MAP SHOWING TERRITORIAL COMPETITION AMONG PRIMARY MARKETS FOR GRAIN.

No. 3. Wheat from this location is naturally tributary to Milwaukee, Ashland, Manitowoc, or Green Bay.

No. 4. Wheat from this location is tributary to Kansas City, St. Louis, or Chicago. A slight variation in prices will take it away from one market to another.

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Duluth. A portion of the territory is extremely close, and a slight variation will take it away from one market to another.

No. 5. Territory is either tributary to Chicago or St. Louis. Any slight variations in the market will pull from one to another.

No. 6. This territory tributary to St. Louis, unless Chicago markets are being manipulated or are badly out of line.

No. 2A. Wheat from this section moves primarily to Chicago or Milwaukee, but is also quite likely to go to other markets north or south.

No. 4 or 5. Wheat from this section moves primarily to Kansas City, St. Louis, or Chicago, but may go to other markets.

343. COMPETITION OF CITIES AND MARKETS

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The history of the distribution of the surplus grain from the interior markets at which it has been accumulated to the centers of consumption eastward and southward is summed up in one wordcompetition. During the past century the main lines of distribution have shifted several times: first, the grain went south by way of the Ohio and the Mississippi rivers, from Cincinnati and St. Louis to New Orleans, thence to the east by coastwise ships; secondly, the opening of the Erie Canal (1825) turned the cereal movement eastward to New York; thirdly, the railroads and the lakes competed for the grain traffic (1860-70); fourthly, the railroads and the Erie Canal kept up a competitive struggle for ten years, and, fifthly, the rise of the southern movement of grain traffic by rail to the Gulf became a permanent factor again.

The internal distribution of cereals is an eastern and southern movement from the interior centers of primary supply. The rate of the movement depends on several factors. The demands of domestic consumption are the first factor in importance; the requirements of the export trade the second factor. Much of the cereal surplus reaching primary markets in the interior, however, is consumed there, and never enters into the distributive movement as cereals again. The concentration of the brewing and malting business closer to the western sources of supply has, for example, greatly reduced the eastward movement of barley. The malting "trusts" policy thus affects distribution. The ascendancy of milling interests at primary markets likewise reduces the volume of internal distribution of grain. Minneapolis grinds 65,000,000 bushels of wheat annually. The growth of stock-feeding interests in Texas has so stimulated the local production of corn as to close to Kansas a once important southern market.

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Adapted from the Report of the Industrial Commission, 1900, VI, 111-14, 124.

Such changes are constantly taking place, which change the volume, the course, and the character of the cereal movement.

Besides the competition of railroads with waterways in the dis'tribution of grain and the competition of railroads with one another, a third factor of equal importance enters into this movement-that is, the competition of the seaboard cities for the control of the cereal

movement.

On the Atlantic seaboard there are five ports connected by railway lines with the primary grain markets of the interior, either by rail or by water and rail routes. The shortest rail line had formerly been regarded as in the best position to get this traffic from the eastern lake ports to the seaports. This favored carrier was the New York Central; and New York City, by virtue of the Erie Canal, was regarded as naturally entitled to the lion's share of the grain traffic to the East and for export. While this position was conceded by other carriers, it was not accepted as the end of the matter. Other roads, naturally less favored, found in reckless competition a means of wresting concessions from the Central in the form of a differential. This differential was an attempt to equalize the opportunities for getting eastward traffic among the trunk lines, by maintaining lower rates for less favored roads in proportion to the disadvantage of extra rail distance above that of the Central. The differentials granted at first to Boston, Philadelphia, and Baltimore covered disadvantages in exportation also from these ports. Later, this differential was extended to Newport News, as a means of setting limits to the competitive struggle for a division of traffic among the trunk lines concerned. This arrangement, as a working basis among competing grain lines, began in 1876, and has not since been successfully attacked in principle, though there have been reductions in the amount of the differential. Such seems to be the state of the question as far as it concerns the grain movement to the seaboard cities of the United States.

From the standpoint of the interior cities, competition is quite as keen as it is among the seaboard cities in the distribution of grain. It seems clear, then, that the existing system of distribution of the visible supply of grain involves three main commercial interests: first, that of the grain-carrying transportation lines; secondly, that of the competitive interior markets at which the movement begins; and, thirdly, that of the seaboard cities at which internal distribution ends. All of these interests act and react one upon another, and the

existing system has been wrought out under the impact of their powerful influences.

A disturbing factor of the first magnitude arose through the revival in recent years by the railroads leading to ports on the Gulf, of the carrying of grain for export to those ports. Many years ago attempts were made to take grain to New Orleans by boat down the Mississippi River, but in the warm climate it became saturated with moisture in the vessels' holds. The endeavor of the railroads extending to the Gulf to build up their traffic in grain began anew with the large crops of 1900, and made considerable progress during the two or three subsequent years. At first these railroads made rates far below those in effect to the Atlantic seaports. The railroads serving the Atlantic seaports retaliated, and in natural course there were rate wars disastrous to the revenues of the railroads and unsettling to the grain business. After a test of strength by the fighting railroads, the subject of an equitable differential between the ports of the Atlantic and those of the Gulf was taken up for mutual serious consideration and discussion. The Gulf railroads claimed that because of the shorter distance to their ports from the grain fields, their low-grade lines, upon which the expense of handling was not so great; because of the moisture that accumulated in the grain, impairing its quality so that it brought lower prices in the European markets; small elevator facilities; the longer water route to Europe and higher vessel rates; irregular and less efficient vessel service, and higher marine insurance, they should have a differential of from 6 to 8 cents per 100 pounds under the Atlantic rates. The Atlantic railroads replied that by means of recent inventions the Gulf grain can be thoroughly dried at little expense; they produced certificates from European dealers that grain from the Gulf ports averages as high in quality as that from the Atlantic ports; claimed that the difference in time between a trans-Atlantic voyage from the Gulf ports and from the Atlantic ports was not of great importance; that while the regular steamship sailings are not so frequent, the Gulf ports are well supplied with tramp vessels; and on account of these and other considerations urged that the differential should not exceed 3 cents under Baltimore, which would be equivalent to 4 cents under Philadelphia and 4 cents under New York. There was finally a compromise.

Taken by permission from L. G. McPherson, Railroad Freight Rates, pp. 12223. (Henry Holt & Co., 1909.)

344. COMPETITION AND THE FATE OF INDUSTRIES1

Suppose that the market price of iron, as fixed by supply and demand, is insufficient to cover the expense of producing it. No investor seeking a business opening is likely to go into the production of iron, nor will those already engaged in the business increase their plant or even renew it when it wears out. If at the same time there is another article, for instance, copper, whose market price, as fixed by supply and demand, affords a large excess over the expense of production, new investors will seek to produce copper, while those already engaged in the business will extend their plant and keep it up to the highest standard of efficiency. We shall see a diminution of the output of iron and an increase of the output of copper, by a process which, though not generally involving actual transfer of capital from one industry to another, amounts to the same thing in its effect on the community. The permanent supply of iron being diminished, while the conditions of demand remain the same, the producers will be able to charge a higher price and yet dispose of the total product; while, conversely, the permanent supply of copper being increased, the producers will be forced to charge a lower price in order to call forth a corresponding demand. This process will go on until the profit in the production of copper is no greater than that in the production of iron.

This adjustment actually takes place among the industries of the country as a whole. There is a constant supply of free capital and labor seeking investment in localities and industries where the higher profits are to be obtained, and not entering those where the profits are lower. This process tends to force down the prices of products in lines where they have been unfairly high, and to maintain or increase them in those where they have been disproportionately low.

Under the modern industrial system there is first a temporary adjustment of the demand to the supply by the commercial competition of merchants, which lowers (or in the converse case raises) the price to make it correspond to the marginal utility. This temporary adjustment results in market price. Then there is a more permanent, though less accurate and universal, adjustment of the supply to the demand by the industrial competition of investors, which lowers (or in the converse case raises) the price (and the marginal utility) until it becomes proportionate to expense of production.

Adapted by permission from A. T. Hadley, Economics, pp. 86-87. (G. P, Putnam's Sons, 1899.)