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STATEMENT OF MORRIS L. ERNST, ATTORNEY-Continued

Congress has been subsidizing magazines through lower postal rates. But the small newspaperman is run out of business, partly by monopolizing of newsprint.

Big issues of securities are now generally privately placed with insurance companies.

Mr. Celler points out that Dillon Read placed $550,000,000 of gas
transmission bonds with insurance companies.

One insurance company takes in more money each year than the total
budget of 19 States. The big companies should be broken up into
regions. No competition in the price of insurance.
Does not want to abolish the Miller-Tydings Act.

If abolish Miller-Tydings Act, small retail outlets will evaporate.
Since the Southeastern Underwriters case, Congress may regulate
insurance under the commerce clause.

Ernst wishes a bill directing Secretary of Commerce to act as watchdog
to keep enterprise functioning.

Ernst doesn't think congressional committees by investigation can get
any information of any value to the public. Secretary of Commerce
should have power to be advocate of free enterprise.
Another problem is the placement of orders to the big corporations by
the military. Subcontracts make small business dependent on the
big.

HEARINGS, FRIDAY, JULY 15, 1949

STATEMENT OF FRANCIS P. MATTHEWS, SECRETARY OF NAVY He speaks for all branches of the military. He is confining his discussion principally to procurement.

Recognizes that concentration of power in few business concerns requires greater Government power which may lead to corporate state.

Military recognizes that hundreds of thousands of small business concerns scattered throughout the country are source of potential industrial expansion in the event of a national emergency. In many cases during the war, small business, which was flexible and did not need involved processes of retooling, supplied the small but necessary percentage of material to meet requirements. Smali plants also achieve geographic dispersion essential from military point of view; the opposite of concentration.

Determination of what is small business:

(1) Position of concern in its trade or industry.

(2) Number of employees does not exceed 500.

(3) It is independently owned and operated.

In evaluating bids, it is easy to apply standard based on number of
employees. Criterion of dominance would be more difficult.
About 72 percent of all purchase actions of the military and 29 percent
of the dollar volume go to small business.

Chart showing above statistics inserted in record.

These statistics show that military in peacetime is not causing con-
centration of power. Liaison officials have been appointed to help
small business with its problems. Lists of who does buying, and
where, are available to businessmen. Information on awards and
purchases to be negotiated are made widely available.
Mobilization planning includes studies and plans to assist small busi-
ness in procurement activities in event of emergency. These studies
include Government supervision of contracting and subcontracting
where small business gets a large proportion of Government orders.
The widest participation by business is goal of military. Competition
in response to advertised bids is the basic way of the military doing
business under the statute. Direct negotiation is permitted by law
only in special instances.

Many activities of the military-benefit business as a whole, including
small business. Work is being done to simplify procurement
practice and methods. Military favors competition.

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

He reads statement of policy on small business approved by the Muni-
tions Board. Policy is to encourage small business and to assist
small business in its dealings with the military departments.
The 28.5 percent of procurement placed with small business does not
include any subcontracts. They are aiming to step up the percentage.
Does not know the geographical distribution of the contracts.
wartime, perhaps Mr. Ernst's figures are correct but doesn't know.
Information will be supplied for the record.

In

Statistics are from whole Military Establishment. Most contracts let by bidding. Law requires bidding except in certain circum

stances.

He has never encountered the 5-percenters.

In his 5 weeks with the Navy, he hasn't found any trace of them. He sees no reason why businessman cannot deal directly with the appropriate department of the military, both large and small business. In times of emergency, they are relieved of obligation to call for bids when the national welfare demands it.

Mr. Michener calls attention to fact that smaller-business man in time of war gets his contracts through a contractor who often is only a broker.

Witness believes there is merit in the basing-point system. However, in the Middle West, the basing-point system discriminates against industry and causes concentration.

If he personally had to adopt a program, he would establish that set by the Supreme Court.

Sometimes competitive bidding is hardship on small business. Not
allowed to give business to small concern at expense of higher cost
to the Government.

Doesn't know if small business got more contracts under negotiation
during the war than under bids now. It is easier dealing with a
large company than with a small one. Instinctively turn to easiest
placement.
Dividing up orders among many small businesses would require con-
siderable supervision on part of military. Is trying to get lower
echelons to do this.

Admiral Boyle, sitting beside Matthews, says that there is something
in Public Law 413 giving the Secretaries the right to preclude con-
tracts going to any concerns guilty of price fixing or violating the
antitrust laws.

May not be any need for additional legislation. Policy with regard to Government-owned naval yards is to keep them functioning and at the same time not impair the welfare of private business.

Doesn't know how many people employed on production in navy yards. There are 11 or 12 major navy yards, though not all in United States, engaged in overhauling ships primarily.

In addition, there are ordnance plants which produce munitions also made by private industry. Private enterprise cannot supply everything the Government needs, and Government must be sure of its supply.

It is a long-established policy. They could have all ships repaired by private enterprise, but in times of emergency the Government yards are essential. Thinks it would be imprudent to do away with them. Mr. Keating feels that here is a branch of activity which could legitimately be turned over to private enterprise.

Two problems in this discussion: (1) as to the growth of the military budget due to policy considerations; (2) expenditures for production of requisites of Navy itself, which perhaps could be purchased from private enterprise.

If there is a tendency in the Government to manufacture unduly in competition with private enterprise, he would try to reverse the trend. Mr. Celler asks if there has not been too great a growth in post exchanges competing with private enterprise.

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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.

Disposed

In 1948, paid $240,000,000 in price support for potatoes.
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.