DIGEST OF TESTIMONY

[NOTE.-Marginal page number references refer to verbatim transcript of testimony, infra. No digest has been made of the report of the Federal Trade Commission presented to the committee on August 24, 1949.]

HEARINGS, MONDAY, JULY 11, 1949

Introductory statement by Congressman Celler.

Purpose of inquiry to discover if present laws adequate and if not to
bring them up to date. Carry on from TNEC.

Need prompted by historical trend of monopoly to lead to Government
ownership. This we wish to avoid as much as possible. Thus we
start with premise that free-enterprise system is best for United
States; in other respects our minds are open; information will be
obtained from all informed and interested groups.
President's message giving his blessing to the proposed investigation
pointing out that he has warned against the growth and concentra-
tion of power in industry in his State of the Union Message in Janu-
ary of 1947; State of Union Message, January 1948; and in his veto
message of the Reed-Bulwinkle bill.

Letter of President asking all Federal agencies to cooperate with
subcommittee.

STATEMENT OF TOM C. CLARK, ATTORNEY GENERAL

Close relation of Judiciary Committee to Department of Justice. Importance of monopoly; first line of defense is a strong competitive and free economy.

Concentration of power permits private control of the Nation. Government is one of limited powers; so too must our economy be one of decentralized and restricted powers, not placed in hands of a few. Seriousness of growing concentration shown by fact that during war 17 out of 100 corporations went out of existence.

During war, 5 percent of the corporations took over one-fourth the working force that used to work for the remaining corporations and less than one-half of 1 percent of the firms in America garnered 75 percent of the defense contracts. This development is ominous and should be looked into.

Antitrust remedies utilized by Department of Justice:

(a) Criminal prosecution.-Used chiefly in price-fixing conspiracy cases. Can be done through grand jury or through information, as violation is a misdemeanor. Latter rare.

(b) Injunctive relief.-Cases such as the Associated Press case and the present Investment Bankers case.

(c) Divestiture.-Emphasized in past few years. Present Du Pont, American T. & T., and A & P cases. Defects in remedies, fines, jail sentences.

Also, criminal case unsatisfactory because to obtain relief a civil suit must be filed as well. Department has not attacked bigness as such but only bigness when coupled with power to engage in certain unfair practices. Supreme Court has come close to declaring that power in and of itself is illegal (Tobacco case).

Tobacco case was a criminal case; now negotiating to get a decree out
of the case.
Choice of method is discretionary with the department.
Criminal suit where price fixing. Other relief where a practice has
been openly used and may have been assumed legal.

After a criminal case, if business remains adamant, a civil suit may be
started.

Big problem is not of monopoly but of three or four concerns dominating an industry which can control price or production and can often allocate markets, and prevent competitors from entering the industry. Here there are often symptoms of price leadership.

STATEMENT OF TOM C. CLARK, ATTORNEY GENERAL-Continued

Small business needs the channels of trade open to new enterprise. Failure to have antitrust laws in Germany and Italy permitted the growth of business there until they, to solve their own problems, had to support a Hitler or a Mussolini.

Best way to fight communism here is to create more opportunity and opening up business to smaller concerns. Present pattern of general law must be extended to meet the needs of our economy as it ad

vances.

Steps were begun by the TNEC. Out of 986 cases filed since passage of the Sherman Act, 508 have been filed within the last 10 years. Before 1934 only 6 to 10 lawyers were on antitrust work in the Department; today some 300. The appropriation of the Eightieth Congress for antitrust work totaled $3,400,000, which is more than ever before. Clark and Keating discuss Eightieth Congress and Reed-Bulwinkle Act. In 1949, 57 cases filed; in 1948, 34 cases filed; in 1949, 41 cases won by the Government.

Standard Oil case.

Congress has cooperated not only on appropriations but along many lines.

Recent important cases included A & P case, Standard Oil of Cali-
fornia, and G. E. case. Du Pont case was filed.

Preparing to try the Investment Bankers case in New York, and
United Shoe Machinery case in Boston.

Other cases are Packer case in Chicago; A. T. & T. case. Small busi-
ness unit, which Arnold, created, handles complaints from small firms.
During war, helped over 1,200 small-business men.
Purpose of committee should include seeing how the present functions
and aims of the Department can be strengthened. Investigation of
causes of restraints would be helpful. Should repeal the Reed-
Bulwinkle Act and amendment of section 7 of Clayton Act regarding
buying of assets would prove beneficial.

Department has also a merger unit. After the war three to five
mergers a week called to their attention. They tried to prevent
unhealthy concentration where possible.

Columbia Steel case, sued unsuccessfully to prevent a merger. Suggests doubling the present penalty of $5,000 fine. Some people have suggested that persons convicted should not be permitted to serve as directors.

A few jail sentences would be desirable, especially where there is strong evidence of price fixing, well known to be illegal.

Department does not wish to discourage those trying to patent new inventions. Does attempt to prevent tie-in clauses, price fixing abetted by patents, etc. Abuses are being straightened out quite

well now.

Policy of Department to give advice to attorneys after which the Government, if it changed its opinion, would not bring a criminal proceeding but might bring a civil complaint.

Clark & Michener discuss monopoly in the field of labor, and situation in Hawaii.

Celler indicates that recommendations regarding labor legislation would perforce have to come from the Labor Committee. However, any other monopoly including labor may affect the development of industrial concentration.

Clark points out the Allen-Bradley case illustrating conspiracy between labor and industry in which labor loses immunity from antitrust laws. Clark suggests that Government be authorized to sue for triple damages when injured by monopoly prices in its own purchases; but not in cases of injury to individuals.

Concentration of wealth in few hands is getting worse.

Reason for the increase despite successful prosecutions was chiefly the war. Large business leads to large labor and large Government. If the big cases can be taken care of, most of the smaller ones will straighten out.

Sometimes divorcement is sought along with injunctive relief.

STATEMENT OF TOM C. CLARK, ATTORNEY GENERAL Continued

A clear price-fixing case where there is intent, is generally a criminal
case. Where a long practice, publicly performed, and sanctioned
by legal advice, civil penalty preferred.

He cites one case where a criminal action was brought.
Courts have discretion as to imposing either fine or imprisonment.
Recent case of fine of $1 on individual and $5,000 on corporation.
Issue is whether the economy is to remain free and competitive or
whether it is to be subjected to private regimentation through
monopoly.

Our society rests on idea of limited power. People often pay lip service
to free enterprise.

Suggests study of economic concentration resulting from the war.
During the war years, 17 out of 100 firms disappeared, 95 percent of
corporations lost 23 percent of workers; 5 percent gained 22 percent
of workers. Less than one half of 1 percent of manufacturers held 75
percent of defense contracts in 1941. Problem thus is serious.
Bigness may not be unlawful, but coupled with monopoly power it may
become illegal. Monopoly power usually in a Big 3 or Big 4.
These firms are able to control production and prices. Smaller firms
exist on sufferance. Nonconformity brings boycotts, cutting off of
supplies. New producers cannot enter.

Small business man contributes to advancement of society, and is an
essential element of the democratic way of life. Main barrier
against big government is a healthy competitive system.
Small-business must not be subjected to monopolies.
have succumbed to concentrated economic power.
Examples in Germany and Japan.

Many nations

Economic concentration furnishes a fertile field for Communist doctrine. Monopoly is a tool of totalitarianism. TNEC warned that victory over the dictators might be lost at home by neglecting monopoly. Committee should study history and causes of economic concentration in United States and should see if forces supporting monopolistic trends here are also supporters of the cartels in Europe.

Sherman Act has prevented concentration being further advanced than
it is now.

Cites figures of enforcement. See pages 77-79 above.
When competition can't be restored by less drastic measures, power
must be dissolved by divestiture. Policy is to leave units strong
enough to compete actively. Examples in aluminum, movies, and
shoe machinery industry. Have also brought action to divorce
A. T. & T. from Western Electric, and to break up latter into three
firms.

Also trying to eliminate restraints in investment banking, and to
separate duPont, G. M., and U. S. Rubber. In 1949, they won 41
cases in the courts, including Standard Oil case.

Also won the A. & P. case and G. E. case. Heeding these examples, many firms in the United States refrain from engaging in certain practices. Deterrence is an effective remedy.

Popular falacies regarding monopoly power are:

1. There is competition as long as there are two or three in the field. 2. Bigger the producer, the better quality of goods and cheaper price. 3. Bigness is achieved through meritorious accomplishments and better methods of production, etc.

He doubts if these statements are usually correct; committee should investigate.

STATEMENT OF SENATOR JOSEPH C. O'MAHONEY

Recommends that committee read the Ferguson Report on decartelization in Germany.

Committee pointed out two questions:

1. Cartel organizations used by Germany to dominate world trade. 2. Concentration of control of industry itself.

Ruhr coal, iron, and steel industry is concentrated now. Army decided breaking it up would reduce production.

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
oil 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.

To

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.

Page 105

106

107

108

109

110

111

112

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.