be prevented from falling under foreign control? Some of the resolutions of this com- mittee indicate that the post-war policy will be characterized by special efforts to increase both in England and in the Empire the supply of foodstuffs and of raw materials, that some form of the prin- ciple of preference may be tried, and that there may be introduced a wider range of customs duties both as fiscal measures and as a basis for commercial treaties with neutral and allied countries. The question of preferential tariffs has been discussed on a former page.^ It is evident from a study of the various reports that a distinguishing mark of British commercial policy will be a new spirit of enterprise which will manifest itself in a keener ap- preciation of foreign market conditions, in a more thorough study of foreign markets, and in improved machinery for trade which will include better intel- ligence service, improved means of communica- tion and transport, and the development of some form of investment banking suitable for colonial and foreign exploitation. Possibly the policy will in- clude government assistance in some form. The reconstruction policies as applied to labor have been fairly well worked out. One of the fun- damental purposes involved in the plans is to secure closer cooperation between employers and work- 1 Cf. p. 262. U 290 PROBLEMS OF RECONSTRUCTION men with the object of preventing labor disturbances, securing greater productivity, and of obtaining the assistance of both groups in solving various recon- struction problems. For example, the restoration to peace industries of soldiers, and of workers in war industries, can be accomplished most effectively through organizations in which employers and workmen cooperate.^ Possibly there is a sugges- tion in this of democratic control over industry; but persons in England who use this phrase warn us to be cautious of its meaning. It does not signify the demand of workmen for participation in indus- trial management, including the buying of raw materials, selling of finished products, and "all the exercises of trained judgment and experience that are brought to bear by business men." ^ Workmen are willing to leave these problems to industrial managers. But what is desired is "control over the conditions under which their own daily work is done. It is a demand for control over one side, but that the most important side, because it is th:; human side of the industrial process." ' The plan proposed in the Whitley report, which has been accepted as a part of the Government's re- construction program, provides for the creation of joint standing industrial councils representing em- ployers and workmen. The report outlines the particular functions of these bodies. One of the most important of these is to consider "appropriate 1 Mo. Rev. U. S. Bu. Lab. Sta., March 1918, pp. 81 ff. yibid., Aug. 1917, pp. 137-138. ' Ibid. m FOREIGN COUNTRIES 291 matters affecting the several industries and par- ticularly the establishment of closer cooperation between employers and employed." Questions re- lated to demobilization may be referred to these councils. These bodies may also be called upon to consider the problems of restoring trade union rules and customs suspended during the war. Said the report : "While this does not mean that all the les- sons learned during the war should be ignored, it does mean that the definite cooperation and ac- quiescence by both employers and employed must be a condition of any setting aside of these guar- anties or undertakings, and that, if new arrange- ments are to be reached, in themselves more satis- factory to all parties but not in strict accordance with the guaranties, they must be the joint work of employers and employed." ^ The Whitley plan looks forward to a thorough organization of the labor forces of the nation, taking into account shop, local, and national groups. Thus said the report: "The national industrial council should not be regarded as complete in itself ; what is needed is a triple organization — in the workshops, the districts, and nationally. Moreover, it is essen- tial that the organization at each of these three stages should proceed on a common principle, and that the greatest measure of common action be- tween them should be secured." ^ District councils, containing representatives of trade unions and em- 1 U. S. Dept. of Labor, Bui. No. 237, p. 231. » Ibid., p. 230. 292 PROBLEMS OF RECONSTRUCTION ployers, are to be created, or developed out of exist- ing machinery, for the purpose of negotiation in the various trades ; in addition, works committees, also containing representatives of management and workers, are to be created in particular establish- ments to work in close cooperation with district and national organizations. A long list of rather gen- eral functions is submitted as the sphere of activity of the national councils. This list contains such duties as the following : the better utilization of the practical knowledge and experience of the working people ; means for securing to the working people a greater share in the determination of the conditions under which they work; the settlement of general principles governing the conditions of employment; the establishment of regular methods of negotiation for issues arising between employers and workmen ; means of insuring to the working people the great- est possible security of earnings and employment. These councils are also to consider questions of technical education and training, industrial research, and methods of improving industrial organization and processes.^ The authors of the Whitley report urged that present circumstances offered a great opportunity for securing a permanent improvement in the re- lations between employers and employed, and that failure to make use of this opportunity might in- volve the nation in grave industrial difficulties after the war. "In the interest of the community," said 1 U. S. Dept. of Labor, Bui. No. 237, p. 230. IN FOREIGN COUNTRIES £93 the report, "it is vital that after the war the co- operation of all classes, established during the war, should continue, and more especially with regard to the relations between employers and employed. For securing improvement in the latter, it is essen- tial that any proposals put forward should offer to workpeople the means of attaining improved condi- tions of employment and a higher standard of com- fort generally, and involve the enlistment of their activity and continuous cooperation in the pro- motion of industry." ^ Considerable emphasis is laid on the fact that these industrial councils are to play a "definite and permanent part in the economic life of the country," and that "the Government feels that it can rely on both employers and workmen to cooperate in order to make that part a worthy one." ^ It is stated that the Government will need the "united and considered opinion" of each large industry in the solution of such problems as demobilization, the resettlement of munitions workers in civil indus- tries, the training and employment of disabled sol- diers, and in the settlement of apprenticeship prob- lems. The Minister of Labor has emphasized the fact that this program does not introduce a new element of state interference. The organizations are autonomous. The plan is to introduce into industry a larger degree of self-government with the hope of securing greater harmony and eflSciency. On a former page we referred to the German » U. S. Dept. of Labor, Bui. No. 237. p. 230. i Ibid. 294 PROBLEMS OF RECONSTRUCTION organization for the study of reconstruction prob- lems. We may discuss briefly some of the German plans. As in other European countries, a matter of first consideration is the demobilization of the mili- tary and war industrial forces. According to a prin- ciple established by the Government, demobilization must be effected in such a way as to prevent unem- ployment and to provide labor as rapidly as pos- sible for the most important industries. The au- thorities have laid down the rule that no man is to be discharged from the army who does not have a job in prospect. Those who cannot obtain posi- tions will be retained for a time in the army. As a rule, the older classes are to be discharged first, and the others in accordance with some established se- quence, depending on their industrial, or profes- sional importance. A suggested order of demobili- zation includes : (a) leading persons in the field of commerce, industry, navigation, and other economic branches ; (b) heads of commercial, industrial, and agricultural concerns, and officials of the same ; (c) independent manufacturers and agriculturalists ; (d) civil servants of the Statejs, provinces, and com- munes, clergymen, teachers, and employees of State and private railways ; (e) sailors and fishermen ; (/) skilled workers, — if they enter immediately into regular employment ; (g) unskilled workers in those callings in which there will be immediately a great demand for labor; (h) students and other persons who, at the outbreak of the war, were preparing themselves for a career; and, finally, (i) Germans IN FOREIGN COUNTRIES 295 from abroad. Demobilization of the navy will proceed in the same order. ^ The German trade unions have proposed their own plan of demobilization which should be ordered as follows : "The discharge of soldiers from military service is to be so regulated as to secure the im- mediate release of business men, technical experts, foremen, skilled workmen, and administrative of- ficials, who are urgently required for the restoration of normal economic activity and for the resumption of operation of indispensable establishments. In re- leasing soldiers, preference should be given to those trained for an occupation in which there is a partic- ularly strong demand. Discharge in general should be effected with as little delay as possible." Pro- vision is also made for the restoration of pre-war working conditions and for the orderly settlement of disputes between employers and workmen.^ Much of this program depends on the prompt reestablishment of manufactures and the restoration of foreign commerce, for the ability of industries to absorb workmen will be measured by the rapidity with which peace conditions are restored. But the problem of the restoration of industry is related to the supply of raw materials, and since many of these must come from foreign sources, the reconstruction program must include considerations of foreign trade ; thus the questions are raised of provision of cargo space, financial facilities, the rationing of a limited » Economic Journal, XXVII, No. 106, p. 284. » Mo. Rev. U. S. Bu. Lab. Sta., April 1918, pp. 83 ff. 296 PROBLEMS OF RECONSTRUCTION supply of foreign materials to the domestic fac- tories, and problems of general trade relations with foreign countries. Many of these problems have been worked out by the various sections of the Imperial Department of Economics. The foundation of much of the after-war organization is laid on the consolidation of some of the great industries under more or less central control.^ Organizations for collective pur- chase of raw materials in foreign markets, and for collective sale of German products, will play a large part in the reconstruction program. It is evident from this brief outline that, at least during the re- construction period, a considerable part of German industry will remain under government control. It is hardly necessary to point out by way of sum- mary that one of the outstanding facts connected with the post-war situation in European countries is that careful preparation is being made for the restoration of the future industrial establishment. Industry is not to be allowed to drift back to a peace footing. The prospective conditions are made the object of special study for the purpose of devising methods for the restoration of the peace order with as little shock as possible. The study is under government auspices, and undoubtedly the Euro- pean Governments will continue to exercise a certain measure of control until industry is firmly estab- lished on a peace basis. How much control will be needed, how much aid the State must give, how long 1 Com. Rept., June 29, 1918, pp. 1226-1227. IN FOREIGN COUNTRIES 297 the control will last, are in themselves questions which the reconstruction committees are supposed to settle. Undoubtedly, the conditions to be met in Euro- pean countries are much more serious than in the United States. There, the industrial disturbances have been much greater ; war control has been more penetrating, and the results have been more firmly fixed upon the countries. War debts are much greater in Europe than in the United States ; this fact will probably affect their reconstruction systems. Moreover, the dependence on the outside world both for raw materials and for markets for manu- factures is much greater than in the United States. But this country is more or less interested in all these problems. The European policies will have a profound effect on the foreign commercial develop- ment of this country. Their methods of conserving raw materials under their control, the energy with which they exploit the trade of distant countries, the freedom with which they permit foreign goods to enter their borders, their policy of disposing of their goods abroad, and their methods of discharg- ing their huge debts to the United States, are all questions in which our merchants and manufacturers are interested. In addition, this country has a large number of domestic problems to solve. Such questions as the following must be met promptly after the conclu- sion of peace : the dissolution of the war organi- zations ; the general question of the relation of the 298 PROBLEMS OF RECONSTRUCTION State to industry ; the particular issues involved in the future relation of our Government to the rail- roads, telegraph lines, and to shipping. Indeed, we should be studying these problems now. Finally, there are numerous questions of smaller importance which can best be solved by a study of the pro- spective industrial conditions. The old method of hurried investigation by congressional committees will hardly meet the present requirements. A more thorough and careful study is demanded than can be given by the old method. The old policy of in- vestigation resulted in fragmentary solutions. What is needed now is a comprehensive plan of reconstruc- tion based on a comprehensive national policy. Such a plan can come only from a body which is competent to make a thorough study, viewing in- dustrial conditions as a whole. This suggests one more task, namely, an outline of the reconstruction problems of the United States and an indication of the methods of attack. CHAPTER IX A RECONSTRUCTION PLAN FOR THE UNITED STATES From our discussion of the results of the war it is clear that we have many new problems to solve. ^ The most obvious are those connected with demobi- lization ; but there are many others which are apt to escape attention. These questions arise in both the foreign and domestic field ; they involve home and foreign policy. Again, some problems refer largely to particular industries ; some to the broader as- pects of the relation of industries to each other, and some arise out of the relations of government to in- dustry. At first thought these seem to be separate problems ; but they are not, nor should they be studied as such. Each bears some relation to the others, and usually the relation is very intimate. No one can deny, for example, that there is a close connection between the development of foreign trade and the growth of domestic industry, and as a result, between home and foreign industrial policy. Every important instrument which facil- itates the expansion of the overseas trade stimulates to some extent the growi:h of industry within the country. Improved methods of foreign commercial 1 Cf. Chap. VII. 299 SOO PROBLEMS OF RECONSTRUCTION organization, better systems of communication, the development of ocean shipping, improvement of the foreign trade intelHgence service, and the expansion of banking facilities, in the first instance, seem to be of importance chiefly for the development of the ex- ternal trade. But a moment's thought will show that all these facilities affect profoundly the pros- perity of home industries. The growth of foreign markets for raw and finished products increases the demand for the country's goods and gives a great stimulus to domestic industries. It has been charged that the farmers of the United States have shown little interest in the development of an ocean marine ; but if merchant shipping under American control en- larges the markets for wheat, flour, pork, lard, bacon, boots and shoes, cotton and cotton goods, it is clearly to the interest of farmers to see that the country is amply provided with an American owned merchant marine. While, on the one hand, the growth of the ex- port business stimulates home industries, an enlarge- ment of the import trade, on the other hand, works to the same end. Imported raw materials are re- quired for the founding and growth of many indus- tries ; finished products brought in from abroad afford business for all grades of merchants ; the ability of foreigners to sell in our markets increases their power of purchase. Thus, a wholesome ex- pansion of the facilities for foreign trade brings benefits promptly to domestic farmers, manufac- turers, transportation agencies, and merchants. In RECONSTRUCTION FOR UNITED STATES 301 framing an industrial policy for the country, there- fore, we cannot ignore the fact that, after all, these separate elements are but factors in the complete industrial life of the nation. If it were our purpose to develop this argument at length, we could pre- sent splendid illustrations from the development of poorer and more backward countries to show the enormous benefits they derive from their ability to market abroad their raw and partly finished com- modities, and to indicate that their ability to pur- chase from countries beyond their borders rests largely on this stimulus. The dependence of many of our own industries on foreign trade could also be shown. But our purpose is only to expound the fact that industries of every description, foreign and domestic, are interrelated, and that, as a corollary, in working out our reconstruction policy we must consider the whole field as a unit ; otherwise our solutions will be fragmentary and incomplete. Another important idea should be explained in this connection. We speak of extractive, manu- facturing, and commercial industries, of farming, manufacturing, transportation, and of banking, as if these groups were separate and distinct, and as if our national policy with regard to one were of no particular interest to the others. This, of course, is an error. These many groups only represent stages in the progress of commodities to the household consumers. On its way to the market any particu- lar raw material has to be financed, transported to some factory for primary production, financed again 302 PROBLEMS OF RECONSTRUCTION in its movement to another market, transported to some factory which completes the manufacture, financed again, and transported to wholesalers, re- tailers, and to ultimate consumers. Banks, rail- roads, telegraph companies, merchants, and factories intervene at every stage of the process. It follows from this that industrial changes which affect one group of industries affect the others. Improved methods of extracting products from soil, forests, mines, and waters affect the growth of commercial and manufacturing industries. And the converse is true. Of more significance, perhaps, is this other side of the process, namely, the development of the commercial industries. Improvements in trans- portation and banking, and the growth of the credit information service, have exerted a profound influence on the development of the extractive and manufacturing industries. All modern progress which is the product of division of labor in some of its forms, is a direct result of improvement in bank- ing and means of communication. From this point of view, also, we come again to the conclusion that, in working out our reconstruction program we must take the comprehensive view of the situation. All industries, and all activities, which have a bearing on the problem must be studied in their relation to the industrial development of the country as a whole. A comprehensive program is our goal, and nothing short of this will afford an adequate solution of our after- war problems. Lest there should be some mistake, it should be RECONSTRUCTION FOR UNITED STATES 303 added that the separation of our problems under the captions of labor, management, conservation, and social questions results only in a fragmentary solution. Labor and capital are indispensable ele- ments in production of every kind, whether farming, mining, manufacturing, or what not. The conser- vation problem is not only connected with physical resources, but with human elements as well. The so-called social problems are found in every nook and cranny of industrial life. All this is too patent to require elucidation ; yet we hesitate about ac- cepting the conclusion that there is no adequate solution for these problems which works with isolated groups. Thus, it should be emphasized that no fragmentary solution will satisfy our needs. What is demanded in our reconstruction program is machinery not only for the study of particular in- dustries, and of particular activities, but also of the relations of industries to industries, and social ac- tivities of important kinds to other important social activities. This is fundamental. Our goal is the development of the national industrial and social interest; to obtain this the industrial life of the country must be studied both as to its parts, and as to the relation of the parts to the whole. The reader may recall, from our discussion of reconstruction measures in foreign countries, that something like this method is being employed abroad.^ The functions of the subordinate bodies, that is of the subcommittees, are to study some 1 Cf. Chap. VIII. 304 PROBLEMS OF RECONSTRUCTION particular phase of the reconstruction problem. But the central organizations will probably gather in all the recommendations, give them thorough study, and on this basis suggest a plan which will cover the whole industrial and social field. We may check with this principle some of the proposed methods of meeting the after-war indus- trial situation. A number of methods of approach are suggested. One is to let the situation take care of itself. Unless the statutes are extended, many of the emergency laws will lose their force automatically shortly after the conclusion of peace. As far as control goes, the country would then be in sub- stantially the same position as in April 1917. Im- port and export regulations, the food administra- tion, the control of industries through the machinery of the War Industries Board, and labor control would come to an end. The country would be left to what- ever shifts it could make to get back to a peace basis. Industrial managers would proceed as of old ; they would forecast market conditions for raw and finished products, and make their calculations accordingly. Laborers in war industries, and sol- diers discharged from the service, would be left largely to their own resources to find occupations. The only plans for the future would be such plans as separate industries, or perhaps groups of indus- tries in cooperation, could work out for themselves. It can scarcely be said that the success of this pro- gram would depend on the wisdom and foresight of the managers, for many conditions would arise which RECONSTRUCTION FOR UNITED STATES 305 they could not control. Their difficulties would be increased by the unstable and uncertain conditions after the war. A brief survey of the probable post-war condi- tions will make this clear. Undoubtedly there will be a scramble for a number of the important raw materials and for many finished products. Iron and steel, tin, copper, rubber, lumber, wool, leather, paper, and possibly cotton and the cereals will be in great demand. Domestic producers will meet in our markets foreign competitors. Many of the latter will probably purchase, not as individuals, but combined in groups ; ^ possibly the supplies for some of the European countries will be obtained through a single purchasing agency.^ Free and open markets, as Mr. Hoover has pointed out, may not exist again for some time. Group buying by for- eigners would put our producers at a serious dis- advantage. Orders on such a large scale will have a most potent effect on disturbing the markets, and under such conditions rumors and reports will have a greater influence on prices than ever before. These fluctuations in the prices of raw materials would impede the prompt and orderly reestablish- ment of industries. The uncertain conditions, more- over, will be reflected in the markets for finished products. Prices possibly would be high, because manufacturers will be compelled to cover their pro- spective risks by unusual additions to their costs. This drift method of solution would preclude col- » Cf. pp. 240 ff. ' Cf. pp. 242 ff. X 306 PROBLEMS OF RECONSTRUCTION lective action on the part of our own producers. It would proceed without a study of the relation of in- dustries to each other, and without a knowledge of the industrial situation as a whole. Railroad, tele- graph, and shipping problems would receive isolated treatment. Thus, the defects of this method are that it is planless, it proceeds without a compre- hensive survey, it leaves the industries of the coun- try to be afflicted with all the evils arising out of uncertain post-war conditions, and it leads to piece- meal solution of our problems. Under this policy, industrial society would be groping in the dark. A second method of approaching our post-war problems is to continue the emergency control. It might be urged that the present organization could be left intact with each division working in the same field as at present. It might be said that since this machinery has been used to wind up war control it could be profitably employed to do the unwinding. Undoubtedly something can be said in favor of this policy. A great organization is in existence, a trained staff is already at work, and each of the war divisions has a thorough knowledge of its own particular field. But, on the other hand, there is much to be said against the continuation of the present war organization for reconstruction pur- poses. If it is to be utilized, some new elements must be added and some of the present elements dropped. Unless it is our intention to continue import and export control there would be little use for the War Trade Board. Much of the or- RECONSTRUCTION FOR UNITED STATES 307 ganization of the War Industries Board could not be utilized in the post-war period when large scale government buying comes to an end. On the other hand, the present war organization contains no machinery for handling demobilization problems, and it contains no facilities for making the compre- hensive survey of post-war conditions. This is a prerequisite for any adequate reconstruction pro- gram. In short, if the present organization is con- tinued, it will be necessary to give it an extensive overhauling. Even then, this reconstructed war organization could not perform the task of providing for the post-war readjustments as well as some new body created especially for that purpose. In the case of a new reconstruction organization, attention could be concentrated entirely on post-war problems, and personnel could be selected particularly for the work. A third method, therefore, would be to put this work in the hands of some central committee or commission. It has been suggested that such a body should be constituted of members of the Senate and House of Representatives. Thus, according to the resolution of Senator Owen, introduced on Sep- tember 28, the committee on reorganization should be composed of six senators and six representatives, "fairly representative of the Democratic and Re- publican Parties, to be nominated by the party organizations of the two Houses and approved by the respective Houses." Service on the committee is to terminate if the member ceases to be a member of Congress. Vacancies are to be jSlled in the same 308 PROBLEMS OF RECONSTRUCTION manner as the original selections were made.^ This committee is to be authorized to employ such clerical assistance as it may deem necessary, "including the services of experts, and may, as subcommittee or otherwise, send for persons or papers, administer oaths . . . and report such hearings as may be had in connection with any subject before it." ^ The resolution contains an outline of the work the com- mittee is to perform. It is to "make an immediate investigation and report to Congress not later than January 1, 1919, and from time to time subsequently, with suitable recommendations upon the reorgan- ization required for a return to the occupations of peace of men and women, capital investments and supplies now employed in war." The committee is to propose ways and means by which soldiers and persons engaged in war industries may be reem- ployed ; it is to recommend methods by which "capital, credit and labor of the American people after the war may be actively employed in produc- tion and distribution of goods at home and abroad, the supply and distribution of raw materials and food products arranged to this end ; to report upon the construction of national hard-surfaced roads throughout the United States ; building of internal and coastal canals, reclaiming and cultivating of swamp lands and arid lands, utilizing water powers, and the permanent maintenance of the American merchant marine, and in general to report upon » Cong. Record, Sept. 28, 1918, p. 11799 (S. Con. Res. 22). « Ibid. RECONSTRUCTION FOR UNITED STATES 309 those problems arising from the change from the activities of war to those of peace." ^ In short, this body is to hold hearings, collect data, receive advice from various industrial inter- ests, and, on the basis of its findings, make recom- mendations for legislation. This plan reminds us of the traditional method of preparing for legislation in the United States. The objection to it is not that it is traditional, but that it fails to meet the requirements of the case. The situation is new. We have never before faced problems of the present magnitude. The prospective conditions demand careful scrutiny by persons who are specially pre- pared for the work. The problems are too numerous and too intricate for solution in the customary way by congressional committees. As we have urged above, no program will meet post-war emergencies which is not based on a comprehensive view and on a thorough study of the whole industrial field. It is not unjust to a committee, such as the one pro- posed in Senator Owen's resolution, to say that it could not deal in a satisfactory manner with prob- lems of the present magnitude. In the brief period allotted for the work, — it is to make a preliminary report, and presumably its most important report, not later than January 1, 1919, — this committee could not possibly study even the most important elements of the problem, nor could it obtain a com- prehensive view of the situation. At best, its in- vestigations would be hurried and superficial, and ^Cong. Record, Sept. 28, 1918, p. 11799 (S. Con. Res. 22). SIO PROBLEMS OF RECONSTRUCTION its program would probably favor piecemeal solu- tions. The plan is faulty in another respect. During the war we have adopted the policy of closer co- operation between government and industry.^ The men who are directing the industrial program of the war are, as a rule, leaders of industry who have been called upon to lend their services to the Government for the period of the war. The task of reorganizing for peace is of no less importance than that of or- ganizing for war, and practical business talent is as urgently demanded for this task as for the one now confronting us. It would be a step backward for Congress to revert to the old method of creating an organization composed exclusively of its own mem- bers for such work. The war policy has not only secured the cooperation of business men, but has given the Government the benefit of the collective knowledge of persons who are most fitted to advise on industrial matters. The best results in meeting after-war problems can be obtained by continuing and developing this policy of cooperation. Thus, the leaders in industry should be given an opportu- nity to share the burdens of framing our recon- struction program. The "Joint Congressional Committee on Recon- struction" proposed by Senator Weeks is open to the same objection as the organization presented in the Owen resolution. According to Senator Weeks* plan, the committee is to be composed of six sen- 1 Cf. p. 150. RECONSTRUCTION FOR UNITED STATES 311 ators and six representatives selected as follows : "Three Senators by the Democratic Senatorial caucus, three Senators by the Republican Senatorial conference, three Representatives in Congress by the Democratic House caucus, and three Represent- atives in Congress by the Republican House con- ference." ^ In addition to other objections, there is no reason why this body should be so carefully balanced between Republicans and Democrats. Re- construction matters are principally economic af- fairs ; the requisite for membership in the recon- struction organization is peculiar fitness for this particular undertaking. It cannot be too strongly emphasized that the post-war readjustments are among the greatest problems that have ever been presented for solution ; for this work the prime con- sideration is the selection of properly qualified men. The Weeks resolution outlines at great length the work the proposed committee is to perform. The main captions are the following : (a) Problems af- fecting labor ; (6) problems affecting capital and credit ; (c) problems affecting public utilities ; (d) problems resulting from the demobilization of our industrial and military forces ; (e) problems affect- ing the continuance of existing industries and the establishment of new industries ; (/) problems re- lating to agriculture ; (g) problems affecting the adequate production and effective distribution of coal, gasoline, and other fuels ; (h) problems related to shipping, including shipyards, and especially 1 Cong. Record, Sept. 27, 1918, pp. 11760-11763 (S. Con. Res. 21). 312 PROBLEMS OF RECONSTRUCTION" with regard to the sale, continuance of ownership, or leasing of both yards and ships ; (i) housing con- ditions and the disposition of houses constructed by the Government during the war ; (J) war legislation now on the statute books, with reference to its re- peal, extension, or amendment ; (k) all matters arising during the change from the activities of war to the pursuits of peace. ^ The mere outline of the work for the proposed committee indicates that the subject matter refers chiefly to industry. By implication, the survey of conditions, and the recommendations for legislation, should be in the hands of persons who have the time and talent for the work. The third reconstruction plan thus far introduced into Congress comes nearer satisfying the needs of the case than the proposals of Senators Owen and Weeks. On October 3, Senator Overman intro- duced a bill providing for the creation of a Federal Commission on Reconstruction. ^ According to this measure, the commission is to be composed of five members to be appointed by the President by and with the advice and consent of the Senate. The proposed duties of the commission are "to examine into the problems and conditions that are arising out of the war and that may arise out of the transi- tion of the economic, industrial, and social life of the Nation from the state of war to the state of peace ; and with a view of meeting, as soon as possible, such 1 Cong. Record, Sept. 27, 1918, pp. 11760-11763 (S. Con. Res. 21). *Ibid.. Oct. 3, 1918, pp. 11974-11975 (S. 4968). RECONSTRUCTION FOR UNITED STATES 313 problems and conditions before their solution is actually forced on the Government, the commis- sion shall report to Congress, from time to time the results of such investigations with recommendations for new and additional legislation." ^ The com- mission is to employ economists, investigators, special experts, and others to assist with the work. The success of such a commission would depend largely upon its composition. Unfortunately, ac- cording to the terms of the bill, the proposed body is to have political complexion, for it is required that "not more than three of the commissioners shall be members of the same political party." ^ It is not necessary to repeat our former argument on this score. The proposal, however, errs in another re- spect. As in the case of the Owen and the Weeks resolutions, this commission is to be a government body. It will not make use of the cooperation be- tween government and business which has char- acterized much of our war activity. An organiza- tion, constituted in a different way, which would give the leaders in all important industrial spheres a voice in planning for reconstruction would accom- plish the best results. We might suggest, therefore, the kind of or- ganization which would hold out the greatest promise of success. Two distinct tasks must be met by any reconstruction organization. The first is to make the survey of particular fields of industrial activity for the purpose of making recommendations ; and 1 Cong. Record, Oct. 3. 1918. pp. 11974-11975 (S. 4968). 'IMd. S14 PROBLEMS OF RECONSTRUCTION the second is to assemble and study these recom- mendations for the purpose of presenting a compre- hensive program. The latter task is necessary for the construction of a consistent and complete pro- gram. The work must be correlated, differences must be reconciled, and a plan proposed which will promote economic progress. The task of making the survey, and of framing the recommendations covering particular economic activities, is too great for any one body to perform. It may very profit- ably be left in the hands of subcommittees, both because they can make a more intensive study, and because the men who are to serve on these com- mittees may be selected on account of their knowl- edge of the field. But the assembling and digesting of the proposals of the subcommittees is the work of a body which is competent to survey the whole field. Thus the reconstruction organization should be com- posed of a central committee, or commission, and of subcommittees. The function of the main com- mittee should be to outline the work, to direct the investigations, to give counsel and advice, to study the findings and recommendations of these com- mittees, and to submit the complete reconstruction program. The subcommittees will have a number of interests in common. Many of them will be in- terested in methods of supplying raw materials, in financial facilities, in foreign trade policy, in ques- tions of transportation, in labor policy, and possibly in problems of education and scientific research.* » Cf. British Trade After the War (London, 1916, Cd. 8275), passim. RECONSTRUCTION FOR UNITED STATES 315 One of the important functions of the central com- mittee should be to secure uniformity in the reports ; close supervision will be required if this consistency is to be obtained. Since there are many fields of industrial activity, the number of subordinate organizations will be large. It may be remembered that, in the case of the English plan, there are upwards of eighty such com- mittees.^ An adequate method of meeting this part of the program would be to constitute these committees according to the plan of the various organizations connected with the Council of Na- tional Defense, or of the subsequent war service committees.^ With the work divided in this man- ner, it could be performed thoroughly and quickly, and by men who are properly qualified. A partial list of the subcommittees would include the fol- lowing : coal, fuel oil, iron and steel, copper, lead, zinc, shipping, railroads, inland water transporta- tion, banking, foreign trade, cotton goods, woolens, rubber, building trades, labor, conservation of nat- ural resources, educational and industrial research. It would probably be found advisable to subdivide the work of the committees working in the partic- ular fields. The central committee should be composed of members of Congress and of representative business » Cf. supra, p. 276. ' Cf. First Annual Report of the Council of National Defense, pp. 97 ff. ; Nation's Business, February 1918, pp. 50-53; cf., also, p. 150 of this volume. 316 PROBLEMS OF RECONSTRUCTION men. The congressional members will serve as the connecting link between the Government and busi- ness. Since the reconstruction measures are to be presented to Congress, it would be one of the duties of the government members to submit the pro- posals, together with reasons and findings. The central committee might be composed of fifteen per- sons of whom two are Senators and two Representa- tives in Congress. The other eleven members should be men engaged in leading industrial ac- tivities; the list should include persons with broad knowledge and experience in banking, commerce, transportation, manufacture, labor, and education. At first thought, this seems to be a compromise between the congressional committee and the gov- ernment commission method of studying industrial problems. It may be regarded as such ; but it em- bodies the advantages of both methods and avoids the disadvantages. The plan is recommended by the fact that it would secure cooperation with the business men of the country; moreover, the in- formation would be gathered at the source in an orderly way by men who are in contact with in- dustry; the recommendations would embody the advice of men who are experienced in industrial af- fairs. On the other hand, the final study of the reconstruction program would be in the hands of a committee which was better prepared for such a task than a committee constituted in any other way. The first task of the central reconstruction organ- RECONSTRUCTION FOR UNITED STATES 317 ization will be to survey the field for the purpose of mapping out the work of investigation and report. Many questions requiring study will be found to overlap. The work assigned to one committee will involve that given to another. This is a conse- quence of the interdependence in economic life. It will thus be impossible to organize the fields of study so that each investigating body can go its own way without reference to the work of other bodies. To give several examples : The com- mittees assigned to the study of foreign trade will find shortly that their work will carry them into the field of domestic industry. When they submit their reports, it will be necessary to deal not only with questions of foreign commerce, but also with many features of domestic industry. Again, when various committees take up the study of demobi- lization they will discover at once that this is not wholly a government problem, but that the policy followed in discharging men from the service, and in the disposal of war materials, will have a notable effect on home industries. That the reconstruction problems overlap is not a serious diflSculty. By conference among the committees the contiguous problems may be studied and recommendations can be made consistent. Each committee, therefore, may concentrate on some definite field and confer with other committees where the problems are in- terlocking. Indeed, this is the only way to prepare a report which is to contain a comprehensive plan for industrial reorganization. 818 PROBLEMS OF RECONSTRUCTION The reconstruction problems may be brought to- gether in a few groups. The first problems requir- ing solution are related to demobilization. These groups will present two phases : the first involves questions in which the Government is primarily in- terested, including (a) the restoration of men in the service to normal industrial activities ; (6) the dis- posal of materials and stores, and (c) the reorgani- zation of the federal executive departments which have been distorted by the war work. The other aspect of demobilization is primarily a problem for industrial managers. It includes such questions as (a) financial facilities with which to effect the post- war reorganization ; (b) the provision of raw mate- rials necessary for the prompt reestablishment of industry ; (c) provisions for supplying labor to peace industries, and machinery for the adjustment of labor disputes ; (d) methods for the promotion and development of domestic industries, and (e) ques- tions of industrial research and of educational train- ing for business. That these questions require thorough study be- fore the inauguration of the reconstruction pro- gram hardly needs argument. Such a large part of our laboring population is either in the national service, or in the war industries, that grave dis- order would result from the adoption of the old method of drift in settling after-war employment problems. If for no other reason, the fact that several million men have been drafted into service makes it incumbent upon the Government to pro- RECONSTRUCTION FOR UNITED STATES 319 vide for their welfare during the period of read- justment. But industrial and social conditions are also involved; these conditions demand some machinery for the orderly restoration of men to peaceful occupations. It is undoubtedly true that many of the vacated places will be waiting for the men after the war, — provided business is not seri- ously disturbed during the process of reconstruction. It is true, also, that many of the men called into service under the recent law will return to schools and universities. But this will be the lot of only a small percentage of the total. The great majority of the men, both in the army and in war industries, will require the assistance of some employment or- ganization to enable them to obtain work. It may happen that the revival of the peace industries will be so rapid that they can absorb returning soldiers and workers in war industries ; but the problem will still exist of bringing men and jobs together. It will be the peculiar task of some committee to decide upon the wisdom of making large appropri- ations to establish soldiers, and perhaps workers in war industries, upon the soil. This proposition re- quires careful study. It contains the possibility of wasting millions of dollars in fruitless effort. The plan must be studied in connection with numerous problems of farm management such as the economic size of the farm, methods of marketing, accounting, purchase of supplies, the kinds of crops to raise, questions of financing the new farmer. An impor- tant element in this problem is the matter of mak- S20 PROBLEMS OF RECONSTRUCTION ing social life on the farm attractive. If the pro- spective soldier-farmer has not been brought up in the country, or if he has not received some educa- tion in an agricultural school, he has before him a long period of discouraging apprenticeship, with the possibility of an unfortunate disillusionment, — granted all the while, that the prospects of farming satisfy his present ambitions. It is a safe guess, however, that after the enlivening experiences of the war the thoughts of the discharged soldier will not turn toward the farm, but in the direction of activity of some kind in the industrial centers. For many enterprising men, the prospects in industrial and commercial life will be the more inviting. Pos- sibly some plan of business education under govern- ment auspices whereby men may receive instruction while engaged in an occupation would be the wiser solution of this problem. Questions relating to the disposal of government materials and stores require careful investigation. At the end of the war the United States will be the owner of iron, steel, and copper in various manu- factured forms, of wagons, trucks, rolling stock, railway materials, warehouses, and of supplies requi- sitioned for war purposes. It will also have a financial interest in port facilities and shipping both in this country and in France. These properties represent the investment of many millions of dol- lars. The question of saving or losing huge sums is involved in the method employed in disposing of this property. It must be inventoried, catalogued, RECONSTRUCTION FOR UNITED STATES 321 stored, and some policy must be developed for its disposition. This is the task of another committee. We referred above to problems which will con- front industrial managers at the close of the war. One of these is the matter of "financial facilities." It is by no means clear that the industries of this country will require some special kind of support in making the transformation from war to peace pro- duction. If assistance is needed, there is still the unsettled question of the form this assistance should take. This, of course, is not a matter of short time loans, — of discount of commercial paper, — for in this field our facilities are already adequate. But it is a question of finding credit for capital pur- poses, that is, for the erection of plants, and for the purchase of machines and tools. It is probably true that the demands upon financing of this kind will be enormous. In addition to the needs of in- dustry, funds will be required for building oper- ations on an unusual scale, because of the postpone- ment of such enterprises, and for public utilities which have done their share of conserving during the war period. With reference to industries, some companies have already made ample provision for the prospective requirements ; others are strong enough to finance themselves ; but it is possible that some enterprises will require assistance. Whether this should be obtained through the or- dinary channels, or through some government agency is a matter which requires serious study. It would be unfortunate for aid to be offered in any 322 PROBLEMS OF RECONSTRUCTION form in which the Government became in effect a sponsor, or a partner, in the enterprise. The question of "financial facilities" is closely re- lated to another post-war problem, namely, the supply of raw and finished products. When it is remembered that building operations have been largely suspended, that many of the so-called peace industries are working only on part capacity, that the conservation plans of the Government have re- duced the supplies of many finished products, and that stocks of many raw materials have been largely exhausted, it can be understood that one of the first tasks confronting the country is to supply these various deficiencies. Until this is done, industries will not be ready to resume normal activities. The demand for some commodities will be very great. Possibly the supplies of materials will not be sufficient to meet the immediate needs of all producers. In that event, it may be deemed desirable to continue for a time the present war priority arrangements so that the most important industries may be served first. In some European countries, where it is con- sidered highly important to restore foreign trade at once, serious attention is being given to the policy of granting preferences to those industries which provide commodities for export. Priority arrange- ments are also in prospect for the limited amount of shipping space. In short, industries are to be ra- tioned in their receipt of raw materials from abroad, in their use of domestic supplies, and in their use of available tonnage. With the United States these RECONSTRUCTION FOR UNITED STATES 323 are not serious problems. But in view of the pos- sible demand for raw materials it may be deemed necessary to give a preference to industries which supply the most important commodities. Whether such a policy is necessary can only be determined by a survey of plant conditions and of the present supplies of raw and finished products. This task will fall to committees representing groups of industries. The recommendations for a reconstruction policy covering these features should originate with such committees. Another serious problem confronts industrial managers. Not only will they have to investigate conditions affecting the future supply of labor, — a matter which will bring them to some extent in contact with the demobilization policy of the Gov- ernment, — but they must study the future rela- tions between employers and workmen. An English writer has stated the problem as applied to his country as follows : *'The task for the young and energetic employer of the future . . . will be the reconstruction to a certain extent of the relations between employers and employed. That they will be different in form from the conditions existing before the war I very much doubt, but in spirit they will have to be very different." Elsewhere he said: "Labour will come back from the war im- bued with greater energy, with a keener desire for justice and with a certain spiritual element in its character which will be the most formidable part of the problem that will have to be faced. This 324 PROBLEMS OF RECONSTRUCTION spiritual element, the desire to create a world based on more exact notions of justice, will lend a violent character to the movement which it inspires. There will be many experiments in a socialistic direction, which cannot, in the nature of things, be carried successfully beyond a very little way. Their failure will not alleviate labour unrest, and any conviction on the part of Labour members and workmen that these socialistic efforts have failed because they have not been given a fair chance will open the door to revolution. To prevent this is, I think, the great task before the employer of the future." ^ The outlook for the United States is not as se- rious as for England, as pictured by this author, yet the problem is one which requires study. The old relations between employers and men have been materially changed by the war regulations. New principles of adjustment of disputes have been given wide acceptance. Even if employers wished to re- establish the old order, it could not be done without a clash. Moreover, even now, in many industries, industrial relations have not been worked out in a way that gives satisfaction either to employers or to men. Soldiering, labor turnover, lack of esprit de corps, and unrest are among the greatest causes of inefficiency in business. The most important of all the management problems is to create a new at- titude towards work which will encourage laborers to give their eager support to their managers. But this end cannot be reached until some solution is ^ Dibblee, op. cit., pp. 94, 99. RECONSTRUCTION FOR UNITED STATES 325 found to the four evils named above. In the after- war period, when all the resources of the country should be devoted to the prompt and orderly rees- tablishment of business, it would be a serious handi- cap if disagreements were to arise. This, of course, is partly a question of wages and profits, — i.e., a distribution problem, — but it is also partly a mat- ter of the attitude of management towards labor, and the reverse. If managers must educate workmen to their point of view, laborers also must educate man- agers to their way of seeing industrial relations. Much more than mutual understanding is required, for such understanding must be based on a knowledge both by employers and by workmen of industrial conditions and of the action of economic forces. The task of learning such conditions, and the oper- ation of such forces, is a field of study for several other reconstruction committees. One part of their work will be to find some satisfactory method for bringing employers and laborers together for dis- cussion. Whether we, in the United States, should adopt the principles of the Whitley report,^ or whether we should find some other method of ad- justing grievances, is a matter for these reconstruc- tion committees to decide. It might be added in this connection that the tendency has been growing during the war to adjust the wages question on the supposition that the workman's compensation is principally a matter of distribution, — i.e., a matter of wages and profits. The relation between wages * Cf. supra, p. 292. S26 PROBLEMS OF RECONSTRUCTION and the productivity of the workmen has been largely overlooked. The great increase in costs, and the resulting advances in prices, are partly due to this fallacious method of solving wages problems. It is not our contention that the present system of distribution satisfies the canons of justice, but that measures for increasing wages and for increasing the yield of labor and capital must be worked out largely as parts of one problem. In short, in our eagerness to solve the problems of distribution we should not overlook those of production. A second great group of reconstruction questions has reference to the relations of government to in- dustry. Some of the leading elements in this group are the following : (a) Methods of relaxing war-time control; (6) formulation of a government policy with reference to railroads, telegraphs, and ocean shipping; (c) measures for the protection and pro- motion of foreign trade ; {d) methods of dealing with enemy property, and the future policy with refer- ence to foreign investments in the United States ; (e) the relation of the Government to domestic in- dustry which involves the future attitude of the Government towards big business; (/) the formu- lation of a general government policy covering such issues as conservation and development of our natural resources, reclamation of swamp and arid lands, improvement of rivers, building of highways, the construction of canals, irrigation, reforestation, the development of water-power projects, educa- tional problems, and the question of State aid and RECONSTRUCTION FOR UNITED STATES 327 leadership in scientific and industrial research. We may discuss some of these problems briefly. From our study of the development of war con- trol the reader is now familiar with the war organ- ization of the United States and its effects upon in- dustry. If the war statutes are not continued, much of this control will end automatically shortly after the conclusion of peace. But the question is raised whether it will be safe to release this pressure at once, in view of the prospective uncertain condi- tions. What would be the effect on the supply of foodstuffs, and upon food prices, of a sudden cessa- tion of regulations ? Without the assistance of some institution like the War Industries Board, how would industries fare, which are seeking to get back to a peace basis? In view of the proposals abroad to inaugurate systems collective of buying and selling, would it be safe to leave American industries un- protected, or is a body, similar to the War Trade Board, needed to defend our trade? If European countries continue to regulate their commerce by war-time methods, would not our traders and man- ufacturers suffer in the absence of some machinery for regulation ? These questions must be answered by some reconstruction committee. With regard to railroads, it was constantly urged that the system of regulation existing before the war was bringing many roads to grief; now, many persons insist that the railroads must be returned to their owners. But if they are returned, some form of government regulation will be required. What 328 PROBLEMS OF RECONSTRUCTION kind of regulation will best suit the exigencies of the case? Many knotty problems are presented in the study of the future shipping situation. What disposition is to be made of the great ocean marine now build- ing under the auspices of the Shipping Board ? Should these vessels be owned and operated by the United States? If so, what effect will this policy have on the relations of our Government to other Governments, and to foreign private owned shipping companies ? How would such ownership affect the development of American commerce ? If these ves- sels are sold to private companies will it be possible to operate them at a profit under the present ship- ping laws of the United States ? Suppose they can- not be operated at a profit, should we permit them to pass to foreign ownership, or should the Govern- ment come to the aid of the shipping companies by granting subsidies or assistance of some kind ? The future of our merchant marine is involved in the answer to these questions. We should know the comparative costs of shipbuilding in the United States and in foreign countries and the causes for the differences ; we should know also the relative advantages and disadvantages of operating vessels under the American flag, together with the reasons involved. These questions can only be answered by a close and unbiased study of the facts, and recom- mendations are worth very little unless based on such a study. The development of post-war commerce presents RECONSTRUCTION FOR UNITED STATES 329 other serious problems. European countries are contemplating great changes in their foreign trade policy. We must study their measures, estimate the effects on our industries, and be prepared with a plan of our own. A feature in the prospective foreign trade relations which is largely escaping at- tention is the shift in the United States from a debtor to a creditor position. Many of the ele- ments in the new situation will tend to promote the import rather than the export trade. They will bring foreign producers more and more into com- petition with home producers in our home markets. We are now receiving large interest payments on our foreign loans; the loans themselves will be paid back sometime in the future ; we will presently have a merchant marine to carry our own and for- eign trade with the result that in place of making payments abroad to cover freight bills we will be receiving large payments. That we are now in a position to finance much of our foreign commerce will somewhat diminish our obligations to foreign countries. How will these various obligations to the United States be discharged? What form will the payments take, and what will be the effect on for- eign and domestic industry.'* Payment in gold is out of the question. No doubt foreign countries would be glad to discharge their debts by export- ing commodities. This would provide a great out- let for their manufactures, but it might have a se- rious effect on our own industries which had to meet the foreign competition. We might adopt the 330 PROBLEMS OF RECONSTRUCTION policy of encouraging the investment of our bal- ances in other countries, but this would hardly be a satisfactory solution in view of the fact that we will need all our credit resources for the restoration of our own industries. A number of other solutions could be found, but in every case, they militate against the interest either of the United States or foreign countries. The latter would object to any form of debt settlement which impeded the rees- tablishment of their commerce. We have raised these questions to illustrate the fact that it is not to our advantage to allow our obligations to drift into a settlement, for that method would work to our disadvantage. As with all other problems, our future policy should be based on a careful study of conditions. A third great group of reconstruction problems re- fers to government finance. Ultimately, the huge war debt of the United States will be paid largely with the proceeds of taxation, but we can reduce somewhat the burdens of future taxes by economy. Hence our investigations should have two purposes : (a) to find the ways and means of effecting econ- omies, and (6) to devise a system of raising revenue which suits our industrial and financial conditions. This latter investigation will lead to the study of various forms of taxation, involving, of course, their effectiveness as methods of producing revenue, and their influence on industry. The investigation will also lead to a study of our future tariff policy ; pos- sibly it will comprehend the question of administer- RECONSTRUCTION FOR UNITED STATES 331 ing our natural resources so that they may be made a source of considerable revenue. No doubt many persons already have fixed opin- ions as to how these questions, and many others we might have presented in our outline, should be answered. We must beware of ready-made solu- tions. The answers are not at hand because we do not know the facts and conditions which would nat- urally affect our conclusions. If the solutions were known, reconstruction committees would not be necessary. The function of these committees is to study facts and learn industrial conditions which are to serve as a basis for the reconstruction program. Economic reconstruction is one of the greatest prob- lems we have ever been called on to solve. It is a PROBLEM which should be worked out like those with which engineers and school men are familiar, — not by the expression of opinions, but by toilsome and unbiased study, by assembling and comparing data, and by drawing conclusions from investigations. This is the only method by which worthy results may be obtained. A program, which is the product of this method, may be accepted with confidence. No one would have any faith in it if it were presented after only hasty and superficial in- quiry. It is understood, of course, that the ulti- mate aim is not the promotion of this or of that favored interest, but the ultimate economic welfare of all interests, — the promotion of industrial prog- ress with all that implies. The task is a great one, but its very magnitude should provide the incentive for thorough and scientific work. INDEX Agricultural appropriations, 35. Agriculture, Department of, purchases ni- trates, 241. Department of, war work, 35. Agricultural implements, regula- tion of, 41. Allies' Economic Pact, 253 ff. American Federation of Labor, Biiffalo meeting, 110. American Iron and Steel Insti- tute, 150. Arbitration, England. 204. France, 208. Shipbuilding industry, 118 £f. Australia, Foreign trade control, 182. Auxiliary Service Act (Germany), 206. Baker, Newton D.; Repudiates coal agreement, 81. Bakery products. Regulation of, 44. Bank consolidations, Great Britain, 232. Belgium, Foreign trade control, 242. Board of Conciliation, Coal industry, 86. Boots and shoes. Control of, Italy, 189. British dominions. Foreign trade control, 182. British Labor Party, Program of, 215. British War Trade Department, 140. CanadaJ Foreign trade control, 182. Capital issues. Controlled, 156 flf. Control of, England, 11. English plan, 159. Hamlin, Chas. S., Policy of, 163. Capital Issues Committee, Work of, 25. Carleton, Newcomb, Statement of the Western Union case, 129. Chamber of Commerce of the U. S., Work of, 230. Clay products, 99. Coal, Agreement repudiated by Baker^ 81. Board of Conciliation, 86. Competitive bidding for labor, 92. Conservation measures, 76, 92, 96. Difficulties of administration, 74. Household consumers regiilated, 101. Labor control, 91. Labor questions, 88. Penalty clause in, 90. Prices fixed, 82. Priority arrangements', 100 ff. Profit margins fixed, 86. Regulation of, 72. Trade practices regulated, 87. Traders defined, 83. Wages in coal industry, 85. Zone system, 94. Cf . Fuel control. Coal producers. Plan of control, 80 ff. 333 S34 INDEX Coal Shippers' Tenninal Pool; 92. Coffee, 66. Cold storage, Regulation of, 47. Commercial policy, Reconstruction of, 328 ff. Conservation measures, 68, 176. Copper, Price policy, 174. Cotton industry. Control of, Italy, 188. Control of, Spain, 185. Council of National Defense," Appoints Hoover chairman of committee on food supply, 36. Appoints Labor Adjustment Commission, 114. Cooperation with States, 26. Created, 23. Labor Committees of, 113. Labor program of, 112. On need of cooperation, 231. Regulation of coal industry, 80. Work of, 23. Cf . State Coimcils of Defense. Deeds, E. A.; Inquiry on capital issues, 157. Defense of the Realm Act, 203. Demobilization, England, 281. Denmark, Trade controlled, 139. Dutch Export Company, Formed, 156. Economic penetration, 264 ff. Emergency Fleet Corporation, 173. Employment service, 133 ff. Engineering trades. Reconstruction policy, 284. England, cf . Great Britain. Espionage Act, Approved, 141. Provisions, 141, 142. Exchange, cf . Foreign exchange. Exports Administrative Board, Work of, 144. Export control. President Wilson's idea, 7. Exports Council^ Work of, 145. Fair price,' Wheat, 50. Fair price lists, 49. Federal Reserve Board, Regulation of capital issues, 158. Relation to War Finance Corpo- ration, 161. Federal Trade Commission, Aids in food control, 43. Cost investigations, 174. Investigates bakery products, 45. Investigates coal prices, 73, 82. On the railroad situation, 169. On regulation of coal prices, 80. Report on coal industry, 75. Report of meat packing indus- try, 64 ff. Federated Malay States, 183. Federation of British Industries, 237. Feed, Regulation of, 40, 48. Fertilizers, 41. Finance, Relation to reconstruction, 12, 330. Flour, 48. Food Act, Provisions of, 23 ff. Provisions for volunteer service, 34. Significance of, 34. Termination of, 5. Food conservation. Early measures, 37. Food control, Bakery products, 44. Bill introduced, 30. Bill passed, 30. Bills in Congress, 29. Cold storage, 47. Conservation, 37, 68. Early ideas about, 27. Features of, 38. Future of, 5. Germany, 195 ff. Grain corporation, 52. Great Britain, 192 ff. INDEX S35 Food control, continued, Hoover's plan, 27. Hoover's reasons for, 10, Information service, 42, Italy, 185, 190. President Wilson's plan, 6, 28, Price-fixing policy, 45. Regulation of eating places, 40. Regulation of retailers, 39. Regulation of trade practices, 44, 45, 46. Spain, 184. Suggested list of articles, 31, Uruguay, 183. Voluntary measures, 38, 67, Wheat, 49. Work of the Federal Trade Commission, 43. Cf. Hoover, Licensing system, Wilson. Food pledge week, 70. Foreign exchange, Control of, 152, 188, Foreign trade control, British dominions, 182. British plan to continue, 217, British policy, 208 ff. Certain commodities, 180 ff. Effect on neutrals, 143. Espionage Act, 141. Exports, 142. Foreign coiintries, Ch. 6. France, 211. German plans, 239. Germany, 211. Holland, 154. Imports, 142. Italy, 187. Licensing system, 153. Methods of, 139, 144 ff. Netherlands Overseas Trust, 140. Neutrals, 180. Reasons for, 179. South American countries, 156. Switzerland, 154. Trading with the Enemy Act, 142. Cf. War Service Committees, War Trade Board, and names of the countries. Foreign trade policy, British empire, after war, 262 ff. Effect of war on. 241, 243, 251 ff, English, after war, 234, 235, 288. Foreign trade relations. Interdependence of, 299 ff. France, Foreign trade control, 211. Labor policy, 207, Frankfurter, Felix. Statement of policy, 129, Fuel administration, Ch. 3. Fuel control, Inaugurated, 79. Organization, 77, Problems of, 99. Provisions of Lever Act, 72, Cf. Coal, Garfield, Garfield, Harry A, Appointed Fuel Administrator, 79. Fixes profit margins, 84, 86, Fuel policy, 77 ff., 79, 84, 86, General Electric Company, Before the War Labor Board, 128. Germany, Control of raw materials. 199. Demobilization plans, 294, Food control, 195. Foreign trade control, 211, Future of control, 14. Industrial combinations, 237, Labor policy, 206. Methods of economic expansion, 264. Methods in Italy and Spain, 264, 265. Reconstruction policy, 295. Trade stopped, 144. Gompers, Samuel, Urges protection of labor stand- ard, 109. Grain corporation, Created, 52. Gray, Howard L., On British war control, 13, Great Britain, After-war problems, 10 ff. Bank consolidations, 233. INDEX Great Britain, continued, Control of industries, 199. Food control, 192 ff. Foreign trade policy, 180. Future commercial policy, 288. Future investment policy, 286. Industrial combinations in, 232, 234. Key industries, 287. Labor policy, 200 ff. Labor reconstruction policy, 290. Methods of trade control, 140. Plans for imperial union, 262 ff. War control, 210 ff. Hamlin, Chas. S.', Capital issues policy, 163. Harding, W. P. C, Reasons for control of capital issues, 167. Holland, Trade control, 139, 154. Hoover, Herbert, Appointed chairman committee on food supply, 36. Appointed Food Administrator, 38. Arguments for food control, 27, 218. Methods of obtaining informa- tion, 42. Need of food control, 9. Plans for food control, 36 ff. Statement about price fixing, 45. Cf. Food control. Immigration, 106. Imperial War Food Bureau, 197. Imports, Control of, 142. India, Foreign trade control, 182. Industrial combination. Effect of war on, 229. English attitude towards, 232. Germany, 237. Industrial organization. Effect of war on, 239 ff. Industrial unrest. Great Britain, 203. Interstate Commerce Commission, On the railroad situation, 168. Investments, Future British policy, 286. Iron and steel. Industrial combination, England, 236. Price policy, 174. Priority policy, 175. Italy, Control of boots and shoes, 189. Control of cottons, 188. Control of foreign exchange, IBS- Control of sugar, 187. Food control, 185, 190. German dominance in, 264. Import control, 187. Tonnage problems, 187. War measures, 185 ff. Japan, Effect of war on, 3, 247 £f. Key industries, British policy, 287. Labor, Affected by war, 215, 226. Allocation of, England, 206. British reconstruction policy, 289. Comprehensive plan of control, 121 ff. Demands of, 107. Distribution of, 106, 135 Early war policy, 113. Employment service, 133 ff. English policy, 200 ff. French policy, 207. German policy, 206. In coal industry, 88. Joint representation demanded, 110. Labor control, 91. Longshoremen's strike, 116. McAdoo's letter to strikers, 104. McAdoo's railway labor plan, 119. Measures to conserve, 25. Mediation commission, 108. Mediation and conciliation, 126. INDEX 337 Labor, continued, Program of British Labor Party, 215. Railway Wage Commission, 119, 120. Reconstruction policy, 323 ff. Shipbuilding Labor Adjustment Board, 116. Shortage of, 106. Unrest, 107. War Labor Board, 123. War Labor Conference Board, 123. Whitley plan, 291. Women in industry, 132. Cf. Wages ; Wilson, Wm. B. Labor Adjustment Commission, 114. Labor Administration, Ch. 4. Labor control, Difficulties of, 103 ff. Policy, 105. Labor Policies Board, 4. Labor Unions, War policy of, 108. Leather, Price policy, 174. Trade controlled, 140. Lever Act, cf . Food Act. Licensing system, 42, 59, 69. AppUed to agricultural imple- ments, 41. Applied to food products, 38. Applied to foreign trade, 147, 163. Applied to raw materials, 153. Longshoremen, Strike of, 116. McAdoo, Wm. C, Admonishes strikers at Alex- andria, 104. Appointed Director-General of railroads, 170. Capital issues policy, 157 ff. Explains control of foreign ex- change, 152. Railway labor plan, 119. Railway policy, 171 ff. Remarks on War Finance Cor- poration, 166. Z Meat; Conservation of, 68, 70. Regulation of, 69. Cf. Packers. Meatless days, 68. Mediation and conciliation, 125. Mediation Commission, 108. Merchant marine, 300. Ministry of Reconstruction (Eng- Ush), 275 ff. Montague, Representative, Proposal to limit power of Presi- dent, 31. Munitions of War Acts, 202. National Industrial Conference Board, Report, 112. National War Labor Board, Work of, 123. Cf. Labor, Taft, War Labor Board. Netherlands Import and Export Company, 155. Netherlands Overseas Trust, 140, 154, 180. New Zealand, Foreign trade control, 182. Nonferrous Metal Act, 251, 261. Norway, Foreign trade control, 181. Overman, Senator, Plan for reconstruction, 312. Owen, Senator, Plan for reconstruction, 307. Urges Joint Congressional Com- mittee, 31. Packers, Policy towards, 61 ff. Regulation of, 59. Paris Economic Pact, 263, 256. Penalty clause, 90. Price fixing. Just prices, 46. Price pohcy, 45, 75, 79, 82, 88, 174 ff. Price regulation, Italy, 185. 338 INDEX Priority, Coal, 100. Policy of, 175, 220. Profiteering, 66, 76. Profits, Coal' industry, 83, 84. Packers, 60. ' Regulation of, 45, 47. Railroads, Administration policy, 171 ff. Diffictilties of, 167 ff. Federal control inaugurated, 169. Labor policy, 119, 121. Railroad War Labor Board, 167. Reconstruction policy, 326, 327. Spain, 184. Railroad Control Act, 170, 171. Railroad Wage Commission, 119, 120, 121. Railway Board of Adjustment, 120. Rationing, English industries, 209. Spain, 185. Reconstruction, A world problem, 16, 299 ff. Attitude of British Labor Party, 17. British idea, 10. Commission plan of, 312 ff. Committee plan of, 328 ff. Demobilization, 319. Engineering trades, England, 11. Financial facilities, 321. Foreign countries, 303. Government finance, 330. In Belgium, 269. In England, 10, 11, 13, 269, 274, 286, 287. In Germany, 269, 295 ff. In Holland, 273. In Italy, 270. In Japan, 280. In Spain, 271. Labor policies, 289, 323 fJ. Methods proposed in the U. S., 307 ff. Ministry of Reconstruction, Eng- land, 276 ff. Need of, Ch. 1, 305 ff. Organization of, England, 276 ff. Outline of work, United States, 317, 318. Overman plan, 312. Owen plan, 307 ff. Plan for the United States, Ch. 9. Principles to be followed, 16, 304 ff.,331. Problems of, 16, 16, 297 ff. Proposed work of commission, 314 ff. Related to international inter- dependence, 300 ff. Relation of Government to in- dustry, 326. Shipping problem, 328. Supply of raw materials, 322. War Service committees, 315, Weeks plan, 310. Regulation, of. various titles. Results of the war. Collective buying, 241. In Germany, 238 ff. In Italy, 245. On backward countries, 244. On British imperial vmion, 262 ff. On foreign trade policy, 241, 243, 261 ff. On foreign trade relations, 214. On industrial combinations, 228, 232, 237. On industrial organization, 218. On Japanese industry, 247 ff. On labor policies, 215, 226, 226. On marketing conditions, 218. On relation of Government to in- dustry, 213, 214. t , Stimulates combination move- ment, 242. Revolving fund, 35. Rubber, Trade controlled, 140, 151. Rubber association, 149. J Shipbuilding industry, • Cf. Labor, Wages. Policy in, 172. Shipbuilding Labor Adjustment Board, 116. INDEX 339 Shipping Board, Policy of, 172, 173. Siam, Foreign trade control, 183. Snow, Chauncey Depew, Quoted, 238. South Africa, After- war plans, 261. Foreign trade control, 182. South America, Control of trade, 156, Spain, Control of cotton industry, 185. Food control in, 184. German methods in, 265. Railway control, 184. Rationing system in, 185. Trade controlled, 139. Standard of living. Protection of, 109. Standardization, Boots and shoes, Italy, 190. Certain products, 176. Stanley, Sir Albert, On British reconstruction, 10, 11. State Councils of Defense, Organized, 26. Sugar, Control in Italy, 187. Conservation measures, 57. International Sugar Committee, 54. Methods of control, 38. Regulation of, 53. Sugar Administrator, 59. Sugar Equalization Board, 55. Sweden, Foreign trade control, 181. Switzerland, Foreign trade control, 154. German domination in, 265. Taft, William H., Appointed to War Labor Board, 126. Technical Research, 272. Telegraphs, Taken over, 172, Thomas, James, Speech at Labor Conference, 109. Tin, Control of, 150. Trade, of. Foreign trade control. Trade practices, Regulation of, 44, 46, 47, 67. Trading with the Enemy Act, 142. Uruguay, Foreign trade control, 183. Vienna Chamber of Commerce, Resolution, 253. Voluntary measures, 41, 67, 77. Wages, Coal industry, 85. Equalization of, 115. In railway business, 119, 121. Railroad Wage Commission, 120. Shipbuilding industry, 118. Standardization of, 118, 131. Cf. Labor. Walsh, Frank P., Appointed to War Labor Board, 126. Estimate of the War Labor Board, 126. War, Results of, Ch. 7, pp. 2, 4, 13. War control, England, 139, Food products, Ch. 2, Fuel, Ch. 3, In foreign countries, Ch. 6. Labor, Ch. 3. Termination of, 5, 6. Cf. Capital issues, Foreign trade control, Imports. War Finance Corporation, Act approved, 161. Criticism of, 164. Loans to producers of livestock, 167. Work of, 25. War Grain Corporation, Germany, 238. War Industries Board, Coal priorities, 100. Created, 24. Priority policy, 132, 175. 340 INDEX War Industries Board, continued. Relation to new investments, 160. Results of policy of, 221. War Labor Board, Creation urged, 123. General Electric case, 128. PoUcies of, 123 ff., 131. Taft, William H., appointed to, 123. Umpires appointed, 126. Walsh, Frank P., appointed to, 126. Western Union case, 127, 129. War Labor Conference Board, 123. War Labor Policies Board, Appointed, 123. Work of, 129. War laws of the United States, 21. War measures, Permanence of, Ch. 1, p. 217. War Service Committees, Work of, 149 ff . Work in reconstruction, 315. War Trade Board, Established, 145. Policy of, 144. Reasons for control, 147. Waynesboro, Penn., Labor dispute settled, 128. Weeks, Senator, Plan of reconstruction, 310. Western Union Telegraph Com- pany, Before the War Labor Board, 127, 129. Wheat, Congressional attitude, 61. Conservation, 69. Method of control, 38. ,< Price guaranteed, 33, 51. Price policy, 49. Provisions for, in Lever Act, 33. Rise in prices, 27. Wilson, William B., Labor Administrator, 106. Labor policies of, 105 ff. Wilson, Woodrow, Attitude towards control, 6, 7. Attitude towards labor, 110. Objects to limitation of powers, 31. Plan for food control, 28 ff. Proclamations, Coal, 82. Food, 40. Foreign trade control, 146. Railroads, 169. Sugar, 63. Wheat, 50, 51. Reasons for railroad control j 170. Regards war laws as emergen- cies, 6. War labor program approved, 122. War policy of, 177. Women, Attitude of Labor Policies Boards 132. Wool, Price policy, 174. Trade controlled, 140. ' . Zone system. Applied to coal, 94, Printed in the United States of Americ*. UNIVERSITY OF CALIFORNIA AT UOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below m 1 5 19^^ SEP SO 1943 DEC « 1953 FES ' 5 "--H FEB 8 1980 Form L-9-15»i-3,'34 JAN 041988 ORION * J ,^^ yj/URL MAR ' b= WAR 17198? 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