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STATEMENT OF SENATOR JOSEPH C. O'MAHONEY-Continued

Modern industry has produced collectivism. Unless we can organize the economy so that the people can control it, we shall have difficulty in preventing the growth of big government.

He cites the Atomic Energy Act, whereby the Commission was given
monopoly over atomic power because too important to trust to
private hands.

This is really a Government management organization. Private
firms such as General Electric make the bombs and build plants.
The old Standard Oil Co. was broken up but in its place sprang a dozen
companies each larger than the original Standard Oil Co.
Four oil companies operate in Saudi Arabia in the biggest deposit of
Ioil in the world. These companies are in effect partners of the
Government. And thus they take on the aspects of the power of the
Government. They have done a good job, not only getting oil but
adding 15 pounds to the weight of the average Arab.
There is also interchange of Government and business managers.
win the war, government had to adopt managerial policy toward
industry.

Το

The cartel system in Europe led directly to the totalitarian system of government. Communism arises because of proletariat which does not have economic freedom. Senator does not believe entire problem can be solved by antitrust alone.

He recites the failure of the old dissolution of the packers and stockyards and the necessity for the recent suit against the packers. We must recognize the changes wrought in modern world.

Discusses separation of management from ownership. Thus owners do
not control corporation.

He would advocate besides antitrust legislation, a bill to provide
Federal chartering of corporations.

His bill for Federal charters would allow States to create corporations,
but would provide standards for corporations in interstate commerce.
The provisions of bill were recommended by TNEC.

The bill would not take power away from the States but would restore local self-government.

Deplores extent to which law depends on personnel of enforcement agencies. Under Federal charter, the law would be more definite. Permitting States to create corporations to engage in interstate commerce over which they have no power has given rise to big concentration. He is not against bigness per se.

Power granted to Congress under commerce clause means regulation.
The problem is how are you going to regulate it-by boards or by a
contract under which they run their own business.

Senator tells how Aaron Burr received a charter to give New York City
a water system and at the same time to do anything not in violation
of law. He thereby opened up a bank. This tale shows how States
give blanket charters. It would be for Congress to decide how
diverse a business should be when granting Federal charters.
The report of the Small Business Committee showed many oligopolies.
One thing that could be done in legislation is to provide that no firm
corporation could have more than a given percentage of a single
industry.

Judge Gary when he was head of United States Steel said that the de-
mand at that time was 40 percent. Charter bill does not specify a
percent.

We must see that corporations do not exercise arbitrary power. Sloane, of General Motors, said he didn't want control of more than 45 per cent of the motor business.

Head of Lever Bros. said he didn't want to control more than 75 percent of soap business. Congressman Celler points out that Lever Bros., Colgate-Palmolive-Peat and Procter & Gamble control over 90 percent of soap making and the destinies of 1,500 small makers as well. Witness points out they control most of the radio time. The force of advertising thus shuts out competition.

Brookings Institute publication shows 54 percent of all industrial workers in United States employed by less than eight-tenths of 1 percent of all the employers.

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STATEMENT OF SENATOR JOSEPH C. O'MAHONEY-Continued

This has led to tremendous labor-union development. Question is how to prevent business from being suppressed by monopoly or by Government. Should be some tax concession for new competitive business.

Mr. McCulloch thinks that this committee should hear information on taxing policy even though legislation would come from another committee.

O'Mahoney doesn't think that Federal charter system would involve a large commission.

If the charters have a detailed statement of powers and privileges, would not need any large agency to enforce them.

States should not be permitted to define powers in foreign and interstate commerce, a field left to Congress under the Constitution. Charter should circumscribe rights and privileges, but not be withheld at discretion of issuing agency.

HEARINGS, WEDNESDAY, JULY 13, 1949

STATEMENT OF JOHN D. CLARK, MEMBER OF COUNCIL OF
ECONOMIC ADVISERS

Objective of Sherman Act is increasing production. Lowering of prices
is not final objective, but normal consequence of increased production.
Sherman Act deals with combinations and agreements directly limiting
production and unfair methods of competition. The principle
announced by Senator Sherman should be kept in mind as the basic
justification for free enterprise system.

Without competition, technology languishes, production lags, costs rise;
President Roosevelt give up in 1908 and demanded that combinations
be permitted but that the National Government control them.
He had in mind control similar to ICC. This may be only alternative
to Sherman Act, but perhaps investigation will find solution. Quotes
Wilson defining difference between big business and a trust.
Many today accept the decision of Theodore Roosevelt that it is too
late for effective competition.

We recognize this control by talking of administered-price industries.
He describes industry where there is nearly complete competition,
in contrasts with administered price industries.

In the latter, when prices weaken, production and employment are
dropped rather than prices. Competitive business lowers prices.
There is no need for collusion as competition fails to bring its force
to bear.

In such instances, we must heed seriously the alternative policy of
Theodore Roosevelt.

Two features of antitrust policy following First World War. With-
drawal from scope of Sherman Act of numerous business activities,
from the Webb Pomerene Act of 1919 to the Reed-Bulwinkle bill of
1948.

The test should not be on any general principles but on a pragmatic basis, between competitive enterprise and Government regulation and control. Priority to the former, however, is generally accepted. The Capper-Volstead Act has exempted agricultural marketing cooperatives. The Marketing Agreement Act of 1937 permits pricefixing of milk.

These modifications affect volume of production and prices of food and, in turn, the well-being of the people.

Appropriate committees determine the labor policy on labor-management relations.

But this committee should investigate labor conditions that interfere with production, or increase cost, or restrain competition, e. g., the determination by mine workers that mines should not operate more than 3 days a week. Thus the industry can achieve production control by permitting unions to accomplish what owners are forbidden to do.

Investigation should consider patent monopoly. Refer to the reports and investigations of TNEC.

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STATEMENT OF JOHN D. CLARK, MEMBER OF COUNCIL OF
ECONOMIC ADVISERS-Continued

The second development after First World War was the unwillingness to press competition to the point where even the marginal producer was driven out of business. There has been advocacy of "soft competition."

The Federal Trade Commission early fell into practice of devising rules tempering the competitive structure.

Miller-Tydings Act amended Sherman Act to permit price fixing under sanction of State laws. Nearly every State now allows manufacturer to control retail prices.

This should be looked into as it will spread widely. States have also enacted fair-trade-practice acts under protection of Miller-Tydings Act under which prices are set high and one competitor can police the prices of another and maintain suits for damages.

Robinson-Patman Act has amended Clayton Act to strengthen rule against price discrimination.

There is a tenuous line between unfair methods and rugged but fair competitive practices. The decision, again, must be made upon a pragmatic basis. Sometimes, he believes that particular rulings of FTC overstep the line between unfair methods and those necessary to competition. Rules should be clearly expressed in the statute and not lurk in ambiguous phrases.

The burden is on those who wish such acts as Robinson-Patman Act
and Miller-Tydings Act to show that they will not deny people
larger production of goods, lower costs, etc., and an improved standard
of living. End of prepared statement.

Labor should be part of inquiry only insofar as indicated above.
He believes Miller-Tydings Act should be repealed; Robinson-Pat-
man Act clarified, to make sure it did not prohibit aggressive methods
of competition which were not unfair.

Would eliminate the power given to the States by the Miller-Tydings
Act.

Miller-Tydings Act is an open policy to fix prices.

It permits vertical price fixing between manufacturing distributor and retailer. Where there is no fair-trade law prices are lower. Miller-Tydings Act is frequently violated by price cutting, though usually the Miller-Tydings Act markets maintain prices higher than elsewhere. Most contracts have escape clauses for obsolete and outmoded goods.

Report of Council of Economic Advisers states that administered price industries depart from competitive industries in three respects:

1. Expansion of production and plant capacity.

2. Volume of employment.

3. Price levels.

Clark describes operation in industries where production, employ-
ment, etc., are manipulated to avoid depressing prices.
Some argue of the social desirability of the administered price indus-
tries in lending a semblance of stability in business decline.
And during inflation, the administered price industries maintained
lower prices than others. They were unwilling, however, to expand
their business as did the competitive economy. If they had ex-
panded and brought down prices, the entire market level of a few
months ago might have been maintained.

There is a difference between agriculture where support prices are
necessary, and industry.

Mr. Celler asks what he recommends should be done by Congress regarding administered price situations.

Clark prefers to postpone suggestions because:

1. He wants the benefit of this investigation.

2. His proposals are such that they will be startling and wishes the seriousness of the problem recognized before stating them. Mr. Wilson asks about dangers of overexpansion of capacity.

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STATEMENT OF JOHN D. CLARK, MEMBER OF COUNCIL OF
ECONOMIC ADVISERS-Continued

Clark talks about recent Socony case where circuit court upheld right of Federal Trade Commission to prevent Standard Oil from selling gas at 12 cents below the price to retailer. Clark was shocked by that decision.

Mr. Denton points out that chain store has greater buying power, can run smaller people out of business, then can raise prices.

Dr. Clark says that small business does have advantages which can be capitalized on, such as personal managership, etc.

Clark does not approve of policies such as NRA designed to prevent competition working itself out.

Will agree that competitors are not bad just because for the moment they are in the driver's seat.

If steel had expanded competitively in 1947-48, prices would have yielded a livable profit.

Unemployment is result of entire economic situation.

An industry that cuts production rather than prices in a soft market is generally governed by administered prices. The textile industry, though apparently widely scattered was found to be an administered price industry in separate segments.

Mr. Celler asks Clark for future discussion of excessive size and technological inefficiency, and of amount of power one firm should have in an industry.

Bigness nearly always results in price leadership.

Price leadership is not a violation of Sherman Act, but that is what the committee should concern itself with. Cannot have price leadership in a dispersed industry without a trade association that evades antitrust laws.

Shoe industry does not have any price leadership nor does ladies' garment industry or furniture industry.

Food industry is fairly free from price leadership. During inflation, the administered price industries kept prices below the competitive level for which they must be given credit.

The example of Henry Ford in an administrative price field Clark feels was peculiar to Ford. It backs up his thesis that expansion of production yielding lower prices is profitable.

Steel productive capacity is not now large enough to meet normal demand in a full employment economy.

Still are 20,000,000 families not able to buy goods because prices are excessive.

Doesn't think overexpansion in 1929 caused the depression.

He favors Government ownership of public waterworks systems, for example.

now.

Also favors public power such as TVA. Public ownership is proper in any kind of business where it is no longer controlled by the forces of competition and public utility regulation does not work well enough. Does not believe any problem of Government going into steel business He did recommend before a congressional committee that the Government should study what capacity was necessary to supply the needs of the people, to encourage all private means to attain such production, but if it were impossible to achieve through private manufacture, the Government should step in itself.

When people decide they are not getting the goods they need through private enterprise they have the right to require the Government to act for them. A national referendum would be impracticable. He believes that Congress should decide.

If Congress felt that private industry was not producing enough, it should authorize Government to go into any kind of production. Will not draw the governmental function line of distinction.

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STATEMENT OF MORRIS L. Ernst, AttornEY

This is the twelfth time he has testified before a congressional com-
mittee in connection with monopoly and concentration of power.
Quotes Ernest Wier on bigness becoming unmanageable.

Ten years ago for Brandeis he did a study to discover optimum size for
efficiency. Determined that for savings banks, optimum point for
savings banks in New York was $250,000,000. Minimum point of
efficiency was $40,000,000 in New York City, but $15,000,000 for
banks up-State. Bigness generally results from power; not from
ingenuity.
Bigness is creating a race of robots. Also when bigness is too big for
the public, there is a demand that Government take over business,
and then Government gets too big. Does not favor Government
going into business, as will get too big and too powerful.
Bigness does not benefit the economy--witness TNEC reports, FTC
reports, miscellaneous statistics. Twenty-eight companies each
with resources of over $1,000,000,000 own one-half of the total re-
sources of the United States. That creates a threat of statism.
So many studies have been done that they will do no good unless the
point of view of the American public is oriented toward the problem.
Last 10 years have been a seller's market. Now we no longer have
one. There will be an onslaught upon the small-business men.
Bob Lovett made a study of a woman investor who invested savings
in largest corporations over decades and her capital in no single
decade remained intact. Look at all big corporations of last 50 years.
Should have more studies of the optimum size for efficiency. There
are 121 products in the United States with sales of over $10,000,000
where four companies or less have 75 percent of the business.
Folkways in New York determine American culture. In New York
four networks dominate air; five movie companies; three press
associations.

Too much delay in getting antitrust decisions from the courts.
Congress has appropriated meager funds for antitrust department.
In motion-picture case, the picture companies spent million dollars
for legal talent.

He thinks Secretary of Commerce should be a representative of small
business bent on seeing that there be decent and fair competition.
This investigation will only make back pages of papers for, although
vital, there is nothing scandalous.

Ernst will try to see that this committee gets some publicity.
More mergers this year than in last 15 years. One impulse toward
merger is capital gains tax. People sell out in order to pay capital
gains tax instead of income tax.

No

Sliding postage rate is unfair discrimination against small business.
one can get into cigarette business. He suggests a graded tax on
cigarettes.

Of three or four large soap companies dominating the market, three have
steel mills. Nothing new in prohibiting such practice, since railroad
by statute cannot own coal mine, airplane company; bank cannot
be in security business.

Line should be drawn case by case in prohibiting companies from going into sundry industries. Celler points out that makers of alcohol started to make penicillin.

Ernst's standard of expansion is to prohibit entry into fields where such expansion has no economic base. Newspapers own forests and paper mills. Result: Thousand dailies lost in United States in last 20 years and 2,500 weeklies.

Seven years ago there were 100 areas where only newspaper owned only radio.

Many people wish to go into FM radio but telephone company discriminates by refusing to rent less than an hour of time.

Telephone people were hostile to letting thousands of sporadic regional networks spring up.

He is for the Robinson-Patman Act.

But Robinson-Patman Act does not cover certain things such as newspaper advertising. Rates discriminate in favor of size.