regulations of the Federal Government. There are very few duplications in the matter of regulation, however.

A statement on the statutory background of the industry would not be complete without reference to the Federal Alcohol Administration Act and of the agency set up thereunder.

THE FEDERAL ALCOHOL ADMINISTRATION ACT

Mr. BUCK. Following the decision of the Supreme Court in the Schechter case in May 1935 and the resulting collapse of organizations deriving authority from the National Industrial Recovery Act, you will recall that Congress passed the Federal Alcohol Administration Act. The act became effective August 29, 1935. Let me mention briefly the essential provisions of the act. In the first place, the act is described in its preamble as one to regulate interstate and foreign commerce, to protect the revenue and to enforce the postal laws, all with respect to distilled spirits, wines, and malt beverages. It creates a Federal Alcohol Administration headed by an Administrator who is charged with carrying out the provisions of the act. Permits are required and the Administrator is authorized to issue permits to engage in the business of importing distilled spirits, wine, or malt beverages; distilling, rectifying, or blending distilled spirits, or producing wine; and wholesaling distilled spirits, wine, or malt beverages. You will notice that the brewers are not included in the permit system. I have a statement in my prepared report that no doubt they should be. I think that is a matter of opinion.

The Administrator is also charged with the enforcement of section 5 of the act, which relates to unfair competition and unlawful practices; he is likewise responsible for labeling and advertising under definite standards prescribed by the act. He must see to it that sales of whisky in bulk, that is, otherwise than in bottles, are not made except under specified narrow limits. And he must supervise all applications which involve interlocking directorates among companies which might be in competition. The act was amended on June 26, 1936, by the addition of a further title which abolished the Federal Alcohol Administration as a division of the Treasury Department and established an independent three-man board or commission. This new provision, however, was to take effect upon the appointment of a majority of the members of the board, and thus far has not become effective.

Mr. Buck. The Federal Alcohol Administration is a comparatively small agency. With a total personnel in the neighborhood of 160, and an appropriation of but $150,000 for 1938, it must deal with supervision of the liquor industry all over the United States. Indeed its field force comprises a mere corporal's guard of 21 men, less than half a man per State, which is obviously inadequate.

In dealing with the importing of whisky, we must keep in mind that whisky is made principally in two countries, the United States and Great Britain. May I add there the Irish Free State which wasn't included. The laws of Great Britain, such as the Finance Act of 1933 and the Merchandise Marks Act, should be studied in connection with this statement in order that we may more thoroughly understand the background. As this committee well knows, England X

maintains a policy entirely different from ours in respect to monopolies and trusts.

Most whisky manufactured for export from Scotland, which constitutes a large percentage of imports into the United States, is controlled by Distillers Co., Ltd., commonly known to the trade as D. C. L., and it controls predominant interests in companies producing most of the Scotch whisky. This unified control at the source of production manifests itself here in our commerce through what are called sole-agency contracts for well-known and well-advertised brands of Scotch whisky. These exclusive-brand agencies, in turn, are implemented by American importers through franchise, or agency agreements, to wholesalers and by resale-price maintenance contracts, under the various State laws and the Miller-Tydings Federal law, carrying the control right down to the consumer.

Just for the purpose of keeping the record in order for students of the subject who may desire to study it, I might say there is additional source material to be found in the report of the British Royal Commission of 1909, which was a study set up in Great Britain, I think, in 1909, to study the whisky conditions and the conditions of manufacture and what is whisky in Great Britain under their laws. There is also some source material to be found in the opinions of reports of the Attorney General of the United States about 1909, where you will find what is commonly known to the trade as the Taft report. This question involved what is whisky under the old trade, and the matter has been transferred around apparently from one Attorney General to another, from Bonaparte's time down to two or three administrations until finally it landed on the desk of President Taft, apparently, and he settled the matter by writing what is known as the Taft report, defining whisky. It is simply interesting material to anyone who wishes to pursue the record.

The CHAIRMAN. I assume it will be your desire to present these charts for printing in the record in order that the testimony may be clarified.

Mr. Buck. That is right.

The CHAIRMAN. Let it be understood, then, that the charts will be admitted to the record without any further requests.

Mr. Buck. Now, Senator, in presenting these charts, which have been carefully, as carefully prepared as possible, from as reliable a source as it is possible to obtain, in my opinion, I still want to say that as in the case of most statistics when dealt with in a general way, I do not want to repreent them as being exactly accurate. They are approximately accurate, and as accurate as general statistics, in my opinion, can be.

The CHAIRMAN. They have been carefully prepared from the material which has been diligently gathered by the Federal Alcohol Administration and the Federal Trade. Commission.

Mr. Buck. That is the case.

The CHAIRMAN. And not particularly gathered for the purpose of proving a particular case, but for the purpose of showing the facts as they exist.

Mr. Buck. That is the point, exactly. The whole study, in fact, has been prepared with that view.

PRODUCTION OF WHISKY IN THE UNITED STATES FOR YEARS 1933–1938

Mr. BUCK. The first chart I think we should consider is a chart which shows the production of whisky in the United States from 1933 to 1938.

(The chart referred to was marked "Exhibit No. 395” and is included in the appendix on p. 2676.)

Mr. BUCK. Keeping in mind that the twenty-first amendment became effective December 5, 1933, you will observe that we started off with 1933 with 17,000,000 gallons on hand, approximately. The 1932 figure is 1,710,000, but that was before repeal of the eighteenth amendment.

In 1934 the production stepped up to 108,000,000; in 1935 production progressed further to 184,860,000. In 1936 apparently we reached the peak of production in whisky in the United States, and I might say I think it is a banner year for all time, the highest in the history of the Government so far as I can find out, and that figure was 245,470,000 gallons.

The CHAIRMAN. Do you wish to say the banner year or the peak year?

Mr. Buck. Peak year, I suppose, would be more appropriate.

Production began to drop off perceptibly after 1936. The reasons the committee might gather from the facts as they are presented hereafter. I have my own opinions, but I take it the committee is not particularly interested in those.

The CHAIRMAN. You will develop testimony on that point ?
Mr. BUCK. Yes, sir; I shall try to do so.

Beginning with 1936 the distillery production began to drop off, and it dropped from 245,470,000 in 1936 to 155,670,000 in 1937, which is a considerable drop, and the downward trend in production continued even to last year, 1938, when it dropped to 97,990,000, which you will see is less than in 1934.

Mr. DAVIS. Gallons ?
Mr. BUCK. Yes; that is in tax gallons.

Those statistics are basically interesting in considering the development of the industry from the date of repeal of the eighteenth amendment. They picture that particular angle of it, I think, very accurately.

The CHAIRMAN. Are we to assume that consumption also declined with production?

Mr. Buck. The next chart, Senator, will give you an indication of that.

STOCKS OF WHISKY IN BONDED WAREHOUSES FOR YEARS 1933-1938

Mr. BUCK. The next chart indicates the stocks of whisky in bonded warehouses for the years designated there, beginning with 25,100,000, running up to the peak now, and I think that is an all-time peak for the history of the country, which shows total stocks on hand to be 466,800,000 gallons of whisky in the United States.

(The chart referred to was marked "Exhibit No. 396" and is included in the appendix on p. 2676.)

Mr. Buck. The principal value of that chart, as I see it, is that is shows the reserve whiskies on hand in the United States as being 466,800,000 gallons.

The CHAIRMAN. Would the conclusion be justified from these two charts that the consumption has not actually kept pace with production?

Mr. BUCK. Oh, very definitely so, very definitely so. You see, that 466,800,000 practically represents a surplus over consumption for a period of 5 years. That is the practical indication.

Mr. Davis. In other words, for the last 3 years the consumption has averaged around 70,000,000 gallons, has it not?

Mr. BUCK. I beg your pardon?
Mr. Davis. I say for the last several years the consumption in the

I United States has averaged in round numbers about 70,000,000 gallons.

Mr. BUCK. I think that is a good approximate figure, although the next chart, I believe, will give you the actual figure.

Mr. Davis. But just in line with the question of the chairman, the amount in the warehouse of 466,000,000 gallons would be approximately six times the annual consumption.

Mr. BALLINGER. Senator, these charts are very important when we come to consider the effect of this very large reserve supply of liquor upon the price structure.

Mr. BƯCK. Judge Davis, I think your statement is about the picture.

WHISKY WITHDRAWN TAX-PAID FROM BONDED WAREHOUSES

Mr. Buck. The next chart shows the withdrawal of whisky from bonded warehouses in the periods indicated, and that is the best indication of consumption that I know of. I may be wrong on that, but that is my opinion, that withdawal from bonded warehouse is about the best indication of consumption. Of course you have always got to keep in mind floor stocks on hand, in commerce, and in trade.

(The chart was marked "Exhibit No. 397" and is included in the appendix on p. 2677.)

Mr. BUCK. The peak withdrawal year was 1936. The withdrawals there, Judge Davis, were 72,473,000 gallons, which is approximately the same figure that you mentioned, 70,000,000.

We began in 1933—you remember we had only 1 month to go in 1933, that was December of that year when repeal came—by withdrawing 6,115,000 gallons. In 1934 which was a clear year so far as Federal law was concerned but may have been under some handicap so to speak in respect to State laws, some of the States may not have gone wet in that period, I don't know offhand—38,000,000 gallons was the withdrawal for that year. In '35 it ran up to 61,873,000. In 1936, apparently it reached its peak of 72,473,000 gallons. In 1937 it dropped off a little over 2,000,000 gallons, and in '38 it dropped off approximately a million gallons again.

The point there may be whether or not imported whiskies have increased during the same period that domestic whisky consumption has dropped off. These charts deal only with domestic whiskies.

Representative REECE. But the withdrawals there appear to be rather uniform during recent years after the States had opportunity to adjust their laws after repeal of the Federal law.

Mr. BUCK. Yes; they are fairly uniform. There is a difference of only a little more than 3,000,000 as between '36 and '38. Representative REECE. Which is a very small percentage.

124491–39–pt. 62

Mr. BUCK. Which is a small percentage. The total imports, I think, will show up to be approximately 14,000,000 gallons a year as their high, and they have increased from year to year.

The highest preprohibition withdrawal might be interesting, shown by the figures on the bottom of the chart to be for 1917, and I assume that that peak in withdrawals for that year was due to the fact that prohibition signs were gathering in the skies and some people were fixing up their cellars for a long siege. I don't know, of course. It shows 1917 as being the highest preprohibition withdrawal year, 83,591,000 gallons. That is higher than any of the years so far, and that also poses a question that seems to flunk many experts in trade, as to why it is that withdrawals for consumption since the repeal of the eighteenth amendment are less than they were at least for that year, in preprohibition times. The population of the country, of course, has increased considerably in the last 18 years, and I have heard it said, I don't know, that even ladies drink liquor now that didn't drink before, and all that sort of thing, but even with the increase in population for the country and what is generally assumed to be an increase in the number of people who drink liquor, we apparently still are not consuming as much whisky as we were before prohibition.

The average, however, for preprohibition, the average from 1901 to 1919, is less than the present consumption, so those figures are set out there for whatever value they may be to the committee in studying the statistics.

The CHAIRMAN. On what do you base your statement that the consumption now with the increased population is less than it was?

Mr. BUCK. I base it on the high year of 1917, of 83,591,000 gallons.

The CHAIRMAN. But you explained that figure upon the supposition that it may have been due to preparation for prohibition.

Mr. BUCK. I have offered a possible explanation; I have just set that forth.

The CHAIRMAN. But don't you think that was really a very sound explanation?

Mr. Buck. That is my private opinion, Senator, and I call your attention to that portion in the statistics because there is considerable talk in the industry generally and by the public to the effect that we are not consuming as much whisky now as we were before prohibition,

The CHAIRMAN. Well, it will be observed from your chart that in 1935 there was withdrawn an amount of whisky in excess of the average for the entire period of 1901 and 1919. Mr. Buck. Slightly; yes.

The CHAIRMAN. So it would seem to me that the conclusion which you drew from the chart was scarcely justified. I think a better conclusion would be based upon the average withdrawals for the preprohibition period than upon the withdrawals for a single year.

Mr. Bock. I don't know, Senator, I suppose there are some experts here on figures; I am not much at figures. But what is the average between 1934, for instance, and 1938 ? That would give you a better indication or better answer to your question, I think.

Mr. Davis. Would it be proper to say in 1934 ? We had hardly had time to manufacture a great deal of whisky from the passage of