The U.S. Government attempted to deal with profiteering in three ways : ( ) taxation; (2) price-fixing; (3) direct action under the Food Control Act. The first and the last methods proved largely ineffective.
By special taxes levied on profits, many thought that the spoils of the profiteers could be regained by the public. In 1916 a tax of 121% was levied on the profits of munitions manufacturers; and a general "war profits tax" and an "excess profits tax" were imposed in 1917. In 1918 these taxes were combined. But, un fortunately, it proved so easy for most corporations to increase their investment accounts, and to pad their expenses, that the worst profiteers often showed small excess profits. Moreover, a considerable part of the tax was shifted to consumers in the shape of higher prices, as was possible during the inflation period.
Government price-fixing, while it did not prevent profiteering, did moderate the evil, notably through such substantial reduc tions as were made in the prices of wool, coal, sugar, flour and sulphuric acid. Unfortunately, this means was not used as vig orously and thoroughly as it would have been had there not been an ill-founded reliance upon profits taxes.
On Aug. to, 1917 the Food Control Act became law. Section 4 of this act made it unlawful for any person to hoard or to make any unjust or unreasonable charge in transactions relating to "necessaries" (foods, feeds, fuel, fertilizers, farm implements and machinery), but imposed no penalty. Sections 6 and 7, how ever, provided for penalties and seizure, in case of hoarding. Section 5 authorized the licensing of dealers in necessaries and the fixing of fair storage charges, commissions, profits or prac tices. The fixing of prices for coal and coke was authorized in section 25. It was under this act that the Food Administration operated, and, as already indicated, its control over prices was partly effective. On June 3o, 1919, however, the activities of the Food Administration were suspended; and as the agitation con cerning the "high cost of living" grew in volume, the Department of Justice assumed the task of enforcing the law, which remained in force while a state of war was only technically in existence. But the attorney-general found his efforts limited by the ab sence of a penalty clause in section 4 and the restricted definition of "necessaries," and, at the president's request, Congress re enacted the law in Oct. 1919, with amendments to cover these defects. In the year following the re-enactment of the law there were over 2,000 indictments, arrests and sentences, involving chiefly the commodities just mentioned, together with meats, po tatoes and meals at restaurants. The great majority could not be sustained under the law. The act was declared unconstitutional by the U.S. Supreme Court in Feb. 1921. In the meantime prices had declined and the public lost interest in the subject of profi teering.
In a sense the U.S. Government was to blame for much war time profiteering. In the first place it was lax in letting contracts and making purchases, either directly, or indirectly, by placing authority in the hands of interested persons. The "cost-plus system" invited profiteering as well as inefficiency. In the second place its combination of excess profits taxes and price regulation was unfortunate. Taxation proved at best to be an inadequate means of reaching profits, and early laxity in defining cost and investment made this means nugatory.
See the various Reports of the Federal Trade Commission; the Report of the Massachusetts Commission on the Necessaries of Life (1920) ; and Senate Document No. 248 (65 Cong., 2 Session). (X.) In European Countries.—Periods of inflation in different countries were marked by measures designed to check speculation and prevent further rises of price. Legislation to mitigate profi teering by combines was consequently passed in several countries, including notably Germany, Czechoslovakia and Norway.
The German experiment, represented by the "decree against the abuse of economic power," which came into force in Nov. 1923, is of particular interest. The decree provided amongst other things that the German minister of economic affairs may, when he considers a cartel agreement or the method of putting it into oper ation detrimental to the public interest, apply to the Cartel court set up in accordance with the decree to have the agreement declared void or the particular method of carrying it out forbid den. The public interest or the common good is to be considered as detrimentally affected, particularly when supply or demand is restricted in a manner not economically justifiable; when prices are raised or kept high ; or when, in the event of prices being quoted in a stable currency, extras for risks are included; or when economic freedom is unreasonably restricted by boycott in buying or selling or by the fixing of discriminating prices or conditions. Until the summer of 1925, action by the government was confined to unofficial intervention, and it was claimed that this was success ful in bringing about a large number of price reductions and in preventing price increases. In the latter part of that year the Gov ernment made a number of applications to the court with regard to business conditions or, methods of price fixing adopted by par ticular cartels. These cases, however, were settled by arrangement, without the Cartel court giving a decision; and the Government made no further applications to the court. (C. K. H.) the term applied to an arrange ment under which an employer, in accordance with an agreement freely entered into, hands over to his workpeople as supplementary remuneration a share, fixed in advance, of the profits of the concern in which they are engaged. This definition, it should be observed, excludes many forms of profit-distribution and bonus payment to workpeople. The condition "fixed in advance," for example, rules out of profit-sharing proper those cases in which an employer makes to his employees, at his absolute discretion. a present out of his profits, even though the payment is made regularly year after year; for such presents are gratuities lacking the elements of pre-agreement and rightful title. Again, the supplement distributed must be dependent on profits. Systems of payment by results, such as piecework, individual premium bonus, collective or fellowship bonus, and the like, are not profit sharing. In such systems the payment, as a whole or in some supplementary part, is dependent upon the output of the indi vidual or of the group, without reference to whether the produc tion culminates in greater or less profit or loss to the undertaking.