that on a projection for the next fiscal year, or how did you arrive at that figure?

Mr. LARRICK. First I should say, Mr. Bailey, again that we have not cleared this with the Budget Bureau, but we took each item we thought would be involved in cost in this matter, and we priced it out both on a current year basis and on a continuing basis.

Assuming that this legislation were to be effective in the middle of the current fiscal year, we came up with a figure of $12 million. I can break that down, if you wish.

Mr. BAILEY. I wish you would break it down in terms of personnel and in terms of space, if you could.

Mr. LARRICK. I can give it to you this way: We estimate that for the remainder of this fiscal year we would need 275 people at an average salary of $8,500, which would come to $1,200,000. Nonstaff costs for the surveys we spoke of, would cost $100,000. We would have to rent space, which would cost $100,000; printing, $50,000; miscellaneous, $50,000. That would project for a full-year basis to a figure of approximately $212 million.

Mr. BAILEY. Recently in the press there was a statement that the projected building, which I understand is already under construction for your use, has already been filled and you would need additional space.

Mr. LARRICK. That is true.

Mr. BAILEY. Do you anticipate that there would be greatly increased staff to get into an area where you admittedly have no expertise in antitrust matters or economic regulations, over and above these figures?

Mr. LARRICK. I estimate that it would take a total of 275 people. I reserve the right with experience to revise that, but this was worked out as carefully as we could in the absence of some of the expertise to which you refer.

Mr. BAILEY. It just occurs to me that it is a very low price for an antitrust lawyer, or someone in that particular area. I admit, of course, that they are not all going to be engaged in that particular specialty. There will be stenographers and others too, but it seems like a very low price to me.

Mr. LARRICK. That very well could be. We don't claim expertise in certain areas of economics-in pricing.

Mr. BAILEY. And, of course, you do not enforce antitrust laws today?

Mr. LARRICK. We do not, but we enforce labeling laws, and there are many provisions of this bill which are quite comparable to the provisions of the law which we do enforce.

Mr. BAILEY. I want to talk about one more point: Many manufacturers have expressed to me their fear of delegating authority to your agency, or to the Federal Trade Commission, to determine what is false and misleading, or what would be in essence a bad labeling practice which would not comply with the legislation. Usually, at least at the present time, in these types of cases coming before the Federal Trade Commission, or coming before the courts, the question of whether it is misleading and whether it is false or deceptive, is a question of fact, and it is not a question of fact which normally would be determined by a group of lawyers who would be seated at a table, such

as you are, examining labels. Mr. Cohen testified as to the general intelligence level of certain consumers. The standards are, "Does it deceive the man in the street? Does it deceive the consumer and the ultimate man who is going to buy or use the product?"

I have known from my own personal knowledge of many cases where we would sit down and have a group of 10 lawyers examine the product. Just take an example of an oleomargarine label where they had a picture in a frame of a cube of butter which had, we will say, what appeared to be water on the side of the cube, or droplets of water, I should say. Now, we allege that this would be confusing with butter, and in an actual case there is no water or anything else in this particular brand of merchandise which would come out on the side of the cube that would look like water. Well, all the lawyers knew that, and they felt it was a mislabeled product. They felt it was deceptive. And every one of them so stated. Yet, the man who was in charge of the investigative office decided that he wanted consumer interviews. So all of these lawyers went out and talked to members of the public, and showed them the labels, and asked them as to what their experience was. Were they deceived and were they misled? Ninety-nine percent of the persons who were interviewed said no.

Yet, if they were to have the authority to establish the exact type of regulation which this bill provides, that manufacturer would be hauled before them and prosecuted, because it would have been a misleading package-a label which did not comply.

Mr. LARRICK. I deal with that in my testimony on page 8, Mr. Bailey, where we said we would undertake to employ people who were skilled in making consumer surveys and in getting evidence, convincing evidence, as to whether or not a practice was misleading. I don't believe our experience indicates that just having a degree in law would necessarily make a person competent to make that type of decision. Mr. BAILEY. Again the question as to whether you are going to get the consumer evidence is an administrative determination over which the manufacturer or the labeler would have no control, and he could be hauled before the regulatory agency and never be given an opportunity to have a hearing on that type of situation.

Mr. LARRICK. He would have, as you recall, prior consultation before the regulation was promulgated, and he would have every opportunity to make the representations that are involved. The type of procedure that would be involved in this situation would be identical in practice with the procedure that we have just employed in the administration of the Kefauver-Harris bill. We gave public notice of our intention to consult with interested people on proposed regulations and to our surprise the auditorium in the Department of Health, Education, and Welfare, was not big enough to hold the audience. They came in at 10 o'clock in the morning, and some of them were still there at 6 o'clock at night.

We did get what to me was a very good picture of the problems that we were faced with in writing those regulations. This bill would require that we give that sort of opportunity.

Mr. BAILEY. I thank you, Mr. Commissioner Larrick.

Senator HART. Are there any other questions?

Again, Dr. Cohen and Mr. Larrick, and your associates, thank you very much.

Senator HART. The committee will be in order.

Our next witness is Dr. Irston Barnes. Dr. Barnes is a professor of political economics, Graduate School of Business, Columbia University, New York. He is known widely and respected. I know that the chairman of the Antitrust and Monopoly Subcommittee holds him in high regard, and I hope that Senator Kefauver might add to this introduction, for the record.

Senator KEFAUVER. It is very good to have Dr. Barnes here, Mr. Chairman, and I do hold him in high regard. Dr. Barnes went to a very fine institution, Yale College, and received his Ph. D. in economics from Yale University. He was an instructor there for many years and taught both in the college and in the graduate school. He has had the unusual experience of being in the Antitrust Division of the Department of Justice as an economist for a number of years, and also serving with the Federal Trade Commission in various capacities. He knows the subject matter which we are dealing with in much detail, and his opinions carry a great deal of weight, and have much value.

Dr. Barnes is the author of three books, "Public Utility Control in Massachusetts," "Cases on Public Utility Regulation," and "The Economics of Public Regulations," and many articles in magazines on antitrust and trade regulation subjects.

I have here some details which I would like to introduce in the record.

Senator HART. Thank you, Mr. Chairman. It will be placed in the record.

(The information referred to may be found on p. 544.)

Senator HART. Dr. Barnes, I welcome you. You have a prepared statement, I understand, and I hope you will give it to us, and you are free to make any interpolations you desire.

STATEMENT OF IRSTON BARNES, PROFESSOR OF POLITICAL ECONOMY, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY, NEW YORK, N.Y.

Dr. BARNES. Thank you, Senator Hart, and Senator Kefauver. I am pleased to appear today at the invitation of Senator Hart to testify on S. 387, the truth-in-packaging bill. In offering my testimony, I shall be speaking only for myself, and I shall be speaking on the basis of a lifetime interest in the functioning of a competitive enterprise economy and with an awareness of the importance of effective antitrust legislation wisely enforced to support the growth and progress of our market-oriented economy.

1. A GOOD BILL-FOR THE ECONOMY AND FOR BUSINESS

The truth-in-packaging bill, S. 387, appears to be a good bill, good for the economy and good for business. It is directed to the correction of competitive practices associated with the packaging of consumer products. These competitive practices threaten the integrity of important markets. Specifically, the bill is concerned with restoring some measure of the buyer competence which has been eroded

away by marketing practices which make it difficult for buyers to exercise a competent judgment with respect to their purchases of packaged products.

Any impairment in buyer competence threatens the efficiency of our enterprise economy. Rational buying is the cornerstone of economically sound markets, constituting the primary directive of economic activity in the nongovernmental sector of the economy. In the aggregate, buyers determine what goods will be produced and in what quantities they will be produced, which producers or sellers will survive and which will be eliminated by competition, and how the Nation's resources of capital and labor will be allocated to the production of goods and services.

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Buyers' choices may be guided by either quality or price, or, more likely, by a combination of both. The buyer tends to choose the best quality available, or recognized, within the price range which he can afford, or he seeks to buy at the best price available among the products which are known to be of satisfactory quality. Any confusion or deception which prevents consumers from making rational choices, that is, the choices that would be made if they were fully informed and if all the facts were known to them, distorts the market and impairs the efficient functioning of the economy.

2. VALID MARKETS AND A SOUND ECONOMY

The American economy, like any substantially private enterprise economy, is a market-oriented economy. Markets are the central institution of our economic society: if markets perform their functions well, the economy is sound and efficient; if markets are unable to perform their essential role, the economy is distorted. In a distorted economy there are wastes of resources and manpower, irrational patterns of purchasing, a survival of incompetent and nonscrupulous producers at the expense of competent, efficient and honest producers, and a general loss of consumer income through purchasing poor quality products at excessive prices. Integrity of markets cannot be preserved unless all buyers and all sellers have a right of equal access to the market. Equal access to the market means a full knowledge of all relevant facts with respect to price, quality, and other significant dimensions of market transactions. A free enterprise economy can survive only as it serves society's needs satisfactorily, and the critical test of satisfactory performance for the economy is the market test.

Competition is generally recognized as essential to assure the integrity of markets. Competition is the consumers' guarantee that each business is operated responsibly and is responsive to the public's need, that products are of high quality, that operations are efficiently conducted, and that prices are reasonably related to the costs of efficient production.

3. THE AMBIVALENT CHARACTER OF MASS PACKAGING

Packaging has become ambivalent with respect to competition and the functioning of markets for consumer products. Packaging has greatly increased the efficiency of marketing: mass distribution would be impossible without the prepackaging of all sorts of products;

within modern packaging, many products would not be on the market at all; and without the economies associated with prepackaging and the mechanization which it requires and makes possible, many commodities would today be more costly than they are. Packaging assures consumers of good quality products which have been made secure against contamination and spoilage. On the other hand, packaging deprives consumers of the opportunty to examine the product itself, to compare products and their prices, and to secure the personal assurance of the retailer with respect to the product.

In many product areas, packaging poses no problem. For example, family flour comes in efficient containers of standard sizes which are easily compared and which are, therefore, price-competitive. The consumer knows what he is buying and has no basis for being dissatisfied that the prepackaged product has displaced the flour barrel in the grocery store.

In other areas, the hearings before this subcommittee have demonstrated the capacity of packaging to confuse the buyer and to render a disservice to the economy. The present hearings have not been concerned with the extent to which packaging has brought about a change in the nature of the product, an increase in the use of additives to prolong the shelf life of the product, the increasing emphasis upon prepared and semiprepared foods which provide increased convenience at higher costs. Parenthetically, I cannot agree that a more varied diet is necessarily a better diet, and having known the genuine home cooked foods of an earlier generation, I cannot agree that the exchange of convenience for competence in the kitchen is necessarily a gain.

The subcommittee has focused principally on the economic or competitive abuses that have vexed some markets for consumer products. Packaging has made it increasingly difficult for the buyer to determine accurately the prices of competing products, and, therefore, to select rationally on a price basis. Packaging has served to conceal price increases effected through undisclosed reductions in the quantities contained in familiar packages. Packaging has invited the competitive use of nonstandard, and sometimes deceptive, shapes in an effort to secure differential advantages over competitors. Packaging has occasionally resulted in irrational price relations among containers of different sizes, larger containers sometimes failing to provide the economy which consumers assume to be associated with larger size units. Packaging has made it possible to engage in fictitious pricing, for example, through the use of such devices as cents-off-theregular-price deals. Packaging has permitted careless or unscrupulous producers to underfill containers. And packaging, through insufficient or illegible disclosure of contents, of quantity, or of other relevant facts has sometimes proved prejudicial to rational market behavior by consumers. In the presence of irrational packaging and pricing patterns, it is inaccurate to describe consumer buying behavior as irrational because most consumers act on the assumption that packaging and pricing are rational. Indeed, if consumers did not act on the assumption that packaging and pricing are rational, if all consumers insisted on weighing packages, examining contents and computing comparative prices, the whole system of mass distribution would break down.

These improper packaging practices, even when indulged in by a small minority of firms, are not self-correcting. These practices are