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twenty years, the Supreme Court read into the act “the rule of reason, by which it interpreted the Act to prohibit, not all restraint of trade, nor all monopoly, but only those interferences with trade and prices which are undue and unreasonable. There have been people who have continually charged that virtually all big business is bad business and dangerous business, and ought to be dissolved; and simultaneously there have been people who have steadfastly maintained that big business is the natural institutional evolution of this day and age, and that its economies and advantages can be retained while its evils and dangers can be regulated out of existence. The general philosophy of both groups has been in evidence in recent judicial decisions and government legislation. The most notable pieces of concrete legislation by the Federal Government have been the Federal Trade Commission Act and the Clayton Anti-trust Act, both passed in 1914. The Federal Trade Commission investigates trade practices, orders offenders to refrain from methods of unfair competition, publishes facts as to costs, prices and profits for various lines of industry and trade, enforces the provisions of the Clayton Act, keeps informed as to the extent to which companies carry out the decrees of courts under the Sherman Act, and investigates combinations for foreign trade. Chiefly, the weapon which the Federal Trade Commission wields is investigation and publicity of the facts of business, and coöperation with business men in the direction of compliance with federal law without expensive litigation in the courts.

The Clayton Act forbids monopolistic price discriminations, new holding company formations, and interlocking directorates. The last two provisions are especially aimed at big business as such, and rest on the assumption that size itself is a menace. For the most part, outside of these two provisions, both the Clayton Act and the Federal Trade Commission Act aim not to destroy big business, but to make sure that the practices and price policies of business, whether large or small, shall be fair, and reasonable, and socially beneficial. They aim to make destructive competition impossible, to put under the ban of the law the modes of warfare between business units of all sizes which are predatory and vicious. And simultaneously they tend to preserve a large field for concentration of business, for moderate monopoly influences and advantages, for constructive coöperation and for competition which leads to the survival of the most efficient. The possibility of public control serves therefore as a limit to monopoly excesses and to unfair price policies.22

Natural monopolies, such as railroads, waterpower resources, gas and electric service, are so thoroughly associated with the public need that they have generally come within the scope of a more rigid form of public control. The Interstate Commerce Commission very closely supervises the pecuniary policies of railroads. There has been powerful agitation of late to declare the coal industries and the meat industries 'public utilities and to subject them to a public control somewhat similar to

22 See E. Jones, Trust Problem in the United States, Chapters 14-15.

that already exercised over the railroads.23 Public Service Commissions are common devices for the regulation of lighting, heating, and municipal transportation services, and assert authority in varying degrees over rates or prices in the industries under their jurisdiction. Industrial concentration in the basic industries is already leading many careful students to raise the question whether concentration is socially safe except as it is subjected to a substantial measure of public regulation and control. The maturing of opinion upon this issue will undoubtedly hinge largely upon the manner in which concentrated business orders its policies, with regard to prices and all matters tinged with a public import, during the next few years. Unless the device of publicity and prohibition of unfair competition, as now administered by the Federal Trade Commission, serves to maintain a policy of price moderation and to eliminate the grosser cases of profiteering, the next degree of public control will be demanded by the public, namely outright government regulation similar to that exercised through the Interstate Commerce Commission or the Public Service Commissions.

The record of profiteering, as reported by various government authorities, especially during the first years of the war and during the months closely following the armistice, has left grave doubts in the public mind as to the willingness of big business concerns to moderate their price and profit policies within satisfactory bounds. Moreover, the experience of the government with price fixing during the war had a sufficient degree of success to make it fairly clear that at any time when the step seems desirable, the government can effectively create the governmental machinery suited to price fixing in times of peace. The war demonstrated that price fixing is not an economic impossibility. Once price fixing has been proved possible of achievement, it is always ready at hand as a device to be called into being to correct price abuses which creep into private business combinations. Comparisons made by the War Industries Board indicated that the average prices for controlled articles increased during 1917-1918 much less than did the prices of uncontrolled articles.24 Although the methods of price fixing were not uniform between all bureaus and departments, nevertheless in the main they adhered with reasonable closeness to the objective laid down by President Wilson on July 12, 1917, namely, that the fixed price should be sufficient to "sustain the industries concerned in a high state of efficiency, provide a living for those who conduct them, enable them to pay good wages and make possible expansions of their enterprises." Price fixing in time of peace would be handicapped by lacking the equivalent of the high spirit of patriotic coöperation from business men

23 The Packers' Control Bill, passed by Congress in August, 1921, established regulation of the meat packers to be administered under the Secretary of Agricul. ture. The law provides for uniform accounting by the packers, for publicity of the packers' affairs, and for definite powers of the Federal Trade Commission to investigate the industry.

24 War Industries Board, Fluctuations of Controlled and Uncontrolled Prices,

which prevailed during the war emergency, and hence is not likely to be resorted to during peace times except as the need is urgent. The possibility of price fixing hangs as a kind of tacit ultimatum to monopolists who might like to boost prices unduly, and hence serves as an important limit to monopoly price policies.25


BABCOCK, F. M., Appraisal of Real Estate.
CARNEGIE STUDIES, Prices and Price Control During the War.
CLARK, J. B., AND J. M., The Control of Trusts.
Commons, J. R., The Legal Foundations of Capitalism.

American Economic Review, September, 1924.
DAVIES, J. E., Trust Laws and Unfair Competition.
ELY, R. T., Monopolies and Trusts.

on the Pittsburgh Plus" Practice, Docket 760, 1924. FETTER, F. A., American Economic Review, December, 1924. Floy, HENRY, Value for Rate Making. FRIDAY, DAVID, An Extension of Value Theory, Quarterly Journal of Economics,

Volume XXXVI, pp. 197-220.

- Profits, Wages and Prices. HANEY, L. H., Price Fixing During the War, Political Science Quarterly,

Volume XXXIV, pp. 104-126, 262-289, 434-453.

Business Organization and Combination. HOBSON, J. A., The Evolution of Modern Capitalism. JENKS, J. W., The Trust Problem. JONES, E., The Trust Problem in the United States. KENT, F. C., Mathematical Principles of Finance. LYNDON, L., Rate Making for Public Utilities. MALTBIE, W. H., Theory and Practice of Public Utility Valuation. MARSHALL, ALFRED, Industry and Trade. MOORE, H. L., Elasticity of Demand, Journal of the American Statistical Asso

ciation, Volume XVIII, pp. 8-19. MOULTON, H. G., The Financial Organization of Society, Chapter XXIX. NATIONAL INDUSTRIAL CONFERENCE BOARD, Trade Associations, Their Economic

Significance and Legal Status. NYSTROM, Paul H., Economics of Retailing. RAYMOND, W. G., The Public and Its Utilities. RIPLEY, W. Z., Trusts, Pools and Corporations. SEAGER, H. R., Principles of Economics, Chapters XXIII, XXV. STEVENS, W. H., Unfair Competition. TAUSSIG, F. W., Quarterly Journal of Economics, February, 1918, p. 240 ff. VANDERBLUE, H. B., Railroad Valuation. VAN HISE, C. R., Concentration and Control. Willis, H. P., AND BYERS, J. B., Portland Cement Prices.

25 See Carnegie Studies: Prices and Price Control During the World War; American Economic Review Sup., March, 1919, pp. 233-276; F. W. Taussig, Quar. terly Journal of Economics, Feb., 1919, p. 238.

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Profit in the Pure Economic Sense.—Profit is loosely and popularly thought of as the excess of gross returns over cost. This loose concept is divided by the economist into three separate elements. First, profit contains an element of pure interest, since in part it is a price paid for the use of capital invested in the business. Second, profit contains an element of wages of management, since in part it is a price paid to the business man for directing and managing the enterprise. Third, profit contains an element of surplus over and above the first two elements, which is the net or pure profit of the business. This pure profit has been attributed to a number of causes, but principally to the risks involved in business undertakings.

Such a division of gross profit into its elements was originally made when the dominant type of business enterprise was not the modern corporation but the individual who owned and managed his own business. In this earlier type of enterprise, the gross profit made by the owner-manager consisted in part of a payment assigned to interest return on his capital invested in the business, in part of a payment assigned to salary or wages of management for his services in running the business, and finally in part of a pure profit assigned to reward for risk in shouldering the responsibilities of business activity. Where the owner-manager type of business man survives in present-day enterprise, this division of gross profit into a wage factor, an interest factor, and a risk factor is comparatively simple.

Where, however, the owner-manager has been displaced by the corporate type of enterprise, the division of gross profits into its main elements is more complicated. The interest element would be that part of dividends which represent merely the price paid for the use of capital and savings. How much of profits should be imputed to this interest factor is difficult to ascertain for the reason that actual invested capital differs so greatly from capital stock. Imputed interest is theoretically a distinct concept, but as a matter of concrete measurement, it is exceedingly elusive. Likewise, the wages of management factor is difficult to measure. The management of corporations is largely in the hands of

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