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Question of whether an individual acquisition is desirable or not depends upon the facts of each case.

Oligopoly coupled with price leadership gives same undesirable economic results of market control, prices, sales, etc., yet may be legal under law.

There is competition between Ford and General Motors.

Each case of oligopoly must be determined upon its own unique facts. Number of cases where antitrust and FTC broke up collusion only to find that result was accomplished through consolidation. Thus a lot of antitrust is waste motion.

Presents chart showing effect of consolidation of United States Steel, which started in 1901 with 170 subsidiaries in mining, manufacturing, transportation, gas, etc.

Since loophole exists, FTC now takes no action on acquisitions, feeling it a waste of taxpayers money.

Prior to consolidation, objective of controlling steel market achieved through pools.

He reads a pooling agreement of 1887.

Pools were not effective because Andrew Carnegie, a "bull in a china shop" insisted on competition. Therefore, consolidation. Consolidation has quickened since World War II. There were three great merger periods in United States: First between 1890 and 1904; second during middle and latter twenties; third is now. First chart shows these merger periods.

Little incentive to merge during depression.

After war, great increase.

Between 1919 and 1947, some 11,700 mergers took place. of companies merged since 1940 have been absorbed by corporations with assets of 50 million dollars another 40 percent by corporations with assets between 5 and 49 million dollars. Chart showing horizontal merger, acquisition of company in same general line of business. Chart shows Borden acquisition (between

1940 and 1948).

More mergers between 1940 and 1948 have been horizontal than any
other type.
United States Steel mergers since 1939 showing vertical
(forward) in which companies which formerly bought steel are

United States Steel has bought two oil-well machinery companies,
housing corporations, etc.

Government lost Consolidated Steel case, seeking to prevent merger. Cases to be put in record where FTC started to bring suit on stock purchase only to be frustrated by the purchase of assets of corporation.

FTC would have had better chance to win had it been able to proceed under amended section 7 of Clayton Act. Department of Justice proceeded under Sherman Act.

Chart showing vertical backward acquisition or acquisition of raw
material or supplying producers. This chart shows Safeway which
bought 12 meat-packing companies, cheese companies, butter firms,
bakery products, gelatine company, also some horizontal acquisitions.
Conglomerate acquisition where no relationship whatever between
business of acquiring and acquired company.

American Home Pro ucts bought up Bisodol, Kolynos, Anacin, Old
English Vax, Three in One Oil, Clap's Baby Food, Duff's Baking
Mix, Chef Boy-ar-"ee Spaghetti Dinner, etc.

This type especially dangerous, since in competing with smaller
concerns, it can take loss in one field and make up by profits in other

Blair will put other charts into the record.

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Fundamental question is concentration and resulting power which can dominate and revolutionize American way of life. Bigness may reach stage where it has to be accepted as dominant, regulated as a servant, or socialized.

Countries where concentration is unlimited turned to socialism. This is the most fundamental problem we face today. Certain specific problems:

1. What do we want from trust laws?

2. Are there areas where laws cannot or should not apply-railways, communications, etc?

3. Are trust laws designed to prevent bigness as such?

4. Do we want unlimited competition, including selling below cost which Congress has already prohibited?

5. Can there be some clear-cut rules which business can follow? The facts of concentration proven by Blair, and See Monopoly Trends in American Business, 20th Century Fund, by Stocking and Watkins. The thesis of Berle's Book, the Modern Corporation and Private Property, has never been challenged. There are only a few corporations where ownership and control go hand in hand-e. g. Ford, Mellon interests.

Have been cases where management thrown out because of tide of
public opinion, e. g. when company was selling oil to Nazis and
officer responsible had to resign from public pressure. These occur-
rences are rare and general characteristics of management are
oligarchic, irresponsible. But he does not subscribe to villain theory.
The managers are as high-minded as others.
However, they are responsible to no one, unless maybe Department of
Justice, and they have no rules to guide them. No one today can
prophesy what a court will do with an antitrust case, and suddenly
business men are confronted with having perpetrated a crime.
Here they have a real complaint as they should know what is expected
of them. We also have examples of restraint in exercise of power.
Thus General Motors endeavored to adhere to a price list and prevent
black market in time of shortage. He hopes that our committee will
at least attempt to define, if not by legislation at least by statement,
the responsibilities and duties of these men who are essentially
trustees. The problem is essentially one of power.

Berle says nothing serious would happen if we do amend section 7,
as it would make no essential change except in a minor respect.
Chart of formation of capital put into record at this point.

From 1919 to 1947, United States accumulated 770 billions of capital; 34 percent came from profits and reserves made in business and not distributed as dividends.

That was the largest single block and was mainly in big concerns.
Another 40 percent was expansion of bank credit and bulk went
on war orders to small group of concerns. Only 26 percent, or 198
billions, represented current savings of individuals.

Of the 262 billions (34 percent) accumulated by business, this remained
substantially in those businesses. It was invested in expansion and
thus great corporations have not been in capital market for nearly
a generation (such as General Motors, Steel, General Electric).
The 310 billions (40 percent), were invested by commercial banks and
institutions. They do not invest in risk capital but only in bonds
which can only be issued by large substantial corporations. The
26 percent of individual savings (198 billions) 5 percent went to
savings and loan associations; 21 percent went into big life insurance
companies, where invested in bonds, real estate, and loans.
Eleven percent went into mutual savings banks; 19 percent into com-
mercial banks; 10 percent into United States bonds, and only 34
percent left for risk capital as well as consumer durables.
Risk capital is diminishing because have educated individual to know
he cannot judge business risk, and therefore he buys life insurance, etc.

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Also, tax laws make it harder for small business to get capital than for
the large business. Tax laws do not necessarily encourage monopo-
lies but they make it difficult for small business to accumulate funds
and penalize the risk of individuals investing in small business.
To that extent it gives large corporations an advantage.
Twenty-one percent of the 198 billion go into life insurance companies
which have now accumulated over 50 billions of dollars. They have
difficulties in finding outlets. Great bulk goes into government
bonds. Then mortgage real estate investment and bonds.
It would be the same as if individual saver put money into bonds, though
at the instance of the insurance company rather than the investment
banker. Frequently, insurance companies will purchase flotation
through investment bankers.

Though would not need services of investment banker, since directors
of insurance company are commonly high officials of large companies.
He is not criticizing the men themselves but pointing out the long-
range trend, and unless some fundamental change is made, this trend
will continue. Mr. Celler points out that life insurance companies
can't put up a new slate of directors unless they get 50,000 or so
signatures of policyholders.

Berle recites the tale of how Rockefeller spent three quarters of a million
to oust Stewart of Standard Oil of Indiana.
Rockefeller held 20 percent of the stock.
more difficult.

Where stock dispersed, much

Not sure an independent slate would give better boards of directors.
Mr. Celler points out that mortality tables used are outmoded.
Thus insurance companies amass more funds. Mr. Keating points out
that same technique adopted by Federal Government in war insur-


Berle says the insurance company leaders are good men; fault lies in all the people if they do not like the situation.

Mr. Celler says that he has criticized some features of insurance, but he would have done same thing probably; fault lies in failure to regulate these matters.

In New York, insurance companies taking equity risk have built
excellent housing.

The big concerns which generate their own capital are going to grow
bigger unless something is done. From 1919 to 1947, 323,000,000,000
went into corporation enterprises.
Eighty-one percent was saved by business itself, 37,000,000,000 repre-
sented bond issues sold for cash. Ten billion were preferred stock
sales. New and small business don't sell bonds or preferred stock,
don't earn enough to plow back. Only 15,000,000,000 over the 29-
year period went into small business.

Venture capital for expansion of enterprise is saved almost entirely by
large established corporations. Only a small amount is available
out of personal savings.

Big business savings are used to buy up existing businesses as well as
building new ones. Former is often more advantageous because
skeleton of organization is present.

In response to question by Dr. Blair, he says he does not oppose amend-
ment to section 7 of Clayton Act. But it will only slow down pro-
cess, not offer a solution. Points out tax advantage of buying exist-
ing company for which seller receives stock in payment and later
upon liquidation only has to pay capital gains tax.
Also, buying corporation does not have to lay out cash.
ages greater concentration.

This encour

There should be a way for the small man to convert his assets to securities so that there is liquidity upon death to pay inheritance taxes. One solution is to permit large corporation to buy up small and then turn it loose within a period of years.

Mr. Celler says that we ought to canvas tax problem if we have time, especially if mergers are result of tax evasion.

Mr. Celler says this committee intends to come up with legislation. But we will not have enough time or money to investigate everything.

Page 241












If section 7 is amended, it would naturally restrict certain potential
buyers-namely those so powerful that a new purchase would be a
merger "substantially lessening competition" within meaning of act.
Berle says there are many small family corporations.
Discussion of section 7 and effect on sale of small business to large


It is silly, however, to bar sale of stock and permit sale of assets at the
same time.
But law should state what we are aiming at.
Mr. Celler reads cases to show that acquisition of small company not
condemned under new section 7 or old, as act deals only with lessening
competition to a substantial degree.

Mr. Wilson again emphasizes hardship in that section 7 under proposed
amendment would restrict sale of middle-sized business to any very
large corporation.

Mr. Celler admits the problem; but all equities should be weighed, and Congress should determine tax incidence problem. Mr. Denton points out that the little men were in favor of amending section 7 and perhaps concern over hardship is excessive.

Mr. Celler says that the little men know all about this bill. Berle says there is twofold problem: 1. Of large company which is selling to large concern-with which FTC is concerned, 2. the small independent wishing to sell that can only sell to big company.

Berle says that only where small business sells to large one which approaches maximum point of concentration would section 7 be involved.

Even if we adopt a policy against concentration, may be frustrated by
executive branches of the Government.

There was a cartel agreement between American concerns and N. V.
Philips, a Dutch concern, with regard to electronics. Philips
established American concern, North American Phillips.
Judge Forman found old cartel agreement illegal and is framing an
injunction directing competition. But armed services refuse to
allow Philips to compete.

Navy Department set out list of proscribed corporations with whom
no orders placed.

The North American Philips Co. received a citation for war production by Navy.

Armed services requested other firms not to deal with some of these

Berle helped get Philips people here. Stock is owned by Hartford
Trust Co. of Connecticut.

District court says they ought to compete. At the same time, executive
branch of United States aims to prevent them from manufacturing
and competing.

Mr. Celler suggests that the law forbids procurement divisions of the
armed services from dealing with concerns which have violated the
anti-trust laws.

Berle says hard to supply armed forces if eliminate concerns that
have in the past violated the anti-trust laws to some extent.
Mr. Celler points out that even some provisions of Sherman Act are
flouted such as the "Panama Canal" clause. Mentions that
Matthews, Secretary of Navy, promised to spread naval procurement

Berle reads from forthcoming study by Stocking and Watkins pointing
out that power is more important than specific intent and the Supreme
Court has recognized this. However, it has failed to carry doctrine
to conclusion and where there is failure of absolute monopoly, rule
of reason still applied. Size originally was not unlawful.
In Aluminum case, size was unlawful per se. Two current cases will
throw light on the problem-the AT&T and du Pont cases.
However, even the decisions in such cases will not solve problem,
du Pont will still be one of the largest corps. in world. You may
clip mere bigness but wouldn't meet problem of concentration
within an industry.










Directors of du Pont and AT&T had no idea they were violating the
laws. Cross ownership of big industries is control of the market,
and bigness where it gives power to control the market is a basic
There are two theories—one is that bigness legally acquired is not
harmful. The other is that bigness out of bounds leads to socialism.
United States does not want socialism. Nor does anyone know the
optimum size of business. If nothing is done, judges will make the
law which will be confusing, because precedent in one industry
could not as a matter of economics be relevant to another.
Must be determined case by case. Committee may want to set a top
limit to bigness. Compare common law policy against perpetual
accumulation for trusts.

Top limit would differ in each industry; point where it threatened to
engulf state or force state to engulf it; also combination of elements
such as size, nature of goods, degree of control, and perhaps fraction
of national wealth.

Except in public utilities which are natural monopolies, there is a top
limit of concentration which becomes dangerous. Maybe top limit
could be set.

Compare geographical limit on public utility holding companies under
Public Utility Holding Company Act.

Quasi-public regulation should occur in industries where high degree of
concentration is unavoidable. Compare voluntary allotment act
in steel during war.

United States itself should channel its own buying power in the course of the policy adopted by the legislature.

Alternatives-1. Can leave present law as is and let courts determine results.

2. Empower FTC to inquire whether size or degree of concentration in any industry restrains trade, results in unduly high prices, etc., with power to find a top limit on percentage of control and allowing Government to require dissolution in case concern transcended that


3. After finding of FTC, Congress might permit commission to impose public utility responsibility upon the industry. He prefers to allow choice of company to break up or to assume responsibility.

4. If capital market is unable to provide credit and equity capital for
smaller businesses, some Government banking mechanism should
be available. RFC does considerable amount now in the credit
field. Equity fields not yet adquately provided for.

5. Study should be made of measures giving tax advantage of relief
to risk capital in smaller enterprises.
This is a tentative and preliminary approach to huge subject. When
business reaches excessive concentration, we have only two alter-
natives-regulation or socialization. So must keep business in
bounds where size is not essential, and where, because of technical
state of industry or needs of the American public, concentration is
necessary, then we must recognize that such businesses fall within
the ancient concepts of public utilities.

Mr. Berle's prepared statement substantially as given above appears
in the record and will not be outlined.

STATEMENT OF ELLIS ARNALL, Former Governor of GeorgiA Surest way to preserve free competition is to smash monopoly. Trend has been toward monopoly

As soon as railways were forced into corner, Congress passed Reed-
Bulwinkle Act, granting immunity. Railroads have conspired against
South and West and other regions.
Railroads have power to discriminate.
ICC does not pass on each rate.
filed and ICC only passes on 1 percent.

Fallacy of Reed Act is that the Thirty to forty thousand rates

They are approved without action of even subordinate employees. Unless shipper objects, rate is never reviewed. Railroads now have carte blanche to violate spirit and purpose of antitrust laws.

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