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has been said that the price must include a fair return on the "investment." This expression, like the Supreme Court's "fair value of the property," is open to several interpretations. Both terms, for example, may represent either the actual cost of the property or else the sum required to reproduce it at the present time, the term "investment" was used in the latter sense by a federal court in fixing the price of news print paper. It is not proposed, therefore, to define the term investment nor to indicate how it is to be determined, that is a problem that may be left to the government price-fixing agencies and to the courts, but merely to point out that a fair price must cover not only operating costs, but also a return on the "investment" (or the fair value of the property). Likewise the fair rate of profit on the investment (or value of the property) is also a matter for determination by the appropriate agency. Bearing in mind the concept of fair price, the rate of profit should be fixed high enough in each industry to attract the requisite capital, but it should be no higher than this, otherwise injustice would be done the consumers. The rate would vary, of course, in the different industries; the figure of 10 per cent has been here employed merely by way of illustration.

The solution of the problem of the fair price thus calls for a determination of the cost of production, the amount of the investment, and the fair rate of return. Let us first consider the situation as to costs, making as we proceed certain comments on price-making as based on costs of production.

The ascertainment of the cost would be less difficult in those cases in which a given commodity is produced under conditions of uniform cost, uniform, that is, to all producers. Yet even here there would be abundant occasion for controversy over many items, such as, for example, the proper allowance for depreciation and obsolescence, and the proper distribution of overhead expenses. The matter would be simplified indeed were it possible to require, as with the railroads, that all the concerns to be

1 Without assuming that the investment is identical with the fair value of the property, the terms will be used interchangeably for the purpose of facilitating comparisons between industrial and public service corporations.

regulated install a uniform accounting system, yet this is hardly feasible for industrial companies because of the varying conditions in the different industries.

In fact, however, the cost of production for a given commodity is rarely the same for all producers; in the production of nearly every commodity there is a wide range between the costs of the most efficient or best located producers and the costs of the inefficient or poorly located producers. This is less true, of course, when the trust produces nearly all of the output, yet there is practically no trust that does not have some competitors, since complete industrial monopoly can hardly be said to exist in this country.

Under these circumstances there would appear to be only two alternatives open to the price-fixing body. Either each producer must be limited to a price that covers his cost of production plus a reasonable profit; or the price must be the same for all producers (either in the whole country or in a given district), yet so adjusted as to remunerate sufficiently those high cost producers whose output is required to satisfy the demand. The objections to the first arrangement are fundamental. First, and foremost, this plan is economically unsound, since it removes the incentive to efficient production. If the low cost producer is to be allowed his cost plus a reasonable profit, why should he take any particular pains to reduce his expenses? Indeed, if the profit is not a lump sum, but a percentage addition to the cost-as distinguished from a percentage based on the capital investmentthere is an incentive to run up the costs, since the higher they are the greater the allowance for profit. That such is the practical result of a cost plus arrangement was demonstrated convincingly during the war, notably in the shipbuilding industry. Second, this plan would require an accurate determination of the cost of each individual producer, and it would thus call for a very large staff of government accountants and investigators. It would lead, moreover, to perpetual bickering and wrangling; for the exact costs are not ascertainable, and as a result there would be charges of discrimination as between various producers.

1 Cf. War Industries Board Price Bulletin no. 3, pp. 383-384.

Under the second plan the price would be fixed for the industry as a whole in such a manner as to take care of the marginal producer. The idea would be to determine the desired output, and to set the price at a sufficiently high level to attract this output. During the war the carrying out of this policy offered comparatively little difficulty, and engendered no considerable opposition on the part of the producers. This was because the needs of the government were so pressing that there was a demand for practically all that the producers of essential articles could manufacture, and therefore comparatively few producers were eliminated from the field. In peace times, however, there might be considerable opposition to governmental determination of the quantity of a given commodity that should be produced; for this is what the matter in the last analysis comes to. If the price were made high enough to take care of the highest cost producers-the extramarginal producers-there would be grave dissatisfaction on the part of the consumers; 1 if the price were put so low as to squeeze out the extramarginal producers there would be complaint from them, and from the consuming public in the event that the output did not meet its needs. To place the government, therefore, in the position of dictating the quantity of sugar, gasoline, or cigarettes that shall be produced is obviously to burden it with an ungracious task. During the war it was forced to accept this burden, because the forces that normally bring about the ready adjustment of supply to demand failed to function satisfactorily. Yet even in peace times it may be compelled to assume the task, ungracious though it be, if the supply comes under the control of a monopoly, and prices cease to be determined by competitive factors.

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The second plan is not open to the objections advanced

1 If the price set were only a maximum price it is possible that the intramarginal producers would reduce the price to shut out the extramarginal producers, in which case there would be no occasion for dissatisfaction on the part of the consuming public. But it is also possible that the intramarginal producers would find the sale of a reduced quantity of goods at a high price more profitable than the sale of a larger quantity at a lower price, and in this case the extramarginal producers would be permitted to continue in existence, and the consumers would have legitimate ground for complaint.

against the first. Unlike the first, it would not discourage efficient operation, since the benefits of economical production would go, as they should, to the concerns achieving these economies, and since the marginal producer (the bulk line producer, as he was often called during the war), if declining in efficiency, would face the prospect of being squeezed out either by an intramarginal producer or by an extramarginal producer. And, second, it would throw less of a burden on the government agencies, since it would not be necessary to know the exact costs of every producer; it would suffice to know the exact costs of those producers located near the margin of production. As between the two schemes, therefore, the second would almost certainly be the one actually adopted.

A perplexing problem in price-fixing is how to proceed in the case of articles produced under conditions of joint cost. The orthodox doctrine is that the prices of articles produced at joint cost tend to equal their combined costs of production; 1 and that the apportionment of the total price between the joint products is determined by the relative intensity of the demand. There is no tendency for these articles to sell for their individual costs, since their individual costs are not ascertainable. In such a situation how shall the price-fixing body proceed? To give an example, the Standard Oil Company prior to its dissolution secured from crude petroleum over one hundred different products. Under such circumstances should control be exerted over all of the products of crude petroleum, or only over those particular products monopolized by the trusts? If the former policy be adopted with respect to all trusts, it will be necessary for the government to fix the prices of hundreds of products, thus adding greatly to the difficulties of a task already imposing. If, on the other hand, the latter policy be adopted, how determine the cost of producing such articles as are actually monopolized, say, illustrating again by the petroleum industry, the cost of producing gasoline or kerosene? The cost of production being joint, the cost of any one product can not be determined in a satisfactory manner. The cost of producing gas1 1 Including in costs, however, a normal profit.

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oline or kerosene might indeed be regarded as the total costs minus the prices received for the by-products, yet this would frequently lead to absurd conclusions. If, for example, the byproducts could be disposed of on highly favorable terms, it might well happen that the cost of producing gasoline as thus calculated would be nil. Clearly the cost of producing any joint product would be understated, if it were arrived at through the subtraction from the total costs of the prices received for the other joint products, since these prices presumably include profits as well as costs. There is thus no escape from the conclusion that the cost of producing a joint product is not ascertainable by any scientific and nonarbitrary basis of calculation. The best that the price-fixing agency could hope to do, therefore, would be to arrive at a reasonable approximation to such cost. However, a price fixed with reference to costs that are only reasonably accurate might still be a nearer approach to a fair price than would be the price that had formerly been charged by the trust, and in this case regulation would have justified itself. Certainly joint cost presents no more of a problem in the case of manufacturing businesses than it does in the case of railways; and there are many who think that the rates of the latter have been regulated with some measure of success. Moreover, the difficulty that arises through the presence of joint cost is by no means a universal one in industry; many trusts, the sugar and tin can trusts, for example, produce almost entirely a single commodity, and the ascertainment of their costs of production thus presents no peculiar difficulties. After the costs had once been determined, more or less satisfactorily, it would soon be necessary to redetermine them. Conditions in industry are continually changing. There is no known process for controlling the wants of the people; and as a result the demand for particular products changes from month to month, from week to week, and even from day to day. Since the costs of production (except under conditions of constant or uniform costs) vary with the volume of output, an increase in the demand for a given article will cause its cost of production to increase or decrease according as the industry is character