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.

Mr. ERNST. Twenty-eight companies of over a billion dollars each have resources equal to one-half of the total resources.

You have got all kinds of studies made in normal periods in the 1930's, and elsewhere; from 1910 to 1930, a study shows that the highest average earnings were never in the biggest and the lowest were never in the smallest. These are not my studies. These are the studies of Dewhurst and Sommers, and any number of others, and you can get any number of economists to disagree on studies, and you will have a lot more studies of this kind of thing. It is going to be of no value, in my opinion, unless you orient the point of view of the American people toward this problem. This is a good time to do it.

We have gone through 10 years of a seller's market when the little people could survive because anybody would buy from anybody.

I do not anticipate any kind of a depression, so to speak, but I am quite confident that we are finished with the seller's market for quite a period of time.

Now, what is going to happen? You are going to face politically, socially, and economically a serious economic attack on the middle class, on the small-mill owner, the little grocer, the little mail-order house. That is the backbone of America. I am not against bigness. I make a living out of representing big people. I am delighted with the fact that an increasing number of giant companies have management now that goes around saying, "We are killing the goose that is laying the golden egg," because power has taken the place in the market of ingenuity.

There is one study on bigness that might interest you. Bob Lovett, when he was a banker, made a study, a hypothetical study. He took a woman investor who had $200,000, and she did not know what companies to buy stock or bonds in. She decided to buy $100,000 worth of stock and $100,000 of bonds, and she wanted to diversify her investment portfolio, and there would be 40 investments of $5,000 each. He took her in 1890, 1900, 1910, and 1920, and she went to her broker and under a hypothetical set of facts said, "Invest this only in the biggest companies on the New York Stock Exchange." What happens? At no single decade after she made an investment did she ever have her capital intact. I am not talking interest. She never had her capital intact, except in one period when she happened to get some stock at the low in General Motors, I think it was, that at least kept her capital intact.

Look back over the big ones of the last 50 years. What would you have invested in? The railroads? When I was on the banking board there were only three railroads in the United States that had securities that we could permit for chancery investment purposes by savings banks and trusts.

Look at your meat packers; look at your can companies; look at the whole list. I am not against bigness; I am just saying do not be bewildered and bow down to this god of gargantua. There is nothing to it. It is about time we had some more studies to find the optimum point of efficiency, but we have an answer to some other Congressman's question.

There are 121 products in the United States with sales of over $10,000,000 where 4 companies or less have 75 percent of the business. I am a practical man; I am not an economist; I am a lawyer. I know what happens when four guys can just meet once in a while at the

Stork Club or Jack and Charlie's in New York, and they have got 75 percent of the business.

Let me approach you from another angle: Bigness is important in other ways than in business. I am from New York. I want to make it very clear here that I think one of the serious elements in our culture is that the folkways of America are determined in New York City to too great an extent. Every boy with a fiddle or a manuscript or an idea or a book has got to come to that eastern seaboard, and what does he find? He finds four networks have dominated the air; three press associations

The CHAIRMAN. He finds what, did you say?

Mr. ERNST. Four networks dominating the air; three press associations. You have got your moving pictures, five companies really dominating the screen, and so I say to you that I am not concerned about New York City, because I think it is a hick city and I think that all too often New York has dominated the thinking of west of the Hudson, and we know

The CHAIRMAN. Did you say it was a hick city?

Mr. ERNST. That it was a hick city in the sense

The CHAIRMAN. Do you mean to tell me that you and I are hicks because we are from New York?

Mr. ERNST. The people in New York know, by and large, very little about the alfalfa problem or the problems of the west coast, or the problems west of the Mississippi. You know it as well as I know it. You have associated with people west of the Mississippi, and I take it you have been educated by them.

I do not want to make any comments in regard to the improvement of the antitrust laws. I am not wise enough to do it.

I am concerned about the fact that there is such delay under the antitrust laws, 10 years, 6 years, 8 years. By the time they get to the decision, in spite of the marvelous efforts of the Department of Justice, the economics of the situation have even changed because of the terrific delays.

I am not interested in the Federal Trade Commission or the Department of Justice particularly, because those are whipping agencies. Those are negative processes. Those are agencies to take care of the most antisocial instances in life.

We have got to pinprick our cases out one by one because the decent, socially minded man, like Charlie Wilson of General Electric, cannot tell any more than lawyers can tell whether they are violating the laws or not. I leave that delicate problem to others.

I am interested, in passing, to comment on the fact that the Congress has appropriated what, I think, are very meager funds for the Antitrust Division, provided you think that is the method of curbing monopoly and, too, big business.

I say that because I have gone into the courtrooms, and I have seen three little Government employees operating on salaries that total maybe $20,000, which the Congress has allowed, faced with literally, I repeat literally, a million dollars' worth of legal talent.

The Motion Picture case, the motion picture companies in that case announced that they spent a million dollars for lawyers alone. The CHAIRMAN. The Antitrust Division has won a preponderance of their cases, a preponderating majority of their cases.

Mr. ERNST. Oh, yes. I was only going to just say that the only nice part of this picture is that it proves that you cannot buy justice with money; that is what it proves, because they are winning them all.

Now, let me get to what I think is the only contribution I can possibly make: I think we have got to get a new approach, assuming that my appraisal of the peril is correct, assuming that there was any reason for having committee after committee over 15 years hold hearings.

The farmers of this Nation have a spokesman in Washington, the Secretary of Agriculture, and, historically, the Department of Agriculture has been an advocate and a slugger for the farmers.

The working people of this country have an advocate in the Department of Labor. These two secretaries in the Cabinet are the leaders of these groups. They create and forward public opinion on the problems involving those sectors of our national life.

I have no criticism whatsoever to make of the present Secretary of Commerce or any other one. I just merely want to outline in some detail what I think can be done at this session of Congress. I think it is important that free enterprise and, particularly, small business have in the Secretary of Commerce a slugger and an advocate for decent, fair competition.

You will not get far with the public with these hearings-let me be impertinent and tell you why. I have appeared often enough. Your stories that you get here are going to be fundamentally important to the Nation, but unless somebody calls somebody else a devil or some other names are called, this will be on the back pages of the papers that carry it, because the press, by and large, is only taking the stuff that is derogatory. But when you get to a crucial fundamental situation, a question of: Does our middle class survive; do we go toward statism, toward bigness, what happens to the freedom of enterprisethat is dull reading, so the editors think.

The CHAIRMAN. Do you mean to tell me that the press associations, the radio commentators, are going to stymie us with reference to our public relations?

Mr. ERNST. Well, may I put it this way: I have represented, and do represent, one of the great newspapers in New York City, and I have represented for years, on occasion, the Newspaper Guild. Again, there is nothing personal. This is something that has happened to our

mores.

When the great report was issued in the second session of the Eightieth Congress of the Small-Business Committee of the House, a Republican committee, it was a great report, nobody in America knew about it. I called up and brought it to the attention of a Washington newspaper editor I knew, and the New York Tribune, and we got good space. The rest of the papers had that much [indicating] on the business page about this fundamentally great report, and nobody knows about it.

The CHAIRMAN. I will take it that you will render the same service to this committee?

Mr. ERNST. I will be happy to.

Let me tell you what I am talking about. I do not think Congress can get too far out of line with the wishes of the people. That is democracy. I do not think you can go far on this issue without having