INCREASE IN RETAIL PRICES OF COAL IN GREAT BRITAIN. A recent British report on the causes in the rise of retail prices of coal suggests comparison with a report dealing with practically the same subject, issued by the Bureau of Labor Statistics early in 1913.2 When, in 1912, in this country the price of anthracite coal, following a new agreement between the coal operators and the mine workers, was increased 25 cents per ton over the winter rates of the preceding year, the public protest led to a congressional resolution and investigation into the causes of the increase. It is not difficult to understand, then, with increases in the prices of coal in London reaching in February last from 7 to 11s. ($1.70 to $2.68) above the usual winter prices, that the public demand for an investigation of the causes made itself felt in official action. The result was the appointment on February 25 of a departmental committee to inquire into the causes of the rise in the retail prices of coal sold for domestic use, especially to the poorer classes of consumers in London and other centers. A committee of eight members was appointed, three being members of Parliament, one of them a labor member, and two being well-known professors of political economy. The committee submitted its report under date of March 24. The committee found that the cost of production at the mine had increased only slightly, certainly by less than 1s. (24.3 cents) a ton. The wages of miners had not been changed, the railway rates were unchanged, and increased cost of wagon hire, horses, fodder, etc., and increased wages of carters and loaders, and distribution were found to amount to not more than 2s. (48.7 cents) per ton. The total rise in the cost of production and distribution was, therefore, at most 3s. (73 cents) per ton, while the price to the consumer in London had risen above normal winter rates by an amount varying, according to the quality of the coal, from 7s. to 11s. ($1.70 to $2.68) per ton. The committee also found that the increase in price was due to a deficiency of supply as compared to the demand and that the fear of a coal famine increased the demand beyond actual need. The mechanism by which prices are fixed was found to be an important feature in causing the increase. The mine price corresponds to a fixed retail price in London. When the retail price in London increases above the sum mentioned in the contract, the coal-mine 1 Board of Trade. Report of departmental committee to inquire into the causes of the present rise in retail price of coal sold for domestic use. London, 1915. (Cd. 7866.) 2 Increase in Prices of Anthracite Coal Following the Wage Agreement of May 20, 1912. 62d Cong., 3d sess., H. Doc. No. 1442. Washington, 1913. owner receives half of the increase. The committee concluded that the high prices were not attributable to the existence of a definitely constituted ring among coal merchants or mine owners. They found, however, that, as in some other trades, "there are evidently opportunities of conference among those chiefly concerned which do in effect commonly lead to concerted action with respect to prices." The committee's recommendations covered five points: 1. Exports to neutral countries should be restricted. 2. Steps should at once be taken to consider, in consultation with the public bodies concerned, the question of the accumulation, by such bodies, of reserves of coal in or near London, for the use of small consumers during next winter. 3. The rates of freight on the interned steamers should be further reduced. 4. Suitable enemy ships condemned by the prize court should be taken over by the Government and used for coal transport. 5. If prices do not shortly return to a reasonable level, the Government should consider a scheme for assuming control of the output of collieries during the continuance of the war. The report of the committee seems of sufficient importance to justify its quotation, and it is given in the following pages: 2. We have held 15 meetings. In addition to obtaining information from other sources, we have heard evidence from 33 witnesses, including representatives of the Government departments concerned, the railway companies, the London coal merchants, colliery owners, cooperative societies, the gas companies, and the London trolley trade. While within the limits of time at our disposal we have taken account of prices generally throughout the country, we have concentrated our attention mainly on London. With some exceptions, the north and the midlands have not suffered from any very remarkable rise in the price of household coal. In the southern counties, and apart from the additional charges due to the railway rates on a longer haul, prices are governed so largely by London conditions that it is unnecessary for the purposes of this inquiry to deal with them separately. Speaking generally we have no doubt that the causes which have operated to raise prices in London are also those mainly responsible for the increases in the southern counties and elsewhere. There may of course be local reasons for a quite unusual rise, but it would be impossible for this committee to consider in detail sporadic variations without unduly prolonging their inquiry. 3. We feel it necessary to say at the outset that our inquiry has been conducted under one considerable difficulty. In order to settle definitely and precisely some important questions which have come before us, it would be necessary to have statistics which so far have never been collected and could not now be obtained without much delay. We have therefore been forced, at various points in our investigations, to rely on the estimates given by witnesses, from their personal experience, where we should have preferred to use the results of statistical inquiry. But we do not think that any corrections in particular figures which might be made if such results were available would materially affect the broad general conclusions at which we have arrived. 4. The amount and dates of the increases in London appear to be as follows for a typical coal of good quality ("Best Derbyshire"). On June 16, 1914, the lowest summer price was fixed, 26s. ($6.33) per ton. On September 26 the price rose to 27s. ($6.57); on November 21 to 28s. ($6.81); and on December 12 to 29s. ($7.06). On December 19, January 7, January 28, and January 29 prices rose to the extent of 1s. (24.3 cents) on each date, making the price on January 29, 33s. ($8.03) per ton. On February 17 it rose 2s. (48.7 cents) to 35s. ($8.52) per ton. It may be noted that in the winter of 1913-14 the price of this coal rose from 26s. ($6.33) to 27s. ($6.57) per ton on September 6, 1913, and to 28s. ($6.81) on December 30. In the winter of 1912-13 it rose on September 14, 1912, from 25s. ($6.08) to 27s. ($6.57); this price was maintained until, on May 18, 1913, the usual summer reduction occurred. 5. The prices for other descriptions of house coal during the past winter have moved in almost exact correspondence with those specified above, with one important exception. The prices of the lower qualities were steadily leveled up until on January 29 the price of all coal below "Best Derbyshire" was 32s. ($7.79), and on February 20, 34s. ($8.27) per ton. The difference in price between "Best Derbyshire" and "Stove nuts" in June, 1914, was 6s. ($1.46) per ton; on December 12, 4s. 6d. ($1.10) per ton; on February 20, 1s. (24.3 cents) per ton. To put it in another way, the rise from summer prices was 9s. ($2.19) per ton for good coal and 14s. ($3.41) per ton for the cheapest quality; the increase above normal winter prices was 7s. ($1.70) per ton for good coal and 11s. ($2.68) for the cheapest. 6. It may be as well, however, to explain here that this phenomenon is not unusual. It has been represented to us that in times of high prices the cheaper kinds of coal tend to rise in price more than the better qualities. We have also reason to believe that recently large quantities of inferior coal which in ordinary times would find no market in London have been supplied to the consumer under one designation or another at very profitable prices. 7. We have had it given in evidence that those who are compelled to buy their coal in small quantities are anxious to secure the best quality. They can not without serious inconvenience use the inferior qualities, because the poor man's fire has to serve all purposes, and above all it must light quickly. One witness gave evidence to the effect that the coal now being sold from trolleys is worse in quality than usual, as well as higher in price; but the evidence of other witnesses, including the representative of a leading London firm doing a trolley business, was to the opposite effect. Moreover, a general rise in prices weighs more heavily on the poor and causes more suffering, because the greater cost of distribution by trolley in small quantities is sufficient by itself to keep the price of such coal above the general level. Up to November 23 last the trolley price of a high-class coal sold by a leading firm was 1s. 4d. (32.4 cents) per hundredweight, or at the rate of 26s. 8d. ($6.49) per ton. On November 24 it rose to 1s. 5d. (34.5 cents) per hundredweight, or 28s. 4d. ($6.89) per ton; on December 8 to 1s. 6d. (36.5 cents) per hundred weight, or 30s. ($7.30) a ton; on December 19 to 1s. 7d. (38.5 cents) per hundredweight, or 31s. 8d. ($7.71) per ton; on January 5 to is. 8d. (40.6 cents) per hundredweight, or 33s. 4d. ($8.11) per ton; on January 26 to 1s. 9d. (42.6 cents) per hundredweight, or 35s. ($8.52) per ton; on February 1 to 1s. 10d. (44.6 cents) per hundredweight, or 36s. 8d. ($8.92) per ton; on February 22 to 1s. 11d. (46.6 cents) per hundredweight, or 38s. 4d. ($9.33) per ton. In certain cases even higher prices were paid, as is proved by the information which we have obtained from university settlements and similar institutions working in poor districts. 8. Reverting to the main question before us, we have to report that, in our opinion, the initial cause of the increase of recent prices, ranging from 7s. ($1.70) to 11s. ($2.68) per ton, above the winter prices of 1913-14 was a deficiency of supply as compared with demand; and in particular, a deficiency of supply in London. The evidence before us showed that in August there was a large and unusual demand for coal, which considerably depleted the stocks accumulated by merchants, in accordance with usual practice, to meet the winter demand. It was stated by the merchants' representatives that in the middle of December these stocks had been reduced almost to vanishing point; and although this statement is difficult to reconcile fully with the returns furnished to the Board of Trade by the merchants themselves, the stocks were no doubt below the normal. It was stated further that at the same time the railways were bringing up less than the usual quantity for household consumption, and the apprehension of a coal famine caused orders to pour in from consumers who had any storage accommodations. 9. The effect of a temporary failure in the supply of any commodity is normally that the price rises, and rises without relation to the cost of production and distribution. In theory at least such an increase, though apparently arbitrary, may be expected to perform three functions; it acts as a danger signal, warning consumers to be careful of their stores; it insures the distribution of the available supplies to those who are willing to pay most-i. e., presumably to those who have the greatest need; and it automatically attracts further supplies, thus providing its own remedy. This system may work satisfactorily in normal times, but the plain fact is that it has broken down in the extraordinary circumstances of the present winter so far as household coal is concerned. It has no doubt enforced economy among consumers, but it has not insured distribution where supply was most needed, because the poor could not afford to pay the prices demanded; and it has not attracted additional supplies with enough speed to prevent much inconvenience and suffering, because either normal supplies were not available or they could not be brought up. 10. The mechanism by which prices are fixed and the sum paid by the purchaser is divided between the merchant and the colliery owner, presents one curious feature peculiar to London. Some of the best kinds of household coal coming from the midlands (Derbyshire and Nottinghamshire) are largely sold by the collieries to the London merchants on what is known as a sliding-scale contract. A pit-head price is fixed corresponding to a fixed retail price in London; the colliery owner never gets less than the fixed pit-head price, but when the retail price in London rises above that mentioned in the contract he receives half the increase. For instance, a contract is made at 10s. 9d. ($2.62) pit-head price corresponding to a retail price of 25s. ($6.08). If the latter falls to 24s. ($5.84) the colliery owner still receives his 10s. 9d ($2.62) per ton; but he will receive 11s. 3d. ($2.74) if it rises to 26s. ($6.33), 11s. 9d. ($2.86) if it rises to 27s. ($6.57), and so on. The colliery owner has, during the past winter, automatically received 4s. 6d. ($1.10) per ton out of the rise of 9s. ($2.19) from the summer price of coals sold under this kind of contract. It is obvious that this arrangement gives coal owners and merchants a common interest in high prices, while there is no sharing of the loss if prices are low. The merchant is not assisted to reduce prices to the consumer when supplies are abundant by any reduction in the price he pays to the colliery for his contract coal. The arrangement has, moreover, an important effect on the amount by which London prices must be raised to recoup either colliery owner or merchant for an increase in his costs. If they rise 6d. (12.2 cents) per ton, the consumer must be charged 1s. (24.3 cents) per ton extra; for the party whose costs have risen receives only half the increased price. Such a system appears to us indefensible. 11. We have come to the conclusion on the evidence before us that the high prices of household coal are not attributable to the existence of definitely constituted "rings" or close corporations among either coal merchants or colliery owners; but, as in some other trades, there are evidently opportunities of conference among those chiefly concerned which do, in effect, commonly lead to concerted action with respect to prices. In the case of prices under the sliding-scale system of contract (which a leading witness has told us is practically universal for the best kinds of household coal in London), such conference appears from the evidence to work out in practice on the London Coal Exchange as follows: A few leading firms decide upon increased prices, which, without more ado, become the "public prices" of the day, and are advertised next day in the newspapers. Sliding-scale contracts are made on the basis that the price to be paid to the colliery owner varies, not with the retail price actually received by the merchant to whom he supplies the coal, but with these "public prices," as advertised. The pit-head price rises 6d. (12.2 cents) per ton on each 1s. (24.3 cents) advance of the "public price," for all buyers alike, and does not fall for any buyer until the "public price" falls. Thus, without any system of penalties on undercutting, the leading merchants in fixing prices are secured pro tanto against competition by the fact that any reduction made by an outside competitor in his retail price gives him no corresponding reduction in the price which he pays to the colliery owner under the sliding-scale contract. 12. We have stated that in our opinion the initial cause of the increased prices was a deficiency of supply; but our inquiry would clearly be incomplete without some investigation of the causes of this deficiency. The chief is the general reduction of output, due mainly to the large number of miners who have joined the colors, estimated on good authority at 130,000. 13. The reduction during February, as shown in the returns made to the Board of Trade, was about 12 per cent of the output of February, 1914. Some of the evidence given before the committee indicated that the reduction in January had been greater than this per 2119°-15-4 |