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STATEMENT OF FRANCIS P. MATTHEWS, SECRETARY OF NAVY-Con.

Reduction in such exchanges might help small retailer, but it makes no difference to producers who the retailer is. Also, nota bene that private business is always ready, willing, and able to scalp the poor serviceman. To hinder such exploitation, he would not hesitate to further develop post exchanges.

Discussion regarding purchase of liquor at officers' clubs.

Doesn't know if Reserve officers can buy liquor at post exchanges.
Also, discussion of gasoline at PX's.

Continued discussion of liquor at officers' clubs.

HEARINGS, MONDAY, JULY 18, 1949

STATEMENT OF CHARLES F. BRANNAN, SECRETARY OF AGRICULTURE
The definition of "monopoly" is not as important as determining
whether a degree of concentration is harmful to a group or to the
whole people. Farmer has long been pitted against economic giants,
whether farmer is buying or selling.
Congress has tried to help (1) by limiting excessive use of power in par-
ticular areas of the economy; (2) by helping to increase the bargain-
ing position of the farmer. Reason for crop statistics is to give
farmer access to facts. Reason for price support is to give inde-
pendence as to time and price at which farmer will sell. Reason for
programs assuring agricultural credit has been power of ordinary
channels of finance to deny reasonable credit terms to farmers.
Reason for rural electrification is to circumvent monopolies which
denied farmers benefits of electric power.

Brannan turns to specific acts of Congress which are administered by
Department of Agriculture: (1) those which by regulation prevent
monopolistic practices against the public; (2) those which counter-
balance lack of economic power on part of farmer by adding to his
strength.

Packers and Stockyards Act: Passed after FTC found monopoly control by large terminal stockyards. In early years, formal proceedings preceded cease-and-desist orders. Recently, because of problem of funds, packer work handled on informal basis. Attempts made to eliminate buying practices channeling livestock to certain packers without being offered on open market, priority of bidding, and purchase through delayed bids from speculators. Buying hogs on weight-schedule basis discontinued. Selling agencies were required to offer all consigned hogs on the open market.

Packers were induced to place buyers on many markets where previously they handled their purchases of livestock through local dealers. Packers have been required to divest themselves of ownership in livestock-selling agencies, order-buying organizations, and dealer firms, as well as discriminatory buying practices. Formal action of the Department has involved principally failure to pay for livestock purchased, false advertising, and improper grading. Commodity Exchange Act: Imposes statutory controls on futures in grains and cottons and other commodities; prohibits attempts to corner markets. Act needs to be strengthened to include more commodities and authority to establish trading margins. (Cf. H. R. 4685 and S. 1751.)

Following acts of Congress have exempted from antitrust laws certain practices of farm groups:

Capper-Volstead Act: farmers can protect themselves against monopolies by organizing cooperative associations. Once organized, cooperatives are under same antitrust laws as other corporations (United States v. Borden, 308 U. S. 188).

Agricultural Marketing Agreement Act of 1937: authorizes Secretary of Agriculture to enter into agreements with processors, producers, associations, to maintain orderly marketing conditions. Act also authorizes issuance of orders by Secretary regulating handling of certain products. All parties to any marketing agreement must furnish information to the Secretary.

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STATEMENT OF CHARLES F. BRANNAN, SECRETARY OF AGRICULTURE—
Continued

Anti-Hog-Cholera Serum and Hog-Cholera-Virus Act: to maintain
supply of serum and virus by marketing agreements. Also can issue
orders regulating handling. Handlers subject to an agreement are
protected under the antitrust laws with respect to authorized ac-
tivities.
Additional means of coping with problems caused by excess concen-
tration:

Rural Electrification: As of January 1, 1935, only 10 percent of farms
had central-station electric service. As of January 1, 1949, 73 percent
of our farms were receiving such service. This is directly due to
Government intervention and the REA, which supplied 2,000,000
farms and families with electric service. Lower rate levels were
established. Consumers from private systems got lower rates. Cost
halved between 1934-48.
REA introduced competition in the field of electricity. Its success
shows how cooperative method can combat monopoly. Federal
hydroelectric installations increased 1,600 percent from 1935-47.
Commercial power companies' installations increased 32 percent in
same period.

Federal expansion made new power available and lowered rates. Public
Utility Holding Company Act of 1935 rearranged utilities on basis
of geographical integration, bringing local management more atten-
tive to local needs.

In 1935, idea of electric utilities was that few farmers wanted or needed electricity. Telephone service has gone backward: 1920, 2,498,493 farms, 38.7 percent of total; 1945, 1,866,109 farms, 31.8 percent of total. Demand for farm telephone service is urgent.

Formal arrangements for joint use of electric and telephone facilities were concluded in 1947 between REA'systems and telephone industry. 200 joint-use agreements entered into as of April of this year. Recent House bill amending act to allow lending program in telephone field should be very effective.

Industry, in times of declining demand, can cut production and maintain prices. This is hard for farmer and disrupts economy, and requires Government price-support programs. Between 1929 and depression low, prices in agricultural implements declined 14 percent; pay rolls, 83 percent; farm prices went down two-thirds, and farmers, in self-protection, increased crop acreages. From 1932 to 1938, industrial production was 25 percent below 1929, while farm production was same as 1929. Since end of 1947, prices of farm machinery have gone up 20 percent, but prices received by farmers have dropped 18 percent.

To offset the maintenance of prices of goods sold to farmers, must have farm-support prices and also places of storage. Also shift in production to products more in demand.

Other realms of suggested inquiry:

In 1939, in food manufacturing industry, 133 crops had 41 percent of
all sales; 29 of largest crops had 31 percent of total. Before the
war, the three largest retailers of groceries did 22 percent of total
business; three largest meat-packing concerns had 43 percent of the
total; three largest makers of cheese had 63 percent of business;
three largest flour-milling concerns did 38 percent of the business;
three largest fruit canners had 30 percent. Marketing charges in
food industries are holding while prices are going down. Last July
prices, annual retail cost was $708 to feed family of three. April of
this year, the figure was $647. Entire difference came out of farmer's
price. Price manipulation in certain markets called "open price"
practices. Sales are priced in terms of discount of market quotation
which may be set by only a fraction of total trading. Uniformity
of pulpwood prices.

Limited number of concerns producing phosphate rock, potash, nitro-
gen, thus limiting competition in fertilizer industry.
Field of transportation-such matters as lessees of buildings owned by
railroads must use railroad lines as well. Congress has declared a
policy of regulation of all interstate carriers. There is danger, how-
ever, that transportation system may become monopolistic.

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STATEMENT OF CHARLES F. BRANNAN, SECRETARY of Agriculture-
Continued

There is an urgent need for this study and Department will cooperate.
End of prepared statement. Further outline is of questions and

answers.

Farmer does not have opportunity to fix his own price.
Price support designed to protect him so that he is not destroyed.
Farming is only place where we have pure competition. Farmers
number about 4,000,000 units, while faced with concentrated units.
Government must shield farmers against monopolies and oligopolies
because of fundamental interest in preserving productive resources.
Farmer gets very small part of the consumer dollar spent for bread.
He gets large share (sometimes 75 percent) of consumer dollar spent
for meat. He will put such figures in the record.
Farmer gets a fair proportion of consumer dollar in some commodities;
in others, he doesn't.

Brannan does not include what farmer gets from Government for soil
conservation. Farmer himself has contributed to the tax revenue.
Farmer gets so much per bushel of potatoes. Consumer pays so much,
and difference comes out of tax funds. Brannan does not support
this type of program.

Out of 32 billions for farm income, only $300,000,000 was for soilconservation payments. Over last 10 years, 1939-48, national farm income has ranged from 91⁄2 to 31.2 billion dollars.

Brannan does not support the present price-support device being used for potatoes.

In 1948, paid $240,000,000 in price support for potatoes. Disposed
of potatoes in best way possible. His proposal wouldn't cost
$40,000,000.

He would therefore save $200,000,000 in potatoes.
Doesn't have figures paid out altogether last year.

Much has been

invested in storable goods, which will be liquidated later. Pricesupport program had cost nothing until loss last year in potatoes. Brannan will supply figures on payments last year crop by crop. Discussion regarding middleman. He has increased costs, labor, transportation rates.

Mr. Celler points out fair-trade-practice laws guarantee prices to retailer; larger profits are not handed back to the farmer.

Real problem in agriculture is adjustment of crops in long or short
supply.

In depression had built up huge surplus of wheat which they gave away.
Now building up another surplus (Michener).
Brannan hopes to adjust so that can change production from "long
supply" to "short supply" crops; also plant grass to build up live-
stock. If a world adjustment were made, could get rid of surplus.
In part this objective is being aided by the Marshall plan and the
International Wheat Agreement. Government guarantees the price
of wheat exported, even though less than domestic price.
Maximum price this year is $1.80; price support for coming year is
$1.95. Does not affect speculation on Chicago Board of Trade
authorized by law.

Mr. Keating points out problem of changing eating habits of half the
world. Brannan replies that almost all the world will eat wheat.
Michener points out that to feed whole world, problem would be to get
enough dollars to other people.

Some sort of stability in American agriculture does not require considering all of these things, says Brannan.

However, export market is important in agriculture, and can never adjust agricultural problem without reference to export market. Marshall plan will help.

Under International Wheat Agreement, we export less than half of wheat surplus and that half is price fixed at a maximum of $1.80 per bushel. Prices of wheat not sold under agreement have no ceiling and reach about $2.25 per bushel.

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STATEMENT or Charles F. BRANNAN, Secretary of AGRICULTURE-
Continued

The purpose of the agreements is for the contracting countries to buy
and sell within the scope of the contracts before doing business outside.
We have an agreement-not world-wide on sugar. Mr. Celler
points out that there is a Cuban sugar monopoly.
Quotas and tariffs protect the American producer.
Mr. Celler points out the monopoly acquired over the fruit industry,
Schenley, Hiram Walker, and National Distillers bought out the
largest vineyards and thus control production and price of grapes.
Secretary of Agriculture not doing any work on abuse of patents in food
industry, nor of opening up patents.

Can't compare the cost of his agricultural program with no program at
all.
He thinks his program will cost less than the program now in force or
which will come into existence in 1950. Under his program the con-
sumer will pay a lower price. Farmer would get the same as he is
getting now.

Difference would not have to come from any place.

Secretary has figures as to costs of individual products, though not with him.

Entire cost of program is impossible to estimate because of variations in production, etc.

REA charges 3 percent interest to cooperatives for installation of elec-
trical equipment.

Government has to borrow, but at less than 3 percent interest.
We need more electric power than is available. If private industry cán
supply it, let them do so. If they will not, United States should get
it by whatever means available.
Department of Agriculture enforces Packers and Stockyards Act. But
when necessary to go to court, the Department of Justice is called in.
Proceedings are in a court.

Does not know of concentrations in field of agriculture other than those
mentioned.

Mr. Celler announces that Steinkraus, president of United States Chamber of Commerce, and Bunting, head of NAM have declined to appear. The communications from these two gentlemen follow on pages 191 to 192.

STATEMENT OF JOHN M. BLAIR, FEDERAL TRADE COMMISSION

There are two major aspects of monopoly problem: First, cooperative action-i. e., collusion conspiracy, agreement, etc.; second, concentration of economic power through consolidation.

Through collusion and combine monopoly control is attained. Antitrust laws were directed against both forms of control. Sherman Act specifically directed against monopoly form, with remedy of dissolution.

Used very sparingly since the beginning of the 1920's. Clayton Act designed to prevent second form of control by section 7, which prohibited acquisition of stock if it substantially lessened competition. However, the act mentions nothing regarding acquisition of assets. These loopholes discovered in early twenties.

Many mergers have taken place which, if loophole had not existed, would not have taken place. Most antitrust work directed against collusive form. Comparatively few actions against size and combination. Because of loophole, FTC has no jurisdiction to prevent such combinations.

Thus what was prohibited when accomplished indirectly through collusion and conspiracy was allowed when done directly by acquisition and merger.

Same results may be achieved-prices set, production restricted, markets allocated but if accomplished through acquisition and merger, it may well be permitted under the present laws. Department of Justice may proceed against the acquiring corporation— however, until the midforties there was little basis to assume such a suit would prove successful.

STATEMENT OF JOHN M. BLAIR, FEDERAL TRADE COMMISSION-Continued

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Thus you have International Harvester case and United States Steel case stating that mere size and power of itself did not constitute a violation of law.

The recent Tobacco case and the Aluminum Co. case lead one to believe that perhaps the Supreme Court is viewing power with more alarm. Tobacco case said that monopoly cannot be dissassociated from its power and power from its exercise.

Tobacco concerns controlled 67 percent of the sales of tobacco.

Today, they control 86 percent. That was a criminal case and there was no plan of divestiture.

Special court in Aluminum case said 90 percent control was a violation
of the law regardless of practices engaged in.

Three-man special court headed by Learned Hand acted in place of
Supreme Court to determine Aluminum case.

He doesn't know who can be appealed to from that decision.

Paradox that monopolistic ends such as price-fixing, etc., cannot be achieved through collusion by independent operators, but same objective may be achieved by consolidation.

Perhaps today a different view may prevail.

Perhaps Supreme Court will permit breaking up oligopoly now.

Amending section 7 of Clayton Act would stop to some extent future consolidations. The Meat Packing case is directed against four packers to break up oligopoly.

The case seeks dissolution of Armour & Co. and Swift & Co. and to break them into separate units. The complaint also charges collusion

in that case.

He subscribes to views of Council of Economic Advisers that in many
industries, size has gone beyond the optimum efficiency point.
Even though concerns are inefficient after attaining great size, it is at
that time too difficult for competitors to enter the market. Can't
get credit, etc.

Mr. Celler mentions the soap industry controlled by Big Four, which
do 90 percent of business while 1,500 other soapers do 10 percent.
Blair would be inclined to invest in an industry not dominated by few
large corporations.

FTC has asked for appropriations to study relation of efficiency to size. No extensive study has been made because no funds. He would like $100,000.

There are at present some fragmentary data on the subject. He would be opposed to a law saying no company can buy stock or assets of another company at all.

Clayton Act prevents acquiring stock where it would substantially lessen competition or tend to create a monopoly. The original act had provided illegality where its effect was to lessen competition between the acquiring and the acquired company. That was changed in the version that this committee adopted which eliminated "between the acquiring and the acquired firm." That would mean that one company buying out a competitor would be all right if they were both small concerns.

Mr. Celler reads from report of Judiciary Committee, June 17, 1947, that the bill amending sections 7 and 11 of Clayton Act would not permit FTC to prohibit acquisition in the case of two small concerns. The effect of taxes on small business and monopoly would be a very fitting subject of inquiry. Should see Mr. Stamm, of Joint Committee on Internal Revenue Taxation.

* * *

Mr. Blair reads from report of FTC of 1948 on the paradox he has
described regarding the loophole in section 7 of Clavton Act. Report
states: "
the more effective is the enforcement of law
against collusion among competitors, the greater the incentive to
achieve the same ends through purchase, consolidation, and merger."
Control by small number of producers is heart of problem.
For 1,807 products, there was a 1 to 1 chance that four largest companies
produced 75 percent or more of the value product of that product.
Amending section 7 would prevent the level of concentration from
rising.

96347-49-ser. 14, pt. 1- -3