Frank Albert Fetter’s October 1937 review essay examines the pricing-policy arguments in The Economics of the Iron and Steel Industry, a University of Pittsburgh study by Carroll R. Daugherty, Melvin G. de Chazeau, and Samuel S. Stratton. His scope is the study’s treatment of basing-point pricing, principally attributed to de Chazeau, rather than its parallel investigation of labor relations. Across twenty-four sections, Fetter challenges two defenses of the prevailing system: that steel production makes monopoly inevitable, and that investors possess vested rights against changes that would diminish existing plant values. His central contention is that basing-point pricing is a historically constructed instrument of monopoly, not an unavoidable consequence of industrial technology.
The controversy had renewed practical importance after the N.R.A. period, a Senate proposal to prohibit basing-point pricing, and Federal Trade Commission complaints against other industries using it. Fetter regards the Pittsburgh study as a disappointing intervention precisely because academic investigation promised an independent assessment. He reconstructs its principal argument as a chain running from mass-production economies through large plants and fixed investment to fewer sellers, fear of retaliation, and oligopolistic price restraint. He accepts much of this description but denies that it establishes either monopoly’s permanence or the futility of public remedies.
The first conceptual objection concerns overhead costs. Fetter argues that the study converts investors’ expectations of recovering their expenditures into claims warranting artificially maintained prices. Fixed investment is widespread; its existence does not establish that an industry must suppress price competition.
Clearly it is not overhead costs but monopoly that permits fixing prices to realize overhead costs.
This reverses the explanatory direction of the study. For Fetter, monopoly enables sellers to enforce the returns they desire; the desire for such returns does not prove that monopoly is economically necessary. His alternative price theory treats competitive and monopoly pricing within a common account of sellers seeking the highest obtainable price, constrained by buyers’ alternatives. Competition matters because it strengthens those alternatives, not because it guarantees an exact correspondence between prices and business outlays.
Fetter’s next move is to distinguish technological scale from financial concentration. A corporation controlling numerous geographically dispersed plants is a single seller, even when each plant remains of moderate, economically efficient size. Horizontal mergers therefore reduce independent sellers without demonstrating any necessity for larger individual production units. Similarly, agreements, coordinated selling, threats, and retaliation can suppress independence among firms whose plants remain separately owned. The study’s emphasis on impersonal economic forces obscures these deliberate arrangements. Basing-point pricing must consequently be examined as a means of consolidating monopoly, not merely as monopoly’s passive expression.
The middle sections defend the mill-base rule against two opposing caricatures: that it promises perfect competition, and that it unleashes wholly unregulated competition. Fetter’s actual claim is comparative and institutional. Mill-base pricing could substantially weaken centralized price control, reduce discrimination and waste, and enlarge smaller sellers’ freedom without eliminating every monopolistic influence.
Abstract perfection and utopian purity in competition are not to be expected.
Rejecting perfection as the standard of success allows Fetter to distinguish useful reform from an impossible ideal. He likewise insists that the mill-base rule is itself public regulation, not laissez faire. The crucial issue is freight absorption: permitting sellers to adjust their net realized prices by absorbing transportation charges would allow discriminatory delivered-price practices to survive beneath nominal mill-base quotations. Effective reform must therefore address the mechanism sustaining coordinated prices, rather than merely change the terminology of quotations.
The vested-rights argument occupies the later sections. Fetter traces its movement from reasonable caution about abrupt change to a claim that established investments deserve continued protection or compensation. He exposes the tension between this argument and the assertion of inevitable monopoly: a rule supposedly incapable of restoring competition is nevertheless portrayed as capable of destroying investment values. More fundamentally, present investment patterns cannot be treated as innocent baselines. Basing-point pricing has already altered industrial locations, deprived regions of advantages, injured existing firms, and prevented potential enterprises from appearing.
The voices of the dead in industrial graveyards are silent.
The sentence challenges reliance on testimony from surviving firms accommodated to the existing system. Their satisfaction cannot represent investors already eliminated or enterprises prevented from forming. Fetter thus extends the accounting of injury beyond the visible losses that reform might cause. The study’s acknowledgment that changing the pricing rule would change industrial geography also concedes his opponents’ earlier point: basing-point pricing is a substantive economic arrangement, not simply a convenient way of quoting transportation-inclusive prices.
The concluding sections question both the study’s coherence and its evidentiary reach. Its recommendations fluctuate between temporary continuation, permanent economic necessity, possible public control, and demands for further investigation. Fetter also argues that the abrupt termination of the N.R.A. disrupted a project originally designed to study steel under its code. Evidence from an officially sanctioned experiment in industrial self-government cannot establish that monopoly necessarily develops under all institutional conditions.
Finally, Fetter draws out the implications beyond steel. If similar production conditions exist throughout basic industries, the study’s defense would authorize monopoly much more generally.
Acceptance of the authors' argument for the basing-point in the steel industry would carry with it a general acceptance of the practice and would legalize the most effective instrument of monopoly in the greater part of the industrial and commercial fields.
His warning about “totalitarian monopoly” makes explicit the political stakes of his economic analysis. The essay’s enduring concern is the slide from explaining concentrated markets to legitimating private price control. Against that slide, Fetter presents competition as an imperfect but improvable institutional achievement, sustained by rules restraining discriminatory practices and protecting independent action.
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