Secretary BRANNAN. Well, I think those are the main ones to which I have reference. Mr. KEATING. All right. The CHAIRMAN. We are very grateful to you, Mr. Secretary. You have been an alert and a very sagacious witness. You will be very helpful to the committee in what you have stated. Thank you, Mr. Secretary. Secretary BRANNAN. Thank you, Mr. Chairman. The CHAIRMAN. The Chair wishes to announce that he has sent communications by way of invitations to the president of the United States Chamber of Commerce, Mr. Herman W. Steinkraus, and to the managing director of the National Association of Manufacturers, Mr. Earl Bunting, and both of those organizations have declined to send witnesses to us at this time, stating they prefer to wait until later in the year before they will express their views. The Chair is rather disappointed, because he wanted to get the views presently of those two important organizations in connection with this study. In that connection, I desire to place in the record the communications which I sent to Mr. Earl Bunting, and his reply, and the communication which I sent to Mr. Steinkraus. (The documents referred to follow :) Mr. HERMAN W. STEINKRAUS, President, United States Chamber of Commerce, Washington, D. C. JULY 15, 1949. DEAR MR. STEINKRAUS: As you know, on July 11 our special Subcommitee on Study of Monopoly Power commenced initial hearings on the subject of the antitrust laws. Because of the essential relationship between the objects of our subcommittee and the interests of the chamber, prior to the commencement of the hearings the general counsel for the subcommittee conferred with Mr. Milton Smith of your organization and suggested to him that we would be pleased to have a winess representing the chamber to appear during the first 3 or 4 weeks of hearings. It was with regret that I later learned through our counsel that the chamber has elected to defer its appearance at this time, for it is my earnest desire that this study shall be conducted along strictly impartial lines, with all segments of the economy given an opportunity to address the subcommittee. I sincerely hope that it will be possible for your organization to be represented at a later date and cordially invite you to confer with our counsel in order to set the proper time. Very truly yours, EMANUEL CELLER, Chairman. Mr. C. MURRAY BERNHARDT, NATIONAL ASSOCIATION OF MANUFACTURERS, Clerk, House Judiciary Committee, United States House of Representatives, Washington, D. C. DEAR MR. BERNHARDT: We appreciate the invitation extended to the National Association of Manufacturers through our Washington office to testify at the current hearings on monopoly power being held by the Special Subcommittee on Study of Monopoly Power of the House Judiciary Committee. As you know, the NAM is vitally interested in the operations and welfare of companies of all sizes, and especially of small companies; 83 percent of its members have 500 or less employees. Because of our interest in the continuing growth and development of business structure, we scheduled some time ago a comprehensive and objective study of concentration of economic power. Unfortunately, this study will not be completed until the latter part of August. When our research work is completed, we feel we shall be in a position to make a mu t better contribution to the hearings than at the present time. Consequently, w would prefer not to testify at the current hearings but to appear in the fall when they are resumed. DEAR MR. BUNTING: While I regret the inability of the NAM to have a representative address the Subcommittee on Study of Monopoly Power during the first phase of its hearings, I can understand your natural preference to reserve comment until the completion of the study that your mention in your letter of July 14. Rest assured that the subcommittee will be delighted to make whatever arrangements are agreeable to you in order to provide the association with an opportunity to convey its views on this vitally important subject. In every sense of the word the study which we are conducting is objective and impartial, and we want and need to hear from representatives of all parts of business and professional life concerned with the problem of monopoly. Sincerely yours, C. MURRAY BERNHARDT, The CHAIRMAN. We had scheduled this morning Mr. Robert Nathan, economist, as a witness, but unfortunately he cannot be here. We now have, however, a very distinguished economist, who is connected with the Federal Trade Commission, and one who has givenhas rendered-splendid service, particularly to the study I previously referred to, made by the Temporary National Economic Committee. I refer to Dr. Blair. We will be glad to hear you, Dr. Blair. STATEMENT OF DR. JOHN M. BLAIR, CHIEF, DIVISION OF ECONOMICS, BUREAU OF INDUSTRIAL ECONOMICS, FEDERAL TRADE COMMISSION Mr. BLAIR. Mr. Chairman, will it be permissible for me to place the charts I have here? The CHAIRMAN. Yes; that is all right. I want to state here to the members of the committee that the Chair must be on the floor at 12; he has a bill coming up at that time, soon after 12. Would it be convenient to reassemble, say, at 2:30, or would you prefer to continue with Dr. Blair on Wednesday? Well, Dr. Blair, it seems the consensus of the members' opinion is that we will hear you until 12, and then you might continue again on Wednesday morning at 10 o'clock. Mr. BLAIR. Thank you very much, sir. Mr. Chairman, there are two major aspects to the monopoly problem: There are two forms in which monopolistic control of the market is attained. The first is through cooperative action among independent producers. This form of cooperative activity is generally referred to by such terms as "collusion," "conspiracy," "agreement," and, more recently, by the term "planned common course of action." The second form or means by which monopoly control over the market is obtained is through what is generally referred to as the concentration of economic power, through great size, through great power, through the consolidation of the different independent firms into one or a few large corporations. Those are the two forms of the monopoly problem, or the two forms by which the monopoly control over the market is attained which, for purposes of brevity, we may refer to as the form by collusion and the form through the combine or the giant corporation. The antitrust acts of this country in their conception were directed against both forms. The Sherman Act and the Federal Trade Commission Act both relate and pertain to the collusive, conspiratorial forms of action, the first form. The Sherman Act also relates to the second form of monopoly control, that is, the form through the combine or the giant corporation. But this use of the Sherman Act has been quite ineffective. Proceedings under the Sherman Act against the second form of monopoly control are what are generally referred to as dissolution cases, or as the Attorney General stated, cases of divorce, divestiture and dissolution, or as one attorney of the Department of Justice termed them once to me, after being on a case of that type for 11 years and accomplishing very little-as cases of divorce, divestiture, and disillusionment. It is this second type of action which was typified by the cases against the Standard Oil Trust, against the Tobacco Trust, back in 1911, and which has been used, owing largely to judicial interpretations of the law, very sparingly since the beginning of the 1920's. An attempt was made by Congress in 1914 to shore up the antitrust laws relating and pertaining to this second form of monopoly control, in the passage of section 7 of the Clayton Act. Unfortunately, as you gentlemen all know, that act contained a fatal loophole. It was soon found by the lawyers of corporate business that the intent of the act could be easily evaded by buying up not the stock of the acquired firm which, if it tended to lessen competition or promote a monopoly, was prohibited under section 7 of the Clayton Act, but rather by buying up the assets. To be more precise, there are two loopholes in this law, which was itself an attempt, in effect, to shore up that phase of the antitrust acts directed against monopoly control through size and power. Under the first loophole, the stock of the acquired company is bought up. Then, when the Federal Trade Commission tries to effectuate a divestiture of that stock, the acquiring company simply buys up the assets and informs the Commission that, in effect, the action is thus removed from the Commission's jurisdiction. The CHAIRMAN. What happens when you have a case of where the assets are purchased, and then the stock, the corporate stock of the enterprise or the empty shell, is purchased? Mr. BLAIR. I have never heard of such a case, sir. The CHAIRMAN. They do not have to buy the stock. Mr. BLAIR. When they buy the assets, there is no real incentive for them to buy the then worthless stock. Under the second loophole the acquiring company dispenses entirely with the purchase of stock, and instead just goes in and buys up the assets. Mr. BRYSON. Now, Doctor, we have passed a bill through this committee several times to cure the defect of the Clayton Act. Mr. BLAIR. Well, I was just calling it to your attention and trying to set it in perspective with regard to this whole problem of monopoly power into which this committee is inquiring. The CHAIRMAN. When was that loophole discovered by astute lawyers? Mr. BLAIR. I would say in the early twenties, sir, because the cases first opening up the loophole took place in 1926, so it must have been discovered, perhaps, in the early twenties. The CHAIRMAN. Would you say that a preponderating number of mergers have occurred because of that loophole? Mr. BLAIR. Well, I will say this, that a great many mergers have taken place which, if the loophole had not existed, would not have taken place. This twofold character of the monopoly problem, the collusive and the combine character-by "combine," I mean large size and power, the giant corporation-those two phases and the correlative two phases of the antitrust acts, the phase against collusion and the phase against the combine, are of somewhat different importance insofar as the activities of the antitrust agencies have been concerned. By and large, the great bulk of the antitrust agencies' activities and efforts have been directed against the collusive form of activity. Today, most of the antitrust cases of the Department of Justice, are cases against this form of action by independent producers. There are relatively few actions against the problem of size and power, against the problem of the combine. The Federal Trade Commission has absolutely no legal basis whatsoever to support an action against the problem of existing size. And because of the loophole, it cannot take effective action against the problem of the increase in size through acquisition and mergers. All of the activity of the Federal Trade Commission in the antitrust field as between these two areas falls within the collusive area. That is the broad problem, the broad setting of the monopoly problem, as I see it. Throughout the years, corporations, by increasing their size and power, have been able to achieve that which was specifically and categorically denied when it was accomplished by collusive action among independent producers. We are thus presented, gentlemen, with a paradox, perhaps the most baffling and deep-seated paradox in the entire domestic economy, at least insofar as the area of interest of this committee is concerned: On the one hand, if there are a number of companies in interstate. commerce which get together and agree to control the price, to restrict the production, to divide the territory, to allocate customers, to engage in any one or more of a thousands different forms of joint activity, they are subject to action by the antitrust agencies; the Department of Justice can and may even bring a criminal action if, as the Attorney General stated a few days ago, he has reason to believe that they engaged in price fixing with full knowledge and forethought that what they were doing was in violation of the law. So, the powers of the Federal Government to break up collusive activities are quite clear, and the strong arm of the law is constantly at work in trying to prevent joint activities of that type. But if the same objective is attained, prices are set at the same level, production is restricted in the same way, markets are allocated in the same way, not through the collusive activity of a number of independent producers, but by the action of a large corporation in buying up these companies, making itself a giant firm, then that corporation may well be free from attacks under the antitrust acts. The CHAIRMAN. But would it not Mr. BLAIR. Excuse me. Whether it is free or not will depend on future judicial decisions and the future resources of the antitrust agencies. The CHAIRMAN. Could not the Department of Justice proceed against that entity which has bought up all those little entities under the Sherman Act? Mr. BLAIR. It may; it may well do it, but the point that I was trying to drive home was that during the twenties and during the thirties and up to the mid forties, there was little basis for the Department of Justice to assume that if it brought a dissolution case it would have any chance of victory. Consequently, the decisions of the Supreme Court in the U. S. Steel case and in the International Harvester case, stating in effect that size and power in and of itself, no matter how great, did not constitute a violation of the law, effectively blocked off vigorous effective dissolution actions. Mr. KEATING. When was the decision in the criminal case in the Tobacco case? Mr. BLAIR. That decision was in the mid forties. That was one of the decisions which has given to some legal experts-which I am not-the belief that the Court may now be viewing great size and power in and of itself with more alarm than it did during that long period between the Standard Oil decision in 1911 and the mid forties when you had not only the recent Tobacco case, to which you have referred, Congressman Keating, but also the Aluminum decision. Mr. KEATING. In the Tobacco case the Court said as much as that, practically, did it not? Mr. BLAIR. The Court stated, in effect, in the Tobacco case, as I understand it, sir, that a monopoly cannot be disassociated from its power, and its power cannot be disassociated from its exercise. Mr. KEATING. And at that time the tobacco companies controlled about 67 percent of the sales of tobacco in this country; is that not right? Mr. BLAIR. I believe at least that much. But you must remember Mr. KEATING. And today they control 86 percent. Mr. BLAIR. Oh, yes, the degree of concentration has increased. Mr. KEATING. Has increased greatly, and in the meantime nothing has been done by the Department of Justice to proceed in the civil cause of action, is that not right? Mr. BLAIR. As you pointed out, Congressman Keating, that was a criminal case, and the Court was thus not presented with the necessity of acting upon a specific plan of dissolution and divestiture. Mr. KEATING. True, but that was over 4 years ago, was it not, the decision in the criminal case? The CHAIRMAN. Did not the war interrupt most of those prosecutions, and was it not the consensus of opinion in and out of Congress, that those actions should be discouraged or suspended because of the operations of the war? |