capacity in America is not now large enough to meet normal demands under competitive industry over a reasonable number of years, say 5 or 10?

Mr. CLARK. No; it is not adequate to meet the demand for steel in a full employment economy.

Mr. MCCULLOCH. Well, do you think, Dr. Clark, that over the next 5 or 10 years there is much likelihood that we are going to have a full employment economy in America?

Mr. CLARK. Oh, yes; I have to take that position, Congressman, because that is our duty. I do, yes.

Mr. McCULLOCH. I am pleased that there is someone who has that optimistic approach.

We have never had such a condition in America in recent years except during wartime, have we? Is it correct, that in wartime or immediately thereafter, when there was a pent-up demand which had not been satisfied during the emergencies, that was the only time we had this?

Mr. CLARK. We never had deferred demands until something like a war had caused them to be deferred, or a great depression, but I am not relying on backlogs of demands in my estimate of the potential economy that we are entering.

I am relying upon the fact that out of the 48,000,000 American families, all of whom have the American disposition, the American wants, and the eagerness to get the comforts of life that our modern economy has made possible for those able to buy them, there are at least 20,000,000 families that have not entered yet into the markets for these fine things. They are waiting there.

You make the price that will enable the American people to buy, and the demand is almost unlimited, and can maintain the economy on a full-employment basis.

Mr. McCULLOCH. But I gather, to repeat the question, except in times of emergency up to now, we have never had what I take it is meant as a full employment economy, have we?

Mr. CLARK. Oh, yes. We have what you would approximate as that, I think, in the late 1920's.

Mr. DENTON. We had a great many unemployed then, did we not? Mr. CLARK. Well, we had very primitive statistics at that time. We do not know how many there were, but in 1927, 1928, and 1929, the figures are not supposed to have been very high.

Mr. KEATING. Was not one of the difficulties in the late 1920's and the collapse that occurred, in part an overexpansion that occurred on the part of many industries?

Mr. CLARK. I would not think so at all, Mr. Congressman.

Mr. KEATING. You do not think that caused that?

Mr. CLARK. No indeed. I think it was the speculative markets that brought about that collapse.

Mr. KEATING. There is one important part of this testimony that I would like to ask a question about, Mr. Clark. At the bottom of page 7, I gather from your statement that you characterize yourself as neither an extreme left-winger nor an extreme reactionary, and since I happen to lay claim to being in the same category, I am very much interested in the sentence after that, in which you say that, "Many of those, let us say, of the middle ground favor Government ownership in some cases."

I would be interested to know in what cases you feel Government ownership is justified.

Mr. CLARK. Well, the outstanding case, of course, is a public waterworks system.

Mr. KEATING. In a public-utility situation, I suppose in the development of our natural resources, evidenced, perhaps, by the TVA, you would feel that Government ownership was justified in such an instance as that?

Mr. CLARK. Public power; yes.

Mr. KEATING. Is it limited to that?

Mr. CLARK. I simply do not set up any principle at all in this. That is my point. If a situation with respect to any particular kind of business is such that you cannot leave it to be controlled by the forces of competition and public-utility type of regulation does not work well enough, the only other way to have it handled is through social ownership, Government ownership.

I do not back away when that situation develops and say, "No, as a matter of principle, I am opposed to public ownership."

I just want to decide each case on how it is going to work out best, and I think that is the way it has been done.

Mr. KEATING. Do you back away from the Government's going into the steel business?

Mr. CLARK. I do not believe there is going to be any need for the Government to go into the steel business.

Mr. KEATING. In other words, you do not favor that?

Mr. CLARK. No, not now. There is no problem like that up to now. Mr. KEATING. Have you favored it within the last year?

Mr. CLARK. No, sir. Are you referring to the Spence bill?

Mr. KEATING. No, I am referring to the President's threat that if the steel industry did not expand, as he claimed it should, that the Government would go into the steel business to compete with it. Were you in sympathy with that or not?

Mr. CLARK. Well, I am the only one, I think, who has made a statement before a congressional committee on that. It was just before the Spence bill was introduced, the day before, and I told the Joint Committee on the Economic Report that all that had been proposed was that the Government undertake to find out how large a volume of production, and what size of capacity were necessary to meet the needs of the people, to use every possible way of bringing about that large a capacity and production at that level by aids to business, in encouraging business, positive assistance to business. Mr. KEATING. In the way of loans?

Mr. CLARK. Well, in every way they talked about. They talked about tax incentives; there was quite a range of things, and the President went on and said that if despite all these efforts in bringing about the production of goods that the American people need through private enterprise we do not get it, then we ought to figure on having the Government step in itself. I do not get shocked by that at all, Mr. Keating. I think that if that situation arose, and I do not expect it to arise, there would be very few who would say that the people must be denied goods which they need simply because private enterprise will not furnish them.

Mr. KEATING. In other words, where the Government decides that private enterprise is not furnishing the goods which the people need,

then you would contend that Government should go into any business, any line of business?

Mr. CLARK. The Government is nothing but the representatives of the people. I will say when the people decide that they are not getting goods which they need through private enterprise but that it is possible for them to get those goods through their own action, they ought to go ahead and act.

Mr. KEATING. Well, people decide things only by a referendum. You would not advocate such a matter being settled by a national referendum?

Mr. CLARK. A national referendum would seem to me to be a pretty difficult process for any decision.

Mr. KEATING. I agree it would be impractical. But it must be decided by a Government board or bureau, and your position is that if a Government board or bureau decides that private industry has not produced enough of a certain item then that Government board or bureau should be able to go into any line of manufacturing activity?

Mr. CLARK. Not at all. I said that the Government is the representatives of the people, and I was referring to the Congress. Mr. KEATING. To the Congress?

Mr. CLARK. Yes, sir.

Mr. KEATING. You would think that the Congress, if it felt that private industry was not making enough of a certain item to fill the needs of the people, that the Congress should then authorize the Government to go into a particular line of business?

Mr. CLARK. Yes, and I do not know why anybody should be startled by it. They have been doing that with respect to public power and a whole lot of other operations.

The same questions were raised on the extension of the parcel post. We have always had this argument that the Government must not do this, that this is something that must be reserved for private enterprise. I do not think you can draw the line at any particular kind of industry and say that Government enterprise should be contemplated only in that industry, and it should not be in any other.

Mr. KEATING. So that you draw no distinction between utilities and water works and power, and so on, on the one side, and industry, in general, on the other?

Mr. CLARK. None at all. You cannot draw that line, Mr. Keating. We have been moving that line along all the time.

The CHAIRMAN. We have crop insurance, RFC, all sorts of interference by Government in business. Government is in business in

many instances. I do not think

Mr. BRYSON. The House today is debating a bill providing aid for rural telephones.

Mr. KEATING. That is for loans.

The CHAIRMAN. Direct or indirect aid.

Mr. BRYSON. Phones for people who have not had them before. Mr. KEATING. There are many who favor Government loans to industry who would not favor the Government in that business. Mr. CLARK. Well, this is a loan to cooperatives. Cooperatives are social groups just like Government.

Mr. KEATING. That is exactly what it will turn out to be.

The CHAIRMAN. I do not think that the rural telephone bill is the subject of our inquiry.

Mr. MICHENER. You just had one of your referendums in Congress in the last week or two in housing. Is that your concept of a referendum, that when there is not sufficient housing in the community or in the country, that the Federal Government should go in and supply the deficiency?

Mr. CLARK. That was your decision, was it not, Mr. Congressman? Mr. MICHENER. It was not mine. It was my friend here.

The CHAIRMAN. I do not think we should go so far afield, gentle

men.

We have another witness who is waiting patiently.

Dr. Clark, I am sure I express the opinion of the committee when I say that we are very grateful to you for your very enlightening and comprehensive statement, and I think you have been very, very patient in answering all our questions.

Mr. MICHENER. And a very good witness.

The CHAIRMAN. Gentlemen, our next witness is Mr. Ernst.

Gentlemen, Mr. Ernst is a lawyer and an economist and a student of antitrust laws; he has been an adviser to presidents and various departments, and I am sure that we would be very happy to hear from him.

STATEMENT OF MORRIS L. ERNST, ATTORNEY AT LAW,
NEW YORK CITY, N. Y.

Mr. ERNST. May I say that my interest really arose in this problem as I was a member of the Banking Board of the State of New York, and I got my first introduction into the evils of concentration of power.

Before I come to a very specific proposal-and I have made it before; I figured up on the way down here that this was the twelfth time I have testified before a congressional committee in connection with monopoly and concentration of power. Before I get to my specific proposal I want to pick up a challenging approach, I think, made by Congressman Wilson in regard to the relation of size to monopoly and prices, and the evaporation of individual ingenuity. I take as my Bible on that subject the statement of a great industrialist, Ernest Weir, and I quote:

The trouble with our economic empires is that they are too big for any single human mind to manage. There are not enough brains.

That is Ernest Weir.

A decade ago I did for Judge Brandeis a study in those fields into which I had professionally entered to see if I could discover the economic optimum point of efficiency in size. Obviously, size is comparative. A million dollars is a silly thing to go into the automobile business with. It may be enough for hairpins, and certainly it is enough for cloaks and suits.

I took samples of industries that I knew about, and as far as I know the figures that I adduced at that time have never been challenged. I do not want to go into that too much, but for example you have an industry known as savings banks.

I took the savings banks in New York State. I proved, and nobody has challenged it, that the optimum point of efficiency was $250,

000,000 of deposits. That after banks in New York had more than $250,000,000 of people's nickels and dimes, they had a bigger overhead, they had more waste, and they earned less money, and they had, by and large, poorer portfolios of investments.

Now, obviously, there is also a minimum point of efficiency, and I found in particular with savings banks that it was $40,000,000 in New York City, but it was $15,000,000 up-State, so you can lay down no formula as to what is excessive bigness.

By and large, however, bigness results in power being used in the market place instead of ingenuity. Bigness, by and large, prevents, as the chairman said, your children and grandchildren entering into free enterprise. That scares me. It scares me on two grounds: One is that I go on an assumption, which is an act of faith, that the wealth of this Nation, given this piece of soil, depends on nothing but the development of human ingenuity; that is all. Given our grain and our ores, that is our wealth.

Now, what we have been doing is creating a race of robots.

The CHAIRMAN. A race of what?

Mr. ERNST. Robots, clerks, employees, increasingly difficult for new people to go into business, and I will give examples when I come to the proposal I want to make.

I am also worried about bigness, because when business gets too big the public, rightly or wrongly-and in my opinion wrongly-will demand that the Government take over businesses, and then the Government will be too big, and we will get statism, and much as I agree with parts of the introductory statement of Dr. Clark, I cannot sit here and not say that I am scared every time there is a proposal for the Government to get bigger and to go into business.

I am not scared only because I think the Government will be so big that it will do an inept job, but I am scared that when the Government gets too big it, in turn, will have so much power that it will become sensitive of criticism, and it will try to throttle protest and a free press, whch is the basic distinction between our way of life and the Hitler-Stalin techniques.

You have got all the facts, Mr. Chairman and members of the committee, that you will ever need on this question of what bigness does to price levels and profits.

Fifteen years I have been coming down here and have heard very little new; you have had the TNEC; you have had all kinds of reports. The Federal Trade Commission proved without a doubt that bread was made no cheaper after mergers and combinations.

As far back as 1935, a normal period, the 19 large steel companies lost $19,000,000, and 129 small ones earned $6,000,000. There is nothing to this myth that bigness of itself has value. It is gargantuan nonsense. Things can get so big that they are not profitable, and they do not benefit our economy.

You have 28 companies, approximately, with a billion in resources each, that own one-half of the total corporate resources of the United States. That is a threat toward statism, and that is what worries me most.

There have been all kinds of studies made of companies, big and small, in different industries in relation to earnings.

Mr. WILSON. Make that statement of percentages, again. I did not get your figures.