The Food and Fuel Administrations

In August 1917, Congress passed the Lever Food and Fuel Control Act, establishing wartime Food Administration and a Fuel Administration. Let us consider, briefly, the more famous agency, the Food Administration. Herbert Hoover was appointed the food administrator. Hoover already enjoyed a reputation as a brilliant administrator—he was

Bernard Mannes Baruch in a less trying moment. A successful Wall Street investor and speculator and strong supporter of the Democratic Party, Wilson named him to head the War Industries Board in 1918.

Then serving as the director of the Commission for the Relief of Belgium—and his reputation grew with his performance as food administrator. His job was to maintain an adequate supply of food to the domestic market and to our allies while preventing excessive increases in prices. The tools given to Hoover were limited, and his philosophy of government—which emphasized voluntary cooperation—discouraged him from seeking greater authority. Direct control of prices, with penalties for violation, was generally avoided, as was formal rationing, except in the case of sugar. (Economic Insight 21.2 on page 391 discusses the economics of rationing.) But the food administrator was given the power to license food dealers. This license could be revoked if the dealer failed to follow the Food Administration price policies.

In place of formal rationing, Hoover called for voluntary conservation. “Meatless Mondays” and “Wheatless Wednesdays” were promoted as ways of reducing domestic demand and leaving more for exports. Hoover clearly believed that appeals to moral principles could influence behavior. Retailers, moreover, were permitted to require purchasers of

THE ROLE OF RATIONING

This figure illustrates the role of rationing. The government has fixed the price at P. But at this price, the quantity demanded exceeds the quantity supplied by CD. This reduces output (compared with letting the price rise to the free market equilibrium, P*). Some consumers, moreover, will be frustrated by empty shelves. Time may be wasted waiting in line, and the scramble among consumers for the limited supply may lead to bribes and various forms of concealed price increases such as reductions in quality.

To solve some of these problems consumers can be issued ration tickets. Although the systems vary in detail, the basic idea is that with each purchase a consumer must turn over a ration ticket along with the money price. The ration tickets in this case reduce the effective demand curve to ABCE. Because the government in this example has guessed right (issued neither too few nor too many tickets), no excess demand occurs, and the problems created by price controls are reduced. Formal rationing was used for sugar (after long waiting lines became intolerable), but in many cases, the government permitted “socially desirable” forms of hidden price increases, such as the tie-in sales intended to promote the baking of Victory bread described in the text. The result was to move the true price toward the free market equilibrium, P*.

Price

Wheat flour to buy additional amounts of less desirable substitutes such as rye or potato flour. The resulting mixture could be baked into a loaf of “Victory bread.” Of course, this was also a hidden price increase. The true price of the wheat flour was the direct amount paid for the wheat flour plus the difference between what the buyer was forced to pay for the less desirable substitute and what he or she would have paid voluntarily. By such halfmeasures, food prices were controlled and output rationed.