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Rh ensuring that the seller should not benefit unduly by the fact that his oncost or establishment charges showed a smaller increase than did cost of wages and raw materials.

A word may be added with regard to anti-profiteering legislation outside the United Kingdom. The majority of European countries, including Belgium, France, Germany, Italy, Norway, Poland, Portugal, Rumania and Sweden, passed some form of legislation with a view to checking profiteering or speculation in the necessities of life. Legislation with this object was also passed in Australia, Canada, New Zealand, the Union of South Africa, and a number of the smaller British possessions. A number of foreign countries or British possessions studied through their representatives the working of the Profiteering Acts, 1910 and 1920, and several (as for example Italy, South Africa, Gibraltar and Sierra Leone) availed themselves largely of English experience in framing their anti-profiteering legislation.
 * (E. R. E.)

“Profiteering,” as the term has been used in the United States, may be roughly defined as consciously taking and retaining profits considerably in excess of the return necessary to equilibrate demand and supply, especially when such profits are the result of prices enhanced by the activity or policy of the recipient. Its meaning has therefore a direct relation to the current conception of a legitimate business “profit”—a point on which public opinion during the World War became peculiarly sensitive. Probably, conscious direct control of industrial processes never reached such development in the United States as during the World War. Prices were fixed and both supply and demand controlled. Income taxes were highly developed. An unusual mass of information concerning cost, production, consumption and stocks was obtained. As a result much became known of the profits made in different industries, and much information concerning them was given out—sometimes with the purpose of exercising a check. In the United States the chief sources of information are the cost reports of the Federal Trade Commission and data compiled from the income-tax returns. If it be remembered that not all that seems excessive is profiteering, it will be of value to recapitulate some of these data.

According to income-tax returns from some 7,000 corporations their net earnings of the pre-war years 1911-3 averaged 11% on invested capital. This corresponds well with the common judgment at that time that from 10% to 12% (depending on the risk) was a fair profit in most industries. Unfortunately, returns are not available in published material for these same corporations in 1917, but for 1918—a year of lower profits—they averaged 15%. The year 1917 was the time of maximum profits. We know that in that year the total net income of 31,500 corporations was well in excess of the total for all corporations in the country in 1913. These corporations made an average net return on investment of approximately 22%, and more than one-half of their net income was reported by those earning 30% or more. (It is to be noted that these figures do not include corporations earning under 15%. Nevertheless, it is probable that all corporations averaged approximately 18%.)

These income-tax returns are not conclusive. The padding of investment account and of costs was all too common, and the statistical treatment of the returns is not satisfactory. They do indicate, however, that average profits increased considerably between the pre-war period and 1918. More accurate and illuminating figures concerning particular industries were obtained by the Federal Trade Commission, and a few representative cases will give the best understanding of the situation. A study of the costs of 37 wheat-flour companies showed that the average earned on investment was 12-6% in the fiscal year 1913-4, 17% in 1914-5, 38.4% in 1916-7, and 34% in 1917-8. That this increase in profits was not due solely to increase in business is evident from the fact that the percentage earned on sales also increased, the rate being 3.4% in 1913-4 and 6.5% in 1916-7. In 1917 there was apparently no limit to the price purchasers were willing to pay, the condition being one of panic. The large

profits of the year were partly due to the enhanced value of unsold stocks and to speculative profits derived from feed. In the next year profits were somewhat abated by Government regulation. The Federal Trade Commission, after noting that the margin of 25 cents per bar. allowed by the Food Administration was larger than the normal profit, said: “The Commission's investigations of costs and profits for recent months indicate that 25 cents a barrel is being taken by many millers as a guaranteed net profit after paying all income and excess profit taxes. . . .” In other words (1) taxes payable on net income were being wrongfully treated as expense, and (2) a maximum margin was being made the minimum. This course involved some fraud and showed concerted action. Depreciation and salary accounts were padded and capital charges were treated as operating expenses.

Twenty-two manufacturers of farm implements made at this time about 85% of the product in the United States. Their profits increased from about 9% on investment in the years just prior to the war to 16.6% in 1917 and 19.9% in 1918; and the rate of profit on sales increased several fold. There was no general shortage of farm implements and no unusual demand, for exports were cut off. The Commission says: “The large increase in the prices and profits of manufacturers in 1917 and 1918 was due in part to price understanding or agreements. . . and, to a more limited extent, the profits of dealers seem to have been due to similar activities.”

From Senate Document No.248 (65 Cong. 2nd Session) further evidence of profiteering may be gained. It appears that oil companies circulated reports that the supply of gasoline was dangerously short, for the purpose of maintaining prices of that commodity while making “enormous” profits on fuel oil. Concerns bottling or canning vegetables, which had made future contracts, sometimes withheld portions of their output from delivery on such contracts and sold in the higher “spot” markets. In frequent cases licences were revoked by the Food Administration. The practice of such concerns in maintaining re-sale prices for jobbers contributed toward maintaining the general high level of prices and increased profits in some instances. According to the same document the steel companies in 1917, prior to Government price-fixing, made abnormal profits, and a number continued to make unusually heavy profits thereafter. The United States Steel Corp., which made 5% before the war, received 25% on investment in 1917; and 10 smaller concerns, such as begin their operations with the employment of steel furnaces, made from 30% to 319% on their investments. Certain sulphur companies took advantage of the war demand for sulphur to raise their prices to such an extent as to reap net profits of approximately $15 a ton, which meant over 200% on investment in one case. It further appears that “unnecessarily” large profits were made by the producers of yellow pine lumber in the South. A good margin per 1,000 bd. ft. had been considered to be $3, but in 1917 the average margin was over $4.80; and while the average profit on investment in 1916 was 5.2%, the figure was increased to 17% in 1917. The profits of tanners increased from two to five times, as they took advantage of the enormous demand for leather and exacted very high prices. The price of hides was rapidly advanced, notwithstanding that at the same time “great supplies were withheld from the public.” Upon learning of approaching price control, one of the large packers took steps “quietly and promptly” to increase the appraised value of his tanneries.

Other figures indicating the general trend may be given as follows:—