It frightens us to contemplate the fact that the last survey, perhaps it was the only comprehensive one, on the subject of break-even points of American industries done by the War Production Board back in 1945, revealed that for some 65 industries questioned the over-all break-even point was 52 percent. When we say this frightens us we are thinking of the implications of such low break-even points. Inevitably, it would appear that as a so-called buyer's market returns, large sections of industry will naturally trim their operations down to 60 percent of capacity, or some figure near that, and not run the risk of flooding the market. Why move up to 90 or 100 percent of capacity when you can break even at 52 percent and make a profit above that while at the same time retaining prices. Well, as we see it, this is only an indication of the kind of data we need, for actually the War Production Board survey I have referred to (the exact reference is WPB release No. 7796, May 16, 1945) was a very general one. long as we are faced with the situation where giant corporations are virtually determining national economy policy we should at least know the bases on which they make their decisions.

So

As part of the same problem-that is, the wage-price-profit relationships policies of big corporations-we should also like to see this committee extend a path-breaking study which was made under the sponsorship of the Temporary National Economic Committee. One of the monographs prepared for that committee, entitled "Industrial Wage Rates, Labor Costs, and Price Policies (Temporary National Economic Committee Monograph No. 5)," studied the relationship of wages and labor costs to prices and profits. Now, as you know, this has been a field in which much controversy has been engendered over the past couple of years. It certainly bears upon the monopoly and price question, and yet nothing substantial has been done on it since that monograph was completed.

Another area of major importance which bears further study is the role of insurance companies and other savings institutions in the capital market. For a variety of reasons we seem to have reached a point where these institutions, and particularly life insurance companies, are inevitably falling into the role of principal sources of new funds for American industry. A recent article in the Federal Reserve Bulletin concluded with the observation:

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During the postwar period 1946-48, savings institutions played a major part in meeting the external financing requirements of business. The net increase in the'r holdings of business securities exceeded the estimated increase in longterm corporate debt. At the present time, combined mortgage and corporate bond holdings of life insurance companies, mutual savings banks, and savings and lean associations, reached nearly one-half of total mortgage and long-term corporate debt outstanding as compared with the prewar 1929-39 average of less than one-third.

Needless to say, among these savings institutions mentioned, by far the most significant are the life insurance companies. (Federal Reserve Bulletin, March 1949, p. 245.)

Now, it may well be that economic evolution inevitably casts life insurance companies into such a role. But if this is so, we feel that the implications should be more carefully explored and consideration given to the dangers inherent in such a situation. No small group of companies and their boards of directors can be trusted with such vast powers without adequate public regulation in the picture.

We have already taken up considerable of the committee's time, but we should like at this stage to get a few more things in the record. While we hope to develop our own program of recommendations more fully in the later course of the hearings, we should like to submit for the record a summary of some proposals, which we made over a year ago, for dealing with monopoly. I shall submit these in the form of an appended memorandum in the next few days. (The information referred to follows:)

CIO PRELIMINARY PROGRAM TO CURB MONOPOLY-JUNE 1947

1. The Government agencies working in this field-such as the Interstate Commerce Commission, Federal Trade Commission, and Department of Justice— should coordinate their work.

2. Their appropriations should be sufficient to carry on effective work. The Department of Justice has never had more than $2,500,000 in any one year. This is less than what one corporation paid to fight one suit pending against it. Congress should see to it that the administration of the laws now on the statute books of the United States are not crippled by the failure of adequate appropriations.

3. Government aid should be made available to small business to the extent, possibly, in some cases, of subsidizing marginal producers.

4. In other cases, loans to small business should be made available. Private banking houses control monopoly corporations and are therefore reluctant to lend money to small competing businesses. Government loans are therefore essential.

5. There should be a system of universal use and control of patent rights. 6. Government research should be carried on extensively in all industrial fields, with the assurance of unrestricted use in American industry of Government patents resulting from such work.

7. Pilot plants might be set up in certain industries to force prices down to reasonable levels; that is, more extensive use of the experience gained through TVA.

8. Congress should give the Federal Trade Commission the right to stop mergers resulting from large corporations acquiring the assets of small companies. 9. American corporations should be banned from entering into international cartel agreements, such as those entered into with I. G. Farben and others before the war.

10. In the light of present economic tendencies, it may become necessary to give serious consideration to public control, either through regulation or ownership, as a means of curbing monopoly practices.

11. It may be also necessary, in order to stop monopoly, to subject the major privately owned corporations to some type of government regulation.

12. The President should be authorized and directed to conduct an annual investigation into the extent of monopoly and monopolistic practices and further be directed to include in his annual economic report to the Nation specific legislative recommendations to cope with the unfavorable practices incurred.

-Taken from CIO Economic Outlook, June 1947.

Then, too, we should like to say a word about the question of labor monopoly. In hearings of this committee I daresay this usual red herring will be dragged in. Well, looking briefly at this over-all issue, may I say that the people in the labor movement bitterly resent the notion that the sale or treatment of human labor power can or should in any way be equated with the disposition of commodities. Even if exactly like tactics were employed by workers in selling their labor power, these should not be equated with manipulation of commodities by business owners.

This subject has by now a rather bitter history and I do not imagine that you are too interested in hearing a very vested interest comment upon it. May we, however, call to your attention the very fine article on this subject which was written several years ago. It is entitled

"Reflections on the Labor Monopoly Issue" and appeared in the Journal of Political Economy for December 1947, pages 513-536. As I say, you may not take too seriously what a labor organization has to say on this subject, but the author of this article is Prof. Richard A. Lester, who at the present time is chairman of the economics department of Princeton University. This is one of the most distinguished chairs any economist can attain, and in a university at which no one, not even in this day and age, has leveled the charge of harboring Communist influence. I do not, personally, agree with all of Mr. Lester's study, but I believe it should serve as an antidote to a lot of the loose talk one hears on this subject.

May I quote a few sentences of it here:

The Federal antitrust laws have never been applied to labor markets. Employers, as well as workers, have been free to combine and conspire as they might wish in the labor market, which is the only market where industrial firms are all buyers and in which it is practically impossible for sellers to become buyers when prices fall. Nonapplication of the antimonopoly laws in the labor market is recognition of the fact that, without unions, there are bound to be monopolistic elements in most labor markets and that there are essential differences between price fixing and monopoly control in product markets and such phenomena as labor agreements, collective bargaining, and strikes by workers.

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Economists sometimes seem to overlook the fact that unions do not "sell labor," are not profit-making institutions, and are as much political as they are economic. Monopolistic principles developed for business concerns cannot be applied directly to unions. Unlike companies, unions are not operated to make a profit. Their activities are not determined by comparisons of sales income and costs; their policies are not based on marginal sales revenue, marginal operating costs, or net returns. It is doubtful whether unions consistently attempt to maximize any monetary quantity.

In conclusion, may I return to my opening remarks and earnestly repeat that we regard the subject you are investigating as a most vital one. We trust you will start where the Temporary National Economic Committee left off and give serious consideration to the proposals and conclusions of that group. We hope out of this will come a real action program in the field of monopoly.

The CHAIRMAN. Any questions?

I note with interest what you say concerning the policy leadership of concerns such as General Electric and General Motors and United States Steel and American Woolen Co., and you say that one of the first objects of the study should be to close the gaps of ignorance that may exist in this country on the operations of these companies. In that regard you ask the question, at what level do they have to operate (normally speaking) in order to carry all their costs? Beyond that, what level of operation do they look upon as their normal standard? Of course, those questions are highly pertinent, but I think, as chairman, and I am sure I reflect the views of the committee, we must keep in contemplation our limited time and our limited funds.

If we would attempt to go into an expedition of that sort we would have to have a host of investigators, and I am free to confess that our purse would not permit any such huge investigation.

I am sure that as much as we would like to go into that phase of the study, we may indeed be precluded, and I would like you to understand that.

Likewise, with reference to the activities of the insurance companies, there is pending a joint resolution providing for a joint investi

gation of some of the operations of insurance companies by members of the Judiciary Committees of both the House and the Senate.

There has as yet been no concrete action on that investigation resolution. There again, if we were to attempt to go into all the activities of the insurance companies which might bear on this study, we would have to have a very huge investigative staff, counsel, and so forth, and again we must cut our cloth to suit our purse.

We will, I am sure, as witnesses appear before us and as the studies unfold, attempt to touch the periphery of those subjects, but I must state at this juncture that we will not be able to plumb their depths. Mr. KASSALOW. May I make the suggestion, though, that in your recommendations or in pointing up future antimonopoly or antitrust policy, you may somehow lay the ground work for such studies and reports?

The CHAIRMAN. I think what you said in the inception of your remarks is sound. There is a great reservoir of facts on which we can draw in connection with the studies that were heretofore made by the TNEC.

Of course, much has gone over the dam since 1940 and 1941, when those monographs that you mention were written and published.

As far as we may, we will try to fill that gap, but at best the job is a difficult one, and you will have to bear with us in the light of our limited purse.

Mr. KASSALOW. We would hope that there might be some means of, oh, either making recommendations or somehow making funds available to bodies such as the Federal Trade Commission in future years to study these questions-to have such funds over a period of years.

We feel that it is something that will come. By their very power and force, these companies are almost getting beyond the strictly private sphere. They are almost into the sphere of public welfare, and somehow or other we will have to know more about them.

That still raises the whole question as to what you do when you find out, but without facts it is even more difficult to think of a policy. The CHAIRMAN. Let us assume that we will find the level at which these giant corporations operate to cover all their costs; let us assume that we could discover their normal standards in that regard. What would be your suggestion as to a remedy, in addition to appropriating more moneys, for the Federal Trade Commission and, say, the Antitrust Division? What would you suggest?

Mr. KASSALOW. We believe that the mere turning of the public spotlight on their various practices might have a very healthy effect. I do not think that too many of these corporations-I am not suremight long persist in policies of low output standards if it pretty much became known to the public.

We are rather hopeful that publicity turned on some of the very evil pricing or cost practices might have a very salutary effect.

The CHAIRMAN. We know there has been the searchlight of pitiless publicity, which has been focused upon the creation of artificial scarcities (and that is what you have in mind in a number of industries) and it has not changed the practices of these operators.

I know-we know, for example-that has happened in the textile industry, and I wondered whether or not they would not duplicate their activities when it would suit their purposes.

Mr. KASSALOw. It seems to me that to the extent that we havethis country has been successful in creating an atmosphere of competition, it has stemmed to some extent from the kind of continual public profession of antitrust policy and sentiment in the United States.

It seems to me you create a kind of climate which can have a rather indirect effect upon these companies. I mean, for example, I think you would probably agree that antitrust has not been such a complete failure in the United States, in a figurative sense-literally, we may have big corporations-but I dare say they are bothered by even the weak activity of the Department of Justice in creating a continual pressure upon them, in creating a public climate which says that monopoly practices are bad.

I dare say it exercises-it forces them-to exercise some restraint, and I think publicity upon their cost and price policies might have a similar effect.

As I say, until we are even certain as to what these policies are, and once in a while you get a statement such as Mr. Coyle's before the committee indicating somewhat, some kind of a range of how General Motors prices its products, but until we know more about it we, for one, would not be ready to rush in with policy suggestions.

The CHAIRMAN. I want it to be understood, of course, that I favor publicity.

Mr. KASSALOW. Yes, I understand.

The CHAIRMAN. In respect to and as far as the practices of these concentrates are concerned. I am just curious to get from you an opinion as to what we would do beyond that after we got the facts.

Mr. KASSALOW. I do not know. I have an idea that if it were disclosed-and I am making a pure guess now-that the 100 largest manufacturing corporations in the United States normally price their products so that they could make a profit at 65 or 70 percent of operations, I think that would be quite a bit of information for the American people, and might have quite an effect on their attitudes and, perhaps, in turn, on the attitudes of these corporations in terms of their future planning and future outlook.

The CHAIRMAN. Could we do anything legislatively in that regard, effectively?

Mr. KASSALOW. I would not want to say at this time.

The CHAIRMAN. Any other questions?

Mr. KASSALOW. Once the disclosure was made, I think we might be

prepared to say something.

The CHAIRMAN. Thank you very much, Mr. Kassalow.

The next witness will be Dr. Walter Adams, assistant professor of economics at Michigan State College.

You might proceed, Dr. Adams.

STATEMENT OF WALTER ADAMS, ASSISTANT PROFESSOR OF ECONOMICS, MICHIGAN STATE COLLEGE

Mr. ADAMS. My name is Walter Adams. I have a Ph. D. degree in economics from Yale University, and am now assistant professor of economics at Michigan State College.