Alsberg, Carl L.

English

Duke Law Scholarship Repository

SOME ECONOMIC CONSEQUENCES OFCOMMODITY CONTROLCARL L. ALSBBRG*In appraising legislation intended to protect public health or prevent fraud, it isnot enough to inquire whether the abuses aimed at are likely to be cured; political,economic, and social consequences need to be envisaged also. Only with due con-sideration of these should one venture to answer the question: Are the net con-sequences worth while? Clear thinking upon this question will probably becomeincreasingly important, since control over commodities is likely to be extended merelyto prevent fraud, even though no danger to the public health is involved. The pur-pose of this paper is to set forth a few of the factors that need to be kept in mind inanswering the above question; limitations of space forbid exhaustive analysis.Commodity-control legislation may handicap some of those who produce forexport, if it causes higher production costs than in competing countries; but it mayaid others by inspiring confidence in foreign countries in the quality of goods pro-duced under control. Thus our Meat Inspection Act of x9o61 leads to the sale of somelard as white grease and consequently to higher costs, and this in turn to change inthe price relationships of lard and white grease throughout the world. Hog pricesare affected thereby and, indirectly, the prices of corn and of such lard substitutes asvegetable shortening, margarine, and cottonseed oil. On the other hand, the MeatInspection Act aids exporters because it inspires confidence in American animalfoods. Indeed, a law providing for the inspection of meats for export was enactedsome years before the Meat Inspection Act, not so much in response to an insistentdemand for protection of the public as to conserve our export trade, jeopardized bythe food laws of foreign countries. If the United States was to retain its foreignmarkets, it wag necessary to clean house at home.Many American manufacturers of that day regarded European food laws as reallycamouflaged embargoes or tariffs. The Meat Inspection Act, the Food and DrugsAct (also passed in i9o6),2 and the Plant Quarantine Act3 have turned the tables on*B.A., z896, M.A., igoo, Columbia University; M.D., College of Physicians and Surgeons, ColumbiaUniversity, x9oo; Universities of Strassburg and Berlin, I9oo-i9o3. Chief of the Bureau of Chemistry,U. S. Department of Agriculture, z912-r921. Director of Stanford Food Research Institute since i92.134 STAT. 674, 21 U. S. C. A., §§7I-95.234 STAT. 768, 21 U. S. C. A., §§I-r5.237 STAT. 316 (1912), 7 U. S. C. A., §§i51-i65.SoO EcONOMIC CON'SEQUENCES OF COMMODITY CONTROL 45them, and foreigners now make the same charge against the United States. Ob-viously, commodity-control laws contain the germ of not a little potential frictionbetween nations; but they may also accentuate economic conflict at home-set the cityagainst the country, the south against the north, the west against the east. Thusoleomargarine legislation has always been supported by the dairy farmers of the northand opposed by labor and also by the cotton farmers of the south who find an im-portant outlet for cottonseed oil in margarine. Before the War, the food lawsharpened the conflict between the grape growers of the east and those of California.Wine can be made from Califonjia grape juice without dilution, but in the eastaddition of water and sugar to the must may be necessary in bad years, if the wineis to be palatable. Because a ton of grapes then yields more wine, Californian vine-yardists asked that food officials suppress the practice; an essentially economic sec-tional struggle became a matter for governmental intervention. Cases of this kindmight easil be multiplied.A different kind of conflict inevitably arises if control is based on the interstate-commerce clause of the Constitution, because some zoning of markets results, whichmay give rise to considerable intersectional political friction. Meat packing is zonedin this way because the channels of interstate and foreign commerce are closed toestablishments without federal inspection. Only plants of some size are federallyinspected. Further zoning results from the existence of municipal inspection. Meatproducts may not everywhere move freely from the country districts into a city orfrom one city to another or out of the state into other states or into export. Thosewho are advantaged endeavor through political pressure to exploit the system as asort of internal embargo. The smaller packers doing a local business unhampered byfederal inspection may enjoy appreciable advantages over their larger federally-in-spected competitors. They may purchase animals at a low price that would not passfederal inspection. Their capital investment may be small because they need notmeet the requirements of the federal government in regard to sanitation and the like.In his local territory, the local butcher is, therefore, often able to compete successfullywith the great packer. On the other hand, because he is limited to the local market,he may sometimes have to divert certain kinds of edible material to low-priced non-food uses. The local consumer buys his meats at lower prices, but runs some riskof consuming meats from possibly-diseased animals. The local farmer gets a some-what higher price for animals that might not pass federal inspection, and perhaps asomewhat higher price for those that would. There is less freighting of livestockand slaughterhouse products around the country. Centralization of the meat-packingindustry tends to be prevented. Many small butchers continue to employ local labor,to pay local taxes, and to furnish a local market for livestock, but there are socialwastes arising from the inability of small butchers to utilize by-products efficiently.The Food and Drugs Act has not had as extensive zoning effects as the MeatInspection Act, except upon the trade in market milk. The milk supply of a greatLAW AND CONTEMPORARY PROBLEMScity like New York has to come from a great distance. Market milk has beendelivered on occasion to New York from as far away as Wisconsin, where the costsof milk production are lower than in New York State. The regulations for NewYork and other cities involve very definite requirements in regard to sanitation onthe farm, and they are enforced by municipal inspection. No dairyman whose plantdoes not meet these requirements is permitted to send milk into New York City.Obviously, it is difficult for a dairyman in the middlewest to have his farm inspectedin order that he may ship to New York. The New York milk regulations, thereforeact like a tariff or embargo and result in zoning the dairy business. A dairy farmerwishing to sell milk in several different states may have to meet the requirementsof several cities; and these may not be consistent with one another. There have beentimes when a New Jersey farmer, wishing to sell milk in Philadelphia, Newark, andNew York, had to submit to three separate and distinct inspections. The economiceffects upon the milk consumer, upon the dairyman, upon the distribution of dairy-ing over the United States, and upon the freight business of the railroads are obvious.Charges have not been wanting that milk inspection has been so shaped as to servethe ends of a tariff between the states.Food manufacturers in large cities have sometimes produced goods which arepermitted to be sold within the city that could not be sold in interstate commerce.For example, in the city of New York, ice cream has at times been produced andsold which could not be drayed to Hoboken or Jersey City without violating thefederal food law. A confectioner who sold a 15-ounce box of candy in his home cityhas been known to truck candy in bulk to a branch house across a state line andthere to pack in i5-ounce boxes, thus avoiding the necessity of complying with thenet-weight provision of the federal food law and informing purchasers that his boxesdid not contain a full pound of candy. The writer has known of cases in which foodmanufacturers have produced goods that were adulterated under the federal law orof very low quality to sell in their own city or state and a quite different, superiorline for sale outside their state. There have also been instances in which local re-quirements were allegedly superior to the federal requirements, as, for example,formerly in New York City where skim milk could not be sold legally, whereas itcould be shipped legally in interstate commerce if not misrepresented. The law maythus confer a competitive advantage on the small concern which need not complywith the federal law, because it does not do an interstate business. It has happened,though rarely, that such a concern, as it grew, found it advantageous to evade thefederal law by establishing a branch factory in another state rather than to enlarge* its existing capacity and ship in interstate commerce.Obviously, commodity-control legislation may present all the economic effects oftariffs. While tariffs were low, the Meat Inspection Act restricted the importation offresh, chilled, and frozen meat. Prices of meats in all importing and exporting coun-tries unquestionably were, and perhaps still are, influenced thereby. To size up allSoME ECONOMIC CONSEQUENCES OF COMMODITY CONTROLthe consequences, it would be necessary to evaluate the losses to producers and gainsto consumers in all foreign countries, as well as the benefits to American producers.It would be necessary also to balance the losses from higher prices to American con-sumers against the quite imponderable, though very real value of protection againstmeats prepared possibly under insanitary conditions. Perhaps the disadvantages toproducers outside the United States are greater than the gains to the United States.Foreigners might be led to retaliate, and perhaps do, by buying less in the UnitedStates. This must ultimately follow in any event, because the foreigner can buy inthe long run only if he is permitted to offer something in exchange. Foreign govern-ments, even, may retaliate by tariffs, quotas, embargoes, and other restrictive measuresaimed at American goods. In the United States, all producers for export are affectedin proportion. Moreover, ill will may be generated with appreciable repercussionsnot merely upon American export trade but also upon tourist travel. In the case ofthe Meat Inspection Act, one can justify restriction of imports on the ground ofpublic-health protection. In the case of other commodities not affected with a public-health interest, justification is sometimes more difficult.The Tea Importation Act Of I8974 is a case in point. It contains among otherprovisions a prohibition of the importation of tea below a certain quality.5 Theeffect has been to limit importations from countries producing the lowest grades,and to weaken to some extent the power of these countries to buy from the UnitedStates. Importation from other countries has been favored and their capacity to buyAmerican goods increased. The geographical distribution of tea culture has possiblybeen changed and price differentials between low and high grades widened. Sinceonly the better grades are permitted entry into the United States, the average Amer-ican price has probably been higher than it would otherwise have been. Per capitaconsumption in the United States may have been raised because no tea has beenadmitted so poor as to disgust users with tea drinking, but at the same time highprices may have restricted the market. Some of the very poor may have purchasedless than otherwise they would have elected to buy. There may be consumer classeswho prefer low quality at a low price to higher quality at a higher price because theyare undiscriminating. On the other hand, those who are able to pay for average, orbetter than average, grades have had no very poor teas palmed off on them. Suchconsiderations as these raise the question whether the best interests of consumers asa whole might not have been served better by a law which, in addition to preventingthe adulteration which the present law prohibits, compelled adequate truthful brand-ing instead of forbidding importation of low-grade teas.Most people are apt to assume that the purpose of commodity legislation is toensure them goods of high quality. However, a law accomplishing more than toensure the consumer his money's worth is of questionable value. Quality is a relative,often a purely subjective, concept, for scarcity and esthetic considerations often de-'29 STAT. 604, 21 U. S. C. A., §§45-50.'Such teas are admittedly neither more nor less wholesome than the better grades.LAW AND CONTEMPORARY PROBLEMStermine it. High quality has to be paid for. The cost of living would be raisedenormously, if there were none but high-quality goods on the market. Indeed, inmany commodity classes, there might not be enough to go around-canned peaches,for example, in which the difference between the very highest grade and the gradesimmediately below is not one of good value or flavor, but of appearance merely. Itmust be remembered that most of us buy with our eyes.The cost of doing business may rise, even for the honest man, because of controllegislation. Special forms of labeling and packaging may be required, or the keep-ing of books in a definite way, or manufacturing may have to be done under specifiedsanitary conditions, or chemists and other technologists may have to be employed,etc., etc. It is of no moment to business men if costs go up alike for all of them,since added costs are usually passed on to the consumer. Unfortunately, these costsare apt to weigh more heavily upon the small than upon the large business, for morecapital may be required which the large concern can usually secure more easily thanthe small one. For a small business, the employment of technologists and the main-tenance of testing laboratories may prove difficult, because it may increase fixedcharges more than the volume of business permits. On the other hand, many man-ufacturers would be saved the cost of testing deliveries in the laboratory. The ex-penditure in labor and materials that would be unnecessary for this purpose, iffalsification were punishable, it is impossible to estimate, but it would probably bevery large indeed. Not the least gain would be social, for a vast improvement ofbusiness morals would result with repercussions on society as a. whole that no onecould appraise. The business man is often compelled to adulterate or be ruined.It may be true that honesty is the best policy in the long run, but many a manufac-turer has not the resources to last for even a not-very-long long run. The effects ofthis kind of unfair competition on business ethics and upon the tone of the com-mercial world are undoubtedly profound and evil.It is a fallacy to argue that, when the debasement of a commodity has becomegeneral, it is never of import to the public welfare, since demand and supply de-termine the price. Weighting of sole leather, for example, adds nothing to its wearingquality; it may give a false appearance and feel of firmness to inferior leather. Sinceit takes as much labor and nearly as much capital to produce shoes with inferiorweighted soles as with superior ones, more capital and more labor are needed tokeep a person in footgear for a given time if he wears inferior shoes than if he wearsbetter ones. As an individual he may not be disadvantaged, if he has paid a lowprice for the inferior shoes that soon wear out, but there is social waste of capitaland labor nevertheless, to say nothing of the waste of loading material (glucose andepsom salts) and the unnecessary manufacturing expense of weighting. In general,if costs of raw materials are small as compared with costs of labor and distribution,the production of low-grade goods is not in the national interest. On the other hand,if the low-quality goods are also serviceable and cheap, they become attainable forSOME ECONOMIC CONSEQUENCES OF COMMODITY CONTROLlarger classes whose standard of living may in consequence rise. The increase indemand may then make mass production possible, which in turn may more thanwipe out the wastes of labor and capital resulting from the manufacture of the poorerproduct. The net result may well mean material social gains.With increasing mechanization of industry, this has been the course of events inthe modern world and especially in America. Labor is tending more and more torepresent a smaller and smaller element in the costs of production. In consequence,cheap goods with a short life become better buys, especially goods subject to changesin style. The extreme case is the wood-pulp plate used for a single picnic meal, orthe paper towel which, though used only once, is economical because the costs oflaundering are saved. Such goods are typical of American economic life, and withthem the tremendous development of junking in the United States. In the oldworld, goods are still expected to last, if possible, forever. Obviously, one cannotgeneralize about commodities as a whole. Each class of commodities has to beconsidered as a special case. Thus the question is more important for durable thanfor non-durable goods. General lowering of quality in merchandize, though accom-panied by a lowering in price, is a matter of public concern as a question of nationalpolicy. It may well be that some check in the way of commodity-control legislationis in the public interest.Social gains of this sort involve more or less change in manufacturing processes,but government control tends inevitably to crystallize and fossilize trade practices.The manufacturer, in considering whether or not it is wise for him to take up theproduction of a new product, especially if it is a substitute or imitation, must basehis decision not merely upon his judgment of the probability of earning profits butalso upon the probable attitude of law-enforcing officials regarding branding andother conditions of marketing. The protection of the public from frauds of necessityentails some discouragement of the introduction of new products, even though theybe meritorious, and also some delay in the application of science and invention toindustry.It must be clear to the reader by this time that far-reaching political, economic,and social consequences may follow in the wake of commodity-control legislation,and that benefits cannot be weighed against disadvantages in any scientific manner,since neither the benefits nor the advantages can be measured in terms of social wel-fare. Each type and class of commodity presents its own problems. Each personmust weigh benefits and disadvantages on the scale of his own social and politicalphilosophy. There is probably only one point of view on which all would agree:it is that the public health must be protected, even at very high cost. To attemptto balance benefits to public health against economic or other social costs is to com-pare incommensurables. All that can be done is to recognize the existence of thesecosts and to reduce them to whatever extent is compatible with public health. Whenhealth is not involved, the striking of a balance in rather general terms is not impos-sible. It is in this unsatisfactory state that we must leave our subject.

Some Economic Consequences of Commodity Control

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Some Economic Consequences of Commodity Control

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