works this way, that here is a competitor here, and here are we here, and we find our competitor moving ahead a notch with some new patented improvement, and we have to think hard and think fast and think of something else that is better than that so that we are up here, and the other fellow thinks of something that is better than that and he is up here, and so we keep going. That is as far as I can go right this minute, but there is no end to that step-by-step progress that comes with protected inventions.

The CHAIRMAN. Now are you speaking of actual events which have happened in your experience, or of an ideal condition?

Mr. FLANDERS. Yes; that situation is actual. A particular case of it is at the moment is with a comparatively new machine, a new process, a process for grinding screw threads on hardened parts, particularly useful in aviation engine work. We have one competitor. The competitor (let not this word get out of this room) is just about as good as we are, and we are a continual stimulus to each other. That doesn't trouble us at all, and it is good for the industry as a whole.

The CHAIRMAN. When this very able competitor of yours develops a new device, do you attempt to compete with it by imitating the device or by developing an utterly different device?

Mr. FLANDERS. An utterly different device for the same thing, not by trying to copy at all-an utterly different device, and the net result is that in this particular process the results obtained for the user of the machine are about four or five times as good as they would have been if there had been no competition and no patented protection. The user gets the benefit of it. That is a specific instance. In general, our whole industry's relation to patents and the relation of our customers to the effects of patent protection run along the same line.

The CHAIRMAN. It occurs to me that under the compulsory licensing system, of which Mr. Dienner spoke, it would only be necessary for you, when your competitor stepped out a yard in advance of you, to demand that he license the new device to you and you would not be put to the stimulus or the effort of developing the utterly different device from your own.

Mr. FLANDERS. No; we wouldn't be put to the stimulus; we probably wouldn't make the effort and the art wouldn't be advanced so rapidly. That seems to me a logical result.

I say, this is a hypothetical situation I have never met, but I imagine it would work that way.

Mr. DIENNER. I would like to ask, Mr. Flanders, whether there is any broad patent protection in your specific field that you now know of; I mean, which prevents anyone from making machine tools.

Mr. FLANDERS. No; there is no marked-off space of any importance that I can think of in which there is a "no trespassing" sign set up. It is an old industry and an open field for ingenuity. Its opportunities for ingenuity still exist; ingenuity is still being exercised, still being protected, still being rewarded, and the field is still being developed in spite of the fact that it is an old one.

Mr. DIENNER. You mentioned the products or machines made by your company as a thread-grinding machine. Do you make other machines?

Mr. FLANDERS. Yes; we make turret lathes, automatic lathes, the automatic opening die, and a line of optical measuring instruments

involving the use of magnified projection of outlines to be measured. Mr. DIENNER. Now I would like to bring before the committee the picture in regard to the expiration of a particular patent and the result of that in connection with the turret lathe. Will you explain the facts in connection with that?

Mr. FLANDERS. Well, the facts in connection with that are typical of almost any of these lines on this chart. The modern turret lathe was born with our company before the Civil War. After the Civil War it went through another period of development on which a series of patents was taken out. On the expiration of those patents they became common property and are now used without thought or knowledge, even, of their ever having been patented, they have become so much the common property of the industry by all builders of turret lathes in the country, and a series of lathe patents in the nineties has become common property and is used by all builders of turret lathes the country over and the world over. In these other companies down here, particularly Fellows, the Gear Shaper Co., gear-cutting machinery, the same thing is true. He developed-this man whose previous experience had been dressing windows in a dry goods storea method of cutting gear teeth which was new and revolutionary. It is now common property. There are two firms in the United States, two in England, and two in Germany building machinery which is more or less a direct copy of the machines that he built. That has now become the common property of the industry and is the basis of the designs of many companies.

Mr. DIENNER. I take it here is an industry in which a great many devices, machines, are being manufactured in substantially the same from in which they were manufactured before the expiration of the patents. Is that correct?

Mr. FLANDERS. That is particularly true of the gear shaper. In the turret lathe I wouldn't want to say "the same form." The principles have remained the same, but the form has been so much improved that the likeness isn't so obvious as it is in the case of the gear shaper, which is a more unique sort of thing, but the same principles that were patented by early inventors in our company are now universally used in improved forms with no change in principle. Mr. DIENNER. I understand you do not maintain a research laboratory.

Mr. FLANDERS. No.

Mr. DIENNER. What is the size of your enterprise, approximately? Mr. FLANDERS. We have in good times about 800 employees and sell three or four millions dollars' worth of machine tools a year.

Mr. DIENNER. How are you able to maintain your position in competition with larger competitors?

Mr. FLANDERS. Well, the difficulty is not so much with larger competitors as it is in our location, 7 miles from a railroad, but we can maintain our position there geographically or competitively only by continuous invention and continuous development.

Mr. DIENNER. Which I assume is patented where possible.
Mr. FLANDERS. It is patented; yes.

The CHAIRMAN. If you don't maintain a research laboratory, how can you depend upon the continuity of invention which you say is so necessary to maintain your competitive position?

Mr. FLANDERS. Continuity of invention is maintained by hiring bright young fellows; it is maintained personally. We have to renew

in a given company without a continuing research laboratory the inventive ability and the personnel at least every generation. That is the history. There is no organization; it is too small for an organization, and it has never been the history of our particular industry to depend on research organizations. Perhaps it is more nearly the oldfashioned inventor than it is scientific research, though a certain degree of scientific research comes into it.

The CHAIRMAN. Doesn't this fall into a slightly different category from that in which the General Electric find themselves, for example? The General Electric Co. is dealing primarily with fundamental research, the application of scientific principles to modern industrial life.

Mr. FLANDERS. Yes.

The CHAIRMAN. On the other hand, your company, which is engaged in the making of machine tools, as I understand it, is dependent rather upon the practical application of particular tools to particular tasks. Mr. FLANDERS. Yes.

The CHAIRMAN. And therefore you can depend for invention entirely upon these bright young men who are working on a special task every day, and you don't have to have research.

Mr. FLANDERS. That's right; that's right.

The CHAIRMAN. So that the mere fact that your company proceeds without a research laboratory is not in any sense a criticism of the research laboratory method.

Mr. FLANDERS. Not at all; no.

The CHAIRMAN. Nor an indication that the research laboratory method could be dispensed with?

Mr. FLANDERS. Not at all.

The CHAIRMAN. Nor is it an indication that the research laboratory method does not result in the concentration of patent control?

Mr. FLANDERS. Well, does not result in the concentration of patent control. In its own field I presume it does. I like to speak best about my field about which I know.

Mr. DIENNER. Mr. Chairman, I have no further questions for the witness, unless he wishes to develop the subject.

The CHAIRMAN. Mr. Flanders, the fact that your company is primarily interested in the manufacture of machine tools would indicate that you should be particularly expert in giving us an opinion at least with respect to the effect on unemployment of labor-saving devices. I assume that this long line of companies illustrated on the chart which you presented here this morning has grown and extended in the early day to the present time primarily because you have been constantly developing and inventing new devices for making machine tools and for saving labor in the manufacture of the implements to which these machines would apply.

Mr. FLANDERS. In our industry there are two things that improvement does. It provides machines which turn out work faster and turn out work better. You have to keep that in mind particularly in the machine-tool industry, because at least half of the improvement relates to accuracy and the other half relates to higher production, and so setting aside, not forgetting, the fact that a main purpose of improvement lies in accuracy, we will say, yes, that a main line of improvement lies in increasing the output of the worker. Now, this history of our company and its predecessors has gone on for more than

a hundred years, not just since the war, since the World War, but for more than a hundred years it has been engaged in making machinery by which the individual workman turns out more product. Not only has that been true of machine tools; it has been true in textile machinery, it has been true in agricultural machinery, it has been true in every line of production machinery, that for more than a hundred years, not just since 1920, we have been continuously engaged in the process of improving the output of the individual worker.

Now from time to time we run into difficulties, but in that hundredyear period the net result has been beneficial and in the last 10-year period perhaps we are not so clear on the picture; on the hundred-year picture it is clear.

MORE JOBS CREATED THAN DISPLACED BY PATENTED DEVICES

The CHAIRMAN. When you say beneficial, what do you mean in terms of jobs? What I have in mind, Mr. Flanders, simply stating it, is this. Through this hundred-year period-we will treat the 10year period afterward, as you differentiated it-have your company and its predecessors in machine tools created more jobs than they have displaced?

Mr. FLANDERS. Immensely more.

The CHAIRMAN. Now on what do you base that statement?

Mr. FLANDERS. The industries which have spread out from our work (I don't mean just simply this chart, but the great mass of things that these machines have made) were not in existence; they relate to goods which no one dreamed of; they relate to things like this microphone which no one could even imagine, and the people who make these microphones have completely new jobs. I haven't any statistics at hand, I can't say whether a greater percentage of the population now is gainfully employed than was the case in 1834 when this began, but of this I am sure, that in 1834 they were engaged in making a bare living and in 1939 they are engaged in making for themselves very much more than a bare living, very much more than food and clothes and shelter, and it is the development of which our company has been a part which has made that thing possible.

The CHAIRMAN. Now about the 10-year period which you differentiated a moment ago.

Mr. FLANDERS. The 10-year period seems to me by no means a period in which our distresses have come from labor-saving machinery. Now when I start to talk on this line I am completely off of the patent question, and I don't know whether I should be or not, but we went through in the period from the middle twenties on to the middle thirties a time when the primary activity of a large part of the capital of the country was engaged not in production and distribution, but in the manufacture and sale of paper titles to wealth, and I don't believe that that is a socially useful service. I believe it was at that time a disruptive, socially disruptive occupation, and there is no likeness, no connection between financial speculation and the production and distribution of goods, and I believe we want to be very careful that in applying proper controls and correctives to the production and distribution of securities that we don't at the same time apply improper and dangerous barriers to the production and distribution of goods and services.

The CHAIRMAN. I am afraid I misunderstood you, Mr. Flanders. I thought that you were indicating that in the 10-year period there was a different effect upon employment from that which was noticeable during the previous 100 years.

Mr. FLANDERS. Let me make the connection which I didn't establish. My belief is that there has been no change in the principle, in the effects of the application of improved machinery to employment and production and the standard of living since the war as distinguished from the period before the World War, but that something else has come in which has disturbed us and that that is the cause of our difficulties and that we are not looking at the right thing when we try to find that cause in improved machinery, we are not looking at the right thing, we should be looking at this other thing.

The CHAIRMAN. Then you really mean that the difference in the 10-year period from the 100-year period is due to other causes altogether?

Mr. FLANDERS. Yes; that is it, other causes altogether.

The CHAIRMAN. Do you export any of your machine tools?

Mr. FLANDERS. We exported last year about 60 percent of our machine tools.

The CHAIRMAN. Where did they go?

Mr. FLANDERS. They went largely to England, Russia, and France. The CHAIRMAN. Was there any difference noticeable in the amount of exportation to those three countries recently?

Mr. FLANDERS. They were largely concerned with war preparations. The domestic demand is not good.

The CHAIRMAN. How about France?

Mr. FLANDERS. France is interesting. France has been a poor market for modern production machinery until this last year. Then the shorter hours introduced by the Premier-you know, previous to Daladier

The CHAIRMAN (interposing). Premier Blum.

Mr. FLANDERS. Introduced under Premier Blum stopped off or interfered with production, particularly war preparations, to such an extent that for the first time the French are keenly interested in production machinery, and they are now buyng it. That is just a matter of interest.

The CHAIRMAN. I was going to ask just another question. With respect to the stability of employment which is available to workers in a field like yours or in a plant like yours which is located in the country, what happens to your workers when a depression comes and your market falls off?

Mr. FLANDERS. We are favorably located so far as the workers are concerned. Our industry is the worst in the whole list of industries for which records are kept. In the 1929 depression there was only one subject to more fluctuations than ours, and that was locomotive building, in which, owing to certain technical corrections in the index they had a minus production one month. Ours wasn't quite so bad as that. On the face of it, it looks as if somebody shipped a locomotive back to Baldwin. [Laughter.] But except for that we have the worst ups and downs of any industry. Located as we are, in the country, a very large proportion of our men have gardens and hens and some of them have cows, some of them have pretty nearly full-fledged farms. Most of them have fathers and mothers or uncles and aunts