Pittsburgh Minus

The trouble with "gentlemen's agreements" to stabilize prices, according to the industrial engineering firm of Ford, Bacon & Davis, is that 60% of the agreers are gentlemen, 30% just act like gentlemen and 10% neither are nor act like gentlemen. Result in the early years of the steel industry was that every price pool ended in price chaos. Then along came a gentleman who also carried a big stick--stern Judge Gary of U. S. Steel Corp. Since Big Steel at the turn of the Century had 65% of the total ingot-steel capacity, Judge Gary could easily knock into line any other company which disregarded his price policy. But open price-fixing was illegal, so Judge Gary would give dinners for all the steelmasters; somehow, when the demitasse came round, everyone knew what to charge for steel. In 1911, when the Government was ready to jump on this arrangement, the industry adopted a new procedure. Since then, whenever the Government has jumped on steel price policies, the industry has been one jump ahead. Last week the third such jump was in progress.

For his dinners, Judge Gary in 1911 substituted the famed "Pittsburgh Plus" system--any steel consumer paid the Pittsburgh base price plus freight from Pittsburgh to his door, even though the steel might come from a mill in an entirely different location. From the steel-man's point of view, this was ideal, for it put all steel mills, no matter what their location, on an equal competitive footing all over the U. S. But consumers soon howled. A Chicago buyer in 1920 paid the $40 a ton Pittsburgh price plus $7.60 a ton freight from Pittsburgh, then found that the steel was actually being delivered from a Chicago plant next door. In 1924 FTC got around to jumping on "Pittsburgh Plus." Thereupon the industry developed the basing-point system whereby prices were quoted at some 80 steel-plant centres and a consumer paid the price of the nearest basing-point plus freight.

This year, storm clouds again began to gather. With a new Depression, Franklin Roosevelt took to grousing about the rigidity of steel prices. The Federal Trade Commission launched an attack on the basing-point system used by the cement industry (TIME, April 25). Then came the Wheeler-Lea Act which had a minor clause making all unchallenged past orders of the FTC automatically effective unless the respondents filed an appeal before May 21. Recalling that FTC's order ending "Pittsburgh Plus" had never been challenged, since the company consented to the action, Big Steel hastened to file an appeal against this 14-year-old cease-&-desist. By this time the handwriting was clearly on the wall. All that was needed to make Big Steel jump again was the creation of President Roosevelt's Monopoly Investigation. Its first meeting was scheduled for last week and it was common gossip that U. S. Steel Corp. was No. 1 on its agenda.

Fortnight ago Big Steel not only yielded gracefully to President Roosevelt's demand for price cuts, but quietly took what Iron Age called "a long step toward abolishing the controversial basing-point system." It lowered Birmingham and Chicago prices to a par with Pittsburgh (TIME, July 4). The price cuts caught the public eye, but in the steel world the removal of the old differentials caused a consternation which last week reached epic proportions. Other companies struggled to get into line. Small independents stormed that they could not.

Big Steel's abandonment of the price differential in effect abolishes an umbrella it has held over the independents. With its plants strategically placed. Big Steel has little fear of losing its present share of business, but some competitors in less favorable spots last week faced heavy losses. Bethlehem Steel's factories at Buffalo and Sparrows Point, Md., for example, had to cut their price for steel plate $2 more than did Big Steel in order to equalize freight difference and the effects of removing price differentials. Bluff Chairman Ernest Tener Weir of National Steel Corp., whose modern plant at Weirton, W. Va. now is distinctly at a disadvantage, sputtered that the price reductions "would be extremely costly." Little Wickwire Spencer Steel Co. was said to have protested to Washington that it might not be able to survive. Detroit. Cleveland, Sparrows Point. Md., and Middletown, Ohio, overnight became basing points as other steel companies sought to retain their competitive positions.

Thus highlighted was the ironical fact that an action to avoid a Governmental reprimand for monopoly might increase monopoly. It has always been the steel industry's claim, seconded by cement and other heavy industries, that without price stabilization of some sort the inevitable result is a number of monopoly mills whose strategic position enables them to undersell and consequently force out of business their competitors.

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