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MONOGRAPH No. 18 — 19 

Printed for the use of the 
Temporary National Economic Committee 





(Created pursuant to Public Res. 113, 75th Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WALLACE H. WHITE, Jr., Senator from Maine 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

TKURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

♦SUMNER T. PIKE, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

♦EWIN L. DAVIS, Commissioner 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

♦CHARLES L. KADES, Special Assistant to the General Counsel 

Representing the Department of the Treasury 

Representing the Department of Commerce 

* * * 
LEON HENDERSON, Economic Coordinator 
DEWEY ANDERSON, Executive Secretary 
THEODORE J. KREPS, Economic Adviser 

Monograph No, 18 













This monograph was prepared by 



Tlie Temporary National Economic Committee is greatly indebted 
to these authors and other members of the Department of Commerce 
staff for this contribution to the study of trade associations. 

The status of the Tnateridls in this volume is precisely the same as 
thnt of other carefully prepared testimony when given by individual 
witnesses,' it is information submitted for committee deliberation. 
No matter what the official capacity of the witness or author may be^ 
the publication of his testimony^ report^ or monograph by the com- 
mittee in no way signifies nor implies assent to^ Qr approiml of^ aivy 
of the facts, opinio^is, or recommendatians, nor acceptance thereof 
in lohole <?■;• in part by the members of the Temvporwry Natixmal' 
Economic Committee, indvviduaUy or collectively . Sole and v/n- 
divided responsibility for every statement in such testimony, reports, 
or monographs rests entirely upon the respective authors. 

(Signed) Joseph C. O'Mahonet, 
Chairman, Temporary Natio-nal Economic Conmvittee. 

Letter of transmittal. 




General characteristics _ 1 

Trade association membership 3 

Trade association income and staff 7 

Extent of incorporation 9 

Financial bases 10 

Trend of trade association organization 12 


Scope of activity 21 

Types of activity 21 

Activities and income groups 26 

Activities and membership groups - 28 

Activities and age groups- -. 30 

Activities and industrial groups - 31 

Manner of performance 33 

Staff 35 

Management organizations ... 38 

Federations 40 

Significant contributions 42 


Trade practices 45 

Mutual restraints of competition 46 

Control of practices peculiar to certain elements in an industry 68 

Number of associations engaged in trade practice and related activi- 
ties 63 

Trade association attitudes toward public policy 64 

Actions of the Federal Trade Commission and the Department of 

Justice against trade associations and other groups - 67 

Elimination of price competition 71 

Price agreement:-; 71 

Cooperat ivo selling and licensing 73 

Resale price maintenance . 75 

Processing and product differentials 75 

Restrictions on trade and quantity discounts and customer 

classification 77 

Restrict ions on geographic price policies 79 

Terms and other conditions of sale 81 

Price filing and price statistics 82 

Trade statistics 84 

Standardization and simplification 84 

Production and sales control 85 

Allocation of buyers and sales territories 86 

Buying out 87 

Sanctions 87 

Elimination of competitor ^2 

Control of distribution channels 92 

Cases not directly involving control of distribution channels. 97 

Elimination of design "piracy" 102 


Trade practice activities of the Sugar Institute 105 

The sugar refining industry - 106 

Formation of the Sugar Institute 113 

Trade practice activities of the Sugar Institute 117 

Relations with the Department of Justice. 117 

Code of ethics 118 

Trade statistics -- 121 

Open price reporting — 122 



Trade practice activities of the Sugar Institute — Continued. 

Trade practice activities of the Sugar Institute — Continued. Pa«« 

Control of distribution 124 

Transportation 124: 

Consignment points 128 

Separation of functions 130 

Terms and conditions of sale 132 

Brokerage 132 

Contracts 132 

Terms ._ 134 

Proposed Code of Fair Competition 136 

Injunction of the district court and Supreme Court 139 


Trade statistics, price and bid information 145 

Development of trade statistical activity as affected by Government 

relationships 147 

Nature of trade statistics compiled by ^ade associations 152 

Types of series collected 152 

Production and stock series 153 

Orders, shipments, and sales 154 

Raw materials series 156 

Miscellaneous series 156 

Frequency of various series 157 

Relative frequency 157 

Combinations of series 157 

Unit or mode of reporting 158 

Frequency of dissemination 158 

Coverage and representativeness 159 

Extent of definitions, instructions, and comment on releases 162 

Classification of data 163 

Administration of the trade statistical service 166 

Administrative agency 166 

Measures to insure participation 168 

Measures to insure promptness of reporting 170 

Measures to insure accuracy 170 

Measures to insure confidential handling 172 

Dissemination of trade statistics 174 

Extent of dissemination 174 

Dissemination through the Survey of Current Business 176 

Objectives and uses of trade statistics 178 

Programs designed to supply information on past industry trends 

for general use_ 179 

Programs designed to guide the price and production policies of the 

members 180 

Statistics indicating the individual member's position with 

respect to that of the industry 181 

Statistics showing current trends of the industry as a whole. 187 
Programs designed to further a particular inquiry and other 

specific uses of trade statistics ' 193 

Price information 193 

Price lists or offers 198 

Direct exchange of price lists among members 198 

Central filing of price lists, with no dissemination 198 

Exchange of price lists through the association 198 

Filing and dissemination of price lists and notices of price 

changes 200 

Filing of price lists, notices of price changes, and deviations 

from filed prices 203 

Information on prices received in closed transactions 205 

Price averages and related measures 205 

Prices received in individual closed transactions 208 

Combination of price list exchange with reports on closed trans- 
actions 212 

Bid information 214 

Fifing of bids for estimating purposes 216 

Compilation of bid information from public records 216 

Filing of data on successful bids only 216 

Specific inquiry service 1 . 216 


Trade statistics — Continued. 

Bid information — Continued. Paga 

Filing of all bids after transaction is closed 217 

Current filing of all bids, with dissemination after transaction 

is closed 219 

Bid filing plans involving more or less regulation of bidding 

practices 22 J 

Investigation of specific job contracts 224 

Statistics of the Southern Pine Association 227 

Statistics of the National Container Association and regional affiliates. 238 

Statistics of the Envelope Manufacturers Association 249 


Uniform accounting, cost statistics and studies 257 

Uniform accounting 258 

General characteristics of accounting manuals 258 

Inclusiveness of cost 260 

Interest 26 1 

Depreciation on fully depreciated assets 262 

Discounts 262 

Income taxes 263 

General comment on inclusiveness of costs -. 263 

Methods for computing and combining elements of cost 264 

Depreciation rates 265 

Revaluation of assets 266 

Wages and salaries 267 

Raw materials 268 

Factory burden 270 

Normal capacity 271 

Other provisions for calculating and allocating costs 275 

Cost and price estimating formulas and services _. 277 

Base-price lists 277 

Reference lists showing average mark-up 279 

Aids to differential pricing 279 

Cost estimating aids 279 

Cost formulas and bid filing . 280 

Cost estimating services 280 

Statistics on average costs 281 

Cost studies and cost statistics . 281 

Character of cost studies and cost statistics 282 

Occasional and periodic studies 282 

Coverage 283 

Character of data 283 

Uses of cost studies 285 

Stimulation of economies 286 

Cost studies directed primarily toward price determination... 287 

Other uses 290 

Development and promotion of the accounting program 291 

Uniform accounting 291 

Cost studies and statistics 293 

Objectives of accounting programs 294 

The maintenance of stable and profitable prices 295 

Stimulation of economies 298 


Other activities of national and regional trade associations 301 

Technical research and advisory services 301 

Standardization and simplification 309 

Trade promotion 319 

Employer-employee relations 326 

Government relations 333 


Summary and conclusions 343 


A. Tables and exhibits 358 

B. Sources of material 427 

C. Industrial classification of trade associations (includiricr list of ^,311 

national and regional trade associations included in survey) 437 

D. Types of State and local associations of btlsines'^men 465 




1. Number of national and regional trade associations classified accord- 

ing to geographic scope and industrial division, 1938-39 . 358 

2. Number of national and regional trade associations classified accord- 

ing to type of industrial function included in membership privileges, 
1938-39 . 358 

3. Number of national and regional trade associations classified accord- 

ing to number of voting members and industrial division, 1937-38-. 359 

4. Number of national and regional trade associations classified accord- 

ing to industrial division and percent of industry coverage by num- 
ber of firms, 1937-38 . -^ 359 

5. Number of national and regional trade associations classified accord- 

ing to industrial division and percent of industry coverage by volume 

of business, 1937-38 - 360 

6. Number of national and regional trade associations classified by 

percent of coverage by number of firms and volume of business, 
1937-38 ,--. 360 

7. Number of national and regional trade associations classified accord- 

ing to number of members and percent of industry coverage by num- 
ber of firms, 1937-38 360 

8. Industry groups ranked according to extent of organization as meas- 

ured by percent of industry volume of business represented by 
national end regional trade associations, 1937-38 361 

9. Number of rLation^.1 and regional trade associations classified accord- 

ing to annual income and industrial division, 1937-38 362 

10. Industry groups in the producing field ranked according to the pro- 

portion of their trade associations whose annual income is $20,000 

or more, 1937-38 363 

11. Number of national and regional trade associations classified accord- 

ing to annual income and number of members, 1937-38 364 

12. Number of national and regional trade associations classified accord- 

ing to size of full-time paid staff and industrial division, 1937-38-- 365 

13. Number of national and regional trade associations classified accord- 

ing to annual income and size of full-time paid staff, 1937-38 366 

14. Number of national and regional trade associations classified accord- 

ing to industrial division and corporate status, 1938-39 366 

15. Number of national and regional trade associations classified accord- 

ing to corporate status and number of members, 1937-38 366 

16. Number of national and regional trade associations classified accord- 

ing to corporate status, annual income, and whether administered 

by management organizations, 1937-38 367 

17. Number of national and regional trade associations classified according 

to annual income and percent of income received from the 4 largest 
contributors, 1937-38 367 

18. Number of national and regional trade associations classified according 

to number of contributing members and percent of income received 

from the 4 largest contributors, 1937-38 - 368 

19. Number of national and regional trade associations active in June 1938, 

classified according to year of organization and industrial division.. 369 

20. Industry groups in the producing, field ranked according to the pro- 

portion of their trade associations tb * -ere organized since 1920.. 370 

21. Number of national and regional traae associations and percent 

organized prior to 1920 classified according to annual Income 370 

22. Number of disbanded and inactive national and regional trade associa- 

tions classified by industry group 371 

23. Number of disbanded and inactive national and regional trade associa- 

tions classified by number of members ^^ 371 

24. Reasons given by trade associations for disbandment or inactivity 372 


LIS1' OF i:XHir.IT8 IX 


25. Number and percent of total number of national and regional trade 

associations reporting that they engaged in the specified activities, 
1938-39 373 

26. Number and percent of total nimiber of national and regional trade 

associations engaged in the specified classes of activity, 1938-39 374 

27. Percent of national and regional trade associations in the specified 

annual income classes that reported as of major importance the 
activities specified, 1938-39 375 

28. Percent of national and regional trade associations having specified 

number of paid members of staff that reported as of major importance 

the activities specified, 1938-39 376 

29. Percent of national and regional trade associations in the specified 

membership classes that repoi ted as of major importance the activi- 
ties specified, 1938-39 376 

30. Percent of national and regional trade associations having the specified 

coverage that reported as of major importance the activities speci- 
fied, 1938-39 377 

31 . Percent of national and regional trade associations organized during the 

specified periods that reported as of major importance the activities 
specified, 1938-39 377 

32. Number and percent of national and regional trade associations in the 

specified industry groups that reported as of major importance the 

activities specified, 1938-39 . 378 

32A. Number and percent of national and regional trade associations in the 
specified industry groups that reported the activities specified, 
1938-39 382 

33. Percent of national and regional trade associations engaged in the 

specified activities that reported the performance of activities in the 
manner specified, 1 938-39 384 

34. Number and percent of national and regional trade associations holding 

the specified number of specified types of meetings during the year, 
1937-38 - - 384 

35. Age of trade association executives, 1938-39 385 

36. Previous occupations of trade association executives, 1938-39 385 

37. Nature of trade association executive's connection with the industry 

represented by the association, 1938-39 385 

38. Number of national and regional trade associations administered by 

management organizations, 1938-39 386 

39. Number of national and regional trade associations administered by 

management organizations classified by industry group, 1938-39 386 

40. Industrial distribution of national and regional trade associations ad- 

ministered by each of the management organizations handling five 

or more associations, 1938-39 , 387 

41. Number of national and regional trade associations administered by 

management organizations classified according to number of mem- 
bers and percent of coverage by volume of business, 1937-38 388 

42. Number of national and regional trade associations administered by 

management organizations distributed by amount of annual income, 
1937-38-. 388 

43. Percent of national and regional trade associations classified according 

to management status reporting the specified activities as of major 
importance, 1938-39 389 

44. Number of national and regional federations of trade associations 

classified according to nature of the affiliated associations and in- 
dustry group, 1938-39 389 

45. Number and percent of national and regional federations of trade 

associations classified according to amount of annual income, 1938-39. 390 

46. Number and percent of national and regional affiliates of national ar\d 

regional federations of trade associations performing the specified 
activities classified according to the manner in which the activities 

are performed, 1938-39 391 

46A, Number of national and regional trade associations reporting a major 
emphasis on trade practices and related activities and combinations 
thereof by industry group, 1938-39 392 


46B. Number of national and regional trade associations reporting a major 
emphasis on trade practices and related activities and combinations 
thereof by size of membership, 1938-39 393 

47. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified according to the manner of their disposition, June 1936- 
October 1939 393 

48. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified according to the alleged objective and form of the respond- 
ent groups, June 1935-October 1939 394 

49. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified according to the industry of the respondent groups and the 
alleged objective of their programs, June 1935-October 1939 395- 

50. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified ac :;ording to the geographic scope of the respondent groups 
and the alleged objective of their programs, June 1935-October 1939. 

51. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified according to the principal methods alleged to have been 
employed in programs to eliminate price competition, June 1935- 
October 1 939 395- 

52. Number of cases instituted by the Federal Trade Commission and the 

Department of Justice against trade associations and other groups 
classified according to devices and sanctions alleged to have been 
used in programs to eliminate price competition, June 1935-October 
1939 395 

53. Summary tabulation of 882 current trade statistics series by type of 

series and industry group, 1938-39 396 

54. Sunimary tabulation of 305 products or product groups by number and 

combinations of types of current trade statistics, 1938-39 397 

55. Summary tabulation of 882 current trade statistics series by type of 

series and unit or mode of reporting, 1938-39 . 398 

56. Summary tabulation of 882 current trade statistics series by type of 

series and frequency of release, 1938-39 '_._ „, 398 

57. Summary tabulation of 882 current trade statistics series by type of 

series and classification of data shown in release, 1938-39. - - .1 399 

58. Summary tabulation of 882 current trade statistics series by type of 

series and extent of dissemination, 1938-39 . 400 

59. Summary tabulation of 264 trade associations by industry group and 

extent of dissemination received bv their current trade statistics 
series, 1938-39 \ 401 

60. Summary tabulation of 882 current trade statistics series by type of 

series and whether individual company position shown, 1938-39-- 402 

61. Summary tabulation of 264 trade associations by industry group and 

whether individual company position shown in statistical releases, 
1938-39 402 


I. Number of national and regional trade associations included and not 
included in the present survey, classified according to geographic 

scope and industry group 403 

II. Number of national and regional trade associations whose head- 
quarters are located in the various States and cities of over 100,000 

^ population , 1938-39 405 

IIA. Number of national and regional trade associations classified accord- 
ing to detailed industry groups and number of voting members, 

^ 1937-38 407 

HI. Number of national and regional trade associations classified accord- 
ing to detailed industry groups and percent of industrv coverage bv 
number of firms, 1 937-38 . . 1 411 


IV. Number of national and regional trade associations classified according 
to detailed industry groups and percent of industry coverage by 

volume of business, 1937-38 414 

V. Number of national and regional trade associations classified accord- 
ing to detailed industry groups and size of full-time paid staff, 

1937-38 417 

VI, Number of national and regional trade associations classified accord- 
ing to detailed industry groups ^.nd annual income, 1937-38 421 

VII. Number of national and regional trade associations active in June 

1938, classified according to annual income and year of organization 425 


Hon. Joseph C. O'jNL^honey, 

Chmrman, Temporary National Economic Committee^ 

Waskmgton, D. C. 

My Dear Senator : I have the honor to transmit herewith a trade 
association survey by Dr. C. A. Pearce and associates in the Depart- 
ment of Commerce. 

Tlie national trade association is an important factor in the busi- 
ness world. In the past, numerous legal, philosophical, and economic 
analyses have appeared in magazines and book form. Elaborate 
studies have been made of individual cases. An over-all picture 
drawn from an adequate basis of fact, however, has been largely 
missing. The present study sketches in the full pattern, so that one 
can better evaluate the movement as a whole, at least in terms of 
certain tangible measures. 

Tliere are obvious difficulties facing any effort to bring the more 
tlian 1,000 national trade associations into any neat summary descrip- 
tion. No exact legal requirements establish a required ]jarticular 
pattern. The underlying industries and trades show wide variety 
in function, structure, and opportunity for cooperative action. Indi- 
vidual business lenders and particularly the trade association execu- 
tive himself have given differing emphasis to the processes of 
development of their own organizations. The trade association is 
an intermediate stage between the integration of an industry's 
activity through merger and consolidation into a single or small 
mmiber of units, and the maintenance of many completely independ- 
ent, competing enterprises. It establishes a functional area of coop- 
erative action, yet leaving its members free to act independently in 
other areas. As the report shows, the extent of this area of coopera- 
tion varies widely among associations. From the point of view of 
the public interest, and also from the trade associations themselves, 
the question of the proper area for cooperative action is the prime 
problem of private and public policy involved. 

There are various limitations on this report which should be notea. 
It is primarily an analysis of the characteristics and activities of 
trade associations since tlie N. R. A. and for the most part disregards 
the historical aspects of the movement. The very important subject 
of local associations has been only summarily treated, although recent 
investigations by the Department of Justice suggest that this area 
may be of considerable importance in its effect on business activity 
and policy. Furthermore, the report is based primarily on the state- 
ments and records of associations themselves, supplemented by records 
of investigation made by various Government agencies. Valuable 
as it would have been for an over-all picture, it would have been 
impossible to obtain a picture from the business community as a 
whole of its reaction to the trade association movement. Here one 
is faced with various intangibles which can only be understood and 


evaluated in careful studies of individual situations. However, with 
the broad background provided by this report, such individual 
studies should have an enhanced value. 

Fortunately, the trade associations themselves have been greatly 
interested in this study. Tlieir executives, at the cost of consid- 
erable time and expense, have demonstrated their interest and co- 
operation by providing information in great detail in response to 
questionnaires and to subsequent inquiry. The exceptions were con- 
spicuous by their rarity. 

Assisting in the preparation of the study were John M. Jacobs, who 
wrote chapter VI ; C. J. Judkins, chapter VII and appendix C ; Enid 
Baird Lovell, the bulk of chapter V ; and James W. McNally, chapter 
IV and parts of chapter V. John J. Lennon and Laps D. McCord 
conducted the various statistical analyses; and Isidore Bady, W. H. 
Corey, Paul Howell, Charles Sevin, lona Simi, Helen E. ^\ells, and 
others, significantly contributed to various phases of the survey. 

Thanks are due a number of agencies and individuals outside of 
the Department of Commerce for aid in connection with the prepara- 
tion of the study. Tlie United States Tariff Commission loaned for 
a period of time the services of John M. Jacobs and W. H. Corey for 
an analysis of the cost accounting activities of trade associations. The 
Federal Trade Commission and the Department of Justice freely made 
available various records and files relating to trade association activi- 
ties. The Committee on Co peration with the Department of Com- 
merce of the American Tra e Association Executives advised in the 
planning and conduct of tlie study and gave valuable criticism of 
Chapters I to VII of the preliminary manuscript. Among others 
who reviewed one or more sections of the manuscript were James 
Lawrence Fly, Edwin B. George, H. F. Taggart, K. P. Marple, and 
officials of several trade associations. The aid obtained from these 
individuals and organizations of course does not in any way estab- 
lish any responsibility on their part for the contents or conclusions 
of the study. The conclusions are those of the individuals respon- 
sible for the report, and are not presented as those of the Department. 

WiLLARD L, Thorp. 
Adviser on Econamic Studies, Department of Commerce. 


A "trade association.'' as it is considered in this report, is a vol- 
untary, nonprotit organization of enterprises engaged in a particular 
kind of business. Such enterprises may be individuals, partnerships, 
or corporations, and in nearly ail associations are competitors.^ 

Although most trade associations are unlimited in purpose, that is 
are organized to obtain for their members every appropriate benefit 
of cooperation, there are some that are organized for a special pur- 
pose and carry on only one major activity, such as the collection and 
dissemination of trade statistics. The singular nature of these 
"spe<'ial-purpose" associations, however, often exists in name only. 
Where it is the only association in the industry, such a group usually 
serves as a center of information and carries on one or more additional 
activities found among "general-" or "full-purpose" trade associations. 
The value of the distinction applies mainly to industries where in 
addition to a general-purpose trade association an association is es- 
tablished to carry on an activity which only some members are suf- 
ficiently interested in, or can afford, to support; associations engaged 
in the field of public relations and trade promotion represent the 
most common organizations of this type.^ 

An indication of the types of association in the field of business 
that have not been covered may clarify the scope of the present survey 
of trade associations. Associations embracing enterprises in many 
lines of business were not considered to be trade associations. Out- 
standing examples of such associations are the Chamber of Commerce 
of the United States and the National Association of Manufacturers. 
Other examples are the Association of National Advertisers, whose 
membership is open to any business enterprise using or interested in 
national advertising, and the National Foreign Trade Council, whose 
members embrace every type of enterprise engaged in or interested in 
promoting foreign trade. Also excluded were associations of tech- 
nicians and other professional persons, such as engineers, lawyers, 
and accountants, and groups of semiprofessional, business employees, 
such as plant superintendents, ship foremen, and purchasing agents. 
Other business groups which it Was not found possible to cover were 
retailer-owned, and wholesaler-sponsored, cooperatives; commodity 

^ The extent of actual or potential competition between the member enterprises varies. 
of course, from association to association, depending principally on the extent of the 
geographical concentration of the members and of their markets and on the number of 
I>rociucts made or sold by the various members as compared with the number covered by 
the association. There are a few national and regional trade associations (less than 6 
in number) whose members are not competitors. These associations are in distribution 
and service trades, and their iirincipal purpose is the promotion of a special type or 
brand of product or service. Their membership is limited to one firm in each trading 

* Such special associations sometimes are organized by members of several industries, 
each of which has its own f;,eneral-purpose trade association, whose point of mutual inter- 
est is that they serve a common group of buyers. 



and security exchanges ; producers cooperatives and other associations 
in the field of agriculture ; and professional ball leagues and other pro- 
fessional athletic groups. 

The present surv'ey is largely confined to national and regional 
trade associations, of which approximately 1,505 were active in June 
1938.^ It was not found possible to canvass the some 6,000 State 
and local trade associations, estimated to exist in 1938.* Associa- 
tions whose membership was open to an entire industry were con- 
sidered to be "national" in scope, except in those cases in which it 
was clear that the association actually was undertaking to represent 
a smaller geographic segment of the industry than was indicated 
by its eligibility provisions. Associations similarly representing an 
industry in a certain region only, if that region embraced an area 
larger than a single State, were classified as "regional" in scope. 
Included in the latter classification were a number of associations 
that confined their membership to enterprises located within a State, 
when these enterprises represented a substantial part of the entire 
industry in the United States.^ 

Of the 1,505 national and regional trade associations, sufficient 
infonnation was obtained to include 1,311 associations in one or more 
of the tabulations presented in this report.^ Exhibit I shows, by 
major industrial groups, the number of trade associations included 
in the survey and the approximate number on which insufficient 
information was obtained. This table indicates that of the 1,311 trade, 
associations included in the survey, 7 are in the fishing industry, 858 
in the mining, manufacturing, and construction industries, 147 in 
wholesale trade, 85 in retail trade, 23 in the finance and real estate 
field, 67 in the insiirance field, 69 in the field of transportation, 
communication, and other public utilities, and 55 in the personal, 
business, and recreational service trades. These associations repre- 
sent the following percentages of the estimated total number of 
associations in their respective fields : 

All 87 

Fishery 78 

Mining, manufacturing, and construction 92 

Wholesale trade 85 

Retail trade 86 

Finance and real estate 79 

Insurance 66 

Transportation, communication, and other public utilities S3 

Personal, business, and recreational services 71 

Over a third of the 194 associations not included in the survey 
are regional in scope and without exception are found in branches 
of industry in which there are national or other regional associations 
that are included in the survey. It is conservatively estimated that 
between 30 and 40 of the 194 associations are limited-purpose groups, 
principally credit bureaus and special insurance groups, in industries 
that are represented by general-purpose associations. The repre- 

3 Exclusive of 44 export associations organized under the Webb-Pomerene law of 1918. 

•• See appendix D. 

^ As a general rule, "substantial" was interpreted to mean 20 percent or more by 
volume. Lack of precise information concerning the State's share of the total business 
of an industrv probably resulted in departures from this rule in some cases. A few State 
associations rederated with national associations in the field of manufacturing were in- 
cluded, even though it was clear that the State's share of the total was less than 20 

* See appendix B for a description of the procedure. followed in canvassing the trade 


sentative character of the group of associations inc hided in the sur- 
vey perhaps is best indicated, however, by the fact that among them, 
with very few exceptions, ai-e found the several leading associations 
in eveiy line of industry. 

The geographic scope of national and regional trade associations 
included in the survey is shown in table 1. Of the total of 1,311 
associations 898, or 68 percent of the total, have been classified as 
"national" in scope. The membership of three of these associations 
is located within the boundaries of single States. Two of these asso- 
ciations are in the anthracite coal industry; the third is the California 
Redwood Association. Four hundred and thirteen, or 32 percent of 
the total, have been classified as "regional" in scope. The membership 
of 348 of these regional associations is located in more than one State, 
that of 65 within single States. The 65 associajbions are heavily con- 
centrated in the New York garment industry and in the New York 
importing, jobbing, and brokerage businesses. Several, of which the 
Dried Fruit Association of California is a good example, are found 
in the food industry. The remainder of this group of 65 associations 
are well scattered among the other industrial groups. 

As might be expected, trade association headquarters are concen- 
trated in the important commercial and industrial centers. An out- 
standing exception to this is the relatively large number of associa- 
tions whose headquarters are in the District of Columbia, which 
reflects the emphasis placed by trade associations on Government rela- 
tions. As is shown in exhibit II, 499, or 38 percent of the 1,311 asso- 
ciations included in the survey, are located in New York; 216, or 16.5 
percent of the total, in Illinois; 86, or 6.6 percent, in the District of 
Columbia; 70, or 5.3 percent, in Ohio; and 63, or 4.8 percent, in 
Pennsylvania. Other States ranking among the first 10 are Massa- 
chusetts, California, Washington, Michigan, and Missouri. These 10 
States account for approximately 85 percent of the total number of 


Trade associations require that the candidate, to be eligible for 
voting membership, be engaged in business in the industry and area 
covered by the association. It is frequently provided that the candi- 
date must have been a member of the industry for a certain period 
of time before he can be admitted as an association member. This 
period usually is less than 2 years, although some associations require 
a longer jDeriod, in a few cases as great as 5 years. Some associations 
provide that during such a period of apprenticeship a candidate is 
eligible for associate, or nonvoting, membership. 

There appears to be little duplication in the industrial coverage of 
national and regional trade associations. The 1,311 trade associations 
included in the survey cover as many as 1,031 differently defined 
industries." Of these 1,031 industries, 897 are represented by only 
1 association; 29, accounting for 65 associations, by more than 1 
national but no regional associations; 60, accounting for 198 associa- 

■f It Is assumed that there Is no duplication in industrial coverage between the parent 
association in a federation of product groups and the affiliated associations covering the 
individual groups ; or In cases in which an association limits its membership to one of the 
several lines of product covered by an independent association of broader industrial 

260752 — 41— No. 18 2 


tions, by 1 national and 1 or more regional associations; 26, account- 
ing for 62 associations, by more than 1 regional but no national asso- 
ciations; and 19, accounting for 48 national and 41 regional associa- 
tions, by more than 1 national and 1 or more regional associations. 
It can be seen, therefore, that there are only 65 national associations 
that can be said to have an industrial coverage identical with that of 
some other national association.^ Of this number, 33 are limited- 
purpose associations coexisting in the same industry with general- 
purpose associations. Most of these groups were established to carry 
on work in the field of public relations and trade promotion and have 
a smaller membership than the general-purpose association in the 
field. Among the other limited-purpose groups are found a scatter- 
ing of agencies collecting and disseminating credit and traffic infor- 
mation, an association registering trade-marks, an association of 
open-shop employers, a technical research group, an association ad- 
ministering a patent cross-licensing arrangement, an association es- 
tablished to protect members (jewelers) against tlieft and fraud, and 
several special-purpose associations in the field of insurance. 

This leaves a number of cases in which jnore than one general- 
purpose association covers the same industry or trade. The duplica- 
tion in many of these cases may be explained on the ground of 
differing or conflicting interests ; thus, one association may represent 
the "independent" interests, whereas the other represents the "chain- 
store" or "affiliated" interests in the trade; or one may represent the 
smaller members and the other the larger members of the industry or 
trade. In another group of cases, associations having identical or 
nearly identical membership evidently have split their functions, so 
that, for example, one compiles and disseminates statistics and traffic 
information, while the other operates in the field of public relations, 
trade promotion, and research. Of the entire list, there appear to be 
only three or four industries in which the existence of more than one 
association can be explained as being primarily a matter of rivalry 
for membership. 

Ordinarily, trade associations are defined to cover one industrial 
function only, such as manufacturing, wholesaling, or retailing. In- 
asmuch, however, as some manufacturers perform a wholesaling or 
retailing function and manufacturers, wholesalers, and retailers in 
many commodity lines compete directly for the same market, or face 
identical or similar problems in maintaining product acceptance or in 
meeting hostile legislation, it is not surprising to find that some 
associations define their industry to embrace more than one industrial 
function.^ As is indicated in table 2, 52 associations of producers 
(mining, manufacturing, and construction), or 6 percent of the total, 
admit wholesalers, retailers, or both wholesalers and retailers as vot- 
ing members. A somewhat larger proportion of the wholesalers' 
associations, 15 percent of the total, and of retailers' associations, 11 
percent of the total, extend voting membership to enterprises in other 
stages of the industrial process. Table 2 also indicates that associate, 

*''?c?''? 1^^.^^^ national associations (05 + 48) involved in duplication, but since there 
are 48 industries (29 + 19) there are only 65 national associations that dupHcate the 
coverage of other nationals. 

» It will be recalled that one of the points of conflict between the N R. A and repre- 
sentatives of industry arose from the efforts o« many groups of manufacturers to include 
•distributprs within the jurisdiction of their codes, or at least' within the scope of the 
code trade practice provisions. 


or nonvoting, memberships are sometimes established on this basis. 
A similar type of associate membership, found in some 40 trade asso- 
ciations in the producing industries, embraces enterprises from which 
the regular members buy materials, machinery, or equipment.^" 

In addition to the requirement that a candidate be a member of 
the industry covered by the association, two other basic eligibility 
provisions are found in the constitution or bylaws of trade associa- 
tions : Members must adhere to the standards of good behavior estab- 
lished by the association and must not become arrears in their dues. 
The vigor with which the dues-paying requirement is enforced, of 
course, varies considerably among associations, and standards of con- 
duct are so ill-defined as to render meaningless the former provision 
in many cases. 

Other than these basic requirements, restrictions on eligibility for 
voting membership are found in the constitution and bylaws of few 
trade associations. Analysis of the eligibility provisions of 1,050 
dissociations in the fields of mining, manufacturing, construction, 
wholesaling, and retailing for which constitutions and bylaws were 
available, reveals that less than 10 percent established additional 
membership requirements. Two requirements stood out : One, found 
particularly in apparel industries, providing that members must deal 
with labor unions; and the other, showing a slight concentration in 
food and allied industries, providing that members must distribute 
their products through certain channels. Among other provisions 
revealed in this analysis were those limiting membership to enter- 
prises of a certain size or doing a certain volume of business, to 
enterprises representing "independent" interests, enterprises selling 
within specified price ranges, enterprises operating on a nonintegrated 
basis, and enterprises conducting their business on an open-shop basis. 

Through establishing associate, or nonvoting, membership privi- 
leges, some trade associations place themselves in a position to benefit 
from the experience and prestige, as well as financial assistance, of 
persons and enterprises outside the industry. As has already been 
seen, these memberships sometimes are extended to firms at another 
stage in the manufacturing and distribution process. Somewhere 
between 100 and 150 other associations in the fields of mining, manu- 
facturing, wholesaling, and retailing extend a blanket welcome to 
members of "allied industries" or to all "interested parties." Includ- 
ing these and other provisions of a special nature, fewer than a third 
of the trade associations in these fields, however, provide for associate 

The number of voting members represents the number of enter- 
prises that are membei'S of an association." Based on reports from 
1,185 national and regional associations, the average number of vot- 
ing members during the period, 1937-38, was 362. Among the indus- 
trial divisions, the average number of members ranged from 106 in 
manufacturing to 2,417 in retailing. As is indicated in table 3, there 
is a wide variation from the average in most of the industrial divi- 

" A prominent trarle association executive has stated that: "If the annual fee for the 
service provided is reasonable, the value may adequately comi>ensate such associate mem- 
bers for the cost. On the other hand, in some cases, it may amount to a ."^hake-down." 

" Voting memberships occasionally are open to individuals not engaged in business In 
the industry, or are established on an establishment, rather than firm, basis. Except for 
•estiniates of total membership, the data on number of members presented in this report do 
jiot include associations haying voting members of this type. 


sions. Thus, in the field of manufacturing, mining, and construction, 
although 43 percent of the associations had fewer than 20 members, 
there were several whose membership exceeded 2,000. The range in 
number of members was greatest in the retail trade, from less than 
10 ^^ to over 10,000. The total number of members of national and 
regional trade associations in 1938 probably did not exceed 550,000; 
and for manufacturing alone the total may be estimated as having 
approximated 80,000^,^^ 

In an effort to determine the extent the trade association coverage 
in the various fields, every association was asked to indicate the per- 
cent of the industry which it represented (1) by number of firms a;id 
(2) by volume. Many trade associations included in the survey were 
unable to report this information; the replies of others had to be 
discarded, particularly where the meaning of the figures was obscured 
by a multiplicity of product lines or industrial functions represented. 
Of the 1,311 trade associations included in the survey, the replies of 
917, concerning representation by number of finns, and of 895, con- 
cerning representation by volume of business, proved usable. Recog- 
nizing that the information reported by some of these associations 
was inexact, these figures have been tabulated in intervals of 25 

As is indicated in table 4, approximately 50 percent of the associa- 
tions reported that they represented more than 50 percent of the firms 
in their respective industries. Among the industrial divisions, the 
heaviest concentration in this bracket occurs in finance and real estate, 
followed by wholesale trade, and then by mining, manufacturing, 
and construction. The majority of associations in the retail and 
service fields, on the other hand, represent less than 50 percent of the 
firms in trades covered by them. 

The coverage of trade associations is much greater when measured 
in terms of the proportion of the industry's volume of business repre- 
sented by the members, as can be seen in table 5. Approximately 84 
percent of the associations reported that they represented more than 
50 percent of the volume of business in their respective industries^ 
and nearly 50 percent reported that they represented more than 75 
percent. Only in the field of insurance, and in the wholesale, retail, 
and service trades did more than 50 percent of the associations report 
that they represented less than 75 percent of the volume of business. 

The tendency of trade 'associations to include the large members of 
the industry in their membership is further revealed in table 6. Of 
the 851 associations that reported coverage in terms of both number 
of firms and volume of business, only 31, or about 4 percent of the 
total, reported a lesser relative coverage in terms of volume, than in 
number of firms ; 20 of these were associations of manufacturers and 
6, of wholesalers, the remaining associations being scattered through- 
out the other industrial divisions. On the other hand, 478, or 56 
percent, of the total of 851 associations were relatively more repre- 
sentative in terms of business volume than in terms of number* of 
firms, leaving 342 associations, or 40 percent of the total, whose 
coverage by number of firms and business volume falls in the same 

^ Examples of retail trades having very few members are those embracing mail-order 
bouses ana firms operating automatic vending machines. 

" These figures roughly allow for the duplication that arises from the membership of 
some firms in more than one national or regional trade association. 


The facility with which an industry can be organized depends on 
a number of factors, among which one would expect the number of 
members of the industry to have a primary importance. In other 
words, one would expect that associations having the fewest membei-s 
would tend to be most representative of their industry. Such a 
tendency is shown in table f. Thus, of associations with less than 10 
members, 63 percent include more than half the industry members, 
whereas the corresponding figure for associations with 100 to 249 
members is approximately 34 percent, and for associations with 
2,000 to 4,999 members, only 10 percent.^^ 

That there are conditions other than the number of members that 
explain differences in the extent of coverage is indicated in table 7, 
which shows a higher degree of coverage among associations having 
250 to 499 members than among those with 100 to 249 members. It 
happens that there are included in this class several important asso- 
ciations in the apparel industry whose membership is located in and 
around the New York metropolitan area. This suggests that the 
geograpliical concentration of an industry may be an important 
condition to successful organization. There are, of course, many 
other factors, such as degree of homogeneity in the products covered 
by the association, the age of the industry and of the association, 
the state of the industry's market, differences in the size of the mem- 
bers, and differences in methods of doing business, which explain 
variations in trade association coverage. It is not surprising to find, 
however, if industry groups are listed according to the extent of the 
coverage of their trade associations, that there is a tendency for those 
groups to rank highest, which, as a matter of common knowledge, 
have fewest enterprises and are geographically most concentrated. 
According to table 8, the five industry groups most highly organized 
on a national and regional basis, are transportation equipment 
(except automobiles), finance and real estate, chemicals and allied 
products, machinery (except electrical), and iron and steel and their 
products, whereas the industry groups least well organized on a 
national and regional basis are lumber and timber basic products, 
petroleum production and refining and natural gas production, retail 
trade, construction, and personal, business, and recreational service. 
Between these extremes are a number of industry groups whose trade 
association coverage is so nearly the same as to cast some doubt on 
the precise ranking that has been given them, in view of variations in 
the size of the industry samples. 


The average annual income of 1,166 national and regional trade 
associations during the period, 1937-38, was approximately $48,000. 
Allowing for the probability that associations reporting their income 
on the average are somewhat larger than those that did not report 
this item, it is estimated that the annual income of all national and 
regional trade associations during the period was approximately 

" It is notable that one association, the American Bankers Association, which has more 
than 10,000 members, represents more than 75 percent of the industry. 

15 This is believed to be a liberal estimate. In interpreting the figure, one should keep 
in mind the definition of a trade association as set forth at the beginning of this chapter. 


Measured in terms of income, the typical trade association is small. 
As is indicated in table 9, one-half of the associations had an income 
of less than $15,000, nearly 30 percent had an income of less than 
$5,000, and nearly 20 percent, one of less than $2,500. Thirty-two 
associations reported no income; some of these reported that their 
activities were iSnanced from accumulated surplus, others that there 
were no activities which required financing. On the other hand, 
14 associations, or slightly over 1 percent of the total, reported an 
income of over $500,^0, accounting for approximately 30 percent 
of the income of all reporting associations. 

A considerable variation in trade association income is found 
among the principal industrial divisions. Whereas only 14 percent 
of the fishery associations had an income of $20,000 or more, in the 
finance and real estate field nearly 59 percent of the associations 
were in this income class. Between these extremes, approximately 
57 percent of the associations in the insurance field, 47 percent of 
those in transportation, communication, and other public utilities. 
39 percent of those in mining, manufacturing, and construction, 
35 percent of those in retailing, 32 perceant of those in the service 
trades, and 29 percent of those in the wholesale trades, had an income 
of $20,000 or more. 

Three hundred and nine of 795 associations in mining, manufac- 
turing, and construction reported an income of $20,000 or more. As 
may be seen in table 10, the automotive group ranked highest in 
terms of the percent of total associations represented by those hav- 
ing an income at this level. Also ranking among the first 5 were 
petroleum production and refining and natural gas production, paper, 
and allied products, lumber and timber basic products, and mining 
(other than coal) and quarrying. The 5 groups ranking lowest in 
this respect include nonferrous metals and their products, iron and 
steel and their products, furniture and finished lumber products, 
miscellaneous manufacturing, and machinery (except electrical). 

Table 11 shows that associations with large memberships tend to 
fall in the high income brackets. There is by no means, however, a 
high degree of correlation between the membership and income of 
trade associations. Taking as a measure the proportion of associa- 
tions whose income is $20,000 or more, it can be seen that there is 
little difference in the income of associations having from 10 to 100 
members; and that associations with 1,000 to 1,999 members have 
larger incomes than those with over 2,000 members. 

Another measure of the size of trade associations is the number 
of paid-staff members. Table 12 shows by industrial division? the 
number of paid members of staff during the period, 1937-38. This 
table discloses the fact that, of the 1.204 associations reporting. 59 
percent had 2 or less, that 78 percent had 5 or less, and that 87 per- 
cent had 10 or less, paid-staff members. Only 214 percent of the 
total number of associations reported that they employed a staff' 
of over 50. Eleven percent reported no paid staff. As measured 
by the relative number of associations employing a staff of over 5 
members, the insurance group ranks first, followed by finance and real 
estate; transportation, communication, and other public utilities; per- 
sonal, business, and recreational service; mining, manufacturing, and 
construction; retail trade; wholesale trade; and fishing. 


Table 13 compares the number of paid staff members with the 
amount of annual income. It will be seen that there is a wide varia- 
tion in the income of the associations that reported a small staff. 
Thus, among the 537 associations reporting two or less paid mem- 
bers of staff, 112 reported an income of less than $2,500, while 174 
reported an income of $10,000 or more, and two an income exceeding 
$50,000; ^^ and among associations employing three to five staff mem- 
bers, annual income ranged from less than $2,500 to $250,000. 

The size of the staff employed depends to an important degree on 
the nature of the activities emphasized by an association. There are 
many instances of associations, which would be considered small if 
measured by size of staff, appropriating thousands of dollars to carry 
on sales promotion campaigns through private agencies. Associa- 
tions are commonly represented on legal and legislative matters by 
private firms, and private agencies frequently are employed, among 
other things, to do market and industrial research. Neither size of 
staff nor income, of course, adequately reflect the importance of 
many associations. As will be seen in the following chapter, essen- 
tial functions may be performed through services contributed by 
members, by committees, or by means of meetings of the entire 


Approximately 54 percent of the trade associations reported that 
they were incorporated. Excluding fisheries, the service trades and 
retail trades have relatively the most incorporated associations, as 
is indicated by table 14, which shows that 82 percent of the associa- 
tions in the former trade and 78 pei;cent of the associations in the 
latter trade fall in this class. Somewhat less than half, or 48 per- 
cent, of associations in the field of mining, manufacturing, and con- 
struction reported incorporation, and only 41 percent of the associa- 
tions in the insurance field, and 33 percent of those in finance and real 
estate, claimed this legal status. 

Among the advantages usually claimed for incorporation is that 
it permits an association to be represented in court under its cor- 
porate name rather than through its individual members; it makes 
possible a definite limitation on the liability of members for debts 
or other obligations of the association; it enables the association 
to take title to property in its own name; and protects the associa- 
tion's name against infringement. On the other hand, incorporation 
usually requires the payment of fees of various types and the filing 
of an annual report. Moreover, advance announcement of annual 
meetings usually must be made, and formal lega:l procedures must be 
employed in altering articles of incorporation and in merging or dis- 
solvfng. Such reciuirements may not permit the flexibility of action 
desired by an association. 

As might be expected in view of the advantages, there is a pro- 
nounced tendency for the larger associations to incorporate. Ac- 
cording to table 15, between 80 and 85 percent of associations whose 
number of members ranges from 1,000 to 10,000 and over are incor- 
porated, whereas only 29 percent of those whose number of members 
IS less than 20 have incorporated. A somewhat similar relationship 

^® The four associations in this group reporting no curi<-iit income enjoyed a surplus 
accumulated in prior years. 


exists between extent of incorporation and size of income, as can be 
seen in table 16. It is notable, however, that less than half the largest 
associations, those with an income in excess of $500,000, have incor- 
porated. Prominent in this group are associations in the field of 
insurance, finance, transportation, and public utilities. 

Table 16 indicates that there is a substantial difference in the prac- 
tice of incorporation between associations administered by manage- 
ment organizations and those not so administered. Defining a man- 
agement organization to be a pei*son or firm that operates or manages 
more than one trade association, the percentage of incorporated to 
total associations administered by such organizations in income 
groups up to $50,000 ranges from 24 to 36 percent, as contrasted 
with percentages ranging from 48 to 65 percent applying to associa- 
tions of the other type. Apparently, however, there is little or no 
difference in this respect between associations whose income exceeds 


The income of trade associations is raised primarily through dues 
and assessments. During the years 1937-38, approximately 89 per- 
cent of the income was derived from this source." Among other 
sources of income figuring prominently in some associations were 
charges for special services, sale of publications, sale of advertising 
space in trade papers, and sale of labels. 

Trade associations usually follow one of two systems in obtaining 
contributions from members. Under the "dues" system the basis 
of contributions is fixed for a more or less indefinite period of time, 
whereas under a system of "assessments" the amount of contributions 
is determined periodically to accord with an approved budget. Spe- 
cial assessments to finance deficits or special programs of activity may 
be levied by associations whose regular system of contributions is 
either one of dues or of assessments. Time did not permit the 
analysis of all the returns from trade associations on this point, but 
of 204 associations, selected at random, approximately 33 percent 
established a rate of 'dues in their constitution or bylaws. Excluding 
a few exceptional and unknown cases, the remaining associations, 
constituting 61 percent of the total number examined, gave to the 
governing body the power to establish the amount of contributions. 
Most of these associations employ a system of assessments, although 
it was impossible to determine the system followed by some of them. 
It probably is safe to say, however, that somewhat over half the 
trade associations regularly rely on the assessment method of raising 

Although a variety of bases were used by these 204 associations in 
apportioning the dues or assessments among the regular members, 
essentially the basis of apportionment was one either of equal flat 
amount or of amounts proportioned to some measure of size or volume 
of business. In approximately 20 percent of the cases the members 

"Based .on an analysis of the financial statements of 1,022 national and regional trade 
associations. These statements covered fiscal years ending in some cases in 1938, in others 
In 1937. ' 

" About 20 percent of the 204 associations reported that they had levied special assess- 
ments during their last completed fiscal year. The financing of general administrative 
denclts, trade promotion, and Government relations activity were the principal purposes of 
these assessments. 


paid equal amounts in dollars and cents.^® Nearly 61 percent of the 
associations, on the other hand, proportioned the amount to be paid 
by the members according to their size or business volume: In 38 
percent of these cases members paid in equal proportions, in 23 
percent,^" in different proportions. Most of the remaining associa- 
tions, constituting 19 percent of the total, used a combination of 
these bases, or established several dues-paying classes on some basis 
other than size or volume of business.^^ 

Among the associations for which it could be determined, the 
rate of dues or assessments in relation to dollar volume of production, 
sales, or shipments seldom exceeded 1 percent, although one 
2-percent rate came to attention. The typical rate was less than 
one-half of 1 percent. It is obvious, however, that at these rates 
substantial sums would be contributed by the large members of 
many associations. 

Table 17 affords some indicaticHi of the amount of income contrib- 
uted by large members, as well as of the importance of such contribu- 
tions to associations in the various income groups. According to 
this table, nearly 48 percent of the associations received 40 percent 
or more of their income, and 30 percent received 60 percent or more of 
their income, from their four largest contributors. The percent of 
income received from the four largest contributors has little relation 
to the level of association income, although the highest ratios, 80-100, 
of contributions by these members appear somewhat relatively more 
frequently among associations in the lower-income classes. 

Table 18 indicates more clearly the extent to which trade associa- 
tions depend for their income on the contributions of the large mem- 
bers. Of a total of 903 trade associations, 397 reported that the per- 
cent of income received fi'om the four largest members corresponded 
roughly to the percent which such contributors represented of the 
total number of contributing members.^^ In other words, in the case 
of 397 associations, or approximately 44 percent of the total, there 
tended to be little or no difference between the amounts contributed by 
the individual members. In 56 percent of the associations, on the 
other hand, the proportion of income received from the four largest 
contributors exceeded, by varying amounts, the proportion which- 
these members represented of the total number of contributing mem- 
bers. As can be seen from the table, nearly one-fourth of the asso- 
ciations having more than 20 members relied on 4 of their members for 
40 percent or more of their income. 

It should be noted that although many trade associations depend on 
a few large members for considerable portions of their income, very 
few of them recognize such a dependence in their voting bases, judging 
at least by the voting provisions of the sample group of 204 associa- 
tions referred to above. Whereas 11 percent of these associations pro- 
portioned the number of votes allowed the individual members accord- 
ing to some measure of size or to the amount of contributions, 86 per- 
cent allowed only one vote per member, regardless of size or amount of 
contributions. The remaining three percent were federations with 
voting privileges exercised through member associations. 

^' Almost without exception this was the basis used with respect to associate, or non- 
voting members, regardless of the basis established for regular members. 

*° Without exception, In these cases the proportion established for the largest members 
was less than that established for the smallest members. 

" Only 20 percent of the 204 associations required the payment of an admission fee. 

*> The 397 associations represent the sum of the items appearing on the diagonal running 
from 316 at the left to 31 at the ri^ht «nri ton of *^" ^^^u^^ 



The beginningb oi cne modern national and interstate trade associa- 
tion usually are traced to the Civil War. Of 1,167 associations report- 
ing year of organization, only two associations now extant reported 
their origin as antedating the year 1860, but during the 1860's eight 
such associations were organized. Although nearly 50 associations 
were formed between 1870 and 1889, the movement cannot be said to 
have become industrially widespread until the 1890's. The period 
from 1890 to 1915 witnessed a rapid growth of trade associations, 
which was culminated by the well-known development of the move- 
ment during the World War. It is notable, however, that 56 percent 
of the associations that are now active were organized after the war. 

The post-war development of the trade association movement is 
one of marked fluctuation. Immediately following the war, from 
1920 to 1924, there was a substantial falling off in the rate of forma- 
tion. But during the years from 1925 through 1929 a larger number 
of associations were organized than during any previous 5-year period 
in the history of the movement, not excepting the war period. During 
the depression years of 1930, 1931, and 1932 there was an abrupt de- 
cline of organization, which, in turn, was brought to a halt by the 
N. R. A. The significance to the trade association movement of the 
N. R. A. may be judged by the fact that nearly 23 percent of the asso- 
ciations now extant were organized during the 3-year period, 1933 to 
1935. That the N. R. A. did not, however, exhaust new opportunities 
for trade association organization is indicated by the formation of 
some 50 associations from 1936 to June, 1938. 

According to table 19, there have been relatively more trade asso- 
ciations organized since 1920 in mining, manufacturing, and construc- 
tion than in any other industrial field, 61.2 percent of the total num- 
ber of such groups having been formed during that period. Ranking 
next are the fishery associations and associations in the service trades, 
57.2 and 55.0 percent, respectively, of their associations being ac- 
counted for in these years. The corresponding percentage for trans- 
portation, communication, and other public utilities is 48.9 ; finance 
and real estate, 45.5 ; wholesale trade, 45.5 ; insurance, 41.7 ; and retail 
trade, 41.3. The relatively larger proportion of new organizations 
in manufacturing and the service trades than in, for example, the 
wholesale and retail field probably is attributable to the fact that 
these industries are continually expanding; into new product and serv- 
ice areas and, particularly in the case of manufacturing, to the fact 
that there are many more distinct industrial groups that are subject 
to organization and to subdivision into more homogeneous groups. 

Among the producing industries, a considerable variation is found 
in the relative number of associations organized since 1920. Thus, 
as can be seen in table 20, 90 percent of the associations in the electri- 
cal manufacturing group were organized since 1920, whereas only 33 
percent of the rubber and leather associations date their origin after 
that year. Other groups ranking high in terms of the relative num- 
ber of newly formed trade associations are paper products, metal 
products, apparel and related products, furniture and finished lumber 
products, and chemical and allied products. Industry groups rank- 
ing lowest in this respect include food and kindred products, construc- 
tion, coal mining,, and transportation equipment (except automo- 
biles) . 


The oldest associations tend to be the largest associations, when size 
is measured in terms of income. As is shown by table 21, 82 percent 
of the associations reporting an annual income of $500,00)0 and over 
were organized prior to 1920, whereas only 39 percent of the associa- 
tions reporting an income of between $1,000 and $2,500 were formed 
prior to that year. Although this tendency is not particularly evi- 
dent among associations whose income is less than $10,000, it is well 
maintained by the associations having a larger income. 

One of the outstanding developments in the trade association move- 
ment in recent years has been the growth of trade association admin- 
istration by so-called management organizations.^^ Whereas 56 
percent of all trade associations now extant were organized since 
1920, 74 percent of the associations reporting that they are now ad- 
ministered by management organizations were formed since that year. 
The growth of such activity since 1930, and particularly since 1932, is 
notable. Over one- half, or 53 percent, of the associations now di- 
rected by management organizations were organized since 1930, and 
43 percent were organized since 1932. Of all the now-active associa- 
tions organized during the N. R. A. period, 40 percent are operated by 
management groups, and of all associations formed from 1936 to June 
1938, 53 percent are operated by management groups. 

Although it is believed that the data shown above indicate the 
underlying trends in the chronological development of the trade 
association movement, it should be kept in mind that they do not 
reflect the many associations that have disbanded or become inactive. 
Probably the highest mortality in the history of the movement has 
occurred among trade associations formed during the period of the 
N. R. A. Nearly 800 associations were formed during the years 
1933~35, of which only about 275 are now active. Either because 
it was believed that organization was required by, or because of the 
exceptional opportunities for organization offered under, the N. R. A., 
most branches of industry were represented by a trade association 
sometime during this period. A large number of these groups did 
not succeed in obtaining a^ code of their own, and many failed to 
outlive the N. R. A., or, indeed, even to become going organizations. 

In an effort to learn something of the characteristics of these asso- ' 
ciations and particularly of the reasons for disbandment or inactivity, 
questionnaires were sent to their former officials, as well as to those 
of associations organized prior to the N. K. A. that have disbanded 
or become inactive since 1932. Of the total of approximately 750,^^ 
returns were received from 278 associations. 

Two hundred and thirty-one of the two hundred and seventy-eight 
associations were in the field of manufacturing. Appearing most 
frequently were associations in the machinery and iron and steel 
products industries. The stone, clay, and glass, chemicals, apparel, 
find furniture and finished lumber products industries also are fre- 
quently represented among these associations, as may be ' seen in 
table 22. Outside the field of manufacturing, the wholesale trades 
account for the largest number of associations appearing in this 

^ Defined, for this purpose, it means a person or firm that manages or operates more 
than one trade association. These organizations administer the aflfairs of at least one-fifth 
of all national and regional trade associations. Avssociations so administered typically 
are very small in terms both of number of members and income. (See below, pp. 38-40.) 

** Not including associations that were disbanded because of merger with other associa- 
tions or reorganizations under a new name. 


The reasons given by these associations for disbandment or inac- 
tivity, although it should be emphasized that they usually represent 
the opinion of only one of the former officials, merit analysis in some 
detail, not only for the light they throw on the N. R. A.'s significance 
to the trade association movement, but also for the suggestions they 
give concerning circumstances that militate against effective trade- 
association organization — a subject that has received little attention 
in the published literature dealing with the trade association move- 
ment. A tkbulation of the reasons given for disbandment or inac- 
tivity is presented in table 24. 

The largest single group of associations, 69 in number, stated that 
tliey were formed for N. R. A. purposes, to sponsor a code or to pro- 
tect the interests of their members from other code-sponsoring groups. 
They either gave no reason for inactivity, stated that there was no 
reason for continuing their organization after the N. R. A., or stated 
that the association was disbanded because of lack of interest or 
support. Some of these groups indicated that they were formed 
only because they believed they were required to submit a code and 
that with the termination of the N. R. A. there was no reason for 
further action. 

Eight associations wrote that the N. R. A. experience discouraged 
further cooperative activity. Thus, one association, which was or- 
ganized in 1931 and which continued actively until 1935, stated that : 

Numerous violations of tlie code occui*i-ed and although complaints were filed 
within the N. R. A., it seemed practically impossible to secure redress. There- 
fore, dissatisfaction arose and the thought became general that if one or more 
manufacturers could with irnpunity violate the Code, there vpas no reason why 
the other manufacturers should stand by the Code, pay dues, increase wages, 
and otherwise hold an umbrella over the recalcitrants. This feeling was quite 
general at the time. Several actual test cases were brought to a head in this 
district in connection with which the courts ruled ^gainst the Administration. 
A little later the N- R. A. was declared unconstitutional, but by this time the 
various manufacturers of the Industry had become so dissatisfied with their 
experience in trade association activities that they declined to continue mem- 
bership in the association or contribute anything towards its upkeep. This 
resulted, as you can well imagine, in a quiet death of the association. 

Because it attempted to bring to bear the sanction of law in enforcing 
standards of conduct, the N. R. A. undoubtedly tended to sharpen 
and bring to the surface the underlying conflicts of interest between 
members of an industry; these conflicts became particularly acute 
when certain factions refused to abide by N. R. A. mandates and were 
successful in their defiance, exposing the law-observing members to 
competitive attack and, what seemed as important in the minds of 
some, requiring them to pay more than their share of heavy code 

Of the 278 associations, many referred to some characteristic of 
their industry as the reason, or as among the reasons, for inactivity 
or disbandment. Two mentioned the large number of members in 
the industry as an obstacle to effective organization. Two others re- 
ferred to the large difference in size of members as a factor preventing 
cooperative effort after the N. R. A. A somewhat larger number oi 
associations pointed out that the members of their industries were 
so widely scattered that good contacts could not be maintained. 
Diversity in types of product covered was mentioned by 14 associa- 
tions, of which the Liquid Fuel Appliance Council is representative. 
According to the former commissioner of this group : 


My own view is that while the members of any industry, if they are so minded, 
can get a lot of benefit from proper cooi)erative effort, this particular organiza- 
tion was made up of so many different product divisions, with some manufac- 
turers making only one product, with others making several, and with a few 
making all lines, that for such work as sales promotion, trade statistics, cost 
accounting, standardization, etc., it would have meant the close concentration 
of each product group, and there were not enough in each group to justify 
having a separate organization or holding separate meetings. 

It should be recalled, in this connection, that the N. R. A. encouraged 
the grouping of different, though related, types of product under 
single codes, in order to reduce the work of negotiating wage and 
hour provisions and to simplify the compliance problems of firms 
manufacturing various products in the same plant. 

The statement quoted above suggests another important industry 
characteristic that militates against association, namely, that where 
the commodity in question is a side line, the firms making or selling 
it are not likely to consider it worth while to devote time to or support 
an association with such a limited product scope. Examples of asso- 
ciations that stressed this as a reason for disbandment are the Me- 
chanical Egg Beater Institute and the Basket Liner and Packing 
Association, According to a former oflBcer of the latter group : 

The basket liner and packing industry is not working together as an associa- 
tion and did so for just a short period. The members who formed this associa- 
tion, which is composed very largely of paper converting idants, in addition to 
manufacturing paper for the fruit industry, mostly manufacture other paper 
products and belong to various other associations. The paper used in the fruit 
packing industry is a seasonal business, whereas the other lines continue on a 
more even scale the entire year. 

It is largely for these reasons that the basket liner and packing association 
was discontinued, and for the same reasons that it did not appear advisable to 
revive it. 

In the case of another association the reason for disbandment was 
the fact that the product covered was "strictly made to order," which 
"tended to narrow the vision of those engaged in it and to create a 
condition of distrust which it is practically impossible to break down." 
Other industry characteristics -mentioned, usually in connection with 
other factors, as contributing to association -inactivity were the small 
size of the members and the small normal volume of industry busi- 
ness. The point stressed in this connection was that the members 
could not afford to support a trade association.^^ 

As distinguished from the nature of the industry, the nature of the 
market was cited by a number of associations as being partly or 
entirely responsible for the absence of activity. Twenty-three asso- 
ciations attributed their lack of activity to the general business de- 
pression. They either stated, as, for example, did the National 
Sandstone Association, that the small volume of business in the judg- 
ment of the members made it appear futile to spend time or money 
for any purpose ; or presented the situation as bemg one in which the 
depression sharpened competition and with it the antagonisms in the 
industry. The former secretary of an association in the machinery 
industry wrote: 

There were several reasons that contributed to the failure of the association. 
One of the most important was that as the depression proceeded, the volume 
of business shrank to such an extent that several of the companies felt it wlas 

^ Thus, in the case of the Rocky Mountain Retail Furniture Association the "size of 
communities and relatively low volume of the average furniture store did not warrant em- 
ployment of a full-time executive to provide year-round service to members." 


necessary to take business on any terms in order to cover their overhead. The 
idea of making any profit whatever vpas entirely secondary. This sharp com- 
petition for business led to an increase in the use of lawsuits to upset awards 
and other matters of trade practices which greatly acceutiiated the unusually 
violent antagonism which had existed for many years among the members of 
the industry. 

The depressed nature of the market referred to by some associa- 
tions resulted primarily from the competition of substitute products 
or from foreign competition. Included in this group are two associa- 
tions, one organized in 1888, the other in 1893, which served the 
blacksmiths' trade. Displacement from the market had a more recent 
origin in the case of other associations, such as the Association of 
Collar Manufacturers, the National Association of Cut Glass Manu- 
facturers, and the Vegetable Ivory Button Manufacturers Associa- 
tion. An illustration of a type of difficidty faced by associations 
whose members must meet foreign competition is the situation in an 
industry producing a kind of wire netting, as described by a former 
officer : 

As one outstanding illustration, the Institute, a few years back, put a lot of 
study and effort into the development of a standardization of wire gages to 
be used in different sizes and types of netting. The program was adopted with 
enthusiasm, but within a very short time, importations of foreign netting which 
did not measure up to the newly adopted American standards, ate into the 
market so heavily that some of our domestic manufacturers lost courage and 
came out with a light gage netting to meet the foreign competition. That 
immediately destroyed the advantage previously gained through the promotion 
of heavier gage material and contributed to a feeluig that cooperative effort 
was a waste of time. 

Two associations reported as a reason for disbandment the fact that 
with the development of a widespread use of the products covered 
there was little reason for continuing a group activity which had 
been designed primarily to promote such a development.-^ One 
association, in the industrial chemical field, stated that technical 
developments in the industry were so rapid and dynamic that it was 
impossible to maintain a representative membership. 

Another group of associations explained their inactivity on the 
ground that there were no important functions to be carried on and, 
in doing so, gave some indication of the reason for their statement. 
The reason given most frequently was simply that following the 
N. R. A. an association seemed unnecessary, or superfluous, in view 
of the small number of enterprises in the industry. Examples of 
associations replying in this manner were the Coloring, Cheese, and 
Rennet Industry, the Cosmetic Container Manufacturers Association, 
and the Shoe Form Manufacturers Association. It is probable had 
the question specifically been asked whether a small number of in- 
dustry members was a reason, or one of the reasons, for discontinu- 
ance after the N. R. A. that a larger number of associations would 
have been included in this category. Table 23 shows that the inactive 
or disbanded associations from which replies were received were very 
small, when measured in terms of number of members. Almost a 
third of them had less than 10 members, over 60 percent had fewer 
than 20 members, and 80 percent had less than 50 members. Wliile 
it should be recognized that the number of association members does 
not indicate precisely the number of members in the industr;^ inas- 

*Thu8, the Northwest Radio, Refrigeration, and Appliance Association reported that, 
"Radio ceased to need promotional work as It became so universally, used and every family 
now has one." 


much as the associations were asked to indicate the number of mem- 
bers during their year of greatest activity and in view of the fact 
that associations formed for N. R. A. purposeg^ had a high nominal 
coverage, it is believed that these figures are reasonably indicative of 
industry size. 

Lack of significant association functions was attributed by other 
associations to the fact that important members of the industi-y had 
merged, "thereby," in the words of one of them, "eliminating to a, 
large extent the advantages otherwise to be secured from a Trade 
Association." The former executive chairman of one group, originally 
organized in 1918 and disbanded in 1937, wrote that three plants were- 
not operating or were entirely out of business and that : 

Others have merged so that there are practically only two companies now 
in existence. These manufacture about 98 percent of * * * [the product] 
made in United States. I believe that a sort of international cartel of agreement 
may have been made with two leading Canadian manufacturers and two British 
manufacturers. * * • [the association] probably never will again become 
active, now that small units have disappeared and competition eliminated entirely 
or almost so. 

Several other associations stated that the elimination from the indus- 
try of some firms, usually through their inability to survive the- 
depression, had minimized the need for association. 

Seven associations, nearly all of which were organized for N. R. A. 
purposes, wrote that because the problems of the members were pri- 
marily local in scope, there was little reason for continuing a national^ 
or regional, organization in the industry. 

Some groups explained that the purpose, other than N. R. A., for 
which the association was organized had been achieved. Among the 
purposes mentioned were the elimination of foreign competition 
through obtaining tariff restrictions, trade promotion, standardiza- 
tion, and the elimination of destructive competition, or unfair prac- 
tices. Other associations specifically referred to problems of this, 
nature as not of sufficient importance to warrant the devotion of time- 
and money to association effort. A variety of other reasons was 
given to explain the absence of significant association functions. 
One association indicated that the provisions of the N. R, A. code 
were being voluntarily adhered to; another that members of the 
industry had learned to cooperate as a result of the N. R. A. experi- 
ence. A third pointed out that members found opportunity at golf 
clubs and similar functions to discuss industry problems. Two asso- 
ciations reported that their industries now enjoyed substantial stabil- 
ity, one as a result of the strengthening of labor union control, the 
other as a result of rate determination by the Interstate Conmierce 
Commission. In two cases the business covered by the group had 
vanished, in on^ because of integration with other manufacturing 
processes, and m the other because of the depletion of resources, 
formerly exploited. 

The story of inactivity among a large number of associations i& 
one of inability to carry on a program. Some replies indicated the 
objectives that the association was unable to achieve; but more often 
the objectives were not indicated. Twenty-eight associations merely 
stated that conflicts, lack of cooperation, or lack of confidence be- 
tween the members made it impossible to continue the association. 
Thus, in 1 association "there were no accomplishments. * * * 


The manufacturers could not work together without rancor and 
hard feelings and they soon disbanded." The difficulty in several 
other cases apparently arose from the failure of large or important 
members to cooperate in supporting an association program.^^ Sev- 
eral replies, though failing to indicate the objectives of organization, 
referred to tl^ basj.s of the conflicts that resulted in the abandonment 
of the association program. In 10 cases it was attributed to a divi- 
sion of the industry along union-nonunion lines. Others mentioned 
geographic differences in wages. Three associations mentioned dif- 
ferences in marketing or distribution methods as constituting the 
essential reason for lack of cooperation. One mentioned an "intense 
personal bitterness" caused by the fact that 1 of the members "was 
accused by 3 others of syster»atically raiding their sales forces and 
hiring away from them salesmen who owed them balances on ad- 
vances." Another reply referred to quality deterioration by concerns 
"operating in most instances with limited capital and others as a 
department of another larger business which absorbs most of the over- 
head." Finally, 2 associations stated that patent litigation among the 
members was responsible for their inability to carry on a program. 
In a substantial number of returns the objectives of association 
programs not achieved were mentioned. By far the largest number 
of these referred to the inability of the association to achieve price 
stabilization, usually because of "chiseling" or price wars. Typical 
of the statements is the fol owing: 

The association became inact ve following the termination of the N. R. A., as 
the membership decided that it would be useless to try and carry on under a 
voluntary code. Manufacturers and installers have tried to establish fair busi- 
ness rules that would benefit both the consumer and the industry but have 
found, by years of experience, that the chiseling 10 percent who operate in every 
business will not abide by any rules unless enforced by State or National laws. 

Small, more often than large, enterprises were blamed for price cut- 
ting. One association mentioned price misrepresentation and pres- 
sure by large buyers as the disrupting influence; two mentioned the 
fact that Government agencies were the principal buyers; and onei 
complained of the lack of cooperation on the part of distributors in 
observing suggested resale prices. Other objectives referred to as 
being impossible of accomplishment were business "ethics," or "fair 
practices," control of wage rates and working hours, legislative pro- 
grams, prevention of design piracy, product standardization, and 
cooperative buying. 

In 11 cases it was stated or suggested that prosecution, or fear of 
prosecution, was the principal reason for the abandonment of the 
association. Thus, in one reply it was stated that "Responsible mem- 
bers felt that adherence to a voluntary code [following the N. R. A.] 

^ As an illustration, the foi-mer secretary-treasurer of an association that sponsored an 
N. R. A. code wrote that the association : 

"* * * was organized as a direct result of the inception of N. R. A. Previous at- 
tempts to organize an Association had failed, probably because one manufacturer was domi- 
nant in the Industry, and this manufacturer, up until the inception of N. R. A., did not see 
fit to lend his support to an effort to form an Association. The Association adopted an 
N. R. A. Code, and the customary N. R. A. activities followed upon this. In addition, 
fairly important engineering standards were adopted and have borne some fruit. The 
Industry, once entirely chaotic as regards engineering standards, is now fairly uniform in 
this respect. * » * The Association became Inactive because, as I see it, of the reasons 
that originally handicapped the oraranization of the Association, namely, the very limited 
interest displayed by a member of the Industry who formerly did over one-half of the 
business of the Industry and still does an amount approaching that percentage. * ♦ ♦ 
Apparently the Industry dominating member who > lacked interest in proceedings of the 
Association feels that he has more to lose than to gain by the Industry exchanging infor- 
mation within an Association." 


might first subject them to accusation of monopolistic practices, and, 
secondly, would handicap them in competing with the so-called Chisel- 
ers." In another case the cause of inactivity was primarily : 

The result of a complaint issued by the Federal Trade. Commission * * * 
the association members were greatly distressed, annoyed and subjected to 
much inconvenience and expense. Some of them became distrustful of all asso- 
ciation activities and withdrew from membership and participation in all col- 
lective activities ; others, it is suspected, have withdrawn to avoid sharing in 
the cost of the defense which has become extremely burdensome when appor- 
tioned among the relatively few remaining members. 

Finally, there were 27 associations that reported as a reason for 
inactivity or disbandment the fact that there was an association of 
broader, product or geographical scope in the field. Most of these 
associations, illustrated by various groups in the machinery field, were 
organized for N. R. A. purposes. Their former members evidently 
felt that such needs for association activity as they had, as, for 
example, information concerning legislative developments, were ade- 
quately provided for by the over-all association. Most of these asso- 
ciations were composed of a small number of members. 

Summarizing, it appears that although the N. R. A. was responsible 
for the organization of a large number of trade associations that have 
continued to thrive, it led to the formation of many associations that 
either lacked the foundations necessary for effective, voluntary action 
or had no useful function to perform under ordinary circumstances. 
The data suggest that those trade associations had difficulty surviving 
that attempted to cover a wide variety of products or an industry 
which geographically was widely dispersed. On the other hand, asso- 
ciations that limited their coverage to products which were a side 
line in, or incidental to, the business of the members failed to com- 
mand continued interest and support. Industries that faced a de- 
pressed market in many cases evidently, had a desperate need for 
cooperation, but it was under such circumstances that association was 
most difficult ; the conflicts between members of an industry are likely 
to be most pronounced when they are struggling for a limited market, 
and during such a time many of them feel that they can ill afford to 
share the burden of supporting an association. Personal antagonisms, 
lack of interest on the part of large members, the absence of experi- 
ence in or a tradition of cooperative effort, basic differences among 
members in methods of distribution or in the labor market, militated 
against the continued organization of many industries. Industries 
with a narrow range of problems seemed to have less need for a con- 
tinuing, active organization; and where such problems mainly con- 
cerned the state of competition, some associations feared an encounter 
with antitrust agencies. Finally, the problems of many industries, 
particularly those with very few members, evidently were not of a 
nature such as require association, at least of a formal nature. 

One value of the N. R. A. experience to those industries that subse- 
quently discontinued associational activity should not be overlooked. 
Many of these industries have maintained the framework of their 
associations in order to meet promptly any emergencies requiring 
industry action, and, particularly, as was emphasized in the replies, to 
meet demands that may be imposed by the Government for action on 
an industry-wide basis. 

260752 — 41 — No. 18 3 



Trade association activity is so manifold that a high degree of 
particularization in a quantitative survey of the subject is not feasi- 
ble. A certain amount of classification is unavoidable as a prelimi- 
nary to the undertaking of such a survey. This, in turn, raises 
questions of selection and definition and makes it necessary to con- 
sider the frequency \vith which possible items may occur. In pre- 
paring the list of activities used in the present survey, the counsel 
of the American Trade Association Executives was sought, which 
through committees made available the experience of its members 
concerning the prevalence of various trade association activities, as 
Avell as the currency of terms used to characterize the activities^ 
Since it also was desirable to recognize in a manner subject to quanti- 
tative treatment the deg^^ee of emphasis placed by trade associations 
on their various activities, the associations were asked to indicate 
whetheii" tlieir reported activities were of "major" or "minor" im- 


Table 25 shows tlie number of associations that reported as of 
major and minor importance the some 50 activities listed in the 
schedule.^ It does not include activities in addition to those listed in 
the schedule that the reporting associations separately volunteered 
in spaces provided for "other" activities. Associations in the field 
of insurance are omitted in this tabulation, as well as in all subsequent 
tabulations dealing with trade association activity. The data reflect 
the situation approximately as of the time the schedules were re- 
turned, which in some cases was the year 1938, and in other cases, 

The data contained in table 25 have certain limitations that sliould 
be. recognized in any conclusions that may be drawn from them. In 
the first place, ahiiough most of the items have a fairly definite and 
specific meaning which could not have been easily misunderstood, 
some items, as will be pointed out below, were subject to rather sub- 
stantial differences of interpretation. In the second place, as is 
perhaps inevitable in any detailed list, some items overlap others. 
Thus. "Operations of research laboratory" describes an activity that 
may be designed to promote "Standardization and simplification" or 
"New uses for industry products." The proper procedure, and pre- 
sumably the natural tendency, for an association operating a re- 
search laboratory for the purposes of promoting standardization and 
new uses for industry products would have been to check all three 
items, but this may not alwa3'S have been done. 

1 With certain exceptions, which are discussed later. 



Probably the chief limitation of the data arises from the fact that 
some associations tended to magnify the scope of their present ac- 
tivity. It is known that certain associations referred to the N. R. A. 
period, whereas others confused plans and hopes for the future with 
the actualities of the present. Corrections of the returns were made 
whenever such reporting was revealed, but it was possible in this 
manner to review only a small sample of the returns. On the basis of 
that review, it is believed that the overstatement was limited for the 
most part to certain fields of activity and was largely confined to' 
the reporting of "minor" activities. On the other hand, the activities 
reported in some cases perhaps incompletely reflect what trade asso- 
ciations are doing. Many associations reported activities other than 
those listed in the schedule and included in table 25. These are 
referred to below. In other instances, it was evident from informa- 
tion contained elsewhere in the return that certain of the listed activi- 
ties had been overlooked. Appropriate corrections of the returns 
were made where such information appeared. But it is not possible 
to vouch for the completeness of the returns. 

The following paragraphs briefly indicate the character oi the 
reporting on the various items, the areas of overlap, the generally 
accepted meaning of terms that may not otherwise be clear, and the 
activities reported in addition to those listed in the schedule and 
presented in table 25. 

Ooveniment relations. — Nearly every association of any importance is active 
in this field. It is believed that the data show with substantial accuracy the 
number of associations engaged in this activity and that, except for possible 
differences in the interpretation placed on "Scientific or technical agencies" 
and "Other executive or administrative agencies," the items under this heading 
enjoyed a uniform interpretation. Any contact with a Government agency, 
of course, is likely to be accompanied by the giving of information and as- 
sistance to the agency, on the one hand, and the reporting of the results or 
the nature of the contact to the members, on the other hand. It can be seen, 
too, that in a large number of instances the same activity probably was re- 
ported under both "Government relations" and some other heading; for there 
are several activities, such as public relational work, trade promotion, stand- 
ardization and simplification, combating unfair competition, and employer- 
employee relations, that frequently require contacts with Government agencies. 
The only activity in the field of Government relations reported in addition to 
those listed in the schedule may be characterized as "opposing governmental 
competition with private business." Eleven associations separately reported this 
activity ; others probably reported it under an, item appearing in the schedule. 

Employer-employee relations. — This is another field in which many trade as- 
sociations are from time to time active, as might be expected in view of the 
fact that as defined it embraces any type of assistance, survey, and advice 
with respect to wages, hours, working conditions, collective bargaining, welfare, 
and safety. It also includes "employe training," which in many instances 
means the training of salesmen, not of production workers ; as such this activity 
is closely related to trade promotion. Under the item, "Placement service," 
was reported the occasional and quite informal handling of inquiries, as well as 
the systematic record keeping and clearances that one ordinarily associates 
with a placement service. 

Public relations. — There undoubtedly were differences in the construction 
placed on this term by the reporting trade associations. Broadly speaking, 
the term applies to all efforts to protect or promote public goodwill toward 
the industry. As such, it usually is considered to embrace that type of .trade 
promoiional activity that is designed to inform the consumer concerning the 
values and uses of the industry's products or services and, where there are 
safety or health hazards involved, to promote the use of proper safeguards in 
connection with such uses. It also includes the overcoming of prejudices and 
the influencing of attitudes toward an industry's products or services. Another 


type of activiry is designed to promote legislative aids for or ward off legisla- 
tive attacks against the industry; in seeking these ends, associations may 
operate through the molding of public opinion, or more directly through con- 
tacting legislative bodies. Affording the general public with statistics and 
information about the industry, its markets, and business trends, also may be 
classitied in this category of trade association activity, as may efforts by 
natural resource industries through education and legislation to promote the 
conservation of their raw materials. Under this heading have been included 
23 associations which reported that they were engaged in promoting the con- 
servation of natural resources. 

Trade promotion. — There is reason to believe that this was one of the fields 
in which there was a tendency to overstate the extent of present activity, par- 
ticularly with respect to "Market research," the development of "New uses for 
industry products" and "New markets for industry products." There was also 
apparent some tendency to confuse the items, "Market research" and "New 
markets for industry products," and to report the association as engaged in the 
latter activity when its activity did not extend beyond the stage of research. 
It is also believed that "Market i-esearch" was reported in some instances when 
the association's activity was limited to the dissemination without analysis 
of regularly collected trade and price statistics. Several trade promotional 
activities were reported by one or more associations in addition to those listed 
in the questionnaire; tliese may be described as "advertising service to mem- 
bers, distribiitors, or dealers" ; "information or advice on advertising media" ; 
"promotion of industry day, week, month, etc." ; "direct selling efforts through 
field representatives"; "handling of buyers' inquiries for industry products"; 
the "preparation of directories of customers" ; and "sales or trade oromotion, 
or trade relations — type not specified." 

Standardization and simplification. — "Standardization" refers to the establish- 
ment of uniform product sizes or dimensions and, in the case of quality 
standards, of critei-ia of properties and performance as the basis for grading, 
certification, and labeling. "Simplification" refers to the reduction of the num- 
ber or variety of product sizes, dimensions, types, models, patterns, and lines. 
Under the procedure of most standards agencies, an as.sociation may initiate 
or participate in a program of standardization or simplification as the repre- 
.seutative of producers, suppliers, or c(nisuniers of the commodity in question. 
There is, therefore, no field of indusrrial activity in which trade associations 
may not properly report activity in this field. Nevertheless, it is believed that 
the frequency with which these items v/ere reported overstates somewhat the 
extent of activity in this field at the present time, particularly because the 
term "standardization," is sometimes used to characterize the development of 
standard contract and other business forms and the encouragement of uniform- 
trade praci'ces. (Jidinarily considered to be a part of the standards work of 
trade associations ai'e several activities that were separately reported by a 
few associations: 'Product certification or guarantee"; "descriptive labeling"; 
and "insjiectiou m product tf^sring to determine conformance with industrial 

TiriniicaJ rcscardt (Did a((ri><orij sfrricc. — This describes a field of trade 
as.sociation activity tliat deals primarily witli production and commotlity 
research and advisory service, embracing, as well, similar technical activities 
in the service, as well as iiroducing, fields of industry. It includes the ques- 
tionnaire items, "Opei-ation of research laboratory," "Other forms of tech- 
nical research," jiiid "Technical advisory services." There is reason to believe, 
particularly with respect to the two research items, that there was some 
tendency tn magnify the extent of activity in this field. There is also a sub- 
stantial overlapping between this field of activity and ".standardization," on 
the one hand, and the development of "new for industry products", on the 
other hand. It is probable, too, tliat in the di.-stribirtion, finance, transportation, 
and personal and business service fields there was a tendency to confuse 
advisory activities i-elating to tlie selling or promoting of the service dealt 
in with those relating to the techiiica) aspects of the production of the service. 
Among the items falling in this classification that were .separately reported by 
a few a.ssociations were "byproduct or waste-utilization research" ; the "develop- 
ment of )iew products and pi-oduct improvement"; and the "coordinating of 
members' technical research." 

7 fade statist ic-'^. — This item embraces the regular collection and dissemina- 
tion by an association of statistics relating to business activity, including 
statistics on one or more of such subjects as inventories, production, sales. 


shipments, and orders. This item did not appear in the original questionnaire. 
The related item in the questionnaire read, "Statistics : Compilation of new 
material." Because it was evident from the returns that in reporting this item 
many associations did riot confine themselves to original statistical compilations, 
a recanvass was made, in which the associations were asked to submit copies 
of their statistical forms and releases. As a result of this review, it is believed 
that the figure, given in table 25, of 548 associations engaged in the collection 
of trade statistics, is reasonably accurate. Statistics on wages and hours were 
classified under "Employer-employee" relations rather than "Trade statistics," 
except in those few cases in which it was clear that man-hour data were 
compiled primarily as a measure of production activity. 

Price and bid information. — The items under this heading include bid filing, 
open price filing, and reports on prices received in closed transactions. The 
original questionnaire included only "Bid filing" and "Open-price filing." 
Statistics on prices received in closed transactions were reported under "Statis- 
tics : Compilation of new material," and have been consolidated with bid 
filing and open price filing under one heading on the basis of the recanvass 
referred to above. 

Accounting, cost statistics and studies. — Under this heading associations were 
asked to indicate whether they had established "Uniform accounting" and 
whether they were engaged in "Industry cost studies." "Uniform accounting" 
refers to uniform systems of general accounts, as well as to uniform cost 
accounting principles or systems ; and 'Industry cost studies" includes the 
regular collection and dissemination of cost- statistics, as well as occasional 
cost studies. It was found from a sample check that under these items some 
associations referred to activity that occurred during the N. R. A. period only. 
The number of associations that have reported themselves as active in this field 
is believed, therefore, to overstate somewhat the extent of present activity. 

Statistical republications and special studies. — This item represents a con- 
solidation of the items, "Statistics : Republication of other material" and "Sta- 
tistics : General economic conditions service," which appeared in the original 
questionnaire. The distinction drawn by trade associations between these two 
items was not sufliciently clear to justify listing them separately. Also in- 
cluded under this heading were special statistical studies that could not properly 
be dassified under the headings of cost studies, price statistics, or market 
research. Their subject matter usually was the financial or economic condi- 
tion of the industry, but, inasmuch as they represented only occasional or one- 
time studies, they have also been distinguished from trade statistics. 

Traffic and transportation. — Under this heading have been grouped two items 
that were in the original questionnaire, namely, "Packaging and shipping," re- 
ported by 202 associations, and "Freight-rate books, etc," reported by 150 a^o- 
ciations. That these itjpms were neither uniformly interpreted nor sirfflci^ntly 
comprehensive is evideat from the fact that 116 associations made separate 
entries to indicate that they assisted members with respect to delivery, traffic, 
or routing problems, and by the fact that other associations separately reported 
the handling of freight claims and the auditing of transportation bills for their 

Credit informatimi. — This field of activity ranges from the systematic, peri- 
odic collection and dissemination of ledger experience to the occasional service 
rendered to individual members in investigating and reporting on particular 

Collection service. — Some associations provide a regular service of collecting 
claims and accounts, while others render only infrequent services to members 
in this connection. Like "Credit information" this item is believed to have 
been subject to little difference of interpretation. 

Trade practices. — This field of activity embraces all efforts of trade associa- 
tions to guide or influence along lines considered proper the conduct of members 
toward one another and toward present or prospective customers. This may 
mean, on the one extreme, a definite program to control the competitive be- 
havior of the members, while, on the other, merely an effort to define customary 
business practice or to standardize the meaning of business terms or business 
forms. It also includes the efforts of trade associations through legislation, 
court action, or group pressure to bring within bounds the conduct of members 
of supplying, customer, and competing industries. Trade association activity 
in other fields, such as standardization and simplification, price and bid in- 
formation, trtide statistics, and Government relations, may be directed at the 


control of trade practices. Included in the schedule were the following items: 
"Classification of customers," "Classification of sales areas," "Trade practice 
conferences," "Standard business forms and contracts," "Combating unfair 
competition," and "Cooperative selling." TTius, four specific devices were sin- 
gled out for reporting along with two more or less all-inclusive items, namely, 
"Trade practice conferences" and "Combating unfair competition." The result 
was a substantial duplication of reporting as between the items included under 
this heading. It is doubtful, too, whether, as intended, the items, "Classification 
of customers," "Classification of sales areas," and "Cooperative selling" were 
always understood by the reporting associations to mean concerted action 
directed at the control of selling policies. 

Commercial arbitration. — This item usually refers to a machinery for set- 
tling business disputes of the type that ordinarily would be taken to the courts 
of law for decision. Such disputes may arise between members of an industry 
but are most likely to be of the type that develop between the members, on the 
one hand, and their customers or suppliers, on the other hand. The settlement 
of disputes between members that arise from a violation of an association's 
tnade practice rules is a part of the trade-practice work of an association, and 
it may be assumed that as between the items "Commercial arbitration" and 
"Trade practices" there is some duplication in rei)orting. 

Registration of patents, trade-marks, designs, and styles. — This is prir-rily 
an informational service, designed to notify members of the existence of patents, 
trade-marks, and styles on the products of the industry. Activity in this field 
in large part deals with trade-marks, there being relatively few instances of 
the registration of patents, designs, or styles. A few cases of copyright regis- 
trations were reported, which have been included under this heading. The 
work of some associations in this field does not attain the stature of a regular 
or systematic service, being confined to the occasional servicing of members 
through the giving of information or assistance on particular problems. The 
registration of designs and styles sometimes is a part of a mechanism for curb- 
ing design, or style "piracy." 

MisceUaneotis services. — Under this heading have been grouped the following 
items that were in the questionnaire : "Insurance assistance," "Legal service," 
"Library service," "Used machinery exchange," "Cooperative buying," and 
"Patent cross-licensing or pooling." Because there was an apjmrent tendency to 
misinterpret them, associations originally reporting the last two items were 
recauvassed. It was not possible, however, on the basis of the information sub- 
mitted to determine precisely the number of trade associations administering 
patent cross-licensing or pooling arrangements, except that it seems safe to say 
that they are fewer than 10 in number. Combined with the item, "Cooperative 
buying," it will be noticed in table 25 are other forms of "assistance in buying." 
There are relatively few national and regional trade associations that are en- 
gaged in the actual buying of goods, materials, supplies, or equipment in behalf 
of their members. In addition to the foregoing, several other services have been 
classified under this heading. One hundred and four associations indicated that 
they performed an informational or educational service too broad and general 
in scope to be classed imder any of the items appearing in the schedule; 16 
mentioned assistance rendered members on taxation and tariflF matters; 27 
reported that they prepared directories of industry members or catalogs of 
industry products ; and 28 associations reported that they had adopted measures 
to protect their members against fraud or criminal acts. 

Conventions. — This item ordinarily is understood to mean regular, annual 
meetings embracing an association's entire membership. In many associations it 
represents a major activity and in some, the principal activity. It is believed 
that there were some associations which through neglect or misinterpretation 
failed to report this activity. 

For the purpose of comparing trade association activity in the 
various fields of endeavor, it is believed that such limitations as the 
data may have to a substantial degree may be overcome by confining 
the analysis to those activities on which the associations reportec a 
major emphasis. The analysis, moreover, is facilitated and the dupli- 
cation in reporting minimized by dealing only with the principal 
groups of activity. In table SG the various activities reported have 
be^i classified into the groups previously described. No association 
appears more than once opposite any of the activities listed. 



According to this table, activity in the field of Government rela- 
tions easily outranks other trade association activities. Over 80 
percent of the associations reported some activity in this field, and 
it is the only activity which over 50 percent of the associations re- 
ported as of major importance. Trade promotion is next in rank; 
approximately 70 percent of the associations reported this activity, 
and about 50 percent indicated that it was a major activity. The 
only other activities that were reported as of major importance by a 
third or more of the associations are standardization and simplifica- 
tion, conventions, trade practices, and trade statistics. 

In the following list the various activities are ranked according 
to the frequency with which they were reported as of major im- 
portance and according to the total frequency with which they 
appeared, regardless of major or minor importance: 

Rank by 

with which 
reported as 
of major 

Rank by 

with which 


Rank by 
with which 
reported as 

of major 

Rank by 



with which 


Government relations . 











Public relations . 






Trade promotion. . 

Accounting, cost statis- 
tics and studies 

Credit information serv- 

Traffic and transporta- 

Standardization and sim- 



Trade practices 

Trade statistics 


Employer-employee rela- 

Price and bid information. 
Commercial arbitration. .. 
Collection service... .-. . 


Miscellaneous services 


Statistical republications 

and special studies 

Technical research and 

Registration of patents, 
trade-marks, designs, 
and styles - 


advisory services 

It will be noted that there is a considerable difference in the posi- 
tion of several of the activities under the two rankings. The greatest 
difference occurs in the case of trade statistics, which in terms of the 
total frequency with which reported ranks eleventh and in terms of 
major importance, sixth. Standardization and simplification and 
conventions also rank substantially higher in terms of major- 
importance frequency tliau of total frequency. SeA^eral items, on the 
other hand, rank relatively lower when measured in terms of major 
emphasis, notably, trade practices, employer-employee relations, pub- 
lic relations, statistical republications and special studies, and mis- 
cellaneous services,- 


In general it can be said that the larger the income of the associa- 
tion, the greater the number of activities emphasized. This is indi- 
cated by table 27, which show? '-^y income-size groups the proportion 

2 Another comparison of interest is that betwenn activities ranked according to the 
frequency with which reported as of major importance and activities ranked according to 
budget importance. The associations were asked to indicate in order of importance the 
three activities which bulked larsest in their budget, but only about one-half complied with 
this request, and of these many indicated (hat their ranking was forced and somewhat 
arbitrary. 0:i the basis of the returns, therefore, such a- comparison is highly Inconclusive. 
Actually it shows that under the two rankings (budget importance being mtiked according 
to the activity first in importance only) many of the activities had- the Sfime, or approxi- 
mately the same, position. As might be expected, however, trade promotion ranked first 
in budget importance; other activities that ranked higher (in no case over three places) 
In terms of budget importance than of "major" importance were credit information, trade 
st,'\tistics, employer-employee relations, public relations, and technical research and advisory 


of associations reporting as of major importance the activities speci- 
fied. A comparison of the two extremes — those associations with an 
income of less than $2,500 with those whose income was $100,000 
or more — shows that practically without exception the proportion of 
associations engaged in the specified activities is greater among the 
large than among the small associations. A study of the table, how- 
ever, indicates that the directness of the relationship between per- 
formance and income varies considerably among the various activi- 
ties. In terms of the consistency with which the relationship is 
maintained and of the extent of difference between the extremes, it 
is among the broad-gaged activities — Government relations, em- 
ployer-employee relations, public relations, trade promotion, and 
technical research and advisory services — that this relationship ap- 
pears to be most direct. The relationship is least direct in the case 
of such activities as price and bid information, credit information, 
collection service, commercial arbitration, conventions, and trade 

Another comparison of trade association income and activity is 
afforded by the following list, which, based on table 27, shows for 
each income group the five activities most frequently reported as of 
major importance : 

Less than $1,000 : $20,000 to $49,999 : 

Goverument relations. Government relations. 

Trade promotion. Trade promotion. 

Conventions. Standardization and simplification. 

Trade practices. Trade statistics.^ 

Miscellaneous services. Statistical republications and spe- 
$1,000 to $2,499 : cial studies.' 

Conventions. $50,000 to $99,999 : 

Trade promotion. Trade promotion. 

Government relations. Government relations. 

Trade practices. Trade statistics. 

Miscellaneous services. Employer-employee relations. 

$2,500 to $4,999: Conventions. 

Government relations. $100,000 to $249,999 : 

Trade promotion. Government relations. 

Standardization and. simplification. Trade promotion. 

Conventions. Public relations. 

Trade statistics. Technical research and advisory 
$5,000 to $9,999 : services. 

Government relations. Employer-employee relations.* 

Trade promotion. Trade statistics.' 

Standardization and simplification. $250,000 and over : 

Trade statstics. Trade promotion. 

Trade practices.' Government relations. 

Conventions.' Public relations. 

$10,000 to $19,999 : Standardization and simplification. 

Government relations. Employer-employee relations.' 

Trade promotion. Technical research and advisory 

Standardization and simplification. services.' 

Trade statistics. Trade statistics.' 

Trade practices. 

It will be seen that with one exception the activities, Government 
relations and trade promotion, rank highest in each income group. 
Changes appear, however, in the complexion of the remainder of the 
list as the income of the association increases. Thus, while conven- 
tions and trade practices appear almost uniformly among the 5 rank- 
ing activities of associations with incomes of less than $20,000, with 

^ Have same rank. 



one exception they are not found among the activities that larger 
associations emphasize. Trade statistics and standardization appear 
among the ranking activities of most of the groups with incomes of 
over $2,600 but tend to rank lower among the activities of the large 
associations than among those of intermediate groups. It is only 
among associations having incomes of $50,000 and over that the activi- 
ties, employer-employee relations, public relations, and technical re- 
search, find, a place on the list. Despite these variations it is notable 
that of the total of 18 activities shown in table 27, 7 do not appear 
among the 5 ranking activities of any of the income groups listed 

The foregoing observations concerning the relationship of activity 
to amount of income in general also apply when the number of paid 
members of staff is used as a measure of the size of trade associations. 
As may be seen by comparing tables 27 and 28, the directness of the 
relationship between the prevalence of the activity and the size of 
the association, however, tends to be somewhat less marked when size 
is measured in terms of paid staff. This is to be expected, in view of 
the fact, pointed out in chapter I, that the relationship between the 
size of the paid staff and the income of trade associations is not a 
precise one. 


The generalization that the number of activities emphasized in- 
creases with the size of the association does not apply when size is 
measured in terms of number of members. The proportion of asso- 
ciations engaged in som^ activities, it is true, tends to increase with 
the size of the membership groups ; but that of others varies inversely 
with, or shows little or no relationship to, size of membership. The 
relationship between the number of activities and the extent of indus- 
try coverage is somewhat more direct. 

The following comparison is based on an inspection of tables 29 
and 30, which show by size of membership and extent of industry 
volume of business represented, respectively, the proportion of asso- 
ciations reporting as of major importance the activities specified : 

Activities whose relative fre- 
quency tends to vary directly 
with number of members. 

Activities whose relative fre- 
quency shows little or no rela- 
tionship to number of mem- 

Activities whose relative fre- 
quency tends to vary inverse- 
ly with number of members. 

Activities whose relative 
frequency tends to 
vary directly with 
percent of coverage by 

Government relations, 
public relations, tech- 
nical research and ad- 
visory services, com- 
mercial arbitration, 
trade practices, em- 
ployer-employee rela- 
tions, accounting, cost 
statistics and studies. 

Statistical republication 
and special studies, 
credit information, 
traflBc and transporta- 

Trade statistics, price 
and bid information, 
standardisation and 

Activities whose relative 
frequency shows little 
or no relationship to 
percent of coverage by 

Trade promotion, mis- 
cellaneous services. 

Collection service, reg- 
istration of patents, 
trade-marks, designs, 
and styles. 

Activities whose 
relative fre- 
quency tends to 
vary inversely 
with percent of 
coverage by vol- 



According to this comparison, the frequency with which most of 
the activities were reported tends to vary directly with the degree of 
coverage. In other words, the more representative of their industries 
associations become, evidently the greater the number of activities 
in which they can effectively engage. There are, however, several 
activities that seem to have no particular relationship to trade associa- 
tion coverage. These include trade promotion and special services 
of one kind or another. And the holding of conventions tends to be 
emphasized more by associations reporting a small coverage ratio than 
by those reporting a high i^tio. 

There is a less direct relationship between trade association activ- 
ity and number of members. Three activities — ^.trade statistics, price 
and bid information, and standardization and simplification — are 
most emphasized by associations with small membership and high 
coverage ratio. The performance of 5 activities — statistical repub- 
lication and special studies ; credit information ; traffic and transpor- 
tation; collection service; and registration of patents, trade-marks, 
designs, and styles — seems to have no relationship to size of member- 
ship. The frequency of the remaining 10 activities tends to vary 
directly with the number of association members, that of 7 of them 
varying directly Avith percent of coverage as well. 

Although they are by no means conclusive, the data suggest several 
general points concerning the relation between the nature of associa- 
tior activit}' and the size of association membership. In the first 
place, the size of inembersliip appears to have least bearing on the 
performance by an association of those special services which any 
member might provide for himself by resort to the services of private 
agencies. Vi^iether an association attempts to supply its members 
with credit or traffic information, for example, depends primarily on 
the general importance of such information to the industry. In the 
second place, it appears that certain activities, notably trade statistics 
and price statistics, are most effectively performed by associations 
with small memberships. Finally, the data suggest that the larger 
the number of association members, the greater the emphasis placed 
on activities of broad dimension, such as Government relations, trade 
promotion, public relations, and employer-employee relations. This 
may mean that the members of small industries in some cases have 
little need for such services, Avhile in other cases they cannot afford 
programs of this character. It is interesting to note that trade 
practices appear among the activities whose relative frequency tends 
to var}' directly with the size of association membership. One might 
suppose that, like trade statistics, potentially effective action along 
this line in the main would be limited to the smaller industries. But 
one should recall the broadness of the term, which embraces any 
action, through propaganda, legislation, or other means that is de- 
signed to influence the competitive behavior of the members of the 
industry or that of members of supplying, customer, or competing 
industries. In some small associations, moreover, trade practice 
activities are not formalized and, therefore, are not identified as such. 

The following list, which is based on table 29, shows by associations 


classified according to number of members, the five clctivities most 
frequently reported as of major importance : 

Less than 10: 100 to 249: 

Government relations. Government relations. 

Trade statistics. Trade promotion. 

Trade promotion. Conventions. 

Standardization and simplification. Trade practices. 

Statistical republications and spe- Standardization and sioiplification.' 

cial studies. Miscellaneous services.' 

10 to 19: 250 to 499: 

Government relations. Government relations. 

Tx-ade statistics. Trade promotion. 

Standardization and simplification. Conventions. 

Trade promotion. Trade practices. 

Statistical republications and spe- EmpU).ver-enii)l(iyee relations. 

cial studies. '>()0 to 1,999: 

20 to 49: Trade prdniotion. 

Government relations. Conventions. 

Trade promotion.^ Govennneiit relations. 

Standardization and simplification.' Employer-employee i elations.' 

Trade practices. Trade practices. 

Conventions. 2,000 and over: 

50 to 99: (Conventions. 

Government relations. Trade promotion. 

Trade pi'omotion. (Jovernment reliitioiis. 

Conventions. Trade j)ractices. 

Employer-employee relations. Employer-employee relations.' 

Trade practices. Public relations. ' 

Ten of the total of eighteen activities appear on this list. Of 
these. Government relations and trade promotion appear among the 
5 ranking activities of each group. Trade stati.stics and stati.stical 
republications appear among the ranking activities of associations 
with fewer than 20 members but not among those having 20 or 
more members; and. with one exception, standardization and simpli- 
fication appears only among the ranking activities of associations 
with fewer than 50 members. On the other hand, trade practices 
and conventions, not foinid among the ranking activities of associa- 
tions having fewer than 20 members, appear among the 5 ranking 
activities of all the larger groups. Employer-employee relations 
appears only among the ranking activities of associations with 50 
or more members; ptiblic relations, only among those of associations 
having 2,000 or more members. 


There is some basis for the belief that the older associations tend 
to emphasize a greater variety of activities than organized 
more recently. According to table 31, there are a number of activi- 
ties that tend to appear more frequently among the older than the 
3'Ounger a.ssociations, namely, Government relations, [)ublic relations, 
technical research and advisory services, accounting, collection serv- 
ice, trade practices, connnercial arbitration, registration of patents, 
trade-marks, designs, and styles, miscellaneous services, and conven- 
tions. This relationship is scarcely, if at all, discernible in the case 
of other activities; in fact, two activities, trade stati-stics and price 
information, appear most frequently :unong recently formed 

' Have same rank. 



Both the problems that need solution through collective action 
and the circumstances that determine the type of collective action 
brought to bear on these problems to an important degree depend 
on the nature of the industry. Table 32 shows the proportion of 
associations in each industrial group that reported as of major im- 
portance the specified activities. It will be seen that there is a wide 
variation among the industry groups in the proportion of associa- 
tions performing each activity. As measured by the average devia- 
tion, this variation, however, is more marked in the case of some 
activities than others. At the one extreme are collection service, 
credit information, traffic and transportation, commercial arbitration, 
price and bid information, and the registration of patents, trade- 
marks, designs, and styles. Emphasis on these activities seems to 
be determined to a greater extent than in the case of other activities 
by the nature of the industry. Other activities that show a substan- 
tial variation in frequency of performance among the various in- 
dustries are trade statistics, standardization and simplification, and 
techpical research. At the other extreme, activities whose variation 
in frequency of performance is least marked, are Government rela- 
tions, trade promotion, and miscellaneous services. 

The following list affords a comparison of the types of activity 
emphasized by trade associations in the various industries. Based 
on table 32, it ranks the five activities most often reported as of major 
importance by associations in each industry group : 

Coal mining : Apparel and other finished] products 

Government relations.' made from fabrics and similar ma- 

i-^mployer-employee relations.* rerials : 

Pablie relations.' Employer-employee relations. 

Trade promotion.* Trade practices. 

Trade practices.* Government relations. 

Miscellaneous services.* Trade promotion. 

Mining (other than coal) and quarry- Commercial arbitration.* 

ing : Miscellaneous services.* 

Government relations. 

Technical research and advisory ^ 

services. Lumber and timber basic products: 

Trade promotion.' Standardization and simplification. 

Conventions.' Trade promotion. 

Employer-employee relations. Government relations. 

Petroleum production and refining and Trade statistics, 

natural gas production : Employer-employee relations.' 

Government relations. Statistical republication and ^e- 

' Conventions. ^^^1 studies.* 

Public relations.' 

Standardization and simplifica- Furniture and finished lumber prod- 

lion. ypj-g . 

Statistical republication and spe- rj.^'^^^ statistics. 

„ , ^^^/5"Jies Trade promotion. 

Food and kindred products : Government relations. 

Government relations Standardization and simplification. 

ConventZ °' ^""""^ ''*"*^ ^'^ information. 

Public relations.' 

Trade practices.* Paper and allied products : 

Textile mill products : Trade statistics. 

Government relations. Standardization and simplification. 

Trade statistics. Trade promotion. 

Trade practices. Government relations.* 

Employer-employee relations. Statistical republication and spe- 

Standardization and simplification. cial studies.* 


Printing, publishing, and allied Indus- Automobiles and automobile equip- 

tries : ment : 

Employer-employee relations. Government relations. 

Trade practices. Employer-employee relations.* 

Trade promotion. Trade promotion.' 

Conventions. Miscellaneous services.* 

Credit information. Conventions. 

Chemicals and allied products: Miscellaneous manufacturing udus- 

Government relations. tries: 

Trade promotion. Trade promotion. 

Technical research and advisory Government relations. 

services. Conventions. 

Trade practices. Credit information. 

Standardization and simplification. Trade statistics. 

Rubber and leather products: Construction — general and special trade 

Employer-employee relations." contractors : 

Trade promotion.* Employer-employee relations. 

Trade practices.* Conventions. 

Government relations. Trade practices. 

Trade statistics. Trade promotion.' 

Stone, clay, glass, and kindred prod- Standardization and simplification.' 

ucts : Fishery : 

Government relations. Government relations. 

Trade promotion. Employer employee relations.* 

Standardization and simplification. Trade promotion.* 

Technical research and advisory Miscellaneous services.* 

services. Public relations." 

Trade statistics. Standardization and simplification.* 

Iron and steel and their products : Technical research and advisory 

Standardization and simplification. services.'' 

Trade statistics. Wholesale trade: 

Government relations. Government relations. 

Trade promotion. Conventions. 

Technical research and advisory Trade practices, 

services. Tj.jj^jg promotion. 

Transportation equipment ( except Miscellaneous services, 

automobiles) : Retail trade: 

Government relations.* Conventions. 

Trade promotion.* Trade promotion. 

Public relations. Government relations. 

Miscellaneous services.* Trade practices. 

Conventions.* Public relations. 

Nonferrous metals and their products : Finance and real estate : 

Trade statistics. Government relations. 

Government relations.* Trade promotion. 

Trade promotion.* Conventions. 

Standardization and simplifica- Trade practices. 

tion.' Miscellaneous services. 

Technical research and advisory Transportation, communications, and 

services. other public utilities : 

Electrical apparatus and supplies : Government relations. 

Trade promotion.* Accounting, cost statistics and 

Trade statistics.' „ studies. 

Standardization and simplification. ^f^?^,.^"^ transportation. 

Government relations. Statistical republications and spe- 

Trade practices.* cial studies. 

Conventions.* Technical research and advisory 


Machinery (except electrical) : Personal, business, and recreational 

Government relations.* services • catx^^no* 

Trade promotion.' Conventions. 

Standardization and simplification.* Trade practices.' 

Trade statistics * T^ade promotion.' 

Statistical republications and spe- Government relations, 

cial studies. Miscellaneous services. 

' Have same rank. 
* Have same raik. 


Sixteen of the total of eighteen activities appear among the five 
ranking activities or 1 or more of the industries. The 2 activities that 
do not appear in the above list are collection service and registration 
of patents, trade-marks, designs, and styles. Most often included are 
Government relations and trade promotion. Government relations is 
included among the 5 ranking activities of associations in every in- 
dustry except construction^ and printing and publishing; trade pro- 
motion, in every industry except petroleum, textiles, and transporta- 
tion and other public utilities. Statistical activity — trade statistics 
or statistical republications — appears among the 5 ranking activities 
of associations in 13 of the 27 industries. Trade practices, also, ap- 
pears among those of 13 of the 27 industries. There are, however, 
few industries in which both statistics and trade practices appear 
among the ranking activities. Trade practice activity is relatively 
more prominent among associations in construction, the manufactur- 
ing of perishable consumers' goods, and the distribution and service 
trades; trade statistics, in the production of producers' and durable 
consumers' goods. Activity in standardization and simplification 
also tends to concentrate in the latter type of industry. Emphasis 
on employer-employee relations, as might be expected, occurs among 
associations in industries in which collective action among workers is 
prominent, such as coal mining, apparel, construction, printing, and 
automobiles. Among the other activities, conventions, miscellaneous 
services, and public relations frequently appear, whereas price infor- 
mation, credit information, traffic and transportation, commercial 
arbitration, and technical research are found among the 5 ranking 
activities of associations in one or two industries only. 

The data presented in table 32, as well as the above list which is 
based on this table, have ii limited value as a measure of the signifi- 
cance among different industries of various trade association activi- 
ties, inasmuch as they make no allowance for the wide variation in 
size and in product coverage that occurs between associations within 
some of the industrial groups. One should bear in mind, too, that 
table 32 and the above list are based on activities reported by trade 
associations as being of "major" importance.^ 


Trade association activities are performed in a variety of ways. 
Outstanding among the agencies of performance are the association 
staffs and committees of association members. The staff usually is 
paid, although in some instances it is composed of members who 
volunteer their services to administer the affairs of the association. 
Committee membei^ ordinarily are not paid. Arrangements are oc- 
casionally made with individual members of the association to do a 
piece of work the results of which are made available to the entire 
membership. Members may directly exchange information among 
themselves under a general plan conceived by the association staff. 
The services of outside agencies frequently are enlisted to carry out 

" Government relations probably have a greater Importance among the activities of State 
and local associations than among those of national and regional associations in the 
construction field. 

« For comparative purposes table 32A has been prepared, which shows by industrial 
groups both "major" and "minor" activities. The relating of industrial circumstances to 
types of association activity is essentially a matter for a series of industry studies, which 
have not been possible on a general scale in the present survey. 


an association proj^am. These agencies niay be private business 
firms, nonprofit agencies, such as governmental departments or uni- 
versities, or other trade associations. Finally, the parent bodies of 
federations of associations commonly undertake to perform activities 
for the affiliated associations and othervrise supplement the activities 
of these affiliates. 

Table 33 affords a general indication of tne relative importance 
of the principal agencies of performance (other than federations, 
discussed below). This table shows that, with one exception, the 
association staff was the agency that most frequently performed the 
various activities. The exception is standardization and simplifica- 
tion, which w^as reported as being carried on more often by committee 
than by staff. Committee performance figured prominently in the 
case 01 several other activities, namely, technical research and ad- 
visory service, accounting, traffic and transportation, trade practices, 
and commercial arbitration. It played a minor role, on the other 
hand, with respect to such activities as price and bid information, 
trade statistics, statistical republications and special studies, credit 
information, collection service, registration of patents, trade-marks, 
designs, and styles, and miscellaneous services. As the table indi- 
cates, a large number of the associations reported that their activities 
were performed both by staff and committee. 

Many associations in conjunction with their own work resort to 
outside agencies for assistar:;e in the performance of certain activi- 
ties. Although the percent? ^es shown in the table are not conclusive 
in view of the relatively lar je number of instances in which the type 
of outside agency could not be identified, they do indicate with re- 
spect to which programs of activity the services of outside agencies 
are most frequently enlisted. Thus, the services of business agencies 
(other than management organizations, discussed below) are most 
often employed for trade promotion and miscellaneous, in this case 
legal, services. It is probably safe to say that in the neighborhood 
of 30 percent of the associations engaged in these activities depend 
completely or in part on private firms for their performance. In a 
few instances it was evident that the outside legal counselor enjoyed 
an authority so broad that, practically speaking, he served as the 
association's executive. Other activities in connection with which 
the services of profit agencies are often employed are Governmeht 
contact work, public relations, technical research, accounting, speciaJ 
studies, traffic and transportation, credit information, collection serv- 
ice, and registration of patents, tradermarks, designs, and styles.'^ 
Fewer activities are performed for trade associations hj governmental 
and other nonprofit agencies. They lie principally in the fields of 
standardization and simplification, technical research, commercial ar- • 
bitration, and trade statistics. The trade statistics are chiefly those 
collected by the Bureau of the Census at the initiative of or in co- 
operation with trade associations. 

T AnalyRis of the returns reveals little concentration in the use of private agencies by 
trade associations during the 12-month period preceding the filing of the questionnaire. 
These returns, however, are somewhat inconclusive, inasmuch as the -12-month period was 
too short to measure adequately the extent of the use of such agencies ; the data do not 
reflect the employment of these firms bv individual members upon the recommendation of 
the trade associations ; and do not reflect the use of these firms bv State and local asso- 
ciations. It is Interesting to note that executives of trade associations sometimes consider 
themselves as private agencies of performance by reason of private contractual arrange- 
ments with the association members for the performance of certain services not carried on 
by the association, such as the collection and dissemination of trade and price statistics. 


The above data do not reflect certain other ways in which trade 
association activities are sometimes performed, such as by individual 
members who undertake to compile information or to conduct indus- 
trial research for the association and by cooperative arrangements 
with associations in other industries. They do indicate that much 
trade association activity is carried on by means other than a paid 
staff, and that neither the number of paid staff members nor the 
amount of income afford a reliable index to the degree of activity of 
various trade associations. Another fact to be kept in mind in this 
connection is that the unpaid officers of trade associations often de- 
vote a considerable amount of their "time to association affairs. The 
returns of 131 associations, selected at random, show that while the 
unpaid officers of 19 percent of the associations devoted on the aver- 
age less than 5 days per year to association matters, those of 34 
percent devoted 5 to 9 days, those of 26 percent 10 to 14 days, those 
of 14 percent 15 to 19 days, and those of 7 percent 20 days- or over. 

One of the most important ways an association has of getting 
things done is meetings of the membership. If they are not a manner 
of performing activity they are a means by which programs of 
activity are implemented and fostered and represent an essential 
measure of the activeness of an association. Table 34 shows the 
number of meetings held during the most recent year as reported by 
1,004 associations, not only of the membership in general, but also of 
product and regional groups, the executive committee, board of direc- 
tors, and other committees. Approximately 92 percent of the asso- 
ciations reported that they had held meetings of the entire member- 
ship, 27 percent that they had held regional group meetings, and 17 
percent product group meetings. Of those holding meetings of the 
entire membership, approximately 61 percent reported 2 or less meet- 
ings, 17 percent 3 to 5 meetings, 11 percent 6 to 10 meetings, 8 per- 
cent 11 to 25 meetings, and 1 percent over 25 meetings.^ It appears, 
therefore, that the majority of national and regional trade associa- 
tions hold only 1 or 2 meetings of the entire membership during a 
year, relatively few meeting as often as once a month. As can be 
seen in the table, among those associations that hold them, product 
and regional group meetings supplement the general membership 
meetings to an important degree. As a measure of the extent of 
association such data, however, have very definite limitations. They 
do not reflect the personal contacts of the staff and officers of the 
association with individual members, which many associations num- 
ber among their principal activities, and, of course, do not account 
for such meeHngs as may be held by the members without the formal 
auspices of the association staff. 


Wages and salaries constituted the principal expense of trade as- 
sociations during the period, 1937-38, amounting to approximately 
50 percent of total expenses.^ This represents the direct expense of 
supporting association staffs. It does not reflect wages and salaries 
that are paid indirectly through the employment of outside agencies 
to conduct sales promotion campaigns and perform other services. 

'The number of meetings was not reported by approximately 2 percent of these asso- 

° Based on returns from 875 of approximately 1,505 national and regional tracie asso- 
ciations active in June 1938. Wages and salaries and total expenses In some cases were 
reported for fiscal yeais ending in 1938 ; in others, in 1937. 

260752 — 41 — No. 18 1 


The salary-expense ratio of most associations amounts to more than 
50 percent, inasmuch as the other-expense category is heavily 
weighted by large fees to outside agencies incurred by a relatively 
few associations in connection, particularly, with legal and promo- 
tional services. 

It has already been shown that the paid staff of well over a major 
ity of national and regional trade associations consists of fewer than 
5 members. The typical association's staff includes the executive 
secretary and 1 or 2 stenographers or clerks. Returns from 
associations that refjorted the data ^° show that 34 percent employed 
no person who received a salary of $2,400 or more per year; that 
35 percent of the associations paid a salary of $2,400 or more to 
only 1 staff member; 9 percent, a salary of $2,400 or more to only 

2 staff members; 6 percent, a salary of $2,400 or more to 3 staff 
members, and 16 percent, a salary of $2,400 or more to more than 

3 staff members. Somewhat less than 2 percent of the associations 
paid salaries of $2,400 or more to over 25 staff members. 

It is evident, therefore, that relatively few trade association ex- 
ecutives in the performance of their duties have technical staff assist- 
ance. Of 204 associations, selected at random, approximately 56 
percent reported that they did not employ experts, either on a full- 
time or part-time basis. Of the 204 associations — 

Approximately 9 percent regularly employed one or more fuU-time 

Approximately 8 percent regularly employed one or more part-time 

Approximately 7 percent regularly employed one or more full-time 
economists or statisticians. 

Approximately 3 percent regularly er^'^'oyed one or more part-time 
economists or statisticians. 

Approximately 9 percent regularly employed one or more full-time 
engineers or scientists. 

Approximately 3 percent regularly employed one or more part-time 
engineers or scientists. 

Approximately 7 percent regularly employed one or more full-time 

Approximately l3 percent regularly employed one or more part- 
time lawyers." 

Approximately 1 percent regularly employed one or more full-time 
traffic experts. 

Approximately 2 percent regularly employed one or more part-time 
traffic experts. 

Approximately 3 percent regularly employed one or more full-time 
labor experts. 

Approximately 1 percent regularly employed one or more part-time 
labor experts. 

Approximately 5 percent regularly employed one or more full-time 
experts of other types. 

Approximately 1 percent regularly employed one or more part-time 
experts of other types. 

"> In number, 863 of approximately 1,505 national and regional trade associations active 
ill June 1938 It was not possible to include in this tabulation associations that shared 
their staff with other associations. 

"This figures is subject to question because it is doubtful if the distinction between a 
regularly employed part-time lawyer and the occasional use of the services of a legal firm 
was consistently made. ^^ *" 


The key member of the staff is, of course, the executive. Time did 
not permit an analysis of many of the returns, but the following data, 
based on a random sample of 204 associations, are believed to be rea- 
sonably indicative of the information submitted concerning the age, 
experience, and background of trade association executives. 

As maybe seen in table 35, the typical trade association executive is 
a middle-aged man. Approximately 60 percent of the executives re- 
ported an age of between 40 and 55. Approximately 22[ percent 
reported one of 55 or more. Relatively few were less than 35 years 
of age. Approximately 65 percent of the executives have served their 
associations for a period of 5 years or more, and 27 percent for 10 
years or more. Twenty-five percent of the executives of associations 
10 or more years of age have been with their associations since their 
formation. ^^ 

The majority of trade association executives are recruited from bus- 
iness according to table 36, which shows that approximately 57 per- 
cent of the executives reporting their occupation prior to joining the 
association were business executives, administrative officials, or sales- 
men. Trade association, legal, and public administration experience 
constituted the principal background of the other executives. Some 
additional light on the background of the trade association executive 
is shed by table 37, which shows the nature of his connection with the 
industry represented by the association. According to this table, ap- 
proximately 17 percent of the executives were members, in a business 
capacity, of the industries covered by their associations at the time 
the questionnaires were returned. Most of these were industry mem- 
bers serving their associations without pay. At least 36 percent of 
the executives had never been connected with the industry in a busi- 
ness capacity, and at least 25 percent had been so connected, prior to 
their trade association work. The prior connections of 22 percent 
of the executives could not be determined. 

Experience in the problems of a trade association and the ways of 
the industry which it represents is a necessary qualification for the 
executive of the typical trade association, for his role is unquestion- 
ably an exacting one. Except as he may enlist the services of officers, 
members, and committees, the performance of the association's activi- 
ties is largely his responsibility, because the income of the association 
does not permit him to supplement a meager staff with experts or 
services of outside agencies. In addition to a specialized knowledge 
of the industry and allied industries, and a wide and friendly ac- 
quaintance with most or all of his members and with secretaries of 
related associations, Government officials, editors of trade journals, 
and the like, a study of discussions of the subject indicates that the 
efficient executive is expected by his board of directors to possess most 
of the following qualifications: Energy; integrity; vision; courage; 
tact ; patience ; cheerfulness ; resourcefulness ; ability to digest quickly 
and summarize the mass of material of current interest to the mem- 
bers of the industry; ability to speak well in public and effectively 
guide committee meetings and other conferences ; experience in writ- 
ing; exceptional knowledge of source material; practical experience 
in Government, labor, and public relations, as well as in trade associ- 

^ These data on length of service are based on returns from 166 national and regional 
trade associations. 


ation techniques; and an extensive knowledge of the antitrust laws. 
He is often expected to be a statistician and accountant, as well as a 
lawyer and dues collector. 

It is natural, however, that if "the problem confronting: the group 
is one of Nation-wide publicity the type of secretary needed is defined 
by that problem ; if hammer and tongs are needecl to wipe out some 
disorganizing evils within the industry another type of secretary is 
called for." The selection having been made, the executive can, to 
no inconsiderable ciegree, determine the direction and emphasis of 
the association's program ; and the executive in some instances prob- 
ably has been quite as much a factor in determining the character 
of the association's program of activity as the nature of the industry, 
the size of the membership, and other circumstances that have pre- 
viously been discussed. 

In taking hold of an association and conducting it successfully, 
the executive faces a number of problems. Not the least of these is 
that of his own job security. Although it appears that an increasing 
number of executives are under 3- or 5-year contracts, perhaps the 
majority still must face the trying experience of having their tenure 
of office voted upon at the annual meeting of the board of directors. 
Efforts that liave been too aggressive, or insufficiently aggressive, in 
the opinion of certain members or factions of the industry may result 
disadvantageously to him at this checking-over period. His inability 
always to render expert service on industry problems that arise or to 
give personal consideration to the problems of the individual mem- 
bers may also prejudice his case. He may be placed in the position 
of having to cater to and stimulate prejudices of his members toward 
other industries, private and public institutions rather than of fol- 
lowing the more constructive policy of discouraging uncalled for 
hostility in their attitudes. The situation often presents the dilemma 
of the executive's inability, on the one hand, to demonstrate the value 
of the trade association without additional finances, and the mem- 
bers' unwillingness, on the other hand, to appropriate additional 
money in the absence of proof that it will yield concrete results. The 
executive, moreover, may find that the time required in making col- 
lections and in meeting current bills seriously interferes with the 
carrying out of a program of activity. In many instances he must 
rely on the conti'ibutions of a few large members ^^ and under the 
circumstances may feel obliged to accept their guidance and recom- 
mendations, even at the risk of alienating other members of the asso- 
ciation and of impairing the general program. 

Management organisations. 

As was pointed out in chapter I, one of the outstanding develop- 
ments in the trade association movement in recent years has been the 
growth of trade association administration by persons or firms that 
operate or manage more than one association. It is perhaps a mis- 
nomer to refer to all such persons and firms as "management organ- 
izations," since comparatively few of them have individual clients, 
or are incorporated, or formally set up as organizations of manage- 
ment. But, whatever the term by which they are characterized, there 

'^ In this connection, see above, pp. 10—11. 


seems to be little reason in an analysis of the concentration of trade 
association administration to distinguish between them on the basis 
of the nature of or the degree of formality in their organization. 

At least 316, or at least one-fifth of the total, national and regional 
trade associations are administered by management organizations/* 
The management organizations, themselves, number 114. Table 38 
presents a distribution of these organizations according to the num- 
ber of trade associations which they manage. The typical manage- 
ment organization administers very few associations. Of the 114 
organizations, 103 handle fewer than 5 associations, leaving only 11 
organizations that handle 5 or more associations. These 11 organiza- 
tions, which represent approximately 10 percent of the total number 
of organizations, account for 37 percent of the total number of asso- 
ciations administered by management organizations. The largest 
organization administers the affairs of 35 national and regional trade 
associations. It should be emphasized that there is shown in this 
table only the national and regional associations managed by these 
organizations. Some of them also manage State and local associa- 
tions, which are not included. Such organizations are largely con- 
fined to the 40 shown as operating only one national and regional 
trade association. They have been included in the table because they 
also operate State or local associations.^^ 

Associations administered by management organizations represent 
nearly every field of industry. As is shown by table 39, however, 
management organizations figure much more prominently among some 
industry groups than others. Paper and allied products and iron and 
steel and their products easily outrank the other manufacturing in- 
dustries, 63 percent of the paper groups and 54 percent of the iron 
and steel groups being administered by management organizations. 
The}' are followed among the manufacturing industries by electrical 
apparatus and supplies, machinery, and nonferrous metals and their 
products. Among the nonmanufacturing groups, fisheries and insur- 
ance stand out. 

Table 40 shows the industry groups represented by associations 
handled by each of the 11 management organizations administering, 
five or more associations. It will be seen that there is a tendency 
toward industrial concentration among the associations of most of 
these management organizations. This concentration is more definite 
than is indicated by the table. For example, a majority of the asso- 
ciations in the paper group handled by organization No. 1 represent 
paper container manufacturers; those in the iron and steel group by 
organization No. 3, machine screws and related products ; those in the 
food group by organization No. 7, corn products; and those in the 
paper group by organization No. 10, sanitary food containers and 

■" IJiised on iftiniis fri)m 1.311 of approximately 1,503 niitioual nnd regional trade asso- 
ciations active in June ID.SS. Of the 1.811 as.^ociation.s, tli<' .status of 246 remained undeter- 
mined, so that tlie ti^ure ."UG represents a niininiuni. It is l)elieved, however, that few 
of the 246 as.sociations fall in the categor.v of associations administered by management 
offianizations. particularly in the tield of manufacturing. 

In addilion to the 310 associations — that is, of the a^.sociations not administered by 
inanaijement organization.s — 07 associations reported that they shared staff and/cr office 
space with otlier associations. Fourteen of these and three other associations reported 
that their cliief executive (p.iid) officer also acted in an executive caDacity, though noi as 
the chief executive (i)aid) ofHcer. for another association. 

^'^ Some of tlie organization.s also, of course, have individual clients and in some instances, 
through arrangements witli the individual members, have served informal groups of busi- 
ness enterprises anionj; other ways by making special surveys and collecting and diesemi' 
nating trade and price statistics. 


In general, it can be said that the product scope of associations 
operated by management organizations is narrowly defined ; and that 
their membership is relatively small, homogeneous, and representative. 
According to table 41, over 80 percent of the associations adminis- 
tered by management organizations have less than 50 members, 63 per- 
cent of them having fewer than 20 members. These members well rep- 
resent their industries. Approximately 86 percent of the associations 
represent more than 50 percent of the volume of business of the 
industries which they cover ; and 53 percent represent over 75 percent 
of such volume. Fortj-five percent of the associations administered 
by management organizations both have fewer than 50 members and 
represent more than 75 percent of their industries' volume of business. 

The average income of trade associations administered by manage- 
ment organizations is less than that of other associations. Table 42 
shows that whereas 59 percent of all trade associations had an annual 
income of less than $20,000, the income of approximately 74 percent 
of those administered by management organizations was below that 
level. Of those associations administered by management organiza- 
tions handling five or more associations, 63 percent had an income of 
less than $20,000. The income appearing most frequently among 
management-organization associations was between $10,000 and 
$19,999; that of associations administered by mam^gement organiza- 
tions operating five or more associations, between $20,000 and $49,999. 

Management organizations, on the whole, perform as wide a variety 
of activities for the members of their associations as do other asso- 
ciations. It is with respect to activities emphasized that these two 
groups of associations differ. As is shown in table 43, associations 
administered by management organizations place relatively much 
greater emphasis on services of an informational nature. This differ- 
ence is particularly marked in the field of trade statistics and price 
statistics. Approximately 59 percent of the management associations 
reported trade statistics as a major activity, whereas only 31 percent 
of the nonmanagement groups reported this activity as having major 
importance.^^ The corresponding percentages for the activity, price 
and bid inforjnation, are 16.7 percent and 5.8 percent, respectively. 
Other informational activities that -figure more prominently among 
associations administered by management groups include accounting, 
cost statistics and studies, statistical republications and special studies, 
traffic and transportation, and credit information. It is interesting to 
note that standardization and simplification, also, appears to play a 
more prominent role among management associations. In fact, the 
difference in the relative frequency with which this activity was re- 
ported parallels to some extent the difference noted between the two 
groups of associations in the case of trade statistics. 


Trade associations frequently enter into cooperative arrangements 
with one another in carrying out programs in which there is mutual 
interest. Such arrangements may be quite informal, consisting, for 
example, of occasional joint action on legislative matters or support 

1" Sixty-six percent of the management associations reported trade statistics as a uiajor 
or minor activity, the corresponding figure for nonmanagement groups being 42 percent. 


of an occasional trade promotion or public relations program. De- 
pending on their duration and magnitude, these informal programs are 
likely to be performed through joint committees of the participating 
associations. There probably are few prominent national and regional 
trade associations that at some time have not worked informally with 
other associations on problems of common interest. 

Highly formalized cooperative arrangements take the form of fed- 
erations. Generally speaking, a federation is a trade association whose 
membership consists wholly or in part of other trade associations." 
Among national and regional trade associations there are 62 federa- 
tions, which have a total of 139 affiliated (member) national and re- 
gional associations.^^ In addition to the 139 national and regional asso- 
ciations, there are a large number of State and local trade associations 
affiliated with these 62 federations. Fifty-five of the 62 federations 
are organized along geographic lines. In some cases the member asso- 
ciations were created by the parent organization to facilitate associa- 
tion activity in particular regions or localities, but probably more often 
the affiliates preceded tne parent body, which was organized to facili- 
tate industry action on a national plane. Five of the 62 federations 
are composed of affiliates representing different product groups. " And 
two federations are composed of both product 'and regional affiliates. 

Table 44 gives the industrial distribution of national and regional 
federations by type of affiliate. It will be noted that of the 55 feder- 
ations that are composed of area affiliates, 18 are composed of State and 
local affiliates only. These federations are concentrated in the con- 
struction, printing, retailing, and service trades. Showing a somewhat 
wider industrial distribution are 34 federations that have regional as 
well as State and local member associations. Of the 55, there are only 
3 federations that do not have State and local affiliates, in other words, 
that are composed exclusively of regional affiliates. Outstanding 
among the five associations that are federations of product groups are 
the American Paper and Pulp Association, which has 16 affiliated asso- 
ciations, the Machinery and Allied Products Institute, with 19 affili- 
ates, and the National Lumber Manufacturers Association, with 14 

As can be seen, there are few federations of product groups. It more 
often happens that where various product groups have need for com-' 
mon action a single association is established and defined broadly enough 
to encompass them. Product divisions within the association are then 
established, which permits specialization of activity where and when 
required. The Rubber Manufacturers Association, with 8 product 
divisions, and the National Electrical Manufacturers Association, with 
some 60 product sections, are outstanding examples of associations of 

"Forty-seven of the total of 62 federations are composed wholly of the affiliated 
associations ; memhership of the individual firm in the federation exists only by virtue of 
its membership in the affiliate, except whore there* are too few firms in a territory to form a 
local aftiliatp, in wliich case some associations permit direct membership. Fifteen federa- 
tions, on the other hand, make no systematic effort to organize local affiliates, allow indi- 
vidual firms to hold direct memberships in the federation, and are composed in considerable 
part of direct members. Ordinarily the governing body of the federation is elected by the 
member associations, and the member associations are assessed directly for the support 
the federation. But there are a number of instances, even among the 47 federat- 
referred to, in which the individual members of the affiliates vote directly on feder 
matters and in which dues are directly assessed against and collected from them. In 
nearly every possible form of membership, management, and financial relationship bei 
federations and their members finds an example. 

"Based on returns from 1,244 of 1,404 nat' >nal and regional trade associations, excl 
of those in the insurance field, that were active in June 1938. 


this type. This form of organization permits a closer coordination and 
control of the activities of the various groups than does a federation, 
which ordinarily has no power to dictate or veto the programs of the 
affiliated groups. Divisional organization is particularly well suited 
to industries whose member firms engage in the production of a diversity 
of related commodities. 

Table 45 indicates the size of federations as measured by annual in- 
come. According to this table, approximately 43 percent of the federa- 
tions had an income of less than $20,000 and 60 percent an income of less 
than $50,000 during the period 1937-38. The income of 11 of them, or 
18 percent of the total, however, was between $100,000 and $250,000; 
and the income of three federations, or 5 percent of the total, was in 
excess of $250,000. These data, it should be noted, do not include the 
income of the affiliated associations. Were the income data covering 
State and local affiliates available, a distribution would undoubtedly 
show the combined income of a number of groups to be in excess of 

Federations serve to supplement the work of the member associations 
and to perform activities which the affiliates cannot efficiently or effec- 
tively handle themselves. Of the number of affiliates engaged in each 
of the activities, table 46 shows the number that rely entirely on the 
federation for the performance of the activity, the number that share 
performance with the federation, and the number that perform the 
activity without help or assistance from the federation. It will be seen 
that in the case of most of the activities a majority of the member asso- 
ciations reported that their work was supplemented by activity on the 
part of their federation. Among the activities that member associa- 
tions tend alone to perform are price and bid information, credit infor- 
mation, and commercial arbitration. Activities, on the other hand, 
which are seldom performed by the member associations exclusively 
include public relations, trade promotion, standardization and simplifi- 
cation, employer-employee relations, Government relations, statistical 
republications, and miscellaneous services. 


To give trade associations an opportunity to indicate their plans and 
hopes for the future, as well as their significant achievements in the 
past, the following questions were included in the schedule : 

What do you feel have been the significant contributions of this trade associa- 
tion to your industry? 

Under existing law, what other important contributions do you feel are possible 
in the future? 

Although these questions were addressed to the trade association execu- 
tive, it may be assumed that in most cases the answers were reviewed 
by and reflect the opinion and judgment of the board of governors and 
in many small associations, of the members as well. 

In listing the significant contributions of their trade association, the 
executive and officials presumably reached as far back in the past as 
their memory of the association's activities extended. These contribu- 
tions were indicated in terms of specific activities by most of the re- 
porting associations, so that for the most part it is possible to rank 
them according to the classification of activities used elsewhere in this 


reix>rt. The following is a ranking of the "significant contributions" 
of trade associations according to the frequencj^ with which they were 
reported : ^® 

1. Government relations. 

2. Trade promotion and public relations.-" 

3. Trade practices. 

4. Standardization and simplification. 

5. Trade statistics. 

6. Fostering the personal association of the members. 

7. Technical research and advisory services. 

8. Miscellaneous services. 

9. Employer-employee relations. 

10. Accounting, cost statistics and studies. 

11. Credit information service. 

12. Traffic and transportation. 

13. Commercial arbitration. 

14. Price and bid information. 

15. Statistical republications and special studies. 

16. Conventions. 

17. Collection service. 

18. Registration of patents, trade-marks, designs, and styles. 

This ranking of activities does not differ significantly from that 
shown above (p. 26) of the activities that associations emphasize at 
the present time. The chief difference is that the list of significant con- 
tributions contains an item that did not appear on the previous list. 
Somewhat over 200 associations stressed the values of personal acquaint- 
ance — characterized above as "Fostering the personal association of 
the members" — as constituting one of the significant contributions to 
their industries. These values were described in such general terms as 
"promoting good will among the members," "demonstrating the values 
of cooperation," "furnishing the industry a forum in which members 
may discuss their problems," "bringing about an industry-conscious- 
ness," or "removing unfounded fear and suspicion." "When specifically 
described, these values of personal association referred principally to 
the exchange of information and experience, the elimination of com- 
petitive antagonisms, and the definition of fair competitive practices. 

Five hundred and four of the serven hundred and eighty-one associa- 
tions replying to the question of "what other important contributions 
do you feel are possible in the future" indicated that they contemplated 
no additional activities, although they usually stated that they planned 
to extend activity along one or more of their present lines of work. 
The following list ranks, according to the frequency with which they 
were reported, the additional activities reported by those 277 associa- 
tions replying that they contemplated other activity : 

1. Trade promotion and public relations. 

2. Trade practices. 

3. Accounting, cost statistics and studies. 

4. Employer-employee relations. 

'* Based on returns from 905 of the 1,244 associations, exclusive of tliose in the field 
of insurance, that returned schedules. 

'"It will be noted that these two activities which heretofore have been listed separately 
are combined, a step that was necessitated by the fact that many of the replies did not 
clearly distinguish between the two activities. 


5. Government relations. 

6. Standardization and simplification. 

7. Technical research and advisoi v services. 

8. Trade statistics. 

9. Miscellaneous services. 

10. Credit information. 

11. Price and bid information. 

12. Statistical republications and special'studies. 

13. Traffic and transportation. 

14. Collection service. 

15. Kegistration of patents, trade-marks, designs, and styles. 

16. Conventions. 

17. Commercial arbitration. 

Although this ranking cannot be considered conclusive in view of the 
relatively large number of nonreporting associations, it is interesting 
to note the ranking of several of the activities. Activity in the field 
of Government relations, which ranks first among the activities in which 
associations are now engaged,^^ ranks fifth on the above list. On the 
other hand, activity in the field of uniform accounting and cost sta- 
tistics, which ranks twelfth in terms of the relative frequency with 
which it was reported as of present, major importance, ranks third 
among the additional activities contemplated for the future ; and trade 
practice activity, which ranks fifth as a major activity in the present, 
moves to second place among additional activities held possible for the 

ai See table 26. 


In their broadest meaning, trade practices are synonymous with com- 
petitive practices. In this sense, nearly all activities of trade associa- 
tions in some manner may concern the trade practices of the members — 
either by conditioning these practices or by increasing their actual or 
potential effectiveness. 

Through association businessmen seek, on the one hand, to protect 
or increase their ability to meet the competition of other industries. 
This finds expression in many ways : Cooperative advertising, product 
improvement, the development of new uses for products, and similar 
trade promotional activities have an obvious role. Quality standard- 
ization and labeling programs and efforts to prevent deceptive and 
misleading advertising by members may have the effect of promot- 
ing and securing the consumer's confidence and goodwill in the 
products or services of the industry. In the field of public rela- 
tions, efforts to educate or safeguard the consumer in the use of an 
industry's products, to modify and change patterns and habits of con- 
sumption, may be similarly effective. Efforts^ to reduce the coBts or 
increase the efficiency of the members, when successful, increase the 
ability of these enterprises to meet the competition of other industries. 
Standardization, simplification, research, and advisory services with 
respect to production and distribution processes, are outstanding 
among trade association activities having this significance. Cost ac- 
counting and cost inforaiational programs may result in more econom- 
ical operations through assisting individual members in identifying 
areas of inefficiency. Trade, price, and credit informational services 
in many industries afford particularized data which individual mem- 
bers could obtain for themselves only at an excessive or prohibitive 
cost. Trade and price statistics may also afford the members of an 
industry data on the basis of which they can more intelligently meet 
the competition of substitute products or adjust to changing market 
circumstances, a program whose effectiveness may be augmented 
through the exercise of leadership by the association's staff. 

Legislative activity is outstanding among the methods by which 
associations seek to protect or promote the competitive position of their 
members with respect to other groups. Such activity is most pro- 
noimced among industries whose products are intimately affected by 
considerations of public safety and health. This is exemplified by 
the food and the construction industries, among which may be found 
a number of conflicting trade associations continually on the alert lest 
their industries be legislatively "discriminated" against on spurious 
grounds of public welfare. Other in dustries are more or less fortunate, 
as the case may be, in that their products or services are not as directly 
affected by public safety and health. But wherever there are indus- 
tries that serve the same or similar consumer needs, the respective trade 
associations are likely to number among their principal activities that 



of combating competition of other industries. Trade associations, just 
as individual enterprises, may occasionally indulge in sales promo- 
tional activities that have a tendency to mislead the consumer or may 
"push" the products of their members to a point which competitors 
charge is unfair. One of the feAv charges that trade associations 
openly make against one another arises from this source. 

A description of trade association activity in several of these fields, 
including Government relations, trade promotion, technical research, 
and standardization, is contained in chapter VII of this report. There 
might be cited other activities of trade associations that have the 
capacity for protecting or improving the competitive position of 
the member enterprises with respect to members of other indus- 
tries. The trade practice activities of trade associations ordinarily, 
however, are moi-e narrowly defined. They relate to those efforts 
that are designed to guide or control competition among members of 
the industry. These efforts usually are confined to competition be- 
tw^een members of the association but sometimes are aimed at the 
practices of competing enterprises in the industry outside the associa- 
tion. It is to these etTorts that attention is directed in this chapter 
and, in part, in chaptei-s IV, V, and VI, which follow. This discussion 
primarily seeks to interpret the objectives and to describe the methods 
of action. It does not attempt to appraise trade association activity 
from the standpoint of present or alternative public policy. 


In most markets today the businessman in establishing his prices 
faces two types of circumstances. He must consider the probable de- 
ma^id for the products of his industry in any market and the indus- 
try's ability to meet this demand. What usually is a more immediate 
and conscious consideration, he must also consider what actions his 
competitors may take to increase their share of the available business 
in the market or to maintain their share in response to his own moves. 
To maintain his own position in the market, he may reduce his prices 
because he knows, or imagines without knowing, that competitors have 
reduced their prices or because he suspects that they are planning a 
reduction. Or he may reduce his prices in an effort to increase his 
share of the market at the expense of his competitors. 

However initiated, price competition for the available business of 
an i'.idustry encounters no natural resistants — no natural force or cir- 
cumstance that halts the movement at the level of cost. And there 
is inherent in the market no characteristic that automatically corrects 
such a "maladjustment." It is possible had business competitors a com- 
plete knowledge about one another's policies, the ])robable consequences 
of price cutting, and the ])oint of best adjustment to tlie general 
market situation, that prices would be so established and maintained 
as to yield the maximum of possible net returns or mini'.-dze the losses. 
But, to the exte]it that it exists, sucli wisdom is likely to be tlie product 
of some form of cooperation or collectiA'e action. 

The urgency of the drive for volume through competitive price 
cutting varies, of course, between industries and within an.industiy 
from time to time. Thus, industries in which overhead costs are promi- 
nent are likely more often to be subject to competitive price cutting 


than industries in which raw material or direct labor costs are rela- 
tively more important. Industries faced by large and powerful buyers 
are less likely than others to resist the stresses and strains to which 
prices are subject. The inducements of price may be more important 
in industries producing homogeneous commodities than in industries 
in which some immunity from price competition is enjoyed through 
sales promotion and product differentiation. But of most general 
significance is the state of the market. The drive for sales volume at 
the expense of competitors is least irresistible when an industry is 
suffering from a depressed market. 

There are few industries that are not subject to, or in which the 
members are not at times engaged in. more or less intense price com- 
petition for the available business. And there are few trade associa- 
tions on which a demand for preventive or remedial action is not some- 
times made. Met with such a demand the trade association may choose 
one of three policies. The first of these — the deliberate encouragement 
or fostering of the competitive struggle between the members — is an 
unlikely course of action, because it is incompatible with the continued 
existence of the association. The second alternative — a policy of in- 
action — is one which a number of trade associations apparently have 
pursued. Under the third alternative the association accedes, di- 
rectly or indirectly, to the demand that something be done. The eco- 
nomic philosophy which activates its choice is that unmitigated rivalry 
for the available business of an industry brings in its wake chaos and dis- 
aster, which affects not only the enterprises themselves but their 
workers and investors. It is deemed by the association to be within 
the best interests of the participants in the market that this rivalry 
be tempered — restrained in some degree. This restraint must be a 
mutual restraint, and it must rest on a foresight that will lead the 
individual members to look beyond immediate, short-run advantages 
in the market. 

This principle of business conduct, variously referred to as "the 
golden rule in business," "live-and-let-live," "voluntary sharing of 
available business," and "business stability," is urged in most instances, 
not as a means to an unlimited exploitation of the market or even to 
securing a comfortable level of profits, but as a safeguard against a 
condition that is characterized by such terms as "destructive competi- 
tion," "price demoralization," "chaotic competition," "industrial can- 
nibalism," and by other words of similar color employed to describe 
and warn against the results of free or anarchistic competition. As it 
finds frequent expression in the literature of trade associations, this 
rationalization of economic behavior is evident in the following state- 
ments, -which were taken from materials submitted by several asso- 

The principal achievement of the association has been the preservation of com- 
petition in its original sense of "to strive together for common interests." 

The association has maintained the personal contact of manufacturers one 
with another, which has helped to eliminate to a great extent competitive antago- 
nism. General discussions of various items affecting industry members have 
been held to clarify the competitive situation in matters of general industry 


We have fostered and encouraged the idea of increasing the individual's 
volume of business by clear promotional work and the opening of new markets 
and uses for our product rather than through cutthroat pirating on a competi- 
tor's customers. 

While prices are not discussed, the fact that the members know one another 
and are friendly has had a stabilizing influence on the prices of * ♦ ♦ ma- 
chinery during the life of the association. 

Definite price fixing, as such, is not necessary nor wanted in this industry. 
Price stability is very essential and will be encouraged. 

It is part of the function of the trade association — and this Association has 
tried to specialize on this particular activity — to bring its members into a clear 
appraisal of the industry. * * * All too often business, and the business ac- 
tivities connected with industry, are conceived as a fight over the division of 
wealth. When concentration on the production of wealth is abandoned for a 
fight over the division of wealth, then the devices of a low order of cunning 
are likely to be more effective than the high order of intelligence. 

One of the most perplexing and controversial subjects before the Nation today 
is that of COMPETITION. Within what limits can and should the competitive prin- 
ciple be maintained as an automatic regulator of our industrial economy? 

The members of this Association express their beliefs on this subject as 
follows : 

1. There Is such a thing as destructive competition that results in totally 
demoralized markets and losses to everybody concerned, including consumers 
of its products. Up to a certain point free and active competition is de- 
sirable. Beyond that point it tends to depress wage levels, to lower standards 
of quality and service, to retard research and development, and to destroy 
capital. It actually becomes a breeder of monopoly. 

2. At the other extreme are forms of control that in too great degree restrain 
the competitive urge. Where these occur they may tend to cause the springs 
of ingenuity and resourcefulness to dry up and to retard economic progress. 

It has been the purpose of this Association to strive for the middle course — to 
preserve the principle of active competition within the framework of an orderly 
marketing of its products. * ♦ ♦ 

It is natural and normal for every business enterprise to strive for growth ana 
expansion. Therein lies the mainspring of competition. That desire finds ex- 
pression broadly in one or the other of two types of business philosophy and 
activity : 

1. The type that, without justification of greater efficiency of performance, 
seeks growth at the expense of and tends to destroy competitors. That type 
inevitably tends toward demoralized markets and monopoly. * • * 

2. The type that seeks growth through the expansion of the entire in- 
dustry — through developing new products and new uses and the tapping of 
new stratas of buying power, on the one hand, and on the other, better, more 
efficient production, improvement of product and service, less waste and more 
compensation for employees. 

This second type demands a simple form of cooperative organization set 
up with the following objectives : 

(a) To assemble and publish complete statistics so that each member 
can see, from the record, the inevitable results of each of these two 
courses of action, whether practiced generally or individually. 

(&) To help educate managements to see that the second type is both 
more fair and equitable to every factor in the industry and is in the 
public interest. Along this road lie the profits necessary to keep our 
industrial economy healthy and progressive. 

(c) To help educate managements that in adherence to this principle 
their policies may tend toward the maximum consumption of the indus- 
try's products and continuity of its employment. 


This constructive type\of competition is not advanced as a fixed or absolute 
panacea for all economic situations confronting industry but as a way of indus- 
trial life leading-to soundness of operation under whatever conditions may arise, 
whether profitable or unprofitable. 

Herein, we believe, through voluntary action within the democratic principle 
of cooi)eration is provided free and active competition expressing itself through 
orderly marketing. 

* * * It, therefore, seems that the Federation has made real progress dur- 
ing, the past year with one important exception — and that exception stands out 
like a sore thumb. * * * Starting last December we lost our heads com- 
pletely and in the face of increased costs we have shaded margins and cut prices 
to a point lower than I for one can remember. Apparently the cause was due 
to the old fear that each mill had of not getting its share of available business, 
and the result is that probably each mill again has its share, but at a terrible 
and useless sacrifice of gross and net margins. Why does the fallacy of price 
cutting have to be demonstrated again and again? It has been clearly shown 
that in a business like ours, if prices are reduced between 5 percent and 10 
percent — which they have — our volume must increase between 50 percent and 
100 percent to bring the same net result. We know that such an increase is 
impossible. Great harm has been done our Industry during the last 4 months, 
and we are all to blame. Today and here is the time to make a new start. We 
must get our price level back to a reasonable basis, and we can only do that 
by a firm resolution made by each and every member of the Industry to refuse 
to quote prices or make sales under cost. 

These statements with varying degrees of explicitness suggest a 
retreat from free competition and, in its place, the "new" or coopera- 
tive competition of trade association. The end in view is the collec- 
tive security of the members, to be achieved by mutually restraining 
price competition for the available business of the industry, on the 
one hand, and by expanding the aggregate volume of the business 
through trade promotion, the development of markets and product 
uses, improved efficiency, and intelligent adjustment to general mar- 
ket trends, on the other. 

Any program designed to achieve price stability requires of the 
participants forbearance and a willingness to compromise immediate 
interests. It reflects the harmony of interest that rivals have in mak- 
ing the most of the aggregate of available business opportunities. 
The development of an effective program may require continual edu- 
cation and exhortation by those in a position of leadership. There is 
always a temptation for any member to take advantage of the stabi- 
lized policies of his competitors by undercutting, or "chiseling." It 
must be constantly emphasized by the leaders that such tactics bring 
retaliatory action and jeopardize or eventua^lly wreck the program. 
Personal contacts and solicitation, group discussion, persuasion, 
watchfulness — all play vital roles in enlisting and maintaining ad- 
herence-to this principle of voluntary restraint. It is because there 
usually is a fringe of sellers who under pressure of adverse market 
circumstances behave imprudently, or engage in "chiseling," that, as 
under the N. R. A., the sanction of law is sometimes welcomed as an 
aid in achieving price stability. 

A number of price control devices were incorporated in the N. R. A. 
codes. The establishment of minimum prices was the most popular 
because of its potential effectiveness. It promised, not only to limit 
competitive price cutting, but also to stabilize prices at levels as high 
as market circumstances permitted. The N. R. A. administration, 
however, became increasingly cautious about permitting the use of 


this device, and it found its principal expression in the prohibition 
against selling below cost, a provision which a large number of indus- 
tries subsequently abandoned because of its impracticability when 
literally interpreted. Potentially less effective, but more widely ap- 
plied, than minimum price control, was the provision for the filing 
and dissemination of price lists applying to current and future trans- 
actions. At the beginning of the code period, price filing was devised 
orimarily as an aid to minimum price control; it was intended to 
assist in the policing of members' prices. But with the failure of 
minimum price determination toi materialize widely, price-filing's 
principal function in preventing competitive price cutting became 
more indirect and uncertain. It came to be that of eliminating price 
concealment, which in many industries is a patent contributor to com- 
petitive price cutting, since- it is through concealment that the price 
cutter enjoys his differential price advantage. 

Most of the multifarious trade rules that found their way into 
N. R. A. codes were directed at particular elements of price and sell- 
ing policies. They were designed primarily to support minimum 
and open price provisions, the former by preventing indirect con- 
cessions from the established basic price, and the latter by eliminating 
those terms and conditions the filing and publicity of which proved 
troublesome. One type of rule required agents and other sales repre- 
sentatives of manufacturers to abide by the price provisions of the 
codes that governed their pi ncipals. A second type of rule required 
independent distributors competing with manufacturers for retail 
or consumer markets to maintain manufacturers' resale prices, in 
order to prevent these distributors from violating the open and 
minimum price controls that bound the manufacturers. The tliird 
class of rules was designed to prevent members from granting in- 
direct or hidden concessions. This group included rules governing 
members' policies with respect to classification of customers, trade 
discounts, quantity discounts, and price discriminations; rules that 
restricted the granting of terms and conditions of sale relating to 
shipment and delivery, time of buyers' payment, sharing buyers' risks, . 
additional goods and services, and allowances for value rendered by 
buyers; rules that prohibited intrinsically secret pricing methods; 
and rules preventing sellers from rendering financial aid to buyers. 
These trade rules had important uses apart from supplementing mini- 
mum and open price provisions. They were designed in swne in- 
stances to bolster informal, noncode price controls; in other instances 
they provided a significant measure of price control in themselves. 

Like rninimum price control, production and capacity restrictions 
represented potentially effective instruments for the limitation of 
price competition but were permitted a limited scope of operation 
by the N. R. A. administration. These controls were designed botli 
to supplement and supplant the more direct type of price control. 
Limitations on inventories and on the installation of new capacity had 
chiefly a supplementary role, designed to keep at a minimum those 
pressures leading to price cutting that result from inordinate inven- 
tories or plant construction. Production quotas and plant-hour limi- 
tations in some codes appeared in conjunction with minimum or open 
price provisions, in others as the only significant limitation. As de- 
vices for achieving price stability, they may first limit supply to levels 
consistent with profitable prices and, second, prevent competitive 


price cutting by restricting the volume of product that any member 
may sell. 

Among other rules occasionally employed in programs for price 
control under the N. R. A. were provisions for product classifica- 
tion, standardization, and simplification. In these programs, the re- 
quirements served two ends : They ^ vided the basis for price com- 
parison needed for price control; and prevented the evasion of 
price control through granting extra or higher quality products 
without coi-responding price adjustments. 

With the end of the N. R. A. many associations disbanded or be- 
canxe inactive.^ A number abandoned their efforts to control prices. 
Others have continued to concern themselves with the achievement 
of price stability. Some have fixed prices, restricted production, 
agreed on a division of markets or customers, or in similar ways 
have engaged in close mutual restraint on price competition. These 
are exemplified by prosecutions of the Federal Trade Commission 
and the Department of Justice, summarized at a later point in this 
chapter. But it is unlikely that any substantial proportion of na- 
tional and regional trade associations have engaged in such direct 
restrictions on price competition. 

There are several reasons why trade associations shy away from 
direct restraints on price or production. The threat of prosecution 
by antitrust agencies without question has been effective in prevent- 
ing steps in this direction. Indeed, the sheer nuisance value of 
infonnal investigation promotes caution. Many associations can ill- 
afford the expense of litigation; and the typical trade association 
executive avoids implication, both because he honestly desires to abide 
by the law as he interprets it and because he is aware that such an 
experience may seriously jeopardize, not only the existence of his 
association, but also his professional standing in the movement. If 
he cannot eliminate collusive tendencies among the members, he will 
attempt to dissociate himself from them. The. result in some in- 
stances has been the formation of "clubs," private bureaus or ex- 
changes, and other groups, usually of limited product or geographical 
membership, that endeavor to accomplish on the side that which the 
leadership of the formal organization of the trade has frowned upon 
or refuses to sponsor. 

Trade association executives repeatedly emphasize, too, that theirs 
is a voluntary membership and that they have available no sanction 
with which agreements on price or production can be enforced against 
those members, or nonmembers, who seize an opportunity for profit by 
taking advantage of the stabilized policies of their competitors. More- 
over, the violation of agreements requiring a high degree of trust and 
self-restraint is likely to cause intense bitterness and demoralization, 
from which an association may recover only with extreme difiiculty.- 

' Sep ch. I above, pp. 13—19. 

= These remarks, of course, do not apply to association effort in fields such as transporta- 
tion and other public utilities in which the Government has given its sanction to price 
stabilization. Elsewhere associations find only opposition from Federal agencies, although 
there is reason to believe that the Robinson-Patman Act in some instances has served as a 
point of reference for efforts to eliminate that type of price cutting which tal^es the form 
of price variation between buyers. Similarly, the trade practice conference rules approved by 
the Federal Trade Commission sometimes are mi.-?applied nnd used as a sanction, as one 
secretary put it, a "little holy water." for enforcing standards of conduct of which the Com- 
missjon would not approve. This is particularly true of the provision which condemns 
"selling below cost with the purpose and where the effect may be to suppress competition, 
restrain trade, or create monopoly," the qualifying clause sometimes being lost sight of. 

260752— 41— No. 18 5 


These considerations have been stated by a prominent trade association 
executive as follows : 

Some 20 years of experience and study convince ttiis writer that the threat of 
trade associations to public interest is vastly exaggerated. 

Individual self-interest prevents entire unity of purpose and action in prices 
or other projects inimical to customers, * * * 

Agreements persist only to that point where it becomes profitable for some 
party to breals them. A low-cost producer will not long stick to an agreed-upon 
price or allocation of business which protects a competitor at his expense. 

No practical, efficient method for policing and enforcing such agreements has 
been discovered. Even the N.R.A., with all its powers, could not eliminate what 
is called "chiselers." 

Entirely apart from fear of the law, many experienced trade association secre- 
taries are opposed to agreements as to price, territory, or volume of busitfess. 
They know that while such arrangements act as a temporary shot-in-the-arm, the 
resultant reaction is demoralization. In other words, the inevitable violation of 
the agreement brings indignation, emotion overcomes common sense, prices 
nose dive to new lows, and competitive piracy becomes rampant. 

Trade associations typically disavow price-fixing and espouse price 
stability. That distinction they carefully draw. Such a distinction 
exists, but it is essentially a difference between a method of action and 
an objective of action. A number of lines of approach to the achieve- 
ment of price stability may be taken by trade associations, of which 
agreements to fix trices, restrict production, and allocate markets or 
customers represent only one — that which encounters definite legal ob- 
stacles. Other approaches are surrounded by areas of legal doubt, while 
still others seem to be quite free of legal obstacles or hazards. These 
lines vary in the directness of their approach to the objective, although 
the most direct approach may not always be the surest. More funda- 
mental than the manner of approach is the recognition by the members 
of the industry of the principle of self-restraint in the market. This is 
prerequisite to the achievement of stability and the foundation of List- 
ing progress in this direction. 

In interpreting and implementing this principle of business conduct 
in terms of actual market situations, a variety of approaches are more 
or less openly resorted to by trade associations. These range from the 
occasional, personal effort of the executive to iron out differences or mis- 
understandings arising from particular transactional circumstances, or 
from periodically affording the members an opportunity to meet and 
discuss the market situation, to the prescribing and enforcing of elab- 
orate sets of trade rules designed to guide the members' policies with 
respect to distribution and conditions and terms of sale. Among the 
most prevalent and generally significant of these approaches are the 
statistical services of trade associations. 

The trade statistics and price and bid statistics collected and dis- 
seminated by trade associations represent the chief fund of knowledge 
on the basis of which sellers in many markets make their production 
and price adjustments to the changing circumstances of demand and 
supply. They afford a guide to action in accordance with the principle 
of voluntary restraint, trade statistics especially by indicating to the 
individual seller whether he is maintaining his accustomed share of 
the industry's business, and price statistics by informing him whether 
his prices are in line with those of his competitors. Nb matter how 
well cherished, this principle of mutual restraint will be ineffective as 
long as because of ignorance individual vendors. mistrust their com- 
petitors. The statistical activity of trade associations provides the 


member with a regular, periodic summary of his position with respect 
to that of his competitors. These activities are reviewed in some detail 
in chapter V, below. Another essentially educational and informa- 
tional activity which sometimes figures in programs for price stability, 
that of uniform accounting and cost statistics, is discussed in chap- 
ter VI. 

Other informational activities of trade associations that may serve 
in programs for stability include the dissemination of freight-rate 
information and credit informaton. The preparation of freight-rate 
books and manuals containing schedules of charges for various trans- 
portation services is an obviously valuable service to the members of 
many industries. Occasionally, however, such compendia include ar- 
bitrary charges or delivery terms, designed to implement schemes for 
geographic price control.^ The collection and dissemination of in- 
formation on members' credit experience represents another service 
considered indispensable by many associations. Where regularized, 
this service usually takes the form of listing the amount of past-due 
accounts by name of debtor or of showir g the average age of all ac- 
counts receivable. If an industry has agreed on a limitation of the 
credit period, such a service may both reveal the degree of compliance 
by members and afford a basis for the boycott of customers who have 
been able to prevail against individual sellers. 

Aside from their informational services, the principal method by 
which trade associations endeavor to implement the principle of mutual 
restraint in competition is the promulgation of what are variously 
termed as "codes of etliics," "fair practice rules," or "trade rules." 
These standards of belmvior oftentimes are little more than a state- 
ment or reaffirmation of the principle of mutual restraint itself. 
More often they interpret - this principle in terms of desired be- 
havior with respect to specific terms and conditions of sale. Except 
in the detail and extent to which carried, they differ little from N. R. A. 
trade rules governing the elements of price and selling policy, pre- 
viously referred to in this chapter. Rarely is any restriction on the 
basic price included in these rules. They deal with the terms that 
supplement and modify this price, They usually are issued as recom- 
mendations or suggestions — guides to behavior — seldom as agreements. 
They sometimes are incorporated in standard business forms rather 
than in formal codes of ethics and, of course, may never assume a writ- 
ten form. They frequently are justified as being necessary to the 
prevention of "discrimination" and "secret rebates," much as was the 
Sugar Institute's original "code of ethics," * although they may be 
applied regardless of whether or not the terms and conditions are 
discriminatory or secret. They are found in every branch of industry. 
This does not mean that all or even a majority of trade associations 
engaging in trade practice woi-k issue rules to guide or govern the 
selling policies of their members. It does mean that it is a frequently 
encountered characteristic of their work. It is an interesting fact 
that whereas some associations carefully avoid in their codes of ethics 
any suggestions concerning members' selling policies, others quite 
openly advise members concerning such policies. Some national as- 
sociations that refrain from suggestions and recommendations con- 

» See below pp. 79-80. 

* See ch. IV below, pp. 118-120. 


cerning price and selling policies actively encourage members to 
stabilize such policies on a local-group basis. 

Some idea of the subject matter of these rules is indicated by the 
following terms and conditions of sale whose use among others they 
.are designed to govern or restrict in some manner: Cash discounts; 
periods of free credit; datings; deferred-payment plans; product 
guarantees ; accepting liability for damages to the product ; guarantees 
against price decline or advance; future contract policies; cancela- 
tions and options; buying up of distributor's stock of competitors' 
goods ; consignments ; commissions ; accepting return of merchandise ; 
quantity discounts; trade discounts; customer classification; trade-in 
values ; free deals, premiums, samples, accessories, drawings, et cetera ; 
advertising and other allowances ; delivery terms ; favors, gifts, enter- 
tainment of customers, et cetera. Just as under the N. R. A. some 
associations suggest that members entirely refrain from resort to a 
specified practice, whereas others suggest the limits past which its use 
should not be carried, as, for example, the limitation of cash discounts 
to 2 percent. In some instances the code of ethics simply contains 
a blanket rule against concessions, as in one case in which it was 
stated to 

be an unfair trade practice and is forbidden to make rebates, allowances, or dis- 
■counts, other than the usual 2 percent for 10 days, or for extending any special 

privileges which would tend to reduce the lowest price for * * * [the] 

If regarded by the members, rules of this tvpe mav be siofnificant in 
several connections. Under the N. R. A. codes their principal func- 
tion was to prevent evasion of mininmm and open price provisions. 
In the Sugar Institute, rules of this character were designed to make 
the published "basis" price the effective price by preventing de- 
partures therefrom. In some instances they may now serve to bolster 
mformal price controls; and, as is indicated in the following state- 
ment of a trade association executive, they may supplement the price 
informational activities of trade associations: 

It is my conviction that the most significant contribution this Association has 
made to this whole industry (to uonmembers and distributors as well as to 
members, as they should freely admit) is the operation of its Code of Fair 
Trade Practices * » * 

And I would insist that of the provisions of this code, which was designt^d 
to eliminate discriminatory and other unfair and unsound trade practices, the 
most important part is paragraph 4: 

"The entire consideration shall be included in the price. No commissions, 
bonuses, rebates, or subsidies of any liind are to be paid or allowed to customers 
or their employees, whether in the form of allowances for advertising, for 
freight, or otherwise." * * * 

Buyers cannot buy intelligently without accurate knowledge of the true prices 
at which manufacturers are selling. Nor can manufacturers themselves compete 
intelligently and fairly unless they are equipped with accurate information or 
facts about the prices and terms on which other manufacturers are selling. 

The publication through our Market Information Service of the prices and 
terms a member has made in a specified market merely serves as information. 
There is no written or implied agreement that any published price will bo 
adopted by others. The standard ♦ * * [product] of one manufacturer is 
substantially identical with that of another in quality and in type and size 
of package. Prices of such identical goods naturally revert toward a common 
level in the same market. Standard ♦ ♦ * [product] prices and terms will 
be found to be quite uniform at all times whether published through the Insti- 
tute or not. * * • 

But such market information is meaningless, deceptive, and confusing both 
to buyers and sellers, whether secured through publication by an association 


or picked up in the trade, if tlie reported prices and terms are subject to a 
variety of secret concessions and allowances made to favored buyers. A secret 
or undeclared special discount of some nature amounting to no more than one- 
eighth cent a pound would be sufficient in the case of * ♦ ♦ [the productl 
to win & customer away from someone else. * * * 

But here we have a law merchant, an obligation splendid gentlemen have 
taken upon themselves and their companies. And meeting and facing each 
other around the membership table occasionally tends to inspire the confidence 
and courage necessary to give real meaning and integrity to this provi- 
sion. ♦ * * 

In many cases these rules are unaccompanied by a systematic ex- 
change of prices. Their potential significance is limited to the meas- 
ure of stability which they in themselves afford. This may not be 
inconsiderable in such fields as the apparel trades, where list or nomi- 
nal prices in many instances have been "grooved" or fixed by custom,^ 
and where the sales terms and conditions that govern transactions take 
the form of discounts, allowances, consignments, return-goods policies, 
and the like. 

Ordinarily, the published rules cover only a few elements of the 
selling policy. A line obviously was drawn in some cases between 
what seemed to be reasonable restriction and what it was feared might 
appear to be unreasonable. The generalization can be made that the 
more restrictive the provision, the less frequently is it included among 
the rules. Thus, limitations on quantity discounts appear less often 
than do limitations on cash discounts. In other instances one gained 
the impression that the incompleteness of the limitations reflected the 
absence of serious effort to enforce the trade practice program. 

It was demonstrated by the Sugar Institute and again in many 
industries during the N. R. A. that it is practically impossible to 
close every avenue of price concession. Concessions may express them- 
selves in an almost unlimited number of ways, and many code groups 
found that the promulgation of new rules devised to block particular 
types of evasion was followed by new and increasingly ingenious 
dodges, with the result that the authorities never quite caught up with 
the evaders. The history of the Sugar Institute's efforts well illus- 
trates the length to which a trade association may be forced in a 
price stabilization program.*^ Such evasion may be prompted merely 
by the desire of the so-called "chiseler" to profit by taking advan- 
tage of the stabilized policies of competitors abiding by the controls, 
or it may arise when, as under the Sugar Institute, the rules have an 
uneven incidence, that is, a tendency owing to their unusual methods 
of doing business to be considerably rnore restrictive on some mem- 
bers than others. Whether a trade association succeeds in its pro- 
gram depends fundamentally on how well the members are imbued 
with the economics of mutual restraint and on the extent to which 
the rules can and do recognize the differing position of the individual 
members with respect to such matters as distribution methods, loca- 
tion, and integration. 

Even though they deal in a very detailed and comprehensive manner 
with the selling policies of the members, trade rules when promul- 
gated need not be immediately restrictive. The crystallization of the 

5 The "grooving" of prices in at lenst one apparel trade was clinched through negotiation 
between the producers' and retailers" trade assooiaiions during the recent depression. Asso- 
ciations in other trade.s undoubtedly their sanctions to preserve the inviolability of this 

" See ch. IV below. 


customs of a trade, which in some instances has been based on careful 
market surveys or worked out through consultation with buyers, may 
merely recognize existing practice. The significance of the rules in 
this connection is that of discouraging or preventing the resort by 
members to new practices that may undermine the stability of the mar- 
ket. It should DC recognized, also, that the trade customs promul- 
gated by some associations make no recommendations concerning sell- 
ing policies, being confined entirely to definitions and explanations of 
standards of performance and acceptance, practices and terms, cur- 
rent in the trade, particularly as contained or referred to in contracts 
between buyers and sellers. They are frequently the products of com- 
mercial arbitration proceedings. 

The trade practice activity of a trade association involves both the 
formulation of practice and the securing of adherence to practice. 
Trade association effort to obtain compliance ranges from a wishful 
reference to the promulgated practice to an active policing of the in- 
dustry and a penalizing of violations. In some cases trade association 
executives have said, "Yes, we have a code of ethics, but some members 
have long since forgotten their existence, so little have they been re- 
ferred to." Other executives have referred to codes of ethics as points 
of reference for remonstration with those who have violated the cus- 
tomary practices of the industry. By degrees the effort to obtain com- 
pliance grows more intense, ordinarily retaining an informal charac- 
ter but in some instances reaching the point where the rules, in addi- 
tion to the sanctions of economic self-interest and personal conscience, 
are supported by financial penalties. Thus, the secretary of an ap- 
parel association, which has a trade practice budget in excess of 
Si 00,000, administers a vigorous enforcement program, which is backed 
by a system of liquidated damages. It was his belief, that it was the 
remedy for most of the ills of the industry today.^ 

Some trade association executives are unaware of the magnitude of 
their effort in this direction. They are like many humans, who would 
be surprised to learn how much of their time is devoted to Christian 
charity and good will toward men. One executive pictured his work 
as follows : 

My work in this matter is largely confined to obtafning information on prices. 
A member may call me up and state that a competitor has secured business by a 
very unreasonable concession in price. I call up the other member and ask him 
what the price was that he quoted. In most cases it develops that the job as he 

^ This association requires that whefi a member joins the association he sign a contract 
that obligates him to observe the "fair commercial practices" stipulated in the association's 
bylaws. These rules include maximum cash discounts and anticipations ; prohibition of con- 
signment selling ; the requirement that goods be sold f. o. b. city of manufacture ; prohibition 
of advertising subsidies to retailers ; limitations on the acceptance of returns and cancela- 
tions ; prohibition of the practice of "cut, make, and trim" for retail distributors except mail- 
order houses ; prohibition of participation in group showings ; prohibition of the acceptance 
of charges for telegrams or long-distance telephone calls from customers ; and prohibition of 
matching of hats or suits with coats of large sizes. The association maintains a field staff 
to audit members' records and to make investigations necessary to determine whether the 
practices are observed. Provision is made for hearings in case of alleged violations. Viola- 
tors are required to pay a sum of not less than $100 nor more than $5,000 iis liquidated 
damages except in casps in which the retailer deducts in his remittance a greater discount 
than is provided for in the "fair commercial practices," in which event the member is deemed 
not to have violated the practice. According to the secretary, strict compliance for the most 
part has been obtained, although there are some exceptions. For example, one New York 
retailer, it is known, demands and receives a 10 percent discount instead of the customary 
8 percent. This, however, cannot be proven by audit, .since the sellers remit the 2 percent 
surreptitiously in cash. The problem of the large chain-store and mall-order house demand 
for extra discounts and other concessions has been successfully negotiated in some cases, but 
in other cases negotiation has not been successful. The problem of so-called "excessive" 
returns of merchandise by buyers, according to the secretary, is also far from solution. 


bid on it was much less elaborate in specification than the one on which the com- 
plaining member based his bid. If necessary, I get the two members together 
where they can compare their offers. It frequently happens that the facts reveal 
that no price cutting was involved and both members part friends. If I had not 
dispelled the resentment occasioned by misunderstanding, a real price war might 
have been started by the aggrieved member. It frequently happens that the 
buyer is at the bottom of the controversy, because he gave specifications to the 
low bidder which would result in a lower price without mentioning the differing 
.specifications to the high bidder. I have no doubt that my work with the mem- 
bers in such matters has added considerably to the harmony and stability in the 

This executive regarded the described activity as comprising about 
all that he did to obtain observance of the association's code of ethics. 
As a matter of fact, this represented only part of his effort, for he also 
emphasized fair competition in his conversations with members and 
in his printed releases. Another trade association executive stated his 
position as follows : 

Yes ; we have a code of ethics. It's something like the Ten Commandments, a 
nice tiling to refer to but something which we do very little about. When it comes 
to unfair competition any smart businessman can beat it. There are lots of ways. 
For example, a member came in to see me recently and stated that a competitor 
was taking a lot of business away from him by quoting 40 percent instead of the 
usual 30 below the list price. He said he [the member] needed the business but 
didn't see how he could make out at such low prices. I said, "Well, why try to 
take the business? Why don't you, on the contrary, let him have so much business 
that it will choke him? For example, when one of his customers tells you so and 
so is quoting 40 percent off the list say, 'Is that all, why I heard he was granting 50 
percent.' It won't be long before you'll have him bidding against himself and this 
will cure him." 

This was an unusual approach to the problem of obtaining ad- 
lierence to a code of ethics, but probably was applied with some effect. 
The executive in this case sincerely disclaimed any concern with trade 

There is one aspect of trade-association effort to promote price sta- 
bility that should not be overlooked. That is the stress that is placed 
on quality and sales promotion as the proper channel for competition. 
It. is almost entirely by such indirection that some associations at- 
tempt to minimize price competition between their members. One as- 
sociation reported that in safeguarding the- interests of the industry 
its principal achievement was that of "inhibiting the losing sight of 
differentiating qualities of one company's products as against an- 
other." A number of associations through clinics and in other ways 
systematically attempt to inculcate in the minds of members' sales 
representatives proper selling techniques, in a manner indicated by 
the following, which was taken from a talk by a trade association 
secretary before a group of salesmen : 

We are all familiar with the weak type of representative. He is the limited 
fellow who is always worrying about what competition is doing and has a ready 
ear for so-called "chiseling" tactics on their part. He then runs like a weakling 
to his company to sell them on meeting different competitive conditions, most 
of which are probably imaginary, rather than sticking to his guns and bringing 
out the fundamental advantages of his own equipment in true merchandising 
fashion, doing the service his concern expects of him and for which they have 
employed him. 

Efforts to guide the conduct of sales representatives sometimes are 
directed at curbins: overaggressiveness, particularly with resj)ect to 
customers ordinarily served by other members, Such an objective 


is suggested in the following resolution adopted by a regional asso- 
ciation in the printing industry : 

Whereas oversolicitation of accounts being served satisfactorily by one or 
more engravers, constitutes one of the great evils existing in this industry, and 

Whereas the continual calling on such clients with a plea to be given an 
opportunity to figure on work and which, because it is usually done in a hurry 
or under conditions unfavorable to do this properly, results frequently in errors 
which are not discovered until after the completion of the work, and 

Whereas there is too much of an element of guessing and gambling as to the 
proper interpretation of a piece of work when this is figured from sketches or 
dummies and consequently causing a great amount of misunderstanding and 
lack of confidence between competing organizations, therefore be it 

Resolved, that the inexperience and overambitiousness of members of the 
sales force be corrected. * * ♦ 

In leading their members mutually to restrain their competition 
for the available business of the industry, trade associations are con- 
cerned primarily with competition in price and the terms and condi- 
tions of sale which functionally cannot be distinguished from the 
inducements of price. There is little evidence that they are con- 
cerned about the possible costs of that competition between members 
which takes the form of advertising and other forms of sales promo- 
tion and product differentiation. These forms of competition are left 
open ,as avenues of retreat from price competition. It can be said, 
however, that the group advertising programs of trade associations 
may reduce the need for certain types of sales promotional effort on 
the part of the member concerns ; and that product simplification^ if 
it is not designed to do so, in some instances has the effect of lim- 
iting product competition in terms of grade, size, and variety of line. 
It is also true that any rigorously applied share-the-market program 
may limit aggressive advertising, as well as price cutting tactics.® 


Distinguishable from the efforts of trade associations to promote 
the stability of their industries by encouraging mutual restraint in 
competing for the available business are those efforts which are de- 
signed to suppress, or in some manner against their will to bring 
under control, the competition of particular factions or enterprises in 
the industry. These programs ordinarily are directed against non- 

In some of these efforts trade associations enjoy the support of public 
policy. A familiar field of activity has been their effort to deal with 
false advertising and other practices which are illegal. In this con- 
nection the trade practice conference procedure of the Federal Trade 
Commission makes available a means for the voluntary participation 
and cooperation of trade associations with the Commission "in the 
establishment and observance of rules of fair practice." Several hun- 
dred trade associations have adopted such rules, which usually are 
made a part of their codes of ethics. Among the subjects covered by 
these rules the Commission lists the following : 

Misbranding and misrepresentation in various forms, including deceptive pack- 
aging or advertising of industry products; defamation of competitors and dis- 

* It is noteworthy in this connection that at least one association, representing an indus- 
try in which advertising is an important competitive weapon, regularly collects and 
disseminates data showing the advertising expenditures of the member companies. On 
the basis of such information the individual members, if they chose, might, of course, so 
regulate their own expenditures that they did not exceed the customary proportion of the 
industry '8 total. 


paragement of their products ; impersonation or misrepresentation to obtain trade 
secrets of a competitor ; harassment of competitors by circulation, in bad faith, 
of threats of infringement suits ; full-line forcing as a monopolistic weapon ; sell- 
ing below cost with the purpose and where the effect may be to suppress com- 
petition, restrain trade, or create monopoly ; use of "loss leaders" as a deceptive 
or monopolistic practice ; price discrimination to injure, prevent, or destroy com- 
petition ; harmful discrimination in the matter of rebates, refunds, discounts, 
credits, brokerage, commissions, services, promotional allowances, etc. ; commer- 
cial bribery ; inducing breach of a competitor's contracts ; false invoicing ; imita- 
tion of a competitor's trade-inarks, trade names, labels, or brands ■ adulteration ; 
substitution or passing off; lottery schemes.; abuse of so-called "free goods" deals ; 
price fixing, and use of consignment distribution to close competitors' trade outlets. 
Other provisions of rules require disclosure of fiber content of textile products 
to prevent unfair competition and deception of purchasing public ; disclosure of 
fact that apparently new products are not new, but rebuilt or renovated ; dis- 
closure that products are artificial or imitations and not real or genuine ; designa- 
tions as to shrinkage properties or preshrunk character of product; prevention 
of the marketing of substandard or imitation products as and for the standard 
or genuine, and the specification of minimum requirements for standard or genuine 
product; and proper nomenclature for, and disclosure as to character of, industry 
products, and the prevention of deceptive or misleading designations.* 

Rules dealing with product misrepresentation as promulgated by 
the Commission in some instances have been supplemented by the 
establishment of criteria, consistent with the letter of the rule, by 
which the determination of misrepresentation is facilitated. In 
other cases associations, independently or through one or more of 
the various standards agencies, have established minimum standards 
and labeling requirements for their products to prevent deception. 

Characteristic of trade association programs directed against the 
competition of certain elements of an industry is the fact that they 
encounter opposition. The sanctions of economic self-interest, moral 
suasion, and trade opinion are unlikely to be effective. Hence, sanc- 
tions of a coercive nature often are enlisted when associations embark 
on such programs. Economic coercion ordinarily takes the form 
of boycott. Among the general uses of boycotts that have fibred in 
situations coming to the attention of Federal antitrust agencies may 
be mentioned the attempt by associations to control the prices of 
nonmembers, to eliminate the pirating of designs by nonmembers, to 
drive nonmembers out of business, or to accomplish the same ends, 
with respect to stubbornly rebellious members; the effort of dis- 
tributors to prevent manufacturers from selling direct to retailers 
or consumers; and the effort of manufacturers to control the resale 
prices of distributors or to eliminate them from the market. These 
and other uses of the boycott are reviewed at a later point in this 

In connection with the mention of distributors' boycotts of manu- 
facturers, it may be noted at this point that associations of con- 
tractors, wholesalers, and retailers commonly endeavor to prevail 
on manufacturers to recognize the distribution function of their mem- 
bers and to allow them more liberal terms or conditions of sale. 
Thus, among its major achievements, the National Federation of 
Implement Dealers' Associations lists: 

Prevailed on the leading manufacturers to increase by 10 percent the dealers' 
discount on repair parts. 

Secured for dealers the return privilege on repairs under an equitable plan, 
thereby warranting the carrying of larger stocks. 

Secured marked improvement in repair invoice service, the shortcomings of 
which were a handicap to dealers. 

■ Annual Report of the Federal Trade Commission, 1938, pp. 108-109. 


Induced practically >all thresher manufacturers who were charging list 
prices on repairs to noncontract dealers to grant their regular trade discount 
on all repair orders filled. 

Secured the discontinuance of wrapping charges on parcel post shipments. 

Secured the cancelation of objectionable features in contracts, the elimination 
of the deposit feature from tractor contracts being a notable example. 

Secured protection for the dealers to such extent that direct selling was 
reduced to the minimum. 

Prevailed on the manufacturers' association to prepare and announce "a 
definition of an implement dealer," and thus secured a definition acceptable 
to the trade. * * * 

Prevailed on the leading manufacturers to publish and circulate among 
their dealers retail or resale price lists. * * * 

Induced many manufacturers to "mention the dealer" in their advertisements 
in farm papers. * * * 

Obtained for the Dealers recognition as the best channel for the distribution 
of the product of the factories of this country and showed the manufacturers 
and jobbers the necessity, not only for the Dealers' interests but for their own 
as well, of subscribing to the broad principle, "To the Retail Dealer Belongs the 
Retail Trade." 

At a national convention of a special contractors trade, a resolution 
was adopted which; provided that the manufacturers of the product 
handled liberalize their credit terms. The question was then raised 
concerning how it might be enforced. After some discussion the 
secretary stated; 

The thing is to get one or two manufacturers who happen to be doing it, 
outside of the manufacturers' association, to agree to publish that as their terms, 
on their price list, as a discount to all contractors. I think the other manu- 
facturers would immediately follow — fall in line. Whether you can do that 
or not is another thing, because they have been very successful in keeping that 
thing that way. Every time they hear about it, they threaten to cut 
prices. * * * if you can get one manufacturer to go through with it, a 
manufacturer of some consequence in the industry, then they would all do it. 

A member who was doubtful about the efficiency of this procedure 
suggested — 

* * * that they all write to you, as the executive secretary, letters to the 
manufacturers in sealed envelopes and let them all go from your office to the 
manufacturers, wouldn't that have more weight than if one or two might go 
out of here and write a letter? 

The action, if any, taken by the association to prevail on the manu- 
facturers to liberalize their credit terms is not known, but it was 
apparent that the members were not sanguine about the probable 
results of their resolution. This group of contractors in recent years 
has been threatened by the spread of independent "jobbers" and has 
' attempted to obtain from the manufacturers a relatively more favor- 
able discount than that granted the jobbers. The manufacturers' 
association has taken the position that the Robinson-Patman Act did 
not permit such a discount and has sponsored in lieu thereof a "co- 
operative contractor plan," designed to reward contractors, and job- 
bers as well, for volume purchases and to reimburse them for sales 
promotional efforts. This plan evidently satisfied few of the con- 

"The adjustment of diflfeiences between producers and distributors may be facilitated 
where the association embraces both producers and distributors. The secretary of one such 
association claims that he has been successful in obtaining from his producer members, 
margins on new product lines that have been satisfactory to his member dealers. In an- 
other case the producer and dealer members, in accordance with a "practice" of the trade, 
deal exclusively with each other, the dealers not buying from nonmember producers and the 
producer members refusing to sell to nonmember dealers. This was originally a rule of the 
association, but with the passage of the antitrust laws it became an unwritten standard of 
behavior, violation of which, however, constitutes ground for expulsion from the association. 
This practice is accompanied by the dealers' practice of abiding by resale prices set by the 


Perhaps the most generally significant action of trade associa- 
tions against nonmember competitors has been the sponsoring of 
legislation — enlisting the sanction of law behind their trade prac- 
tice programs. A number of associations of wholesalers and of 
independent retailers carry on an unremitting fight against their 
large, mass-buying competitors, list among their acliievements the 
Robinson-Patman Act, State fair-trade and unfair-practice laws, 
and have actively sponsored chain-store tax measures. Other associa- 
tions have sponsored or fought tariff revisions, and many regional 
associations are, of course, actively concerned that freight rates in 
their territories shall not place them at a disadvantage with com- 
petitors located elsewhere. Just as under the N. R. A. some associa- 
tions have welcomed and actively supported recent wage and hour 
legislation as a partial remedy for competition which members en- 
counter from enterprises located in "substandard" areas. Among 
other types of legislation that associations have sponsored or sup- 
ported as a means of curbing "substandard" competition are the pure 
food and drug legislation ; sanitary requirements for the production 
and packaging of dairy and other food products; restrictions on the 
use of "unsanitary" and second-hand- materials in bedding, mat- 
tresses, and similar products; building codes giving preference to 
certain products; curbs on itinerant vendors, street peddlers, and 
auctioneers; barriers against out-of -State competition; and "expert- 
iraining" and licensing laws, particularly in the contracting and per- 
sonal service trades. One example may be cited. The following par- 
agraphs were taken from the minutes of the "Thirty-fifth Annual 
Convention of the Tile and Mantel Contractors' Association of 
America, Inc.": 

Presii>ent, I think next we will have something of interest to everybody 
* * * the Carolina licensing law. * * * 

Mr. Cabteb. I am very happy to have this opportunity of saying a few words 
1ji reference to our licensing law to the national association. ♦ * * 

* * * Mr. Carter read the bill making the following interpolations ; * * * 

(After section 3 he said) : You may be interested to know that the present 
[licensing] board is composed of H. T. Thrower, of Charlotte ; G. W. Carter, of 
Kinston ; B. F. McClamroch, of Raleigh ; V. J. McDaniel, of Asheville ; J. Knight 
Davis, of Wilmington ; all members of the national association. 

(After section 9 he said) : Now I might say that that paragraph was put in 
there, and all persons who were engaged in tile contracting on the 1st of March 
1937 in the State, who furnished proper proof, received licenses. That was 
necessary to be done. You can't put anyone out of business already in the 
business. We can control the future, but we cannot control the past. 

(After section 11 he said) : Under that section of the law we have it working 
both ways. The contractor himself must have a license in order to do business 
in the State, and any architect, engineer, or general contractor who receives a 
bid from an unlicensed contractor and considers that bid is subject to the penalty 
clause of that section, and that might be true even if it were not in the bill, gen- 
tlemen, for this reason, if it were a misdemeanor for a contractor to engage in 
business without a license and he was an owner, or an architect, or engineer, or 
someone building a house, and knew that by employing you to do a job without 
being licensed you were helping him break the law, then you become a party to 
the crime itself, and certainly an accessory under the law is the same as a 
principal — it is good law. * * * 

Now in order that you may hear of the law and have it discussed by a tile 
contractor I am going to turn the discussion over to a very distinguished 
member of your body, a member of your association from North Carolina — 
I give to you Mr. Julian McClamroch, of Greensboro. * * ♦ 

Mr. McClamboch. In North Carolina, as elsewhere I suppose, we had a 
number of evils. The brick mason who was out of work was soliciting busi- 
ness of every type. He naturally solicited a certain amount of tile busi- 


ness. The plasterer followed suit, as did the linoleum layer. The general 
contractor who had taken a job for nothing just to say he had a job looked 
about for means of getting subcontracts done for nothing. This led to a 
buying and installing of our products themselves. The unemployment situa- 
tion caused the tile setters, a considerable portion of them still apprentice 
boys, to take a bucket, a few tools, an old automobile, and a few samples 
they had probably taken out of the back end of some legitimate tile con- 
tractor's shop and set out to solicit tile business. The result was inferior 
material, mostly seconds, bad workmanship, and terrible looking jobs, which 
turned the Qwners and architects from clay tile to substitutes, such as glass, 
linoleum, rubber tile, asphalt tile, etc. 

Something had to be done. So a group of us tile contractors got together 
in Charlotte, N. C, on several different occasions and laid our griefs on the 
table. Out of these conferences came what is known today as the Nortli 
Carolina tile contractors' licensing law, which Mr. Carter has already dis- 
cussejd with you today. * * * 

Question. Are there any other building trades licensed in your State — the 
brick masons, the carpenters, the plasterers — do they operate under a license 

Mr. Cabteb. Our State has been very progressive in that it has adopted 
the Federal Government's procedure of attempting to control practically every 
industry. We have a plumbers' law, we have a general contractors' law, a 
barbers' law, a beauticians' law, a photographers' law, but the bricklayers, 
carpenters, and workers of trades of those kinds have no law in our 
State. * • * 

Question. Must the licensed tile contractor buy directly from the manu- 
facturer or has he other sources from which to buy material? 

Mr. Cabtee. The licensed contractor buys directly from the manufacturer 
or from whomever he pleases ; any manufacturer has a right to sell tile to 
anyone who buys it, and he cannot be stopped at all. We only request them, 
in view of the fact that we have this law, that they cooperate with us to such 
an extent that they sell to licensed contractors because when they sell to a 
bricklayer or someone who_ they know is not qualified under the laws of the 
State to do business, they "are in reality not following, I think, the practice 
of good business, because they are indirectly creating or becoming a party 
to a crime that will be committed. 

Question. But have they other sources besides the manufacturer from whom you 
can buy tile? Are there any jobbers? 

Mr. Carter. Mr. McClamroch can answer that better than I can. 

Mr. McClamroch. Mr. Pappalardo. we have no evil such as you have — we don't 
have jobbers. [Applause.] We don't know of any jobbers that are shipping tile 
into North Carolina. 

Mr. Pappalardo. That is very good. 

Mr. MoCiAMROOH. But if he does ship tile in to somebody who is not licensed he 
has become an accessory to the crime, the same as the manufacturer as we explained 
to you. * * * 

Question. How many of those engaged in the tile business did not make applica- 
tion under the new law, and still do business or are attempting to? 

Mr. Carter. There are none, so far as we know. 

Question. How many did not continue business after the law went into effect? 

Mr. Carter. That vv^ould be difficult for me to say. A number of the general 
contractors, for instance, employed tile setters and mechanics to do their tile work ; 
those people were not qualified to receive license under the law ; all of that has 
been stopped, but every contractor who was doing business in North Carolina 
prior to the enactment of the law and at the time of its enactment has secured 
license and received that license without examination. 

We have conducted two examinations, and the applicants for license were not 
qualified to do business, either by reason of their lack of education or other qualifi- 
cations to engage in such business. 

Mr. BtiRCHENAL. Did you say there were applications from general contractors? 

Mr. Cartbk. Yes, sir ; and they were rejected. We have had no fight or criticism 
upon the act of the board so far as I know in not issuing license. 

Mr. Martin. After the law was written and submitted to the legislature, did it 
take a long time to put it through, and was much lobbying necessary before it was 
«naeted ? 

Mr. Carter. We had a rather difficult time with that law, as you probably can 
realize. We secured no cooperation from the general contractors whatever. We 


were fought to a great extent by the general contractors in the State of North 
Carolina— their association also takes in South Carolina, and is a very powerful 
bo<ly which employs an organized lobby, a lobby that stays down there at the 

legislature all the time. ^. ,, x= . ^ ^i, * 

This Act was introduced into the legislature shortly after the first of the year of 
1937, in January ; it was parsed in March, on the last day of February and the first 
day of March of 1937. It required the constant attention of a number of people, 
members of the Association, down in the legislature. The bill was presented to the 
legislature and it was referred to the judiciary committee No. 1. The hearings 
were postponed on a number of occasions, at the request of the general contractors; 
we appeared, however, promptly at every hearing, and we were in position to argue 
our point, and very effectively, in that the general contractor could take no posi- 
tion that was tenable as against the tile-contracting law, he was putting it upon a plane, and in his own interest, because the act, while it affords protefction 
to the tile contractors, at the same time it provides a large measure of protection 
to the general public which the public of North Carolina never had before this act 
was passed. * * * 

Executive secretaries of some of the associations in the industries 
affected h^ve expressed their concern over the efforts of some of their 
larger members to influence the writing and administration of building 
codes and sanitary food requirements in such a manner as to favor their 
particular line of products and have attempted to combat this activity 
by making contacts with the legislative bodies and administrative agen- 
cies concerned the prerogative of the association. Such association 
contacts, they claim, are continually required to secure and maintain 
uniformity, as between the many State and local jurisdictions, in tha 
formulation and application of the laws, 



In indicating the prevalence of trade practice activities among na- 
tional and regional trade associations, one must consider, not only 
activities directly affecting and ordinarily termed "trade practices," 
but also certain other activities that may have an important bearing 
on price and other trade practice relationships. Of these activities 
the trade and price statistical work and the uniform accounting and 
cost informational work of trade associations are outstanding. The 
character of trade association activity in these latter fields is discussed 
in some detail in subsequent chapters of this report. 

On the basis of available information it is possible only to indicate 
the number of associations that reported activity in one or more of 
these fields : 

"Trade practices." 

Trade statistics and/or price information. 

Uniform accounting and/or cost studies. 

It is not possible on the basis of available information to determine 
quantitatively the direction or specific application of trade asso- 
ciation work in these fields. Of these items the content of the item 
"Trade practices," as was pointed out in chapter II, is broadest and 
least subject to definition and limitation. It is certain, however, that 
efforts to establish standards of conduct through trade "ethics," trade 
rules, or less formal standards when reported by trade associations were 
designated as "trade practice" activities. 

Nine hundred and sixty-six, or approximately 81 percent, of 1,175 
national and regional trade associations, exclusive of those in trans- 


portation, public utilities^ and insurance, reported activity in one or 
more of the three fields listed above. A better indication of the em- 
phasis placed on these activities is provided by confining the compari- 
son to the activities reported as of "major" importance. Seven hundred 
and forty-one, or approximately 63 percent, of the 1,175 associations 
reported a ma j or degree of activity in one or more of these fields. Table 
46A shows a distribution of these associations by industry group and by 
types of activity reported. 

According to' this table, there were 65 associations that reported a 
major degree of activity in each of the three fields. Of the associations 
that reported activity in only one of the three, the largest number, 215, 
reported trade statistics and/or price information ; they were followed 
closely in number by associations reporting "trade practice" activity 
only, 6f which there were 206. On the otner hand, only 33 associa- 
tions reported th^t of the three activities they gave major emphasis 
to uniform accounting and/or cost studies only. There is little dif- 
ference in the number of associations that reported the various two- 
out-of-three combinations of activities. 

Of the various industry groups, the electrical, paper, furniture and 
finished lumber products^ and rubber and leather industries ranked 
highest in terms of the proportion of their respective associations that 
ifeported major emphasis on one or more of the specified activities. 
There is a considerable diff'^rence in the types of activity emphasized 
by associations in the varic is ^oups. Reporting a much greater em- 
phasis on "trade practice" ictivity than on other activities were asso- 
ciations in the wholesale, retail, and service trades, associations in the 
apparel, printing, and construction industries. Industries whose asso- 
ciations tended to concentrate on statistical or accounting activities, on 
the other hand, include paper and paper products, iron and steel and 
nonferrous metal products, furniture and finished lumber products, 
basic lumber products, ipachinery, and electrical apparatus and 

Supplementing and illuminating these differences between indus- 
trial groups are the data in table 46B, which presents a distribution 
of associations reporting a major emphasis on the various activities 
according to size of membership. This table indicates that emphasis 
on statistical activity in large part is confined to associations having 
a relatively small membership, emphasis on "trade practice" and ac- 
counting activity relatively more often being encountered among asso- 
ciations with a large number of members. Thus, of associations re- 
porting a major emphasis on statistics only, approximately 60 percent 
had fewer than 20 members, whereas the corresponding ratio for asso- 
ciations reporting a major degree of activity in the field of "trade 
practices" only was 20 percent, and of accounting only, 21 percent. Of 
the various two-out-oi-three combinations of activities, those includ- 
ing statistics likewise showed a much greater concentration among 
small associations than did the combination, "trade practices" and 


Of 1,244 trade associations, exclusive of those in the field of insur- 
ance, that returned schedules, 647 replied to the question : "If there 
were no legal limitations or area of doubt, what additional activity or 


activities would you endeavor to develop with the expectation that 
they would significantly benefit your membership?" These answers 
may be classified as follows : 

Number indicating one or more additional activities 202 

Number not replying but indicating a need for clarification of the law— 36 
Number replying tliat they would develop no additional activities 409 

Of the 202 associations indicating that they would engage in one or 
more additional activities if there were no legal limitations or areas of 
doubt. 13 merely indicated that they would take steps to combat "un- 
fair" competition or "unfair" trade practices. Nearly all the remain- 
ing associations expressed a desire for price or production control, in 
coimection with which the participation or supervision of Federal 
agencies was not infrequently urged or invited. Thirty-two of them 
simply stated they would endeavor to eliminate destructive price com- 
petition or to promote stability of prices, without indicating the meth- 
ods or devices which they would employ. Thirty-six stated that they 
would adopt some form of production or capacity control. Such con- 
trol was broadly described by a majority of these 36 associations as 
the restricting of supply to conform with demand; among the spe- 
cific devices mentioned by some were production or sales quotas, ma- 
chine-hour limitations, restrictions on entry or new capacity, and 
the elimination of obsolete or excess equipment. Of the more direct 
price control devices, the elimination of below-cost selling was men- 
tioned most frequently, 35 associations indicating that they would 
establish minimum prices on this basis. Many of the associations die" 
not define the character of the cost basis; when it was indicated the 
basis was described by such terms as "average," "fair," "representa- 
tive." "reasonable," and "honest." Twenty associations replied that 
in approaching price control they would stabilize or make uniform 
one or more of the terms and conditions of sale. Fourteen associa- 
tions indicated that they would engage in the collection and dis- 
semination of price, and in a few instances bid, information, usually, 
though not always, making it clear that they had in mind the filing 
of current or future prices. Five associations stated that they would 
develop a program of trade statistics; nine, of uniform accounting, 
cost studies or statistics; and eight, of credit control. Two associa- 
tions stated that they would allocate sales territories, and two, that 
they would develop cooperative selling. Among associations in the 
distributing trades, seven indicated that they would attempt to de- 
velop a program to assure fair price differentials for their members, 
and three that they would take steps to curb "loss-leader" selling. 

Little significance can be attached to an industrial distribution of 
associations indicating that they would adopt some form of price or 
production control, in view of the relatively large number of associa- 
tions that failed to reply to the question. The associations that did 
reply in this manner for the most part were groups of manufacturers 
and wholesalers. Among the manufacturers nearly every industry 
was represented, there being an apparent concentration, however, in 
the food, paper, textile and apparel, and iron and steel industries. 

Other activities mentioned, which were not tied to a price or pro- 
duction control program, were the fostering of goodwill among the 
members (two associations), the. elimination of design piracy (two 
associations), patent cross-licensing (one association), cooperative 


buying (two associations^), and the enforcement of quality grading, 
standardization, and simplification (seven associations) . Of the seven 
groups that mentioned grading, standardization, or simplification, 
one, however, stated that the measure was necessary to effective price 

Several of the 202 associations took the opportunity offered by this 
question to suggest governmental activities that would be helpful to 
their industries. Among those mentioned were the following : 

NMmber of 
Suggestions associations 

Curb mass buying power (principally as exercised by large retailers) 7 

Establish minimum wages and/or maximum hours 6 

Enforce the Robinson-Patman Act 5 

Encourage the extension of union control 4 

Alter Government's purchasing policy to require purchases through local 

dealers 2 

Establish maximum prices on goods purchased 2 

Make trade association membership and support compulsory . 2 

Prevent mergers and more vigorously combat monopoly 2 

Alter the laws to give trade associations the same freedom as "cooperatives"- 1 

Eliminate State trade barriers — 1. 1 

Prevent misleading advertising 1 

Require full publicity of sellers' price policies to all buyers 1 

Inasmuch as this question was not specifically asked, these figures can- 
notj of course, be taken as indicative of the relative force of various 
desires for governmental activity in this connection. 

Thirty-six associations, while not indicating additional activities in 
which they would engage were there no legal limitations or areas of 
doubt, stated that public policy with respect to trade association ac- 
tivity needed clarification. Although the precise points at which clari- 
fication was needed Were not specified, there was general agreement 
concerning what the legal areas of doubt were. According to their 
statements, it is in the collection and dissemination of trade, price, 
and cost information, and in the establishment of uniform terms and 
conditions of sale, that this uncertainty principally exists. Such 
uncertainty, it was asserted, leads to unintentional mistakes which 
are later charged up as deliberate attempts at evasion of existing law 
and prevents prospective members from joining an association and 
participating in and enjoying the benefits of constructive, cooperative 
effort. The solution commonly advanced for the difficulty was the 
empowering of an agency of the Government to render temporary 
constructions or advisory opinions on programs proposed for adoption. 

Approximately 63 percent of the 648 associations replying stated 
that they would engage in no additional activities "if there were no 
legal limitations or areas of doubt." In other words, it was the view 
of these groups that present public policy toward trade associations, 
as they construed it, did not interfere with the development of any 
activity that might significantly benefit their membership. In inter- 
preting this figure it should be kept in mind that several hundred 
associations for one reason or another failed to give any answer to the 

Another question designed to afford trade associations an oppor- 
tunity to reflect their attitude toward public policy was the follow- 

What activities engaged in by some associations do you feel are contrary to 
the public interest? (Association names unnecessary). 


Sixty-nine associations answered the question. A few others ad- 
dressed responses to irrelevant matters. The remainder either failed 
to reply or stated that they knew of no activities of this character. 
Of the 69 associations that answered the question, 30 mentioned such 
ordinar}'^ trade restraints as price fixing, production control, and 
similar practices that have been widely condemned under existing 
law. Twelve mentioned racketeering, and eight, collusion with labor 
unions to monopolize a trade. Eight condemned sales promotion 
and public relations programs that resulted in the issuance to the 
public of misleading information. Five mentioned antilabor activi- 
ties, two referring specifically to the use of labor spies. Six referred 
to lobbying activities, one to the repression of inventions, one to a 
cooperative licensing arrangement, and one to a program of opposi- 
tion to the conservation of a natural resource. 


The remaindei* of this chapter Avill present an analj'^sis of those ac- 
tivities of trade associations and other groups of businessmen which 
the Department of Justice and the Federal Trade Commission have 
held to be in restraint of trade. These cases arise from alleged viola- 
tions of the Sherman Antitrust Act and the Federal Trade Com- 
mission Act. 

Actions by the Department of Justice are of two types — civil 
actions (hereinafter referred to as '"petitions"') for an injunction to 
prevent the occurrence of certain activities in the future; and crim- 
inal prosecutions, usually initiated by an indictment of a gi-and jury 
(hereinafter referred to as "indictments"). A petition, if successful, 
results in a court decree prohibiting certain acts, and the violation of 
such decree is punishable by the judge as a contempt of court. If the 
trial results in a verdict of guilty, an indictment brings a conviction 
and a sentence of fine or imprisonment. The formal proceedings of 
the Federal Trade Commission are initiated by the issuance of a docu- 
ment, called a "complaint," which charges respondent parties with 
specified violations of the law. An open hearing is scheduled, at 
which the respondents are given an opportunity to present their 
defense. After the trial examiner's report and further opportunity 
for oral argument and briefs, the Commission makes its findings of 
fact and conclusion. An appropriate order is thereupon entered, 
either dismissing the case or ordering the respondents to cease and 
desist from certain enumerated practices and activities. After a 
cease and desist order has been entered, the Commission may apply 
to the appropriate United States circuit court of appeals for an 
order of enforcement. A respondent who feels aggrieved by a cease 
and desist order may apply to the court to have the order vacated 
or modified. 

This survey was limited to the post-N. R. A. period, June 1, 1935, 
to October 1, 1939. It covers not only cases that arose during this 
interval but also cases originating previously that were decided 
subsequent to June 1, 1935." Included are 93 Federal Trade Com- 
mission complaints and 32 Department of Justice actions, the latter 

" 2" of the cases included ^ere instituted before tlie termination of the N. R. A. The 
romaining cases were rather evenly distributed throughout the period. 

200752 — 11— No. 18 6 


consisting, of 18 indictments and 14 petitions. Ninety-two of the 
total of 125 cases implicated trade associations; the respondent groups 
in the remaining 33 cases were not formally organized. 

Although complaints, petitions, and indictments do not all consti- 
tute adjudicated cases, in that they have not all reached the stage of 
final order by the Commission or a court, they have been used as the 
basis of the present analysis for several reasons. In 35 of the 52 
cases in which cease and desist orders were handed down by the Fed- 
eral Trade Commission during this period, there was no contest by 
the respondents. In these cases the findings of fact and order merely 
repeated the substance of the charges in the complaint, which "for 
the purposes of this proceeding" were admitted by the respondeiits. 
In the contested cases, the cease and desist orders were unsatisfactory 
as source material, because they often were so generalized or abbrevi- 
ated as to give little indication of the program of the respondent 
groups. Most of the final decisions resulting from the proceedings of 
the Department of Justice contained even less information (Concern- 
ing the nature of the respondents' activity. The issuance of com- 
plaints, petitions, and indictments is not the result of hasty action. 
They are issued only after investigation shows that the case has merit. 
None of the cases- was dismissed for failure to sustain the charges. 
Finally, it is the complaints, petitions, and indictments that indicate 
what the operating agencies of the Government consider objectionable 
in relation to the statutory policy of the Congress. In this respect 
they indicate what the Government does not want done rather than 
a fully authenticated record of the illegal activities carried on by trade 

Table 47 shows the status and disposition of the cases under con- 
sideration. Forty -eight of the one hundred and twenty-five cases were 
pending as of October 1, 1939. Of the 93 complaints issued by the. 
Federal Trade Commission, 33 were pending at that time. Eight cases 
were ^closed or dismissed by the Commission without a finding or an 
order against the respondents. One of these cases was closed by 
removal to the Department of Justice for criminal action ; proceedings 
were dismissed in the other cases because of the disbandment of the 
respondent trade associations, because it developed that the activities 
had Government sanction and approval, because of consolidation with 
other cases, or. for reasons not indicated. The Commission handed 
down 52 cease and desist orders during this period. Thirty-five of 
the complaints in these cases were not contested. In some of the 
17 contested cases charges against some of the repondents were dis- 
missed, and in others the findings of fact and conclusions were general- 
ized, abbreviated, or reduced to include only a part of the original 
charges. Respondents in 2 cases involving boycotts to prevent design 
"piracy" appealed the order of the Commission, contending that their 
programs were not an unreasonable restraint of trade.^^ As of Octo- 
ber 1, 1939, the Commission's orders in 2 other cases were pending on 
appeal by the respondents.^^ One of the orders of the Commission 
was modified by the court on jurisdictional grounds.^* 

"Docket 2760, Fashion Originators Guild of America, Inc.: and docket 2812, Millinery 
Quality Guild, Inc. 

" Docket 2898, California Lumbermen's Council : and docket 3134, Hershey Chocolate Co. 
" Docket 3090, The California Rice Industry. 


Of the 32 proceedings instituted by the Department of Justice, 16 
were pending in the court of original jurisdiction as of October 1, 1939. 
Of the others, injunctions or consent decrees were obtained in 8 cases, 
and in 6 cases 1 or more criminal convictions were obtained. Three 
cases were closed.^® The case involving the American Medical Asso- 
ciation was closed because the court of original jurisdiction held that 
the defendants were not engaged in trade within the meaning of the 
Sherman Antitrust Act. It was pending in October 1939 in the Dis- 
trict of Colimabia Court of Appeals as the result of an appeal by the 
Government. Another case pending on appeal was that of the Stand- 
ard Oil Company {Indiana) et al. (indictment, No. 11365). The origi- 
nal decree in the case of the Sugar Institute was modified by the United 
States Supreme Court.^^ 

Analysis of the 125 cases that have been acted upon by the Federal 
Trade Commission and tlie Department of Justice since the N. R. A. 
is significant primarily as it reveals thf odjectives of and methods of 
action employed in programs that have been held by these agencies to 
be in restraint of trade. It does not show that of a total of some 1,500 
national and regional trade associations 125 have engaged in illegal 
restraint of trade since the N. R. A. As has been pointed out, nearly 
half of these cases were pending as of the time of this review, and it is 
possible that the charges in some of these cases will not be sustained. 
As has also been pointed out, some of these cases implicated informal 
groups that were not organized in trade associations, and some of the 
trade associations that were cited are State or local in membership 
scope. On the other hand, it should be recognized that the cases insti- 
tuted by these agencies may not cover all the illegal restraints that 
arose among national and regional associations during this period. 
Limitations of time and personnel limit the number of cases that these 
agencies can investigate and bring to the stage of formal proceeding. 
Thus, a considerably' larger number of cases would have been included 
in the present review had it extended beyond October 1, 1939, since 
it would have reflected the recent program of the Government against 
restraints in the building industry. 

The objectives of the programs complained of frequently were not 
defined in the legal proceedings instituted. Complaint was directed 
against various activities and practices which, it was alleged, tended 
toward monopoly and restraint of trade. Analysis of these activities 
and practices, however, reveals several basic objectives. The elimina- 
tion or minimizing of price competition constituted the chief aim of 
business groups cited for illegal activity. This was the major objec- 
tive revealed in 85 of the 125 cases. Such programs divide themselves 
into two categories. The activities complained of in 60 of the cases 
were designed to eliminate price competition between the members 
of the respondent group. In the remaining cases the respondent 
groups were charged with having attempted to control the price com- 
petition, not only of the members of the group, but also of competitors 
outside the group. The second principal objective, which appeared 
in 38 of the cases, may be characterized as the "elimination of com- 
petitors." As it appears in the cases under consideration, this objec- 
tive also may be subdivided into two parts. The larger subdivision 

•^ yational Dairy Products Corporation et al.; United Theatres, Inc., et al.; ^nd Ameri- 
can Medical Association et al. 
"•" See ch. IV, below. 


includes cases in which an attempt was made to control the market 
through the elimination of similarly situated competitors. The other 
form of the struggle for control of the market was a struggle for the 
preservation of a distribution function threatened with diminution or 
extinction; in a majority of these cases such programs represented 
efforts of middlemen to prevent themselves from being short-circuited 
by manufacturers selling directly to retailers or consumers. A third 
category of objectives has been distinguished to fit two cases in which 
the principal purpose of the respondents appeared to be that of pre- 
venting the "piracy" of designs and styles through the use of boycott 
and other forms of economic pressure. A tabulation of the objectives 
shows the following distribution : 

Major objective: Number of cases 
Total 125 

Elimination of price competition 85 

Among resiwndents , 60 

Among respondents and otliers ^ , 25 

Elimination of competitors .S8 

Involving control of distribution channels , 14 

Not involving control of distribution channels 24 

Elimination of design "piracy" 2 

According to table 48, of the 125 cases there were 92 that listed 
among the respondents one or more trade associations. Of these 92 
cases, each of 35 involved 1 incorporated association, each of 26, 1 un- 
incorporated association, and each of 25 more than 1 association : cor- 
porate status was not indicated in 6 of the 92 cases. Thirty-three of 
the cases implicated combinations of businessmen having no continu- 
ing or formal administrative agency. Although table 48 is not con- 
clusive concerning the relation between the form of the respondent 
groups and their objectives, it indicates that respondent unincorpo- 
rated associations and informal groups relatively more often con- 
cerned themselves with programs to eliminate price competition than 
did incorporated associations; and, on the other hand, that incorpo- 
rated associations relatively more often entered into programs in- 
volving the elimination of competitors outside the group, particularly 
in programs to secure or maintain control over channels of distri- 

Table 49 presents a tabulation of the cases by type of industry and 
major objective. In 72 of these cases manufacturers were the prin- 
cipal respondents, and of the 72 all but 8 were price-control cases. 
These cases were rather evenly distributed among the various manu- 
facturing industries. Sponsors of programs designed to eliminate 
competitors, on the other hand, were concentrated in the field of 
wholesaling and retailing, although there were 3 such cases in the field 
of personal, business, and professional services.^^ 

"The records do not permit a precise comparison between the character of the program 
of the respondent groups and the extent of their industry or trade coverage. In 20 percent 
of the cases the complaints were silent on the question of the respondents' coverage, while 
an additional 40 percent of the cases merely represented that the respondents covered a 
"substantial" or 'dominant" portion of the industry or trade. Of the remaining cases, 
constituting 40 percent of the total, there were none in which it was alleged that re- 
spondents coverage, in terms of volume, was less than 50 percent of the industry. In 70 
percent of these cases the respondent groups were alleged to represent 80 percent or more 
of their industry. In nearly all the cases in which the alleged objective was the elimina- 
tion of price competition it was stated that the respondent groups either represented SO 
PrTcent or more of their indu.^try or enjoyed a "substantial" or "dominant" position in the 
industry. The coverage of the respondent groups was referred to in relatively few of the 
ciises in which the alleged objective wais the elimination of competitors. 


As may be seen in table 50, most of the cases have dealt with the 
iicti\dties of associations that are national and regional in scope, al- 
though approximately 27 percent of the cases were brought against 
State and local groups ; 72 of the 92 national and regional groups were 
primarily interested in price control, whereas 20 of the 33 State and 
local groups were primarily -concerned with the elimination of com- 

Elimmatioii of price competition. 

The majority of the respondent groups had as their primary objec- 
tive the elimination or minimizing of price competition between their 
members and, in ,some instances, the control of the price policies of 
competitors outside the group as well. A number of methods were 
<'mployed by the respondent groups in these programs, as is indicated 
in table 51, which shows the frequency with which the principal 
methods were cited in the charges of the Federal Trade Commission 
and the Department of Justice. These methods, in most of the cases, 
were direct restrictions on price and on the terms and conditions that 
supplement and modif}^ the price. Such restrictions were frequently 
accompanied by the publicity device.s of price filing and trade. sta- 
tistics and in some instances by product standardization and simpli- 
fication. Production control was cited in relatively few instances, 
either as a principal device for achieving price stability or as a sup- 
plement to direct restriction^ on price. Cited as often was the alloca- 
tion of buyers and sales territories. The buying out of stocks of goods 
the sale of which was likely to constitute a threat to the price control 
measures figured in a few cases. 

A;? will be indicated in the paragraphs that follow, interpretation of 
the figures appearing in table 51 must be approached with caution. 
The precise significance or role as well as the character of the various 
methods cited in the charges frequently were not revealed. The com- 
plaints varied considerably in explicitness, what may have been de- 
scribed in detail as a method of control in one ca^e being merely 
referred to in a word in other cases or possibly not mentioned at all. 

Price agreements. — The method of price control most frequently 
cited in the cases was agreement, conspiracy, or understanding to fix, 
maintain, or establish prices.^^ Such a charge, which appeared in 78 
of the 85 cases, seemingly was included almost as a matter of routine. 
Many of the charges failed to set forth the evidence of agreement 
Avhich the Go^ ernment had found. Agreement on price evidently 
was often inferred from subsidiary aspects of the program, such as 
the maintenance of a system of basing j^oints or price zones, restric- 
tions on discounts and other terms and conditions of sale, and the 
filing and dissemination of future prices. The fact that the prices or 
bids of the respondents were consistently uniform over a period of 
time appears to have been the principal basis for the charge of agree- 
ment in other instances. The specific meaning of the term "price,'' or 
"prices," was seldom indicated in the cases that charged agreem nt. 
The ambiguity of the term is particularly evident in cases involvmg- 
manufacturers and other groups of producers whose prices ordinarily 

-* Although there was no case in which agreement on prices paid constituted the only 
charge, there were a few cases in which agreement on buying as well as selling prices was 
complained of. The establishment of uniform buying prices, terms, and conditions of sale 
was the principal complaint of the Federal Trade Commission in the case of the National 
Cottonseed Products Association^ docket 2190, Mav 31, 1934. 


are a composite of a number of elements among which the basic, or 
"list," price is only one. There were only 10 cases in which agree- 
ments on "list" prices as such were separately mentioned. In every 
instance these agreements were accompanied by restrictions on vari- 
ous terms and conditions of sale, there being no case in which agree- 
ment on "list" prices was the sole object of the complaint.^^ 

Of the 78 cases there were only 14 in which the alleged price 
agreement was unaccompanied by the charge that restrictions had 
been placed on discounts, delivery terms, or other conditions and 
terms of sale. Six of these cases involved wholesalers or retailers, 
whose programs it is quite possible did not extend to such price ele- 
ments because they had little or no transactional importance. In 
8 cases, on the other hand, the respondents were manufacturers. 
It is perh ps more reasonable to assume that in these cases the term 
"prices" was used in the charges to encompass subsidiary price 
restrictions than that respondents' programs did not include such 

One searches the cases almost in vain for references to cost bases 
for the prices that the respondents were alleged to have agreed upon. 
Reference is made at a later point in this chapter to two cases in 
which the respondents were charged with having established differ- 
entials for the finishing or extra-processing of their products that 
were arbitrary in nature, despite assertions that they were based on 
the costs of the members. In another case the Federal Trade Com- 
mission charged an association of manufacturers with having mis- 
represented the Commission's trade practice conference rule con- 
demning sales below cost "with the intent and with the effect of 
injuring a competitor and where the effect may be to substantially 
lessen competition or tend to create a monopoly or to unreasonably 
restrain trade" to create uniform minimum prices and maximum 

One method of controlling prices encountered in the cases surveyed 
was the patterning by the members of a group of their actions after 
those of one member or of a small clique that characteristically pur- 
sued a similar policy. In four cases the role of particular respond- 
ents was sufficiently delineated to produce from the general charge 
of agreement a picture of one or a few respondents acting as price 
leaders and the others agreeing to follow their leadership. The most 
explicit of these statements of price leadership is contained in the 
charge of the Federal Trade Conmiissioh against the power cable 
and wire producing members of National, Electrical M ami f arty. vers 
Association (docket 2565, Sept. 26, 1935) . It was charged by the Com- 
mission that: 

Respondent manufacturers of imprtjnated power cable, of varnislied cambric 
cable, of parkway cable, and of rubber power cable, respectively, havp cou- 

^The generality of the charge of price agreement is illustrated bv the case of the Butter 
Tub Manufacturers Council (docket 2650, Dec. 10, 1935). in which six manufacturers of 
wooden butter tubs, together with their trade association and its commissioner, were 
charged with agreeing to fix uniform prices, terms and discounts at which said butter 
tubs are to be sold and * * » coop( -ating with each other in the enforcement and 
maintenance of said fixed prices, terms ana discounts by exchanging information through 
said respondent association as to prices, terms and discounts at which said corporate re- 
spondents have sold, and are offering to sell, said butter tubs." Mention was made of 
monthly meetings of the association, at which "said respondent corporations discuss trade 
and competitive conditions in the Butter Tub Industry and agree upon and establish trade 
policies" ; and the commissioner was charged with collecting and disseminating statistical 
information "in pursuance and furtherance of the object and aims of said respondent 

*> Covered Button and Buckle Creators, Inc., docket 3186, July 24, 1937. 


certedly adopted and maintained fixed and uniform selling prices on said com- 
modities, under the leadership of and in cooperation with respondents the 
Okonite Co., the General Electric Co., and the Hablrshaw Cable & Wire Corpo- 
ration. The last named respondents compiled, printed, and circulated among 
the other respondent manufacturers of said commodities exceedingly complex 
and detailed price lists, offering and assuring such other respondent manufac- 
turers, their competitors, that if the latter would not quote and sell at less 
than the list prices of the respective compilers, then said compilers would main- 
tain the prices in their respective lists and would immediately notify their said 
competitors of all proposed changes in price or in the methods of calculating 
same. Acting upon said offers and assurances respondent manufacturers of said 
commodities systematically prepared, circulated, exchanged, adopted, and used, 
the price lists so compiled as the amount to be quoted to and obtained from 
their customers, for the purpose and with the effect of avoiding and suppressing 
price competition among all of respondent manufacturers of said commodities.^' 

As has previously been indicated, there were only 7 of the 85 
price control cases in which agreement on prices was not alleged. 
In 4 of these 8 cases, however, the respondents were charged with 
having entered into cooperative selling or licensing arrangements, 
which in substance amounted to agreements. Of the other 3 cases, 
respondents in 1, who were members of a sponge exchange, were 
charged with having agreed to cease purchases and sales for a speci- 
fied period of time for the purpose of enhancing prices {Tarrpon 
SpHngs Sponge Exchcmge, Itw.^ F. T. C, docket 3024, Dec. 2*9, 1936). 
In another case a group of paper manufacturers were charged with 
having assigned production quotas to enhance prices {Kraft Paper 
Association et al.^ Department of Justice, indictment, July 20, 1939). 
In the third case the respondents subsequent to the N. R. A. allegedly . 
had continued to comply with the price filing provisions of their 
N. R. A. code, which action resulted in "uniform" and "artificial" 
prices. {Card Clothing Manufacturers^ Association, F. T. C, docket 
3019, Dec. 23, 1936.) 

Cooperative selling amd licensing. — A fully developed example of 
cooperative selling is the case of Appalachian Coeds., Inc. The United 
States Supreme Court held in 1933 that the combination of soft coal 
producers was acting in response to emergency conditions and was not 
in unreasonable restraint of trade. 

An example of a recent action against a cooperative selling arrange- 
ment is that of the Imperial Wood Stick Company., Inc.., et al. (De- 
partment of Justice, complaint, June 5, 1939). This company, which 
was organized about January 1, 1933, was the selling agent for manu- 
facturers of candy sticks and related products and encompassed more 
than TO percent of total production. The stock of Imperial .was pro- 
rated among the individual defendants according to their individual 
proportion of total sales. Production quotas based on the individual 
members' percentages of total sales were established, and prices were 
determined from time to time by Imperial. The officials of the com- 
pany had access to all the records of the six members to determine ad- 
herence to the program and to ascertain the extent of inventories, pro- 
duction, and shipments. The agency was ordered dissolved by a 
consent decree, June 6, 1939. 

Another example is revealed in the Federal Trade Commission's 
complaint against the Hardwood Charcoal Oompamy (docket 3670, 

'^ Other cases in which agreement to follow the policies of certain of the respondents 
figured in the charges are the Heat Exchange Institute, F. T. C, docket 2941, Oct. 9, 1936 ; 
Socony Vacuum Oil Company, Inc., et al.. Department of Justice, indictment, 11364, Dec. 
22, 1936 ; and Standard Oil Company {Indiana) et al.. Department of Justice, indictment, 
11365, Dec. 22, 1936. 


Dec, 20, 1938). Almost three-quarters of the total production of hard- 
wood charcoal was sold by the Hardwood Co., exclusive sales agent 
for tliree producers, the Manufacturers Charcoal Co., exclusive sales 
agent for 15 other producers, and by two independent producers. The 
two sales agencies, their members, and the two independents were 
charged with a combination to fix prices and otherwise restrain trade 
in hardwood charcoal. The Commission alleged that three producers 
had eliminated competition among themselves when in 1932 they 
formed and signed exclusive sales contracts with the Hardwood Co., 
and that the same effect had been secured by 15 other producers with 
the formation of the Manufacturers Co. The two common sales agen- 
cies formed an agreement between themselves, and into this agreement 
entered two independents. Thus a total of 20 producers pursued a 
uniform course acting through two sales agencies and two cooperating 

The American Society of Composers, Authors, and Publishers is an 
organization which, it was alleged, combined cooperative licensing 
with the copyright laws to extort high prices for the music of their 
members {Ameri'Can Society of Composers^ Aidhors^ cmd Publishers^ 
Music Publishers Protective Association, Music DeaUrs Service^ Inc., 
et al. — Department of Justice, Petition, Aug. 30, 1934) . The "society," 
an unincorporated association composed of authors, composers, and 
publishers, was organized in 1914 to grant licenses and collect royalties 
for its members and to accumulate and maintain a resei-ve fund to 
carry out its various objects. At the time of the petition it consisted 
of approximately 97 publishers and 969 composers and authors, and 
included the owners of nearly all the important, copyrighted, popular 
music in the United States. Each member gave to the society the 
exclusive right to license the nondramatic, public performance of all 
his works. While designed to protect members from copyright in- 
fringement, the society, according to the Department of Justice, used 
iti5 power to demand unreasonable royalties. Since the advent of the 
radio the society's most profitable business has come from the granting 
of licenses to broadcasting stations. In 1932 the society announced 
a system whereby only general licenses covering all musical composi- 
tions of all its members would be issued to broadcasting stations and 
made the royalty therefor equal to 5 percent of the gross income of 
the radio station, regardless of source of income, this to be in addition 
to the annual royalty theretofore paid. This represented an increase 
of approximately 400 percent in royalty payments. The general- 
license arrangement as actually made effective provided for the com- 
putation of royalties on the basis of the net income of the broad- 
casting station. Broadcasting stations owned by newspapers were 
granted somewhat more favorable terms than stations not thus owned. 
Licenses included a clause that made it possible for a copyright owner 
through the society to withdraw or charge extra for popular pieces. 
By the joint action of copyright owners, competition in selling licenses 
to broadcasters had been eliminated, according to the petition, and 
the use of blanket licenses, for which a fixed charge was made regard- 
less of the number of pieces played, resulted in programs being limited 

* Another case in which it was charged that a selling agent was employed to fix prices 
volved n sea-food exchange — Biloxi Oyster Exchange, F. T. C, docket 3099, Apr. 7, 1937. 
his case was closed by the Commission because of the dissolution of the exchange. 


to music controlled by the society, to the exclusion and detriment of 
independents. After 5 years this case was still pending as of October 
1, 1939. 

Resale 'price maintenance. — Efforts to maintain resale prices were 
alleged in 40 of the 85 price control cases. In 26 of these cases 
groups of manufacturers were charged with having established 
schedules of prices which wholesalers or retailers were required to 
observe — under threat of concerted boycott — in reselling. This charge 
is illustrated in the instance of the United Fence Marmfaotv/rers 
Association (docket 3305, Jan. 18, 1938), wherein the Federal Trade 
Commission among other things charged that: 

Respondents have taken concerted steps to maintain the resale prices, made 
by distributors, at list price less 10 percent, and to maintain the resale prices, 
of dealers to the public, at Ust price; each class of said resale prices to be 
without concession and to operate throughout the said 14 States. 

Respondents request and urge distributors and dealers to report instances 
of price cutting in the distribution of snow fence products with the name of 
vendor and vendee, the prices and terms offered or charged, and the name of 
the producer. And respondents have at times succeeded in obtaining such 

Producer-members have entered Into and maintain an understanding that 
they will not sell to distributors or dealers who quote and charge prices below 
the prices required by respondents, or to those who make better terms and 
conditions than are authorized by respondents. 

The precise function of manufacturers' efforts to maintain resale 
prices was not indicated in these cases, but it may reasonably be 
assumed that they constituted an integral part of their own program 
to minimize price competition. In every one of these cases the alleged 
resale price maintenance was accompanied by the charge of price 
agreement. Price cutting by wholesalers or retailers always i-ejjre- 
sents a threat to manufacturers' efforts to achieve price stability, 
particularly where some or all of the manufacturers also sell directly 
to retailers in competition with wholesalers, or to consumers in com- 
petition with retailers. In two cases groups of wholesalers — one, 
distributors of milk, and the other, distributors of nitrate of soda — 
similarly were charged with having prescribed schedules of minimum 
prices which they required their customers to observe on resales. 

The remaining 12 cases involved agreements of groups of whole- 
salers or retailers, or groups with both wholesaler and retailer mem- 
bers, to observe manufacturers' resale price scliedules. Defendants in 
5 of these cases were wholesalers of automotive parts. They were 
charged not only with having agreed to maintain the manufacturers' 
suggested prices but also with having required their customer- 
retailers to maintain list prices. Most of the remaining cases dealt 
with the distribution of alcoholic beverages. Wholesale liquor dis- 
tributors and metropolitan retail liquor stores in various regions 
banded together to eliminate price competition and, in so doing, en- 
listed the assistance of various individual manufacturers, who were 
cited among the respondents.^^ 

Processing and 'product differentials. — Along with the charge of 
conspiracy to fix or maintain prices respondent groups in five cases 
were alleged to have established differentials to govern the pricing of 

"'As a result of the Miller-Tydings amendment to the Federal Trade Commission Act. 
the Federal Trade Commission has had to drop charges against several wholesale and 
retail liquor dealers associations, as well as against the respondent manufacturers, except 
with respect to sales in the District of Columbia. 


various types, sizes, or grades of products. Two of these cases involved 
processing differentials. In one of the cases it was alleged that uni- 
form finishing differentials were adopted and maintained without 
regard to the actual cost of operations to the individual respondents 
{Book Paper Mamifacturers Association^ F. T. C, docket 3760, Apr. 
13, 1939) ; in the other case it was charged that through an "Industry 
Estimating Manual" the association had prescribed, and the members 
had agreed upon: 

(a) predetermined prices to be charged for the performance of certain operations 
in the manufacture of shipping containers, ( &) predetermined prices to be charged 
for certain classes and types of materials commonly used in the manufacture 
of shipping containers, and (c) predetermined prices to be charged for de- 
livery * * * 

and that these — 

so-called differentials did not represent actual costs of any member, but were 
arbitrary amounts fixed and agreed upon as aforesaid (National Container 
Association et al., Department of Justice, Indictment, Aug. 9, 1939). 

The case of the Metal Wi'ridow Institute (F. T. C, docket 2978, 
Nov. 11, 1936) illustrates the use of the so-called base-price list in con- 
nection with discount schedules. In this case the Federal Trade Com- 
mission found that: 

Prior to the formation of these associations, certain of the corporate re- 
spondents compiled, and acting through these associations the corporate respond- 
ents have from time to time revised, a comprehensive and detailed gross or 
basic price book which gives the price, or the formula by which such price may 
be determined, for substantially all of the products of the metal window industiT- 
This price book is revised or supplemented from time to time to meet changing 
conditions in the trade, and to include new products, and is distributed generally 
throughout the industry and is used in determining the gross or basic prices of 
said products. The prices stated in said book, or the prices arrived at by the 
application of the formulas stated, are uniform as to any given product in each 
price book so used for the determination of gross or basic prices. Tlie actual 
sale price of a given product is determined by the corporate respondents, and 
other members of the industry, through the application of discounts to the gross 
or basic price shown in said price book, or determined by the application of the 
formula therein given. * * * 

(1) Said corporate respondents agreed to use, and they have used, said gross 
or basic price book in pricing the products of the industry. 

(2) Each of said corporate respondents (a) agreed to file, and they have filed, 
with the respondent association a schedule of the discounts from the prices 
established by the gross or basic price book at which it would sell, and has sold, 
its products; (b) agreed that it would not change, or deviate from, the prices 
established by such discounts without first notifying the other corporate re- 

. spondents of such a change at a specified period of time prior to the effective date 
of the change in prices; and (c) agreed that the respondent association could 
convey, and it has conveyed, to all other members the information contained 
in said schedule of discounts so filed. 

(3) Said corporate respondents agreed to maintain and adhere to, and they 
have maintained and adhered to a schedule of uniform discounts to be applied to 
the prices determined from the use of said gross or basic price book, the effect of 
which has been to establish fixed uniform minimum prices for the products of 
the industry. 

(4) Said corporate respondents agreed to fix, and they have fixed uniform 
terms and conditions that were a part of all sales made, including, among other 
things, mandatory erection, time for delivery, and allowance for freight. 

(5) Said corporate respondents agreed that they would not sell, and they have 
not sold, the products of the industry for less than the imiform minimum prices 
established through the use of said uniform discounts without giving prior notice 
to each other of the fact that a sale was to be made at less tlian the minimuin 
price agreed upon. 


It was further found in this case that the respondents had agreed to 
submit all estimates of bids to so-called clearing bureaus, located in 
various areas, for the purpose of securing identical estimates.^* 

Restnetions on trade arid quantity discotmts and customer classifl- 
cati-on. — Figuring most prominently among the subsidiary elements of 
the price control programs were restrictions on trade and quantity dis- 
counts and customer classifications. Table 51 reveals that of the total 
of 85 cases there were 51 in which the Government charged the re- 
spondent groups with having limited in some manner members' policy 
Avitli respect to these elements of price policies.^^ All these cases also 
included charges of price agreement, conspiracy, or understanding. 
The type of restriction placed on the use of discounts usually was not 
specified in the complaints, although in some instances it was stated 
that maximum discounts had been agreed upon while in others the 
granting of discounts had been prohibited. The importance in these 
programs of restrictions on what are ordinarily thought of as trade 
discounts is indicated by the fact that of the 51 cases there were 20 
in which the respondents were charged w4th having classified their 
customers for discount purposes. These customer classifications 
almost invariably involved the definition of classes of customers to 
wliom members were restricted in selling. The requirement that mem- 
bers file with the association the names of their customers or a record 
of each of their transactions accompanied these limitations in a number 
of instances. 

Among industries in which the basic, or list, prices are largely stand- 
ardized by custom, discounts usually represent a strategic price deter- 
minant. This is particularly true in the apparel trades where many 
articles are commonly sold by manufacturers according to several 
classes of uniformly recognized list prices. In three cases, still pend- 
ing as of October 1, 1939, the Department of Justice alleged that 
groups of dress manufacturers had agreed to maintain the list prices, 
eliminating all "reductions, discounts, and allowances" from the list 
prices with the exception of a specified cash discount. The effect of 
such a conspiracy, it was alleged, was : 

to require the purchasiug public to pay large sums in excess of what It would 
otherwise have been required to pay.^* 

One of the most drastic programs was that of the Sugar Institute, 
which prohibited the use of quantity discounts and required, on threat 
of boycott, distributors who combined, as was common, more than 
one of the functions of brokerage, warehousing, and wholesaling to 
limit themselves to one of the functions only. This separation of 
functions was imposed, with considerable disti-ess to the distributing 
trade, to safeguard the associations price control measures against 
indn-ect concessions that assumed such forms as the granting of brok- 

,.^'' '^^i^*'^ ^J^'*'. o^^her cases falling in this classification it was charged in one that the 
pf'':^°"^°'^? "'^° agreed on identical bids on "extras" required for installation — T)ie Heat 
Exchatm Institute, F. T. C, docket 2941, Oct. 9, 1936; and in the other, that the 
respondent manufacturers of cable and wire had adopted uniform methods for calculating 
* 'i'^? .5" poods that varied from the uniform grades and specifications — National Elec- 
^f^'gai Manufacturers Association, F. T. C, docket 2565, Sopt. 26, 1935. 

fr/^,„ .u""^ ^^^''*^ several of these cases in which it was not possible to determine definitely 
irom the complaint that the "discounts" referred to were for trade status or quantity 
purcnases. Inasmuch, however, as the complaints in these cases also charged the respond- 
ents with limiting terms of sale it was assumed that it was a trade or quantity rather 
tnan cash discount which the Government had in mind. 

+1. » 'I"°J?^' dated August 13, 1934, against the Dress Creators League of America. Inc.. 
the Party Dress Guild, Inc., and the Half-Size Dress Guild, Inc. 


erage to warehousemen or wholesalers and the payment of warehouse 
rent to brokers.^^ 

Another example is afforded by the case of the Cement iTistitute 
(F. T. C, docket 3167, July 2, 1937), in which, in addition to foster- 
ing a system of delivered prices, respondents were charged with hav- 
ing classified customers and adopted uniform discounts for each class. 
According to the Federal Trade Commission : 

Before and .during the period that the code of fair competition for the cement 
industry approved November 27, 1933, pursuant to tlie National Industrial Re- 
covery Act, was in effect, respondents attempted to obtain approval of a code 
provision which would require a division of customers into two classes, those to 
whom cement producers might sell direct and those to whom cement producers 
would be prohibited from selling direct. These efforts were unsuccessful. Noi)e- 
theless, respondents arbitrarily and cooperatively made such classification and 
division of customers. 

Respondents have entered into an understanding whereby they have combined 
to limit their sales to middlemen to those who fall within respondents' agreed 
and arbitrary definition of a "cement dealer." Moreover, respondents agree 
that sales shall be confined to those who fall within such definition of cement 
dealer with the exception of certain specific classes of customers, arbitrarily 
selected, who, though not recognized cement dealers, may, nevertheless, 

Terms of sale and discounts are uniform as the result of mutual understand- 
ing and concert of action among respondents. 

Although limitations on discounts and customer classifications were 
found chiefly in the price control programs of groups of manufac- 
turers, there were 12 cases in which groups of wholesalers num- 
bered among the respondents or constituted the only respondents. 
Thus, in cases against the Birmingham Automotive Johhers AssoeJ-a- 
tion (F. T. C, docket 2382, May 6, 1935) and the Chattanooga Auto- 
motive Jobbers Associations (F. T. C, docket 2661, Dec. 18, 1935) it 
was alleged that the respondent wholesalers had classified their cus- 
tomers and had : 

agreed to fix from time to time, and pursuant to such agreement have fixed from 
time to time schedules of discounts to be allowed by them to certain classes of 
purchasers of automobile parts and accessories. 

As a part of the alleged program of the Pittsburgh Plate Glass Co. 
(F. T. C., docket 3154, June 16, 1937) and other window glass manu- 
facturers and distributors, acting through their respective trade asso- 
ciations, the Window Glass Manufacturers Association and tiie 
National Glass Distributors Association, it was charged that the 
respondents in conjunction classified all buyers of window glass into 
two previously defined categories of "quantity buyers" and "carloa'l 
lot buyers." The complaint stated that: 

Each of the respondent manufacturers has published a single window glass 
price list quoting prices to approved "quantity buyers" only and issued said 
price lists to such "quantity buyers" exclusively. 

Respondent National Glass Distributors Association has issued price list.s for 
window glass to "carload lot buyers'*^ for glass to be purchased from respondent 

Manufacturers refused to sell to any except approved "quantity buy- 
ers" and compelled "carload lot buyers" to purchase from the a])- 
proved "quantity buyers," who. were substantially identical with the 
membership of the Distributors Association. The program also 
involved : 

^ See ch. IV, p. 130 ff.r for a further description of this program. 


A policy and practice of requiring that all "carload lot buyers" and other 
buyers except those classified as "quantity buyers" be required and compelled to 
pay 7V2 percent more or a greater excess for window glass of the same grade 
and quality than the price quoted to and paid by those classified as "quantity 

A policy and practice of requiring that said 7y> percent differential be divided, 
21/6 percent to the manufacturer and 5 percent to the so-called "quantity buyer." 

Restrictions on geographic price policies. — Delivery terms represent 
another element of price policies, the control of which is of strategic 
importance to price control in many industries. One or more restric- 
tions on geographic price policies were alleged in 31 of the 85 price 
control cases. In 6 of the 31 cases it was charged that a system of 
basing points had been established; in 16 cases, that some type of 
delivered pricing not involving the use of basing points had been 
agreed upon; and in 9 cases, that other restrictions had been placed 
on delivery terms. 

The outstahding case of the use of basing points is that of the 
Ceinent Institute (docket 3167, July 2, 1937). According to the com- 
plaint of the Federal Trade Commission, there were within the 
United States approximately 60 basing points, each with its base 
price. The governing basing point for any destination was that 
point which had the lowest sum of two items — the base price and the 
rate of all-rail freight from the point to the destination. Prices. were 
quoted on a delivered basis arid calculated by taking the prevailing 
base price at the governing basing point and adding thereto the all- 
rail rate of freight from said point to the location of the customer. 
This freight charge was added regardless of the location of the manu- 
facturer and the amount of freight actually paid. Rail rates were 
charged even though cheaper means of transport, such as truck, were 
used. Buyers either were not permitted to take delivery by truck at 
point of manufacture or were charged a higher price for such de- 
livery. To further insure uniform delivered prices, steps were taken 
to eliminate diversions in transit, and a freight-rate bureau was 
established which published a manual of rail tariffs. Despite errors 
in the manual and changes in rate schedules approved by the Inter- 
state Commerce Commission, the manual was used as a basis for de- 
tennining freight applications until changes were announced by the 
bureau itself. This system, it was alleged, resulted in the submission 
of identical bids to public agencies and private contractors; and the 
Federal Government was deprived of the full benefit of land-gi^nt 
rates reserved by acts of Congress. In addition, the respondents 
fought the importation of cement, boycotted dealers handling foreign 
cement, and engaged in concerted price cutting to meet this competi- 
tion. The general effect of these practices, according to the Commis- 
sion, was to restrain and eliminate competition, to discriminate among 
buyers, and artificially to increase and maintain prices. 

The Federal Trade Commission in four other cases charged re- 
spondents with havinc: agreed to employ a basing-point system. In 
the case of Pine Hill Lime mid Stone Company (docket 3591, July 29, 
1939), the respondents, a group of agricultural and chemical lime pro- 
ducers and manufacturers located in the Southeastern States, em- 
ployed an agent to administer a "system of noncompetitive delivered 
prices that was embodied in an express agreement among them during 
the period that a code for the industry was in operation under the 
National Industrial Recovery Act." Under this system prices were 


quoted on a delivered basis from a number of basing points and 
equaled the rail freight plus the basing-point price to destination. 
The basing-point prices, it was alleged, were agreed upon at meetings 
and then filed with the respondent agent as a formality. Schedules 
of freight rates from the respective basing points to various destina- 
tions were compiled and circulated by the agent, as were printed price 
lists showing the delivered prices at various points. Respondents 
cooperated with lime producers in other districts of the country by 
agreeing to respect the delivered prices prevailing in such territories. 
It was also charged that the respondent lime producers agreed to 
submit identical delivered prices and terms in sealed bids to public 
agencies. In another case (docket 3091, March 26, 1937) the Cast 
Iron Soil Pipe Association and members were charged with the use 
of a single-basing-point system, under which all pipe, wherever pro- 
duced, in effect was sold at delivered prices arrived at by adding to 
the base price at Birmingham, Ala., the rate of freight to destination. 
Actual freight charges either were prepaid by the producers or, if 
shipment was sent collect, were charged by the buyers to the pro- 
ducers. The delivered prices were subject to trade discounts, which, 
it was alleged, were unifonn as the result of the combination. A 
third case {CMleoun Nitrate Sales Corporation^ docket 3764, April 15, 
1939) involved two companies engaged in the distribution of nitrate 
of soda, one as an importer of the Chilean product, the other as a 
subsidiary of a domestic ma lufacturer. According to the complaint 
of the Commission, the twJ companies among other reasons com- 
bined : 

To establish, fix, and maintain points of distribution to be used as the bases 
for determining freight rates to be cliarged purcliasers of bagged nitrate of 
soda as a part of the delivered price thereof. 

To establish, fix, and maintain specified freight charges, to be added to or 
included in the prices at which distributors, dealers and consumers purchase 
bagged nitrate of soda for delivery at specific destinations. 

It was also charged that these companies required dealers to charge 
farmers a specified amount for hauling bagged nitrate of soda from 
the nearest railroad station to their farms.^^ 

In 16 of the cases under consideration the use of a system of de- 
livered pricing was alleged without reference to the employment of 
basing points. In 5 of these cases it was simply charged that the 
respondents had "fixed and maintained uniform delivered prices." 
In 7 cases it was indicated, without further explanation, that the 
respondents had divided the market into zones within which uniform 
prices were maintained. The remaining 4 cases specified in more or 
less detail the nature of the delivered price system which, it was 
alleged, respondent groups had established. In one case {National 
Electrical Manufacturers Association^ docket 2565. Sept. 26, 1935) 
the Federal Trade Commission charged a group of manufacturers 
of wire and cable with having established for some products a 
single delivered price to be paid by all customers throughout the 
United States and territories; as to other products, a single delivered 

^ In a fourth case — Roice Manufacturhu/ Company, docket .3544, Aug. 17, 19o8 — the 
Federal Trade Commission simply alleged that the respondents, manufacturers of portable 
corn cribs and silos, had agreed on "common basing points" and "uniform delivered prices." 
In the case of the Soconiz-Vaciium Oil Company, Inc., et ah. Department of Justice, indict- 
ment, Dec. 22, 1936 — it was alleged that the major oil refiners had agreed, among 
other things, that prices to jobbers in the Midwestern area should be quoted "only on the 
the basis of all-rail delivered prices, f. o. b.. Tulsa, Okla., irrespective of the actual origin 
of the gasoline or method of its transportation." , 


price was to be paid by all customers within each of a number of 
price zones. It was alleged also that the respondents had established 
uniform charges for the return freight on reels returned by cus- 
tomers, as well as uniform allowances for the return of the reels them- 
selves. In the case of the Southern Vitrified Pipe Association 
(docket 3868, Aug. 8, 1939), the Federal Trade Commission alleged 
that the respondents had agreed to sell on a delivered basis only 
and to equalize freight "from their respective shipping points, so 
that the cost of their products to any given buyer when delivered 
from any point, would be identical at any given destination regard- 
less of the variations in freight from ditferent places of production 
and shipment." It was alleged in addition that the respondent man- 
ufacturers, despite differences in the actual weights of vitrified clay 
sewer pipe, had agreed on uniform weights to be used in the calcula- 
tion of freight charges. In the case of the Book Paper Manufac- 
turers Association (docket 3760, Apr. 13, 1939), the Commission 
alleged that: 

Said respondent members haye adopted and maintained identical zoning sys- 
tems by means of which the United States is divided into four zones, and have 
established and maintained, and do now establish and maintain, by agreement 
with each other, fixed uniform delivered prices for book, coated, and similar 
papers in Zone 1, which said prices are designated as "Base Prices" and are 
increased by 20 cents in Zone 2, 40 cents in Zone 3 and 60 cents in Zone 4, so 
that the price of book, coated, and similar papers is the same to all purchasers 
located in each respective zone regardless of the location in the particular zone 
of the purchaser, and regardless of the location of the particular respondent 
member making said sale to said purchaser." 

Finally, tliere were eight cases in which the Government simply 
charged without further explanation that the respondent groups had 
established uniform freight allowances or applications as a part of 
their program to fix and maintain prices.^" 

Terms and otlier conditions of sale. — In addition to quantity dis- 
counts and delivery terms, many terms and conditions of sale were 
cited as having been restricted as a result of the efforts of trade 
associations and other groups to achieve price stability through price 
control. Such restrictions were alleged in 35 of the S5 price control 
cases. In every case the charge of agreement with respect to these 
terms and conditions of sale was accompanied by a general charge 
of price agreement on conspiracy. In 13 of these cases the complaint 
merely indicated that restrictions on "terms of sale," or "terms and 
conditions of sale," had figured in the programs of the respondent 
groups. In the other cases one or more practices were mentioned, 
often, however, together with such general, descriptive designations 
as "terms of sale," "allowances," and "uniform contract forms." 
Among these, in the approximate order of the frequency with which 
they appeared, were cash discounts and other credit practices, broker- 
age fees, accepting returned goods, allowances of several specified 
types, split commissions, price guarantees and long-term contracts, 
consignment selling, performance guarantees, odd-lot shipments, mini- 

T *..4^ fourth group cited as having employed a system of delivered prices was the Sugar 
Institute — see ch. IV, below, pp. 125-127. 

'y-.^Pn'^. o^P^^ case — National Cottonseed Products Association, F.T.C., docket 2190, May 
.n, li>64 — IS unique in that the respondents were charged with having agreed on the de- 
livery terms with respect to transactions with their suppliers — that prices should be made 
on tne basis or r. o. b. shipping point ; the terms and circumstances under which seed might 
De nauled by respondents from seed sellers also were agreed upon : and deductions for 
1. c. 1. purchases were established. 


mum carload specifications, trade-in allowances, sale of seconds, and 
samples. Inasmuch as the Federal Trade Commission frequently 
listed various restricted practices with the qualification "including 
but without limitation,'^ the above itemizfition no doubt incompletely 
reflects the variety of terms and conditions of sale that were limited 
in the programs complained of. 

Price fling and 'price statistics. — The collection and dissemination 
of price information was cited in 32 of the 85 price-control cases. In 
23 of the cases the filing of current or future prices was alleged; of 
these the use of a waiting period between the time of filing and 
the time the filed prices became effective was clearly indicated in 
only a few cases. In 4 of the 32 cases the collection and dissemina- 
tion of information on past prices only was cited; and in the case of 
the remaining 5 cases it was not clear from the text whether the 
reference was to past or current prices. There were few cases of 
clearly defined bid filing arrangements; in controlling bids the Gov- 
ernment simply charged that members agreed on the amount of the 
bids to be submitted on given jobs. 

The collection and dissemination of price information as cited in 
the cases was confined almost entirely to groups of manufacturers. In 
only two ca3es, one involving a local group of coal merchants, the 
other a local group of automotive jobbers, were groups other than 
manufacturers complained of for such activity. Thus, in 30 of 64 
cases against groups of manufacturers the exchange of price informa- 
tion Was citea among the methods employed to achieve price control. 
With one exception these charges were accompanied by the general 
charge of agreement to fix and maintain prices.^^ 

The role that price publicity was alleged to have played in respond- 
ents' price control programs was not always made clear. Respondents 
were charged with carrying on activities in restraint of trade. It 
was then asserted that an open price system was being operated, but 
little or no tie-up was made between the open price system and the 
restraint-of-trade charge. Presumably, however, what was primarily 
in mind was the use of price publicity to police the price agreement or 
understanding, although the agreement to abide by filed prices in 
itself evidently was deemed to be a restraint of trade. The complaint 

^' In the case of Card Clothing Manufacturers Assooiation, F. T. C, docket 3019, 
December 23, 1936, the complaint of the Government was limited to the charge that the 
respondent manufacturers had agreed to continue to comply with the price filing provi- 
sions of their N. R. A. code following the Schechter decision" This case was still pending 
in October 1939. 

One of the most comprehensive systems of price publicity complained of by the Fed- 
eral Trade Commission covered buying rather than selling prices {National Cottonseed 
Products Association, docket 2190, May 31, 1934). Although the Commission charged in 
this case that the respondent national association and its various State and sectional 
associations and their members had "from time to time entered into agreements and 
understandlnfffi that they would pay certain prices for cottonseed," the principal portion 
of the complaint dealt with the price publicity plan. According to th6 Commission, the 
member mills under the supervision of their i-espective associations agreed to notify each 
other by telegraph or telephone of the prices "they were paying and offering to pay for 
cottonseed and that they would not deviate from the prices so reported without giving 
s-imnltaneous and immediate notice thereof to member mills, or else would indicate in 
their reports that they were deviating only wliere necessary to meet competition." They 
also agreed to a system of investigation and checking either by competitors directly or 
through their association ; and the officials of the various associations undertook to inter- 
pret the seed market to the members and to advise them of the prices that should be paid. 
To facilitate the plan, the various State and sectional associations systematically exchanged 
information on prevailing prices and practices. It was alleged also that respondent asso- 
ciations in the Southwestern States posted and published on various cotton exchanges 
the car-lot prices that terminal mills at those points were willing to pay, such prices 
being f'e result of tacit understanding and agreement rather than of individual. tranaac- 
t'ons between buyers and sellers. To support their program respondents agreed on terms 
of payment, delivery terms, grading rules, and grade differentials to apply in their transac- 
tions with suppliers. 


in tlie case of the United States Maltsters Association (F. T. C, docket 
3555, Aug. 24, 1938) illustrates the generality of the usual charge. 
The Federal Trade Commission charged the respondents with the folr 
lowing activities with respect to prices : 

By agreement have fixed and maintained and still fix and maii'taiu, uniform 
delivered prices for malt sold by respondents named in Paragraph two hereof 
and by each of them ; 

• Each of the respondents named in Paragraph two hereof agreed to file and does 
file with the respondent association a schedule of prices, terms, and conditions 
of all sales at which it will and does sell malt ; 

Each said respondent named in Paragraph two hereof agreed that it would 
not and does not deviate from the prices, terms, and conditions of sale stated in 
its prices filed with respondent association ; 

Respondent association collects from and disseminates among the respondents 
named in Paragraph two hereof information as to prices, terms, and conditions 
of sale and other information used and useful in carrying out the said agree- 
ment, combination, understanding, and conspiracy. 

The acts and practices of the respondents as herein alleged are all to the 
prejudice of the public; have a dangerous tendency to and have actually hin- 
dered and prevented price competition between and among respondents in the 
sale of malt in commerce. • ♦ * 

The complaints made no clear distinction between the functional 
significant to price control of information on past prices and infor- 
mation on current prices. Thus, with reference to statistics on past 
transactions, in the case of the Hopi'dwood Institute (docket 3418, 
May 12, 1938) the Federal Trade Commission charged that the re- 
spondent manufacturers had agreed to "fix and maintain the price 
of hardwood lumber manufactured and sold by members of the in- 
stitute" by means, among other devices, of daily reports to the secre- 
tary of the institute, on the basis of which he issued semiweekly 
confidential reports to the members "showing the prices received by 
each respondent member for each individual item of lumber sold 
during the period of the reports, and comparing same with so-called 
established list prices. * * *" The Commission in another case 
{Kevner WUlicmis Com'pamf^ Docket 2199, June 20, 1934), 
in charging a group of milk and ice cream can manufacturers with 
having combined to suppress price competition, listed as the "bases" 
of "enforcement" the following statistical activities: 

A daily report from each member showing a detailed description of che cans 
sold, contracted for, and in stock, "firsts," "seconds" and "obsoletes" distin- 
guished, the territory into which each shipment was made, the name of the 
seller, the name of the customer, number sold, capacity and type of each and any 
"extras" or deductions, net price, terms, the freight rate per hundredweight 
added to the delivered price and the freight rate ijer hundredweight allowed 
for equalization with a given point or competitor, the destination and if a 
delivery was pursuant to a contract, the date of the contract. 

From the above reports the Secretary promptly disseminated among the 
niembers a "consolidated daily report." which was a consolidation of the 
information contained in the above mentioned reports. 

Each manufacturer made a monthly sales report. In addition to the infor- 
mation contained in the daily report this monthly report contained complete 
flata with respect to the number of cans shipped during tbe month, unfilled 
orders as of the last day of the month, and the allocation of sales by state. 
From these reports the secretary disseminated among the Members a consoli- 
dated monthly report. 

Each member compiled and transmitted to the Secretary a weekly report of 
contracts made during the preceding week, showing the customer's name, the 
date of the contracts, their expiration date, the number fixed as tli? maximum 
delivery required by the contract, the number fixed as the minimum delivery, 
the size and type of cans, the net price, terms, extras and deductions. 

260752— 41— No. 18 7 


As each member entered into a contract with the customer a copy thereof was 
filed with the Secretary, and the Secretary weekly bulletined to the members 
the contracts entered into the week before by any of the manufacturers, show- 
ing the names of the parties and the expiration date. 

Trade statistics. — As, may be seen in the example set forth imme- 
diately above, the collection and distribution of trade statistics have 
been cited among the devices employed in programs of price control. 
The reporting of trade statistics of one type or another was specifically 
cited in 18 of the 85 price control cases. In all but 2 of these cases 
the filing of price information also was alleged. Amon^ the types of 
statistics cited were those covering production, inventories, shipments,, 
sales, orders, unfilled orders, capacity, individual percentages of in- 
dustry sales, and individual percentages of industry capacity. The 
role of trade statistics in price control rarely was indicated in the 
complaints. It may be assumed that in some cases the Government 
mentioned them only because they were closely tied into, or formed a 
part of, the price reporting program, as in the case quoted above.^/^ 
Where mentioned, the function of trade statistics was connected with 
the control of production. Thus, in the case of the American Veneer 
Package Association (docket 3556, August 1938) it was stated that: 

said member respondents have agreed to curtail, and have curtailed, the produc- 
tion of veneer fruit and vegetable containers and the parts thereof, and for the 
pui*pose of securing the enforcement of the agreements to curtail production 
member respondents have filed, and do file, with their respective respondent 
organizations Invoices and other reports." 

Standardization and simplificatio7i. — One or both of these activities,. 
including product grading, were cited in 7 of the 85 cases involving 
group action to eliminate price competition. Although it wasn't 
made explicit in the cases, the probable function of such activity was 
to afford the basis for price comparison needed for price control and 
to prevent evasion of price control measures through increasing the 
quality of the product without corresponding price changes. 

The Federal Trade Commission has attempted to make it clear that 
its objection to standardization and simplification applies only insofar 
as such activity is used for price control purposes. In the case of 
Keiner Willimns Stamping Coni'pany (docket 2199, June 20, 1934) it 
added a parenthetical note in its charge that a group of milk and 
ice cream can manufacturers had : 

Standardized the construction of the milk and ice cream cans produced by 
them so that the respective types of cans were and are of uniform material, 
weight and general construction, and the metal used in the bottoms, cylinders 
and tops of the various types was and is of uniform gage, as among all the 
respondent manufacturers. (The Commission is not here complaining against 
the alleged standardization as such ; but only against the use thereof as a 
means of carrying out the price-fixing conspiracy hereinbefore charged.) 

Again, in a case involving the simplification of lead pencil lines, the 
Commission in a cease and desist order (The Lead Pencil Association^ 
Inc.., docket 3643, Aug. 28, 1939) ordered the respondents to cease: 

Investigating or consulting with each other with respect to a standardization 
progi'am having as its objective the limitations of the styles, grades or qualities 

•'Three of the 18 associations in addition to trade statistics according te the complaints 
also collected and distributed information on costs, tfie possible relationship of which to- 
price control is evident. 

™ other cases in which trade statistics were cited as means to implement volume control 
were Kraft roper Association et al.. Department of Justice, inflictment, July 20, 1939 ; 
and T^ational (jontainer Association et al.. Department of Justice, indictment, Aug. 9, 1939. 
For a review of the program of the latter association see below, p. 238 ft. 


of wood-caswi )>fiKils uiaiiufatturfd and offered fur s^alc by auy of the 
respondents. • * • 

but stated: 

IT IS FURTHEK ORDtRED that nothing herein shall be construed to prevout the 
respondents, or any of them, from inyestigating or consulting with one another, 
for the purpose of attempting to work out a simplification program for the 
pencil industry, whether said inyestigation or consultation is done in con- 
junction witli' the National Bureau of Standards, in accordance with the 
procedure of said Bureau or amongst any or all of respondents; Provided, iiow- 
ever, that such investigation or consultation shall not be for the purpose of 
effectuating any agreement or combination among any or all of said respond- 
ents to fix or maintain uniform prices on comparable wood-eased lead pencils or 
to commit any of the other acts or things from which they aie ordered herein 
to cease and desist. 

Production and sales control. — To maintain etfective price control 
it is often necessary to supplement the-fixing of prices with the con- 
trol of sup])ly through the limitation of production, inventories, 
or sales. Overproduction gluts the market, increases inventories, 
and may eventually break any price control. In all there were 13 
of tlie 85 price control cases in which the Government alleged some 
ty})e of volume control. In only 2 of these was the allegation unaccom- 
panied by a charge of agreement or ccmspiracy to fix or maintain 

In 7 of the 13 cases the complain simply alleged that respondents 
had entered into an agreement to limit or curtail production, with- 
out indicating the basis of tlie limitation. In 2 of these it was stated, 
however, tliat output had been so limited as to correspond to the 
amount that could profitably be sold at the price levels established.^* 
It was su1)se(|uently levealed in 1 of these casec' — involving a group 
of rice miller? — that quotas vrere established Avhich Avere based on the 
amount of the i-ice crop that each miller might ])rocess.^' 

Of the remaining six cases, two involved cooperative selling 
agencies, which determined for each member the amount of sales 
that lie might enjoy imder the program. In two other cases it was 
alleged that the respondent had agreed on the percentages of the 
total business that each might enjoy, in one case evidently as mea- 
sured by production,'^^ in the other as measured by the volume of 
business transacted." In another case the members of an oyster 
exchange, many of whom were canners and packers, were charged 
with having agreed to regulate and curtail the processing and can- 
ning of oysters and arbitrarily to limit the seasons or periods within 
which they would obtain and pack oysters.^^ Finally, in the case of 
the Tarpoh Synmcjs Exchange (docket 3024, Dec. 29, 1936) 
the Federal Trade Commission alleged that for the purpose of en- 
hancing the price of "wool" sponges the members of the respondent 
exchange, through which practically all such sponges were marketed, 

" It is intcrfsiiiij; to note tliat in another of these cases it was alleeed that for the 
purposo of sccui'iiifr onforcemeiit of the agreonient to ciirt.-iil production each lucii-ber re- 
spondent choclci'd upon the production of some otlier deslpnated member and filed reports 
with tlio association conccrnina the co ii>liance of sucli monibei' — Standard Cotttnlnei' 
ifnllufn(■rln■p)■s^ ^ ssnriafion. F. T. C dock\M ."^,289. .Tan. 8, 1938. 

^ Calif ornid RUe Indvfitry, F. T. C, docket 3090, Mar. 20, 19.S7, The Circuit Court of 
AppeaLs for the Ninth Circuit, on March 17, 19.'59, licld that the Federal Trade Commis- 
sion exceeded its authority in ordering the respondents to desist from fixing tliese quotas, 
since tlie activit.v regulated was neither commerce nor interstate in character. 

"Kraft Paper Ai^aociatinn et al.. Department of Justice, indictment. .Tuly 20, 19;>9. No 
charge of price agreement was made in this case. 

^ \afio»al Container Association et al.. Department of Justice, indictment, Aug. 9, 19?.f). 

'» Biloxi Ouater Errhanfje, F. T. C, docket .'iOOO, Apr, 7, 19,37. 


had interrupted operations of the exchange for a period of approxi- 
mately 3 months in the spring of 1935. The Commission in this 
case did not allege a price agreement. 

Allocation of buyers and sales territories. — Other methods some- 
times used in programs of price control include the allocation of 
buyers and sales territories. The Government charged that the re- 
spondent groups had used such methods in 13 of the 85 price control 
cases. These devices evidently were used as alternatives to produc- 
tion control, for in only 1 case did the Government allege both 
production control and the allocation of buyers or sales territories. 
In 7 of the 13 cases the Government charged the allocation of sales 
territories; in 4 cases, the allotment of individual customers, and 'in 
6 cases, an agreement among the respondents not to infringe upon 
one another's established customers. In 3 cases more than 1 of the 
above methods were alleged. 

Although most of the complaints gave no detail on the specific ar- 
rangements entered into by the respondents, the following cases indi- 
cate the general nature of the alleged activities carried on: In the 
case of the Chilean Nitrate Sales Corporation (docket 3764, Apr. 15, 
1939) the Federal Trade Commission alleged that the Chilean Nitrate 
Sales Corporation and the Barrett Co. among other things combined 
"to jointly select the customers to whom respondents sell bulk nitrate 
of soda" and "to allocate the trade territories in which respondents 
respectively market or push the sale of their bagged nitrate of soda." 
In the Pittsburgh Pirate Glass case (docket 3154, June 16, 1937) the 
Commission charged that the respondent distributors had refused to 
accept orders for carload lots of window glass for transmission to the 
respondent manufacturers from dealers located outside their respec- 
tive trade areas. In another case a group of manufacturers of snow 
fence were charged with having from time to time apportioned among 
themselves large orders awarded to one producer without the con- 
sent or knowledge of the purchaser (The United Fence Manufacturers 
Association^ docket 3305, Jan. 18, 1938). In the case of the Linen 
Supply Association (F. T. C, docket 2256, Dec. 10, 1934) the Federal 
Trade Commission implicated a group of linen suppliers in the Dis- 
trict of Columbia, who were alleged to have agreed that no member 
would solicit the customers of another member or quote them prices 
lower than those being quoted at the time by the member supplying 
them. It was further alleged that when a dispute arose concerning 
which of the members was entitled to the claim of a certain customer 
the matter was referred to an arbitration committee, whose decision 
was final. In the case of W. B. Saunders Co. (F. T. C, docket 3558, 
Aug. 26, 1938) the respondents were the four principal publishers oi 
medical books and the three wholesale distributors who handled most 
of the publications in the medical field. Of the latter group, one was 
the largest in the New York City area, one the largest in the Middle 
West, and the third was the largest in the South and Southwest. 
According to the Commission: 

A substantial portion of the medical books sola annually in the United States 
are purchased by schools, colleges, libraries, hospitals, and other State, county 
and municipal institutions and by departments and agencies of the United States 
Government. This institutional or governmental business is usually awarded 
after receipt of bids or quotations from medical book dealers and publishers, 
and the books required are generally purchased frofli the lowest bidder. Re- 


BI)ondent dealers are or have been competitors for such business throughout the 
United States and respondent publishers also frequently submit bids or quo- 
tations for such business, competing therefor with respondent dealers. 

Each of said respondent publishers fixes and prescribes the prices and discounts 
to be used by medical book dealers and distributors in bidding or quoting prices 
on the medical books of such publisher to government agencies and public insti- 
tutions. Each of said respondent publishers requires that the respondent dealers 
and other wholesale dealers to whom it sells or consigns medical books shall not 
quote prices to government agencies and public institutions lower than the prices 
so fixed by such publisher, and sells medical books to such dealers on the con- 
dition, agreement and understanding that such dealers, respectively, will adhere 
to the prices and discounts fixed by the publisher, in selling or offering to sell 
to such government agencies and public institutions. 

During the years 1935 and 1936 the three respondent dealers herein agreed, 
combined and conspired together, and each with the other, that in bidding and 
quoting prices for the medical book business of government agencies and public 
institutions they, and each of them, would uniformly bid at and quote the prices 
and discounts fixed and prescribed for such business by the respective publishers 
of such medical books. Thereafter, in bidding and competing for suoh business 
said respondent dealers, in furtherance of said agreement, combination and con- , 
spiracy, have adhered to and quoted the prices and discounts on medical books 
fixed and prescribed by the respective publishers thereof. 

In or about May, 1936, said respondent dealers entered into an agreement and 
understanding, each with the other, dividing and assigning certain territory in 
the United States for the purpose of handling and bidding for the medical book 
business of schools, colleges, libraries, hospitals, and government agencies and 
institutions in such territory. Each of said respondents agreed not to bid or 
compete for such business in the states or territory assigned to one of the 
others. Pursuant to said agreement and understanding, said respondents have 
ceased and refrained from bidding against or .competing with each other fgr 
such business in a large part of the United States, including the States of Texas, 
Illinois and New York. 

Buying out. — Buying out describes the practice through purchase 
of removing from the market or preventing the entry on the market 
of goods that represent a potential threat to a price control program. 
Allegations of this practice were found in five of the cases. In three 
of these cases the respondents were liquor dealers, who, it was alleged, 
among other activities combined to "shopout" the stocks of retailers 
who refused to maintain the agreed-on uniform minimum prices. In 
the case of the Hardwood Charcoal Company (docket 3670, Feb. 17, 
1939) the Federal Trade Commission charged that respondent manu- 
facturers agreed to purchase, and did purchase: 

the entire Canadian hardwood charcoal output shipped into the United States' 
for the purpose, and with the intent and effect of eliminating all possible com- 
petition arising from, or which might arise from, the sales of said Canadian 
charcoal in the United States. 

In the case of the Stamdanrd Oil Company {Indiana^ et al. (indict- 
ment, 11365, Dec. 22, 1936) the Department of Justice alleged that, 
as a part of their program of limiting supply, controlling and en- 
hancing tank-car prices of gasoline in the midwestem area, the major 
oil companies beginning in 1935 entered into a concerted buying 
program, and bought up a substantial proportion of the output of the 
so-called '^independent" refiners. 

Sanctions. — The establishment of methods of price control f 'e- 
quently is not in itself sufficient. .The methods often are implemented 
by devices and sanctions designed to make the program of price con- 
trol effective. Procedural devices may be adopted to determine the 
extent of compliance, and sanctions applied to secure compliance. 

In many cases no mention was made of the devices and sanctions 
employed to implement group programs of price control, while iii 


other cases references were so adumbrated as to make it impossible to 
identify the measures adopted by the respondent groups. As an 
example, in the case of Sheltan Tubular Rivet Comvany (docket 3107, 
Apr. 17, 1937) the methods of investigation and the sanctions used to 
maintain an alleged price agreement were but vaguely stated when 
the Federal Trade Commission charged that respondents : 

Induced certain of the aforesaid other respondents by intimidation and per- 
suasion to raise their prices quoted by them to the uniform delivereo' ices 
fixed as aforesaid by the aforesaid combination, conspiracy, understanding and 

Held meetings of- The Institute of Tubular-Split and Outside Pronged Rivet 
Manufacturers, its membei-s and officers to devise methods of asserting influence, 
pressure, coercion or other means of inducing coercion and requiring manufac- 
turers and producers of industrial rivets to tix, establish and maintain prices 
and fix the established and published prices as well as to abide by and adhere 
to said uniform price lists so fixed. 

Used and engaged in other cooperative acts, coercive means and practices in 
promoting the establishment of and carrying out the aforesaid program and 
understanding, combination, conspiracy and confederation set forth herein. 

Table 52, which shows the frequency with which various devices and 
sanctions were mentioned in the price control cases, should be inter- 
preted with these limitations of the data in mind. 

The most common method of determining the extent of compliance 
was periodical investigation by the executive of the trade association 
or some other employee of the respondent group. This method of 
surveillance was mentioned in 28 of the 85 price control cases. It is 
probable that the reporting of price and trade statistics also served as 
a continuing check on compliance, although the use of trade statistics 
in this policing capacity was seldom specifically referred to in the 
complaints. When a violation of the agreement was suspected, it was 
in seven cases the practice to hold trials or hearings to determine 
guilt or to allow for the expression of grievances. On the basis of 
the evidence adduced by the parties concerned the existence of a 
violation could be ascertained, and the stage set for group measures 
to strengthen^ unity. 

In reviewing the Sanctions invoked by the groups to secure adher- 
ence to programs of price control, it is notable that in 33 of the 85 
cases no evidence of persuasion or compulsion was recounted in the 
proceedings. Apparently the members of the group were sufficiently 
"farsighted" and unanimous in their views as to make unnecessary 
the application of any type of sanction by the association. In other 
words, the only sanction that might be deduced in these cases was the 
members' conviction that their economic self-interest lay in adherence 
to the controls. This was the condition of compliance which other 
groups sought to achieve. 

Alone, or in conjunction with other sanctions, at least 45 of the 
groups in one way or another undertook campaigns of education and 
exhortation to promote members' faith and compliance. These pro- 
grams represented organized campaigns, vigorous and studied drives, 
to consummate a definite program of action and to bring into line re- 
calcitrrnt and reluctant members of the industry. Educational ac- 
tivities were carried on, and speeches, conferences, meetings, circulars, 
correspondence, telegrams, telephone calls, and personal visits were 
used to exhort, solicit, urge, persuade, and cajole individuals to abide 
by the group policies. Behind these sanctions of persuasion and trade 
opinion often loomed the threat of expulsion from the association. 


In 11 cases it was alleged that the respondent groups, all of which 
were trade associations, invoked financial penalties against members 
who violated the agreements. For example, in the case of the Gali- 
fomia Rice Industrial (docket 3090, Mar. 26, 1937) the Federal Trade 
Conmiission charged that the individual respondents agreed to pay to 
the association a certain amount of money for each bag of rice proc- 
essed and that deductions could be made from the fund of any member 
violating the agreement and distributed among the other members. 
Again in the case of the Tarpon Springs Sponge Exchange^ Inc. 
(docket 3024, Dec. 29, 1936) the Commission charged that the members 
had agreed to subject themselves to fines ranging from $750 to $2,500 
in case of violation of the basic agreement to cease purchasing and 
dealing in sponges for a specified period of time. In most of these 
cases the complaints failed to indicate the nature and magnitude of the 
financial penalty. 

The forcible sanction most commonly found in the price control 
cases was the boycott. Eighteen instances of its use were encount- 
ered,^® In the large majority of these instances the boycott was 
directed by the respondent group, not against the members, but 
against competitors outside the group. Not being able to induce* these 
competitors to join the agreement, pressure was put upon them 
through the group's influence with their suppliers to force them to 
conform to group policy. Seven of the 18 cases implicated groups 
of wholesalers or dealers, and 7, combinations of manufacturers, whole- 
salers, and dealers. Boycotts were alleged to have been directed by 
respondent wholesalers or dealers against manufacturers or whole- 
salers, as the case may have been, simply to prevent price-cutting 
competitors from obtaining supplies. Thus, in the instance of the 
Retail Coed Merchants Association (docket 3911, Oct. 5, 1939) the 
Federal Trade Commission alleged: 

Members respondents, accompanied by the Secretary of the Association re- 
spondent, have called on wholesale coal dealers, including the wholesale dealers 
respondents, and outlined their plans and urged said wholesale coal dealers 
under threat of boycott to cooperate with them by refusing to sell coal to any 
nonmember or to any dealer who undersold the Association, thus eliminating 
all price competition and forcing all uonmembers to join the Association' if they 
wanted to stay in business; 

Association respondent, through its Secretary, has arranged joint meetings 
between members respondents and wliolesale dealers respondents, in different 
cities and towns in the State of Virginia, as well as in Washington, D. C, where 
the plans, purposes, and practices of the association and its members were out- 
lined to the wholesale dealers and their cooperation solicited, under threat of 

Four of the seven case^ in which manufacturers were cited together 
with distributors and dealers occurred in the alcoholic beverage indus- 
try. Individual manufacturers were charged with having agreed 
to boycott distributors or dealers who refused to abide by the price 
schedules in force. In three cases manufacturers joined with jobbers 
of automotive parts and equipment in an agreement to boycott non- 
cooperating jobbers. 

In only four cases were groups of manufacturers alone charged 
with the use of boycott to enforce a price control program. In one 

* Cases in which manufacturers on their own initiative refused to sell to distributors or 
dealers who would not maintain resale prices or otherwise observe the terms and conditions 
of sales specified by the manufacturers (e. j,'., nonobservanco *)f policy with '•espect to ra- 
turned goods; separation of trade functions) were not class''' d as he-- ?e» 


of these cases the Federal Trade Commission failed to specify the 
nature and direction of the boycott {The HcHr'dAJOood iTi^titute, docket 
3418, June 15, 1938). In another case {Scientifh Apparatus Makers 
of America, docket 3092, Mar. 29, 1937) the use of boycott was in- 
ferred from the Commission's statement that the respondent blue- 
print paper manufacturers had agreed "to and have interfered with 
the source of supply of raw paper of certain members of the industry 
who did not adhere to the schedule of prices fixed and agreed upon 
by the said respondents." As has been previously indicated in 
another connection, producers of cement were alleged by the Commis- 
sion to have boycotted customers and dealers handling or using 
imported cement. The most specific charge of the use of boycott by 
manufacturers was set forth in the case of the Uniform Cap Mcmux- 
facturers Institute (F. T. C, docket 2530, Aug. 29, 1935) in which 
it was alleged that a group of uniform cap manufacturers, having 
fixed the prices for their products, united to boycott manufacturers 
of vizors who sold to price-cutting bap manufacturers. 

Failure to comply with respondents' price control progTam in 
seven cases was punishable by group action in cutting prices. In two 
cases {Metal Window In^titute^ docket 2978, Nov. 11, 1936, and Scien- 
tific Apparatus Makers of America^ docket 3092, Mar. 29, 1937) the 
Federal Trade Commission alleged that in some instances the re- 
spondents declared bids requestedby purchasers to be "open," in view 
of the fact that certain bidders were not a party to the price agree- 
ment, and concertedly submitted bids at levels lower than those 
agreed upon to compel such nonmembers to cooperate in the mainte- 
nance of prices. The Government in three other cases alleged that 
the respondents had established a new company, or made arrange- 
ments with an existing company, for the purpose through such com- 
pany of punishing price cutters or eliminating competition that 
threatened the established price levels.*" In a case involving the 
Underwood Elliott Fisher Company and three other typewriter man- 
ufacturers (Department of Justicfe, indictment, July 28, 1939) the 
respondents were charged with "agreeing to underbid any manufac- 
turer of typewriters in the United States who attempted to obtain 
business enjoyed, or sought to be enjoyed, by the corporate defend- 
ants"; and, finally, in the case of the Cement Institute (docket 3167, 
July 2, 1937) the respondent manufacturers, according to the Fed- 
eral Trade Commission, made "concerted and uniform deviations" 
from price levels which otherwise would have prevailed to prevent 
importations of foreign cement from breaking down the pricing sys- 
tem in certain seaboard centers. 

Violence was seldom used as a sanction in price control causes, al- 
though, as will be seen below, it was not infrequently encountered in 
cases in which the primary objective of the respondent group was the 
elimination of competitors. Use of violence to support price control 
programs was found in but two cases, one of these, also, being the 
only price control case in which the assistance of labor groups was 
alleged to have been enlisted in enforcing the group program. In 
the case of the Borden Compmiy et al (Department of Justice, indict- 
ment, Nov, 1, 1938) the defendant milk distributors employed three- 

«>Fi«co8e Company, F. T. C, docket 2161, Feb. 1, 1934: Dairymen's Association, Ltd. 
(Hawaii) Department of Justice, Indictment, Oct. 8, 1937 : and Lock Joint Pipe Company, 
F. T, C, doclcet 3127, May 11, 1937. 


quarters of the membership of Local No. 753 of the milk wagon 
drivers' union, whose support they enlisted to impede by "threats," 
"intimidation," and "violence" the transportation and distribution of 
fluid milk by independent distributors who refused to purchase fluid 
milk at the prices agreed upon by defendant producers' and distribu- 
tors' associations. The Hmiyaii Bre/wmg Corporation Ltd. (Depart- 
ment of Justice, information. Mar, 24, 1938) combined with other 
beer distributors to fix uniform prices and employed violence against 
the retail dealers of a noncooperatipg producer-distributor to force 
him to comply with the established minimum price. 

•In five cases respondent groups were alleged to have misrepresented 
Federal law or authority as a means of persuading or compelling 
members to cooperate in a program of price control. In the case of 
the Covered Button cmd Buckle Creators., Inc. (F. T. C, docket 3186, 
July 24, 1937) it was charged that the respondents attempted to 
enforce their price program by notifying the trade that the promul- 
gated uniform practice was required and approved by the Federal 
Trade Commissioni pursuant to fair-trade-practice rules approved 
for the industry just previously. As stated in the complaint, re- 
spondents : 

falsely stated, represented, and Implied, in and by the notice described in sub- 
paragraph (c) of this Paragraph and by other means, that tlie Federal Trade 
Commission has approved Fair Trade Practice Rules for the Covered Button and 
Buckle Manufacturing Industry regulating prices for covered buttons, buckles, 
and novelties or authorizine the fixing of such prices. 

The fair-trade-practice rules were cited as authority for the estab- 
lishment of a basic cost formula, a maximum uniform discount, and 
for the prohibition of the giving of free samples, the granting of price 
differentials, rebates, refunds, discounts, credits, or other allowances 
from the "established basic cost prices." Respondents in their an- 
nouncement of uniform prices and terms publicly informed their cus- 
tomers, through a notice in Women's Wear, that : 

Manufacturers of covered buttons and buckles who are not memhers of the 
undersigned Association are hereby notified that they will be held strictly ac- 
countable for any violation of the rules as promulgated by the Federal Trade 
Commission and will be subject to legal action for any such violations. 

In another case {Southern Vitrified Pipe Association., docket 3868, 
Aug. 8, 1939) the Federal Trade Commission complained that the 
respondent association had maintained a committee to prevent devia- 
tion from the established prices by threats and propaganda that such 
deviation would constitute a violation of Federal laws against dis- 
crimination in price. 

Similar in their use of Federal authority were references to the Na- 
tional Recovery Administration. In three cases groups of manufac- 
turers, operating under codes of fair competition established in con- 
formity with the N. R. A., had established various price control 
measures outside the purview of those codes. These cases implicated 
the Fire Extinguishing Appliance Manufacturing Industry (F. T. C, 
docket 2352, Apr. 4, 1935), the Rubber Manufacturers Association., 
Inc. (mechanical rubber goods, F. T. C, docket 2354, Apr. 5, 1935), 
and the Nationul Electrical Manufacturers Association (wire and 
cable, F. T. C, docket 2565, Sept. 26, 1935) . The Federal Trade Com- 
mission charged that respondents had exceeded N. R. A. authority to 
enforce illegal price control measures. 


There were a number of devices which, though rarely encountered 
illustrate the variety of sanctions resorted to in enforcing price con- 
trol. The Dairymen''s Association (Department of Justice, indict- 
ment, Oct. 8, 1937 ) wa3 charged with instigating vexatious lawsuits by 
the creditors of its competitors, in an effort to harass them into com- 
plying with its price program. In three cases, which named the 
National Standard Parts Association and the Motor Equipment 
Wholesale Association as respondents (F. T. C, dockets 2764, 2765, 
2942, Apr. 15, 1936, Apr. 15, 1936, and Oct. 14, 1936) , it was charged 
that noncooperating small jobbers were required by the manufacturer 
members of the respondent associations to carry a "full line" of auto- 
motive products, with the end in view of so embarrassing them finan- 
cially as to drive them out of business. In the case of the Loclt Joint 
Pipe Company (docket 3127, May 11, 1937) the Federal Trade Com- 
mission alleged that respondents in effectuating their agreement on 
uniform bids "made disparaging statements and representations 
covering the financial standing and business of competitors." One 
of the devices alleged in the Borden Go. indictment was the inducing 
of health inspectors favoring the combination to discriminate against 
milk producers who did not cooperate with it. In the case involving 
the Dairymen''s Association it was alleged that the respondents had 
bribed competitors' employees to give information on customers as an 
aid to the respondents' progi-am of concerted price cutting. In one 
case action against price cutters extended to an arrangement with 
newspapers whereby they agreed to refrain from advertising cut 
prices {Hiram Walker, Inc., F. T. C, docket 2991, Nov. 23, 1936) . 

It should be noted in conclusion that the type of sanction or coer- 
cive device, or means of applying pressure on those who were indif- 
ferent to or defied the price agreement, frequently was not elaborated 
in the complaints. Reference has already been made to the language 
of the Shelto7i Tubular Rivet Co. complaint, which illustrates the 
generality and vagueness of the charges. Beyond the fact that such 
actions as "intimidation," "disciplinary action," or "coercive means 
and practices" were employed by the respondents, there was no indi- 
cation in 17 of the cases of the sanctions applied. 

Elimination of competitors. 

Of the 125 cases studied, there were 38 instances in which the pri- 
mary objective of the respondent group was the elimination of com- 
petitors. This is the second of the two major classifications of illegal 
objectives of trade associations as they appeared in the charges of the 
Federal Trade Commission and the Department of Justice. Cases 
falling in this classification have been divided into two subgroups: 
Programs involving, and programs not involving, control of channels 
of distribution. 

Control of distribution channels. — There were 14 cases in which the 
Government charged the respondent groups with having attempted 
to maintain or gain control of distribution channels. In four of the 
cases respondents were wholesalers of candy, tobacco, or groceries.*^ 

<i Wyoming Valley Jobbers Association, Inc., F. T. C, docket 2403, May 22, 1935 ; South- 
ern New YorJc Candy Distributors Association of Binghamton. Neir York, F. T. C, docket 
2292, Feb. 4, 1935; Star Tobacco Company F. T. C, docket 3412, May 9, 1938; and Fali 
River Wholesale Grocers' Association, F. T. C., docket 2677, Jan. 4, 1936. 


Three named dealers in building supplies.*^ Distributors and packers 
of sponges were implicated in the case of the Sponge Institute (F. 
T. C, docket 3025, Dec. 29, 1936) ; distributors of surgical instruments 
and appliances in another case {Metropolitan Surgical Instrument 
C&im-cU, Inc.^ F. T. C, docket 2409, May 28, 1935), and distributors 
of rubber heels and soles and dry goods in two other cases {T?ie I. T, 
S. Company, F. T. C, docket 2802, May 15, 1936 ; and the Wholesde 
Dry Goods Institute, Inc., F. T. C, docket 3751, Mar. 31, 1939). In 
the three remaining cases charges were made against furniture re- 
tailers {Retail Furniture Dealers'' Association of St. Louis, F. T. C, 
docket 2757, Apr. 9, 1936) and against ice cream manufacturers {In- 
ternational Association of Ice Cream Manufacturers, F. T. C, docket 
2346, Mar. 27, 1935 ; and National Dairy Products Corporation et aZ , 
Department of Justice, Indictment, Nov. 1, 1938). 

In these cases the organized wholesalers, dealers, or other distributor 
respondents attempted to establish themselves as the only "recognized," 
"legitimate," or "bona-fide" distributors of the products handled. 
Their programs were designed to eliminate manufacturers' competi- 
tion in the market by preventing them from selling directly to dealers 
or consumers and in some cases, at the same time, to eliminate the 
competition of such distributors as chain stores and other large retail 
outlets that combined wholesaling and retailing functions. Accom- 
panying this program it was alleged in some cases was an attempt by 
the respondents to establish uniform prices, terms, and conditions of 

In most of these 14 cases the method used by the respondents to 
achieve control of distribution in their localities was to enlist the 
membership or cooperation of all similarly situated distributors. If 
complete cooperation was achieved, the group was then in the best 
position to dictate the distribution policies of manufacturers in the 
area represented and in so doing to prevent the entrance of new com- 
petition in the field. If distributors remained outside the group pro- 
gram, the group attempted to use organized pressure upon manu- 
facturers to do business with its members only, thus forcing the re- 
calcitrants either into line with its policy or out of business. Action 
in the final analysis was directed against noncooperating producers 
and "unrecognized" distributors. In 10 of the 14 cases the respondents 
were groups of wholesalers or other middlemen, or firms, such as build- 
ing material dealers, that characteristically combine wholesaling and 
retailing functions. The Retail Furniture Dealers' Association of 
St. Louis was composed of retailers who attempted to prevent manu- 
facturers and distributors from selling direct to final consumers in 
their territory. In the /. T. S. case, wholesalers sought the coopera- 
tion of small retailers to prevent manufacturers from selling direct 
to chain-store outlets. In the Ice Cream Manufacurers and National 
Dairy Products cases the respondents were ice cream manufacturers 
who also performed a wholesaling function. Their program- was di- 
rected against retailers who made ice cream with counter freezers, 
thus minimizing their dependence upon manufacturers for bulk 

" Building Material Dealers Alliance^ F. T. C. docket 2191, Oct. 18, 1935 ; New York 
8iate Sheet Metal Roofing and Air -Conditioning Contractors' Association, F. T. C, docket 
2931, Sept. 28, 1936 ; and Phil J. Bliffert, F. T. C, docket 3631, Oct. 18, 1938. 


Analysis reveals that there was little dissimilarity in methods and 
sanctions allegedly used by the 14 respondent groups to gain control 
of channels of distribution. Such variations as occurred are largely 
attributable to the diflfering nature of the products handled or to the 
differing organization of distribution, although the ingenuity, posi- 
tion, and strength of the respondent groups also were important 

In the ca^e of the Wyoming Valley Jobbers Association, the Federal 
Trade Commission alleged that the respondents had : 

Exacted and procured pledges and other promises of agreements from each 
such "recognized" ^dealer and each member of respondent Association and from 
manufacturers and producers of tobacco and confectionery products to the elfect 
that such dealers, members, manufacturers and producers would support, adhere 
to, and enforce the foregoing program of respondents set forth in Paragraph 
three hereof. 

Printed and published lists (so-called "white lists") containing the names 
of "recognized" dealer members of said Association, so as to include in said lists 
only so-called legitimate, regular, or "recognized" dealers, brokers, distributors 
and wholesalers of said products, and to exclude therefrom, and thereby to iden- 
tify as such, so-called non-"recognized" dealers, brokers, distributors and whole- 
salers of said products, and supplied said lists to aforesaid manufacturers, and 
by the means and methods hereinafter set forth persuaded, induced and com- 
pelled said manufacturers to cease dealing with and to refuse to open accounts 
with the dealers, brokers, distributors and wholesalers so reported. 

The procedure of the Southern New York Candy Distributors Associ- 
ation was described in almost identical language, and the group of 
tobacco wholesalers implicated in the case of the Star Tobacco Co. 
also depended upon pledges and agreements from manufacturers and 
other distributors. The Fall River Wholesale Grocers' Association 
similarly was charged with securing agreements from manufacturers 
to do business in the area only with firms cooperating in the group 
program. Furthermore, "an agreement was reached between respond- 
ent Wholesalers' Association and the association of retail grocers in 
the Fall River region looking to the prevention and restraint of pur- 
chases by retailers direct from manufacturers." In this case manu- 
facturers were required not only to cease supplying wholesalers not 
members of the association but to accept respondents' pooled orders 
in carload lots and to fill out the carload with their own merchandise 
when the pooled orders were insufficient. The Wholesale Dry Goods 
Institute, Inc., sought to canalize the flow of dry goods and notions 
through its members and to obtain preferential treatment from manu- 
facturers, primarily through the publication of trade lists indicating 
to both wholesalers and manufacturers the firms with which they should 
deal. According to the Federal Trade Commission : 

The respondent, the Wholesale Dry Goods Institute, Inc., has prepared and 
distributed a directory containing the names of approximately 1,400 individuals, 
copartners and corporations, which said respondent considers meet with the defi- 
nition of a wholesaler as defined by said respondent, the Wholesale Dry Goods 
Institute, Inc. Members of said respondent, the Wholesale Dry Goods Institute, 
Inc., listed therein are designated by a star opposite their respective names. 

Said respondent, the Wholesale Dry Goods Institute, Inc., from time to time 
has compiled, and compiles, a list of manufacturers of dry goods, notions and 
kindred lines of merchandise in which said list or compilation all of the manufac- 
turers are classified or graded according to their respective sales policies. The 
highest grade or classification is grade A, and in this classification are placed those 
manufacturers who confine their sales to wholesalers. The lowest classification 
is group K, and in this classification are placed those manufacturers who sell not 
only to wholesalers but chain stores, syndicates and retail stores without main- 


taining any differential in price. Said list of manufacturers is distributed by said 
tespondent, the Wholesale Dry Goods Institute, Inc., among its said members. 
Said list is from time to time revised and the manufacturers listed therein re- 
classified according to their current selling policies, and the members of said 
respondent, the Wholesale Dry Goods Institute, Inc., are so notified. 

In this case manufacturers not confining their sales to the member 
wholesalers were alleged to have been reclassified into a lower status 
on the published list. Members, in turn, were "coerced and com- 
pelled" to refrain from purchasing from such manufacturers. Use of 
the boycott was explicitly charged in the other cases mentioned above. 
Member wholesalers boycotted manufacturers who supplied nonmem- 
bers, cooperating manufacturers, in turn, refusing to sell to whole- 
salers not members of the respondent groups. The usual boycott pro- 
cedure was supplemented in the case of the Fall River Wholesale 
Grocers' Association by a penalty provision, whereby the association — 

obliged all of its members to cease handling the products of said manufacturer on 
penalty of forfeiture of deposits of said members held by respondent Wholesalers' 
Association as a guaranty of their conformity to its requirements. 

The methods and sanctions cited in the cases of Phil J. Bliffert, who 
was "consultant and adviser" to 11 building supplies dealers in Mil- 
waukee, Wis., and of the Building Material Dealers Alliance were 
similar. Bliffert and his group were charged by the Federal Trade 
Commission with: 

Boycotting and threatening to boycott manufacturers and sellers of building 
supplies who sell or ship building supplies either to competitors of respondent 
dealers or directly to consmners of building supplies. 

Causing, inducing, and procuring, by promises, threats, coercion, intimidation 
and otherwise, manufacturers and sellers of building supplies : 

Not to sell or ship building supplies to competitors of respondent dealers 
or directly to consumers of building supplies. 

To boycott competitors of respondent dealers and consumers of building 

To confine to the respondent dealers the said manufacturers' and sellers* 
sales and shipments of building supplies intended for use, consumption or 
resale in Milwaukee County and other counties in the State of Wisconsin. 

To pay to one or more of the respondent dealers commissions upon said 
manufacturers' and sellers' sales of building supplies made directly to con- 
sumers for use upon construction projects upon which the respondent dealers 
bid, for which said commissions the recipients thereof render to s.'^iid manu- 
facturers and sellers no services whatsoever. 

Bliffert was charged with soliciting the respondent dealers and others 
to enter into and perform the sundry plans, understandings, agree- 
ments, combinations, and conspiracies referred to. The New York 
State Sheet Metal Roofing and Air-Conditioning Contractors' Associa- 
tion was charged with attempting to prevent manufacturers of hot- 
air furnaces from selling to mail-order houses. To effect this end an 
effort was made "to prejudice the members of the New York associa- 
tion and the various other trade associations and their respective mem- 
bers against said manufacturers; to urge the members of said trade 
associations to purchase only from manufacturers recommended by 
said respondents." In addition to issuing "white lists" and using boy- 
cott and "coercive and concerted action," it was alleged that re- 
spondents : 

Caused publication and distribution of many thousands of pamphlets and bul- 
letins to the various trade associations in the several States of the United States 
and to the respective members thereof, urging and requiring said members to 


discontinue purchasing the products of manufacturers named in said pamphlets 
and bulletins, and urging and requiring the said trade associations to induce 
their membership to discontinue trading with said manufacturers. 

The Federal Trade Commission's complaint in the matter of the 
Sponge Institute sets forth in two succinct paragraphs the respond- 
ents' program to control channels of distribution : 

Respondent institute and its respondent members define the only legitimate 
and regular channel of distribution to be the packer, then the wholesale distributor 
(among whom are said members of the Institute), then the wholesaler and the 
retailer; and from time to time designate the business concerns who constitute 
the legitimate packers and wholesale distributors in- this channel as "bona fide 
sponge houses." Channels of distribution originating with the packer of sponges, 
aild which do not flow through the distributor, but go direct to the consumer 
or to the wholesaler or retailer, are designated by them as irregular and illegiti- 
mate channels of trade, and any dealers acquiring sponges through such so-called 
illegitimate channels are, by the respondent Institute and its respondent mem- 
bers, designated illegitimate dealers. 

Pursuant to the aforesaid agreement and understanding, the respondent mem- 
bers of the Institute furnished the respondent packer members who had entered 
into such agreement, as hereinabove set forth, with a list of "bona fide sponge 
houses," with the direction to the respondent packer members that such list con- 
tained the "hona fide sponge houses" to whom they should confine their sales. 
In pursuance of said agreement, combination and conspiracy, the respondent 
packer members cooperatively adhered to the plan, and by concert of action, 
failed and refused to sell sponges to any dealer unless such dealer was on the 
list furnished by the Institute as a "bona fide sponge house." Said list has been 
revised from time to time, and rf pondent packer members are furnished with 
each revised list of the so-called "bona fide siwnge houses." Pursuant to the 
aforesaid combination, agreement and understanding, the respondent Institute. 
furnished its members with a list of the packers who were cooperating in the 
plan to restrict sales, and cause said respondent members of the Institute to. and 
said members did, by concert of action, confine their purchases to the said packers 
who were cooperating in said plan ; and whenever the Institute discovered that 
any packer had made a sale contrary to the agreement and understanding, the 
name of such packer was taken off their list, and such packer violating the agree- 
ment was blacklisted, and thereafter the respondent members of the Institute, by 
concerted action failed and refused to make any further purchases from such 

The program alleged in the case of the Metropolitcm. Surgical Instru- 
ment Council closely resembled that just described. However, in this 
case there was also a corollary price agreement, which was enforced 
"by a system of fines exacted from members making sales of said com- 
modities at prices less than those set out in said schedules." The com- 
plaint stated that the N. R. A. Code of Fair Competition for the 
Surgical Distributors Trade could in no way be interpreted to justify 
respondents' activities, thus implying that respondents had invoked the 
code as a sanction against recalcitrant members of the trade. In the 
/. T. S. case the Federal Trade Commission charged that respondent 
shoe-finding jobber and respondent shoe repairers had agreed : 

to Vlose the natural channels of distribution of* the products of competitors of 
resi)ondent who sell their products to the 5- and 10-cent stores and to cause the 
natural channels of trade, viz., the shoe manufacturers, the shoe findings jobbers, 
the rei)airers, and hardware stores, to boycott and refuse to deal with those 
manufacturers and wholesale dealers in the aforesaid products who also sell their 
products to the 5- and 10-cent stores. 

The de"vice used to enforce this effort was the circularizing of the 
trade with letters, pamphlets, literature and advertisements in trade 
magazines, and the disseminating of propaganda through salesmen, urg- 
ing boycott of designated concerns. The Retail Furniture Dealers' 
Association of St. Louis was charged with preventing manufacturers. 


distributors, and jobbers from selling direct to consumers and further- 
more with preventing manufacturers from accepting orders from deal- 
ers outside St. Louis for delivery in that city, Noncooperating man- 
ufacturers and distributors were blacklisted and boycotted, whereas 
those who were willing to cooperate signed pledges and were white- 

The cases involving the International Association of Ice Cream Man- 
ufacturers and the National Dairy Products Corporation et al. were 
concerned with the activities of the same group. The first case was 
initiated by the Federal Trade Commission, which at the request of the 
Attorney General transmitted its files of the proceedings to the De- 
partment of Justice, from which the second complaint was issued. The 
Commission characterized the respondents as "wholesale ice-cream 
manufacturers and distributors." The activities of which the Commis- 
sion complained arose in connection with respondents' effort to prevent 
the installation of counter ice-cream freezers in retail stores. Use of 
these counter freezers minimized the dependence of retailers on the 
wholesale-manufacturers for bulk ice cream. The Commission charged 
the respondent group with : 

Boycotting and intimidating suppliers, distributors, and vendors of counter 
freezers to cause them to cease handling such freezers and causing their customers 
to cease dealing with them. 

Prevailing upon creameries, milk-products distributors, distributors, and vendors 
of ice-cream mix by "threats of loss of business, intimidation, and boycott" to refuse 
to deliver ice-cream mix, or to deliver inferior or "scorched" ice-cream mix, to 
counter-freezer operators. 

Securing by fraud and misrepresentation alleged letters from dissatisfied pur- 
chasers of counter freezers to be used as evidence against such freezers. 

Persuading city and State sanitary inspectors to harass counter-freezer operators. 

OlTering to purchase counter freezers at exorbitant prices, thus to regain the 
business of the retailer. 

Reducing wholesale prices to low rates to attract retailers from the use of the 
counter freezers; this end having been achieved, the previous higher rates were 

Discouraging the use of counter freezers in drug stores by threatening to estab- 
lish new competing drug stores. 

• Sponsoring legislation, ostensibly as sanitary regulation, to discourage the use 
of counter freezers. 

Publishing and distributing pamphlets and other literature containing untrue 
statements designed to discourage the use of counter freezers. 

Substantially the same allegations were made by the Department of 
Justice in its indictment of the Natixmal Dairy Products Corporation 
et al., in which case the same respondent group was implicated. 

Co^es not directly involving control of distribution channels. — 
Twenty- four of the 38 cases in which the major objective of the re- 
spondont groups was the elimination of competitors have been classified 
as not involving the control of distribution channels. In these cases 
the respondents were concerned primarily with the elimination of simi- 
larly situated competitors rather than with the preservation of a dis- 
tribution function threatened with diminution or extinction by new 
distribution forms and practices. More aptly than any other, this 
group of 23 cases may be described as involving efforts to monopolize 
a line of business. Economic coercion, of which the boycott was the 
principal form, characterized these efforts. In approximately half the 
cases the respondents also were charged with having entered into con- 
spiracies or agreements to fix and maintain prices. 


Four of the 23 cases implicated groups of building supply distributors 
or dealers. Two of these {Florida Building Material Institvie^ Inc., 
F. T. C, docket 2857, June 30, 1936; and California Lumbermen's 
Gomwil, F. T. C, docket 2898, Aug. 14, 1936) might well have been 
classified under the category of cases involving the control of distri- 
bution channels, inasmuch as the respondent dealers in both cases 
through boycott attempted to prevent manufacturers or wholesalers 
from selling directly to consumers or from otherwise short-circuiting 
or avoiding dealer distribution. Judging by the complaints, how- 
ever, these respondent associations were not alone concerned with pre- 
serving the dealer's function. They tended to operate as an exclusive 
group of dealers, who conspired not only to preserve the dealer's func- 
tion in the distribution of building supplies but also to eliminate from 
the market competing dealers who for one reason or another were not 

Erivileged to join the conspiracy. Thus, in the case of the California 
umhei^merCs CoiinmJ.^ the Federal Trade Commission charged that 
the respondents had denied membership in their associations to per- 
sons who were engaged in business, or who desired to do business, in 
the communities served by the respondents, had driven or attempted "to 
drive such competitors out of business," 'and otherwise had attempted 
to "acquire and maintain a monopoly in the State of California." *" 

The Federal Trade Commission in two other cases charged con- 
certed action to monopolize the distribution of building supplies. In 
these cases {Pittsburgh Plate Ghss Compani/, docket 3491, July 14, 
1938; and Pittsburgh Plate Glass Company, docket 3858, July 22, 
1939) respondent distributors, who also were contractors of window 
and other glass used in buildings, and respondent unions of glaziers 
were alleged to have cooperated to prevent competing contractors 
from supplying and installing glass in buildings in the St. Louis 
and Indianapolis trade areas, respectively. The methods alleged in 
the two cases were similar. In the Indianapolis case (docket 3858) 
the respondents agreed among other things that "to be recognized as 
a glazing contractor, one must be an employer engaged in the glass 
and glazmg business;" that evidence that one was in such business was 
the stocking of a "reasonable" amount of flat glass products, the main- 
taining of "necessary" truck and warehouse equipment, and the con- 
tinuous employment of at least three men ; that all glazing work must 
be done at the situs of the job, except as permission was obtained from 
the business agent of the respondent labor union ; and that to install 
glass the glazing contractor must employ members of the respondent 
union. Respondent distributors refused to supply contractors who 
failed to meet the requirements specified. The capacity, tendency, 
and effect of this agreement, according to the Commission, was to 
"monopolize in respondent distributors the glazing contract business 
in the Indianapolis trade area;" to prevent glazing contractors and 
glass distributors outside the State from securing glazing contracts; 
and to prevent the establishment of new glazing contractors in the 
Indianapolis trade area.** 

« Respondents in this case have petitioned the ninth circuit court to review the Com- 
missioner's order against them. 

*♦ Had the present survey Included cases instituted by the Federal Government subsequent 
to October 1, 1939, the number of cases involving conspiracies to monopolize the distribu- 
tion and installation of building materials would have been very considerably expanded, 
in view of the recent activity of the Depaitnient of Justice in this field. 


Groups of distributors were iinplicated in six other cases instituted 
by the Federal Trade Commission. In two cases {/San Pedro Fish 
Exchange, docket 3739, Mar. 17, 1939 ; and Northeastern Maine Whole- 
sale Confectioners'* Association, docket 2385, May 9, 1935) the Com- 
mission charged the respondent wholesaler associations with having 
boycotted suppliers who sold to competitors and, in the Maine Con- 
fectioners case, with having denied membership in the association 
to firms wishing to affiliate therewith, thus preventing them 
from engaging in the business in which the members of the asso- 
ciation were engaged. In the case of the Hotel, Restaurant and 
Tavern EquivTnent Association (F. T. C, docket 3861, July 27, 
1939) respondents, who were manufacturers and distributors of glass- 
ware, were alleged to have conspired and combined among themselves 
(for reasons not indicated in the complaint) to cut off the source of 
supply and to refuse to fill the orders, "of at least one competing 
jobber." In the case of the Chicago Medical Booh Company (F. T. C, 
docket 3557, Aug. 26, 1938) the Federal Trade Commission com- 
plained that the Chicago Co., a distributor of medical books, had 
conspired with four respondent publishers of medical books to cut off 
the supply of medical books to two competitors of the Chicago Co. — 
Wilcox & Follett Co. and Login Bros. The Chicago Co. had been able 
to force a publishers' boycott against these two companies by reason 
of its dominant position in the Chicago market. The alleged effect 
was to monopolize commerce in the purchase and sale of medical books 
to and from Chicago and vicinity. The fifth fcase {B. Green and Com- 
pany, F. T. C., docket 3720, Feb. 21, 1939) was directed at a rather 
unique situation in the wholesale grocery trade of Baltimore, Md. 
According to the Commission it had been the custom for wholesale 
grocers in this area to pool their less-than-carload-lot purchases in 
order to obtain carload rates. But during 1938, it was alleged, re- 
spondents entered into an agreement to refuse to allow "certain desig- 
nated wholesale grocers" to be a party to their arrangements; to de- 
liberately increase their purchases of certain products so as to exclude 
the necessity of admitting competing wholesalers to their pooling ar- 
rangements; and to refuse to buy from manufacturers who allowed 
such designated wholesalers to pool their purchases into carload lots. 
Finally, in the case of the Hershey Chocolate Corporation (F. T. C, 
docket 3134, May 20, 1937) the respondents — two of the largest manu- 
facturers of candy bars, a sales corporation, and the three largest 
vending machine operators — were charged with having entered into 
exclusive distributor arrangements, in which the manufacturers agreed 
to confine their sale of special chocolate bars to the respondent vend- 
ing machine operators. The Commission alleged that this agree- 
ment made it difficult for competing vending machine operators to ob- 
tain and maintain vending machines in theaters.^^ 

The Department of Justice in four instances charged that respond- 
ent groups, as an aid to monopolizing trade, had solicited and ob- 
tained the aid of labor groups, who cooperated to force nonmembers 
into the association or to drive tliem out of business. This was accom- 
plished by their refusal to haul or otherwise handle the goods of non- 
member enterprises. The action of the unions in these cases, accord- 

** The respondents in this case have petitioned the third circuit court to review and set 
aside the Commission's order of March 14, 1939. 

260752—41 — No. 18 8 


ing to the Department of Justice, was accompanied by threats of in- 
jury, violence, sabotage, or other methods employed by persons labeled 
as "gangsters" and "gorillas." These cases involved the trucking, fur, 
and fish trades in New York City.^® 

Two cases were instituted by the Department of Justice against 
associations in the business and professional service trades. In the 
case of the National Retail Credit Association et ol. (petition, June 12, 
1933) the members of respondent association (retail credit grantors, 
retail credit agencies, retail credit men's associations), in addition to 
allocating areas in which they might gather and sell credit informa- 
tion, were alleged to have agreed to refuse to give credit information to 
agencies other than members of the national association and to refuse 
to sell credit reports to other agencies for resale to credit grantors 
unless the vendees were members of the association. The result of 
these agreements, according to the Department of Justice, was a tend- 
ency to monopolize retail credit information in the association.*^ In 
the case of the American Medical Association et al. (indictment, Dec. 
20, 1938) the Department of Justice alleged that to hinder and obstruct 
the operations of Group Health Association, Inc., a cooperative, risk- 
sharing association in the District of Columbia, the defendants had 
conspired to prevent the staff doctors' of Group Health from consult- 
ing with member physicians of the defendant associations through 
instituting a boycott against Group Health doctors; had instituted 
disciplinary proceedings against two doctors on Group Health's staff, 
principally as the result of which one resigned from the staff and the 
other was expelled from the membership of the defendant Medical 
Society of the District of Columbia; and through a "white list" of 
approved groups and organizations and subsequent recommendations 
had — 

coerced the Washington hospitals to boycott Group Health Association, Inc., 
and the doctoi-s on the said Association's staff. 

The case of the American Sheet and Tin Plate Corrfpany (F. T. C, 
docket 2741, Mar. 13, 1936) presents an interesting situation in which, 
according to the Federal Trade Commission, manufacturers of tin 
plate had entered into a conspiracy not to sell or quote prices on 
"stock plate," a trade name for overruns and seconds, to jobbers or 
manufacturers of tin cans and other metal containers. Subsequent 
to the agreement such plate was cut into shapes that could not be 
used by these purchasers. The Commission concluded that : 

the result of the acts of the said respondeuts, as hereinbefore set out in 
paragraphs seventeen and eighteen, have been and now are to unduly tend to 
substantially lessen, restrict, and suppress competition in the interstate sale of 
tin plate throughout the United States, particularly in the sale of "stock plate" 
and to enhance the prices of said tin plate above the prices which had theretofore 
prevailed and which would prevail under normal, natural, and open competi- 
tion between said respondents ; and also tends to destroy the business of and 
force out of business the jobbers of tin plate ; and also tends to create a monopoly 
in the manufacture of tin containers in the American Can Co. and the Conti- 
nental Can Co. by depriving their competitors, the said small manufacturers of 

** Protective Fur Dressers Corporation et al, indictment, Nov. 6, 1933; Fur Dressers 
Factor Corporation et al., indictment, Nov. 6, 19.S3 ; Fish Credit Association, Inc., et al., 
indictment, June 5, 1933 ; Market Truckmen's Association et al., indictment, Aug. 3, 1933. 
Similar to the charges in these cases in that the assistance of labor unions was enlisted, 
though no violence was allesjed, were those contained in the petition of the Department 
of .Justice against the Textile Reflnishers Association. Inc.. May'l, 1936. 

" On April 5, 1935, an information was filed charging certain of the defendants in this 
case with having violated the consent decree entered on October 6, 1933. A majority of 
these defendants pleaded guilty. United States v. HuUe, May 6, 1936. 


tin containers, of their normal source of supply of tin plate. The said small 
manufacturers of tin cans and metal containers, who heretofore purchased their 
necessary supplies of "stock plate" through the jobbers of tin plate are now 
forced to purchase "production plate" at prices which are substantially higher 
than they were formerly required to pay and in fact higher than the price that 
is paid for the same product by the said American Can Co. and the sai4 Con- 
tinental Can. Co. i 

The Department of Justice in six cases has brought action against 
various interests in the motion picture industry. The leading case is 
Paramount Pictures^ Inc.^ et al. (petition, July 20, 1938) in which 
all the major producers and distributors and their subsidiary and asso- 
ciated distributors and exhibitors were cited. The Department of 
Justice- in this case alleged that the alliance between the producers and 
the affiliated and associated distributors and exhibitors has tended 
toward a monopoly in exhibition, to the detriment of independeiit ex- 
hibitors. It was charged that the producer-exhibitor defendant^ had 
tended to divide territory between themselves, had bought up inde- 
pendent theaters, and through various "distress methods," including 
among others threats to deprive independent exhibitors of desirable 
products, threats to build new theaters, and purchase of theater sites, 
had compelled independent exhibitors in some instances to sell or dis- 

fose of their theaters to them (the defendant producer-exhibitors), 
t was alleged, furthermore, that a series of harsh and onerous trade 
practices had been imposed upon unaffiliated exhibitors, including 
block-booking, forcing of short subjects and news reels, arbitrary desig- 
nation of play dates, arbitrary and unreasonable clearance and; zon- 
ing schedules^ overbuying, arbitrary and discriminatory film rentals, 
prohibition of double features, score charges, and specification of mini- 
mum admissions. In addition, independent exhibitors, according to 
the petition, were discriminated against by reason of certain benefits, 
favors, and advantages granted affiliated exhibitors, among which 
were the sharing of advertising costs, optional contracts, contract modi- 
fications, granting of "overage" and "underage," permitting cancela- 
tions of short subjects, and "move-over" privileges. It was also 
asserted that a monopoly in the production of feature pictures was 
fostered by the respondent producer defendants through exclusive 
arrangements for the loaning and pooling of featured players, di- 
rectors, technicians, and studio equipment. 

In four of the five remaining cases local groups of unaffiliated, 
chain exhibitors in various parts of the country were charged with 
having conspired with major film distributors to obtain discrimina- 
tory and valuable advantages over independent exhibitors with re- 
spect to the exclusive use or choice of feature pictures, rentals, zon- 
ing, and clearances, minimum admission prices, exhibition of double 
features, contract options, and other matters. In some of the cases 
it was also alleged that the defendant exhibitors had attempted to 
force independent exhibitors out of business through such tactics as 
threatening to build, or building, new theaters, overbuying, cutting 
admission prices, and giving away large sums of money in the form 
of prizes.** 

** Crescent Amusement Company, Inc., et al.. Department of Justice, complaint, Aug. 11, 
1939 ; f^chxne Chain Theatres, Inc., et al.. Department of Justice, complaint, Aug. 7, 1939 ; 
Interstate Circuit, Inc., et al.. Department of Justice, petition, Dec. 15. 1936 ; United 
Theatres, Inc., et al., Department of Justice, petition, July 16, 1932. The fifth case, Warner 
Brothers Pictures, Inc., et al.. Department of Justice, petition, Feb. 25, 1936, implicated 
activities of several major distributors to gain possession of certain Independent, exhibiting 
Interests In St. Louis, Mo. 


Elimination of design '''"piracy!''^ 

There are included in the survey two cases of concerted action 
intended to protect the creators of styles and designs. In the csise 
of the Millinery Quality Guild, Inc. (F. T. C, docket 2812, May 21, 
1936) , respondents, it was asserted, organized to protect original mil- 
linery styles from being pirated by other manufacturers of women's 
hats. The Millinery Quality Guild, Inc., established and operated a 
department known as the "registration bureau," wherein members 
had the privilege of filing and registering their original models. It 
was mutually agreed that registration of members' models or designs 
by the bureau would constitute a conclusive determination that such 
designs were original and that thereafter any imitation or copyifig 
thereof constituted style piracy. The registered design was con- 
sidered the personal property of the registrant. The members of 
the ^uild, and the affiliated respondent, Uptown Creators' Guild, ac- 
cordmg to the Federal Trade Commission : 

are originators of the leading styles of the highest class ladies' hats and are 
manufacturers and sellers of the highest-class ladies' hats. No member of 
either Guild originates or manufactures hats to sell at wholesale at less than 
$8 per hat. Said members of both said Guilds maintain designing departments 
and employ highly paid designers who are constantly engaged in the origination 
of new styles of hats. Such designers at intervals journey to Paris, France, to 
observe the trend of styles and to secure original French models, from which 
they later devise various adaptations which are called and known as "origina- 
tions." The style element is the outstanding factor in the sale of ladies' hats 
and the late style hats, such as are sold and distributed by the members of 
both Guilds, are in great demand by the purchasing public throughout the 
United States. The respondent members of said Guilds are the recognized 
leaders in the field of ladies' hats so far as style and design are concerned and 
a majority of the high-grade retail dealers and outlets are required to procure 
at least some of their models from the manufacturers in one or both of said 
guilds in order to offer a full line of ladies' hats. 

To make registration effective, the guilds and their members solic- 
ited and secured from a large number of retail customers their 
agreement to a so-called "declaration of cooperation." The "declara- 
tion" pledged the retailers to boycott all concerns that were guilty 
of design piracy. The guilds "compelled" and "coerced" retailers 
into signing the "declaration" with the threat of withdrawing the 
supply of original hats. No sales were made to violators of the 
agreement. Approximately 1,600 retailers in various States "co- 
operated." Customers were given warranties that the goods pur- 
chased from members and affiliated retailers were not copies. The 
Federal Trade Commission concluded that : 

The capacity, tendency, purpose and result of the combination, conspiracy 
and agreement, and the acts and practices performed thereunder, by said re- 
spondents and the retail dealers hereinabove described, have been and now are 
to unduly and unreasonably restrain commerce by limiting manufacturers of 
stylish hats as to the outlets of their products and retail dealers as to the 
sources of supply ; to deprive the public of the benefits of normal price competi- 
tion among retailers of stylish hats by restraining said retailers, under threat 
of boycott, who desire to piirchase the products of the members of the Millinery 
Quality Guild, Inc. and the Uptown Creators' Guild from making any purchases 
unless such retailers sign and enter into the guilds' agreements; to prevent re- 
tailers in stylish millinery from freely purchasing their requirements of said 
products in interstate commerce from the manufacturers thereof; to substan- i 
tially increase the price of such hats to the retailers and to the consuming 
public; to place in the hands of the Millinery Quality Guild, Inc. control over the 


business practices of the manufacturers of stylish hats for women and the power 
to exclude from this industry those who do not conform to the rules and regu- 
lations established by said Guild and thus to unduly and unreasonably restrain 
interstate trade and commerce in stylish millinery and to tend to create a 
monopoly in the said Millinery Quality Guild, Inc., its members and those 
cooperating with it. 

The respondents were ordered to cease their boycott of noncooperat- 
ing retailers. This order has been appealed by the respondents on 
the ground that activities to prevent style piracy are not unreasonable 
restraint of trade. 

In the case of the Fashion Origmators Guild of America^ Inc. 
(F. T. C, docket 2769, Apr. 16, 1936), the i-espondent manufacturers 
and i^etailers of high-priced ladies' garments also were charged with 
having employed illegal methods in fighting design piracy. Accord- 
ing to the complaint, this guild operates in much the same manner 
as the millinery guild. It includes the Textile Merchants Group and 
'■affiliated'^ retail members, as well as the leading designers and man- 
ufacturers of ladies' garments. Manufacturers of garments were 
required to purchase their textile requirements from members of the 
Textile Merchants Group or from other cooperating importers or 
converters; and members of the Textile Group were required to reg- 
ister their designs and patterns with the Industrial Design Registra- 
tion Bureau of the respondent National Federation of Textiles, Inc., 
an association of converters, dyers, and printers of silk and rayon 
fabrics, and to confine their sales of fabrics embodying such registered 
designs to the garment-manufacturer members of the guild. Sales 
of garments were confined to affiliated and cooperating retailers, who, 
in turn, refused to handle pirated goods. Professional shoppers, 
blacklists, fines, and penalties figured among the methods employed 
to enforce the program. In this case, also, the respondents have 
appealed the Commission's cease and desist order. 



In chapter III it was shown that the objective common to a large 
majority of trade associations implicated in actions of the Federal 
Trade Commission and the Department of Justice in recent years 
was the control of price competition. For the most part, however, the 
records of these proceeding's are singularly unproductive of facts con- 
cerning the market circumstances leading to the stabilization efforts, 
the reasons for the adoption of the particular pattern of control com- 
plained of, and the problems faced by the association in endeavoring 
to make theii* controls effective. As the result of extensive legal 
consideration over a period of 5 years, the record of the activities of 
the Sugar Institute ^ is more adequate in these respects than that of 
any other recent case dealing with the activities of a trade association. 
The present chapter attempts to summarize this record, particularly 
as it bears on the methods employed and problems encountered in the 
industry's attempt to achieve price stabilization through the control 
of trade practices. 

The Sugar Institute was established early in 1928 and dissolved in 
1936. Created with the unanimous support of the cane sugar refining 
industry, the institute began with a carefully formulated code of 
ethics and proceeded on the advice of skilled counsel. Sugar re- 
finers allied in the institute above all were desirous of controlling 
the price of their product, which is a highly standardized commodity. 
Because base prices are customarily uniform, all producers selling 
the standard product at the same base price at the refinery, price com- 
petition makes its appearance in transportation terms, commissions, 
allowances, and other terms and conditions of sale offered to dis- 
tributors and consumers. 

Before the institute proceeded with its program it endeavored to 
provide against any weakening of its power to establish the intended 
controls. The members of the institute produced approximately 
four-fifths of all refined sugar consumed in the United States in 1927. 
Assuming the solidaritj' of the membei^, the institute went on to in- 
sure the cooperation of sugar producers accounting for the remaining 
one-fifth of American sugar consumption. The sellers of cane sugar 
that was refined "offshore," that is, in the cane-sugar-producing is- 
lands, subscribed to the institute's policies. The producers of beet 
sugar and some Louisiana "direct consinnption" sugar producers who 
were organized in the Domestic Sugar Bureau, likewise followed the 
leadership of the institute. This left only a very small portion of 
available sugar capacity outside the purview of institute policy. 

iThe case of Sugar Institute, Inc. v. United States (1936), 297 U. S. 553, has been the 
subject of a number of commentaries, among which are James Lawrence Fly, "Observations 
on the Anti-Trust Laws, Economic Theory and the Sucar Institute Decisions," 45 Yale 
Law Journal, 1939, and 46 Yale Law Journal, 228 (1936) ; William J. Donovan, "Effect of 
the Decision in the Sugar Institute Case Upon Trade Association Activities," 84 University 
of Pennsylvania Law Review, 929 (1936) : and Milton Handler, "The Sugar Institute Case 
and the Present Status of the Anti-Trust Laws," 36 Columbia Law Review, 1 (1936). 



To stabilize price competition, the refiners endeavored to standard- 
ize trade practices. Because they might become the vehicle for special 
concession, quantity discounts were abolished altogether. The cash 
discount was fixed at the lowest prevailing level. Consignment points 
were limited, and transiting and diversion privileges restricted. Uni- 
form freight charges were established, based upon rail rates. In the 
distribution of sugar, brokers, warehousemen, and dealers were re- 
quired to elect but one of these functions. The customs of the industry 
with respect to datings, price guaranties, deferred payment, damaged 
sugar and frozen stocks, second-hand sugar, private brands, and toll- 
ing arrangements were reviewed and revised. The experience of this 
trade association illustrates the fact that the establishment of major 
controls often entails the imposition of a host of minor ones. 

The refiners were not always aware of the implications of their own 
actions. In important instances in which the desired uniformity af- 
fected their own interests adversely, individual refiners displayed little 
hesitation in violating the institute's rules. When, for example, the 
institute attempted to establish a universally applicable system of 
freight charges, some refiners were forced to choose between loyalty to 
institute policy and retention of customers ; their choice of the latter 
seriously jeopardized the institute's transportation control program. 
Violations of institute rules by refiners usually resulted in reconsider- 
ation of policy or personal efforts by the staff and industry members 
to restore compliance. When parties outside the institute violated its 
rules, the penalties tended to be more severe. Brokers, warehousemen, 
and merchants were listed as "approved" if they agreed to comply 
with institute policies ; nonconformance resulted in their elimination 
from the approved list. The resentment of these interests welled up 
into numerous complaints to Congressmen, chambers of commerce, and 
Government agencies, the effect being to attract wide attention to the 
institute's activities. 


Sugar is derived from plant materials. Depending upon the source, 
there are many different types — dextrose, glucose, lactose, sucrose — 
but the most common is sucrose, which is easily derived from cane 
and beets. The process of separating sugar from the beets and cane 
yields raw sugar, which is semipure sucrose; the further process of 
refining the raw sugar results in 100-percent pure sucrose. This is 
the "refined" sugar in everyday use, a standardized product, which 
in appearance and properties is almost wholly the same whether its 
source is cane or beets. 

A large part of the sugar used in the United States comes from cane 
grown in Cuba, Hawaii, the Philippine Islands, and Puerto Kico. The 
sugarcane is grown on plantations, where it is cut and taken to mills 
to be crushed and processed. The resulting coarse sugar is raw sugar ; 
it contains about 4 percent of foreign matter. The general practice 
is for the sugar then to be shipped in this state to refineries in the 
United States, where the remaining impurities are removed and re- 
fined sugar is produced. The refineries market this sugar chiefly in 
hard, or granulated, form, but there are other types of refined sugar — 
as, for example, soft, or "brown," which contains certain nonsucrose 
substances — and there are various ways in which these sugars may be 
packaged for sale. 


Approximately one-fiftK of the refined sugar consumed annually in 
the United States in recent years has been derived from beets, which 
are grown principally in the States of California, Utah, Idaho, Colo- 
rado, Wyoming, Montana, Nebraska, Minnesota, Michigan, and Ohio. 
Beet sugar is entirely processed on the spot; a mill or factory on or 
near the farm derives raw sugar from the beets, and a refinery under' 
the same roof by removing the impurities converts this into pure 
sucrose. Despite the fact that it is identical with refined cane sugar, 
this sugar produced from beets sells at a differential under refined 
cane sugar. Several explanations have been offered for this disparity : 
Custom dating from the days when beet sugar was not entirely puri- 
fied in refining and had a distinctive appearance; prejudice among 
housewives against its use in preserving, canning, and jelly-making; 
and a desire on the part of the cane refiners that the beet producers 
each year should sell their limited supply of refined sugar quickly 
and leave the market to refined cane sugar. 

A very small proportion of American sugar needs is supplied by 
sugarcane grown in the United States. This cane is grown princi- 
pally in Louisiana and to some extent in Florida. 

Sugar produced in the islands is to a small but increasing extent 
refined on the plantations there and shipped to the United States in 
refined form. The amount of refined sugar imported has been about 
575,000 tons of the total of approximately 6,200,000 tons of refined 
sugar delivered annually for consumption in the United States in re- 
cent years. Domestic beet and domestic plantation cane sugar have 
accounted for approximately 1,400,000 tons; approximately 4,200,000 
tons have been refined by American commercial refineries from im- 
ported raw cane sugar. 

The American sugar industry has always enjoyed tariff protection, 
and imports of sugar refined abroad were not a significant competi- 
tive factor until the middle 1920's. In 1927 Cuba shipped approxi- 
mately 122,000 tons of refined sugar to the United States; in 1929, 
274,000 tons; and in 1933, 490,000 tons. Cuban imports have consti- 
tuted nearly all the foreign shipments, and during the period 1934r-38 
represented approximately two-thirds of all offshore refined sugar, the 
remaining third coming from the United States insular possessions 
of Hawaii, Puerto Rico, and the Philippines. The Tariff Act of 
1930 placed a duty of 2 cents on each pound of Cuban raw sugar, and 
2.12 cents on each pound of Cuban refined sugar. The duty on 100 
pounds of refined, therefore, was $2.12, while the duty on the 107 
pounds of raw required to produce 100 pounds of refined was $2.14. 
The Cuban duty was a preferential rate — 20 percent under the full 
rate applying to the relatively small volume of sugar imported from 
other foreign sources. The Cuban Trade Agreement of 1934 brought 
the rate on raw down to 0.9 cent, and on refined to 0.954 cent. Foreign 
competition was brought under direct control by the Jones-Costigan 
Act of 1934 and the Sugar Act of 1937, which, among othet things, 
established quotas on the amount of refined sugar, as well as raw 
sugar, allowed to enter this country. These quotas applied not only 
to Cuba but to the insular possessions, whose sugar is duty-free. The 
sugar quotas were suspended by proclamation of the President in Sep- 
tember 1939, at which time the tariff on Cuban sugar was increased to 
1^5 cents per pound on raw and to 1.59 cents per pound on refined; 
the quotas were subsequently restored. 


Since the raw cane sugar that is refined in the United States must 
almost entirely be imported, the refineries are located in ports on the 
seaboard where delivery of raw material can easily be made. They 
are in, or in the immediate vicinity of, Boston, New York, Phila- 
delphia. Baltimore, Savannah, New Orleans, Galveston, and San 
Francisco. The Atlantic seaboard refiners supply the East and 
Southeast ; the Gulf refineries supply the South and Southwest ; and 
the California refineries supply the Pacific States. Competition be- 
tween beet ahd cane sugar occurs at the periphery of the beet sugar 
area, which extends from the Middle West and South Central States 
to the Pacific coast. As the Atlantic cane refineries attempt to extend 
their distribution into the interior, they increasingly meet not only 
beet sugar competition but the extended sales areas of refineries on 
other coasts; thus the Chicago and upper Mississippi Valley areas 
are the meeting places of beet sugar and of cane from the Atlantic, 
Pacific, and Gulf coasts. 

The cane sugar refiners, for the most part, sell at a "basis" price, 
which is a refinery f. o. b. price. Uniformity in the "basis" price 
results from the practice of matching prices on the standard com- 
modity; whatever differences in selling prices occur come about 
through differences, not in the "basis" price, but in discounts, freight 
applications, storage and other allowances, and other terms and 
conditions of sale. Sugar is sold by refiners on what are called 
"moves." The principle behind the move system, which is customary 
in the sugar refining industry, is that when the refiners announce 
higher prices to prevail within a day or two, buyers purchase suffi- 
cient sugar at the old price to last them for a period which in the 
past has been one of approximately 30 days. The announcement of a 
higher price usually is made by one refiner ; the others either quickly 
make similar announcements of a like increase or take no action at 
all. In the latter event, the first refiner retracts his announcement. 
However, when a decrease in price is announced by one refiner, all 
others are likely to follow suit at once. The amount of selling that 
occurs between moves has been slight compared to the amount that 
takes place on moves. 

The price involved in these moves is the "basis" price. It is the 
quotation on the standard item — granulated sugar in 100-pound 
bags — and does not include the various terms and conditions of sale. 
At stated differentials the buyer has the privilege of taking soft 
fjugars and various forms of lump and packaged sugar. Not all re- 
finers produce a full line of packages, quantities, and forms, although 
all sell 100-pound bags of granulated and soft sugar. Through ad- 
vertising, the makers of packaged sugar have built up considerable 
preference — as for "Domino" and "Jack Frost" — among ultimate 
consumers. Similarly, a preference has been created for lump sugar, 
which commands a higher price. 

The customers of refineries are principally of two types, represent- 
ing the use of sugar as a constituent of food products and its direct 
use by the ultimate consumer. Manufacturers of baked goods, con^ 
fectionery, and soft drinks, are examples of the first group, chain 
and wholesale groceries, of the second. Refiners customarily sell to 
these customers through brokers and for convenience in distribution 
maintain stocks of all their types of sugar at interior "consignment ' 
points, where warehouses are rented for this purpose. As between 


the wholesaler, broker, and warehouseman there has in the past been 
a considerable overlapping of functions. 

About 70 percent of the annual consumption of sugar is direct, 
that is, household and table use; the remaining 30 percent is almost 
entirely consumed by manufacturers of various food products. Per 
capita consumption of sugar in the United States rose 400 percent 
between 1850 and 1909, and by 1925 a further increase of 25 percent 
had been registered. Total annual consumption since 1925 has re- 
mained at a level of about 6,000,000 sliort tons, and because the popu- 
lation has increased in the meantime, per capita consumption of sugar 
has declined slightly. The sizable and steady annual increases in 
the late nineteenth century, and the more recent deceleration and 
cessation of this annual growth in per capita consumption, have 
had a serious effect upon the refining industry. The industry by 
1914 had become conditioned to increasing consumption and antici- 
pated gains when planning productive capacity. The World War 
strained existing capacities and brought about further expansion. 
When the war emergency had ended, the industry returning to "nor- 
mal" found that the normal situation was one of relatively stable 
demand. The result has been a condition of continuing overcapacity. 

Early in 1887 there were 23 independent sugar refinmg companies. 
With the exception of 1 company which operated 3 factories, and 
another which operated 2, these refiners had 1 plant each; the total 
number of refineries was 26. No one company accounted for more 
than 17 percent of the total production. In August of 1887, this 
pattern was drastically changed when, under the leadership of Henry 
O. Havemeyer, 17 of these companies combined to form the Sugar 
Refineries Co. This new organization represented a large propor- 
tion of the total production of the industry. It was capitalized at 
$50,000,000, in the form of negotiable trust certificates that were ex- 
changed for the capital stock of the companies, which totaled in value 
about $6,000,000; control was vested in a board of trustees. The 
immediate result was the consolidation of production in 4 of the 20 
refineries originally acquired, the remainder being dismantled or dis- 
continued. The operating plants were located in Brooklyn, Jersey 
City, Boston, and New Orleans. In Januai-y 1888, control of one of 
the remaining independents, the American Sugar Refining Co., whose 
plant was in San Francisco, was secured by the trustees of the Sugar 
Refineries Co. 

In 1890, the year in which the Sherman Antitrust Act was passed 
by Congress, it was ruled by the New York State Court of Appeals 
that the transfer to the trust of one of the plants involved in the 
original merger was a violation of its franchise. In view of this 
development, the trustees, in 1891, incorporated in New Jersey the 
American Sugar Refining Co., also capitalized at $50,000,000. The 
trustees' certificates of the Sugar Refineries Co. were exchanged for 
stock in the new corporation; the trustees became its board of di- 
rectors; and with Henry O. Havemeyer as president, the trust con- 
tinued operation in a new guise. Remaining outside the combina- 
tion were 5 major independents — 1 in San Francisco, 1 in Boston, 3 
in Philadelphia — and 2 small Louisiana cane refineries, Godchaux 
and Williani Henderson, which had been established in 1868 and 1875, 
respectively, and were under close family ownership and control. 
The total daily melting capacity of the independents was about 


4,000,000 pounds as against approximately 12,000,000 represented 
by the combination. 

Within a ffew months after the formation of the American Sugar 
Refining Co., the most aggressive independent competitor, the 
Spreckels brothers, combined with it, exchan^ng their San Francisco 
plant for stock in a specially created operatmg subsidiary (Western 
Sugar Refining Co.) of American and selling the control of their new 
Philadelphia refinery. Early in 1892 American secured control of 
the three independent refineries in Philadelphia — Franklin, Delaware 
Sugar House, and E. C. Knight. This left, of the original 23 com- 
panies, only the Boston independent, with a daily melting capacity 
of only 400,000 pounds, outside the combination, which held 90 percent 
of the total refined sugar production of the Nation. The Government 
accordingly^ filed suit under the Sherman Act in the E. C. Knight 
case, wherein the Supreme Court in 1896 held that a tendency toward 
monopoly was present but that sugar refining was manufacture and 
not interstate commerce within the meaning of the act. In the mean- 
time American had begun buying the stock of a new competitor, the 
Baltimore Sugar Refining Co.; it subsequently caused that refinery 
to be dismantled. 

As the original combination developed, new competition arose, 
both from interests that saw possibilities of profit in refined sugar at 
high prices and from those that anticipated profit in selling their 
competitive plants at good prices to American. In addition to Bal- 
timore, which entered the industry in 1889, there were Mollenhauer 
in 1891, W. J. McCahan and National in 1892, United States in 1895, 
and New York in 1897. American bought the United States refinery 
in 1897 and dismantled it. In 1900 American formed a new corpora- 
tion, the National Sugar Refining Co. of New Jersey, which pur- 
chased the existing National, New York, and Mollenhauer companies, 
with the controlling interest held by American. Also in the same 
year the new National Co. purchased 25 percent of the stock of 

While American was following a policy of combination and control 
of competitors it entered, in 1894, into an agi'eement with practically 
all of these competitors for the restriction and allocation of produc- 
tion and the fixing of prices. This action antagonized a powerful 
customer, Arbuckle Bros., coffee merchants, who m 1898 entered the 
refining industry. Despite a bitter price war and the retaliatory 
entrance of American into the coffee business, Arbuckle survived as 
an independent. In 1901 American launched a campaign against 
beet sugar competition, first by a price war against the 31 beet sugar 
producers, and then by a series of stock acquisitions, which in the 
next 10 years secured for American an average of 41 percent of the 
capital stock of 11 companies producing about half of the total beet 
sugar supply. 

New competition in cane sugar refining continued to appear. The 
Colonial Sugar Co. was incorporated in 1902 and remained independ- 
ent until 1908, when it was bought out by the Cuban- American Sugar 
Co., a raw sugar producing corporation, which appears to have had 
ties with American and National. Federal also began operations in 
1902, under C. A. Spreckels, and remained independent. In the 
West, where competition seemed to have been ended with the merger 
in 1891 of the Spreckels brothers and American in the latter's sub- 


sidiary, Western Sugar Retining Co., the California & Hawaiian 
Sugar Refining Co. made an appearance in 1897. In 1903 Western 
drove this competitor to the verge of insolvency in a price war, which 
was settled by an agreement whereby Western bought California & 
Hawaiian's stock of refined sugar and paid it $200,000 per year to 
remain totally inactive for 3 years. Also in 1903, when the Penn- 
sylvania Sugar Refining Co. was about to open a new refinery in 
Philadelphia as a competitor, representatives of American by a series 
of involved legal and financial transactions enmeshed the principals 
in complications that prevented the operation of the plant. The 
receiver of a Philadelphia bank that closed as the result of the 
defalcations and suicide of its president, who had backed the new 
refinery, brought action for triple damages under the Sherman Act 
against several dii*ectors of American. This case went to the Supreme 
Court, which distinguished it from the E. C. Knight case, whereupon 
the Government in 1909 secured an indictment. The subsequent trial 
ended in a disagreement bv the jury and the filing of nolle prosequi 
in 1912. 

One of the chief results of the refiners' actions in the early 1900's 
was unfavorable publicity. An extensive public reaction against the 
sugar industry arose, and in November 1910 the Government filed civil 
suit against the American Sugar Refining Co. under the Sherman Act 
in ap effort to obtain its dissolution. In 1911 the Hardwick commit- 
tee — "Special Committee to Investigate the American Sugar Refining 
Company and Others" — began a series of hearings for the House of 
Representatives. Although the investigation itself produced no defi- 
nite result, the thought being to await the outcome of the Government's 
suit, its findings were a condemnation of the practices of the American 
Sugar Refining Co. While the investigation was in progrevSs Ameri- 
can sold its stock in Western to John D. and Adolph Spreckels. Cali- 
fornia and Hawaiian became an independent operator, as did Penn- 
sylvania, which was reorganized in 1912. The Warner Sugar Refining 
Co., which had entered the field in 1908, remained independent, as did 
another small refiner located in Sugar Land, Tex., which appears to 
have been a predecessor of the present Imperial Sugar Co. American 
also began to divest itself of some of the holdings in beet sugar com- 
panies about this time and apparently abandoned its effort to control 
the entire industry. The Government suit of 1910 came to a conclu- 
sion when in 1922 American consented to a decree enjoining it from 
holding more than 25 percent of the stock of National, 31 percent of 
Great Western, and 34 percent of the Michigan Sugar Co.; the last 
two-named were beet sugar companies. The proportions held previous 
to the decree were 51 percent, 65 percent, and 40 percent, respectively. 
Not only did the company's influence in the beet sugar field decline 
after 1911, but also its percentage of totaj cane refining production 
was reduced. 

The general effect of the World War upon the refining industry was 
to bring about plant expansion by virtually all refiners. Moreover, in 
1916, another newcomer, Savannah Sugar Refining Corporation, was 
organized, and in the following year its new plant, with a daily 
capacity of 2,500,000 pounds, went into operation. In 1924 the Texas 
Sugar Refining Co., of Texas City, was organized, with a new plant 
of 1,000,000 pounds daily capacity, under an arrangement with Ameri- 
can whereby the latter was to supply raw sugar arid to market the 


refined. Thereafter, expansion of productive capacity seems to have 
ceased. In early 1927 National was permitted by the courts, through a 
modification of the 1922 decree, to absorb the moribund Warner Co. 
Federal went out of business in 1929, and its successor, the Spreckels 
Sugar Corporation, ceased operations in 1930. Texas was reorganized 
in 1929, and the successor, Texas Sugar Refining Corporation, itself 
went into the hands of receivers in 1932. The Revere Sugar Refinery, 
of Boston, successor to the original independent which in 1887 and 
afterward refused to join the trust, is owned by the United Fruit Co. 
California & Hawaiian is owned jointly by % number of Hawaiian 
producers whose raw sugar it refines. 

In the three decades following its victory in the E. C. Knight case 
in 1895, the American Sugar Refining Co. slipped from a position of 
control of over 90 percent of production to one simply of leadership 
of a number of smaller competitors. A relatively fixed volume of 
business was divided among more refiners, each equipped to produce 
considerably more than it could sell. Beet sugar competition had not 
been successfully restrained. Imports of refined sugar, sold in the 
United States by four local agencies — H. H. Pike & Co., L. W. & P. 
Armstrong, Lamborn & Co., and Lowry & Co. — increased, stimulated 
by the Hershey Co.'s construction of a Cuban refinery. As American's 
control declined, competition in the industry increased, and competi- 
tors outside the domestic cane refining industry strengthened their 
positions. American, how^evf •, remained unique in that it owned sev- 
eral modern plants, located S( as to compete in practically evei'y terri- 
tory, a producing subsidiary in Cuba, and a cooperage plant; it was 
better integrated as well as larger than any of its competitors. 

The situation of the industry in 1927, the year in which the Institute 
was in process of formation, was the point of departure in the Govern- 
ment's action against the Institute. In that year there were 15 com- 
panies, which refined virtually 100 percent of the raw sugar imported 
into the United States and provided over 80 percent of the refined 
sugar consumed in the country. Of the total consumption in that year, 
domestic cane sugar refiners accounted for 82.5 percent, beet sugar pro- 
ducers for 14.4 percent, foreign and insular cane sugar refiners for 2.8 
percent, and Louisiana cane producers for 0.3 percent. The impor- 
tance of each of the 15 refiners is indicated by their relative proportions 
of total production in 1927. 

^ ^ Percent of 19n 

Cane sugar refiners production 

American Sugar Refining Co. (5 plants — Boston, New York City, Phila- 
delphia, Baltimore, and New Orleans) 25.06 

National Sugar Refining Co. of New Jersey (3 plants — New York City 
area) 22. 07 

C.ilifornia & Hawaiian Sugar Refining Corporation, Ltd 10.84 

Pennsylvania Sugar Co , 6. 73 

Arbuckle Bros . 5. 80 

Western Sugar Refinery 4.46 

Godchaux Sugars, Inc 4.02 

W. J. McCahan Sugar Refining & Molasses Co 3. 60 

Savannah Sugar Refining Corporation 3. 26 

Revere Sugar Refinery 8. 20 

Imperial Sugar Co 3.00 

Spreckels Sugar Corporation 2. 6fi 

Colonial Sugars Co 2. 33 

Texas Sugar Refining Corporation 1. 84 

William Henderson ,_^ 1. 13 


The World War had been a period of prosperity for all the refiners. 
America's entrance brought an emergency status for the sugar 
refining industry and required Government participation, which 
guaranteed against further antitrust action. The refiners' margin 
had declined in the years following the Government's dissolution suit 
against the American Sugar Refiining Co. and the congressional in- 
vestigation, but it rose sharply in 1914. The rise continued in 1915 ; 
the margin went slightly above 1 cent per pound in 1916, and further 
increases took place until 1920. In that year the Federal Trade 
Commission reported that "in the face of rising costs, the published 
statements of some of the refinerj?^ companies, which have not been 
verified by the Commission, show increases in net earnings for 1919 
over 1918 ranging from 50 to 190 percent." From September 1917 
to December 1919, the industry was under the control of the Food 
Administration. The Sugar Division of the Administration was 
headed by a refiner, George M. Rolph, of California & Hawaiian. 
This Sugar Division was later supplanted by the Sugar Equalization 
Board, but one of the functions of each agency was to recommend 
a refiner's margin to be established by the Food Administrator., 
Herbert Hoover. The margin was established first at 1.3 cents per 
pound, then at 1.45 cents, and, finally, at 1.54 cents. Thus, in 3 
years of capacity production, the refiner's margin increased by ap- 
proximately 50 percent. 

In 1920, Government contrql was relinquished. Demand for re- 
fined sugar fell off, and violent fluctuations in the price of raw sugar 
occurred. Tlie situation was so confused that the refiner's margin 
for that year could not be calculated, but in terms of profits all 
refiners suffered heavily. The margin immediately thereafter did not 
drop drastically ; it was 1.44 cents per pound in 1921 and ranged from 
1.27 to 1.50 cents during the next 3 years. The main problem faced 
by the industry in this period was the adjustment of expanded capac- 
ity to reduced demand. That adjustment was not successfully 
achieved, and in 1925, 1926, and 1927 the margin wa^ respectively 1.14, 
1.13, and 1.09 cents per pound. Thus, in 1927, the refiner's margin 
stood at its lowest point since 1916, and the industry was producing 
at only about 60 percent of capacity. 


The withdrawal of Government control in 1920 signalized the end 
of wartime prosperity for the sugar refining industry. It marked the 
end of extraordinary demand for refined sugar, of capacity produc- 
tion, and of a fixed refiner's maroin. Thereafter the refiners were in- 
creasingly to compete among themselves and with beet sugar pro- 
ducers and offshore refiners for shares of a reduced volume of business 
calling for only a partial use of total refining capacity. 

Since the industry's product is standardized, competition falls 
mainly into the realm of price, and because each refiner is required 
to match his competitors' "basis" prices, he is forced to seek means out- 
side the "basis" price if he wishes to build up his share of the total 
sales of refined sugar through price reduction. The means used may 
include larger commissions to brokers, lower freight charges, higher 
fees to customers and brokers for use of their warehouses as consign- 
ment points, special alloAvances for services performed by the cus- 


tomer, or other concessions in terms and conditions of sale. If these 
specfial arrangements and concessions become known, like the basi^ 
price they also will be matched by competitors. 

Beginning in 1921, refiners seriously competed for additional busi- 
ness for their one-third or greater idle capacity. Most of them 
oflFered to desirable customers special concessions in terms and condi- 
tions of sale. Tliey endeavored to keep these concessions secret, both 
from other refiners who might match them and from other customers 
who might demand them. The "basis" prices were thereby increas- 
ingly deprived of meaning as an index of actual prices to customers. 
Some of the forms which concessions took included : 

Split brokerage, whereby brokerage fees were paid in part to 

Storage concessions, whereby a refiner stored sugar with a 
prospective purchaser in advance of the actual sale and paid a 
storage fee. 

Absorption of freight charges, whereby the customer was billed 
for delivery from a consignment point instead of f. o. b. refinery, 
or goods delivered over a certain route were billed as shipped over 
a less expensive one. 

Substitution of more expensive types and packages on orders 
billed as consisting solely of granulated sugar in 100-pound bags. 

Delayed billing to extend the period of cash discount. 

Excessive advertising allowances. 

Option^ to buy at the lower previous price after an announced 
advance in the basis price had taken effect. 

Absorption of brokerage charges on resales of second-hand 
sugar, with a loose definition of such merchandise. 

Absorption of trucking charges, giving store-door delivery 
at no extra expense to the customer. 

Split billing, whereby less-than-carload orders were given the 
benefit of carload freight rates. 

Although most refiners made these secret concessions to customers 
who claimed that they were being offered by competitors, there were 
some refiners who refused to depart from their announced prices, 
terms, and conditions for the special benefit of particular customers. 
Tliese wei'e Arbuckle, California and Hawaiian, Henderson, Revere, 
and Western ; they were termed the "ethical" refiners in the industry. 
These "ethical" refiners maintained their terms and remained in com- 
petition by meeting secret price concessions with open reductions. 
By 1927 at least 30 percent of the total deliveries of sugar was sold on 
the basis of secret concessions. These concessions were the result 
of the refiners' hunger for business and of the buyers' insistence. The 
large buyer enjoyed a more favorable bargaining position than did 
the small buyer, but any buyer could effectively represent that con- 
cessions had been offered him by a competing refiner. 

In 1927 sugar consumption fell off, in part at least as a result of 
a "slimness" campaign among the public. Cigarette advertising di- 
rected dieters away from sugar. Although the sugar refiners were 
operating at less than two-thirds of capacity, they found themselves 
overproduced and resorted to price cuts and further concessions to 
market the surplus. Several, including both "ethical" and "unethical" 
refiners, suffered losses that year, and the Warner Co. went out of 


In June of 1927 a group of refiners met to study the situation. 
These were Earl D. Babst of American, James H. Post of National, 
Manuel Rionda of McCaJian, Rudolph Spreckels of Federal (reor- 
ganized in 1929 as Spreckels), Frank Lowry of Pennsylvanifi . and 
Wilbur L. Cummings, of the law firm of Sullivan & Cromwell. A 
plan for organizing a trade association was favorably considered 
In September, drafts of the certificate of incorporation and bylaws 
of the proposed association were submitted to the Department of 
Justice, and all refinere were invited to send representatives to- a meet- 
ing to be held in December. The December meeting, which extended 
over several days and was attended by the entire industry, was for 
the purpose of drawing up a statement on trade practices, to be 
submitted to the Department of Justice along with the ceraficate of 
incorporation and bylaws of the association. This was done, and 
Cummings, Babst, and Post early in January conferred, with the 
assistant to the Attorney General in charge of antitrust matters on 
the legal acceptability of their trade practice rules, or "code of 
ethics." On January 7, 1928, another meeting of the refiners was held, 
at which the code was adopted and the Sugar Institute 

The originators of the institute were all connected with "unethical" 
refineries. In the institute they took a commanding role: Babst 
became president; Post, chairman of the board; Rionda, treasurer; 
Spreckels, a director ; and Cummings, general counsel. For executive 
secretary they selected Sidney Ballou, a former judge in Hawaii, 
who at the time was general counsel of California and Hawaiian, 
an "ethical" company and the only one that did not in 1928 join the 
Institute. The founaers later explained that they had been ashamed 
of their unethical practices, that they were afraid that the industry 
was becoming demoralized through the spread of secret concessions 
granted by "^unethical" refiners, and that they had been in constant 
fear of prosecution under the Clayton Act for unlawful discrimina- 
tion in the granting of these concessions, which had the corollary 
effect of tending to create monopolies by favoring certain distributors 
over others. Their purposes in organizing the institute were, they 
said, to bring about {a) the selling of sugar on open, publicly an- 
nounced prices, terms, and conditions; (b) the gathering of trade 
statistics not previously available; (c) the elimination of practices 
deemed wasteful ; and (d) the institution of an advertising campaign 
to increase consumption. 

The delay of California & Hawaiian in joining the institute was the 
result of a concurrent growth of trade association sentiment among 
beet sugar producers and of California & Hawaiian's desire to remain 
on the best of terms with beet sugar as well as cane sugar interests. 
At the time the discussions that resulted in the Sugar Institute were 
taking place a parallel move was under way for the formation of an 
association of beet sugar and Louisiana cane sugar producers. George 
Rolph, president of California & Hawaiian, attended the beet sugar 
group's meetings and sent his counsel. Judge Ballou, to the cane- 
refiners' deliberations. Rolph was of the opinion that the beet and 
Louisiana cane producers considered themselves allied in interest but 
would not consider a union with the cane refiners, their competitors. 
California & Hawaiian, whose most severe competition came from 

260752 — 41— No. 18 9 


beet sugar, was sufficiently interested in gaining the good will of the 
beet sugar group to be willing to dissociate itself from the other cane 
rej&ners. Therefore this company joined the Domestic Sugar Bureau, 
the association of beet and Louisiana cane producers, which was estab- 
lished in early 1928, and refused invitations to join the Institute. 
Rolph did, however, state a desire to bring beet and cane interests into 
one association, and California & Hawaiian joined the Bureau with 
the proviso that if the Bureau as a whole did not join the Institute 
within 2 years, California & Hawaiian might do so individually, 
which it eventually did, in October 1929. The Bureau represented 
80 to 90 percent of total beet sugar production and about 30 percent 
of Louisiana cane production. Although none of the beet companies 
east of Chicago was included in the membership, the only important 
nonmember producer was the Michigan Sugar Co. 

The Domestic Sugar Bureau adopted a "code of ethics" patterned 
after that of the Institute and almost identical with it. A differential 
in price between cane and beet sugar was stabilized at a iSgure greater 
than the prevailing one, although there is no evidence of an agreement 
between the bureau and the Institute on this point. The standard 
selling price of beet sugar became 20 cents per hundredweight below 
the price of cane sugar, whatever the latter might be. This in effect 
divorced the cane refiners from price competition with the beet pro- 
ducers. The executive secretary of the Institute explained the action 
with the statement that "The beet companies have a certain amount 
to sell and no more, and the increase of their differential simply means 
that they sell it and sell it in a shorter time than they might otherwise 
have done." California & Hawaiian protested this increase in the 
differential, but could influence neither the members of the Bureau, 
who profited by it, nor the Institute members, who were acquiescent. 
The Bureau carried on a program parallel to that of the Institute. 
There was very close cooperation and exchange of information; joint 
assistance was given, and meetings of the executive personnel of the 
two associations were held frequently. When the Institute issued 
interpretations that amounted to changes in its code, the Bureau did 
likewise with respect to its own code. 

Somewhat the same arrangement obtained with respect to the com- 
peting, offshore refined sugar. The lesser differential in price that was 
customary in this case became stabilized at 5 cents per hundredweight, 
and close cooperation resulted between the Institute and the agents 
selling offshore refined sugar — Lamborn, Lowry, Armstrong, and Pike. 
This differential, however, was not granted to sugar refined in Cuba 
by the Hershey Co. 

Tlie Institute staff was headed by Judge Ballou, at a salary of $75,000 
per annum, until his death in October 1929. Ballou was succeeded by 
his assistant, Fred G. Taylor, a foraner loeet sugar man, whose salary 
was $25,000. Total personnel numbered about 20, and expenses, ex- 
clusive of advertising, amounted to about $200,000 anpually during 
the first 3 years. The Institute in an effort to increase consumption 
and ward off such attacks as that experienced in 1927 from the tobacco 
industry assessed members 15 cents per ton for an advertising campaign 
for the' benefit of the industry. In 1929 it spent about $700,000 for 
advertising and in the following year about $650,000. 



Relations with the Department of Justice. 

At the very outset, the legality of Institute activities wis of primary 
concern to the refiners. Following the second of the pre-Institute con- 
ferences in the summer of 1927, Cummings visited Washington to secure 
Government sanction for the proposed association. He was referred 
by the Department of Commerce to the Department of Justice, where 
he left with William J. Donovan, assistant to the Attorney General, 
drafts of the certificate of incorporation, bylaws, and proposed code 
of trade practices. When the December deliberations of all the re- 
finers had resulted in the formation of a tentative "code of ethics," the 
meetings were recessed while Babst, Post, and Cummings went to 
Washington to show the proposals to Donovan and his assistants. 
Following a talk on January 4, 1928, some revisions were made, and 
the materials were again examined by Donovan. On January 7, the 
refiners held an organization meeting, creating the Sugar Institute 
with bylaws and a code of ethics. Newspapers reported this event 
with comment to the effect that the institute had the approval of 
the Department of Justice. Donovan, noting the newspaper accounts; 
wrote to Cummings protesting such an interpretation of their con- 
ferences and disclaiming any such authority to approve. Cummings 
said in reply: 

I judge that you are satisfied that neither we nor any member of the Institute 
is responsible for any of tlie statements made in the newspapers to the effect 
that your office has approved the plan of the Institute. 

Later it was claimed by his firm that formation of the Institute came 
about "under the aegis of the Department of Justice" and that the 
Attoriiey General's office "had approved and helped to frame" the 

In a letter to Cummings, Donovan, on January 26, gave a cautious 
sanction to the code of ethics, based upon his understanding of the 
purposes of the Institute and his opinion that, as long as the combina 
tion entailed no restraint of trade the situation would not warrant 
the institution of antitrust proceedings. However, in the absence of 
further information from the Institute regarding its activities, doubts 
arose in the Department of Justice. Complaints were received from 
sugar distributors and from Congressmen who had received com- 
plaints from sugar dealers in their districts. Horace R, Lamb, who 
had been assigned by Donovan to the Sugar Institute matter, con- 
ferred several times with Ballou and Cummings on these complaints. 
Late in May, the Antitrust Division sent Simon N. Whitney, an econ- 
omist, to investigate the Institute file&. The resulting report of June 
14 in the main accepted the Institute's explanation of its activities 
but expressed concern over the increase in the refiner's margin that had 
occurred since the formation of the Institute. On October 18, Lamb 
asked to be removed from the investigation on the ground of — 

personal association as counsel for at least one sugar company and with counsel 
engaged in the preliminary work in organizing the Institute before I became en- 
gaged in Government work. 

He had previously been employed by Sullivan & Cromwell, where he 
had assisted Cummings on trade association matters. 


After some further study of sugar prices and movements of the 
refiner's margin, Whitney, without returning to the institute files, 
wrote a second report dated December 1, 1928. Donovan transmitted 
this to the institute for its criticism and response, and there was no 
further activity respecting the Institute on the part of the Antitrust 
Division until a rejoinder was received 7 months later, on August 9, 
1929. By that time Donovan had been succeeded by John Lord 
O'Brian, and James Lawrence Fly subsequently handled the matter 
of the Institute, Fly visited the Institute briefly in December and 
looked into its operations. The Federal Trade Commission meanwhile 
was carrying on a separate investigation, in the course. of which it re- 
ceived a number of complaints from sugar dealers, Congressmen, 
chambers of commerce, transportation agencies, grocery associations, 
and other individuals and organizations. However, no cane sugar 
refiner or beet producer complained of the Institute's actions. 

The Institute itself merely forwarded to the Department of Justice 
printed copies of its interpretations and rulings as they appeared. 
Meetings of the board of directoi^, composed of one ranking executive 
from each member company, were held monthly, and the executive 
committee of the board met weekly. The minutes of the 1927-28 
pre-Institute meetings were never discovered, but minutes were issued 
lof all meetings under the Institute. A representative of the Institute's 
counsel, Sullivan & Cromwell, was always in attendance, and it was 
the practice to submit the minutes to counsel for approval before 
their publication. 

In June 1930, the Federal Trade Commission completed its in- 
vestigation, which was made available to the Department of Justice, 
Fly dispatched an agent of the Federal Bureau of Investigation ta 
the Sugar Institute, where he spent a month, in November and De- 
cember, reviewing files and records. Other Bureau agents inves.ti- 
gated complaints at their source, and extensive collection of evidence 
was begun. 

Early in February 1^31, John Lord O'Brian recommended to the 
Attorney General that the Government file suit against the Sugar 
Institute. This action was authorized; Fly and Walter L. Rice 
prepared a petition. Cummings was advised of the contemplated 
suit, but there was some delay before he returned from Europe to 
confer with O'Brian, Fly, and Rice. At this conference Cummings 
stated that if the complaint concerned only a few specific practices 
the Institute would consider their removal but that if it went deeper 
into fundamentals the best procedure would be to let the courts 
decide. The failure of the Institute to keep the Department fully 
advised concerning practices that were outside the scope of the code 
he ascribed to the change of Department personnel. Petition was 
filed in the District Court, Southern District of New York, on 
March 30, 1931, 

Code of ethics. 

The code of ethics, or statement of trade policy, was adopted coin- 
cident with the creation of the Institute, and read as follows, two 
later changes being noted in brackets : 


Cow) OF Ethios of the Sugae Institutb, Inc. 

Among the purposes for which the Institute was formed were ±he following : 
To promote a high standard of business ethics in the industry ; to eliminate 
trade abuses ; to promote uniformity and certainty in business customs -and 
practices ; and to promote the service of the industry to the Public. 

Accordingly, the organization of this Institute was a frank recognition, in and 
of itself, that customs and practices had grown up in the industry which were 
unsound and unbusinesslike, and which were harmful to producers and con- 
sumers alike. These customs and practices had resulted in confusion in the 
trade and discrimination as between purchasers, with a consequent uneven' and 
uneconomic distribution of sugar to the public. The more important result to 
the industry was a demoralization and restriction of the retail trade in sugar 
and a retardation of the normal increase of consumption. 

Believing that the trade will welcome a rectification of those business methods 
of the industry which have served to promote discrimination between pur- 
chasers ; and believing that the public will be better served if the present chan- 
nels of distribution are preserved and enlarged by maintaining equality of 
business opportunity among merchants of sugar; and believing that the mem- 
bers of the industry will recognize that it is in the interest of the industry to 
encourage and promote the wideP distribution of its product to the end of 
increasing its consumption ; 

The Institute declares its policy to be founded upon, and recommends to its 
members the adoption of business methods in accordance with, the following 
principles, to wit : 

1. All discriminations between customers should be abolished. To that end 
sugar should be sold only upon open prices and terms publicly announced. 
. 2. The business of the sugar refining industry is that of refining a raw product, 
the price of which to the industry is the controlling factor in the price which the 
Industry receives for its own refined product; and the industry as a purchaser 
of raw sugar receives no concessions for quantity purchased. Concessions made 
by the industry for the quantity of refined sugar purchased have resulted in 
discrimination between customers, which discrimination the Institute believes it 
to be in the interest of the industry, of the trade, and of the public to avoid. 
The Institute accordingly condemns as discriminatory, and insofar as this indus- 
try is concerned, as unbusinesslike, uneconomic and unsound, concessions made 
to purchasers on the basis of quantity purchased. 

3. The following trade practices if not uniformly employed with all customers 
of a refiner are discriminatory. Furthermore, if not secretly employed they 
will of necessity be generally demanded, with the result that they must then be 
uniformly employed or abandoned. If uniformly employed they amount to a 
general price concession which should frankly take the form of a price reduction. 
The Institute condemns them as unethical except when practiced openly ; as dis- 
criminatory unless uniformly employed ; and in any event as wasteful and 

(a) Variations from the open and publicly announced prices and terms; includ- 
ing (but without limiting the generality of this clause) the following: 

Special allowances by way of discounts, brokerage, storage, or advertising; 
variations from openly "announced grade or package dilTerentials ; reduction or 
substitution of grades or packings ; delayed billings ; full discounts in cases of 
delayed payment ; and rebates or other allowances by any name or of any nature. 

(b) Split billings, except on cars moving on an 80,000-pound minimum and 

(c) The use of differential rates on consignments, or otherwise than on direct 
shipments over differential routes at customers' request. 

(d) Payment of brokerage where any part thereof inures to the benefit of the 

(e) Storage of sugar in customers' warehouses. [Amended to read: "Storage 
of sugar in warehouses in which customers or brokers are interested, or with 
which they are in any way affiliated."] 

(f ) Allotments to brokers running beyond the close of business of the day 
on which an advance in price is announced by the refiner. 

(g) Special services to customers without appropriate charges therefor, 
(h) The sale of second-hand siigar by refiners. 

(i) Sales for export under contracts which do not provide for shipment out 
of the country. 

4. The factors which enter into and determine the cost of his product for the 
refiner are so largely outside his control, and the probable margin of his profit 


so small, as to render highly speculative and unsound the giving by him of 
options to purchase his sugar. Furthermore, unless equally available to all 
customers alike, the giving of options is discriminatory. The Institute condemns 
the giving of options by refiners. 

5. In the interest of a more even distribution to the trade the Institute recom- 
mends that sugar shall be consigned only to recognized detention points for 
reshipment, or to recognized markets and then in care of railroad or steamship 
lines or to public or brokers' vrarehouses, and that the control of the sugar shall 
remain -with the refiner. [Amended by deletion of the words "or brokers."] 

6. The Institute recommends the use by members of uniform contracts to be 
adopted by the Institute for Eastern, Southern, and Western markets. 

The code admittedly represented an effort to wipe out the practice 
of secret concessions to buyers, which was undermining the price struc- 
ture of the industry. The refiners explained it as being to the sugar 
refining industry what the Federal Trade Commission represented to 
all industry — an effort to prevent discrimination and unfair trade 
practices. The Department of Justice, however, was convinced that 
the actions of the industry under the code indicated less of a desire 
to eliminate unfair discrimination than an attempt to eliminate price 
competition. And the report of the Federal Trade Commission's in- 
vestigation commented on "the so-called Code of Ethics" as — 

a plan and scheme vi^hereby each member, regardless of where it is located or 
where it sells, provides its commodity, sugar, to all purchasers thereof at all 
points in the Lnited States at a uniform price, transportation considered. * * * 

The Institute's program of activities, outlined in the code of ethics, 
called for the abolition of secret price concessions in all their forms. 
This was a large undertaking, and the Institute proceeded at once to 
remove the refiners' suspicions of one another and to develop their 
confidence in the efficacy of the trade association. The first objective 
was brought about largely through frequent personal contacts in the 
board of directors and committee meetings and through constant com- 
munication of institute personnel with the members. In persuading 
President Kolph of California and Hawaiian to enter the institute, 
Judge Ballou stressed the fact that — 

in the absence of such. membership it was impossible to build up a feeling of 
trust and cooperation to replace the atmosphere of suspicion and distrust from 
which the industry had suffered so long. 

He added: 

There is no substitute for personal contact in this regard. I have seen such 
repeated personal contact change men like Bruyn, of National, and Cody of 
Arbuckle, from open hostility to the institute to its ardent supporters and best 

The other immediate objective, confidence in the Institute, was un- 
doubtedly aided by a quick increase in the refiner's margin. Just prior 
to the incorporation of the association the margin was about 0.95 cent 
per pound, considerably below the average of 1.098 cents for the year 
1927. In January 1928 when the Institute was established, the margin 
rose to 1.17, and 3 months later it was 1.38 cents. The average for the 
year 1928 was 1.311 cents, the highest level since 1924. The net profit 
of all the members that year, according to its consolidated statement, 
which included California and Hawaiian, was $16,642,575. This figure 
for the first year of Institute .operation contrasted very favorably with 
the 1927— pre-Institute— industry loss of $250,396. There can be little 


doubt but that the impetus so afforded the Institute at the outset did 
much to overcome latent objections on the part of some members, 
objections that were to be manifested later in resistance to some ele- 
ments of the Institute's program. 

Trade statistics. 

The trade statistical services of the Institute were a subordinate part 
of its activities. The only statistics disseminated in the trade gener- 
ally were weekly reports of total melt (production) and total deliv- 
eries, together with monthly reports of deliveries of all sugar showing 
the relative amounts of domestic cane, beet, and offshore refined sugar. 
Despite many requests by trade publications, it was not until suit had 
been filed by the Government that the Institute gave out other data; 
then it released combined statistics on total consumption of all sugar 
by States, together with per-capita consumption by States, for 1928, 
1929, and 1930. 

Statistical services for the refiners' exclusive use were more exten- 
sive. Each refiner received an individual weekly report of total weekly 
melt, deliveries, and stocks on hand, his own percentages of the totals 
noted. The Institute also issued weekly statistics on each member's 
melt and deliveries for the previous week, with cumulative figures for 
the year ; refiners were designated by key letter, for which each refiner 
had a code. At the end of the contract period for delivery of sugar 
bought on each price move, other reports showed for each refiner the 
total undelivered and unspecified sugar on the contracts with the unde- 
livered amounts noted for each refiner by States.^ Reports of the 
capacities of the several refiners were issued from time to time, and 
amiually an analytical summary of the Institute's statistics was dis- 
tributed to the members. 

Another group of statistics was in part available to offshore re- 
finers and the Domestic Sugar Bureau. Included in this group were 
weekly reports by States, with some subdivisions, of the total amount 
of sugar on consignment; of sugar in transit; and of sugar moved 
over differential routes, both for the refiners' own accounts and on 
customers' request. Similarly released were a weekly report of total 
deliveries by States and a monthly report of the same, together with 
cumulative totals for the year and a comparison of the data for the 
same month in preceding years. A monthly report of total cane and 
beet sugar deliveries by States was issued, as was a general quarterly 
statistical summary. 

The Institute did not collect and distribute data on stocks of raw 
sugar on hand with refiners or on new business entered each week. 
The institute attempted to collect statistics on new business, but 
failed because of the refusal of American, National, and Arbuckle to 
report their figures. As to stocks, the refiners felt that were raw 
sugar sellers to discover that a refiner's stock was low, they might use 
the knowledge to "squeeze" him in spot sales. About 50 perce~\t of 
the raw sugar supplies of refiners was bought in secret transactions 
and the refiners did not wish either their needs or their price to 
become known. 

2 Technically, under the institute rules all sugar contracted during the price moves was 
specified for delivery within 30 days, but this requirement was frequently relaxed. 


The absence of statistics of productiori, deliveries, and stocks on 
hand was cited by the Institute as a major circumstance leading to 
overproduction in the period prior to the institute. The usefulness 
and desirability of these and other statistics were recognized both 
by the trial court and the Supreme Court. The issue that arose in 
the courts stemmed from the Institute's failure to disseminate its 
statistics to the trade, particularly the detailed geographical break- 
downs that were available to the members. It was found by the 
courts that by withholding from the trade valuable statistics which 
they, themselves, were able to use, the refiners gained an advantage 
in bargaining and effected an unreasonable restraint of trade. 

Ofen price reporting. 

It had long been the practice for refiners to post upon their bulletin 
boards, accessible to the trade, the "basis" price of their sugar. This 
was the refinery price and consisted of the duty-paid raw-sugar cost 
plus the refiner's margin. Reductions and additions contained in the 
terms and conditions of sale always altered this price, so that it was 
known as the "basis" price rather than the effective price. As such 
it was posted and when increased, *was the occasion for moves. The 
brokers and other refiners watched the bulletin boards for changes; 
when they were noted, the other refiners adjusted their prices ac- 
cordingly and brokers collected orders from buyers. News of a 
change spread swiftly through the trade, both by personal communi- 
cation and publication in various papers and journals. 

The Institute, in implementing its major principle,- "All discrim- 
inations between customers should be abolished, to the end that sugar 
should be sold only upon open prices and terms publicly announced," 
altered the usual practice regarding announcements only to the extent 
of recommending that after a change in price was posted the Institute 
be notified. Thereupon it took upon itself the task of wiring the price 
to other members, to the Domestic Sugar Bureau, to some brokers, 
agents, and large distributors, and to news agencies and trade journals. 
TTiere was at first some ambiguity in the wording of the Institute's 
recommended procedure, which apparently urged that the Institute be 
notified before posting, but it was later made explicit that announce- 
ment should be made first through the customary posting. It is in- 
teresting to note here that California and Hawaiian was advised by 
counsel, Judge Devine, not to send price notices to the Institute and 
refused to do so. Judge Ballou, in attempting to allay the doubt, 
gave expression to the Institute's legal philosophy : 

Judge Devine asks you, in the interest of safety, to presume conclusively 
that all trade association questions, not already specifically decided by the 
Supreme Court, will, in the future, be decided against the trade associations. 
Sullivan & Cromwell, on the contrary, while recognizing that some questions 
remain uncovered by the Supreme Court decisions, bring their own legal knowl- 
edge to bear upon such questions and advise us as to those questions which 
•they think should be resolved in our favor and those which, although practiced 
by many trade associations, they think should not. As an example of the first 
is our present method of acting as a disseminating medium for price announce- 
ments already made public by refiners. As an example of the second, I might 
cite agreements upon' package and grade differentials which are made and 
published by most trade associations, but which our attorneys think are un- 


In February 1928 the Institute recommended that changes in price 
be announced not later than a o'clock on the day before they were to 
become effective. It had been the custom of the industry on a day 
when a lower price was announced to "reprice" all transactions that 
had occurred earlier at higher prices — in short, retroactively to apply 
the lower price to the entire day's sales, "the Institute's attempt to 
prevent the practice was a failure, for buyers waited until 3 o'clock 
before placing their orders, and if a lower price was announced for 
the next day no business was done until it went into effect. After a 
few months, repricing again became a trade custom. In the case of an- 
nouncements of higher prices, the Three O'clock Kule set a definite 
waiting period, that is, from 3 o'clock until the opening of business npxt 
day. Buyers therefore were afforded a grace period in which to pur- 
chase at the prevailing lower price. Such allowance of time before 
new higher prices went into effect was usual in the trade even in pre- 
Institute days, but for the first time a definite period was established, 
and it was of some advantage to the trade to have the uncertain period 
replaced by a definite one. There was, of course, the possibility that 
during the waiting period recalcitrant refiners might have been per- 
suaded to follow the price increase announced by the initiator of the 
move, but no evidence of such persuasion was found. Early in 1929 
the rule was amended so as to delete the waiting period, saying simply 
that price changes should be announced before 3 o'clock, but while this 
made it possible for refiners to make the new price effective immedi- 
ately they continued to give the period of grace. 

The industry's mechanism of price announcement therefore was not 
fundamentally different under the Institute, and its recommendations 
on repricing and the definite waiting period did not produce any im- 
portant change in the move sj^stem. The significance that attached 
to price relaying under the Institute was a concomitant of other Insti- 
tute activities. The paramount fact was that with terms and condi- 
tions of sale standardized^ the "basis" price became not merely a nom- 
inal quotation but an effective price. In the pi*e-Institute period, re- 
finers, particularly the "unethical" ones, had often sold below their 
announced "basis" prices, as well as at special terms and conditions 
not open to all buyers. When the Institute brought about adherence 
to standardized terms and. conditions, it also insisted upon adherence 
to the announced "basis" prices. This adherence to the "basis" price 
marked a fundamental change in practice. The Supreme Court held 
later that the vice lay, not in the prior announcement of prices, but in 
the agreement to adhere to announced prices. 

A distinction should be made between the fixing of prices indirectly 
through the regulation of trade practices, that is, by the removal of all 
opportunities for departure from the announced price for the stand- 
ardized commodity, and outright agreement to fix and maintain "basis" 
prices. Such a basis-price agreement was charged by the Government, 
but the evidence was found by the courts to be too scanty and incon- 
clusive to warrant that inference. The maintenance of uniformity 
in the price structure proceeded through other channels. 


Control of distribution. 

TraTiS'portation. — Previous to the Institute, sugar was generally sold 
f. o. b. refinery with freight prepaid, a transportation charge being 
added to the "basis" price. The transportation charge to any given 
point was called the "freight application," or "ruling freight basis," 
to that particular destination, usually the lowest all-rail freight rate 
to the point in question from any seaboard cane refinery. If a re- 
finer's actual costs of transportation were higher than the ruling ap- 
plication he absorbed the difference, while if they were lower he 
picked up an additional margin. Individual refiners set varying limits 
to the amount of absorptions they would bear and thus limited the 
number of markets in which they would compete. The customer who 
requested shipment collect could not avoid the system, for he was 
billed for the "basis" price plus freight application less freight actu- 
ally paid. These standard freight applications were based on delivery 
by rail. Beet sugar producers customarily charged, for transporta- 
tion to points in their territory, the standard freight applications of 
the cane refiners and, being located in the interior, usually enjoyed a 
considerable pick-up over the actual cost. 

In two areas buyers were not given the privilege of purchasing 
f . o. b. refinery, being sold solely at delivered prices. One was Central 
Freight Association territory — east of the Mississippi River, west of 
a line from Buffalo to Pittsburgh, and north of the Ohio River. This 
area was served from Philadelphia, Baltimore, and New York refin- 
eries. There was a spread of 3 cents per hundredweight in actual 
freight costs from these shipping points. Philadelphia, which was 2 
cents under New York, and 1 cent higher than Baltimore, was adopted 
as the basing point. The other instance occurred in areas to which 
Texas refiners could deliver at less actual freight cost than that charged 
from New Orleans. These refiners used New Orleans as their basing 
point and thus effected a pick-up ; in fact, the practice, existent since 
1917, provided a large part of their profit. 

There were important exceptions to the system of uniform freight 
applications. Customers located adjacent to water transportation, 
bought from the refinery f. o. b. and themselves arranged for delivery 
by water, obtaining the benefit of the lower transportation charge. 
Delivery involving water transport was called delivery by "differen- 
tial" routes, and these were described variously as "all-water," "rail 
and water," "lake and rail," etc., depending upon the use of canals, 
rivers, or the Great Lakes, alone or in conjunction with rail shipment. 
Because such transportation was cheaper, refiners shipping to stock 
their consignment points themselves usually used these differential 
routes, although their sales from such points were invoiced at the 
standard all-rail freight application from the refinery. 

As competition increased in the twenties, concessions from the stand- 
ard transportation charges began to be offered. Where sugar could 
be delivered either by all rail or by differential routes, as in the Great 
Lakes area, or in the Warrior River area (which comprises Alabama, 
Tennessee, Kentucky, and parts of Indiana), it was difficult to main- 
tain all-rail freight applications in the face of a considerable differ- 
ence in charges. The situation was further complicated by the fact 
that one lefiiier, Savannah, had no differential route into either of the 


territories mentioned and in order to compete was compelled to offer 
rail delivery at the water rate| this caused further reductions by com- 
petitors who knew that for its speed customers would prefer rail over 
water, price being equal. At the time the Institute was formed, the 
tendency was for the standard freight applications to break to the level 
of the cheapest service carrying any substantial traffic. 

Under section 3 (c) of the code, the refiners agreed not to charge dif- 
ferential rates on deliveries from consignment and uniformly to 
observe the all-rail freight applications, except where customers 
specifically requested shipment over a differential route. The purpose 
of the action was expounded in an interpretation by the Institute, 
which read : 

1. General use of differential routes. — Absorbing freight means the selling of 
transportation at less than cost, which is Unsound in principle and necessarily 
throws an undue burden on the consumers at and near the primary markets. It 
is realized, however, that the use of differential rates on consignments cannot be 
prevented in all markets at all times. The customer has the right to ship over 
differential routes from refinery points, taking the slower service at his own cost 
and risk of the market during the transit period. If the quantity thus shipped 
is in fact inconsiderable, it should be ignored rather than break down the freight 
application actually paid on the preponderating quantity of sugar. If, however, 
sugar can be and is shipped by customers in this manner in sufficient quantity 
to break the market at the destination point and render it difficult for refiners 
to sell their own sugar on the all-rail application, then this competition must 
necessarily be met. It is a question of fact in every instance, and the Executive 
Secretary should be fully advised, before sugar actually paying a higher rate is 
sold on the differential rate, of the necessity of this departure from the strict letter 
of the Code of Ethics. 

This offered the prospect of substantial pick-up on freight charges 
in those territories in which sugar could be delivered to consignment 
by water and billed from the consignment point to the customer as 
all-rail, f, o. b. refinery, but it also meant that refiners who could only 
reach buyers by rail found themselves bound to observe the higher 
freight application to markets wherein their customers might take 
delivery from other refiners over cheaper differential routes. Only 
a few months after the Institute began operation it met a situation 
which could not be solved under 3 (c). Savannah had customers in 
Alabama to whom it could deliver only by rail; the same customers 
fead an option of buying from New Orleans refineries from which 
they could take delivery by barge via the Warrior River. In view 
of a considerable difference in cost, if Savannah observed the code, it 
would lose the customers; if it applied the barge rate to deliveries 
by rail, it would violate the code. It chose the latter course, and the 
New Orleans refiners retaliated with lower rates ; the resulting break- 
down spread through the Warrior River region. A similar situation, 
which arose when the Western Sugar Refinery matched the Philadel- 
phia lake and rail freight charges on its all-rail shipments from San 
Francisco to Chicago, soon extended through the Great Lakes area. 
The Institute struggled to secure compliance in the problem areas, 
but the issue went so deep that tlie effort to enforce 3 (c) was virtually 
abandoned by the summer of 192S, although it was not rescinded until 
September 1930. Coincident with the Warrior River break-down, 
however, there began a series of deliberations by refiners on the in- 
stitution of a delivered-price plan. In June 1*928 the directors of 
the Institute decided that adoption of delivered prices would be worth 
considering; in July the Institute's counsel gave his opinion that 


whereas concerted action toward their adoption would be illegal, there 
was nothing illegal in each refiner's going on a delivered-price basis 
of his own accord. Further discussion took place during the fall and 
winter, but no action occurred until the following spring. 

By that time, freight applications over differential routes to the 
Great Lakes area had fallen to the canal and lake basis, a move initi- 
ated by Arbuckle, which despite the fact that its refinery was in Brook- 
lyn had been unable to' develop business by the canal and lake service, 
a service that from the East was most advantageous to New York 
refiners. American coimtered this move, however, by announcing, on 
April 29, 1929, that it would no longer sell f . o. b. refinery in the Lakes 
area but would apply delivered prices. The prices announced in- 
cluded freight charges lower than the actual all-rail rates but substan- 
tially higher than the prevailing rates for differential delivery. The 
other refiners followed American's example and applied virtually the 
same prices. Within a short time the freight applications to the Lakes 
area were stabilized, with buyers deprived of the privilege of re- 
questing delivery by differential routes. Later, in December 1929, 
Godchaux announced delivered prices for points in the Warrior Kiver 
area, a move that was followed by the other refiners. These prices 
were based on the all-rail rates from either New Orleans, Savannah, 
or Philadelphia, depending on which was lowest to any destination, 
and simply ignored the Warrior River barge line which afforded a 
considerably cheaper service. 

Although the Institute took pains to avoid any direct connection 
with the action of the refinefs in announcing delivered prices, there 
is little doubt that it helped in the application of this program. In 
an instance in which one offshore refiner's representative expressed 
doubt that others were complying equally with the Institute's pro- 
gram, the executive vice secretary asking them all for written assur- 
ances, stating that — 

We would also like you to tell us that you will quote sugars only on a delivered 
price basis to such points as are being generally sold on this basis. This latter 
is not an Institute matter but an item of importance to all parties concerned. 

In other cases the impression that delivered prices were an Institute 
matter was definitely conveyed by the refiners and by the Institute 
personnel. The Institute's investigation of alleged departures from 
the delivered prices and its general policing of the system were enough 
to convince the trade. Buyers who attempted to purchase f. o. b. 
■ refinery to the delivered price areas frequently were told that the In- 
stitute's rules prohibited the practice. 

The delivered prices broke down in the Warrior River area about 
6 months after they were established, for the same reason that caused 
the collapse of the standard freight applications : New Orleans refiners 
offered barge-delivery prices as an attraction to buyers, and Savannah, 
which had no such facilities, quoted the same prices on deliveries by 
rail. It was not until after suit had been filed by the Government 
against the Sugar Institute, however, that Arbuckle, in May 1931, cut 
the delivered prices in the Great Lakes area and caused a general 
break-down there. In November of the same year American tried to 
restore the delivered price system, but Arbuckle refused to go along,- 
and the effort failed. 

Had the Institute program under 3 (c) of the cojde of ethics or the 
artnliration of delivered prices met with success, all refiners theoreti- 


cally would have been able to compete equally in all markets, but the 
amount of freight absorption required of those refiners who enjoyed 
access to differential routes would have been far less than that required, 
of those who depended upon rail transportation. The first inclina- 
tion of each refiner appears to have been to increase his volume of 
sales and thus to produce at a higher percentage of capacity. Those 
refiners that had access to water routes preferred to disregard the 
additional pick-up that would have come from adherence to the Insti- 
tute's transportation-equalization program, in order to use this nat- 
ural advantage as a means of expanding sales volume. Arbuckle is 
the best example of this reaction. On the other hand, the unfavorably 
located refiners, typified by Savannah, would not allow their potential 
markets to be reduced when, by freight absorption which they were 
now in a better financial position than before to undertake, those mar- 
kets might be saved. The offering of lower freight applications had 
a tendency, however, to lead to still further reductions and to conse- 
quent increases in the freight absorption required of the refiners. 
When this became suflSciently serious to threaten profits, all refiners 
became willing to consider proposals for uniform practice at higher 
levels. The cycle then began again. Trouble arose mainly in the 
Warrior River and Great Lakes areas because refiners from all sec- 
tions competed there. American alone, by reason of the fact that its 
plants operated in all sections except the west coast, was able to match 
the geographical advantages of any of its more localized competitors. 
In a completely uniform freight system American would have had to 
bear least freight absorption, and to its variety of lines and packages 
would have been added the further inducement to buyers of optimura 
service at the ruling freight charge. At the same delivered prices 
there would have been much reason for a dealer, wherever he was 
located, to place his order with American, with its several plants and 
extensive line, rather than with, for example, Arbuckle, which had 
but one refinery and a limited variety of goods. 

The Institute's effort to sustain standard freight applications was 
accompanied by the regulation of subsidiary practices. Refiners had 
always granted buyers transiting and diversion privileges — respec- 
tively the ability to store sugar in cars at designated points subject to 
later movement to ultimate destination and the ability to change desti- 
nation while sugar is in transit. Because they led in somo, cases to car 
movements designed to defeat the freight applications, the Institute 
initiated a procedure whereby these privileges were restricted by 
refiners and carefully checked when given. In addition, refiners re- 
fused to aid customers in obtaining carload or cargo rates by partici- 
pating" in pooling with sugar shipped on their own account. It was 
ruled that refiners could not absorb switching charges on deliveries 
from consignment points to the buyer's spur or warehouse. For a time 
the Institute also tried to maintain a service charge of 5 cents a bag on 
less than carload deliveries from consignment, but there was never 
complete agreement on or adequate enforcement of this policy. 

In a further effort to prevent secret rebates, the Institute recom- 
mended that no refiner should ship sugar on his own account by pri- 
vate charter unless such charter was arranged directly between the 
refiner and the carrier and the refiner was satisfied that no buyer was 
participating in the rate. It also requested that refiners before ship- 
ment under private charter submit the transportation terms of such 


charter in advance to the Institute. Furthermore, to prevent secret 
reductions in transportation costs to buyers, carriers on the New York 
State Barge Canal were induced, upon threat of boycott, to agree thi^t 
they w^ould not depart from their openly announced schedules of rates 
on sugar. 

The various refiners reported changes in their freight applications 
to the Institute, which in turn disseminated them in much the same 
manner as the "basis" prices. However, the multiplicity of changes 
and special exceptions forced the cessation of the original wire service 
to members. In 1929 the Institute undertook to supply to each refiner 
a loose-leaf freight book. Through this, current information was 
given for each State, except the 11 western ones, on the selling terms 
then in effect for each refiner, together with the respective freight ap- 
plications. As an informational service this merely duplicated the 
freight books maintained by the refiners separately, and at times the 
book was months behind. As a means of implementing the Institute's 
program, it served to call attention to discrepancies from the Institute's 
transportation and contract-term policies. 

Ccnisigmiwnt points.— Ks has previously been pointed out, to insure 
prompt delivery to inland customers the refiners shipped stocks from 
their coastal refineries to inland warehouses from which local buyers 
were supplied. The refiners retained ownership of these stocks until 
the time of their passage into the hands of the buyeVs. Delivery from 
consignment was billed as if the sugar had been delivered direct from 
the refinery, except that sales of less-than-carload lots were billed for 
transportation at the carload rate rather than the higher less-than- 
carload rate. It was felt that buyers were entitled to such treatment 
because the sugar actually had moved from refinery to consignment 
point at the carload rate, and less-than-carload delivery from con- 
signment point to customer entailed very slight additional expense 
over carload costs. 

Increasing competition among refiners during the period from 1925 
to 1927 manifested itself in a large increase in the number of consign- 
ment points. Since better service was the main feature of the con- 
signment system, it became the practice for refiners to create consign- 
ment points to win customers; competitors then were required to 
duplicate the facilities to hold their ground. In effect, instead of 
having stocks at strategic regional points, they were being placed in 
local areas. 

The Institute pursued a twofold objective in relation to this prob- 
lem : First, to eliminate the excessive and unnecessary points that had 
been added immediately prior to its formation ; and, second, to even- 
tually abolish the system of consignment points, freeing the refiner of 
this function in distribution. As Judge Ballon stated the program : 

The Sugar Institute is composed of refiners of cane sugar located on tlie sea- 
board. The normal method of distribution by these refiners is the shipment of 
sugar in carload lots as ordered by jobbers or wholesalers throughout the country. 
It is assumed that these jobbers or wholesalers will store the sugars, paying the 
necessary charges for storage and insurance, will maintain a sufficient stock and 
assortment to meet the needs of the retail dealers in their districts, and will 
distribufe in less than carload lots to retailers as needed. The Sugar Institute 
believes that this is a legitimate function in the economic distribution of sugar, 
that it should be performed by members of the local community conversant with 
the needs of their trade, and that the jobbers and wholesalers performing this 
service are entitled to a legitimate profit for performing this service. Under 
conditions of excessive and ruinous competition prevailing in the past, the refiners 


have taken over this function in hundreds of small cities and, moreover, have 
done it for nothing. The Institute does not regard this as basically sound from 
an economic standpoint and has consistently recommended the cutting down of 
these so-called consignment points with a view to their ultimate total abolition. 

The code of ethics made no express mention of this design other than 
to recommend that sugar be consigned only to "recognized" detention 
points. But almost at once the Institute recommended the elimination 
of "unnecessary" consignment points and established a special com- 
mittee to bring about that result. Thus, from 1927 to 1931 the number 
of consignment points decreased in New England from 5 to none ; in 
New York from 5 to 3 ; Pennsylvania, 9 to 2 ; Ohio, 16 to 3 ; and Indi- 
ana, 17 to 4. In the South even more sweeping reductions were made, 
all points in some States being eliminated and only 1 or 2 being 
left in other States. For the northwestern Mississippi Valley area the 
Institute accepted the Domestic Sugar Bureau's list of approved points. 
No agreement was reached on the elimination of consignment points 
in Illinois, Missouri, and Arkansas. 

Yet as a whole the program was a failure, the total number of con- 
signment points having increased from 344 to 468 from 1927 to 1931. 
More than 100 new points were added in Illinois, Missouri, Arkansas, 
and Wisconsin, and in general there were increases in all regions in 
which the cane refiners had to meet beet sugar competition. The 
Domestic Sugar Bureau was unsuccessful in its corollary program of 
reducing beet refiners' consignment points, while the cane refinei-s 
apparently turned from reductions in the East to increases in consign- 
ment points along the Mississippi and in the Great Lakes area west of 

It appears that the failure of the program in the western area was 
due not only to competition from beet sugar but also to competition 
among the cane refiners themselves in the inland areas. As in the case 
of uniform freight rates, the stabilizing of the situation did not bene- 
fit all refiners equally, some of the smaller companies being forced by 
their very acceptance of uniformity in some areas to redouble their 
competitive efforts in others. A statement from the Godchaux refin- 
ery, located in New Orleans, explaining why it could not agree to 
reduction of consignment points in Illinois and Missouri, illustrates 
this fact: 

Our company's normal distributive outlets have in recent years been disturbed 
through the fact of certain west-coast refiners and the Hershey Co. entering ag- 
gressively in the distribution of sugar in south by way of the port of New Or- 
leans, which action was initiated in the fall of 1926 and early in 1927. Also, at 
approximately the same period of time the Savannah Sugar Refining Co.. by 
reason, as I understand, of the aggressive selling of sugar by the East Coast 
refiners, in the Carolinas and Georgia, were forced to more aggressive merchan- 
dising in the southern group of states and instituted rail shipment at the barge 
rate to tliese certain states for the benefit of the broadening out of their dis- 
tributive territory, with the result still further forcing our company as to 
increasing its distribution in more northerly territory. * ♦ * This caused 
our company in the latter part of 1926 and early 1927 to institute an aggressive 
sales campaign in the states of Illinois and Missouri by placing at what we felt 
were strategic points on those states consigned stoclis to permit buyers to obtain 
sugar from us without a guarantee contract and yet Tvithout material market I'isk. 
The building up of this type of di.^tribution caused the sugar dealers and large 
jobbers to discriminate against our company's merchandise, .'■o that our company 
became dependent for distribution in Illinois and Mis.souri on sales to chain 
stores, manufacturers, and the smaller jobbers and sugar distributors. This 
situation has established for our company a definite clientele in these states, 


which any change of merchandising policy would completely destroy and would 
so mitigate [sic] against our company's distribution of its merchandise as to 
impair its standing in the industry. 

/Separation of frnictions. — On May 2, 1929, a special meeting of the 
directors and members of the Institute amended section S (e) of the 
code of ethics to prohibit "storage of sugar in warehouses in which 
customers of brokers are interested or with which they are in any 
way affiliated." Immediately after the meeting, each refiner sent to 
his broker and warehousemen the same telegram : 

Referring to Sugar Institute's recommendation that no brokerage be paid any- 
one interested in warehousing or merchandising sugar and that no further sugar 
be stored in sugar broliers' or customers' warehouses we advise that we have 
adopted such recommendations as our policy. * * * Please advise us by 
wire whether you and your affiliated interests desire to deal with us either as 
brokers, warehouseman, or merchant. Any position taken with us must be con- 
sistent with that taken by you with any of our competitors. 

Two days later, to those who failed to reply to this telegram another 
Ma^ sent, reading: 

■* * * please be advised that we cannot accept business from any person, 
firm, or corporation until their status as broker exclusively or as merchant ex- 
clusively or as warehouseman exclusively has been notified to us and satisfac- 
torily established. 

This was a marked change in the distribution pattern of the in- 
dustry, for it was a common practice for functions to be combined. 
A broker easily became a wa? ihouseman by renting storage space or 
by owning his own warehous' ; a broker who sold exclusively for one 
refiner often was interested la acting as the warehouse for his prin- 
cipal's consigned stocks. Merchants similarly became warehousemen 
by reason of their possession of facilities needed by refiners. And 
the owner of a storage warehouse sometimes turned from, renting 
space to a refiner for use as a consignment T^oint to become a dis- 
tributor of sugar on his own account. It was because the trend 
toward combination of functions was so strong that the Institute 
attempted to end the practice ; for as long as the same person bought 
sugar from refiners and received fees for services performed for them 
there was an opportunity for secret price concessions. For instance, 
a wholesale grocer sent sugar for his own account might be paid for 
the storage of that sugar until it was sold, on the fictitious ground 
that in the interim he served as a consignment point for stock owned 
by the refiner. 

Although there was an immediate protest, the Institute proceeded 
with the enforcement of its program of separating the functions of 
its members' customers. The executive secretary wrote on May 4, 
1929 : 

As you are probably aware, we are in the midst of a very thorough house- 
cleaning. I do not expect that we shall escape without litigation, as we have 
doubtless had to hurt some of the innocent along with the guilty. 

There was created an enforcement committee, which thereafter met 
at least one each week. 'The Institute employed traveling iii\^esti- 
gators to check on compliance and circulated reports of infractions 
sent in by refiners. The cooperation "of the offshore interests was 
obtained, as was that of the Domestic Sugar Bureau, which wrote a 
similar amendment into its code and also carried on investigations. 
Each refiner submitted a list of his approved brokers and warehouse- 


men to the Institute, to be circulated among the other refiners. When 
the enforcement committee ruled that a broker or warehouseman was 
guilty of combining functions, he was disqualified, that is, dropped 
from the lists. Refiners considering the use of warehouses not so 
listed were required to notify the Institute in advance, so that a check 
miglit be made of their eligibility. Warehouses disqualified by the 
Domestic Sugar Bureau were dropped from the Institute's lists without 
further investigation. Except insofar as he couM pei^uade a 
friendly refiner to present his case, the disqualified broker or ware- 
houseman had no chance for hearing or appeal. 

There were cases in which operations were entirely separate, hut 
where for technical reasons, such as a landlord-tenant relationship, 
distributors were disqualified. The rule not only was applied to bor- 
derline cases but also was enforced regardless of the magnitude of 
the change required. Thus, the Edgar organization in Detroit, which 
merchandised 2 percent of all sugar consumed in the United States, 
operated a chain of warehouses and one of retail stores, and which 
was also engaged in the brokerage business, despite the fact that it 
stored other commodities to a greater extent than sugar, was forced 
to elect one type of sugar business. When it decided upon broker- 
age, it closed out interest in the retail stores and curtailed other 
operations, with considerable loss to itself. As the institute wrote 
to a refiner who showed signs of weakening : 

It is, of course, Inconceivable that after having forced election on the trade, 
involving in many cases considerable pecuniary loss in disposing of warehouse 
or merchandising business, that there should be any back-pedaling without 
the most disastrous results. 

In further support of its control of distributors the Institute re- 
quired pledges of compliance. In February 1929 a uniform warehouse 
pledge had been adopted that provided that if the warehouseman gave 
any concession to a customer of the refiner he would be liable to the 
refiner for an equal amount. In May 1929 the Institute recommended 
that only warehouses signing the pledge should be used by refiners. 
In February 1930 the Institute adopted a similar agreement for brokers. 
This pledge required brokers not only to refrain from rebating but to 
read and observe all rulings of the Institute and to demand a similar 
performance from their own sub-brokers and agents. The refiners 
would patronize only these brokers who signed the pledge. Finally, 
in March 1930, the Institute recommended that refiners do business 
only with truckers known to be independent of brokers, warehouse- 
men/ or buyers; and later the truckers were required to sign non- 
rebating agreements. 

Of all Institute activities, its program of requiring the separation of 
functions aroused tlie greatest protest. Here it was dealing, not simply 
with a small group of more or less friendly refiners, but with a large 
number of individuals and firms accustomed to making their own ar- 
rangements. The resentment engendered by the Institute's actions 
found expression in complaints to Congressmen, the Federal Trade 
Commission, and the Department of Justice. 

2607.52— 41— No. 18- 10 


Terms and conditions of sale. 

In attempting to eliminate those variations in practice among re- 
finers that might in effect produce some deviation from their published 
prices, the Institute's attention was largely devoted to the structure of 
the distribution system. Thus, considerable effort was expended upon 
freight applications, revision of the consignment system, and sei^ara- 
tion of the functions of broker, warehouseman, and dealer. Within 
the structure itself, however, were various sales terms and conditions 
which cumulatively were of sufficient importance to make desirable the 
standardization of refiners' practice in regard to each. 

Brokerage. — Previous to the Institute brokerage rates had uniformly 
heen 2i/2 cents per iDO-pound bag for city brokers, those selling in cities 
in which refiners are located, and 4I/2 cents for brokers outside refinery 
cities. There is a strong probability, however, that refiners indirectly 
gave additional compensation through unwarranted storage payments. 
For almost 2 years after the Institute was created the standard broker- 
age rates remained the same. In December 1929 the institute recom- 
mended a maximum brokerage of 3 cents for city brokers and 5% cents 
for others. The next month it was found that these rates did not take 
account of the special position of "general brokers" who employed sub- 
brokers and agents and who rendered some services other than those 
performed by the ordinary broker. Their commissions were increased 
to 6% cents for operations outside refinery cities. 

Contracts. — Prior to the Institute some refiners had offered in some 
localities a guarantee against price decline occuring between the date of 
■contract and date of delivery. This was favored by the California 
refiners because it helped them to compete in the Middle West and 
South by partially offsetting the disadvantage of greater distance and 
longer time required in transportation. Eastern and southern refin- 
ers disliked having to make this concession ; and Arbuckle and Revere 
refused to grant it. During the winter of 1927-28 the eastern and 
southern refiners withdrew the guarantee. When California and Ha- 
waiian continued the practice, an Institute committee in May 1928 
attempted to persuade that company to abandon it. Failing in this 
attempt, eastern and southern refiners restored the guarantee, restrict- 
ing it closely so as to apply it only to match California and Hawaiian 
competition. The Institute appears to have aided them in the effort 
to prevent spread of the guarantee, at the same time continuing its 
efforts to persuade California and Hawaiian to abandon it. 

The matter of the period over which a given announced price ap- 
plied came before the Institute in a more important form in the case 
of long-term contracts. These were contracts in which the buyer was 
permitted to take delivery more than 30 days after the contract date. 
The practice of the industry after the World War was different from 
that which prevailed earlier, inasmuch as the war brought to an end 
the custom of giving 60-day contracts to manufacturers. From that 
time until the formation of the Institute there was no established Cus- 
tom; Revere publicly offered long-term contracts to any customer 
desiring them ; the California refiners gave such contracts to Pacific- 
coast canneries ; other refiners gave them frequently — openly as well as 
privately. Among those who received such contracts from refiners 
who would not openly announce them were merchants and chain stores 
as well as manufacturers, but it was to such manufacturing companies 


as Coca-Cola, Canada Dry, and National Biscuit that they were best 
suited and had been most readily available. Since manufacturers 
bought about one-third of the refiners' output, the amount of sugar 
covered by long-term contracts was large, although the number of 
contracts was not great. 

In December 1927, when the Institute was being organized, the 
refiners agreed among themselves to refrain from entering into any 
contracts in excess of 30 days. Thereafter, except in the case of the 
Pacific coast canners, long-term contracts were not available. Edgar 
& Sons, distributing firm, which in the pre-Institute period had secured 
long-term contracts from Revere and Godchaux for the year 1928, 
was required to maintain refiners' prices on resale of the sugar delivered 
under these particular contracts, since they called for lower prices 
than were available on immediate delivery. In a letter of May 18, 
1928, a group of manufacturers (Schrafft, New England Confec- 
tionery, Loose Wiles, National Biscuit, Henry Heide, Ward Baking, 
Peter Gailler Kohler, and Rockwood) protested bitterly against "the 
cast-iron 30-day contract," but this protest was futile, and subsequent 
endeavors by other customers to obtain longer contracts were un- 

The agreement against long-term contracts was enforced by the 
Institute and complied with by the refiners. The latter agreed to report 
to the Institute their statistics on unspecified and undelivered balances; 
and the Enforcement Committee watched these to check upon observ- 
ance of the long-term contract prohibition. However, when it was 
impracticable for the refiners to deliver sugar within 30 days after par- 
ticular moves, enforcement of the strict 30-day limit was quietly 

Another type of contract prohibited by the Institute was the so- 
called "tolling arrangement." This called for the deposit of raw sugar 
with the refiner, who exchanged a proportionate amount of refined 
sugar (93 pounds of refined for every iOO pounds of raw) and received 
a fee for the refining service. At the pre-Institute organization meet- 
ings the practice was barred, but there was later some confusion 
whether it was barred in all cases. All doubt was removed in July 
1928 by the Institute's decision that tolling constituted discrimination. 
In January 1929 the prohibition was restated, but permission was 
given refiners to toll for raw-sugar producers if the latter agreed to 
sell the refined sugar strictly in accordance with the code. The pur- 
pose of institute action on tolling was to prevent buyers from obtain- 
ing sugar at prices other than those announced and maintained by 
the refiners. 

Special arrangements for the packing of sugar under private brands 
likewise were discouraged by the Institute. In July 1929, as the result 
of a question from a refiner and a tentative, negative attitude on the 
part of the board of directors, the Institute circulated a questionnaire 
among refiners to discover their views on the practice, T^ie replies 
indicated a general feeling that the service was an added expense to 
the refiners, although it was not extensive enough to be burdensome. 
In November the Institute went on record in opposition to the practice, 
suggesting that members discontinue the service and that no new 
private-brand business be considered without submitting the proposal 
to the Institute for approval. 


Terms. — In this categoi-y are discussed a number of Institute activi- 
ties relating to special terms of certain kinds of sales and to terms of 
payment. Special terms of sale restricted by Institute action related 
to quantity purchases, resales of sugars, damaged goods and frozen 
stocks, and used bags returned by customers. Institute policy with 
respect to terms of payment concerned cash discounts, deferred pay- 
ments, and split billing. These will be considered in the order 

Quantity discounts were expressly prohibited by section 2 of the 
code of ethics. As the reason for the prohibition, it was stated that 
the nature of the sugar refining industry was such that no savings were 
effected by refiners on orders for large quantities. It was also asserted 
that the refiners themselves received no quantity discounts on their pur- 
chases of raw sugar, achieved no substantial reduction in manufactur- 
ing costs from sales in quantity, and paid standard brokerage regard- 
less of the amount of sugar sold. However, with respect to delivery, 
storage, and bookkeeping there was evidence of considerable savings 
lo the refiner on large sales. During the pre-Institute period there had 
been no opportunity to gage such savings, inasmuch as discounts were 
generally given, not expressly on the basis of quantity as such, but as 
secret price concessions or lower prices on long-term contracts, con- 
cessions that were often given to small purchasers as well as to large 
ones. The prohibition of quantity discounts was observed by the refin- 
ers at some cost to themselves. The larger purchasers, who had been 
accustomed to price concessions on their orders, were faced with the 
necessity of paying higher prices than before and in some instances 
sought alternative sources of supply. For example, the Coca-Cola Co., 
the largest single purchaser of sugar, turned to Hershey, which had 
never conformed entirely to the Institute's policies, and to a small 
Louisiana producer-refiner. 

Resales — or sales of "second-hand" sugar — were prohibited by sec- 
tion 3 (h) of the code and interpretations thereof. These second-hand 
sugars were sold by purchasers who found themselves oversupplied 
always at a reduction from the refiners' prevailing prices. Usually the 
resale took place before the sugar had been shipped to the buyer under 
his original contract with the refiner; if the refinery itself did not 
repurchase the sugar, it made delivery direct to the new purchaser. 
In the period before the Institute, refiners had used such transactions 
to put through fictitious resales so as to grant lower prices to favored 
customers, or as a means of canceling a contract that had proved un- 
favorable to the customer because of a price decline. 

The Institute accepted the fact that damaged goods and frozen stocks 
(usually consisting of sugar that had grown caked and hard in ware- 
houses) were customarily sold at a reduction in price but through a 
ruling early in 1928 required that prior notice of such sales be sent to 
the Institute. These notices enabled it not only to watch but to super- 
vise and control such sales, with a view toward limiting them as much 
as jjossible and mitigating their effect upon the established price 
structure. Later, in January 1931, it recommended that damaged 
sugars and frozen stocks not be added to any contract not originally 
calling for them; and an understanding was reached that they should 
not be sold except in spot transactions. 

Prior to the Institute, refiners granted allowances for used bags to 
those few customers who were in a position to return bags for refilling. 


Thei-e is no evidence that this practice, limited as it was, had been 
used as a cloak for price concessions. On the other hand, there was 
no reason why bags costing as much as 15 cents each should not have 
been returned six or seven times by those customers — chiefly manu- 
facturers — who were in a position to collect and preserve them. How- 
ever, early in 1928 the Institute prohibited such allowances on the 
ground that the saving was open only to a few customers and thus 
constituted discrimination; actually, a fear that such concessions 
might tend to undermine the price structure seems to have been the 
motivating factor. Some manufacturers protested this prohibition, 
and one refiner later proposed an amendment to permit allowances 
for used bags, but the amendment was rejected and the rule strictly 

The Institute considered the standardization of credit terms a very 
essential part of its program. It was able, through recommendations 
and letters to the individual refiners, to maintain the customary cash 
discount of 2 percent. As the period within which payment must be 
made, it had been the custom to allow 7 days after arrival by rail with 
an additional 3 days of grace. An effort to eliminate the grace period 
ap^3arently was unsuccessful. Most of the Institute's activity m this 
connection developed over the question of when the period was to be- 
gin on shipments over differential routes. The issue was whether the 
discount period was to begin at the time of shipment or of arrival in 
the case of deliveries over differential routes ; and, if it were the for- 
mer, the extent to which the customary period of 7 days should be 
lengthened. The question was clearly a phase of the Institute's ef- 
fort to maintain all rail freight applications. To discourage differ- 
ential route deliveries, the Institute attempted to obtain the adoption 
of terms providing for 10 and 14 days after shipment on differential 
movements. However, Godchaux, of New Orleans, insisted on quot- 
ing 7 days after arrival on barge shipments. When the matter could 
not be reconciled, the eastern refiners also went on an arrival basis on 
water shipments, thus nullifying Godchaux's advantage and causing 
that company to agree to conform to the uniform shipment terms. 
But with the general breakdown of the freight structure that came 
later this uniformity was destroyed, and the discount period there- 
after came to be universally reckoned after arrival, a more liberal 
credit policy than had prevailed before the Institute. 

Another subject of Institute activity was the so-called "four-pay- 
ment plan." This was a plan whereby the buyer instead of ordering 
several less-than-carload-lot quantities, each at a premium freight- 
rate and at some bookkeeping expense to the refiner, was given im- 
mediate possession of an entire carload, to which, however, the refiner 
retained title. The buyer agreed to withdraw the entire amount of 
sugar from the car in four equal installments, taking title to each 
quart ei- as he withdrew it. Thus, the buyer received four less-than-car- 
load-lot shipments at the carload freight rate, by reason of the refiner's 
having in effect established a personal consignment point for him. 
The buyer had the privilege of taking at any time the entire unwi li- 
drawn portion at the order price, an advantage in case of a rise in the 
price of sugar ; or he could pay for the installments separately at the 
purchase price and on the usual 2-percent 7-day terms as of the time of 
withdrawal. Savannah instituted this practice a few years before the 


Institute, probably as a means of overcoming its disadvantage in hav- 
ing to ship by rail in territories to which water routes were available to 
competitors, but up to 1928 had applied it only to Georgia and the 
Carolinas. The Institute's activity in regard to this plan technically 
was only to require open announcement of its use but actually it was 
designed to prevent its spread, an end that was achieved in some 

The Institute took definite action against another type of deferred 
payment, split billing, which was prohibited by section 3 (b) of the 
code of ethics. This practice was initiated by the California refiners, 
who were faced with their railroads' requirement that 80,000 pounds 
constitute a minimum carload on the Pacific coast, whereas a 60,000- 
pound carload was stipulated by carriers in the East and South. To 
offset the disadvantage, they billed for 60,000 pounds, payable 7 days 
after arrival, and separately for the remainder, payable 14 days after 
arrival. The Institute did not object to this practice but took steps to 
prevent split billing as a competitive device in territories in which 
there was no difference in carload minima. Thus, in February 1928, 
it required California & Hawaiian to stop split billing on 60,000-pound 
carloads to Texas ; and when California & Hawaiian resumed the prac- 
tice a year later the Institute authorized a,ll members to do the same 
until California & Hawaiian complied. On September 1, 1929, a 
change in the carriers' tariffs, reducing from 80,000 to 60,000 pounds 
the carload minimum, clarified the situation, except in the beet sugar 
area, where Institute members faced an intrastate minimum of about 
40,000 pounds. When eastern and southern refiners expressed a desire 
to extend their business in that territory, the Institute authorized split 
billing in the States affected. It is evident that the Institute saw 
no evil in split billing as such but repressed it as a little-used practice 
that might cause departures from the established price structure. Its 
use witliin the cane-sugar industry declined as the "four-payment 
plan" spread, the latter evidently operating as a more desirable 

Proposed Code of Fair Competition. 

During the course of trial of the Department of Justice's suit against 
the Sugar Institute, it appeared that the enactment of the Agricultural 
Adjustment Act and the National Industrial Recovery Act would have 
a considerable bearing on the legal interpretation of the Institute's 
activities. However, it was agreed by the parties that the case should 
continue on the original issues, the court's decision to be modified in 
any respects necessary to make it compatible with the new legislation. 

Except in the matter of labor and employment conditions, which 
were in the province of the National Recovery Adrninistration, the 
sugar refining industry was included in the program developed by the 
Agricultural Adjustment Administration for all sugar interests. In 
the summer of 1933 it appeared that the A. A. A. program was to be 
embodied in a marketing agreement involving sugar cane growers, 
both domestic and insular, domestic beet sugar growers and producers, 
and cane refiners. Through this agreement the production and im- 
port of raw sugar were to be made subject to control and the price 
stabilized. As a supplement to this basic "sugar stabilization agree- 
ment" the domestic cane refiners proposed another agreement to 



govern the marketing of cane sugar. The refiners' proposal was made 
in August 1933, but its consideration was deferred pending action on 
the basic agreement. Later, the Secretary of Agriculture announced 
that the basic agreement drafted by the sugar interests was 
unsatisfactory — 

because it emphasized the interests of processors rather than the income of 
producers ; because it did not provide for effective production control ; and 
because the protection of consumers' interests was virtually confined to the 
Secretary's power to terminate the agreement. 

In May 1934 the Congress passed the Jones-Costigan Act, which 
amended the Agricultural Adjustment Act by specifically providing 
for a raw-sugar quota and a benefit-payment program to be adminis- 
tered directly by the Secretary of Agriculture. No official action was 
ever taken on the "Marketing Agreement and Code of Fair Competi- 
tion for the Cane Sugar Refining Industry," which had been drafted by 
the refiners and which after revision by a committee of the general 
conference of the sugar industry had been submitted in printed form 
as of August 28, 1933, for the Secretary's acceptance. 

This proposed code of fair competition restated the principles set 
forth in the Institute's original code of ethics and added the fruits 
of the refiners' experience under the Institute. It represented the 
desires of the Institute members more explicitly tlian did the code 
of ethics, for in the absence of legal doubts definite expression was 
given to aims that had not been acknowledged in Institute statements 
and rulings. Inasmuch as the sponsoring group of refi .ers consisted 
solely of Institute members and the Institute was to be established as 
the administrative agency of the code of fair competition, the author- 
ship of the proposal may definitely be attributed to the trade associa- 
tion and its members. Before submission to the Secretary of Agricul- 
ture it had been approved in every particular by the board of directors ; 
and it is interesting to note that revisions were subject not only to 
majority vote of the board but to a majority representing more than 
50 percent of all refined sugar delivered in the United States by the 
entire Institute membership during the next previous calendar year. 

Chapter 2 of the marketing agreement, consisting of the code of 
fair competition, began with the refiners' claiming the right that was 
denied them under antitrust law : 

* * * it must be and hereby is recognized that the refiners have the right 
to confer among themselves or with any other person or persons engaged in the 
production, processing, importing, distribution or handling of sugar upon the 
elimination of new forms of competition or new trade practices which may spring 
up in the industry and which may to any of them seem unfair ; and to confer 
among themselves or with any such other person or persons from time to time on 
prices, terms, market conditions, marketing practices, and any other matters to 
which the Sugar Stabilization Agreement and/or this Agreement relate, provided, 
however, that the refiners shall not enter into any agreements to fix or maintain 
the base price for their sugar, unless the approval of the Secretary shall have 
been first had thereto. 

It was also stated that existing capacities should not be increased 
or new refineries built without the approval of the Secretary and that, 
to prevent "underselling of refiners by other sellers of sugar," all beet 
sugar and direct consumption sugar should be sold under codes of fair 
competition substantially similar to the one established for the cane 


There followed a list of practices deemed to be unfair methods of 
competition and hence to constitute violations of the code. 

These included prohibitions of : tolling contracts ; allowances on used 
bags returned by the buyer; advertising allowances; giving of free 
samples; packing of sugar under private brands; combination sales; 
permitting buyers to make deductions not authorized by contract from 
invoices rendered ; allowance of cash discount when payment is made 
by note or trade acceptance; acceptance of note or trade acceptance 
without provision, for payment of interest ; diversion of brokerage and 
any form of secret discrimination by broker among buyers of sugar ; 
any broker to be interested in the business of or to participate in the 
producing, refining, merchandising, warehousing, or transportation of 
sugar; storing of sugar by sellers for any buyer or in any warehouse 
affiliated with a buyer or in which a buyer has any interest ; the per- 
formance by any warehouse of services not stated in terms and condi- 
tions on file with the Institute and the making by any warehouse of 
secret terms with any buyer; ownership or affiliation by any carrier 
of sugar and/or with any broker, buyer, or warehouseman of sugar; 
departures by carriers of sugar from their terms and conditions as 
filed with the institute; misrepresentation by buyer of ultimate desti- 
nation of sugar to defeat the seller's delivered price; diversion or 
transiting except at buyer's expense; bribes and gratuities; contract 
cancelation except upon fair consideration ; employment of non bona 
fide brokers; delayed billing; dummy contracts; employment of any 
broker, warehouseman, or carrier engaging in any practice declared 
by the code to be unfair competition. 

It is apparent from the above that the refiners' aim was to secure 
the Secretary's approval for many of the controls which the Depart- 
ment of Justice was attacking. The code went on to propose condi- 
tions which the Institute itself had been unable to make effective or 
which it had not previously put forward in its own name. Thus, 
article 5, on marketing and distribution, was divided into 10 parts, 
respectively entitled (1) open prices and terms ; (2) delivered prices ; 
(3) no discrimination between buyers ; (4) contract enforcement ; (5) 
damaged sugar and frozen stock; (6) second-hand sugar; (7) brokers 
and brokerage; (8) warehouses; (9) consignment points and transit 
points; and (10) transportation. In general the provisions set forth 
in these sections stipulated all the related requirements that were in 
force and had been attelnpted under the Institute, with some notable 
additions. For example, sugar was to be sold only at delivered prices, 
consisting of the base price plus standard all-rail freight applica- 
tions, with the exception that — 

when such standard all-rail freight rate to a destination is higher than the 
freight rate by differential, trucking or other routes from such points over 
which it is practicable to ship a substantial proportion of the sugar normally 
shipped to such destination, the Board of Directors may in its discretion authorize, 
in lieu of such standard all-rail fi'eight application, a lower freight application 
which the Board shall fix. 

Brokers and warehouses were to be licensed, with brokerage rates fixed 
by the board and warehousemen required to file not only their terms 
and conditions but a daily report of sugar withdrawn. Consignment 
points were limited to a total of 51 cities, specifically enmnerated. 
Shipment of sugar was restricted to "the seller's own transportation 


facilities" or to carriers either under the Interstate Commerce Com- 
mission or under license of the Agricultural Adjustment Act or Na- 
tional Kecovery Act. The granting of licenses under the latter was to 
be conditioned on such carriers' filing their rates on sugar with the 
Institute and theii' observing the provisions of the code. 

Among the features of the proposed code were provisions relat- 
ing to enforcement and penalties. The Institute's board of directors 
was empowered to hire auditors to check periodically the books and 
records of refiners and to make "such audits of the records and files 
of licensed brokers, warehousemen, carriers, and others engaged in 
the handling of sugar as the board may consider necessary." Refusal 
of any broker, warehouseman, or carrier to submit to such investiga- 
tion was punishable by the revocation of his license. Provision was 
made for liquidated damages for violation of the code, these damages 
to be fixed by the board at not less than $500, or more than $5,000, or 
at the rate of 15 cents for each 100-pound bag of sugar involved in 
the violation. In addition, the board could "require the disciplining"' 
of any employee of any party connected with the code and agreement,, 
if such employee "knowingly or willfully participated in any violation 
of the code, or failure to observe its provisions. The proposed role 
of the Secretary of Agriculture in the administration of the code is 
indicated in the following paragraph: 

The Secretary, or his delegate (who shall neither have nor represent any 
interest antagonistic to the interests of the members of the industry), may at- 
tend all meetings of the Board, or of any committees thereof, and have access 
to the records of the institute relating to the administration of the Code. The 
Institute will assist the Secretary or his delegate in obtaining full information 
concerning the operation and administration of the Code, to the end that the 
Secretary and the President may be fully advised thereof and the President 
be assured that the code and the administration thereof do not promote monop- 
olies, or permit monopolies or monopolistic practices, or eliminate, oppress, or 
discriminate against small enterprises in the industry, and are in furtherance 
of the public interest and the purposes of the Agricultural Adjustment Act and 
of Title I of the National Industrial Recovery Act. 

No hearings were held on the cane refiners' proposed code of fair 
competition. A single hearing on labor standards for the industry 
was held under the N. R. A. in August 1933, but protracted negotia- 
tions over the following year and a half failed to result in the 
approval of a labor code. 


On March 7, 1934, Circuit Judge Julian W. Mack, who had heard 
the Sugar Institute case in the District Court, Southern District of 
New York, delivered his decision. Judge Mack found the Sugar 
Institute and its members guilty of engaging in a combination and 
conspiracy to restrain trade and commerce in sugar. He granted the 
Government's plea that the defendants be enjoined from further 
engaging in the illegal activities of the conspiracy but denied its 
request for dissolution of the Institute, stating : 

The problems confronting the refiners have been found to be in many instances 
neither fancied nor slight ; but the record has revealed a striking absence of 
effort on defendants' part to approach their solution in a truly disinterested and 
constructive spirit ; too often they have disregarded the true facts and the 
interests of the distributors and consumers. They have contended that their 
guiding motive has been the elimination of secret discrimination, fraud, and 
waste ; in most of their activities, however, they have been found to have gone 


much further than was necessary to accomplish these ends. It is clear that their 
dominant aim was to preserve uniformity in price structure and to maintain 
relatively high prices, to relieve themselves of burdensome competitive devices, 
and to make absolutely certain that, regardless of the injury to the public, no 
secret concessions should be given. It is, however, clear that conditions in the 
industry prior to the institute were in a number of respects subversive of sound 
and fair competition ; further, that divorced from its illegalities, the Institute 
offers certain opportunities for effecting desirable results entirely consistent, 
in my judgment, with the kind of competition required under the antitrust laws. 

The defendants were directed to cancel the pledges and agreements 
secured from brokers, warehousemen, carriers, truckers, and others^ 
which required them to support the activities of the Institute-. Ex- 
cept for such modification as might be necessary or permissible under 
the National Industrial Recovery Act and the Agricultural Adjust- 
ment Act, defendants also were perpetually — 

enjoined, restrained, and prohibited, individually and collectively, in connection 
with the sale, marketing, shipment, transportation, storage, distribution, or 
delivery of refined sugar from engaging or attempting to engage directly or 
indirectly with one another or with any competitor, through any program, in — • 

1. Effectuating any general plan to give the same terms, conditions, or freight 
applications to customers, regardless of the varying circumstances of particular 
transactions, or classes of transactions, or regardless of the varying situation 
of particular refiners, distributors, or customers, or classes thereof ; 

2. Selling only upon or adhering to prices, terms, conditions, or freight appli- 
cations announced, reported, or relayed in advance of sale or refraining from 
deviating therefrom ; 

3. Effectuating any system for or systematically reporting to or among one 
another or competitors, or to a common agency, information as to current or 
future prices, terms, conditions, or freight applications, or lists or schedules of 
the same; 

4. Relaying by or through ■ the Sugar Institute, Inc., or any other common 
^agency, information as to current or future prices, terms, conditions, or freight 
apidications, or any list or schedule of the same ; 

5. Giving any prior notice of any change or contemplated change in prices, 
terms, conditions, or freight applications, or relaying, reporting, or announcing 
any such change in advance thereof; 

6. Restraining or preventing repricing, or limiting the period during which or 
the extent to which a sales contract may be repriced or new prices arranged 
therefor ; 

7. Effectuating any system of gathering and/or disseminating statistical infor- 
mation regarding melt, sales, deliveries, stocks on hand, stocks on consignment, 
stocks in transit, volume of sugar moved by differential or other particular 
routes or types of routes, new business or any other statistical information of a 
similar character, wherever and to the extent that said information is not made, 
or is not readily, fully, and fairly available to the purchasing and distributing 
trade ; 

8. Requiring, persuading, or requesting third parties to abide by or conform 
to any program enjoined by this decree; 

9. Meeting, suppressing, or restraining prices, terms, conditions, or freight 
applications of particular refiners or distributors ; 

10. Requiring or requesting any broker, warehouse, customer, carrier, trucking 
concern, or any combination thereof, to elect to perform one or more such distri- 
bution functions to the exclusion of others or to discontinue or refrain from any 
distribution function or to dispose of any business or property interest ; 

11. Obtaining, requesting, exacting, or attempting to exact, pledges or uniform 
contracts or obligations from any broker as part or in aid of any program 
enjoined by this decree ; 

12. Obtaining, reqi;esting, exacting, or attempting to exact, nonrebating agree- 
ments from any broker, warehouseman, or trucking concern ; 

13. Making or circulating lists of warehouses, brokers, carriers, or trucking 
concerns employed or to be employed by any refiner or competitor, as a Tpart or in 
aid of any program enjoined by this decree; 

14. Refusing, or threatening to refuse, to deal wiih any broker, warehouse, 
customer, trucking concern, carrier, or any combination thereof, as part or in aid 
of any program enjoined by this decree ; 



15. Dealing or threatening or purporting to deal exclusively or primarily with 
any defined group or class of brokers, warehouses, customers, carriers, or truck- 
ing concerns, as a part or in aid of any program enjoined by this decree ; 

16. Subjecting, or threatening to subject, any broker, warehouseman, customer, 
carrier, trucking concern, or any combination thereof, or any agent of any 
refiner, to any loss of business or employment, damage, injury, forfeiture, fine, 
or penalty, as a part or in aid of any program enjoined by this decree ; 

17. -Determining or restricting brokerage commissions or fees ; 

18. Determining transportation charges or freight applications to be collected 
from customers, or limiting freight absorptions ; 

19. Selling only on delivered prices or on any system of delivered prices, 
including zone prices or refusing to sell f . o. b. refinery ; 

20. Restricting routes of shipments ; 

21. Making or disseminating at or through the Sugar Institute, Inc., or any 
other common agency, any freight book or digest of freight applications or sell- 
ing terms, or conditions, or supplying information relating thereto, but the fore- 
going shall not be construed to prevent said defendants from agreeing to report 
and relay announcements of prices, terms, conditions, or freight applications in 
past and closed transactions through the Sugar Institute, Inc., or a common 
agency ; 

22. Preventing, restraining, or refusing to grant the privilege of transiting or 
diverting shipments, but the foregoing shall not be construed to prevent said 
defendants from freely discussing and advising one another as to the most effec- 
tive means for taking steps individually to prevent fraudulent use of transiting 
and diversion privileges ; 

23. Requiring, inducing, or requesting water carriers to announce rates or 
terms openly in advance or to agree not to deviate from such announced rates or 
terms or to agree not to carry or to refuse to carry sugar except upon such openly 
announced rates or terms ; 

24. Preventing, restraining, or refusing to enter into private charters ; 

25. Preventing, restraining, or refusing to participate with, customers in i)ool- 
car or pool-cargo shipments ; 

26. Determining switching charges or restricting the absorption thereof; 

27. Imposing service or extra charges ; 

28. Eliminating, reducing, limiting, or restricting consignment points, recon- 
signment points, or storage at ports of entry or other points ; 

29. Imposing a service charge on less than carload deliveries, or on any 
deliveries from consignment; 

30. Preventing, restraining, or refusing to enter into long-term contracts, or 
refusing to arrange for deliveries over periods in excess of 30 days ; 

31. Submitting contracts or information to the Sugar Institute or any other 
agency before entering into any contract or sale; 

32. Determining whether or to what extent to relax or change contract terms, 
or using statistics of unspecified or undelivered contract balances as a part or in 
aid of such conduct ; 

33. Preventing, restraining, or refusing to grant quantity or other discounts 
where such discounts reflect, effect, or result in economies to refiners either in 
direct or indirect costs ; 

34. Preventing, restraining, or refusing to enter into tolling arrangements for 
customers ; 

35. Preventing, restraining, or refusing to enter into tolling arrangements for 
others than customers as a part or in aid of any program enjoined by this 
decree ; 

36. Preventing, restraining, or refusing to grant the four-payment plan or 
split billing; 

37. Fixing, restraining, or refusing to grant cash discounts, or restricting the 
periods for which cash discounts are granted ; 

38. Preventing, restraining, or refusing to grant price guaranties ; 

39. Preventing, restraining, or refusing to make allowances on cohtainers, 
used bags, or customers' bags or containers, or discouraging experiment's with or 
preventing or restraining the use of new types of containers ; 

40. Preventing, restraining, or refusing to arrange the packing or celling of 
private brands ; 

41. Preventing, restraining, or refusing to make resales of sugar or sales of 
second-hand sugar, but the foregoing shall not be construed to prevent said 
defendants from agreeing to invoice resales to the original buyers ; 

42. Preventing, re.straining, or refusing to make sales of damaged sugar or 
frozen stocks ; 


43. Requesting, obtaining, exacting, or attempting to exact any promise or 
agreement from any merchant or distributor to maintain any price ; 

44. Requiring buyers to elect between the guaranty and nonguaranty form 
of contract at the time of entering the contract or at any other time before 
delivery or refusing to grant buyers the privilege of changing from one destina- 
tion to another by resale or otherwise; 

45. Engaging in any policing activities or investigating or maintaining any 
system of investigation, or examining files, records, or stocks, or holding any 
trials, to ascertain or prevent violations of or departure from any program 
enjoined by tl;>is decree ; 

The decree of the district court, enjoining the Institute and its 
members from the practices enumerated, was entered on October 9, 
1934. Petition for appeal was filed on December 7, 1934, and allowed 
the same day ; the case was then argued before the Supreme Court. By 
its decision, written by Chief Justice Hughes and handed down March 
30, 1936, without dissent, the Supreme Court modified the decree of 
the lower court in but two particulars. Paragraphs 3, 4, and 5, which 
broadly enjoined the defendants or any other "common agency" from 
effectuating any system for exchanging information on current or 
future prices, terms, conditions, or freight applications, from relay- 
ing such information, and from giving advance notice of changes 
therein, were eliminated. These prohibitions were so inclusive, in 
the opinion of the court, as to prevent a return to the system of vol- 
untary announcements by individual refiners that had been customary 
in the industry previous to the Institute, The other modification was 
in paragraph 7 of the decree, wherein the defendants were enjoined 
from gathering and disseminating certain types of statistical infor- 
mation if such data were not fully and fairly made available to the 
purchasing and distributing trade; in addition to the specific types 
of information there listed, a more general and more inclusive limita- 
ton was introduced with the phrase "or any other statistical informa- 
tion of a similar character." The Supreme Court declared that this 
phrase had — 

no clearly defined meaning and would place the defendants under an 'equivocal 
restriction which may do more harm than good. With the removal of that clause 
and the placing of the word "and" before the words "new business," paragraph 
7 is approved. 

* « « * * * • 

Although the Sugar Institute was not dissolved by the courts as a 
result of their finding that it had participated in the refiners' con- 
spiracy in restraint of trade, it was not long after the Supreme Court 
decision that it decided to suspend all activities. 

In November 1936 the refiners organized a new trade association, 
the United States Cane Sugar Refiners' ^ "^sociation. A statement for 
the press explained that this association L d been created — 

for the purpose of directing attention, through cooperative advertising, dissemina- 
tion of statistics and other proper means, to the national importance of the 
industry in promoting the general economic welfare, and in safeguarding during 
war and peace an adequate supply of sugar to the consumer. 

It was added that — 

In line with this purpose, the Association will point out that large quantities of 
tropical refined sugar enter this country to supplant sugar normally -refined in 
the United States. 

John E. Dalton, formerly Chief of the Sugar Section of the A. A. A., 
became executive secretary of the association. Original members of 


the association were American, Arbuckle, California & Hawaiian, 
Godchaux, Henderson, Imperial, McCalian, National, Pennsylvania, 
Revere, Savannah, and Western — a total of 12 companies. 

According to its own statement : 

The association is not felt to be a trade association in tlie industrial or busi- 
ness sense of the term and has very limited activities. Its activity in the field of 
statistical publications is being developed and it is believed will be of substantial 
value to the sugar trade as a w^hole. 

Present activities, in addition to statistical compilations and public 
relational matters, consist of — 

appearances before legislative bodies, tariffs, and trade-agreement agencies, scien- 
tific or technical agencies, and other administrative or technical agencies, as to 
matters relating chiefly to importation and exportation of refined sugar. 


Broadly defined, trade statistics include all types of statistical data 
pertaining to business activity. Price information, as well as data 
on costs, employment, wages and hours, may be considered parts of a 
comprehensive program of trade statistics. The present tendency, 
however, is to limit the use of the term, "trade statistics," to cover 
current data on production, stocks, shipments, sales, orders, exports 
and imports, machine activity, and similar measures of supply and 
demand. As noted in chapter II, the present study uses "trade sta- 
tistics" in this narrower sense, distinguishing them from regularly 
compiled series of price, cost, and employment data, as well as from 
occasional market surveys^ special statistical studies, and the republi- 
cation of statistical and economic material. 

These distinctions are useful for purposes of discussion and for 
indicating the variety and intensity of the statistical work done by 
trade associations, but they should not be allowed to obscure the cJose 
relationships that exist between trade statistics and price informa- 
tion, cost accounting and cost studies, and other types of statistical 
and informational services carried on by trade associations. They are 
all associated in objectives and uses, as well as in procedures and 
devices used for collecting, analyzing, and disseminating the data. 
One management organization that has been very active in advocating 
the use of statistical programs to bring about more stable market con- 
ditions constantly emphasizes the threefold character of a compre- 
hensive statistical service to furnish information for comparing in- 
dividual costs with the average costs of the group, information for 
comparing trends of individual volume with trends of the group 
volume, and information for comparing prices received by the indi- 
vidual with the average prices received by the group. The potential 
intricacy of these cost-price-volume relationships is illustrated by the 
description of the statistical activities of the National Container As- 
sociation presented at the end of this chapter. 

Compilation of current trade statistics is essentially a cooperative 
undertaking. No one company, regardless of its size, can well per- 
form this service for itself. Except in the field of agricultural pro- 
ducts and some other important raw materials where the Federal 
Government has assumed the primary responsibility for assembling 
data, trade associations, generally speaking, have taken the initiative 
in collecting trade statistics and in educating business to make use of 

Some indication of the emphasis placed by trade associations on 
the collection and dissemination of trade statistics is given by the 
tabulation of activities shown earlier in this report. It was noted 
there that trade statistics ranked sixth among 18 types of activity in 
the frequency with which it was reported as of major importance, and 



•eleventh in total frequency. Forty-four percent of all national and 
regional associations, exclusive of those in the field of insurance, re- 
ported activity in the compilation of new trade statistics, and 34 per- 
•cent indicated a major degree of such activity. These figures include 
only those associations that systematically collect one or more current 
statistical series, such as production, sales, shipments, stocks, or 
orders. A still larger proportion of associations, 54.5 percent, reported 
activity in republishing statistical data and conducting occasional, 
:special studies of a statistical nature. Price and bid information, sep- 
arately tabulated, engaged the attention of only 15 percent of the 
reporting associations. 

These statistical activities, however, are very uneven in scope and 
intensity among different branches of industry and among associations 
in the same industry group. There is a conspicuous neglect of cur- 
rent trade statistics in the wholesale and retail trades, in construction, 
and in personal, business, and recreational services. Manufacturing, 
mining, and other producing industries collect the bulk of the trade 
statistics series, but even here the emphasis varies widely from one 
industry group to another.^ Statistics on consumers' goods, such as 
food and wearing apparel, generally are less numerous than those on 
industrial supplies and durable goods, such as paper and pulp, elec- 
trical apparatus and supplies, iron and steel products, lumber, and 
rubber products. Trade statistical service is characteristic of small 
associations, emphasis on this activity being encountered infrequently 
iimong associations with more than 50 men\bers.- 

Some trade associations deal very casually, if at all, with the collec- 
tion of original current statistics, limiting their activity to the com- 
pilation of annual production or sales figures as a basis for assess- 
ments or dues. Other associations collect occasional statistics but have 
no regularized program. Some conception of the varying scope and 
adequacy of trade association statistical programs may be gained from 
the following crude scale, indicating progressive interest and activity : 

1. No activity, no apparent need. 

2. No activity, apparent need. 

3. Casual activity on limited scale — apparently with no great in- 

terest shown by members or association secretary in the sta- 

4. Occasional activity for special purpose. Here interest may be 

lively in particular study. 

5. Regularized, periodic activity, but collection confined to some 

one type of statistics. Little or no comment or discussion by 

6. Regularized periodic activity covering more than one type of 

statistics. Otherwise same as 5. 

7. Same as 5 or 6 but with comment on related factors in releases 

and occasional meetings. 

8. Same as 5 or 6 but with membei'ship discussion and frequent 


9. Same as 5 or 6 but with comment on related factors, frequent 

meetings, membership discussion, and organized field con- 

J See tables 32, 32A, 46A, and text, pp. 33, 64, above. 
* See tables 29, 46B, and text, pp. 29, 64, above. 




The development of trade association statistical activity has not 
been one of uninterrupted growth. Marked fluctuations in the extent 
of trade association statistical activities have occurred in past years 
as a result, in part at least, of the attitudes and activities of the Federal 

With the conspicuous exception of a few associations, the major 
development of the statistical activities of trade associations has taken 
place since the beginning of the World War. The years 1914 through 
1919 brought a rapid growth in the number of trade associations and 
greater stress on their participation in the collection of current data 
on industrial activity. Government encouragement of this type of 
cooperative activity, at first largely the result of the needs of the War 
Industries Board, has continued to the present time, particularly 
through the Department of Commerce. 

Official recognition that evil as well as good might stem from trade 
association statistics appears in one of the earliest reports of the Fed- 
eral Trade Commission. The Commission's annual report for 1917 
points out that : 

♦ * * in various industries one of the chief obstacles to the normal operation 
of competitive forces is the lack of adequate trade information regarding supply 
and demand and prices ; that where trade associations collect such information it 
generally does not become a matter of public knowledge ; and that such associa- 
tions are frequently tempted to extend their activities beyond the useful function 
of collecting the information referred to above and to engage in activities tending 
to artificially control prices and the channels of distribution. 

The first Supreme Court decision relating specifically to the price and 
trade statistical work of trade associations was that handed down in 
1921, condemning the so-called "open competition plan" of the Amer- 
ican Hardwood Manufacturers' Association. The adverse decision in 
this case, together with the decision in the case of the American Lin- 
seed Oil Co., 2 years later, had a distinctly deterrent effect on the con- 
tinuance and spread of trade association statistical services. This 
effect was somewhat counterbalanced by the efforts of the Department 
of Commerce during this period to enlist the cooperation of trade asso- 
ciations in the collection of trade statistics and their dissemination 
through its publication, the Survey of Current Business. The more 
favorable attitude toward statistical activities expressed by the Su- 
preme Court in the Maple Flooring and the Cement cases, decided 
June 1, 1925, also contributed to a revival of statistical activity among 
trade associations. 

Nevertheless, there appears to have been no significant increase from 
1921 to 1927 in the proportion of trade associations engaged in statis- 
tical work and probablj a net decline in the actual number of asso- 
ciations compiling statistics. A questionnaire survey of trade asso- 
ciations made by the Federal Trade Commission early in 1921 indi- 
cated that 474, or approximately 31 percent, of the 1,515 associations 
submitting returns were at that time engaged in compiling and dis- 
tributing either price information or trade statistics. A report of the 
Department of Commerce in 1927 noted that the number of associa- 
tions gathering statistics at that time was "well over 100" but gave no 

260752— 41— No. 18 11 


closer estimate. A Federal Trade Commission survey relating to 
approximately the same period of time found 256 out of 860 trade 
associations in the manufacturing, contracting, and wholesale fields 
that included statistical work among their major or minor activities. 
This is slightly less than the proportion cited in the 1921 report as 
compiling price or trade statistics. 

The National Recovery Administration marked a new peak in Gov- 
ernment sponsorship of cooperative industry activities. Many of the 
codes of fair competition provided for the collection of current data 
on production, sales, shipments, stocks, and other relevant information 
on business activity. It is difficult to judge the extent to which these 
code provisions were translated into effective trade statistical pro- 
grams. Code authorities generally were more concerned with other 
aspects of code administration, including wage and hour enforcement, 
the administration of trade practice provisions, and the operations of 
minimum price, prodtiction control, and open price-filing plans. 
N. R. A. administrators were similarly preoccupied, took little initia- 
tive in urging the compilation of current statistical series, and gave 
scant attention to code authority application of code provisions deal- 
ing with trade statistics. Annual production or sales figures were 
commonly used as a basis for code assessments, but the record does 
not indicate the extent to which such data were regularly collected 
and disseminated to industry members. 

There can be little doubt, however, that the mandatory requirements 
of N. R. A. codes gave considerable impetus to existing trade statistical 
programs and enabled a number of industries to extend their statis- 
tical series in coverage and in detail. In other industries, organiza- 
tion under the N. R. A. marked the beginning of cooperative activity 
in statistical reporting, along with other trade association functions. 
The present extent of association statistical activity probably is some- 
what less than during the N. R. A. period, although greater than 
in any preceding period. The statistical programs of some associa- 
tions undertaken under N. R. A. auspices have been abandoned; in 
other instances the collection of data has been continued on a some- 
what restricted basis, with fewer series and with less detail in the 
way of geographic and product break-downs. But not in requently 
statistical programs undertaken under the N. R. A. have since been 
extended, both in the number of series compiled and in the detail with 
which the data are collected and analyzed. In other industries the 
coverage of the statistical series is greater than before the N. R. A., 
because some members who first reported their statistics under the 
compulsion of the codes continued to report voluntarily after the codes 
were invalidated. 

The N. R. A. gave far more impetus to price filing than to the 
collection of trade statistics, and the decline ir;i this activity after 
N. R. A. has been correspondingly greater. Neither of these results 
is surprising, since cooperative activity in the excliange of price infor- 
mation has been more deterred by antitrust decisions than any other 
form of statistical activity. The relaxation of antitrust restrictions 
under the N. R. A. led to a widespread demand for code provisions 
requiring the mandatory filing of current price offers, with prior 
announcement of price changes and a waiting period of from 1 to 10 
days before such changes became effective. Interest in this previously 


questioned type of informational service far exceeded interest in 
more comprehensive statistical programs. In general, the N. R. A. 
price filing plans were entirely disassociated from the collection of 
volume and other trade statistics. Attention was focused as much on 
the control as on the publicity function of price filing.^ 

Invalidation of the N. R. A. codes resulted in the abandonment of 
many open-price plans. With price filing reduced to the status of 
any voluntary informational service, the preoccupation with price 
statistics has become less marked, and relatively more emphasis is 
placed on the maintenance of a well-rounded statistical program em- 
bracing data on production, sales, shipments, stocks, new orders, and 
other measures of business activity. Price statistics are frequently 
included in these comprehensive programs but they do not often 
assume the preeminent position that price filing held under most 
N. R. A. codes. 

Government participation in the original collection of current trade 
statistics for the most part dates from 1921, when the Department of 
Commerce announced a plan whereby the Bureau of the Census would 
cooperate with trade associations in the collection of monthly data on 
production, shipments, sales, and stocks. Previous to that time the 
census tabulations of current trade statistics were limited primarily 
to series specifically authorized by congressional action, such as series 
on cotton consumption and spindle activity, data on cottonseed and 
on animal and vegetable fats and oils. 

Under the new cooperative arrangement, current trade statistics 
series were initiated at the request of an interested trade association 
or group of members Avithin an industry. The Census Bureau in some 
cases undertook the collection of data for the industry as a whole, the 
trade association assisting only by encouraging its members to par- 
ticipate, whereas in other cases it collected directly from nonmembers 
only and combined these data with those collected by the trade asso- 
ciation from its members. 

By 1926, 5 years after the plan was announced, current statistical 
data of various types were being collected for 64 industries or com- 
modities. These were predominantly monthly series, with a few 
quarterly, semiannual, and annual series. Since 1926 a number of 
these early series have been discontinued and new series have been 
initiated, l3ut there has been no net increase in the number of indus- 
tries or commodities covered. In 1939 reports were prepared for 
59 industries or commodities, in addition to the series on cotton and 
animal and vegetable fats and oil required by law. The number of 
separate inquiries apparently reached a high point in 1932, when 
data were compiled for 70 different industries or commodities, ex- 
clusive of the regular compilations on cotton and oil. In 1933 re- 
ports on hides, skins, and leather were discontinued, because of the 
repeal of the act authorizing their collection, and 5 other inquiries 
were dropped because the trade association took over the job of com- 
piling the statistics. Since 1933 only 6 new series have been initi- 
ated — 2 quarterly series supplementing existing series on wheat and 
flour and on fats and oils, a monthly report on red cedar shingles 

* N. R. A., Division on Review, Price Filing Plans Under N. R. A. Codes, Work Materials, 
^^o. 76, pp. 1-6. 


ordered by Congress as a check upon the effects of a quota provision 
in the Canadian trade agreement, a series on imported dates, and 
2 on knit gloves and mittens. 

Inadequate funds have made it necessary to refuse requests for 
new series and for the resumption of old series that were taken over 
by industry code authorities at the time of the N. R. A. and had since 
been allowed to lapse because of difficulties encountered in collecting 
and tabulating the data. Almost all the present list of 59 inquiries 
were started at the request of, or in cooperation with, trade associa- 

1. Air conditioning systems, fans, unit heaters, and other air- 

conditioning accessory equipment. 

2. Automobile financing. 

3. Boots, shoes, and slippers other than rubber. 

4. Cellulose plastic products. 

5. Commercial steel castings. 

6. Convection type radiators. 

7. Cotton, leather, and allied garments. 

8. Distillate oil burners. 

9. Domestic pumps, water systems, and windmills. 

10. Edible gelatin. 

11. Electric industrial trucks and tractors. 

12. Electrical goods. 

13. Fabricated steel plate. 

14. Farm equipment and related products (annual), 

15. Fire-extinguishing equipment. 

16. Fire-resistive safe. 

17. Floor and wall tile. 

18. Galvanized range boilers and tanks for hot-water heaters. 

19. Hosiery. 

20. Imported dates. 

21. Knit fabric gloves. 

22. Knit wool gloves and mittens. 

23. Lacquer (quarterly). 

24. Leather gloves and mittens. 

25. Malleable iron castings. 

26. Measuring and dispensing pumps. 

27. Mechanical stokers. 

28. Mens', youths', and boys' clothing, cut. 

29. Methanol. 

30. Mining and industrial locomotives. 

31. Motor- vehicle factory sales. 

32. Oil burners (for consumption of fuel oil). 

33. Paint, varnish, lacquer, and fillers. 

34. Paperboard. 

35. Plastic paints, cold water paints, and calcimines. 

36. Plumbing brass, 

37. Porcelain enameled products. 

38. Prepared roofing. 

39. Public merchandise warehousing. 

40. Pulverizers for pulverized fuel installations. 

41. Pyroxylin — coated textiles. 

42. Railroad locomotives. 


43. Raw wool consumption, 

44. Raw wool, top and noil stocks (quarterly). 

45. Recessed and attachable bathroom accessories. 

46. Red cedar shingles and shakes. 

47. Steel barrels and drums. 

48. Steel office furniture, shelving, and lockers. 

49. Structural clay products. 

50. Steel boilers. 

51. Sulphuric acid in fertilizer plants. 

52. Superphosphates. 

53. Terra cotta. 

54. Underwear and allied products. 

55. Water softening apparatus. 

66. Wheat and flour stocks (quarterly). 

57. Wheat ground and wheat milling products (monthly, quar- 
terly, crop year and calender year summaries). 
68. White-base antifriction bearing metals. 
59. Wool machinery activity. 

Inasmuch as the scope of the reports compiled by the Census 
Bureau differs widely from one industry to another, the above list 
is somewhat misleading without some indication of the types of data 
collected and the relation of the census reports to other statistics of 
the industry compiled by the trade association. The series collected 
for the paint, varnish, and lacquer industry, for instance, are very 
comprehensive and evidently obviate the necessity for regular trade 
statistical work by the National Paint, Varnish, and Lacquer Asso- 
ciation. With respect to some other commodities, notably paper- 
board, electrical goods, steel castings, automobiles, and prepared roof- 
ing, the census series represent a minor part of the current statistical 
data collected and distributed by trade associations in those indus- 
tries. The National Paperboard Association, for example, claims to 
have one of the most complete and accurate statistical services avail- 
able to any industry. The Census Bureau collects directly from 
nonmembers of the association data on production, orders, machine 
operation, and waste paper consumption for paperboard of all types 
combined. The association collects similar information, in far 
greater detail, from its own members and submits the totals to the 
Bureau of the Census for combination with the data for those com- 
panies not reporting to the association. The National Electrical 
Manufacturers Association collects very comprehensive trade statis- 
tics for its product sections, while the census report on electrical 
products consists of quarterly figures showing total dollar value of 
new orders with no classification of any type. The census report 
on commercial steel castings is confined to total production and total 
orders for two broad classes of railway specialties and miscellaneous 
castings, whereas the association collects and distributes detailed 
volume and price statistics for its members. 

Current trade statistics collected by the Bureau of the Census are 
subject to the same confidential treatment enjoyed by the other statis- 
tical data that it collects. The composite data are distributed directly 
by the Bureau to all participating firms and other parties requesting 
tnem immediately upon completion and for the most part are published 
in the Bureau of Foreign and Domestic Commerce monthly, the Survey 
of Current Business. 



The kind of current statistics collected by trade associations differ 
widely from one association to another, reflecting not only the nature 
of the industry and its statistical needs but also the readiness of indus- 
try members to submit data and to share the costs of compiling certain 
types of information. These same factors influence the frequency of 
collection, the character and detail of the classification and analysis, 
and the extent and manner of disseminating the data. 

Much of the discussion in this section is based on a tabular analysis of 
statistical forms and releases submitted by trade associations. This 
analysis covers a total of 995 statistical series compiled by 264, or 
approximately 58 percent, of the 456 trade associations in manufac- 
turing and other producing industries that collect trade statistics from 
their members. It does not 'cover tlie relatively few series that are 
encountered in the fields of distribution, service, finance and real 
estate, and transportation and other public utilities, and does not cover 
the statistical work of trade associations in the field of insurance. The 
analj^sis was based on materials voluntarily forwarded by trade asso- 
ciations, although in the case of some 40 associations additional informa- 
tion was obtained through interview. The 264 associations constituting 
the sample include only those associations for which there was no 
reason to doubt that the information on types of series was complete. 
As will be seen later, however, the information with respect to such 
matters as the extent of coverage and dissemination was inadequate in 
many cases. The data in most cases are based on releases issued in 
1939, although in the case of some associations the releases were issued 
in 1938. Not included in the sample are series collected by the Bureau 
of the Census, or other Government agency, in cooperation with trade 
associations, and series collected by trade associations that receive no 
dissemination of any kind. 

In the analysis, a "series" was defined as a type of trade statistics, 
such as data on shipments or orders, covering a product or group of 
products. Regardless of the manner in which the information was 
issued by the association, a type of trade statistics covering a numbeu 
of products was considered as comprising a single series if the composi- 
tion of the statistics for the various products was identical in terms of 
geographic, customer, and other break-downs and in terms of coverage. 
On the other hand, more than one series, as for example of shipments 
data, may have been enumerated for a single product if information 
was released in distinct and noncomparable forms, such as a summary 
release covering all participating members whose number varies from 
period to period and a detailed market break-down covering identical 
firms. Releases of the same type of statistics covering different re- 
porting periods were considered as comprising a single series if the 
composition of the data was the same, the series being classified accord- 
ing to the shortest period covered. Thus, a monthl}^ summary of in- 
formation that had been presented in detail in weekly releases was 
not defined as a separate series. 

Types of series collected. 

The classification and enumeration of trade association statistical 
series are complicated by the multiplicity of series collected, but the 
absence of a uniform terminology also presents difficulties. Several 


attempts have been made to d ^velop standard definitions and to secure 
uniform usage of terms generally applied to statistical series/ but 
progress in this direction has been slow. The term "sales," for ex- 
ample, is frequently used by trade associations interchangeably with 
the terms "shipments" and "orders"; and the term "orders" is fre- 
quently used without explanation to indicate whether the data refer 
to new or. to unfilled orders, or whether adjustments have been made 
to allow for cancelations. One statistical series compiled by an asso- 
ciation was variously identified in the exhibit material and in corre- 
spondence as applying to orders, to production, and to shipments. 
In tabulating the information on statistical series the term used by 
the association to describe a particular series was accepted, unless 
there was clear evidence on the statistical release that the series was 
more appropriately classified under a different heading. 

Statistics of pi'oduction and sales are the most common types of 
infoiTnation collected by trade associations. Production data, to- 
gether with data on stocks on hand, afford a measure of the current 
supply of industry products in the market ; sales data, including data 
on orders and shipments, afford a measure of current demand. The 
particular series collected by an association, of course, vary with' the 
needs of the industry. If production in a given industry ordinarily 
waits upon orders received, so that production and sales are virtually 
the same for any given period, one statistical series may be sufficient 
to reflect volume of business. If the industry is one in which stocks 
are accumulated, it usually is desirable to collect at least two series, 
such as production and sales, or production and shipments. Indus- 
tries desiring a more complete picture of current market conditions 
may collect data on five or more different items, including production, 
stocks, shipments, new orders, and unfilled orders, or such modifica- 
tions of these series as may be necessary to reflect existing supply and 
demand relationships. Production data may be supplemented or re- 
placed by data on machine activity, man-hours, or other measures of 
business activity. Data on shipments and new orders may be supple- 
mented by data on inquiries, cancelations, or returns as a basis for 
arriving at net sales or net orders. 

Production and stock series. — Production series, so-called, rank 
somewhat below sales and shipments series in frequency. They char- 
acteristically measure the current output of the industry's product in 
terms of an appropriate quantity unit, such as tons, barrels, gallons, 
yards, dozens, or individual units. 

* Series on machine activity, comparatively infrequent, likewise 
afford a measure of current output and may be used instead of pro- 
duction series when the industry products are too diverse to be meas- 
ured in a common physical unit. Thus, the iron and steel industry 
and the paper industry used data on machine activity as an over-all 
measure of industry operations to supplement the production series for 
various product divisions. The cotton textile industry uses loom 
activity in a similar manner. A machine-activity series commonly 
relates actual production to capacity production and thus provides a 
measure of the utilization of plant capacity as well as an absolute 
measure of output. Such a measure is particularly significant in indus- 
tries in which unit costs vary sharply with changes in the utilization of 

* See, for example, United States Department of Commerce, Trade Association Activities 
(1927), pp. 25-26. 


capacity. In such industries an index of machine activity informs the 
individual producer of the prevailing level of activity in the industry 
and may deter him from cutting prices in a vain attempt to maintain 
his own volume and rate of production at a level higher than the de- 
mand warrants for the industry as a whole. One textile group reports 
the number of printing machines in use and idle as a measure of pro- 
ductive activity. 

In some industries data on employment or man-hours of labor evi- 
dently constitute the only feasible measure of production. In other 
industries the production series actually represents the amount of raw 
materials utilized by the industry during a given period. Another 
example of an indirect measure of production is the series of label 
sales compiled by the National Coat and Suit Recovery Board. These 
labels are sold to members on the basis of not more than 2 weeks' 
supply at one time, with different priced labels for garments in dif- 
ferent price ranges. Data on label .sales are released at intervals to 
members to inform them of current production trends in the industry. 

Series on stocks, or inventories, of finished goods, although less nu- 
merous than production series, can be derived from parallel series on 
current production and current shipments or sales. An inventory 
series derived in this fashion is subject to error because of waste, 
returns, and other adjustments on orders, but unless the error is size- 
able and cumulative in a given industry, it may be unnecessary to ask 
members for separate reports on stocks. Some associations, anxious 
to discourage the accumulation of excess stocks, prefer to collect basic 
data on stocks and shipments, deriving the current production series 
from these two sets of figures or omitting it entirely from the statis- 
tical reports. Data on stocks are obviously unneeded in industries that 
produce to order but may be the most useful of all information to in- 
dustries having marked seasonal fluctuations, with inventories built up 
during slack seasons in anticipation of future deniand. One associa- 
tion was noted which compiled a series on "excess" stocks, indicating 
the extent to which inventories were above the normal seasonal needs 
of the industry as evidenced by past records. An association in the 
lumber industry collects a series on "surplus" stocks. Stocks are re- 
garded as surplus when they exceed unfilled orders by a specified 
number of board feet. 

Various trade association executives have noted a reluctance on 
the part of members to undertake the compilation of data on inven- 
tories of finished goods. This is explained in some instances by the 
difficulties of defining finished goods or of obtaining accurate reports 
but in other cases arises from a fear that disclosure of an adverse 
inventory situation may weaken the market, particularly if the infor- 
mation reaches customers of the industry. This is usually regarded 
by the trade association executive as prima facie evidence of the need 
for inventory data to convince members that they should curtail cur- 
rent operations, liquidate present inventories, and avoid similar accu- 
mulations in the future. Effective use of inventory data to this end 
wa^ reported by one trade association executive, who charted the in- 
ventory figures for his industry to demonstrate to members that when 
gross stocks were high the average price for the product was low, and 
when gross stocks were low the average price was hieh. 

Orders^ shipments^ cmd sales. — Shipments and sales series are rela- 
tively more numerous than production series and together represent 


a major portion of the total series collected by trade associations. A 
very few industries collect both sales and shipments data on the same 
products, carefully designating the transactions to be reported under 
each heading, but this practice is relatively infrequent and occurs 
chiefly in industries in which sales are made on contract for future 
delivery. Some associations use the terms interchangeably or have 
adopted the one that seems best fitted to describe the market transac- 
tions of their particular industry. Sales are relatively more often ex- 
pressed in dollar values than are shipments, but both types of data 
can be reported in either physical units or dollar value and fre- 
quently are reported in both. 

Shipments and sales data may be reported on a net basis, that is, 
with allowances made for goods returned and other adjustments made 
during the reporting period. Some industries compile a separate 
series on returns. These data permit adjustments of previous sales or 
shipments figures. They also disclose variations in the volume of 
returns and adjustments, which are not infrequently the subject of 
trade practice rules. Such rules may be directed against unreasonable 
customer demands or against indirect price concessions. Cooperative 
efforts at control may be limited to publicity, or the publicity may 
serve to implement a program of control. 

Data on new and unfilled orders are generally regarded as one of 
the most important types of trade statistics. Orders represent de- 
mand that has become effective, on the basis of which the industry can 
proceed with some confidence to adjust its production operations in 
accordance with the facts disclosed. A confusion between sales and 
order series, comparable to that noted between shipments and sales 
series, detracts somewhat from the quantitative significance of the 
totals shown in table 53. It was not always possible to determine 
whether the reported figures represented invoiced transactions or new 
business booked.^ The distinction between new, net, and unfilled or- 
ders is also subject to error, but the tabulation probaljly indicates cor- 
rectly the ranking of the three principal types of order series. 

New orders are the most common of the orders series. The explicit- 
ness of the message conveyed by these series will depend considerably 
on the nature of the industry. Orders, shipments,' and production 
may move in a 1-2-3 sequence, so that a rise or fall in new orders warns 
of an impending similar change in shipments, which will in turn 
affect production. If new orders in a given industry are filled imme- 
diately from stock, the new orders may move very little in advance of 
shipments, which will move in close accord with them. New produc- 
tion, on the other hand, may follow very closely or may lag consider- 
ably behind shipments, depending upon the decisions of the various 
companies to build up, maintain, or deplete stocks. In industries that 
produce to order, the relationship between new orders and produc- 
tion is much more direct, and current production is adapted closely to 
current demand, although there may still be a considerable lag under 
conditions of capacity production. Among industries normally pro- 

^ Series simply called "orders" were classified as new orders, as were series on "new 
contracts," "orders boolced," "booked sales," and "bookings" ; series called "orders on 
hand" were classified as unfilled orders. Series on "orders billed," "billed sales," and 
"billings," were classified as sales. Series on "invoices rendered," "shipments billed," 
and "invoicings" were classified as shipments. 


ducing to stock, some associations have defined normal seasonal levels 
for stocks, urging their members to regulate new production beyond 
these levels in strict accordance with new orders. 

Net orders series are similar to new orders series, except that the data 
have been adjusted to allow for cancelations of orders during the re- 
porting period. Separate cancelation series are compiled by some 
associations. This information like that on returns may be useful in 
connection with trade practice rules, but the volume of cancelations 
may also be interpreted as an indicator of business confidence. 

Unfilled orders are a measure of the business on hand and are a 
practical guide to immediate production operations. An unusual rise 
in the volume of unfilled orders indicates a favorable market situation 
just as a piling up of stocks indicates a situation unfavorable to the 
members of an industry. Recognition of this is apparent in the fre- 
quent reference to the "back-log" of unfilled orders. Association execu- 
tives may warn their members to regulate production in such a way as 
to maintain a minimum back-log of unfilled orders, which will forestall 
acute or abfupt curtailments of activity or a break in the price level. 
One association regularly includes on its statistical releases a column 
translating unfilled orders into the number of days of operation they 

Rato materials series. — Statistical series on raw material supplies 
are used by some industries to inform members of their market situa- 
tion as purchasers rather than sellers. It is to their interest to prevent 
a weak inventory position with respect to theif raw materials as with 
respect to their finished goods. In this case the danger is apt to arise 
from a shortage of raw material stocks in the face of increasing de- 
mand for the industry product. The rush to replenish inventories may 
result in a temporary boom market for their suppliers and a boost in 
the cost of the raw^ materials, A statistical series on raw material 
stocks informs the individual member of the current industry position 
and better enables him to replenish his inventories before there is a 
general shortage. 

One industry, at least, has utilized statistics on raw materials to 
further an association policy of maintaining raw material inventories 
at a specified level in relation to new orders. Individual company 
conformance to this advocated level was noted on the monthly statis- 
tical releases. As suggested earlier, raw-material-consumption figures 
may also be used as a measure of productive activity. 

Miscellaneous series. — -The 12 types of series mentioned above and 
listed in table 53 account for 882 of the 995 current statistical series 
collected by the associations covered in the analysis. The remaining 
113 series comprise a number of diverse types, of which series on export 
shipments, sales, and orders are the most common. There were, how- 
ever, only 18 of tliese series. Export and import data are seldom col- 
lected by trade associations because of the comprehensive information 
available through the Department of Commerce. Many associations 
republish this information in their regular statistical releases. 

The remaining miscellaneous series for the most part represent re- 
finements, variations, and adaptations of the common production, 
stock, shipments, sales, orders, and raw material series. Some of them 
have already been mentioned. Such series as the following appear: 
Man-hours (used as a measure of productive activity) ; unsold stocks; 


stocks inspected; carry-over from previous season; surplus stocks; 
stocks in process; inquiries; undelivered orders; orders accepted; quo- 
tations made ; receipts and purchases of raw materials ; and purcshases 
of finished goods from other members of the industry. 

Frequ&ncy of various series. 

The relative frequency of 12 types of current trade statistics, ex- 
clusive of the miscellaneous series mentioned immediately above, in 
different producing industries is indicated in table 53, 

Relative frequency . — Shipments series are by far the most numer- 
ous. Together with sales series, which rank second in frequency, they 
comprise almost 45 percent of the total. Production series number 
only 117; even when combined with the closely related series on ma- 
chine activity, they account for less than 15 percent of the total. 
Series on stocks are encountered less f requeiitly than production se- 
ries, representing approximately 11 percent of the total. Orders se- 
ries of various types total 211, almost a fourth of the 882 series 
studied. Data on new and net orders are compiled more frequently 
than data on unfilled orders. Series on cancelations and returns are 
comparatively infrequent, as are series on raw materials. 

It will be noted that table 53 shows for some industrial groups a 
number of series of the same type exceeding the number of associa- 
tions — in other words, tliat some associations compile more than one 
series of the same type. This is particularly true of "shipments" 
series. It has been explained that this situation may arise when for 
any product or group of products an association releases series of the 
same type that are noncomparable in terms of detail in break-down. 

Combinations of series. — Because much of the usefulness of current 
trade statistics arises from the relationships between series, it is de- 
sirable to have some measure of the frequency with which various com- 
binations of series appear among the statistics compiled by trade as- 
sociations. Since the purpose of such a tabulation is to disclose the 
prevalence of series that can be used in combination for comparative 
purposes, it is necessary that the analysis be made on a product or 
product-group basis rather than an association basis. Otherwise, a 
combination of sales and production data might, for example, be 
noted for an association that collected production data on one group 
of products and sales data on another group of products, despite the 
fact that there could be no possibility of comparison between the two 
series. Table 54 shows a distribution of 305 products or product 
groups according to the number of different types of statistical in- 
formation compiled for each of them. Series on raw materials were 
omitted from the tabulation, as were the "miscellaneous" series, so 
that a maxunum of 10 possible series could be collected on each prod- 
uct group. Because of these omissions and because it eliminates the 
duplication arising in those cases in which an association compiles 
more than one series of the same type, the table covers 661 of. the 995 
series included in the sample. 

The most striking fact emerging from the table is the high propor- 
tion or products or product groups for which a single statistical series 
is collected. This is true for approximately 52 percent of the 305 
product groups. Sales and/or shipments data only were compiled 


for 132 products or product groups, production and/or machine ac- 
tivity data for 16, data on orders for 11, data on stocks for 5, and 
data on cancelations for one.^ Two out of the 10 statistical series were 
compiled for 47 of the product groups, 3 series for 41 groups, 4 series 
for 18 groups, 5 series for 30 groups, 6 series for 7 groups, and 7 series 
for 3 groups. For no product group were more than 7 of the 10 types 
of statistical series comni^ed. 

Specific combinatie -5 of series that are in common use also have 
been indicated. Comparison between a production series and a 
parallel shipments or sales series was possible in the case of 71 of the 
305 products or product groups, or approximately 23 percent of the 
total. Inasmuch as significant supply and demand comparisons may 
be drawn from any 2-out-of-3 combination of (1) production, (2) 
stocks, and (3) sales or shipments, a count was made of the products 
having any 2 of the 3 types of data. A total of 86, or approximately 
28 percent of the total, product groups resulted. Of this number, 
65 groups were found to have all 3 types of information — production, 
stocks, and either shipments or sales. Another combination of some 
importance is the so-called "barometer," comprising data on new oi* 
net orders, shipments or sales, and production. The series neces- 
sary for this type of barometer comparison were found in the case 
of only 36 product groups, or approximately 12 percent of the total. 
A combination of 5 basic series is sometimes noted as necessary to 
provide complete statistical information. Such a combination might 
mclude (1) unfilled orders, (2) new or net orders, (3) shipments or 
sales, (4) production, and (5) stocks. Using this criterion, adequate 
statistical information was available for only 30, or approximately 10 
percent, of the products or product groups included in the tabulation. 

Unit or mode of reporting. 

According to table 55, cutrent trade-statistics series are predomi- 
nantly in terms of absolute physical units. Approximately two- 
thirds of the series are based on quantitatve measures only. Another 
15 percent of the series are based on both quantitative and value 
measures. Series based on value only comprise slightly less than 13 
percent of the total. Series expressed only in index or ratio form, 
without absolute figures, are comparatively rare, representing ap- 
proximately 5 percent of the total. Series expressed only in graphic 
form represent approximately 1 percent of the 882 series studied. 

Frequency of dissemination. 

Table 56 shows the 882 current statistical series distributed accord- 
ing to the frequency with which the figures are released to members. 
Nearly two-thirds of the series are on a monthly basis, with figures 
released currently for each reporting period. A few of the monthly 
releases include weekly figures, and 1 includes separate figures for 
each day of the reporting period. Twenty-one percent of the series 

« The total of these separate series, 165, differs from the total of 159 shown in the table 
because of combinations of production and machine activity In 1 case, and of shipments 
and sales in 5 cases. 


are disseminated at more frequent than monthly intervals. Less 
than 2 percent of the series are on a semimonthly basis, but 170 series, 
or 19 percent of the total, are released once a week, and 6 series are 
released daily. • Series disseminated less frequently than once a month 
represent approximately 12 percent of the total number, quarterly 
series being the most numerous. Seventeen semiannual series and 33 
annual series were included in the tabulation because they were regu- 
larly disseminated to the membership, although it is doubtful whether 
such series provide "current" information on business activity.'' 

There appears to be some tendency toward a shortening of the 
reporting period, but more frequent releases involve considerable 
added costs, which many associations are not j)repared to incur for 
the somewhat uncertain, indirect benefits that might result from more 
current statistical information. Associations that have found their 
statistical programs a potent force for market stabilization naturally 
are more ready to bear the costs of more frequent service. 

Apart from the frequency with which data are collected and dis- 
seminated is the question of how much time elapses after the close 
of the reporting period before the compiled data are actually avail- 
able for use. Interviews with association executives and comparison 
of the date of releases with the period to which the data refer indi- 
cate that daily series ordinarily show a lag of only 1 day from the 
time the data reach the association office to the time the release 
is mailed to members. Weekly statistics are normally released dur- 
ing the week following the one for which data were submitted, and 
monthly statistics within 15 days after the close of the month covered. 
However, the time lag for a monthly series is sometimes as much 
as 2 or 3 months. The delay may be due to a lack of immediate 
interest in the data, to dilatory reporting practices of members, 
coupled with the inability or refusal of the compiling agency to 
estimate data for missing firms, or it may occasionally be due to 
inadequate facilities for the prompt tabulation and dissemination of 
the data. 

Some few associations regularly release certain of their statistics 
by telegraph. Under the N. R. A. considerable emphasis was placed 
on the importance of simultaneous dissemination to everyone con- 
cerned. The present survey has revealed no particular insistence 
upon this point. It is probable that most associations mail the 
releases to all members at the same time, but several association 
executives have stated that the interest in the statistics is frequentl^^ 
great enough to lead members to telephone in for them in advance 
of the mimeographed or printed release. Pressure from members 
for the earliest possible release of the statistics appears to encourage 
the use of estimates for delinquent members. This practice and 
other measures adopted to speed releases may result in the sacrifice 
of representativeness for the sake of timeliness. 

Coverage cmd representatvveness. 

Table 30, previously presented, is suggestive of the coverage of the 
trade statistics compiled by trade associations. According to this 

' Frequency of release could not be determined In the case of 1 percent of the series. 


table, of 367 associations that reported trade statistics as a major 
activity, and for which coverage data are available — 

0.6 percent represented 25 percent or less of the industry's 

9.5 percent represented 26 to 50 percent of the industry's volume. 
34.3 percent represented 51 to 75 percent of the industry's volume. 
55.6 percent represented over 75 percent of the industry's volume. 

These data indicate that a majority of trade associations engaged in 
trade statistics as a major activity represents more than 75 percent of 
the business volume of their industry; and that few associations that 
represent 50 percent or less of their industry's volume emphasize 
trade statistics. 

These data, of course, have certain limitations in indicating the 
actual coverage of the series issued by trade associations. On the 
one hand, they do not reflect the partial coverage of those series that 
cover only some of the trade association members; and, on the other 
hand, they fail to account for those series that cover members of 
the industry who are not members of the association. The coverage 
of only 91 of the 882 series included in the sample analysis was 
indicated on the statistical releases. In terms of industry volume 
approximately 60 percent of these 91 series had a coverage 
in excess of 75 percent; approximately 30 percent, 1 from 51 to 75 
percent ; and approximately 10 percent, 1 of 60 percent or less. Such 
data, however, cannot safely be taken as representative. Of little 
more value is the information that 205 of the 882 series are known 
to include data for 1 or more nonmember companies, whereas 128 
definitely do not include data for nonmember companies ; no informa- 
tion concerning nonmember participation vvas available for the 
remaining 549 series. 

The omission from the releases of information concerning the cover- 
age of the data presented may be inadvertent in some cases and may 
detract very little from the value of the release to members who are 
familiar with the industry and the series. They may know that all 
association members report, or that nonreporting members represent 
an insignificant portion of total industry volume. Or they may know 
that the reports regularly exclude the figures for one large company 
and can make due allowance for this fact in interpreting the data. If 
the coverage of the series is consistent from one period to another, the 
usefulness may not be seriously impaired by the lack of complete cov- 
erage or the absence of any explicit statement of coverage. Not infre- 
quently, however, the failure to indicate coverage reflects a real in- 
ability on the part of the compiling agency to arrive at any satisfac- 
tory measure or estimate of the total industry volume. In such cases 
the association may have satisfied itself and its members that the cover- 
age is sufficient to insure representativeness and reflect trends a-ccu- 
rately, but there is no objective criterion by which the outsider can 
appraise the representativeness of the series. 

A number of associations whose current statistics have only a 
limited coverage attempt, where the product classifications are com- 
parable, to measure their representativeness by checking them against 
industry aggregates as reported in the Biennial Census of Manufac- 
turers. Or the association may attempt to use the relationships 
disclosed as a basis for raising current reported data to estimated 


industry totals. Other associations arrive at estimated industry 
totals by stepping up the reported figures on the basis of industry 
capacity figures. The validity of such estimated series depends, of 
course, on the relative magnitude of the reporting and nonreporting 
segments of i' 3 industry and on the reliability of the index used for 
stepping up reported figures. If the nonreporting companies account 
for a substantial volume of business, an error in estimating may 
distort the trend figures completely and render the estimated totals 
more misleading than the reported figures for a much smaller portion 
of the industry, especially since the limited coverage of the latter 
probably would cause them to be interpreted more cautiously. 

Other associations use the device of identical firm reporting in an 
effort to obtain comparable trend figures. If the identical firm series 
covers a substantial portion of the industry volume, it will, of course, 
afford more reliable information on trends than would be a noniden- 
tical series of approximately equal coverage. But if the selected firms 
produce a minor or varying portion of the industry volume, there is a 
real danger that the series will gradually diverge in trend from the 
balance of the industry and cease to be representative. In recognition 
of this danger, some associations supply their members with parallel 
series — one presenting reports. from identical firms and qjiother show- 
ing estimated industry totals. The latter may be based on the former 
series, however, and thus reflect its weakness. This type of identical 
firm series includes the same firms over a protracted period of time. 
Another form of identical firm reporting is commonly used by associa- 
tions having a relatively complete industry coverage but some varia- 
tion in the number of companies reporting promptly each period. In 
such circumstances, the current release will include figures from all 
firms that have submitted data, and the comparative figures for pre- 
vious periods will be adjusted to include the same group of companies. 
In other words, the figures on any given release refer to identical firms, 
but consecutive releases may cover slightly different groups.^ This 
method of maintaining comparability permits greater flexibility in 
compiling and releasing data promptly and in altering the sample cov- 
erage, but its successful use over a period of time requires that a com- 
plete file of reports be maintained for each company participating in 
the series. In a few of the industries in w^hich the statistics cover a 
varying number of plants of approximately equal size, comparisons of 
the level of activity may be made in terms of the average (mean) pro- 
duction or sales per reporting unit.^ 

The analysis of statistical series disclosed 65 instances in which it 
was specified on the release that the data were based on identical 
firm reports. It was not practicable, on the basis of the sample re- 
leases and other information available, to distinguish between those 
series that maintained a constant coverage from one period to the 
next and those that regularly adjusted previous data to cover the 
identical firms included in the current report. The proportion of 
current trade statistics series covering a constant sample undoubtedly 
is much greater than is suggested by the above figure, inasmuch as 
many series that do not explicitly stress idential firm reporting un- 
doubtedly regularly include reports from the same companies. 

« In this connection see the description of the statistics of the Southern Pine Associa- 
tion, below, pp. 227 flf. 


In general, associations concerned with trend data try to preserve 
the comparability of the sample at least over short periods and, when 
important changes occur in the composition of the reporting group, 
will attempt to carry through adjustments for preceding periods to 
allow for the omission or addition of companies. Some associations 
merely advise their members of the change in the sample and allow 
them to m-'ke their own calculations of its effect on aggregates for 
earlier pe^ ods. The more common, and probably the preferable, prac- 
tice is for the association to make the correction. While members 
of the industry may be in a position to appraise the effects of the 
change, it would be extremel}^ difficult for outsiders to do so. 

When changes occur in the number of reporting firms, the associa- 
tion not only must adjust figures to preserve comparability of the series 
but often must make this adjustment in such a manner that the fig- 
ures of the company discontinuing or just beginning to report will 
not be disclosed. A revision that involves less than three firms can 
rarely be made without revealing individual company figures to one 
or more rival concerns. Consequently, associations may contiiuie to 
estimate figures for a firm long after it has ceased to report. The 
statistical hazards attending this practice are obvious. 

Two other aspects of coverage concern the proportion of the in- 
dustry's products for which data are compiled and the geographic 
areas represented. Some associations collect very -detailed data on 
one or more products but no information at all concerning other seg- 
ments of the industry production. Examples of partial product cov- 
erage are abundant, but it is even more difficult to arrive at a quanti- 
tative measure of product coverage than of company or volum.e cov- 
erage. Inclusion or exclusion of particular products or groups of 
products may be dictated by the relative importance of the various 
products in bulk and sales value, the intensity of competition pre- 
vailing within the industry and with substitute products outside the 
industry, and the difficulties attending the collection and analysis of 
the data. Many associations collect data only on standard products 
or those that are produced by a majority of the industry members. 
Federated associations, or those associations that are organized into 
product or geographic divisions, are apt to show a very uneven de- 
velopment of statistical services, depending on the degree of central 
supervision, the cohesiveness of the member groups, and their interest 
in cooperative measures of control. Thus, some regional or local as- 
sociations may successfully undertake the collection of detailed 
statistics that could never be maintained on a national basis. The 
competitive situation in some geographic areas may be more intense 
than in others and call for more current information on supply and 
demand relationships to pi-event unbalanced market conditions. 

Extent of definitions^ instructions^ and comment on releases. 

Examination of the statistical releases of trade associations reveals 
a striking neglect of definitions and instructions. Only 68 of the 882 
releases covered in the sample analysis included definitions or ex- 
planations of the items contained therein. The absence of such in- 
formation on the release may be quite unimportant to participating 
members, inasmuch as they may be thoroughly acquainted with the 
data submitted and with the procedures used in compiling them. 


The majority of associations supply their members with standard 
reporting forms. Definitions of terms and full instructions for re- 
porting data are often printed on these reporting forms and omitted 
from the release forms. Members may be instructed by letter or in 
meetings concerning the proper definition of and method of reporting 
different items. If such measures have been effective in securing uni- 
formity in reporting practice, it is of little moment to the members 
that the release, for example, fails to define "orders" as exclusive or 
inclusive of cancelations or to explain the difference between the ship- 
ments and the sales series. But such omissions detract considerably 
from the value of the series to outsiders who do not have access to 
reporting forms or instructions. 

Statistical releases covering daily, weekly, or monthly data ordi- 
narily are accompanied by very limited comment or no comment at 
all. Such remarks as do appear usually are descriptive and not 
analytical in character. Statistics covering longer periods of time 
are more often accompanied by a review of past market situations, 
coupled with an appraisal of general economic conditions in the past, 
-present, and future. The critical attitude displayed by the courts 
concerning interpretative comment designed to sway industry mem- 
bers toward some common course of action has led many associations 
to refrain from any comment on releases, for fear it will be construed 
as undesirable by the Federal Trade Commission or the Department 
of Justice. With the abandonment of interpretative comment, 
greater attention has been focused on various types of comparative 
analysis for pointing up the meaning and implications of the figures 
and on the education of members regarding certain patterns of inter- 
pretation and response. In addition to devising more statistical 
guides, some associations have simply transferred interpretative 
comment from the statistical release to memoranda, news letters, 
association meetings, and field contacts. 

Olassification of data. 

Many associations have found that the value of their current trade 
statistics increases in proportion to the detail with which the data are 
collected and disseminated. Industries differ, of course, in the extent 
to which classification is feasible and desirable. An association whose 
members produce a single, miiform commodity obviously has no prob- 
lem Qf product classification, but the members may derive consider- 
able benefit from a classification of orders or sales according to geo- 
graphic location or type of customer. Associations whose members 
manufacture products in diverse sizes and styles or produce a num- 
ber of related commodities may require very elaborate product break- 
downs to yield significant information on market trends. While it 
is possible to derive some benefit from a statistical series reflecting 
total industry sales, the company that specializes in only one kind or 
grade of product would derive far more benefit from separate series 
for various product classifications. An adequate product classifica- 
tion likewise makes it possible to measure production and sales in 
terms of some quantity unit that does not vary in value from one 
p^eriod of time to another. Detailed product classifications are par- 
ticularly important when it is desired to compare individual com- 
pany performance with industry performance as regards produc- 

260752 — 41— No. 18 12 


tion, sales, new orders, and other operating factors. The importance 
of a product classification in this connection was urged upon the steel 
construction industry by a representative of a management firm in 
the following manner: 

With a classification schedule in hand your monthly reports of contracts let, 
fabrication, shipments, and erection can be broken down so as to permit illumi- 
nating comparisons between the performance of the individual plant and that 
of the group. To illustrate this we can imagine a producer whose principal 
volume is in one or two classes of work. This may be due to specialization, 
geographic location, or both. It may be that the type of construction which 
uses these particular products is not expanding as rapidly as the total market 
for structural steel. Under these conditions our imaginary fabricator's volume 
would not expand as rapidly as the industry's total volume. Now, if his 
statistical service shows him only the trend of the industry's total volume he 
will have no explanation for the lag in his sales. The lack of detailed infor- 
•mation may lead to the natural conclusion that his sales effort is failing. On 
the" pther hand, if the industry's total volume is broken down by classes and 
his volume related to those classes, his statistical service will give him an 
exact answer to his question. It is conceivable that an individual producers' 
volume of the classes or shapes in which he specializes may even be increasing 
more rapidly than the industry's volume of those classes, while his propor- 
tion of the industry's total volume is declining. If the break-down by classifi- 
cations in the statistical report tells him these things, he will feel very dif- 
ferently about his own performance than he would after comparing the bare 
total of his volume with the bare total for the industry. A statistical service 
which permits the individual producer to compare the trends of his volume by 
classes with the industry's trends in the same classes would provide manage- 
ment with needed and useful information. 

Similar arguments are advanced in favor of geographic and cus- 
tomer break-downs of data that enable the individual company to 
compare the trends of his own business with the total business done 
in a particular area or with a particular class of customers. In some 
industries it has been found desirable to maintain separate reporting 
systems for each region, as is the practice of the National Container 
Association, whose activities are described later in this chapter.^ In 
fact, the statistical programs of most manufacturers' trade associa- 
tions that have a large or scattered membership are apt to develop 
along two lines : A separate program for each of various regional 
or product groups emphasizing individual company comparisons and 
detailed break-downs and a national program coordinating and sum- 
marizing the group statistics to portray industry-wide trends. Ex- 
amples of associations having such dual statistical programs are the 
American Paper & Pulp Association, the Hubber Manufacturers 
Association, the Iron & Steel Institute, and the National Electrical 
Manufacturers Association. 

Standardization and product-classification activities by trade asso- 
ciations must in many cases precede or accompany the development 
of adequate industry statistics. The mandatory price-filing require- ' 
ments in N. R. A. codes demonstrated to many industries the neces- 
sity for uniform-product classifications as a basis for determining 
the comparability of prices filed by the various members. A close in* 
terrelationship between the trade statistics and standardization work 
of trade associations is suggested by the high correlation in the rank- 
ing of the two activities shown by various tabulations presented in 
chapter II." "^Hiether the desire for more adequate trade statistics 

» Pp. 238 ff. 

1" See tables 29. 30, and 32. 


serves as an impetus to standardization/ and classification of product, 
or whether the existence of an adequate standardization program 
spurs the development of the trade statistical program, it is not 
possible to say. it is, clear, however, the two are closely linked &s 
devices for bringing about more stable market conditions. The de- 
scription of the statistical program of the National Container Asso- 
ciation illustrates methods that have been devised to effect compara- 
bility of nonstandard products for statistical purposes. 

Some indication of the detail with which current trade statistics are 
classified is given in table 57, which shows the prevaleiice of various 
types of break-down. Almost half of the 882 series showed some 
break-down of the data by type of product or by suich attributes 
as size or grade. Classification of data according to geographic 
areas was less common, it being found in only 101 of the series. The 
basis of geographic classification was sometimes that of origin of 
the product, and sometimes that of destination. Shipments, sales, 
and new order series were more frequently classified according to 
destination, that is, the location of the purchaser ; production, stocks, 
and raw material series were classified according to the location of 
the producers' plants. Classification of orders, shipments, and sales 
data according to customers or customer classes was found far less 
often than product or geographic break-downs. The most common 
form was a break-down of the volume or value figures according to the 
various customer industries to which goods were sold. Break-downs 
of sales according to distributor classes and, in some cases, ultimate 
consumers were encountered with slightly less frequency. Miscel- 
laneous customer break-downs included the separation of Govern- 
ment from other domestic business separate reporting of intra-in- 
dustry business; new and old customer business; new business and 
replacement business; and others. 

Various and sundry kinds of other break-downs, adapted to the 
needs of particular industries, included classifications of production 
by type of process; of machine activity by type of machine; of pro- 
duction and sales by size of plant and by integrated and noninte- 
grated plants; of "spot" and "contract" business; of sales and orders 
by time of delivery; of rail and water shipments; of finished stocks 
on hand and on order, sold and unsold ; and of raw material stocks, 
spot and afloat. 

The desire to prevent disclosure of individual company data may 
inhibit detailed classification of data in some industries, although 
such classification may be made in other industries with full knowl- 
edge and consent of the parties involved that disclosures will result. 
Wlien production of a particular type or grade of product is con- 
centrated in two companies, for instance, separate figures for this 
product classification would inevitably reveal to each company the 
information submitted by his competitor. The increased time and 
labor required for members to report data in detail and the greater 
cost of compiling and disseminating the statistics are other considera- 
tions deterring the more detailed classifications of data by some associa- 
tions. Occasionally, objections to more detailed analyses may be made 
by members who feel that the results would be more valuable to com- 
petitors than to themselves. For example, opposition to a proposed 
regional break-down of statistics was voiced by members of one asso- 


ciation in the printing industry on the ground that if the figures dis- 
closed more than average opportunity in a given region, outside 
competitors would invade the market. This consideration may 
account for the practice of some associations of tabulating data 
separately for different regions and distributing the results only 
within the region. 

Some associations favor the filing of duplicate invoices or sim- 
ilar records of every transaction, on the ground that such reports 
yield the complete detail necessary for any desired break-down and 
insure uniform classification of the data without imposing any extra 
labor upon reporting members. Only one step removed from the 
release of trade statistics in detailed classifications is the practical 
followed by a few associations of showing the volume of sales, ship- 
ments, or orders for each transaction entered into by the members, 
or of listing and identifying the statistics of each company on the 
release. This makes the trade statistics available in their greatest 
detail and in some industries may permit a more thorough analysis 
and informed view of market conditions and developments than 
would be possible from any form of classification that would prevent 
disclosure of individual company data. 


In addition to considerations involving the type of administrative 
agency, the effectiveness of a trade association statistical program 
depiends, in no small degree, on the measures adopted to insure (1) the 
participation of all members in the reporting program, (2) the regu- 
lar and prompt submission of data to the compiling agency, (3) the 
accuracy of the information furnished, and (4) the confidential nature 
of the individual reports, insofar as this is desired by, the membership. 

Administrative agency. 

The collection, compilation, and distribution of industry statistics 
is usually carried on in the association office by staff members. In 
small associations, the executive secretary may handle the statistical 
service alone, together with all other association functions. Direction 
of the statistical program, so far as scope and policies are concerned, 
is frequently placed in the hands of a committee made up of industry 
members, but these committees rarely participate in the actual col- 
lection, tabulation, and dissemination of the data. This arrange- 
ment prevents any industry member from having access to the infor- 
mation submitted by his competitors and insures equal treatment of 
the members with respect to the promptness of reporting and the 
detail of information made available. 

As is indicated in table 33, of the 537 associations that reported the 
manner of compiling trade statistics, 82 percent indicated that the 
association staff earned on the activity. Seventeen percent indicated 
committee participation in some degree. Three percent of the associ- 
ations reported that the activity was performed by a private agency, 
exclusive of management organizations, and 7 percent by public or 
other nonprofit agencies. Another 3 percent failed to specify the type 
of outside agency employed in this connection. It should be observed 


that the above groupings are not mutually exclusive, as a number of 
associations utilize a combination of services in carrying on their 
statistical activities. 

Trade associations administered by management organizations, as 
was pointed out in chapter II, characteristically engage in the collec- 
tion and dissemination of trade statistics. Approximately^ 59 percent 
of such associations reported trade statistics as a major activity, 
whereas the corresponding figure for associations not administered by 
management organizations was 31 percent. Many of these are small 
associations tliat would find it difficult or impossible to pay for the 
full-time services of a statistician and statistical clerk and provide the 
equipment necessary for prompt compilation and distribution of in- 
dustry statistics. The typical management concern performs such 
services for a number of small associations — frequently in related 
fields — devising appropriate forms and procedures for tabulating and 
analyzing the data. The forms, procedures, and methods of analysis 
used by a particular agency are apt to follow a characteristic pattern, 
which is modified in detail to suit the varying needs of the industries 
served. One trade association manager objected to the request that 
he submit sample copies of the forms used in collecting and dissem- 
inating data for the various associations under his management, on 
the ground that they were part of his stock in trade. Or, in his 
own words : 

• ♦ * we are sending you ewaniples and ask that we be excused from 
furnishing one each of many different forms. * * * Forms such as we are 
using are, in some instances, the result of years of experience in promoting 
cooi)eration in statistical reporting. They constitute a part of our stock in trade. 
You would not ask a physician who was not under suspicion, for copies of his 
10 most effective prescriptions. * * * Naturally, the complete records in my 
office are open at all times, to authorized examination and copies of forms and 
of compiled rei)orts have never been refused, when they were to be used as 
part of a completed record which would not be open to more or less public 

The management concern offers the small association the advan- 
tages of wide experience in operating statistical programs and the 
services of a technically trained staff on a part-time basis. It is also 
able to integrate the statistical activities with other phases of the 
program and to influence the scope and application of the reporting 
plan — advantages not shared by private agencies retained solely for 
the purpose of assembling, tabulating, and disseminating data pre- 
scribed by the association. 

Some instances have come to attention in which private organiza- 
tions have been created or used apart from the regular trade associa- 
tion to perform statistical services for the association members.^^ 
There is reason to believe that on occasion these organizations may 
serve as a means whereby the association membership, or a part of 
the membership, can carry on cooperative activities that the trade 
association itself does not wish to sponsor openly. Thus, one trade 
association boasts that it maintains a very complete statistical serv- 
ice, and yet there are in existence in that industry two outside 
organizations, called the Eastern Statistical Service and the Western 
Statistical Service, which are operated by the association executive 
acting in a private capacity as head of an incoi^porated concern. 

" In this connection see the description of statistics in tbe Soathern Pine Industry, 
below, pp. 234 fl. 


This trade association admits no connection with these outside agen- 
cies. In a 1935 report on this industry, an N. R. A. staff member 
wrote : 

Summarizing our presentation of the control schemes which are in opera- 
tion in the * * * industry ^t the present time, we find that there is, so to 
say, 'an inner group of leading companies accounting for roiighly half of the 
total industry production and adhering to the very severe restrictive measures 
which are embodied in the contracts 'with the * * * Corporation, and an 
outer group consisting of the [rest of the] membership * * * The produc- 
tion of this latter group amounts to about another 40 percent of the aggregate 
industry output. The regulation of production applied to this group on the 
basis of the statistical reporting service of the * * * Association is of a 
much looser kind tlian the one enacted through the * * * Corporation, 
but tends to work in the same direction. 

No effort was made in the present survey to canvass or contact pri- 
vate statistical services that are not openly under the auspices of 
or employed by trade associations. 

Measures to insure participation. 

The collection of trade statistics is essentially a cooperative activ- 
ity and in most trade associations is conducted entirely on the basis 
of voluntary participation. In some industries, notably those with 
many small units, the association executive may be faced with a 
major problem of educating the membership to the value of trade 
statistics in general and their application to the industry in question. 
Thus, one executive reports extreme difficulty in securing support 
for any statistical program. Industry executives, he says — 

are extremely reluctant to give any figures, are suspicious of those requesting 
them and of each other. They do not know how to employ statistics in plan- 
ning their business so see no use of them. 

The executive in this case is attempting the collection of wage-and- 
hour data for use in labor negotiations, with the hope that this will 
prove an entering wedge for a more extensive statistical program. 
Even those associations that have established statistical programs 
frequently find it difficult to get a substantial number of members to 
participate. Some members simply do not wish to go to the trouble 
of compiling the necessary reports, and others are disinclined to 
reveal information which they regard as valuable operating data for 
their own company; still others may refrain from participation be- 
cause of doubts concerning the legality of certain elements of the 
association program. 

The statistical service usually is put on a reciprocal basis, the com- 
plete results being sent only to those that submit' data for their own 
companies. It is claimed that it is a necessary device to induce mem- 
bers to participate in the statistical program, inasmuch as members are 
unwilling to submit data for their own companies if they can obtain 
the releases without doing so. There is doubtless much truth in the 
contention that members submitting statistics are reluctant to share 
the benefits of the statistical reports with, nonparticipating members, 
especially with nonmembers who contribute nothing to the support of 
the association. There is less evidence to indicate that the withholding 
of statistical releases acts as a positive inducement to participation in 
the statistical program. The effectiveness of the practice is limited 
by the extent to which nonparticipants are conscious of the benefits to 


be obtained from the statistics and feel it a hardship to do without 
them. In recognition of this fact many associations have used the 
device of a "free trial," or occasional release, to stimulate the interest 
of nonparticipating members in the statistical program. Some asso- • 
ciations believe that the full benefit of the statistical program can be 
realized only by disseminating the releases to all industry members, 
regardless of their cooperation in submitting data. Otherwise, com- 
panies that are not informed of current market conditions may engage 
in disruptive competiti^'e tactics and defeat the association efforts to 
bring about more stable market relationships. 

Pecuniary incentives sometimes are offered to enlist cooperation in 
the statistical program. One case has been noted in which the mem- 
bersliip fee for a company was reduced from $100 to $10 as a means 
of persuading it to continue participation in the statistical program. 
Another association followed the practice of reducing by 1 percent the 
quarterly dues of all companies that reported statistics regularly and 
promptly during the preceding 3-month period. 

Tlie requirement that members submit statistics is specificall)^ in- 
cluded in the constitutions or bylaAvs of a number of trade associations. 
The following provisions are typical : 

Jlembers shall supply such statistics and data as may be required by the 
Executive Committee, provided such statistics and data be requested from all 

Each member shall promptly forward to the Secretary of the National Associa- 
tion such reports and statistics as he may, from time to time, be authorized to 

The constitution of another association provides that each member 
must submit the reports requested and gives to the business manager, 
with the approval of the executive coimiiittee, the power to examine 
and audit records of members insofar as they pertain to reports. Else- 
where in the constitution it is provided that members inay be sus- 
pended for delinquency in payment of dues or for failure to submit 
statistics for 2 months. If the delinquency is not removed within 30 
days the member may be expelled. The presence of such a mandatory 
requirement in the constitution or bylaws of an association is un- 
doubtedly a deten-ent to casual neglect or delinquency in member par- 
ticipation. Strict enforcement of such provisions probably is rare, 
but one such instance was noted. A member of the association was 
called before the executive committee to explain his failure to report 
data on a particular product. He maintained that he could not do 
so for "ethical" reasons (presumably it would have revealed confiden- 
tial relationships with some customer) . The executive committee, be- 
fore taking action in the matter, referred back to the association the 
question of relaxing the constitutional provision making reporting 
mandatory. The association voted to reaffirm the requirement. 
There is no direct reference in the minutes to expulsion of the delin- 
quent member, but the minutes for the next meeting of the association 
omitted his name from the list of members. 

Many associations have followed the practice of canvassing the 
membership before launching a proposed statistical service and have 
undertaken the collection and dissemination of certain types of 
statistics only after a given percentage of members, or members 


representing a given proportion of industry volume, have indicated 
in writing a willingness to participate. In such cases the individual 
member's agreement to report usually is made contingent upon the 
participation of other members — occasionally upon the participation 
of one particular competitor or group of competitors. 

Measures to insure promptness of reporting. 

The emphasis placed by most trade associations on prompt dis- 
semination of statistical reports calls for equal emphasis on the 
prompt submission of data by participating members. The shorter 
the reporting period basis, the more important it is that the data 
reach the association office promptly. 

In numerous associations the executive continually seeks, through 
speeches, correspondence, telephone calls, telegrams, and personal 
visits, to impress members with the necessity for promptness in 
reporting. Statistical forms are widely used to simplify the process 
of making returns. These forms may be supplied in advance, but 
many associations forward the reporting form, with or without a 
letter of reminder, a few days before it is due in the association 
office. If statistical releases are made monthly or weekly, the form 
for the ensuing period may be sent with the current release. Where 
reports are made weekly or daily, there is less need of a routine re- 
minder but a correspondingly greater need for checking promptly 
upon firms that are late in making returns. Not infrequently the 
data for delinquent firms are obtained by telephone or telegram, 
the information being confirmed by a written report later. In other 
cases the compilation may be delayed until the missing report ar- 
rives, or estimated figures may be used for the tardy firm. Some 
associations avoid both delays and estimates by issuing the release 
on schedule, with the notation that data are missing for delinquent 
firms. Subsequent releases ordinarily are revised to include the 
missing data and to substitute actual for estimated figures. The 
necessity, or absence of necessity, for concealing individual company 
data may influence the practice of an association in this connection. 
Some associations enforce very exacting requirements concerning the 
prompt mailing of reports. One association's daily report form 
specified that the report should be mailed by a certain hour each 
day to arrive at the association office by a certain hour of the suc- 
ceeding day. Weekly reports frequently specify that the report must 
be mailed the day following the close of the period ; monthly reports 
ordinarily allow 3 to 5 days for the filing of reports, but cases have 
been noted in which much longer delays were permitted. 

Measures to insure accuracy. 

For the most part trade associations rely on the honesty and com- 
petence of their members to report the information called for and 
make little or no effort to verify the accuracy of the reported figures. 
Most association secretaries questioned on this point expressed the 
belief that members reported correctly and completely and that it 
was necessary to check the data only for obvious and unintentional 
errors. Such errors ordinarily were called to the attention of the 
reporting firm, and the corrected figure obtained by letter or tele- 


The use of unifom reporting blanks, together with careful instruc- 
tions for filling out the blanks, helps to reduce en-ors. Occasion- 
ally these blanks are drawn up in the form of a balance sheet, so 
that the items can be checked against one another. For example, the 
Copper and Brass Mill Products Association's report on scrap pro- 
vides entries for scrap on hand at beginning of month, additions 
from receipt and purchases and from mill process scrap, scrap used 
during the month, and scrap on hand at end of month. The statisti- 
cal form used by another association asks the reporting member to 
note, in reporting items on stocks and production, that "Stocks, 1st 
day of month + Production" - "Shipped + Used" = "Stocks, last 
day of month." 

Associations frequently follow the practice of requiring returns to 
be signed by the reporting official; such forms usually include a 
statement certifying that the data are correct and complete. A few 
associations require that the reports be sworn to before a notary 

A few associations reported "spot checks" of members' books to as- 
certain the accuracy of the statistical reports, stating that these 
checks were not intended primarily to discover cases of dishonest 
reporting but to make sure that the members clearly understood the 
preparation of the forms and were reporting on a uniform basis. 
In contrast to such informal checks, which are made only occa- 
sionally and with the active cooperation of the members concerned, 
is the mandatory requirement that members permit the auditing of 
their books as a check upon the accuracy of their statistical -reports. 
One secretary admitted frankly that an association proposal to audit 
members' records arose from the fact that members did not trust one. 
another to report honestly. Other executives stress the importance of 
auditing as a means for instilling confidence in the industry statistics, 
thus enhancing the willingness of members to"lDe guided by them. 
Considerable difference of opinion exists among trade association ex- 
ecutives concerning the desirability of auditing. Several indicated 
that the checking up was personally distasteful to them or that it im- 
paired their personal relations with the members by interposing an 
atmosphere of suspicion into relations that theretofore had been char- 
acterized by frankness and mutual confidence. The periodic auditing 
of all members' books as a routine part of the statistical' plan is less 
likely to be interpreted as a check upon the honesty of a particular 
firm and hence is less likely to arouse resentment. But such a pro- 
cedure is costly and has aroused some unfavorable attention from 
the courts as an unwarranted degree of supervision of the business 
of association members. The recent indictments of the Department 
of Justice against the Kraft Paper Association and the National 
Container Association list among the methods used to carry out the 
alleged restraints of trade those of periodic audits and examinations 
of books and records of members by field auditors and representatives. 

It is not surprising that members of associations openly or tacitly 
sponsoring plans for voluntary sharing of business on the basis of 
past and current operating records should be concerned with the ac- 
curacy of the statistical data submitted by their competitors. The 


mutual confidence that is necessary for any program of concerted ac- 
tion, whether of vohmtary or a mandatory nature, obviously is bol- 
stered by the knowledge that an impartial check is being maintained 
on every member participating in the statistical program. But even 
where there is no express or implied intent to predicate group action 
on the statistical reports, it is, of course, important that the data 
submitted be complete and accurate. One association expert, advo- 
cating that statistical reporting be placed on a contractual basis, has 
expressed the following opinion : 

The faithful performance of promises to supply facts for the mutual benefit 
of buyers and sellers in the industry is a basic requirement, and should be 
dealt with in a thoroughly businesslike manner. The • effort to collect data 
certainly is not worth while unless the results inspire that degree of confidence 
which is necessary to cause them to be used as the basis of current business 
decisions. Incomplete or inaccurate data are worthless for this purpose. The 
same business devices upon which trade and commerce rely for the execution 
of promises made in good faith should be utilized in connection with trade- 
association obligations of this sort. Too often such obligations are put on the 
par with casual promises or cooperation made in paternal or social groups. 
In undertaking to build up a body of facts as a substitute for false or misleading 
rumors, the casual is entirely inadequate. The law-merchant pro- 
vides us with Vi?^ell-tested and thoroughly effective tools with which to work. 
The certainties of the law of contracts can be substituted for the uncertainties 
of casual and informal promises of cooperation." 

Measures to insure con-fidential handling. 

Some few associations make it a practice fully to disclose individual 
company data in the statistical releases disseminated to the member- 
ship. Ordinarily, however, members submit reports to the association 
office with the understanding that individual company figures will be 
held confidential and the data released only in the form of industry 
totals or summaries that will not reveal the status of individual 
company operations. 

The precautions taken to insure the confidential character of the 
reports vary widely from one association to another, reflecting the 
intensity of competition in the industry, the presence of mutual trust 
or distrust among the membership, and the degree of confidence 
reposed in the association executive. A number of associations incor- 
porate in their constitution or bylaws the obligations ox the secretary 
in this respect. For example, one provision reads as follows : 

No member of this association shall be permitted to have access to any reports 
furnished by another member, nor shall the Business Manager be i)ermittted to 
disclose to anyone any information, save for the summary above mentioned, 
contained in any reports made by another. 

This provision was followed by one forbidding the business manager 
to have any financial interest in any company in the industry served. 
Various devices for preventing accidental disclosures of individual 
company data are employed by associations. One executive stated 
that the original report submitted by members is entered "into an 
adding machine and nowhere else," and returned to the company. 
One plan for concealing the figures of individual companies might 
almost be characterized as not letting the right hand know what the 
left hand does. This plan was explained by an association executive 

^' Albert E. Sawyer, "Accounting and Distribution Techniques as Voluntary Devices to 
Eliminate Abuses in Marketing," the Accounting Review, vol. XIV, No. 2 (June 1939), 
pp. 114-115. 


who was a^ed to identify the outside agency used by his association 
to tabulate statistical data for the industry. The letter is quoted in 
detail because it indicates, as part of one scheme, various devices used 
singly or in combination to preserve the secrecy of 'individual com- 
pany figures: 

Now it is a part of this entire plan of collecting information from the industry 
and tabulating it that no one but myself shall know who the outside tabulator 
is. * * * 

The only basis upon which statistical work of this character could be under- 
taken in our industry was such handling of reports from individual companies 
as would guarantee that no individual company figure would ever become known 
to anyone. The system which I devised to meet this situation may be brielly 
described as follows : 

1. The report blanks upon which the individual companies send in their figures 
are individually numbered. No one except myself has the key to the numbers — 
not even any clerk in my own office is permitted to have anything to do with the 
making of this numbered list. I make the numbered list with my own hand. 
I am, therefore, the only person in the world who knows for what company any 
individual number stands. This numbered list is kept in a safe-deposit vault, 
the location of which is unknown to anyone except myself. 

2. Returns on these numbered blanks come in two Envelopes. The outer 
envelope is of a certain type addressed confidentially and personally to me. No 
one else in our office is permitted to open one of these envelopes — and if anyone 
does they will be immediately discharged. Inside is an inner envelope numbered 
to correspond with the report. A sample of that inner envelope is enclosed, and 
you will find it stated thereon that if this inner envelope is sealed it will not 
be opened by me. In that case, the one person who will see the report will be 
the outside accountant who tabulates the reports, and who, of course, does not 
know for what company the number stands, because I, myself, have the only 
list of numbers, and no one else has access to that list. 

3. The outside accountant who does the tabulating is known only to myself; 
even his pay for the work he does is handed to liim in cash by me so that there 
will be no blank check or other means of tracing his name. I deliver the returns 
from the individual companies, personally, to this accountant, always outside 
my own office. There is no means in the world whereby anyone may know 
who he is. 

Under these circumstances, you will see that the entire basis of the tabula- 
tion is that not a soul, including myself, will ever be able to connect any indi- 
vidual figure with the company that supplies it. If I die, or am ill, there will be 
no sales census — but on the other hand there will never be any leak of any indi- 
vidual company figure. 

Under these circumstances, you will see that it is not possible for me to list 
in response to question No. 25, the name or any other information concerning 
the outside accountant who makes these tabulations for me. All that I can 
say to you is that he is a certified public accountant, and that so far as I know 
he is doing no work of any similar character for any other trade association. 
The scheme that has been developed, as outlined above, is entirely my own plan ; 
and without it there would be in this particular industry no tabulations what- 
soever, because the companies are unwilling to give confidential figures to any 
agency or office where there could conceivably be a leak concerning any indi- 
vidual company's business. 

One association that had previously made use of an auditing firm 
to compile confidential data on sales found it desirable, as an economy 
measure, to substitute a form of percentage reporting, which appar- 
ently satisfied the members' desire for secrecy of individual company 
data. A letter to the members explained the proposal as follows : 

Yonr Statistics Committee is still active, and has devised a Statistical Form 
which we believe will do away with the necessity of handling the collection of 
data through an accountant. 

We believe that the information we ask for will be easy to furnish. We do 
not ask for any of your figures, but we do ask for percentages of increase or 
decrease of sales of one period as compared with another. The enclosed outline 
is self-explanatory. 


You can rest assured that even the percentages that you file with the Institute 
will be available only to the Secretary and staflf of the Institute Offices. 

The purpose of this compilation is to show you what the trend of the sales 
on these products is, in the aggregate, for all those members reporting. 

No individual company's percentage-figures will show on our ultimate charts; 
but you will see the total percentage of all those reporting, whether it be increase 
or decrease. 

It is evident that the summary percentages of increase or decrease 
could be prepared accurately only if base figures for each company 
were available to the association executive and, if base figures were 
available, that the executive could derive the current absolute figures 
for each company with relatively little difficulty. 


Experience has shown that relatively few trade associations regu- 
larly broadcast their current trade statistics to their customers or to 
the general public. Likewise many of them fail to make their statis- 
tics available to members of the industry that stand aloof from the 
association or from its reporting program. But there is a funda- 
mental difference in attitude toward the two types of dissemination. 

Most associations welcome the participation in the statistical pro- 
gram of industry members outside the association. In such cases 
the disinclination to have nonmembers benefit from something they have 
not helped to pay for is more than counterbalanced by the desire for 
improved coverage of the statistical series and recognition of the 
salutary effect that the statistical information may have on the com- 
petitive behavior of the nonmember. In other words, the wider 
dissemination in no way detracts from the value of the statistics to 
association members. Instead, it enhances them. The distribution of 
trade statistics to members of the industry who do not participate 
in the reporting program, on the other hand, is not a common prac- 
tice. The argument advanced against such a practice is simply that 
if the data were regularly made available to them, nonmembers would 
have little incentive to ]oin the association or participate in the re- 
porting prc^ram. 

The dissemination of the industry statistics to customers and the 
gieneral public introduces different considerations. While it may be 
freely conceded that the greatest public benefits from current trade 
statistics can be expected when- the facts about market conditions are 
in the hands of both buyers and sellers, it by no means follows that 
the interests of industry members will be best served by this arrange^ 
ment. In many industries a strategic advantage undoubtedly is 
enjoyed by sellers that have information not available to prospective 
buyers, and it cannot be expected that they will forego that advan- 
tage unless constrained to do so. The failure of associations in other 
industries to give widespread publicity to their statistics is due more 
to the expense and inconvenience which such a program would entail 
than to a desire to maintain the confidential nature of the data. 

Extent of dissemination. 

In table 58 various degrees of publicity given by associations to 
their trade statistics are indicated, ranging from the distribution to 
participating members only, to a completely unrestricted distribution 
of data to anyone requesting them. Intermediate degrees of pub- 


licity noted include dissemination to all members of the industry 
regardless of participation; dissemination to the Survey of Current 
Business or other Government agency, and dissemmation to the trade 
or general press. Each series is listed only once — under the widest 
degree of dissemination that it receives. Thus, series that are avail- 
able to the trade or general press presumably are available also to 
Government agencies and all members of the industry, as well. Of 
the 882 series, 492, or approximately 56 percent, are sent only to 
members that participate in the reporting program. In the case of 5 
of the 492 series, it was definitely specified that the data distributed 
to each member covered only the products upon which he reported or 
the regions in which he reported sales or shipments. Ten series, 
or slightly over 1 percent of the total, are available to all members 
of the industry but not to Govermnent agencies or other parties; 
158 series, or about 18 percent of the total, are sent either to the 
Survey of Current Business or other Government agencv, and 44 
series, or 5 percent of the total, are disseminated througli a trade 
journal or the general press. In 13 cases, it was indicated that the 
series were generally available to anyone requesting the data." The 
extent of dissemination could not be ascertained for 165 series, or 
approximately 19 percent of the total. 

Table 59 indicates the extent of dissemination of trade statistics 
on an association rather than on a series basis. In this table eacli 
association was listed only once, classified according to the widest 
dissemmation that any of its series received. One hundred and 
seventy-four, or about 66 percent, of the 264 associations included in 
the tabulation limit the dissemination of their series to participating 
members onl3\ Three percent distribute one or more of their series 
to all members of the industry, regardless of participation, but do 
not send their data to Government agencies. Approximately 12 
percent forward one or more of their series to the Survey of Current 
Business or other Government agency; somewhat over 6 percent 
compile one or more series that are released through trade journals 
or the general press ; and 3 percent make their data available to any- 
one requesting them. It was not possible to ascertain the extent of 
the dissemination received by the series compiled by the remaining 
associations, which constitute approximately 10 percent of the total. 

In general, it appears that relatively few associations distribute 
current, weekly, or monthly statistics to persons outside the industry. 
More of them give wide distribution to statistics covering longer 
periods of time or publish rnnual summaries of figures previously 
disseminated to members. Similarly, a more favorable attitude pre- 
vails toward the distribution of summarized data for the industry as 
a whole than of detailed data for specific product or regional groups. 
A niunber of large national associations are^ entirely ready to broad- 
cast composite series on production, sales, new orders, et cetera, but 
access to the particularized reports, prepared and disseminated to 
various product or regional groups in these associations, tends to be 
restricted to participating members. The forwarding of all statis- 
tical releases to some Government agency, such as the Federal Trade 

" Current series compiled by the Bureau of the Census in cooperation with trade asso- 
ciations are always available to anyone requesting the data. As noted previously, such 
series are not included in the tabular analysis, which was limited to statistical series 
collected by associations. Also omitted from the tabulation are series collected by trade 
associations that receive no dissemination of any kind. 


Commission or the Survey of Current Business, is a form of "con- 
structive publicity" adopted by some trade associations; and many 
more associations undoubtedly would thus file their releases if they 
were actively encouraged or were requested by such agencies to do 
so. The filing of releases in this manner insures Government access 
to the data. Because of the limited Government republication of 
trade association statistics, however, such constructive publicity has 
not been an effective substitute for complete, direct dissemination or 
availability of the data to the trade. Such a dissemination might be 
attained through publication of the detailed statistics in trade jour- 
nals or in the general press, but this practice has been comparatively 
rare. Not infrequently the data are of interest to a very limited 
public, and neither the trade nor general press wishes to publish 
them regularly or in detail. One association executive, for instance^ 
stated that his association formerly mailed its releases to a trade 
journal but had ceased to do so because they were never published. 

Statements are sometimes made by trade associations that their 
statistics are "generally available" or "available to all interested 
parties." Investigation disclosed that in some instances industry 
members outside the association received releases only occasionally or 
on a free-trial basis. In other instances nonmembers regularly re- 
ceived reports but at less frequent intervals than did the members. 
Thus, one association stated that it sent a monthly release to con- 
tributors and a quarterly release to all members of the industry. 
Another association issues three classes of trade and price statistics: 
(1) To the general public (press releases) ; (2) to the industrj^ as a 
whole ("not of public interest") ; and (3) confidential to contribu- 
tors. One association charged nonmembers $100 for a subscription 
to the monthly statistical release, which was furnished free to mem- 
bers. Such a requirement may be an entirely reasonable w-ay of 
allocating the cost of the statistical service, but it modifies the con- 
notation of the phrase "available to all interested parties." The 
terms, "availability," and "interested parties" are elastic ones and 
invite further questions: Will the material be mailed upon request 
or for a nominal, or reasonable fee? Must the inquirer go to asso- 
ciation headquarters to scrutinize it? Hoav must he qualify as an 
interested party? Experience with price filing plans under the 
N. R. A. revealed that similarly restrictive or qualifying provisions 
often resulted in the actual publicity achieved by such plans falling 
far short of the publicity requirements in the codes.^^ 

Dissemination through the Survey of Current Business. 

Government participation in the dissemination of available trade 
statistics dates from 1921, when the Survey of Current Business was 
created in the Department of Commerce. Establishment of the 
Survey was part of a general movement on the. part of the Depart- 
ment of Commerce to cooperate with trade associations in tJie collec- 
tion and publication of current trade statistics. The Supreme Court 
decision in the Harduwod case., condemning certain kinds of statis- 
tical activity, led to increased emphasis on these cooperative efforts. 
By providing facilities for prompt and widespread dissemination of 

i< See N. R. A. Division of Review, Price Filing under N. R. A. Codes, Work Materials 
No. 76, pp. 152-162. 


data compiled by various agencies of the Government and by private 
organizations, the Department hoped to extend the constructive bene- 
fits of current business statistics and, at the same time, to enable 
trade associations to continue the legitimate collection and use of 
industry statistics under adequate safeguards of publicity. 

The Sur^^ey was originally under the direction of the Bureau of 
the Census. The annual report of the Director in 1921 referred to 
the Survey as a publication in which statistics that were already 
being gatliered independently by various Government bureaus, trade 
associations, and publications had been brought together, systema- 
tized, and reduced to a common denominator by the use of index 
numbers, so as to indicate on a comparal)le basis the movement of 
different lines of business or commercial activity from month ta 
month. Current trade statistics compiled directly by the Bureau of 
the Census in cooperation with trade associations also were published 
in the Survey, and it was contemplated that these series would form 
a gradually increasing portion of the available series and round out 
a comprehensive body of current trade statistics for the basic or 
key industries of the country. In June 1930 the Survey was trans- 
ferred to the Bureau of Foreign and Domestic Commerce. 

The scope of the Survey has been gradually expanded and now 
covers more than 2,000 time series ^^ compiled by over 200 different 
Government and non-Government sources. In addition to the regu- 
lar monthly issues of the Survey, a 4-page weekly supplement is 
issued presenting tables and charts of weekly data, advance informa- 
tion of the more important monthly series received between publica- 
tion dates of the regular issues, and a brief sketch of business trends. 
Five comprehensive annual summaries of the monthly statistical 
^se^ies have been issued, the latest of which is the 1939 supplement. 
Not more than 20 percent of the time series included in the 1938 
supplement were originally compiled by trade associations. 

In 1939, 76 national and regional trade associations regularly sub- 
mitted trade statistics to the Survey. Only a portion of the trade 
statistics that were submitted, however, were published by the Sur- 
vey. Some statistical data of 65 of these 76 associations were pub- 
lished.^" None of the data submitted by the other 11 associations 
wei-e published. Of the 65 associations, some of whose data were 
published, there were 9 that submitted one or more series no part 
of which was published. And of the same 65 associations there were 
36 associations which submitted one or more series that were pub- 
lished in partial or summary form only. 

Selection of the series to be reprinted in thp Survey is governed by 
both technical and practical considerations. Representativeness, ac- 
curacy, and comparability of the series from one period to another 
are primary requisites. Appraisal of the series in these respects 
involves no fixed criteria, but. each series solicited or voluntarily sub- 
mitted for publication is subjected to careful examinpiion and rejected 
if unsatisfactory in coverage or manner of compilation, Various 
series have been dropped from the Survey because of shifting cover- 
age or other inadequacies. Considerations of expense and limited 

^ These include price and employment data and various composite business indexes, as 
well as trade statistics series. 

^8 Exclusive of trade statistics currently compiled by tbe Bureau of the Census at the 
initiative of, or in cooperation with, trade associations. 


space result in the exclusion of some series that are of limited public 
interest or cover industries or products of relatively minor impor- 
tance in the national economy. 

Price statistics collected by trade associations are not included in 
the Survey. Wholesale and retail price indexes of the Bureau of 
Labor Statistics are reprinted, together with price series compiled 
by the" Department of Agriculture and other Government agencies, 
and price indexes compiled by various private agencies and trade 

The data that are received from trade associations but not pub- 
lished for the most part are available to anyone wishing to consult 
them at the offices of the Survey. Requests for access to the data 
come primarily from employees of various Government agencies. 
There is no provision for disseminating the data in response to 
telephone or mail requests.^' The data are not tabulated in any way 
unless they are to be republished, and copies of the original report 
are not available for distribution. Over and above these practical 
limitations on the availability of the unpublished data are occasional 
restrictions imposed by the trade associations submittincr the reports. 
These restrictions relate usually to the disclosure of the detailed 
break-downs of the data on current reports. 


A trade association executive seeking to enlist industry support for a 
statistical reporting plan is apt to stress the practical benefits to be 
attained by the members. While some executives like to refer to their 
industry statistics as the "guideposts of industry," "the tools of man- 
agement," or "the charts by which industry must steer its course," 
there is a tendency when addressing the membership to define the 
objectives of the statistical work in specific terms and to measure its 
ultimate usefulness by the increased profits to association members. 
Objectives frequently cited include the disclosing of market oppor- 
tunities, a more orderly marketing, a stabilized price level, the 
prevention of ruinous price competition, demonstration of the futility 
of seeking volume at the expense of competitors, elimination of sales 
below cost, discouraging of overproduction, and the avoidance of sur- 
plus stocks that depress price levels. The following statements taken 
from materials submitted by various trade associations indicate the 
manner in which the effects that have been or may be attained from 
a statistical program are described : 

They have made possible the achievement of more intelligent and orderly 

These statistics in themselves have done more than any other thing to de- 
velop confidence and to permit each member to formulate his individual policy 
based on a knowledge of conditions, with full considerations to the best in- 
terests of the industry. 

They warn members not to go after a market that isn't there. 

They avert disastrous price cutting when the market is contracting and warn 
the member to get his share when the market is expanding. 

Misery loves company. When a member finds he is no worse off than others 
in the industry he does not go so desperately after volume as he would if he 
believed his were the only sales that were declining. 

" For data that are published in the Survey complete, revised records are available in 
photostat for a small charge. 


There is a psychology of reassurance in finding that when your sales are 
falling those of your competitors are also declining and you accept the situa- 
tion, when if you believed the decline to be confined to yourself you would 
have gone to drastic extremes to regain - ur lost sales volume. 

They permit each member to equate his own position and often prevent wild 
plunging after vanishing markets. 

Statistics contribute a moderating influence in price cutting by members. 

Statistical data make it possible for the member to acquaint himself with 
indu.stry conditions and thus intelligently to conduct his own business. Without 
the data it would be difficult for him to visualize the relation of his particular 
problems to those of the industry as a whole and to I'ecognize that his well-being 
was and is inextricably bound up in that of the industry. Information permits 
rationalized competitive conditions. * * * in large part, fact has supplanted 
rumor, with a consequent tendency to the elimination of destructive competitive 
practices and their harmful effects upon the quality of product and service, as 
-veil as upon adequate compensation to labor, management, and capital. 

Stated in such terms, tlie central objectives of statistical reporting 
plans differ little among the great bulk of trade associations. An 
examination of the programs themselves, however, indicates differ- 
ences in the extent to which associations have defined and interpreted 
their objectives, differences in emphasis and approach and in the 
character and adequacy of the measures used to bring about desired 
results. One, moreover, encounters a number of general and specific 
purposes and occasional and incidental uses of trade statistics that 
defy simple characterization. The following groupings, though by 
no means mutually exclusive so far as many individual associations 
are concerned, provide a basis for further consideration of trade 
statistical programs : 

1. Programs designed to supply information on past industry 

trends for general use. 

2. Programs designed to guide the price and production policies 

of the members — 

a. By indicating the individual member's position with 

respect to that of the industry. 
h. By reflecting current trends of the industry as a whole. 

3. Programs designed to further a particular inquiry and other 

specific uses of trade statistics. 

Programs designed to supply inf ormution on past indu^stry trends for 

general use 

A few trade associations evidently collect statistics primarily as a 
means of developing and preserving records of industry operations 
for future reference and comparison, with little expectation that the 
data will serve to guide the current price or production policies of 
members. An association may, for example, collect from its members 
monthly or quarterly figures on producti(m, sales, or other data similar 
to the annual figures published in the Biennial Census of Manufac- 
tures. These figures may be compiled and released regularly to the 
members but with a considerable time lag ; they may be compiled only 
occasionally and released in an annual bulletin or at the annual meet- 
ing; or they may receive no regular dissemination. These records 
are available to the association and its members for such uses as may 
arise, including public relational problems, wage and hour negotia- 
tions, tariff and freight rate presentations, and other Government 

260752 — 41— No. 18 13 


and private contacts. The data may serve to reveal seasonal and 
long-time trends and permit comparisons of industry activity with 
general business conditions and ^-\ith the activity of industries pro- 
ducing substitute or related products. They may form the basis for 
long-range planning by the individual member. Individual company 
data are not emphasized in statistical programs of this type, and 
classification of the data is apt to be limited. 

The comprehensive industry statistics collected by the National 
Association of Wool Manufacturers during the earlier years of its 
existence may be cited as an example of this type of statistical pro- 
gram. Publications containing industry statistics began in 1864 and 
have been maintained to the present time. The data were utilised 
extensively in urging industry tariff protection and for analyzing 
long-time trends in wool production and consumption, manufacturing 
capacity, and the intensity of foreign competition. The published 
statistics included relevant statistical series collected by the Bureau 
of the Census and other public and private agencies, as well as- original 
data collected by the association. In later years, and more particu- 
larly since 1933, the association statistics have been revised to empha- 
size monthly releases of data reflecting current trends and to include 
the compilation of particularized data for product groups.^^ 

Progranns designed to guide the price and production policies of the 


The primary reason for the collection and dissemination of current 
trade statistics by most trade associations engaged in this activity is to 
furnish the members a factual basis for current decisions regarding 
prices and production. As it actually works out, the program may 
have no effect on the members' policies, it may have the effect of 
sharpening the competitive struggle for the market, or it may serve to 
temper and minimize competition between the members of an industry. 

There can be little doubt that the trade statistics issued by some 
associations are indifferently received by many or all the members. 
This' may be due to the fact that the statistics are poorly designed 
in the light of the industry's particular needs, or that they lack accu- 
racy, coverage, representativeness, timeliness, or other essential qual- 
ities. It may be attributable to the fact that the association executive 
has been unable or unwilling to instruct the members in the possible 
uses of the data, or to the fact that he has interpreted the data with 
statistical techniques so difficult as to discourage or prevent understand- 
ing. It may mean simply that the members' needs are better served 
by information from other sources. Whatever the reason for their 
indifferent reception, it is unlikely that in these circumstances the 
collection and dissemination of the data will continue for long to 
command the time and income of the association. 

The immediate result of a program of trade statistics that is not 
accompanied or preceded by efforts tO' promote a harmony of interests 
between the members may be to emphasize the'underlying competitive 
trends and conflicts in an industry. By revealing the amount of busi- 
ness enjoyed by his competitors, trade statistics may have the result 

I'The statistical activity of the National Canners Association- is another example of a 
general program intended in part "to show what the industrj- has done in the past under 
certain conditions." 


of compelling or challengin<j a member to try to enlarge his own share 
of the market, thereby setting in motion defensive or retaliatory ac- 
tions by the other sellers in the market ; by revealing a declining 
demand or mounting inventories, they may hasten or. precipitate the 
collapse of a market. Trade statistics illuminate the extent of the 
market and the moves of the various rivals in the market, and com- 
l^etition may very well become more acute because it is more informed. 
Such a tendency may be of temporary duration or be limited to mar- 
kets in certain areas. Certainly if prolonged and widespread, it will 
jeopardize the statistical program and the integrity of the association 

Froni the standpoint of the trade association a statistical program 
that serves successful}}' to guide the price and production policies of 
the members rests on a general acceptance in the industry, whether 
conscious or otherwise, of the principle that mutual restraint in the 
market is needed if chaotic and destructive competition is to be mini- 
mized or avoided. ''■' But it is equally true that mutual restraint will 
not long be adhered to as a principle of business conduct if there is 
ignorance about what is happening in or to the market. The diffi- 
culty that associations face in maintaining a restrained and informed 
competition, of course, varies among industries and within any given 
industry from time to time. And associations differ in the nature of 
their approach and the emphasis they place on this dual objective 
of information and restraint. In issuing trade statistics, they may 
stop short of any advice or assistance that would help the individual 
members interpret the data ; or, through comment on the release, dis- 
cussion, verbal interpretation, or statistical signposts, they may indi- 
cate the meaning of the data in terms of the nature, direction, or 
magnitude of the adjustments that might be made by members. They 
may use the data as a basis for recommending a course of industry 
action and, occasionally, may employ the data for developing or polic- 
ing an agreement for industry action concerning pricas or production. 
The uses of trade statistics by trade associations in guiding the price 
and production policies of the members may be conveniently consid- 
ered under two broad functions: (1) To indicate the individual mem- 
ber's position with respect to that of the industry; and (2) to reflect 
the current trends of the industry as a whole. 

Statistics indicating the individual Tnemher's position, with respect 
to that of the industi-y. — One of the most common features of statistical 
reporting plans is the explicit comparison of individual company per- 
formance with the performance of the group or industry as a whole. 
The release embodying such comparison usually provides an entry for 
"your company" figures, paralleling each entry for the group. Ordi- 
narily the "your company" entries are simple percentages, showing 
the company's share of total production, total shipments, total orders, 
or other measures of business, and are confidential to the member con- 
cerned. The releases of a few associations show the statistics of each 
of the participating companies, which are identified by name or by code 
number or letter. 

It is clear that trade associations have considerable confidence in the 
idea that a company that knows it is obtaining its normal share of 

In this connecUon see the discussion in ch. Ill, above, pp. 45-63. 


the available business in any industry or market within an industry 
will not employ the same aggressive competitive measures as one that 
has no such assurance. Statistics that currently indicate the individual 
member's position in the market aftord this knowledge and represent 
one of the principal devices by means of which businessmen through 
cooperative action seek to implement the principle of mutual restraint 
in the market and to curtail competition that is destructive to market 
stability. Through relative-position statistic* the individual company 
is not only kept informed of its relationship to the industry but is made 
to realize the consequences of production or price policies that might 
alter this relationship. In the words of a prominent trade association 
administrator : 

* * * the business lei:der of today achieves success by managing his indi- 
vidual volume in relation to his industry's volume, so as to maximize his revenue 
and not his physical output. To maximize revenue the individual businessman 
must formulate, his policies in light of their effect on the industry of which he is a 
part as well as in consideration of the facts of his individual enterprise. Today 
the corporations which comprise the * * * industry share a market which is 
smaller than their collective capacity to produce, and, in contrast with the past, 
the policies established by the individuals of the industry are automatically 
forced upon the group. In the vast majority of instances today, if the rate of 
growth of an individual producer's volume exceeds the rate of growth of his 
industry's volume, that growth docs not represent a corresponding expansion of 
t)ie industry's total market ; it represents business acquired from a competitor. 
E\ery businessman within my hearing knows the inevitable result of a continued 
loss of volume from one competitor to another. It is for these reasons that busi- 
nessmen must manage volimie so as to share the market, not monopolize it, and, 
thus, to safeguard the conditions which maximize revenue. 

This new attitude toward volume marks the contrast between the new and old 
points of view of management. Fortunately, the new point of view has spread 
with great rapidity in recent years, and it is interesting to note that the men who 
held it are, as a rule, the leaders of their industries. * * * The significant 
fact is that where modern business leadership is found one also finds an under- 
standing of the modern relationship between the individual producer and his 

Any company, of course, could always derive its own position if the 
industry totals were made available, but it would have no assurance 
that other members would bother-to make such calculations or would 
consider their implications. With the figures on individual company 
positions prepared in the association office, each member knows that 
his competitors are also being reminded of their relative positions and 
presumably will be influenced by the same considerations of restraint 
that influence him — whether these considerations are those of inde- 
pendent judgment, a recognized custom of normal volume relation- 
ships, repeated admonitions and educational efforts of the trade asso- 
ciation executive or industry leaders, or a formal agreement backed 
by financial penalties or other sanctions to share the market on some 
predetermined basis. 

Individual company percentages usually are held confidential to the 
company concerned and not made available to competitors, but the 
comparisons are available to the association executive in most instances. 
As has previously been pointed out, a few associations show on the 
release the percentage figures for each company identified by name. 
Other associations identify companies only by letters or other code. 
This procedure allows each member to know how closely each of his 
various competitors is adhering to his customary share of the business, 
but, since it does not identify companies that are exceeding their 


normal positions, it presumably does not expose them to efforts by 
other members to make them comply with the program. Obviously, 
however, no member enjoys an immunity from efforts to encourage 
adherence to the association program as long as his data are available 
to the association's staff. And in industries with very few members, 
or in industries in which current statistics are released in the form 
of detailed product, geographic, or customer break-downs, it is prob- 
able that in some instances the market position of individual companies 
can readily be deduced by competitors from the group totals. 

It would be desirable, on the basis of the statistical device, to differ- 
entiate plans that involve an agreement of members to limit compe- 
tition, or to maintain certain fixed relationships, from those plans 
that merely sponsor a group philosophy of mutual restraint and 
depend upon the voluntary action of individual members to effect 
such a policy ; ^° and, further, to differentiate both of these types of 
plans from those programs that compare individual company data 
with group data but are accompanied by little or no effort on the part 
of the association to encourage the recognition of normal volume re- 
lationships or the principle of voluntary restraint in competition. Un- 
fortunately, there are no obvious earmarks by which such distinctions 
can be made. The types of statistical data collected and disseminated 
and the statistical techniques used to analyze and interpret the data 
may be the same in formal as in informal plans and in statistical 
services that cannot be dignified as plans. The differences are pri- 
marily those of emphasis and of methods used to encourage or enforce 
the maintenance of desired relationships. Greater results may be 
achieved by the independent but informed action of individual mem- 
bers in a small, compact industry than by agreement to observe fixed 
volume relationships in an industry composed of a large or hetero- 
geneous group of enterprises. Even in the formal plans, individual 
volume percentages may fluctuate considerably from one month to an- 
other so long as the average volume relationship for -the year or other 
period conforms to the recognized percentages. 

Table 60 shows the extent to which the 882 statistical series an- 
alyzed incorporated individual company comparisons. Of the 882 
series, 275, or approximately 31 percent, compared individual com- 
pany data with the industry total or other aggregate data. In only 
23 of the 117 production series was this type of comparative analysis 
used, but it was used in 148 of the 390 shipments and sales series. and 
in 71 of the 211 orders series. In the majority of cases (222 out of 
275), the individual company comparisons were confidential to the 
member concerned. In 53 cases the position of each company was 
indicated on the release. In 45 of these latter cases companies were 
identified by name; in the remaining 8 instances companies were 
listed by code numbers or letters or without apparent means of 

Table 61, which shows, by industry groups, the number of associa- 
tions issuing one or more series showing individual company com- 
parisons, indicates, better than do the above data, the extent to which 
this statistical device is employed. According to this table, 120, or 

^ In a recent case against the National Container Association the Department of Justice 
aUeged that trade statistics had been used as the basis for a formal agreement to share 
the marlcet. The statistical activities of this association are described in some detail at a 
later point in this chanter, pp. 238 ff. 


approximately 45 percent, of the 264 associations included in the 
sample issue one or more series containing individual company com- 
parisons. Of these 120 associations, 23, or approximately 9 percent 
of the 264 associations, regularly issue one or more releases that show 
the statistics of each company on the release. In 19 of these the 
companies are listed by name ; in the other cases, by code number or 
without apparent means of identification. Among the industry 
groups in whiph individual company comparisons are stressed are 
finished lumber products; paper and allied products ; stone,' clay, 
glass, and kindred products; metal products; and machinery and 
transportation equipment. 

Associations stressing individual company performance may also 
include on each member's release a confidential comparison of its own 
current performance with its performance in past periods. This 
comparison may be in absolute terms or it rilay reflect changes in the 
relative position of the individual company to the rest of the indus- 
try. Thus, a company that had increased its sales in absolute terms 
over a given period might conceivably have lost ground in relation to 
competitors. Table 60 indicates that in the case of 19 of the 882 
series individual members were furnished with information on their 
own company trends. Nine series included the comparison for each 
company only on its own copy of the statistical release ; 5 series, in- 
volving 2 associations, listed and identified individual companies on 
the general release ; and 5 others, also involving 2 associations, listed 
the companies in code. 

Occasionally, indexes designed to reveal the relative, but not the 
absolute, position of a company with respect to the industry or group 
as a whole are encountered. Such indexes indicate that a company is 
holding its relative position in the industry, is forging ahead, or is 
falling behind, as compared with its position at some previous period^ 
The index system used by the paper tag industry illustrates this type 
of comparison. 

Under this plan each company is furnished with a periodic index of 
its relative position ior each of five classes of tags in each market 
area in which it sells. Preparation of such an index involves the 
f olloAving preliminary steps : 

(1) The totaling of all industry sales of a given class of tags in a given market 
area during some base period, as, for example, sales of Class 1 tags in the State 
of Massachusetts from July 1, 1936, through March 31, 1937. 

(2) The totaling of the individual company's sales for the same class of tags 
in the same area during the same base period. 

(3) Division of the total derived in step (2) by the total derived in step 
(1). The resulting percentage is established as an index of 100 for the company 

The percentage figure itself is not disclosed to the company, because 
it would permit calculation of the actual dollar volume of Class 1 tags 
in Massachusetts during the base period. It is simply used as an 
individual company base to which subsequent indexes are related. 
Pi-eparation of the current index involves the following additional 

(4) The totaling of all industry sales of the same class of tags in the same 
market area for the current reporting period, for example, the first quarter of 

(.^) Th6 totaling of the individual company's sales for the same class of tags, 
the same area, and the same period. 

(fi^ nirigkin of the total derived in sten (5) bv the total derived in step (4), 


This percentage is also held confidential by the compiling agency. 
The final step yields the index figure that is released to the reporting 
company : 

(7) Division of the percentage determined in step (6) by the percentage 
determined in step (3) and its expression in terms of a relative. 

Similar indexes are prepared for each class of tags for each market 
area, unless the total volume of sales is too small to yield significant 
indexes. In explaining the significance of the composite indexes to 
members, it is pointed out that : 

Where you find an index greater th'an 100, you will know, of course, that for 
the first quarter of 1938 you have gamed, position on the industry. Where 
your index is Jess than 100, you obviously have lost position against the industry. 

Please bear in mind that indexes are not percentages. Also bear in mind 
that from quarter to quarter, you may expect to find reasonCrble fluctuations 
above and below 100. It will be some time before we know just how much the 
fluctuation should be. We can only determine that by studying a long series 
of reports of this type. 

The last paragraph of this explanation suggests that a' function of 
the index is to encourage the recognition of normal volume relation- 
ships. The use of a composite index instead of simple percentage 
relationships make-s it possible to conceal the sales volume of domi- 
nant concerns in an industry, whose position inight be indicated by 
any statement of percentage shares in total business in some areas. 

Comparisons of individual company with industry performance 
may intensify competition if there is not a general acceptance by the 
members of an industry of the desirability of restraint in the mar- 
ket.^^ The figures may serve the function of telling each member 
how he scored in the competitive struggle of the past month, thus 
spurring him on to greater etforts in the ensuing month. This pos- 
sible function, which trade association executives sometimes advance 
as the reason for such comparative analysis, is scarcely to be regarded 
as an objective of the association program. Rather, it represents a 
failure of the program to impress upon members the message of in- 
terdependence that the figures are supposed to convey. If the indi- 
vidual company comparisons actually led to more aggressive competi- 
tion the statistics probably would after a time be abandoned, just as 
one association voted to discontinue its Research and Sales Bulletin, 
because ^"certain members were of the opinion that research and sal'es 
data created undue competition." Similarly, under the N. R. A. 
some industries found it necessary to abandon open price filing be- 
cause certain members regarded the filed prices of competitors as 
targets to undershoot, and competitive price cutting was enhanced 
lather than deterred. 

Probably few associations expect to achieve strict maintenance of 
fixed volume relationships among their members. What they do ex- 
pect is to discourage competitive tactics that result in frequent tem- 

-■■ That such restraint is not always present is testified to by this excerpt from one trade 
association's annual report : 

"But it would be idle to deceive ourselves. There are members of this industrj who 
are willing to share availal)le business just as equitably as the lion shares his kill with 
the gentle house cat. It is my opinion that the trials and preachings of the past few 
years have gene some distance toward educating the over-greedy uuit.s — but the lion is not 
yet ready to lie down with the lamb, and the little child who was to lead them disap- 
peared in the person of General Johnson and his N. R. A." 

The statistical worl{ of the Envelope Manufacturers Association is described below 
(pp. 249 ff.) as a generally unsuccessful attempt to utilize a statistical rv porting- plan 
as a means of market stabilization. 


porary shifts in volume from one company to another at the cost of a 
depressed price level for the industry as a whole. One exponent of 
the use of relative-position statistics to promote industry stability 
contends that: 

This type of stability does not eliminate the chance for the growth of the 
concern, nor does it restrict the entrance of new competition. Properly under- 
stood and operated, this form of stability works upon the rate of change and 
tends to moderate its fluctuations. It recognizes that it is the sudden and 
violent alterations of relative position that contribute largely to disastrous price 
wars and marketing abuses. The more gradual shifts, even if persistently in 
the same direction, seldom bring about violent defensive tactics.^ 

An association desiring to implement formal or informal sharing 
of the market or an attitude of mutual restraint in the market obvi- 
ously does not need to shovr — in fact, may wish to avoid showing — 
individual company comparisons in the case of each of the various 
series it compiles. Likewise, an association approaching the prob- 
lem of market stabilization by emphasizing the relation of the indi- 
vidual company to the group experience may make significant progress 
by compiling only one type of trade statistics. Thus, an analysis 
of the 169 product groups, shown in table 54, for which only one type 
of series is compiled indicate^ that in 74 instances, or 46 percent of 
the total, individual company comparisons were contained in the 

A single measure of business activity, however, has certain inade- 
quacies. It may serve to prevent warfare between the members for 
the available business of an industry without providing guidance for 
adjustments to the changing supply and demand relationships affect- 
ing the industry as a whole. Whether, for example, members should, 
in view of existing production and inventories, raise prices in response 
to an increase in the dt.nand for the industry's product is a question 
on which relative-position statistics throw little or no light. From 
the standpoint of the aggregate market situation, an adequate sta- 
tistical program is one that affords some measure of both supply and 
demand movements. Such data provide a basis for individual, con- 
certed, or "bellwether" price adjustments to changing market cir- 
cumstances. It may be noted in this connection that the cost account- 
ing and cost statistical activities of trade associations, discussed in 
chapter VI below, may serve the purpose of giiiding adjustments to 
changing circumstances affecting the industry's cost of production. 

While individual-company-position comparisons are primarily 
adapted to showing each company whether or not it is maintaining 
its accustomed share of the market, they may also be used to measure 
individual company performance against group performance in other" 
realms. Used in connection with sucli statistical series as stocks, can- 
celations, and returns they may serve to inform members of abnormal 
situations with respect to their own company operations. If the asso- 
ciation has recommended or adopted some common policy, the indi- 
vidual comparisons may serve to check on conformance to such 
policy. Thus, one association was encountered that sponsors a co- 
operative movement to limit stocks of raw materials to a fixed per- 
centage of current production in the industry and uses individual 

'^Alljert E. Sawyer, "Accounting and Distribution Techniques as Voluntary Devices to 
Eliminate Abuses in Maikoting," Tlie Accounting Review, vol. XIV, No. 2 (June 1939), 
p. 133. 


company comparisons to show each member how closely he is con- 
forming to that percentage. Associations may use the same device to 
check member cooperation with a program for restricting returns or 
cancelations. Extensions of the individual comparison into the fields 
of prices and costs will be discussed at later points in this report. 

Statistics showmg cutTent trends of the industry as a whole. — In 
addition to relating the individual member's position to that of the 
industry, trade statistics may serve to show trends in the business of 
the members as a whole. Any series that answers the first purpose 
also answers the second, and insofar as it concerns the significance of 
trend data the folloAving discussion applies with equal relevance to 
those associations that emphasize individual-position statistics and 
comparisons. There are some associations, however, that cannot or do 
not attempt to stress the relationship of individual company to group 
performance. Figures showing individual company positions are not 
apt to be signifi ^ant in industries in which there are many units, each 
of which accounts for a very small portion of any market, or in which 
the association's coverage of the industry is relatively incomplete. In 
these industries informational guides to the price and production pol- 
icies of the members are likely to be limited to statistics that reflect 
the current trends of the industrj' as a whole. Such statistics may 
represent only a single measure of business activity or they may com- 
prise several series, which afford some measure of supply and 
demand relationships. An indication of the significance of the var- 
ious types of trade statistics as measures of business activity, as well 
as an indication of the number of associations that compile them, 
alone and in combination, has already been presented in this chaptor.^^ 
To indicate current trends most releases relate the current with the 
immediately j)receding week or month and with the corresponding- 
reporting period for the preceding year. A number of associations 
also show cumulative totals for the "Current Year to Date.'" or "Pre- 
vious Year to Date." These cinnulative figures lend perspective to the 
current data and guard against misinterpretation of erratic short- 
time fluctuations that do not properly reflect current trends. If the 
statistical series is relatively simple, the current release may sliov^ the 
figures for each reporting period in the current year in comparison 
Avith the corresponding periods of the previous year. 

Some trade associations have found that for the purpose of cor- 
rectly depicting current industiy trends a single statistical series may 
liave little significance — in fact, may do more harm than good. Pro- 
duction figures Avithout sales figures, or sales figures without produc- 
tion figures, may give only half the current market picture. The 
industry member left to guess about the other half may jumj) to 
entirely wrong conclusions, with unfortunate results to himself and to 
the rest of the industry as well. Mounting sales figures might suggest 
to some members an increasing demand calling for increased produc- 
tion, whereas a parallel production series would have revealed that 
production had been mounting even more rapidly than sales and that 
industry stocks were already at a dangerous level. 

The participants in an industry reporting plan can readily learn to 
follow comparisons that are especially significant in their industrx 
and to watch for certain relationships that call for adjustments m 

' t I 1."2-1G6. 


prices or in production schedules. If members have been taught that 
an accumulation of stocks in their industry will weaken the market 
structure and invite price cutting as a means of moving surplus stocks, 
they will realize that any market excess of production over shipments 
during consecutive months constitutes a danger signal, warning them 
to curtail production or face a decline in prices. If orders are in- 
creasing and stocks declining, production should presumably be 
speeded up, or prices advanced to take advantage of the favorable 
demand situation. Such signposts as the ones mentioned are suffi- 
ciently general in their application to have gained recognition among 
businessmen in many industries. Thus, the Chamber of Commerce 
of the United States', in its 1937 handbook. Use of Trade Association 
Statistics in Manufacturing (pp. 8-9), includes such comments as the 
following : 

In general, it is felt that when orders are increasing much faster or are much 
higher than shipments, a demand exceeding current supply is indicated, and if 
there is no great increase in the rate of production and shipments are being made 
from accumulated stocks, a rise in prices is automatically forecast if this condition 
persists. Conversely, when the "Shipments" figure is consistently larger than 
the "Orders" figure, it is taken to indicate that the industry is operating to 
satisfy "old" demand, that is, orders already booked. Unless "Orders" move 
upward, "Shipments" will decline when "booked" demand is satisfied. Thus, a 
good "Shipments" condition in the industry is likely to be misleading if not 
compared with "Orders." 

Trade association "Orders" and "Production" likewise form a useful combina- 
tion. In industries which produce for stock in anticipation of sales, it will be 
found that in any very short period there is little correlation between these two 
figures, one or the other being considerably in excess ; on the other hand, over a 
longer period, say a year, these two factors are. generally, almost equal. * * * 
If throughout the industry, the [inventories] are being built up abnormally dur- 
ing the "off" season, production will subsequently have to be seriously curtailed 
in order to avoid over-production, an industry-wide recession, and consequent 
reduction of prices not warranted by reduction of costs. 

The barometer indexes used by various lumber associations and re- 
ferred to at a later point in this chapter ^* illustrate the more elaborate 
graphic and statistical techniques that have been used to measure and 
dramatize the relationships between series. 

Tlfe statistical signposts relevant to the independent behavior of 
individual companies may or may not achieve the unanimity in re- 
sponse to a given situation that an association desires. Thus, industry 
members confronted with statistical evidence that current sales are ex- 
ceeding current production may react in diametrically opposite ways — 
•some to expand production, others to increase prices. The course of 
action chosen bj' a member would depend to some extent on his own 
costs, but it might be even more dependent on what he thinks his com- 
petitors will do. Unguided by a common association leadership, and 
in the absence of any assurance that his competitors will independently 
raise prices or at least follow his lead in the matter, the only practi- 
cable response for one company may be to expand production at the 
prevailing price. Given the opposite situation, with production ma- 
terially exceeding sales, he can either curtail his production or lower 
his prices! But a decision to curtail production may be wise only if 
other ind^try members can be counted on to adopt the same method of 
adjustment to market conditions and refrain from cutting prices. 

« Pp. 227 ff.- 


As has been suggested, the trade association may undertake to influ- 
ence its members toward a common interpretation and uniform re- 
sponse to a given statistical relationship, so that individual adjust- 
ments to the market situation will not conflict and will be in harmony 
with the association program. Thus, one trade association executive 
in describing the way he presented current trade statistics to his mem- 
bers, pointed to a chart, coverhig -the entire wall of the conference 
room, which showed shipments and prices over a period, of some 15 
years. Current figures were entered on this chart and called to the 
attention of members at association meetings held about once every 
month. The executive stated that the association : 

made no effort to coerce the members, leaving them at all times free to exercise 
their own judgment. We simply say, pointing to the chart, "There it is, boys. 
There is the picture of the market. Now go ahead and do as you see fit, but re- 
member what happens when you try to force the market." We don't believe we 
have eliminated all price wars, but we do believe that the iise of these statistics 
has contributed some stability to the industry and has at least limited the in- 
stances when struggle.s for increased shares of the market have led to price wars 
in an industry in which the competitive congestion is so great that if one member 
takes a deep breath a price war is precipitated. 

Another executive, after reviewing statistics that indicated a slump 
in the demand for the industry's products, made the following obser- 
vations in a re])ort to the members of his association : 

With this statistical rfeum^ available to us, it is obviously desirable for each 
of us to determine how these trends affect us individually and as an industry. 
We can assume that * * * sales will not show much improvement during the 
next several months. The ideal situation, therefore, would be for each producer 
to recognize the reduced unprofitable state of the market and to accept only his 
share of the business. This desirable situation would result in an appreciable 
profit without price change when volume resumption began in the summer. 

Perhaps this maintenance of status quo is too much to exi^ect. Everyone will 
have reasoni:o believe that competitors are pursuing unfair tactics and will be 
sure that others are getting a larger portion of the business than they are entitled 
to. To some degree these beliefs will be correct. There probably never has been a 
time when competitive practices were 100-percent perfect. A business recession 
such as the present merely gives emphasis to the existing condition and results in 
attempts at retaliation and for the preservation of markets on the part of those 
who have seen fit to ignore the same conditions in more favorable times. 

The price level is maintained by those producers who have most to gain by its 
maintenance. In any declining market the question repeatedly arises, "Can I 
profit more by a policy of maintaining prices and losing volume, or by increasing 
volume to sell at lower prices?" If it were possible to create more business for 
industry at lower prices it would be well to reduce prices and attempt to create 
volume. This practice, followed in the automobile industry, does not apply, 
however, to the building industry. A price cut by one producer, if effective, 
merely results in taking business from some other producer, who in turn may 
be tempted to take retaliatory measures. 

In the past there has been no concerted action with regard to price — which 
of course would be illegal. This is evidenced by the several different price levels 
which have existed for competing products. The state of the market has gov 
erned prices, and will continue to do so. Thus, it is inevitable that if producers 
believe they are losing industry position they will be forced to meet these 
conditions by methods of their own. 

These statements are elementary economics, and would almost seem super- 
fluous. However, in meeting actual market conditions we are apt to be governed 
more by what we believe to be the competitive situation than by principles of 
economics. I believe that up to this time cases of unfairness have been rather 
infrequent. As a matter of fact, our members are to be complimented on the 
manner in which they have chosen to overlook certain irritations. However, the 
most critical period lies immediately before us. A low volume output may be 
expected for the next few months. During that time members would be well 
advised to consider their competitive position, and to remember that others have 


eqaal rights to the protection of their own business. A long view of the situa- 
tion may suggest that it is better to wait for the summer than to try to create 
a false Spring. 

The possible use of a trade statistical program to rally support for 
production rather than price adjustments, of course, is not limited to 
industries facing serious maladjustments between demand and ca- 
pacity. Any association attempting to maintain prices at a level 
higher than they would otherwise be may likewise use its statistical 
service to disclose an excess of current production over current sales 
that might threaten a break in the price level if not recognized and 
corrected by downward adjustments in production schedules. Or, 
conversely, it might reveal an influ:^ of orders beyond the visible sup- 
ply, which would be interpreted by the industry's leaders as an oppor- 
tunity to boost prices rather than a signal to expand production. 

A few associations compare current figures with some norm or aver- 
age period of business activity in the industry. Such comparisons 
are frequently criticized as suggesting a standard of performance to 
which members should conform and as subject to abuse as a means 
for carrying out a plan of concerted action in restraint of trade. 
Quite apart from such a question is the observation made by one trade 
association official, who points out that : 

If the base or normal period is based on wishful thinking rather than reasonable 
performance records it is at best useless and at most dangerous as a guide to 
individual activity. 

Other trade associations have attempted to use data for previous 
reporting periods as the basis for projecting the trend of business 
activity in succeeding periods. Trade association forecasting, how- 
ever, has declined in favor, and prophecies appear to play a relatively 
small role in association statistical services today. Occasionally, sta- 
tistical releases or new^s letters will convey general observatioxis on the 
market outlook, or discussions of the current statistics at regular 
association meetings may close with some qualified remarks on pros- 
pective trends, such as the following: 

In forecasting the volume for the first half of 1038 * ♦ * [the Secretary] 
felt that the first 6 months will come within 10 percent to 15 percent of the cor- 
responding 6 months of 1937. 

Somewhat less usual is the practice of pooling individual fore- 
casts, which may be included as part of the statistical reports or used 
as a substitute for them. One association, for example, holds about 
six meetings a year, at which the regular order of business includes a 
round-table questionnaire, with nine questions to be responded to by 
each manufacturer. One question is, "What are the prospects for the 
next 3 months?" Another is, "What are the indications as to in- 
creased or decreased prices of raw materials?" Another association 
regularly collects from its members qualitative appraisals of business 
activity, which suggest the prevailing sentiment about market con- 

Fairly elaborate forecasting systems are used by a few industries. 
The Kraft Paper Association, now under indictment for alleged anti- 
trust violations, sent out each w^eek to its members an estimate of the 
market demand for the industry product for the following week. 
The estimates, according to the allegations of the Department of Jus- 
tice, were intended to inform each company how to regulate its pro- 


duction in line with the industry program for equitable sharing of 
available business. In this industry the basis of allocation was "po- 
tential" production. The "potential" measure was related to capa^city 
but referred to probable operating capacity, which was based on past 
operating experience and could be changed at intervals to reflect new 
capacity coming into the industry or changes in the proportion of 
old machine capacity actively engaged in production. Each mem- 
ber of the association was assigned its appropriate share in the in- 
dustry "potential," which became its company "potential." These 
"potentials" were expressed in tons, not percentage shares of the 
industry total, but they served the purpose of relating each com- 
pany's production to that of the industry as a whole and to each 
of its competitors. The weekly forecasts issued by the association 
consisted of one percentage figure, signifying that the estimated 
market demand for the industry product during the succeeding week 
represented that percent of the established industry potential. This 
presumably meant that each company adliering to the plan tor equi- 
table sharing of business was expected to limit his own production to 
that percentage of his regular company potential. The next weekly 
statistical report compared his actual production performance for the 
week with his calculated "potential" and revealed his conformance to 
the ratio of production recommended in the weekly forecast. This 
association also released a monthly statistical series on the anticipated 
tonnage of raw material required for the next month's production. ^^ 
Another system of forecasting is particularly adapted to industries 
faced with distinct seasonal variations ir. the demand for their prod- 
ucts. The forecasts are derived from past trends through the use of 
statistical techniques. The ])lan involves the determination of the 
normal seasonal variation of business activity during past years and 
the application of average percentages of change from one period to 
another as a means for projecting the current sales trend into the im- 
mediate future. The Drop Forging Association, for example, placed 
in the hands of its members information on seasonal trends and in- 
structions for doing their own estimating. A news letter was sent 
them, entitled "How Much Business Will the Industry Do Next 
Month?" The contents of that news letter are partially quoted to 
indicate this association's use of seasonal indexes : 

If we know that the volume is going down we are not so apt to get the 
jitters. If we know it's going up we are not so apt to get overconfident. 

All forecasts are guesses. TTie guesses are made up of many parts put to- 
gether to give the final answer. The major part of the final guess is the 
normal seasonal or monthly swing up and down during the year, and this part 
is susceptible to analysis and fairly close prediction, as it recurs year after 

Although the more years available for analysis, the more accurate will be 
the results, and although the drop-forging industry has only records of sales 
by months for SV2 years, which is quite meager for such a determination, never- 
theless, we have, from that data, determined the Index Numbers of Seasonal 
Variation, because some knowledge along this line should be valuable to the 
industry. As time goes on this work can be revised to greater accuracy. 

" T he statistical forms of some other associations managed by the same firm include 
space for a monthly industry forecast, and other columns headed "Industry actual," "Your 
forecast," 'Your actual," and "Your % to Industry.'" 


The Index Numbers of Seasonal Variation are : 

May 112 

June 95 

July 81 

August 73 

September 76 

October 81 

November 88 

December 103 

January 116 

February 117 

March 130 

April 128 

What do these numbers mean and how are they used? 

These numbers show the relative amount of business (dollar volume) which 
may be expected during the different months of the year. March will normally 
have the largest volume, with April very close, and August will normally be the 
dullest month. 

The sum of these numbers is 1,200 which corresponds to a year's business. 

Seasonal index numbers may also be expressed as a percentage of a whole 
year's business. When expressed that way the above index numbers are : 


Jan 9. 6 

Feb 9. 7 

Mar 10. 8 

Apr 10. 7 


Sept 6. 3 

Oct 6. 8 

Nov 1 7. 4 

Dec 8.6 


May 9. 2 

June 7. 8 

July 7. 

August 6. 1 

In this list the numbers are all relatively the same to each other as in the 
other list, but this list add« to 100 pei'cent which is a total year's business. 

Assuming a $60,000,000 year, then January should have 9.6 % of it, or 
$5,760,0CO. It is more valuable to figure the problem the other way by taking 
the sales for January, and then because January normally has 9.6 % of a 
year's business, find out what yearly rate is in force at that time. We can figure 
the yearly rate from month to month and tell whether the general level of forging 
volume is going up or down. * * * 

Some of us may have thought that August was a poor month because the 
actual sales were so much less than those of any of the first 5 months of the 
year. That is not true. Based on the first 5 months of this year August should 
have had only about $5,000,000 worth of sales. It actually was (with seasonal 
variation eliminated) the best month of this year. This sort of thing needs to be 
brought to our attention once in a while. It isn't necessarily the largest dollar 
volume month that indicates the best general condition. * * * 

Every summer some members of the Industry seem to forget that the summer 
months are dull anyway and because the dollar volume is down (as it should be, 
because to be down is normal) they think business is going to the dogs and get 
jittery, and do things that harm themselves as well as the rest of the Industry. 

Many associations find it desirable to compare the trends of their 
own industry's operations with general business developments or 
with the trends of related industries. The Stevenson, Jordan & 
Harrison organization, for example, issues a general bulletin to the 
members of the various associations it serves. This bulletin, entitled, 
"Monthly Digest of Business Conditions and Probabilities," compares 
the production and market indexes of the industry concerned with 
some 30 other monthly indexes. Individual associations seldoTi 
undertake such comprehensive periodic comparisons but may follow 
certain indexes with great care. For example, the Corrugated Metal 
Pipe Association of New England analyzes specifications in contracts 
let by the New England highway departments to discover the relative 
volume of business specifying competing products, such as vitrified 
clay pipe, concrete, and cast-iron pipe. Comparisons of industry 
data with available statistical series for supplying and customer in- 
dustries also are used to supplement and lend perspective to the facts 
disclosed by the industry's own statistical series. These comparisons 
are, in some cases, based on an exchange of information between as- 
sociations on a reciprocal basis. In other cases, they are based on 
series generally available through Government or trade publications. 


Programs designed to further a 'particular inquiry and other specific 
uses of trade statistics 

Only indirectly, if at all, related to those described above are a 
number of specific uses of current trade statistics. These uses in 
the case of some associations may constitute the only reason for the 
collection of the statistics; but probably more often they represent 
occasional uses or uses that are incidental or secondary to the achieve- 
ment of ends described in preceding sections. The following uses, 
cited by various trade association executives, merely suggest the 
variety of specific ends to which current trade statistics may be 
directed : 

Afforded a measure by which the success of a collective sales-promotion pro- 
gram was appraised. 

Led to the discovery of inferior quality in a product, which accounted for a 
drop in sales. 

Led to a change from some items in an industry's line of products to more 
profitable ones. 

Afforded a measure by which the individual management checked on the sales 
force and determined whether it was, giving alibis or facts. 

Used in determining what the bonuses of salesmen should be. 

Used in setting salesmen's quotas. 

In a declining industry, discouraged new inves' *: uy outsiders ; also dis- 
couraged added investment by tliose already in the industry. 

Indicated the geographic areas and customer groups offering the best op- 
portunities for making sales. 

Disclosed the pattern of seasonal variations in the industry and thus aided 
the industry in spreading production and employment more evenly throughout 
the year. 

Apprised manufacturers of changes in style demands and led to a shifting 
of production schedules to parallel consumer's needs. 

Statistics of a supplying industry enabled purchasing agents to make commit- 
ments for and purchases of raw materials at the most opportune time. 

Statistics of a customer industry were used as a basis for establishing sizes 
of installment payments. 

Regional statistics of the pack of canned fruits and vegetables are used to 
answer inquiries of buyers concerning the area in which particular products 
may be obtained. At the same time producers who have a supply of the 
product on hand are advised of the inquiry and given the name of the pros- 
pective buyer. 


The price informational activities of trade associations fall roughly 
into two classes — ^the exchange of price lists or price offers and the 
compilation of data on prices received in closed transactions. The 
term, "price filing," is commonly applied to activities in the first group 
but is ^f ten applied, also, to an arrangement for the organized col- 
lection and dissemination of information on prices at which completed 
sales have been made. 

It was expected in the present survey that associations engaged in 
either form of price reporting would check the item, "open price fil- 
ing," included in the schedule. The returns indicated, however, that 
associations had not interpreted the term uniformly. Some associa- 
tions maintaining price-list exchanges did not regard themselves as 
engaged in price filing; other associations compiling price data on 
closed transactions likewise failfed to note price filing among their 
activities. The confusion in usage probably is due in no small part to 


the emphasis placed on N. K. A. price filing phtiis, which were pre- 
dominantly concerned with the reporting of current or future prices 
that could not be changed or deviated from without prior notice. In 
any event, the number of associations that originally reported "open 
price filing" obviously was not a reliable measure of tlie prevalence of 
this activity. In a recanvass of the statistical activities of trade asso- 
ciations made to separate price from trade statistics, all reported price 
informational activities were reviewed. Based on the material sub- 
mitted, this review indicated that 187 of the 1,244 ^'^ reporting national 
and regional trade associations provided some type of price or bid 
infonnation to members, as follows : 

Total number without cluplicatiou ""-87 

Number reporting the collection or exchange of price lists or price offers t>4 

Number reporting the collection and dissemination of information on prices 

received in closed transactions 105 

Number reporting "open price filing," type not ascertained 20 

Number reporting bid informational activity 24 

Included among the 105 associations that compile information on 
price received in closed transactions are 54 associations that release 
data on average prices derived from aggregate figures on the volume 
and dollar value of sales or shipments. Price statistics of this type 
are inextricably linked to trade statistical programs and usually are 
subordinate to them. The exchange of price lists or of information on 
price changes may be carri :1 on in the absence of, or in complete 
detachment from, trade sta istics, but it more often accompanies a 
trade statistical program. The records disclose that of the 187 asso- 
ciations reporting some type of price or bid informational activity 
there were only 27 that did not also report trade statistical activity. 

Like trade statistics price and bid informational activity is en- 
countered relatively much more often among small than among large 
associations,^' size being measured in terms of number of members; 
it is likeAvise found to vary in frequency in different industry groups. 
Price and bid informational activity was reported by a third or more 
of the associations in the paper, finished lumber, and electrical prod- 
ucts groups, whereas, according to the returns, it was nonexistent, 
or practically so, among national and regional associations in the 
fields of mining and quarrying, apparel manufacturing, construction, 
wholesaling, retailing, finance, and personal and business service.-^ 

The comparatively small proportion of the 1,244 associations re- 
porting that they provided members with price and bid information — 
15 percent as compared with the 44 percent reporting that they com- 
piled ti'ade statistics — suggests that legally permissible forms of price 
reporting are generally regarded as less desirable or less effective 
means of stabilizing market conditions than are trade statistics. The 
decline in price filing activity since the invalidation of N. R. A. codes 
supports this view. A total of 444 codes, nearly two-thirds of the 
total number, contained price filing provisions. Typically these pro- 
visions called for the mandatory filing of prices, discounts, terms, and 
conditions of sale with the code authority, or some other central 
agency, and adherence to such prices until changes were filed and 
made effective in accordance with the code requirements. The invali- 

2" Exclusive of those in the field of insurance. 

-' See tahlcs 29 and 46B and text, pp. 3."?. C4, above. 

'^ See tallies 32 A. 32. 46A. and te.xt( pp. 29, 64, above. 


dation of the N. R. A. in May. 1935, left cooperative price reportiiif^ 
activities with the same legal status they had prior to 1933. In order 
to avoid suspicion and the possibility that restrictive attributes might 
be inferred from the operation of their price filing plans, many 
associations, both prior to and after the N. R. A., found it expedient 
to confine themselves to the voluntary exchange of printed price lists 
or to the voluntary reporting of data on past transactions. These 
forms of price filing are generally less effective, both as publicity and 
control devices, than the mandatory, future price filing plans sanc- 
tioned under the N. R. A. Under the circumstances it was to be 
expected that the popularity of price filing would diminish, par- 
ticularly among those industries that had not experienced marked 
success with price filhig as an aid to market stabilization and had 
found it a difficult and expensive undertaking because of a large num- 
ber of sellers, a wide diversity of products, very frequent price 
changes, or other complicating factors. 

The decrease in the number of price filing plans since the N. R. A. 
is striking, but it probably fails to tell the entire story of diminishing 
emphasis on price reporting. Various trade associations have com- 
mented on the gradual disintegration of the activity or its continu- 
ance in a desultory fashion. The Paraffined Carton Association, for 
example, after explaining that the industry represented by the associ- 
ation had been classified as part of the folding paper box industry 
under the N. R. A. and that filing of prices had begun wilder the 
compulsory open price provisions in that code, pointed out 'iiat: 

When the N. R. A. ceased to exist such price filings continued lo be made 
more or less by habit in accordance with the code, but any activity of the 
Association in policing variations from filed prices ceased with the • * ♦ 
N R. A. In each succeeding year the filing of open prices became less and less, 
so that if and when the manufacturers issue price lists at the present time 
they may or may not supply the Association with copies. There is no obliga- 
tion to do this and no regularity about the proceeding. Thus, at the present 
time, we have to say tbat as the term "Open Price Filing" is generally used, 
the activity in the Association under that head has ceafeed to exist. Thus, we 
have no forms and no routine. 

Regulatory actions of the Federal Trade Commission and the. De- 
partment of Justice since the close of the N. R. A. have undoubtedly 
been a deterrent to price filing activity in many industries. As noted 
in chapter III. above, 32 of the 85 actions brought between June'l, 
1935, and October 1, 1939, cited price filing or price statistics among 
the devices used to make price a^eements effective or to facilitate 
price uniformity or direct restrictions on prices or pricing practices. 
In 23 of these cases the filing of current or future prices was alleged, 
but the use of a waiting period was clearly indicated in only a few 
instances. In four cases reference was made to the collection and 
dissemination of information on past prices, while in five cases it 
was not clear whether the price informational activities complained 
of pertained to past or current prices. 

Various industries that had had a favorable experience with cur- 
rent or future price filing under their N. R. A. codes were anxious "to 
maintain the activity on a voluntary basis and sought to obtain the 
approval of the Federal Trade Commission, under the trade practice 
corference procedure, for some such form of cooperative price re- 
porting. Despite persistent efforts on the part of a few industries, 

260752 — 41— No. 18 14 


the Federal Trade Commission has not yet given its approval to any 
plan for current or future price reporting. It has not gone beyond 
its previous practice of permitting the inclusion in group II rules of 
a statement to the effect that the industry favors the practice of each 
member's independently publishing and circulating its price lists. 
The uncertainty of the law with respect to current or future price 
reporting probably explains this hesitancy in sanctioning any plan 
even on a voluntary basis. It had been hoped that the Sugar Institute 
case, decided by the Supreme Court in 1936, would give a definite 
answer to the question of the legal status of current and future price 
filing, but in the opinion of various commentators it did more to con- 
fuse than to clarify the issue. One writer probably reflected the gen- 
eral opinion of trade association counsel when he said that the prac- 
tical effect of the decision will be to eliminate "to a substantial degree 
a difference which was theretofore insisted upon by the courts" and 
afford a "precedent for a substantial breach of the once clear rule that 
the report of past transactions was permissible and future transac- 
tions were forbidden." ^® 

Considerations affecting the legal status of price filing plans have 
been examined in previous studies, as have various economic and 
administrative aspects of price filing activity.^" The present discus- 
sion is primarily designed to indicate the extent and character of 
price reporting activities at the present time. 

Previous studies of open price filing have noted, among others, the 
following expressed or implied objectives of price reporting plans: 

To prevent misrepresentation of price offers by buyers and resulting suspicion 
among sellers. 

To eliminate secret concessions in price and discriminatory treatment of buyers 
in the same class. 

To lessen the intensity of erratic or rapid fluctuations in prices. 

To narrow the range of competitive prices by eliminating quotations below 
cost or below a profitable level. 

To lessen discrimination and pressure for discrimination in favor of large . 

To encourage the observance of established trade practice rules and to check 
the conformance of individual members to them. 

To police formal or informal agreements regarding prices. 

To facilitate the process of price leadership. 

Industry statements of the objectives of price filing are seldom 
couched in comprehensive terms, but the comments offered by trade 
association executives in connection with the present survey, like those 
made hy proponents of open price filing provisions in N. R. A. codes, 
ordinarily stress one or more of the objectives listed. In their remarks, 
the prevention of misrepresentation is likely to become "exposure of 
the lying buyer"; and the lessening of erratic fluctuations in prices 
and the narrowing of the range of competitive prices, "stabilization of 
i:)riceSj" "prevention of destructive competition,^' "elimination of price 
^v^ars,"*or "discouraging of sales below cost." 

** Benjamin S. Kirsh and Harold Roland Shapiro, 'iTrade Associations In Law and 
Business, Central Book Co., New York (1938), p. 6.1 

* See, for example, Klrsb, op. cit. ; U. S. Treasury Department, A Statement of the 
Substantive Law of Restraint of Trade, Monopoly, and Unfair Competition, U. S. Govern- 
ment Printing OflBce, Washington (19.39) ; Federal Trade Commission, Open-Prioe Trade 
Associations. U. S. Oovernment Printing Office, Washington (1929); National Recovery 
Administration, Division of Review. Price Filing Under N. R. A. Codes, Work Materials No. 
76. Washington (1936) ; Leverett S. Lyon and Victor Abram«on, The Economics of Open 
Price Systems, The Brookings Institution, Washington (1936) ;,C. A. Pearce, NRA Trade 
Practice Programs, Columbia University Press (1939). 


The N. K. A. experience demonstratea that price filing's functions in 
promoting "price §Jtability," or in preventing "destructive price com- 
petition," arejof two types. One, which may be termed the "control" 
function^ is to assist in the systematic policing of agreements or 
undersfandings concerning prices or elements of price; or to provide 
(I -^omt of reference for informal persuasive or coercive efforts by 
the filing agency or industry leadership to prevent individual enter- 
2)rises from reducing prices or to encourage them to raise prices. 
The other function, which may be termed the "publicity" function, is 
to prevent price concealment — whether this concealment takes the 
form of deliberate, indirect price concessions or variation of prices 
among, customers, whether it results from misinformation ^iven by 
buyers concerning the price offers of rival sellers, or whether it results 
from the mere lack of facilities for adequate publicity.^^ Price con- 
cealment makes possible the differential price advantage needed by the 
price cutter and creates uncertainty and suspicion among competitors, 
who may reduce prices simply as a precautionary measure. Any plan 
of price publicity has the capacity of reducing price concealinent, 
though this capacity varies directly with the degree to which the plan 
provides for currency of price information and is greatest when there 
is a waiting period between the time the price is announced and the 
time it can be made effective. To be most effective in this connection 
the plan, moreover, must provide for the participation of all sellers 
and must extend to all the elements of price policies. It will be ap- 
parent from the subsequent account that the price informational 
activities of a number of trade associations at the present time are so 
incomplete or haphazard that it is unlikely they could in themselves 
significantly contribute to the elimination of "destructive price compe- 
tition" or the promotion of "price stability." 

As noted earlier, a major division of price informational activi- 
ties has been made on the basis of whether the price data pertain 
to price offers or to past transactions. Bid filing, which involves 
both types of data, has been treated separately.^^ Price informa- 
tional activities involving price lists or price ofifers have been classi- 
fied for descriptive purposes into five subgroups, according to 
the types of information collected and disseminated and the role 
played by the association : ( 1 ) Direct exchange of price lists among 
members; (2) central filing of price lists, with no dissemination; 
(3) exchange of price lists through the association; (4) filing and 
dissemination of price lists and notices of price changes; and (5) 
filing and dissemination of price lists, notices of price changes, and 
deviations from filed prices. Data based on prices received in closed 
transactions have been grouped under the following main he dings; 
(1) Price averages and related measures; and (2) prices received in 
individual closed transactions. Modifi itions of the above types and 
occasional special types of price information have been discussed in 
connection with the type they most closely resemble.^^ 

'1 As in the case of trade statistics, the first result of price publicity, however, in 
some industries may be to intensifj' price competition (see above, pp. 180^181). 

*2 Below, pp. 214-227. i- t^ 

" The discussion omits series on prices paid or quoted for raw materials, which are 
compiled by several associations. 


Price lists or offers. 

Direct exchange of piice lists among members. — Strictly speakings 
an arrangement by which members of an industry exchange price 
lists directly, without filing them in the association office, is not price 
filing and was not considered in arriving at the total of 187 asso- 
ciations reported above as engaged in price informational activities. 
A number of associations, as a matter of principle, encourage the 
independent publication and circularization of price lists by indi- 
vidual members of the industry through trade practice conference 
rule, or by recommending the practice in the association constitution, 
bylaws, or code of ethics. 

Central filing of pnce lists, with no dissemination. — The practice 
of filing price lists and/or announcements of price changes with 
the association but with no subsequent dissemination of the data to 
members was reported by several associations. This arrangement is 
perhaps even less an open price plan than the direct exchange of 
price information by individual members, but it may be far more 
significant as a trade association activity. If the association also 
collects price data on past transactions, it facilitates the checking 
of those data for departures from published prices. Examination 
of the individual price lists also may reveal observance or nonob- 
servance of customer classification and other trade practices approved 
by the association. In most of the instances noted, however, the 
filing of price lists was reported as being entirely optional and not a 
regularized activity of the association. The Wet Ground Mica As- 
sociation, Inc., for example, reported that members of the industr^?^ 
had a trade practice conference rule calling for the independent 
publication of price lists and that copies were sent to the associa- 
tion's office for general public information. The Safe Manufacturers 
National Association stated that it had no regular price reporting 
service, explaining its price filing activity as follows : 

Some time ago we advised each of our members that it was our belief that 
if he had his current price schedules on file in an impartial pJace, where 
the public would have access to them, he would be in a better position to 
defend himself against complaints under the Robinson-Patman Act than he 
would be otherwise. We offered to act as such a public depository for any 
member who wanted to make use of it. At that time every member took 
advantage of the offer. We have no way of knowing whether any of them 
have kept it up or not because we have no follow-up of any kind in connection 
with it. 

Exchange of price lists through the association. — The type of price 
filing most frequently reported is the exchange of published price lists 
through the medium of the association office. The completeness and 
regularity of the service differ from one association to another, as 
does the responsibility assumed by the central office in collecting and 
disseminating the lists. 

In some instances dissemination is made only on specific request. 
One management concern, directing the price informational activities 
of five small associations, explains that it endeavors — 

to have on hand a supply of all publLshed prices in each industry, whether of 
members of the association or not — 

and that — 

• ♦ * any one manufacturer or anyone else interested can write in here and 
receive a copy of such published price lists. * * ♦ These price lists are dis* 


seminated very freely among all interested parties by manufacturers direct as 
well as through this office. 

In some instances the original distribution is to contributing members 
only, but copies are available to other industry members or to other 
interested parties upon request to the association. The general em- 
phasis on the public availability of the filed data is explained, in 
part, by the desire to guard against any implication of secrecy-^a 
feature of price filing plans that has been condemned in several court 
decisions. The information in published price lists usually is not 
regarded as confidential. The price-exchange service facilitates access 
to the data, but, if it is confined to published lists, it rarely discloses 
information that is not already available through other channels to 
■ anyone sufficiently interested to seek it out. Members are free to 
deviate from the printed lists without notice, so that differential 
treatment of customer classes, which is one major reason for secrecy 
about price quotations, is not necessarily disclosed bv the printed 
list. Characteristically, price lists are forwarded to the association 
office only after or at the time they are issued to the trade'by the indi- 
vidual members. 

The following examples will indicate the variety of price-list ex- 
changes. The Tissue Association reports that it acts as "a mailing 
depot" in the distribution of price lists for any member that requests 
this service. Multiple copies of the price list must be provided by 
the members for this purpose. The Agricultural Insecticide and 
Fimgicide Association reports an exchange service by which multiple 
copies are filed and distributed to members. The data are also avail- 
able tononmembers and to any interested party on request. A few 
associations maintain a mailing service bv which indi-'.ddual membei-s 
can distribute their price lists to certain designated competitors. 
Such selective distribution is particularly suited to industries in which 
the products are varied and not standardized. The National Machine 
Tool Builders' Association disseminates price lists in this manner 
but does not keep copies on file in the association office. Members of 
the Association of Manufacturers of Wood Working Machinery send 
in price lists with names of competitors "entitled ix) that particular 
price information." The Association of American Soap and Glycerine 
Producers, Inc., maintains a price-list exchange for one class of indus- 
try products only- — bulk industrial soap sold to laundries, institutions, 
textile mills, and similar industrial outlets. The Institute of Cooking 
and Heating Appliance Manufacturers also maintains a price-list 
exchange for manufacturers in one section of the industry. When new 
catalogs are published each season, members file 25 copies of the cata- 
log and 25 price sheets showing retail list prices. These are exchanged 
among contributing companies; and the exchange is open to any inter- 
ested member of the industry. The association does not tabulate the 
prices, it was reported, because of the lack of product standardiza- 
tion. The Institute of Boiler and. Radiator Manufacturers makes 
available to members and nonmembers alike facilities for distribution 
of the individual printed price listL that are issued to the trade. This 
organized exchange of price lists through the association offices has" 
taken the place of the previous practice l3y which individual members 
mailed their price lists directly to other members. Because the mailing 
lists of individual members often were incomplete, it wfts -decided to 
make the institute a clearing house for their distribution. 


FUing and dissemination of price lists and notices of price changes.- 
The type of price filing plan described in the preceding section does 
not provide for the systematic reporting of price changes, being con- 
fined to the routine dissemination of price lists when these are pub- 
lished by the individual companies. A more adequate type of open 
price plan calls for the prompt filing and dissemination of all changes 
in prices, discounts, and terms and conditions of sale, in addition to the 
initial exchange of price lists. 

The procedure for disseminating changes in some cases is quite 
as informal as that used in the plans already described, but some 
associations have a regularized procedure for assembling and dis- 
seminating relatively complete information on price changes soon 
after they are put into effect by member companies. A very mformal 
procedure for distributing notices of price changes is reported by 
the Machine Knife Association, which emphasizes the fact that it does 
not collect information on price changes but simply receives it and 
distributes it to members, keeping no record in, the association office. 
The Buff and Polishing Wheel Manufacturers Association likewise 
disclaims any organized system for assembling data on price changes : 

* * * there is no practice, habit, or routine in respect thereto. 

All that has ever happened is that at irregular and widely separated times 
some member of the industry volunteers in a letter that last week or the week 
before he began charging certain prices for certain types of merchandise. 

When these infrequent items of information are received, we send out a 
letter to the members of the Association stating substantially that last week 
John Jones informed us he has been selling type so and so for such and such a 

Members of the Southern Plow Manufacturers Association file price 
lists and price changes with the association, which are relayed to mem- 
bers in general news letters. No regular forms are used m reporting 
or disseminating the data. The announcement may be made simply 
by sending the association a copy of the letter sent to customers 
announcing new prices and terms. 

Most associations are insistent that filing and dissemination of price 
changes shall not anticipate the announcement of- changes to the 
trade and in some cases require that changes be reported only, after 
they have become effective. The open price plan of the Linoleum and 
Felt Base Manufacturers Association, for example, authorizes the 
general manager to receive and distribute information on price lists 
and price changes but provides — 

that he shall in no case receive or distribute any price lists or selling terms 
of a manufacturer which have not been previously published to the trade con- 
cerned by the mjAufacturer. 

It also provides that all information on file shall be open for inspection 
to all members of the industry and of the trade and shall be avail- 
able for inspection to the public. When the price-exchange plan was 
adopted, it was voted that the arrangement should not go into effect 
until the written consent of all members was received. Such consents 
have never been recorded, but the service nevertheless is carried on for 
those who voluntarily file their price announcements. The Pacific 
Coast Asphalt Shingle and Roofing Institute maintains a similar 
exchange service for its members. Participation in the exchange is 
voluntary, and copies of price notices are sent to the office at the same 
time they are broadcast to wholesalers, retailers, and others in the 


trade. Copies of the lists are kept on file in the association office and 
are available for inspection by nonniembers, but, according to the 
president of the association, this privilege is infrequently exercised. 
He also states that participating members often neglect to file new or 
revised lists when changes are made. No penalty attaches to this 
failure to file nor to any failure to adhere in whole or in part to the 
prices on file. The right of each member to change prices, terms, and 
conditions of sale without notifying, the association office is freely 
exercised. No tabulation of the data is made, since each member fur- 
aished sufficient copies of his announcements for redistribution to 
other members. 

In contrast to this last service and to most of those previously 
considered, which merely report, or relay duplicate copies of, price 
annoimcements as they are issued by hi dividual members, is a group 
of plans that provide standard forms for the reporting of price in- 
formation or in some manner consolidate the filed information before 
disseminating it to members. ^ 

Several branches of the paper industry that collect and dissemi- 
nate information on basic selling prices supply each manufacturer 
with a standard reporting form to facilitate tiling and to encourage 
the use of standard differentials, terms and conditions of sale that 
have been accepted by the association. Acceptance of the recom- 
mended terms is not mandatory, but companies not adopting them 
are required to set forth in detail their individual terms and condi- 
tions of sale. The standard reporting- form of one of these associa- 
tions, for example, calls only for the filing of base prices applying to 
one geographic, or "base," zone. Rather than frame his own state- 
ment of selling terms, the member may incorporate by reference the 
"specifications, trade practices, terms and conditions of sale, differ- 
entials, discounts, extra charges, etc.," formulated and recommended 
by the association. The complicated price structure for paper prod- 
ucts makes this by far the simplest way of announcing prices, and a 
background of education and cooperative effort has made it an effec- 
tive means for attaining substantial uniformity in pricing practices. 
The classification and grading of paper products have facilitated the 
establishment of standard selling terms and comparability between 
the base prices quoted by various member companies. In order 
that the comparability of filed prices can be checked uppn in the asso- 
ciation office, members are asked to submit samples of each grade of 
paper upon which they quote prices. 

Another well organized price reporting system is that of the Steel 
Founders' Society of America. Under a revision of a plan that has 
been in operation for a number of years, membfers of the industry 
who are producers of miscellaneous steel castings are invited to file a 
list of their prices with- the office of the society. As received, copies 
of these lists are circularized throughout the industry. For the pur- 
pose of ready reference, on or about the first of each calendar quarter 
these lists are consolidated into a comprehensive report, copies of 
which are furnished to members of the industry. All other inter- 
ested persons may purchase a copy of the booklet at the price of $5. 
A sample copy of the consolidated price report, submitted by the 
association, carries the following notations on the cover page : 



By Membbbs of the Industby Herein Named fob the Foubth Quakteb 1938, 
Beginning Octobeb 1, 1938 

(Any price herein is subject to <±ange at any time without notice) 

Steel Founders'' Society of America has used its best efforts to make this book- 
let a complete and accurate report of all prices filed with the Society, but 
assumes no further responsibility for the contents. See Introduction for state- 
ment as to how this booklet should be used. 

This booklet covers price lists filed prior to September 5, 1938. 

The plan is operated in accordance with the "Statement of Prin- 
ciples of Fair Trade Practice for Miscellaneous Castings Branch 
of Steel Castings Industry (amended as of February 10, 1937)," 
reading, in part, as follows* : 

Each member of the Industry, while exercising his individual judgment as to 
the prices that he charges and reserving his right to change the same at will, 
may, in his discretion, issije or publish a price list for his products. The Indus- 
try approves an open price report plan for its members operating in accordance 
with the following general proced^e : 

(e) Members of the Industry may file with the Steel Founders' Society of 
America in advance of the beginning of each quarter their price lists for such 

(6) Members of the Industry may file with the Society at any time during 
a quarter announcements of changes in their previously filed prices. Such 
changes may be effective at once or at such future date as the announce- 
ment may specify. 

(c) In the absence of express notice to the contrary, all prices filed with 
the Society will be deemed to expire on the last day of the quarter for 
which they are filed. Prices may, of course, be reaffirmed in whole or in 
part for the succeeding quarter. ♦ ♦ * 

(e) The filing of a price list imposes no obligation on the member filing 
to adhere to such price lists without deviation, or to report to the Society 
every deviation from such filed prices ; provided, however, that no member 
shall discriminate unlawfully in price between different purchasers of steel 
castings of like grade and quality. 

The foregoing rules are subject to the following interpretation, adopted by 
the Board of Directors of the Society on June 24, 1937 : 

Resolved, That it is the sense of this Board, interpreting the Statement of 
Principles of Fair Trade Practice, that no prices should be accepted for filing 
or should be made public by the Society unless when filed they are accom- 
panied by a writen statement from the member filing to the effect that 
amiouucements of such prices have been distributed among such member's 
interested customers or are being so distributed simultaneously with such 

An "Alphabetical Index of Steel Casting Classifications" is given in 
the consolidated report, and opposite each classification there is re- 
corded, by key letter and ni^ber, "the price schedule which has been 
filed by more foundries than have filed any other schedule." All key 
references to other price schedules that have been filed for the same 
product classification are shown in parentheses on the same line, or 
in footnotes, with identification of the foundries quoting differently 
from the majority and the schedule quoted by each. This method of 
price filing is made possible by the formalized price structure of the 
industry, developed before and during the N. R. A. period. A num- 
ber of basic price schedules with weight and quantity differentials 
have been worked out, and members announce their prices on the 
different items simply by designating which of the standard base 
schedules shall apply. This pricing method permits variation among 
companies in the base price quoted on. any given item but preserves 


certain standardized relationships for different weights and quanti- 
ties of each type of casting. Schedules of extras have been standard- 
ized in a similar manner. Standard terms and conditions of sale 
rv:commended by the Steel Founders' Society are set forth in the con- 
solidated price report and are considered to apply to filed price lists 
unless other terms are specifically indicated by the company filing. 
Examination of the consolidated report of price lists for the fourth 
quarter of 1938 reveals that few companies filed schedules varying 
from the majority filing; and that the unanimity with respect to 
extras and terms and conditions of sale was even greater than with 
respect to list prices. 

It is worthy of note that while deviations are entirely permissible 
under the steel castings plan, there is a reasonable assurance among 
competitors that prices will remain substantially unchanged during 
the quarter and that price adjustments will be concentrated at or near 
the beginning of a new quarter. Another feature worthy of note 
is the proviso in the "Statement of Principles of Fair Trade Practice" 
concerning the freedom of members to deviate from filed prices. 
This states that members may deviate, "provided, however, that no 
member shall discriminate unlawfully m price between different 
purchasers of steel castings of like grade and quality." The allusion 
presumably is to the Robinson-Patman Act. 

In this connection, warning references to Federal law were noted 
in several industries. Thus, the price-change bulletins released by 
one management concern always close with this statement: 

These are being sent to you without comment and without recommendation, 
simply as current information concerning the sale prices of the produets of 
the industry so that you may be enabled to conform to the laws of the United 

A letter from the same agency requested members to advise tlie sec- 
retary of the names of distributors in the Philippine Islands and 
their current prices in effect there. The data, it was explained, would 
be consolidated and passed along to members "simply as current trade 
information which you should have before you, especially in view 
of the fact that the Robinson-Patman Act covers the Philippine 

Filing of price lists, notices of price changes,, and devia,tions from 
fil^d jprices. — Potentially more adequate in their provisions for price 
publicity, than the price-list exchanges already described are those 
plans, reported by a few associations, that require members to report 
promptly all individual transactions that are completed at prices 
other than those currently on file. Under such plans the failure to 
report off-list transactions signifies that the member is adhering 
strictly to the price and conditions of sale previously announced by 
him and disseminated to the members. 

This type of price reporting is exemplified by the plan of the 
American Bleached Shellac Manufacturers Association, Inc. . Under 
this plan members are not obligated to adhere to filed prices, but 
it is contemplated that other members will be immediately informed 
of any departure from them. The procedures are described by the 
executive secretary of the Association as follows : 

Each member of the Association promptly sends to the Association a copy of, 
or memorandum of, its price list upon such member's adoption thereof. This 
may be done informally biit usually the data is inserted in a printed form or 


forms entitled "Notice of Publication of Prices, etc." [These forms include 
space for entering the effective data of the new prices, to the time of day. 
Presumably the filing of the notice can either precede or follow the change 
in price.] Each member adopts and changes his own prices from time to 
time as he sees fit. At no time does the Association presume to tell any mem- 
ber what his prices or terms, etc., should be. No member is obligated to 
adhere to its last filed Notice of J*ublication of Prices, but is free to deviate 
therefrom whenever it deems it proper to do so. In the instance of each such 
deviation, the member who has made a sale or contract to sell on a deviation 
basis reports tfie transaction to the Association, sometimes informally, although 
Notice of Deviation forms ♦ * * are furnished to the members for use 
in such circumstances. [This form calls for the date of the transaction, the 
name and address of the customer, a statement of whether the deviation related 
to a contract or spot sale, and the nature of the deviation.] 

Promptly upon the receipt by the Association from any member of a new price 
list or Notice of Publication of Prices, etc., a copy thereof is sent to every other 

The Association does not send out to the members a copy of each Notice of 
Deviation received by it from a particular member or members but periodically 
(usually about once a week) the Association sends to all members, a resume of 
such information as may be non-confidential with, respect to deviations reported 
during the prio*- week. This is done upon a form entitled ''Report of Deviations 
from Published Prices, etc." * * * [This form is similar to that used for 
reporting deviations except that the customer's name is omitted.] Under the 
heading "Nature of Deviation" there is set forth in each instance the product 
involved, the quantity, the nature of the deviation, such as a sale or shipment at 
prices or terms varying from those last previously published by the member in 
question or varying from the terms of a formal contract between the buyer and 
seller, and the extent of the deviation. The identities of the buyers are not 

Each member of the Association informally reports to it the transactions 
entered into by it, whether they be new contracts to sell, deliveries on contract, 
or spot sales. [There is no explanation of how such reports are given — whether 
orally in meetings, through correspondence, or filing of duplicate contracts.] 

In addition, a summary release is made monthly showing the number 
of pounds of shellac undelivered on contracts outstanding at various 
price quotations. 

The Eastern Package Association maintained until recently a price- 
reporting plan calling for full publicity of all price lists, price revi- 
sions, and deviations from filed terms.^* The reporting plan, drawn 
up in the form of a voluntary agreement, began with the announcement 
that each party to the agreement should have entire freedom in deter- 
mining its own prices. Article V of the agreement reads as follows : 

Each of us agrees to publish to the trade and file with the Secretary of the 
Ea.stern Package Association for the information of the members of the industry 
nnd all other interested parties a schedule or catalog from time to time showing 
list prices with complete terms and conditions of sale on the products covered by 
this agreement, and we agree likewise to publish and tile all changes or revisions 
of or deviations from these schedules or catalogs. Each of us expressly reserves 
the right to change his prices at any time he sees fit. 

Each member of the association agrees to furnish the secretary a list of the 
individuals, firms, and corporations to which it grants any discount or allowance 
other than the discounts and allowances announced in its price list as being avail- 
able to all purchasers, the list to show the amount of the discounts granted to 
each of the individuals, firms, or corporations named therein. Each member of 
the association further agrees to keep its list current by informing the secretary 
in writing of any additions thereto or removals therefrom. 

** The activities of the Eastern Package Association, including the price flliog arrange- 
ments, were the subject of a recent complaint by the Federal Trade Commission (docket 
3556, August 25. 1938). The managing director reports that the original association haa 
been liquidated and that various members of the industry are now In process of forming 
a new association. 


Information on prices received in closed frcmsactions. 

Price statistics based on records of completed transactions are 
heterogeneous in character, differing widely in the completeness and 
accuracy with which they reflect price trends and comparative price 
relationships. Some associations <^onfine their price information 
service to the periodic calculation of an average value figure for the 
industry product, obtained by dividing total dollar sales by total 
unit sales over a period of time. Other associations assemble and 
transmit to their members detailed information on the price, terms, 
and conditions of sale in each individual transaction as soon after 
its completion as possible. Between these extrernes are those associ- 
ations that collect and disseminate, with varying frequency and detail, 
information on price spreads and other measures of price variation. 
No attempt has been made in the iollowing sections to note all the 
various types, or combinations of types, of price information encoun- 
tered in- the present survey, but the types described are believed to 
characterize those in use. . "^ 

Price averages and related measures. — Averages, derived from ag- 
gregate sales or shipments data represent the type of price informa- 
tion most frequently encountered; as noted previously, 54 of the 105 
associations reporting the distribution of information on prices re- 
ceived in closed transactions fall in this class. Tlie significance of 
average value figures derived from aggregate sales data, of course, 
depends on the degree of homogeneity of the industry product. If 
the product is uniform, or can be broken down into imiform grades 
or sizes, the unit values obtained by dividing the "total dollar value 
by the total number of units sold may be an accurate measure of the 
average price of the product. If the products of the industry are 
nonstandardized or have diverse unit values, the average value figures 
may reveal price trends over a period of time but they will not reveal 
changes in the prices at which specific products are being sold. Some 
associations are careful to point out this limitation of their average 
value figures and refer to them as price indexes or sales realization 
figures rather than as average prices. 

Average value figures covering assorted types of industry products 
are apt to be inappropriate, also, for comparisons of individual com- 
pany figures with group figures and may well be inappropriate even 
for time comparisons for the industry as a whole. Changes in the 
calculated average value may occur without any change whatever in 
actual prices, simply becauseuaf* variations in the proportions of dif- 
ferent types or grades of product sold. This disadvantage can be 
minimized by a break-down of the aggregate sales data and the 
calculation of separate averages for the various classes of products. 
Various industries have devised other means to interpret the signifi- 
cance of their average value figures. Thus, the Association of Gas 
Appliance and Equipment Manufacturers compiles, from aggregate 
sales data, information on the- average sale of boilers, furnaces, and 
burners in terms of both dollar value and capacity in b. t. u.'s. 

Some associations compare the average value of the sales reported 
by individual sellers with the average value of the industry's sales. 
This comparison ordinarily is made confidentially to each member, 
but in some instances it is an over-all comparison in the general 
release, with individual sellers identified either by name or by code 


letter or number. The Cold Finished Steel Bar Institute, for ex- 
ample, issues a report on the avera<?e selling price for the industry, 
computed from aggregate tons and total invoiced value. It also 
gives the individual company its own percentage of total tonnage and 
its own percentage of total invoiced value, thereby indicating whether 
the average sales realization of the company is above or below that 
of the group as a whole. The Lead Pencil Association, Inc., com- 
piles the average value of lead pencils per gross sold for the industry 
as a .whole and for the individual member. 

These comparisons are made for the current month and for the year 
to date. The monthly trade statistics report of the Dry Ground Mica 
Association carries the computed average price per short ton of three 
types of mica, for the industry and for the individual company. The 
average price for the individual company is shown also as a \:>ey- 
centage of the industry average price for the group. 

Some associations compile average price data from reports of actual 
prices of member companies. These data may represent substantially 
the same type of information as can be derived from aggregate sales 
data for a single uniform product. The forms used in collecting 
such information, however, appear more often to specify a uniform 
basis upon which prices are to be reported, so that the weighted 
averages derived from such reported figures are likely to afford a 
better basis for time comparisons and for comparison of individual 
price levels with industry price levels than do averages computed 
from sales aggregates.^^ 

An example of such a price series is that compiled by the American 
Zinc Institute for prime western slab zinc. The cooperating pro- 
ducers make individual sales reports on various grades of zinc each 
week. These record the quantity and the price for each sale made 
for delivery in each of several subsequent months. The consolidated 
sales report sent to contributing members retains the detail on quan- 
tity and price of individual transactions reported but does not iden- 
tify the sellers. This report is not widely released, but based on it is 
a general release sent out each month containing a weighted average 
selling price, East St. Louis basis, of tons delivered during the pre- 
ceding month and for subsequent delivery. The National Oak Floor- 
ing Manufacturers Association collects weekly from each member in- 
formation on the average price received for each size and grade of 
flooring, after unearned discounts are deducted. Prices are reported 
-per thousand foot basis, f. o. b. Memphis, Johnson City, or Alexan- 
dria. From these reports the association compiles two types of aver- 
age price data oh each size and grade of fl'~ jring — a weighted aver- 
age based on the total sales reported for that size and grade and a 
weighted average of the five highest prices reported. The Maple 
Flooring Manufacturers Association releases monthly information on 
the range of average prices realized for various grades of flooring 
and, also, a weighted average price for each grade. Anotnei' weighted 

*5 Only one association was encountered that compiled a simple price average from data 
submitted by members. This association — Southeastern Box and Shook Manufacturers 
Association — however, also shows on its monthly release an average for each item that Is 
weighted by amount of shipments in footage. These averages are of deliver^ prices on 
shipments made into each of a number of zones — zones which, according to the secretary, 
were used during the N. R. A. In addition to the simple and weighted average prices for 
all members reporting, the individual member's corresponding average prices are rel.'ased 
on a confidential basis. The Individual member Is also given a rating Indicating his 
rank in terms of volume of shipments in each zone. 


average is computed for the industry product as a whole. This is 
really an index of the industry price level and is obtained by weight- 
ing the average prices for the three grades of product — 50 percent 
for first grade, 35 percent for second grade, and 15 percent for third 

Information on the range of prices received by different industry 
members oi on different transactions completed during the reporting 
period is compiled by a few associations to supplement data on aver- 
age prices. Members of the Institute of Leather Cloth and Lacquered 
Fabrics Manufacturers, for example, file sales data, including prices 
received, according to a very detailed product classification. The 
association consolidates the price information for distribution to 
members in a weekly release, which shows for each type of product 
the highest price reported, the lowest price reported, and the weighted- 
average price based on total yardage and value reported. Separate 
prices are recorded for sales involving quantities "under mill run" 
and those involving a "mill run or over." The number of companies 
reporting sales of each type of product is noted on the release, as is 
the number of companies reporting the highest and the lowest price 
quoted. The product break-down is so detailed that the price release 
is virtually a listing of individual transactions. In the release cover- 
ing the week ending September 4, 1939, the high, low, and average 
prices were identical for most items. The American Leather Belting 
Association compiles for its members an average price by class of 
product covering the entire volume of sales for the month and both a 
high and a low average price covering the 20 percent of sales at the 
top and at the bottom of the market in terms of unit-sales realization. 
The number of firms whose sales compose the high and the low aver- 
ages is also given. Individual manufacturers are further informed 
of their ranking in relation to other members with respect to sales- 
realization levels. 

Various associations, in lieu of or in addition to compiling a 
weighted average price for products sold during a given period, pro- 
vide their members with the basic information underlying such an 
average, that is, figures showing the quantities disposed of at different 
prices or within given price ranges. A distribution of sales accord- 
ing to prices received ordinarily is preferable to average price data 
or price-range information, in that it gives a more detailed picture 
of prevailing prices with less emphasis on extremely high or low^ 
prices, which may represent negligible quantities and have little rela- 
tion to the general competitive level of prices. The significance 
from a price publicity standpoint of a classification of sales accord- 
ing to price groups, however, varies considerably from one industry 
to another. In industries with established wholesale and retail price 
classes, such as in certain types of women's apparel, price classes 
represent little more than a product break-down. Although the distri- 
bution of volume information by price classes in such industries 
would be useful in revealing the character of market demand, it would 
have little significance in reflecting price changes. 

The Automobile Manufacturers Association breaks down its figures 
on passenger-car sales into various wholesale price classes. These 
data probably are more significant as trade statistics than as price 
data, inasmuch as members of the association have ready access to in- 
formation on the prices of competitive models through ordinary news 


channels. More important from a price publicity standpoint are the 
data compiled hy the National Automobile Dealers Association on 
retail prices received for used cars.^® 

Information on the aggregate quantities sold at different prices has 
much more significance in industries such as the American Bleached 
Shellac Manufacturers Association, Inc., and the American Zinc In- 
stitute, Inc., that sell on contract for future delivery. As has been 
previously noted, the former association issues a monthly release 
showing the number of pounds of shellac undelivered on contracts 
outstanding at various price quotations ; and the American Zinc Insti- ' 
tute each week for the common grade of zinc metal reports the num- 
ber of tons booked for future delivery at various specified pricesr 
A distribution of sales volume according to the different pi'ices at 
which transactions have been closed may also, of course, provide a 
significant view of past price trends. The American Washer and 
Ironer Manufacturers Association, for example, reports the volume of 
sales falling in consecutive, narrow price intervals, with the average 
price per unit within each class." These figures are issued monthly 
in a release which also shows the corresponding data for the year 
to date. 

Prices recemed^ in. irvdividv/il closed transactions. — The most com- 
prehensive price informational services are those disseminating data 
OH individual transactions. Such a service was reported by approxi- 
mately 20 different associations covered in the present survey." The 
reports are frequently made up from duplicate copies of invoices but 
may be transcribed from summary reports on individual transactions 
made daily or weekly by each member. It should be noted that this 
group of associations includes only those actually disseminating data 
on individual transactions. There are other associations that collect 
copies of invoices, or equally detailed reports on sales, but either 
do not distribute the information to members or distribute it only 
in the form of composite totals. 

3« The N. A. D. A. Official Used Car Guide shows by trading areas the average prices at 
which the various makes and models of used cars are being sold after reconditioning, as 
reported by members of the Association. It is issued primarily as a guide to motor veiiicle 
dealers in determinijig "a fair allowance figure for any used car." Under the caption 
"How to Determine the Allowance," the Guide states : 

"To arrive at a fair allowance figure for any used car, proceed as follows : 

"1. Identify used car. 

"2. Determine 'retail' price. 

"3. Deduct cost of reconditioning plus average overhead and selling expense from this, 
'retail' price. 

"4. Balance is all that should be allowed for average used car. 
"Example : 

'Retail price' $495 

Reconditioning cost 20 

Overhead, 15 percent of $495 74 


Allowance : 401" 

A somewhat similar service is provided by the National Federation of Implement Dealers' 
Associations and its federated regional groujts. Annually a United Tractor and Combine 
Trade-In Manual is issued by the national association, which sets forth for practically 
all makes of tractors, threshers, and combines, "the figure at which experienced dealers in 
that make of machine have found, on the average, it can be resold as it stands when it is 
taken in." According to the "Foreword" of the 1939 edition, the main purpose of the 
book is "to make available to all dealers the combined experience of a large number of 
their fellow dealers as to the fair trade-in value of practically all makes ♦ * * that 
are likely to be offered in trade toward the purchase of new machines." 

The compilation of stich used-machine values constitutes practically the only type of 
price informational activity reported by national and regional associations in the retail 

" Not including a special type of invoice analysis employed by the National Container 
Association and its regional affiliates. See below, pp. 243 fif. 


Daily sales reports are used by several lumber associations, includ- 
ing the Southern Hardwood Producers, Inc., the Southwestern Hard- 
wood Manufacturer's Club, and the Northern Hemlock and Hardwood 
Manufacturers Association. The first association mentioned main- ' 
tains two types of sales reports. A report issued 4 days each week 
presents data on individual sales for the several reporting mills which 
are identified by key numbers. This report goes only to those mills 
authorizing release of their data in this form. A weekly sales report 
sets forth in unidentified form the transactions for each grade and 
species^ recording the volume sold at each price reported. In both 
the daily and the weekly sales reports, information is given on the 
date of the sale, the district and State of origin, the quantity, th« 
specifications, the freight rate, and both the delivered and the mill 
price. The Southwestern Hardwood Manufacturer's Club receives 
a copy of, or a summary of the information on, each order entered 
by members. These data are transcribed, with individual companies 
identified by code number, and the summary statement is mailed 
daily to members of the club. Information on each transaction in- 
cludes both the delivered and the mill price. The sales bulletin of 
the Northern Hemlock and Hardwood Manufacturers Association is 
issued weekly and contains information similar to that in the other 
lumber reports, with actual prices and the equivalent Wausau base 
price. In addition to this report, a consolidated sales report issued 
each week includes figures on the average sales realization per 1,000 
feet for each of the principal species of hardwood. 

Where products of an industry are distinctly uniform in quality or 
grading, the dissemination of invoice prices pi'ovides a very compre- 
hensive story both of price trends and of existing price competition 
in the industry. This situation is illustrated by the reporting plan of 
the National Soybean Processors Association. This organization 
issues a daily price report on completed sales, which reaches all except 
the most distantly located members within 2 days after the sales 
are made. Each day members submit a report on sales completed of 
sacked soybean oilmeal and crude soybean oil in tank cars. The date 
of shipment, the type of process, the price per ton, and the destination 
or base point is reported for each sale of oilmeal. Reports on oil give 
the period of shipment, the price, f. o. b. mill or base point, and the 
location of the mill or the base point used. The consolidated report 
of the association, issued the following day, identifies the individual 

In contrast to the uniformity of the products covered by the report- 
ing plan just described is the'prodilct represented by the Cold Stor- 
age Door Manufacturers Council. This group, unlike some others, 
identifies its sales reporting procedure as "open price filing." Re- 
ports of individual transactions are filed by members as made. These 
sales are listed by State of destination, and a semimonthly summary 
report is mailed to each of the reporting members. The summary 
does not identify either customer or seller, but gives the number of 
imits and the "price" for each shipment. It is not possible to 
ascertain from the release whether the prices reported are net prices, 
f. o. b., or delivered prices, or what, if any, terms are applicable to 
them. The prices reported for individual units vary widely, and no 
basis is provided on the release for comparing the prices received in 
the different transactions. However, if a seller had quoted on a job 


in a given community, the report of a completed sale in that com- 
munity would indicate how his offer compared with the successful 
offer, although since the jobs are not named and no specifications are 
given he could not always be certain that the quotations were on a 
similar base. 

Reporting services involving distribution of price data on ei. 
transaction appear to be more prevalent among associations under the 
direction of management organizations than among other associa- 
tions. One management concern, D. S. Hunter and Associates, main- 
tains a daily report service on individual transactions for several of 
its associations. The daily shipment leport form filled out by mem- 
bers of the Butter Tub Manufacturers Council, for example, calls for 
the following items on each sale: Customer's name; customer's ad- 
dress; date of shipment; type of buyer ; quantity (number of tubs) ; 
size; "wood;" "hoop;" net unit price; discount or all(»v;ance other than 
cash discount (jobber or similar discounts) ; destination (State) ; terms 
of payment, and delivery terms. These data, with the exception of 
the names of seller and buyer, are transcribed to an outgoing re- 
port and mailed immediately to association members. Each group 
is composed of a small number of manufacturers, so that ordinarily it 
is not difficult for members to identify the member making a large 
shipment. Mr. Donahoe, of the management staff, indicated that the 
inclusion of the customer's name in the incoming report was to 
afford a complete record of industry transactions but that the infor- 
mation may aid in revealing whether the customer classification is 
appropriate and would be helpful to the member in identifying an 
invoice if it was apparent that an error had been made. He stated, 
however, that he had had no occasion in the past to check on any 
invoice and believed that auditing of reports was unnecessary, inas- 
much as any false reporting would soon be detected by competitoi*s 
and would lead to a prompt break-down of the reporting service. 

Another organization, Ferry and Dawson, compiles reports on indi- 
vidual transactions for two groups — the Association of Bank Note 
Companies and the Wire Cloth Manufacturers Association, but the 
summaries of these transactons are distributed only once a month. 
The six members of the first group report and receive quantity and 
aggregate value information on every billing of securities, keyed to 
show whether the transaction was "Reprint" or "New" business and 
whether it was on a competitive basis. Manufacturers of wire cloth 
report on individual shipments of various classes of their product. 
Information released includes for each transaction the State in which 
the customer is located, the item number, mesh, size, number of square 
feet, type of metal, unit price, and terms of payment and delivery. 

Described as providing transactional price information on "sales 
completed," or "prices at which [the products] have been sold," is 
the reporting plan maintained by Mr. O. L. Moore for various trade 
associations under his management. Judging by the materials sub- 
mitted, it appears that the information released to members is better 
characterized as prices and terms announced to the trade than as 
prices actually received in closed transactions. This is indicated by 
the provisions for "Price Statistics (as amended June 23rd, 1936)" 


for the sales book division of the Specialty Accounting Supply Man- 
ufacturers Association, which states in the first paragraph : 

Each member will file with the Secretary, on blanks supplied for the purpose, 
his prices to both consumers And jobbers, on the several sizes and styles of Sales 
Books, and for extra details of manufacture, as specified below ; provided, how- 
ever, that only prices that have actually been put into effect by announce- 
ment to salesmen and the trade shall be reported, and that such price lists 
shall not be filed earlier than the day following the date they are mad« 

The daily releases of some of these associations give no quantity 
tigui-es but describe the individual transactions, giving the name of 
the member, product specifications, unit price, terms of sale, and the 
market of the sale. The releases also frequently include statements 
to the effect that the specified company reported that — 

sales were completed [as of the day specified] at sales provisions previously 

In the case of one association, at least, a consolidated monthly report 
is made on the volume of off-list transactions of each member com- 

Some few of the reporting plans involving the dissemination of 
past sales data in unidentified form permit members to inquire for 
information on any transaction that they believe has not been re- 
ported or has been incorrectly invoiced. This is true, for example, 
in the reporting plan of the Rotary Cut Lumber Manufacturers As- 
sociation. Members of this group report weekly on shipments and 
orders booked during each day of the week and attach to their reports 
a copy of eacli invoice rendered during the week covering their ship- 
ments. Data from these invoices are reproduced in a consolidated 
weekly report detailing the description and price, f. o. b. mill, of 
each shipment reported, as well as the location of the reporting mill. 
These weekly reports are distributed to members and are later con- 
solidated into a monthly report showing volume and average ])rice, 
f. o. b. mill, of each thickness and species of wood. The bylaws of 
this association provide that any member may request the details 
of any approximately identified transaction, including the name of 
tlie .seller if such seller has not already duly reported the sale. Such 
requests are relatively frequent according to the secretary of the 
association. The reporting plan of the above group is administered 
by Ortman, McClure, Hadden & Co., management engineers, who also 
conduct the activities of the National Converters Institute, which is 
composed of firms that cut and print transparent sheeting, such as 
cellophane. A complaint against the latter group M-as filed by the 
PVderal Trade Commission in September 1939, alleging the fixing 
of prices through the instrumentality of a sales reporting plan.®' 
The reporting plan of the Institute was described by Mr. McClure as 

The members of this Association give us a detailed report of each sale they make. 
The data from such reports is compiled weekly in a simple consolidated report 
in which we give the members the total number of orders placed, the total dollar 

^ Specialty Accounting Supply Manufacturers Association. In addition to the number 
of orders and the quantity of various types of products sold at a concession from list 
price^s, the report includes separate fisuros for each company on the percent reduction 
from the list price of total sales represented by sales made at concession. 

» Docket 3897. This case was still pending as'of March 1, ]940. 

260752— 41— No. 18 15 


value thereof, and also to the individual member the number of orders his com- 
pany has reported and the total value thereof together with the percentages this 
data represents to Ihat of the total of all reporting members. 

Members evidently do not supply actual copies of invoices, buc orders 
booked are reported daily in detail, with the following information 
given on each transaction: Quantity, size, stock, number of colors, 
price per unit, terms, job name, customer, and value of order. The 
member is also asked to note the industry of the customer, in accord- 
ance with a commodity classification printed on the report form. The 
consolidated report that Mr. McClure mentions as being prepared 
from the sales reports for dissemination to members contains no price 

The Federal Trade Commission complaint alleged that the respond- 
ent members of the institute had agreed and conspired through the 
mediimi of the institute and its manager to fix uniform prices and 
that they exchanged current price lists through the association, "in 
order to establish and maintain uniform net prices," Deviations from 
the said price lists and the prices and discounts agreed upon were also 
reported to the institute, according to the complaint. With respect 
to the sales reporting plan, the Commission alleged that the detailed 
information submitted daily on orders was checked against the cur- 
rent price lists filed by the members and that, upon the request of any 
member, the institute manager furnished information about instances 
in which other respondents had sold their products at prices and dis- 
counts other than those set forth in their respective price lists, giving 
the percentage of the filed price over or under the price at which the 
sale was made, the date of the sale, and the size of the sale. 

Combination of price list exchange with reports on closed transact iovi^. 

A price information service combining the filing and dissemination 
of current price offers with periodic reports on prices actually received 
in completed transactions obviously affords a greater degree of price 
publicity than does either type of plan by itself. The reporting of 
deviations from filed prices, noted in one group of price filing plans 
discussed earlier in this chapter, affords approximately the same degree 
of price publicity, although it does not permit a review of every trans- 
action by the central agency. 

The dual reporting plan of the paper tag industry illustrates the 
combined use of current price quotations and duplicate invoices of 
closed transactions, together with the use of liquidated damages to 
support a voluntary price reporting agreement. Price data are not 
disseminated in any great detail to members, but the invoices are 
analyzed as a basis for regularly published statistical reports as well 
as for individual market reports in response to inquiries.*" The plan 
calls for the filing of all price lists immediately after the effective date 
and the filing of duplicate copies of invoices on each transaction. Ac- 
cording to information supplied orally by Mr. A. E. Sawyer, employed 
by the Tag Manufacturers Institute, the filed price lists contain the 
charges for component elements in the total selling price of tags, such 
as printing charge, material charge, etc. The member is required 
to file terms and conditions of sale with all price lists. Deviations from 

*> See above, pp. 184-185. 


filed prices are entirely permissible, but off-list prices must be reported 
within 24 hours after the order is consummated. These off-list prices 
are published without identification of the customer or the seller, but 
the release indicates the market area in which the sale was made. All 
filed prices are open to the inspection of both members and customers, 
according to Mr. Sawyer. The filing of duplicate copies of every 
invoice means that as many as 2,000 invoices per day may be handled 
by the statistical office of the institute. On the basis of these filed 
invoices a monthly tabulation is prepared and distributed to members, 
showing for the total group the dollar volume and unit volume of 
sales and the average price — sales realization — per 1,000 tags. A more 
detailed break-down of the data by Federal Keserve Board districts 
is disseininated quarterly. Members desiring a still more detailed 
picture of the market situation can request an analysis showing his 
relative position in any one of some 320 market areas. 

Enforcement of the statistical reporting requirements is through the 
"Tag Industry Agreement." For several years various tag manu- 
facturers have entered into annual contracts with the association 
secretary, acting in a private capacity as the Frank H. Baxter Serv- 
ice. Each manufacturer obligates himself to file his price lists and 
copies of invoices of all his transactions with Mr. Baxter, subject to- 
specified penalties for neglect or failure to file accurately and com- 
pletely. The contracts are interlocking; no change can be made in 
them without the unanimous consent of ihe signers. Breach of the 
contract by one member nullifies the contracts for all. The contracts 
provide that upon any complaint being made against any member 
for violation of the agreement a certified public accountant shall make 
the investigation necessary to determine whether the charges are based 
on fact. A board of arbitration considers the evidence and in case 
of violation assesses penalty damages as provided in the contract. 
Mr. Sawyer commented on the significance of the price filing plan in 
general as follows: 

Without question, where all prices are filed it tends toward uniformity in 
price, but does not result in uniform prices. It is a strong factor in market 
stabilization. There may on occasion be some price leadership as a by-product, 
but this is limited by the freedom of the individual to set hig own prices and by 
a widely dispersed market which all manufacturers can pentcrate. 

At least one other association in the paper products group, the 
Gummed Industries Association, combines a price list exchange with 
the regular filing of invoices on individual transactions. A weekly 
report on the number of inches of sealing tape sold at each of several 
designated ''base" prices for various types and grades and in each of 
four zones is made up from the invoice data and circulated to mem- 
bers. According to the managing director, this information is freely 
made available to the trade. 

The activities of another association, now involved in an action 
brought by the Federal Trade Commission, may also be mentioned 
here, inasmuch as they involve a combination of current and past 
price reporting. The United States Maltsters Association receives 
daily sales reports from members and issues a daily summary of these 
reports, listing the selling company, the date, the quantity, the grade, 
and the price. The Commission's complaint *^ charged that respond- 

" Docket 3555, August 24, 1938. This case was still pending as of March 1, 1940. 


ent members of this association had agreed to fix and maintain uni- 
form delivered prices. Means used to carry out the alleged agreement 
were said to include the filing of schedules of "prices, terms, and con- 
ditions of all sales at which it will and does sell malt" and an agree- 
ment not to deviate from the filed prices. It was charged that the 
respondent association also collected and disseminated "other informa- 
tion used and useful in carrying out the said agreement, combination, 
underetanding, and conspiracy. 


Bid filing is simply a form of price filing adapted to goods sold on 
the basis of specification. For such products price lists are not feas- 
ible, it being necessary for individual sellers to quote separately on 
each transaction. The original open-price scheme outlined by Arthur 
J. Eddy in his book The New Competition was really a bid filing 
system for use in various branches of the construction industry. The 
more familiar price filing procedure used in manufacturing industries 
was developed later as a modification of the bid filing procedure. 
Mr. Eddy's plan was designed to dispel all secrecy about competitive 
bidding and thereby to prevent misrepresentation on the part of 
buyers and deception on the part of bidders about the pyces quoted 
on proposed transactions. The plan involved the voluntary reporting 
of all bids as made and the prompt exchange of that information 
among rival bidders through the medium of a central agency. Nei- 
ther the objectives nor the procedures of bid filing have changed 
much from those set forth by Mr. Eddy, with the one important 
exception of the time at which data are disseminated. Existing bid 
filing plans ordinarily call for the distribution of bid information 
on closed transactions only. 

Bid filing is common among local groups in the construction indus- 
try but is not often undertaken on a Nation-wide basis and hence is 
less apt to be sponsored by the national and regional trade associa- 
tions covered in the present survey. Only 24 associations replying 
to the questionnaire checked bid filing as a major or minor activity. 
In three of these cases the nature of the activity referred to as bid 
filing was not ascertained, and in six cases it was plain that the 
activity in question was not bid filing as ordinarily defined. Of the 
24 associations only one was in the contracting industry, the remain- 
ing 23 associations representing various fields of manufacturing, 
particularly machinery and apparatus and other metal products. 
There were, in addition, several national contractors' associations that 
indicated that while they did not engage in bid filing they encouraged 
and assisted their local afiiliates in this field of activity. 

Of the active bid filing plans noted, several were in industries that 
had bid filing provisions in their N. R. A. codes. A total of 31 codes 
included bid filing plans or provided that plans might be established 
by the code authority. Like price filing, bid filing has appai-ently de- 
clined in popularity since the N. R. A., but the curtailment has been 
much less severe. Even under the N. R. A., bid filing plans dealt 
largely with closed transactions, and hence less modification was nec- 
essary to prevent conflict with the antitrust laws after the codes were 


The stated objective of most bid filing plans is the elimination of 
misrepresentation by buyers, or the elimination of "bid shopping." 
The latter term usually refers to the attempts of a general contractor 
to obtain lower quotations from subcontractors, but it serves equally 
well to describe the attempts of any buyer to obtain better terms by 
playing one bidder against another. A companion practice is that 
of "bid peddling," or the effort of an individual bidder to obtain a 
contract by reducing his original bid. A bid filing arrangement is 
expected to discourage both types of activity by exposing all of the 
facts concerning each transaction. Examples of explicit statements 
of the objectives of particular bid filing plans may be noted. The 
plan of one association starts off with a formal announcement of 
purpose : 

Whereas buyers to whom quotations on products are submitted by manufac- 
turers in this industry often represent to such manufacturer that quotations 
at or below certain figures are being submitted by other manufacturers in this 
industry, and 

Whereas it is proper and desirable that there be some procedure whereby manu- 
facturers in this industry, if they so desire, may check up on these representa- 
tions after the order for the products has been placed, a/td it has become a past 
and closed transaction : Now, Therefore, be it 

Ri'solved, That manufacturers in this industry expressing such desires in 
writing, may participate ♦ * ♦ 

A national association of special trade contractors states that it for- 
merly encouraged local groups to establish bid depositories, "to pre- 
vent chiseling by general contractors, particularly on Government 
projects." A manufacturers' association characterizes such a service 
as tending "to correct misinformation given by salesmen and pur- 
chasing agents." In general, the announced objectives of bid filing 
arrangements are defensive in character — the protection of bidders 
against unfair practices of buyers. Other plans contemplate more 
positive gains. Thus, one association made the following comment on 
its bid filing system : 

Such a plan as this leads to a more intelligent operation of the industry and of 
members' business. It raises the standard of estimating and establishes a mutual 
confidence that results in fairer competition, fair and reasonable profits and a 
higher standard of services to the public. It also provides an adequate income 
for the support of local association operations that will permit of increased 
effective cooperative work for the further improvement of the industry and of 
the members' business. The source of such association support, as well as the 
member's individual profits can only come from the price at which the contrac- 
tors' seiTices are sold to the public. This plan provides an orderly means 
for assuring these essentials. 

The term, "bid filing," ordinarily is applied to an organized plan for 
the cooperative collection, tabulation, and subsequent dissemination of 
data on bids or quotations made by a group of competing sellers. The 
present survey, however, indicates that some associations interpret the 
term to mean any statistical activity involving bids. For discussion 
purposes, all the types of activity reported as bid filing have been 
grouped under a series of descriptive headings, with examples given 
under each. It should be noted that those listed under the first three 
and the last of these headings can scarcely be considered as bid filing 
ser V ices. 


Filing of bids for estimating purposes. 

In at least one casej an association checked activity in bid filing when 
the practice in question more nearly resembled an estimating service. 
The Electrotypers and Stereotypers Association of New York, Inc., 
has prepared a standard estimating form, made up to include all the 
necessary information for preparing a bid. Firms wishing to do so 
may send copies of their estimates to the association's office, which 
makes a periodic check of all filed estimates for errors in calcula,tions. 
The secretary of the association states that the majority of association 
members use the estimating form, but comparatively few members for- 
ward their estimates to the association office. Such information as is 
filed is not generally made available to other members. 

Compilation of hid information frotn public records. 

Various cases were noted in which association activity with respect 
to bids was limited to the dissemination of data abstracted from public 
records. Thus, the Southwestern Lumbermen's Association subscribes 
to a private statistical service for abstracts of bids submitted in con- 
nection with W. P. A. requisitions. The association receives, from ab- 
stractors located in three State capitals, the details on all bids sub- 
mitted by its members. These abstracts are duplicated in the associa- 
tion office and disseminated to member bidders without comment. The 
New England Road Builders Association receives from State highway 
departments information on all highway and bridge contracts awarded, 
with the separate bids made on each project. This information is pre- 
sented in full in the association's weekly publication, N. E. R. B. A. 
An annual summary is later compiled, showing all contracts advertised 
and awarded during the year, with the successful bidder on each con- 
tract and the amount of his bid. References are also given in this an- 
nual summary to the issue of N. E. R. B. A. in which the contract was 
first described and the issue in which full bid information was printed. 

Filing of data on successful bids only. 

At least one association compiles data on successful bids only. Such 
a service is virtually the same as any compilation of prices on closed 
transactions and is in no sense equivalent to a bid filing arrangement, 
which permits detailed comparison of successful with unsuccessful 
quotations. The Crayon, Water Color, and Craft Institute receives 
records of award prices on all transactions with public authorities, 
such as school boards. In disseminating the data individual transac- 
tions are recorded, with information on the date, location, product 
description, quantity, award price p^r unit, and brand name. No cus- 
tomer s name is given, but the city in which he is located is identified. 
Paralleling this activity is a price filing arrangement whereby pub- 
lished price lists containing quotations to the general trade are re- 
ceived and filed. Nonmembers may participate in these services. 
Specific inquiry service. 

The bid filing service of some associations is limited to the making 
of special inquiries concerning bids or quotations in particular trans- 
actions. In some instances no information is collected unless or until 
some member asks for a compilation of bids submitted on a given 


job ; in other instances information is collected regularly on all trans- 
actions but is disseminated only when a request is received. 

The formality and comprehensiveness of the inquiry services vary. 
The Leaf Spring Institute, for example, describes its activity as a 
purely voluntary form of open price filing but gives little indication 
of how it is organized or how frequently it is used. The secretary 
states simply that : 

Members of the Institute who desire may file their quotation to any given 
customer or prospective customer. * * * Any member of the Institute who 
requests a copy of the filed quotation will be furnished one by this office. * ♦ * 

The Foundry Supply Manufacturers Association has a service for 
handling all inquiries on closed transactions. Three report forms are 
used for this purpose. Form 1, "Special Inquiry," is used by the com- 
pany wishing information. It states simply that the member desires 
'"information as to prices quoted and name of member securing the 
order described below" and asks the association "to secure this infor- 
mation by inquiry sent to selected members as checked on the back of 
this sheet." Details are given on the buyer's name and address, the 
description of the order in question, and details on the prices quoted 
and the delivery conditions and terms offered by the company making 
the inquiry. The second form, "Request by Secretary for Informa- 
tion," is duly sent to each member designated in the inquiry. These 
members are requested to supply full information on their quotations, 
if any, on the order in question, with the understanding that informa- 
tion on quotations made by other members will, in turn, be relayed 
to them. Each member is also requested to answer "yes" or "no" to 
four questions : "Did you quote on this ?" "Did you receive the order ?" 
"Did you receive the order at the prices shown above?" "If you did 
not receive order, do you know who did?" If the answer to the last 
question is "yes," the name is to be given. The third form summarizes 
the results of the inquiry and is sent to all members reporting. Indi- 
vidual member quotations are identified and the successful bidder 

Filing of all bids after transaction is closed. 

The term, "bid filing," suggests that information on bids is col- 
lected while transactions are still pending, even though dissemination 
of the data awaits the actual closing of the bids and the awarding of 
the contract. Some associations, however, confine their bid informa- 
tional service more strictly to past transactions and do not ask that 
])ids be filed until the transaction is closed. The "Market Analysis 
Pi-ocedure" of tlie National Association of Fan Manufacturers illus- 
tiates this practice. The plan, as amended September 15, 1939, pro- 
vides for two types of service : a monthly summary of all orders 
accepted; and special inquiries upon requests concerning bids sub- 
mitted in specific closed transactions. Provisions covering these two 
services are set forth in a formal resolution adopted by members of 
the association. Paragraph one deals with the regular tabulation on 
successful bids: 

Each member participating in this procedure shall not later than ten (10) days 
after the closing date of every order accepted for products in the industry after Oc- 
tober 1, 1939, deliver or mail to the Secretary-Treasu^-er of this association: (a) 
Copy of estimate itemized showing detailed list of material; individual prices; 


freight; allowances; terms; and other discounts, the net of which shall be not 
more nor less than the total amount secured for the order; location and char- 
acter of the job for which the materials are intended; name and location of 

The secretary-treasurer of the Association is directed to tabulate and 
circulate this filed information to partidpating members "without in 
any manner disclosing or identifying the equipment with a specific 
job." He is further required to prepare the tabulations in strict accord 
with the closed estimates and — 

* * * at all times' refrain from delivering, publishing, or stating in any manner, 
directly or indirectly, any opinion, prophecy, or statement, with respect to future 
prices or production in the industry, or the future course of the industry or any 
part thereof, and shall make copies of such tabulations available to such gov- 
ernmental departments or agencies and other parties as shall be legally entitled 
to receive them and who shall request th^m. 

Paralleling this more or less routine market analysis is the specific 
inquiry, which presumably facilitates the prompt discovery of mis- 
statements or misrepresentations made by buyers concerning com- 
petitive bids. Paragraph 4 of the resolution sets forth the procedure 
as follows: 

Upon specific request from a participating manufacturer for a detailed dis- 
closure of a past and closed transaction, the Secretary-Treasurer may ask for 
and the manufacturer who secured the order shall deliver or mail to the 
Secretary-Treasurer within 5 days after receipt of request, a copy of the item- 
ized material covered by the order and their itemized prices. The Secretary- 
Treasurer shall secure from all manufacturers who bid on this specific job an 
itemized estimate of their last and final bid. This assembled data shall prompt- 
ly after its receipt by the Secretary-Treasurer be sent only to those manufac- 
turers who submitted information on this specific closed an(} past transaction. 

The bid reporting scheme of the National Elevator Manufacturing 
Industry, Inc., is integrated with the collection of data on "New 
Booked Sales" and is noteworthy for the emphasis placed on discus- 
sion of the findings. Members participating in the statistical pro- 
gram submit lost or won reports of contracts that have been awarded. 
These lost and won reports are accumulated at the headquarters of 
the association and grouped according to individual projects, which 
in turn are grouped according to established marketing zones. At 
regular intervals of about 60 days, meetings of the members are held 
in various zones of the country to discuss these lost and won reports 
covering jobs that have been awarded since the last meeting. Dis- 
cussing this practice, the commissioner of the association states that : 

These discussions are valuable to our members in that they bring out the 
detail on each contract awarded, showing every member just what equipment 
was supplied for the price obtained. 

Since information as to a competitor's price secured from a purchaser is fre- 
quently misleading and since competing companies frequently bid on different 
specifications for the same job, regional meetings and discussions of awards 
offer the only reliable Information as to the price and nature of the equipment 

At these meetings it was formerly the practice of the members to take 
copious notes on the Lost and Won reports as they were read off and to avoid 
this we created a summary of the reports showing the principal spe'cifications 
and prices. 

The detailed reports of contract awards and lost bids contain full 
specifications and the final selling price or lowest price quoted. The 
reports also state whether the contract is financed by private capital 
or government funds. The summary tabulation disseminated to 


members identifies the customer, the transaction, and the bids of 
individual companies. Awards made to firms who do not report are 
also included, and notation is made of contracts that are canceled. 
It is not entirely clear from the available information whether the 
summaries are actually distributed to members, but the implication is 
that they are. In any event, the information is conveyed to all mem- 
bers attending zone meetings and is not restricted to those actually 
bidding on a given transaction. 

Current filing- of all bids, with dissemination after transaction is 

The most frequent type of bid filing service is that involving the 
current filing of information 'on each bid or quotation at the time 
it is made to the buyer, the tabulation of information on both suc- 
cessful and unsuccessful bids after the transaction is closed, and the 
prompt release of the information on each transaction. The release 
may be made in detailed or summary form, orally in meetings, or 
in written reports mailed to each member; it may be limited to 
bidders on the particular transaction or may go to all rnembers par- 
ticipating in the bid filing plan. It may or may not involve iden- 
tificcdtion of customers and the bids or price quotations of individual 
sellers. Not infrequently the over-all bid filing plan is integrated 
with a special inquiry service. 

The quotation exchange maintained by the Association of Bank 
Note Companies supplies data on both successful and unsuccessful 
quotations. A member company making a bid for any prospective 
business files a report on the bid with the central office. This bid is 
impounded until some member reports that he has received the order 
or that it has gone to a nonmember of the association. The office then 
makes up a compilation of bids and sends it not only to the bidders 
but to all association members. If there was but one bidder on a 
job. the information is not circulated. The facts reported on any 
q^uotation include the customer's name, quantity, price, and specifica- 
tions of the product offered. Members of the association do between 
30 and 40 percent of the total business in the engraving of bonds, 
certificates, and other instruments of value, with the remainder of 
the business done by one large company which is not a member of 
the association. 

The Organization Service Corporation maintains bid filing services 
for two trade associations — the Electric Overhead Crane Institute 
and the Transportation Metal Sash Institute. The plans are similar 
and involve the filing of full data on each bid submitted — revised as 
well as original bids — and the circulation of a summary comparison 
of all quotations made on each closed transaction. Release of this 
summary is permitted only after some member has filed a report 
indicating that the order on a particular job has been placed. In ex- 
planation of its practice of accumulating data on bids before instead 
of after the actual placing of orders, the management organization 
makes the following points : 

1. The time lapse between original bids and placing of orders frequently — 
practically always — is from 3 to 7 and 8 months. 

2. The physical specifications are usually altered by the buyers, in some class 
two and three times. 


3. The type of construction varies very materially in the case of each 
manufacturer even on specifications furnished by the buyer. 

4. There are no physical standards and frequently there is a variance of from 
25 to 50 percent in weight of finished material and prices charged for finished 
products, designated to perform identical services. 

5. Under these circumstances, if all this "back" data were assembled on a 
closed transaction after the order was placed, it would take so long to issue 
a report that it would be valueless to the manufacturers in making comparisons 
of data. * * * 

The "Bid" Depository" of the American-Institute of Steel Construc- 
tion, Inc., requires the filing of copies or summary statements of all 
new or revised bids for the sale or erection of structural steel aggre- 
gating 50 tons or more. The plan provides that the bids be sub- 
mitted in sealed envelopes, with proper identification of the bid and 
bidder on the outside but no information concerning the tonnage of the 
job or the price quoted. Filed bids are opened by the director of the 
statistics only after a contract has been definitely let, and then only 
if more than one bid is on file with the depository. Opened bids are 
tabulated and copies of the tabulation sent to each bidder. The rules 
provide that : 

Such tabulation shall identify the several bidders as well as the job, and, with 
respect to the lowest bid submitted by each bidder, shall show the tonnage, the 
price, and a statement as to whether such price covered only the fabrication and 
delivery of such tonnage or the fabrication, delivery, and erection thereof, or the 
erection thereof only. 

If the award is made to a bidder other than those depositing their bids, 
the director may still tabulate the filed bids relating to the job .if he 
can be definitely assured of the awarding of the job by the receipt of a 
signed written statement or telegram from the successful bidder or the 

The National Electrical Manufacturers" Association several yeai-s 
ago adopted a policy with respect to bid reporting on closed transac- 
tions for the guidance of any subdivision wishing to initiate such a 
service, but the director of the statistical department states that there 
has been very little recent activity of this type. A 1937 revision of the 
N. E. M. A. plan describes two approved procedures which may be 
followed in the closed-transaction survey. One, designated the "Iden- 
tified Procedure," may be used to elicit information concerning bids 
on a specific closed transaction at the request of some unsuccessful 
bidder. Members participating in the program are canvassed to 
.discover which ones submitted bids and the nature of their bids. A 
summary, identifying individual bids, is prepared for the original 
inquirer and for all companies that quoted on the business. The 
"Unidentified Procedure" differs from the above in that companies 
participating in the plan regularly inform the statistical department 
of the association whenever they issue a quotation on a project, identi- 
fying the prospective purchaser and the specification of the prof>()sal 
but not the price quoted. The above information remains confiden- 
tial in the statistical department until a member requests a tabulation 
on a particular closed transaction. From that point the steps are 
similar to those of the identified procedure, but it is necessary to 
circularize only those companies that have already advised the statis- 
tical department that they have bid or quoted on the material in 
question, and, in distributing the summary information, individual 
bidders are identified only as company A, B, C, etc. A corollary 


to eacli of these approved procedures is the stipulation that, "No 
Division, Section, Group, or Subgroup of N E M A which makes use 
of the closed business transaction activity is permitted at any meeting 
to discuss the prices that are revealed on such reports." 

Bid -filing plans involving more or less regulation of bidding practices. 

Available information on the bid filing plans already described 
suggests that they impose no regulation of bids or bidding practices 
and depend entirely on publicity as a means for improving the com-" 
petitive situation. Other bid filing plans embody various trade prac- 
tice requirements, backed in some cases by formal agreements and 

The bid depository plan of the National Electrical Contractors As- 
sociation has been used in full, or in part, by some forty of the 
affiliated local groups. One local is said to have used it for more than 
7 years. The secretary of the national association indicated, in the 
latter part of 1939, that it was planned to intensify the program under 
the auspices of the national association. A policing committee was 
to be appointed whose job it would be to see that no local groups 
diverted the bid filing procedure to illegal ends or in any way oper- 
ated the plan so as to bring it into ill repute. The policing of the 
local bid filing arrangements is considered a necessary step to safe- 
guard the national association in its endorsement of the activity. The 
secretary believes that the plan is entirely legal if properly admin- 
istered. The bid filing plan is set up as a "Voluntary Agreement of 
Fair Competition." It is described by the national association as: 

* * * strictly a mutual agreement between the subscribers, with an ade- 
quate financial deposit for goo<l faith and penalties for infractions to assure its 

The plan is based upon exchange of fullest information upon closed transactions 
only, to insure an intelligent observance of sound business practices in competitive 
bidding as set forth in the agreement. It does not attempt to interfere with free 
and open competition, but it binds its members to certain agreed upon penalties 
for any disregard of sound estimating practice, for errors or carelessness in 
preparing estimates, or for unfair competitive bidding destructive to the interests 
of the industry and the public as well as to fellow subscribers. 

The plan does not require 100% or even a major part of 100% of all electrical 
contractors within the area of the agreement. It has been successfully operating 
in 1 city of 300,000 population with only 16 electrical contractors participating 
in the agreement. The experience of each group operating under this agreement 
has shown that the old fear of outside competition is unfounded and 90% of all 
of the competition coming under these agreements has been within the members 
of the groups. 

The mechanical procedures as provided in the agreement designate 
as a depository for bids an impartial agency, such as a bank or trust 
company. Each member bidding on a job of $200 or more is re- 
quired, when he submits a bid to an awarding authority, to file 
with the depository a sealed copy of the bid, broken down in a 
manner prescribed in the contract agreement. All sealed bids in the 
hands of the bid depository are delivered unopened to the secretary 
of the association at the next regular meeting. Single bids on any 
project, or bids on projects for which an award has not yet been 
made, are returned unopened to the bid depository. If two or more 
bids are on file for a transaction that lias been closed, the sealed bids 
are opened by the secretary in the presence of the members, the 


information is tabulated from the various break-down sheets, and 
the results made availabte to all members present. The opened bids 
are then subjected to examination by a "Committee of Audit and 
Review," which consists usually of two or three members, preferably 
not bidders whose bids are to be audited on that occasion. Tliis 
committee audits the opened bids and break-down sheets in accord- 
ance with the rules and regulations set forth in the agreement and 
reports its findings either at the same or the next meeting. Members 
are required to attend or to be represented at every regular meeting 
of the group, or be subject to a fine of $5. 

The prescribed break-down to be used in filing bids calls for the 
inclusion of each of the following elements of cost : 

All materials required for the job 

All labor required for the job 

All job expense, ;(vhich shall include — 

Drafting, if any 

Delivery of materials 

Transportation of employees, board, and lodging, etc., if any 

Municipal permits 

Inspection fees 

Public liability and compensation insurance 

Payroll tax (Social Security Act) 

In addition : 

Members shall add to their estimated cost a miiiinuun percentage of such 
cost for their overhead and profit, as follows : 
Cost from $200. 00 to $400. 00, add 40% 
Cost " 401. 00 to 600. 00, add 35% 

Cost " 601.00 to 800.00, add 20% 

Cost " 801. 00 to 1, 500. 00, add 25% 

1, 501. 00 and over, add 20% 

There shall be added for expense of this Association 2% of the sum of cost, 
overhead and profit. The successful bidder shall pay to the Treasurer the 2% 
so determined in monthly payments, first payment being due when the first 
estimate is paid and other payments being due as estimates are paid." 

If the successful bidder is 8% or more below the average of bids of all Members 
bidding, excluding the highest bid if it is more than 8% above the average, the 
amount to be paid the Treasurer for Association expenses shall be increased from 
2% to 5% of the sum of cost, overheads and profit as determined above. 

In the event any Member is called in to revise his estimate and all other 
bidders of this group are not called in, and this Member is successful in closing 
job on revised estimate, the penalties as determined by the audit of the 
original bids shall be invoked. 

Where competition occurs between only two Members and the low bidder is 
30% or more below the high bidder, the amount to be paid for Association expenses 
by the successful Member shall be increased on this particular job to 5%. 

If a Member cuts his bid after submitting it to an awarding authority or his 
agent, there shall be added the amount to be paid to the Treasui-er for Association 
expenses an additional sum of 8% of the sum of cost, overhead, and profit. 

The successful Member shall exhibit signed contract for each comi)etitive job 
closed, at the next meeting of the Members following the closing of such con- 
tract. In the absence of a signed contract, he shall submit an affidavit at such 
meeting, stating amount of contract. 

Where competition occurs between Members and a Member takes work on 
Time-and-Material, Cost-Plus, or any other basis other than a flat contract 
price, the successful Member shall submit his original signed contract or an 
aflgidavit, outlining the basis on which work was raken, and if there is any 
dissension, the matter is to be referred to the Good Will and Grievance Committee 
to bring in recommendations. 

** Apparatus and equipment commonly furnished by the owner are not subjected to the 
2 percent paid to the Association but, if called for, must be shown separately on the mem- 
ber's break-down sheet at amounts not less than the standard prices established by the 
manufacturer for such apparatus and equipment lo the particular awarding authority. 


Where Members have received work upou which other Members have sub- 
mitted bids aud upon which extra wv)rk has been secured by the Member 
without competition while the Member is on the original job, whether it be on 
the same project or any project belonging to the same owner or under the 
same management, the Member shall pay to the Treasurer the same percentage 
for Association expenses as was included in the original figures, including all 
penalties. • * * 

When Members are asked for proposals on work where the owner furnishes 
all or part of materials, the work shall be figured as if all materials were to be 
furnished by the contractor and the price established for such job as outlined 
above, and then cost only of usable materials to be furnished by the owner shall 
be deducted from the competitive price. 

A Nominal penalty of $2.00 shall be placed on any Member for any error in his 
break-down sheet. In addition to tJiis penalty, where an error is made in the 
preparation of a Member's break-down sheet which changes the relative position 
of the bidders, the Member who made such an error and secured the business 
shall pay into the Treasury 25% of the anticipated overhead and profit. 

If a Member neglects to file a copy of the break-down of his estimate as out- 
lined above, he shall be i)enalized $5.00 and shall be required to file previous to 
next regular meeting of the Members the break-down of his estimate as out- 
lined above, so as not to subject himself to further penalties. 

To obviate the possibility of Members being suspicious of any bid made by 
any Member in reference to the minimum amount of $200.00 cost, as outlined in 
Paragraph 6, if a contractor or contractors submit a bid basing their cost on 
less than the above minimum and a majority of contractors have based their 
cost on the minimum amount or more and have filed break-dowTis of their 
estimates, then the successful Member will be subject to all rules and penalties 
set forth herein. 

No Member shall take a cost plus job at less than the cost of material, labor^ 
and job expense, plus 20% minimum fee. 

A bid depository system depending more on a gentleman's agree- 
ment than on specific penalties for enforcement was successfully 
operated for several years by the Carolinas Tile, Marble and Terrazzo 
Contractors Association. This group and other local groups found 
it necessary to abandon their bid depositories some time ago, accord- 
ing to the secretary of the national association with which they are 
affiliated, because of the wording of the noncoJlusion affidavit i-equired 
by P. W. A. on all projects. 

The bid filing regulations for the Carolina group were set forth in 
a "Code of Ethics." This code, in effect, provided for the voluntary 
continuance of a bid depository system that had been authorized 
under the industry's N. R. A. code of fair competition. However, bid 
depositories had been in existence in the industry for many years prior 
to the N. R. A., and the local depository had been only temporarily 
disorganized during the depression years. Under the code of ethics, 
each member of the association covenanted and agreed with each and 
every other member "for and in consideration of the benefits received, 
and to be received, from tlie adherence to the regulations herein 
adopted," to observe the following practices, among others : 

File all bids on projects in excess of $100 with the Bid Depository, 24 hours 
before the awarding of the general contract. 

In the event the awarding authority desired to award the contract to a 
contractor other than the lowest bidder, such contractor would "maintain his 
original price and neither by rebate, credit, or other transactions or in any 
other way" lower his price on the original job. 

No bidder would endeavor to change the specifications or use other means of 
reducing his price for the purpose of meeting a competitive bid. 

No contractor would submit a bid on any part of a project being executed by 
another contractor without first consulting him, and the second contractor 
would protect the first by a margin of 20 percent. In the event the second 
contractor received the contract, he would pay the first contractor 10 percent of 
his own bid price. 


Bids not registered witli the Bid depository were to be considered void, and 
if any such contract was accepted and executed by a contractor, he was to pay 
a fine of 5 percent of the bid. The Association would give 3 percent to the con- 
tractor whose low bid complied with the regulations, and keep the remaining 
2 percent for the Treasury. 

Complaints of alleged violation of the regulations were to be made in writing 
to the President, who would notify the offending contractor to be ready to 
present his version of the case at the next meeting of the Association. Members 
were required to vote after hearing the evidence of both sides, and if the com- 
plaint was sustained a penalty of 5 percent was imposed on the offending 

One rule of the Bid Depository provided that the Registrar should 
advise any bidder immediately whose bid was 20 percent below the 
average. The implication of this rule was that the bidder should 
either revise or withdraw his bid upon such notification. It was 
frankly admitted by members of the association that this rule and 
the provisions of the Code of Ethics were not enforceable by law and 
could be effectuated only through a gentleman's agreement. As one 
member expressed it : 

The only thing that you can do there is, as I said before, have a gentleman's 
agreement. We don't know whether it would hold up in the courts or not, the 
courts have never had a case to try, and I suspect if it were to go into court 
we would probably all be in "Dutch." 

Investigation of specifiG job contracts. 

An activity closely paraPeling that of the investigation of bids on 
specific jobs is the procedur for investigation of specific job contracts. 
The intent of this activity like that of bid filing, is to combat mis- 
representation and fraud on the part of purchaser, by disclosing 
the facts s-urrounding a given transaction. It may be exemplified 
by the plan of the Copper and Brass Mill Products Association. 

Specific job contracts supposedly cover the material requirements 
for a particular building construction job and are intended to protect 
the customer against a rise in the market price of copper and mill 
products during the course of the job. In effect, they are not fimi 
contracts but long-term options giving the buyer a right, but not 
imposing an obligation, to receive deliveries up to some stated volume 
at the price quoted. The contracts are not enforced -against the 
buyer and are considered complete when the construction job is 
finished or abandoned, even if the buyer has not taken the quantity 
contracted for. 

Such contracts are generally not made with contractors on the job 
but with distributors, who also buy copper on order and on short- 
term contracts for their general stock. It was found that some dis- 
tributors were abusing the privileges of specific job contracts by 
entering into contracts for construction jobs that did not exist, for 
jobs which the distributor was not supplying with copper or other 
Txaterials, for quantities in excess of the requirements of the job 
covered by the contract, or for jobs that had already been covered 
by specific job contracts with another manufacturer. The excess 
contract coverage obtained in these ways permitted distributors to 
speculate in copper and other materials with a minimum of risk to 
themselves. If copper went up in price the distributor could demand 
delivery up to the limit of his contract coverage and sell the uncom- 
mitted materials at profit; if copper declined in price, he could simply 
not fulfill his part of the contract. 


In an attempt to protect themselves against such practices, mem- 
bers of the Association began in January 1936 to investigate jobs 
for which specific job contracts had been entered into by manufac- 
turers of pipe and copper water tube. The purposes of the investiga- 
tion were to determine whether the job existed, whether the dis- 
tributor was obligated to supply the job with products, whether 
the quantity contracted for was in line with the actual requirement 
of the job, and whether duplicate contracts had been negotiated so 
that the total amount was in excess of the job requirements. Manu- 
facturers of pipe and copper water tube reported all specific job 
contracts to the association, which investigated and reported back 
to the manufacturers the facts disclosed. Any corrective action, such 
as the cancelation of a contract, was left entirely to the discretion 
of the individual manufacturer. 

Difiiculties encountered in investigating and in remedying these 
contracts led to a revision of the procedure. In August 1938 an 
agreement was negotiated providing for more effective collective 
action. The procedure is described by the secretary of the associa- 
tion as follows: 

All manufacturers agree in this procedure to insert in their specific job 
contracts covering pipe and copper water tube the provision in Section 3 thereof, 
making a number of specific warranties concerning the building job covered 
by the contract and the use on that job of the material contracted for. The 
Secretary of the Association is empowered by such contracts to investigate 
the job, and the distributor undertakes to secure and furnish to him informa- 
tion concerning the job and to accept his finding as to the facts as conclusive. 
All specific job contracts for pipe and copper water tube entered by each 
manufacturer are reported to the Association, and an investigation of the 
job is made. Subsequent investigations may be made from time to time dur- 
ing the course of the job. If it develops that the job for which the contract 
wa< entered does not exist, or that the buyer has no definite obligation to 
supply the products contracted for to the job, the contract will be canceled. 
If the contract has been entered for more than the actual requirements of 
the job, the contract will be reduced in quantity to those requirements. Pro- 
vision is made to insure that the distributor will receive all of the products 
he actually needs and has contracted for to complete the job. If the dis- 
tributor had duplicated contracts with several manufacturers for a total 
quantity in excess of the actual requirements of the job, he will be required 
to elect from what source or sources he wishes to receive the products which 
he actually requires, and the excess coverage will be canceled. 

The above procedure had been in operation a relatively short time 
when the association replied to the present survey, and hence it was 
not able to judge of the effectiveness of the procedure in controlling 
the abuses cited. However, a move was under way at that time to 
establish a similar procedure for specific job contracts on sheet 
copper, Investigations of such contracts were currently being 
handled in the manner previously used for pipe and copper water 

Information on the extent of participation in bid reporting plans 
and their success in obtaining full and accurate reports on bids sub- 
mitted is scanty. It is evident, however, that a bid filing service 
may be helpful without complete participation by the members of 
an industry. A company may refuse to give the facts on a par- 
ticular transaction even though continuing to file copies of other bids. 
Information on the bid depository plan of the American Institute 
of Steel Construction, Inc., for instance, indicates that up to 1936, 
133 companies had cooperated in the plan to some extent, but that 


only 75 to 80 companies were thought to be tiling on every job. In 
1937 some 100 companies were served. Questioned by members 
concerning the reliability and accuracy of the facts filed with the 
bid depository, the statistical director of the institute answered 
emphatically : 

I haven't any reason at all after a year's careful observation and experi- 
ence to question the integrity of anybody vpho sends us a report. I have 
never known an instance in which we have asked for the facts and those 
facts were sent to us that they were other than facts. I have known of cases 
where companies have refused to send us the facts, or excused themselves, 
but I know of no cases where they have misled us in regard to the truth. In 
other words, there isn't the slightest reason that I have to question anybody's 

The discontinuance of former bid filing plans in various indus- 
tries and the limited number of plans in operation suggest that in 
most national and regional industries the benefits to be derived from 
a voluntary bid filing plan either are not significant, are not feasible 
of attainment, or are not considered commensurate with the expense 
and bother of maintaining the service. Uncertainty concerning the 
legal status of bid filing probably is not an important limitation to the 
spread of this activity. The dissemination of bids on pending trans- 
actions has long been considered of dubious legality, but the exchange 
of bids on closed transactions appears to have been accepted as an en- 
tirely legitimate form of statistical reporting. The following obser- 
vation concerning the legal status of bid filing was made in the Federal 
Trade Commission report, Open-Price Trade Associations, in 1929: 

In so far as an association confines its woi-k in this connection to the mere re- 
porting of awards and bids and the amounts involved therein, it would seem to 
be engaged in activity safely within the scope of the decisions of the Supreme 
Court in the Maple Flooring and Cement cases. But, should the association at- 
tempt to influence members and others to use any part of the reported informa- 
tion as a basis of collective action on future bids, or in an attempt to blacklist 
a contractor who peddles bids, then the plan is no longer the mere reporting 
of past and completed events." 

The attitude of the Department of Justice concerning bid filing 
is essentially similar, if one may judge from an unofficial appraisal 
of the N. E. M. A. bid filing procedure some years ago. The original 
N. E. M. A. plan was submitted to the Department of Justice in 
1927, for examination in an attempt to discover whether it was sub- 
ject to criticism under the antitrust laws. The Attorney General in 
charge of antitrust work disclaimed any authority or intent to ap- 
prove any proposed procedure but made the following comment : 

As we understand, it is the custom amongst buyers of products made by mem- 
bers of the association (as electrical motors, etc.) to request comi^etitive 
prices on the same item from two or more of the manufacturers, and that 
bidders in the association desire that there may be a disclosure amongst them 
of the prices and conditions submitted by each, to be made, however, after 
the transaction shall have been closed and only when a bidder shall make special 
request for the information. Such information, it is said, is not only withheld 
by the recipient of the bids, but the actual prices received are sometimes er- 
roneously reported. It is further understood that the members of the associa- 
tion will act, and will understand that they may act, with i-egard to prices, 
terms, etc., made contemporaneously with the operation of this plan, with entire 
independence, that is, free from the restraint caused by any agreement with, or 
criticism from their associates relative to prices, etc. 

So understood the plan discloses no cause for proceeding by this Depart- 
ment ; but the failure to make criticism ought not to be taken as an indirect 

« P. 275. 


approval. This view is, of course, based on the facts presented, and not upon a 
subsequently disclosed intent or effect ; hence, the Department will be deemed 
to be free to take any action which may be required by the actual effect of the 
plan in the future." 

Recent indictments obtained by the Department of Justice against 
local construction groups not infrequently include references to bid 
filing arrangements, the charges being directed against restrictive 
agreements surrounding the making and acceptance of bids. 


The remainder of this chapter describes the statistical activities of 
three associations — the Southern Pine Association, National Con- 
tainer Association and its affiliated regional groups, and the Envelope 
Manufacturers Association. These cases are not presented as typical 
of the statistical activities of trade associations but rather as illustra- 
tive of a number of types and characteristics of trade association sta- 
tistical analyses that have been referred to, but not r!""eloped in detail, 
at previous points in this chapter. 

The Southern Pine Association, like a number of other lumber asso- 
ciations, has for many years supplied its members with a weekly 
barometer service on current market conditions. Since the barometer 
comparisons emphasize relative rather than absolute relationships, 
they are particularly adapted to reflecting current trends in an in- 
dustry in which the statistical coverage is low or varies considerably 
from one reporting period to another. This situation is typical of 
the lumber industry as a whole and of various regional and species 
divisions, such as the southern pine industry, which are represented 
by separate trade associations. The collection of lumber trade sta- 
tistics is handled almost entirely through these divisional associations. 
The basic data on production, orders, and shipments are compiled and 
released by member associations to their own subscribers and are for- 
warded to the National Lumber Manufacturers Association for repub- 
lication in the National Lumber Trade Barometer. This is a monthly 
statistical bulletin, issued regularly since 1918, which summarizes the 
available trade statistics for the entire lumber industry. Barometric 
data submitted by the affiliated associations are reproduced in tabular 
form, and two pictorial diagrams are shown presenting barometric 
data for the combined hardwood species and for the combined soft- 
wood species of lumber. The N. L. M. A. barometers afford a current 
guide to operations in the lumber industry as a whole and give each 
divisional association an opportunity to compare its own market situa- 
tion with conditions in other and competing branches of the industry. 
In a very real sense, therefore, the weekly barometer releases of the 
Southern Pine Association are supplemented by the consolidated 
monthly reports for all lumber groups affiliated with the Kational 
Lumber Manufacturers Association. 

The lumber industry is characterized by a multitude of operators, of 
whom the small units far outnumber the large. Trade associations in 
the industry represent, in all but the more specialized branches^ a rela- 
tively small proportion of the producers eligible for membership but a 

** As quoted in National Electrical Manufacturers Association, "Handbook of Closed 
Business Transaction Activity" (Mar. 25, 1937), pp. 2-3. 

260752— 41— No. 18 16 


large and significant proportion of the total sales of their products. 
As these associations are federated in the National Lumber Manufac- 
turers Association, they transmit their characteristics to the federation, 
which states that it represents 10 percent of all lumber manufacturers 
and 70 percent of total lumber production. The N. L. M. A. is com- 
posed of the following 14 trade associations : 

American Walnut Manufacturers Association. 

Appalachian Hardwood Manufacturers, Inc. 

California Redwood Association. 

Mahogany Association, Inc. 

Maple Flooring Manufacturers Association. 

Northeastern Lumber Manufacturers Association. 

Northern Hemlock and Hardwood Manufacturers Association 

Northern Pine Manufacturers Association. 

Southern Cypress Manufacturers Association. 

Southern Hardwood Producers, Inc. 

Southern Pine Association. 

The Veneer Association. 

West Coast Lumbermen's Association. 

Western Pine Association, 

These divisional associations vary widely in their coverage and in 
the extent of their statistical activities. Those for which barometric, 
data are reported in the National Lumber Trade Barometer are the 
southern pine, west coast, western pine, California redwood, southern 
cypress, northern pine, southern hardwood, maple flooring, and north- 
ern hemlock groups. The Barometer also includes statistics on oak 
flooring — indicating that barometric data are also reported by the 
National Oak Flooring Manufacturers' Association, which is not a 
member of the federation. The data regularly reported relate to i)ro- 
duction, shipments, orders received, gross stocks, and unfilled orders 
in M feet. 

The Southern Pine Association is one of the largest groups in the 
national association, and its volume statistics comprise a significant 
part of the composite totals presented in the national barometer for 
softwood lumber. The present association was formed in 1914 as the 
successor of the Yellow Pine Manufacturers Association, which was 
founded in 1902. In 1938 approximately 300 manufacturers were 
p.ja^:'- bers to the association services. This membership, according 
to the association, represented only 10 percent of the total number of 
pine lumber manufacturers in the South but approximately 40 per- 
cent of the total production and 60 percent of the productive capacity 
of the southern pine lumber industry. 

The statistics of this association are particularly notable in that 
they constitute one of the most elaborate current statistical services 
encountered in trade association work. The trade statistical publica- 
tions of the association are generally available to nonmembers at a 
fixed charge, and much of the information is reproduced in trade 
journals and in the monthly statistical summaries issued by the 
N. L. M. A. 

Of the association's statistical releases, the Weekly Trade Barometer 
is the most featured. Current statistics for the Barometer are col- 
lected on a standard reporting blank set up in balance-sheet form, 


Tvitli detailed instructions for recording each item. These are filled 
out by members each Saturday to cover the week ending that day. 
The Barometer appears on the following Wednesday. 

The Barometer includes two pictorial diagrams— a "Comparative 
Barometer" and a "Current Barometer"— with the supporting figures 
for each and a statistical supplement summarizing data compiled for 
the National Lumber Trade Barometer. Both of the barometers 
record current trends and both emphasize comparative relationships. 
The "Comparative Barometer" shows current relationships in millions 
of board feet, with special emphasis on comparisons with previous 
reporting periods. The "Current Barometer" shows all relationships 
in percentage terms. Each barometer diagram contains three tubes- 
one for production, one for shipments, and one for orders— and pro- 
vides three different comparisons. One of these is measured by the 
height of the red columns of mercury in the tubes, one by vertical black 
arrows in the columns, and one by horizontal black arrows beside the 

In the "Comparative Barometer" the columns of mercury represent 
current production, current shipments, and current orders in millions 
of board feet. For the week ending December 9, 1939, it was based 
on reports from 117 mills." This number may vary slightly from 
week to week, but for any week the comparison of the current Week 
with preceding weeks is based on reports from the same' mills. The 
vertical arrows mark the comparative figures for the preceding week, 
and the horizontal arrows the figures for_ the corresponding week in 
the preceding year. The tahular data used in constructing the com- 
parative barometer are pi-esented on the back of the release,, in the 
form of a balance sheet showing orders on hand at the beginning of 
the week; orders booked, shipments, and production during the week; 
and orders on hand at the end of the week. 

The "Current Barometer" is designed primarily to show the rela- 
tive position of average production, average shipments, and average 
ordei's in the current reporting period as compared with certain 
norms. The mercury columns record the position of current produc- 
tion, current shipments, and current orders in relation to a 100- 
percent base line, representing a 3-year average production figure ; 
the vertical arrows show the relative position of production, ship- 
ments, and orders for the year to date; and the horizontal arrows 
show how the current week's production, shipments, and orders are 
related to "normal production" for the same mills. It should be 
noted that the comparisons recorded by the "Current Barometer" all 
relate to a production base. It is true that the heights of the mer- 
cury in the three tubes indicate the relative volume of orders, ship- 
ment-s, and production during the current week, because the three 
values are plotted from a common zero base line, but the comparison 
stressed in the legend is the position of the three items with respect 
to the 100-percent level, representing the 3-year average weekly 

Because of the variability in tlie number and size of mills repo^'t- 
ing from week to week, special techniques have been devised for 
maintaining comparability in the current barometer reports. This 

■" The number of mills is substantially in excess of the number of companies reporting, 
inasmuch as some of the larger companies operate a number of mills. 


technique involves the calculation of an average production "unit" 
by which all data are reduced to a common denominator for com- 
parative purposes. The statistician of the Southern Pine Associa- 
tion has supplied the folloAving explanation of the per unit averages, 
together with definitions of the 3-year average production and the 
"normal" production bases used in the current barometer compari- 
sons : 

1. What is a "unit"? How is it computed? ' 

Averages are shown in terms of "per unit" instead of "per mill" to smootli 
out, variations caused by differences in size and type of mills reporting from 
week to week. If, for example, two or three very large mills repiort one week 
and fail to report the next, or if several smaller mills out one week shQuld 
come in the next, an average computed on the number of mills reporting would 
be distorted. There would c<>nstantly be some fluctuation in such an average 
not chargeable to economic trends, and it was to overcome this dif^culty that 
we adopted the ';unit." 

Our "unit" is derived from 8-year average production and is computed as 
follovi's: Production (including purchased lumber) in the period from Novem- 
ber of ih^ fourth preceding year through October the first preceding year, is 
totaled and compared with the production (including purchased lumber* of 
the , same hiills in the three years preceding the last year.' The wreentage dif- 
ference, an increase or decrease, x is applied' to the 3-year avwage used iif 
the pre<!?eding year, and the result gives^ tlie 8-year average applicable to 
the current year. This worked to an average of 309,0(X) ft. in 1939. and the 
average used for 1940 will be increased or decreased over that for 193Vk«i 
the ratio that production for identical mills has increased or decreased in the 
3-year period November 1936 through October 1939 as compared with the 
3-year period November 1935 through October 1938. The three previous cal- 
^endar years are not used, because we must have the new basic figure ready 
for the first week in January, and some time is needed for the auditing 

A 3-year average production per week is set up for each mill and is to^aled 
for the mills reporting in any week. This total, divided by the unit average 
established for the year (explained on the preceding page), or by o09,0(X> ft. 
during 1939, gives the number of units reported. The number of units, divided 
into production, orders and shipments, gives the average per unit for these 

An average computed in this way takes cognizance of the gradual increase or 
decrease in production due to type of mills i-eporting and due to structural 
changes in the Industry, and it enables us to set up long-term comparisons, 
extending over any period of weeks, months, or years, that reflect a .fairly 
accurate trend. The unit average serves no purpose other tten an effort to 
render data comparable from one period to another. 

2. Why is "3-year average" Production used as base 

Up to the year 1928 "normal" production had been used as a This "nor- 
mal" was computed from output in the first 4 months of 1916, or from some sub- 
sequent period in case of mills not operating in 1916. It was based on periods 
of full time production and indicated what such mills might produce in the 
current period if operated under similar conditions. By the time we had reached 
the year 1928, "nornial" was set up on so many different periods for different 
mills and represented such extreme departures, in some instances, from what 
mills then reporting would be likely to do in future, that it was considered proper 
to make some revision in the basis. Very careful consideration was given the 
matter and it was discussed liberally in conference with persons in and out of 
the industry. The consensus was that a sound basis for an industry like lumber, 
which is subject to so many economic and natural influences, should revolve and 
be confined to the least number of recent years likely to yield a representative 
average. That explains why we adopted the 3-year resolving average. It makes 
current comparisons more sensitive and more valuable, and affords a sound basis 
both for determining current conditions in relation to the past and for computing 
long-term trends by means of the unit average. 

3. Why is "normal" production based upon the year 193Ct 

t'urrent operations are shown in our Barometer in relation to "normal" pro- 
duction merely to afford a further means of comparison. The 3-year average has 


displaced normal as a base, and arrows are inserted on the thermometer to indi- 
cate where current production, orders and shipments would be if normal had been 
the base instead of the 3-year average. 

It really makes little difference what year is used for normal. "Normal" is 
not found in the actual production for 1930, but is the production per hour that 
year multiplied by the number of hours the mill normally runs per week — 60 
hours for single-shift mills, 120 hours for double-shift mills, or such number of 
hours between 60 and 120 as the mill was generally accustomed to running when 
not confined to any restrictions. 

The hourly output does not vary much over any period, and 1930 is mentioned 
because that happens to be the year last used in computing hourly production 
averages. The hourly output in any year, for mills now reporting, when applied 
against hours normally operated, would yield about the same result. 

A sample issue of the Weekly Trade Barometer for the week ended 
December 9, 1939, carries the following explanation of terms used in 
the barometer comparisons : 

Three- Year Average Production is average weekly output of reporting mills, 
when operating, in the 157 weeks, or three years, beginning October 28, 1935, 
and ending October 29, 1938. 

Normal Production is the average hourly output per mill in 1930 multipliea 
by the number of hours normally operated per week. 

Averages are shown in terms of "iier unit" instead of "Per Mill" to smooth out 
variations caused by the shift in number and size of mills rei>orting from, week 
to week. 

A Unit is 309,000 feet of "S-Year Average Production" and the number of units 
reported in any week of 1939 is obtained by dividing the total "3-Year Average 
Production" of reporting mills by 309.00(^>. 

Total iniits reported are expressed in whole niunbers to simplify comparison. 

The above explanations make it clear that the average-production 
base is revised each 3'ear, but leaves unanswered the questions of how 
and when revisions are made in the ''normal'' production base. The 
secretary of the Association has further explained the "normal" pro- 
duction base as follows: 

The comparison with "normal" production serves no purpose other than to 
indicate the relative degree in which current operations and the "3-year average" 
are functioning in comparison to what formerly constituted full-time i)erform- 
ance. This "normal" remains fixed, and is adjusted only in the case of single- 
shift mills going i)ermanently on double-.shift, or double-shift mills going perma- 
nently on single-shift. It is computed by multiplying the average output per mill 
per hour by the number of hours the mill was accustomed to running per week 
pri(vr to maximum work-weeks fixed by law. We make all determinations and 
all calculations from our records. The mills determine nothing. It is not neces- 
sary that we revise all "normals" each year, as we do in the of the "3-year 
average," the output per hour per mill varies little, if any, from year to 
year, and once it is determined there is no need to change it. The only changes 
made apply to mills who may vary from period to period between single and 
double-shift operations. Beyond that, the "normal" is fixed, and it would not be 
a "normal" if we tampered with it year after year. 

"Normal" could be dropi)ed from the Barometer, for it has no bearing at all on 
Barometer results. Its only purpose is that of indicating the approximate degree 
in which current operations are functioning in relation to a full-time normal which 
does not reflect hourly discrepancies, as well as in relation to a "3-year average" 
which does reflect hourly discrepancies. 

The tabular data accompanying the '"Current Barometer'' include 
absolute as well as relative figures on the volume of production, ship- 
ments, and orders reported to the association. The volume data are 
expressed in two ditferent units — carloads and board feet. Data on 
orders are broken down to show orders on hand at the beginning of 
the week, orders received during the week, and orders on hand at the 
end of the week. The number of mills reporting and the equivalent 
number of "units" are noted, and a veiage per unit as well as aggregate 


data are presented for each of the following items: current orders, 
current shipments, current production, 3-year average production, and 
normal production. The ratios shown in the "Current Barometer" are 
derived from these averages. 

Two'of the three comparisons shown graphically in the "Current 
Barometer" are repeated in tabular form : actual production, ship- 
ments, and orders for the week are each shown as a given percent above 
or below the 3-year average production base and as a given percent 
above or below'"normal production." Other quantitative and percent- 
age relationships shown are current shipments to current production, 
current orders to current production, current orders to current ship- 
ments, and the difference in orders on hand at the beginning and at the 
end of the week. No cumulative figures on production, shipments, and 
orders for the year to date are given, but a summary of the weekly 
reports for the preceding quarter is presented, showing for each week 
the number of units reporting and the averages per unit for orders, 
shipments, production, 3-year average production, and normal pro- 
duction. The 3-year average production per unit remains constant 
during any given year, but the other averages, including the "normal'' 
production base, vary from week to week. 

In addition to the weekly barometer release, the association issues 
a monthly mimeographed bulletin of six or eight pages, called 
"Southern Pine Statistics." This report contains data for approxi- 
mately twice as many mills as are covered by the weekly barometer 
data, but the increased volume coverage is by no means proportionate 
to the increased mill coverage. For example, the barometer data for 
October 1939 represented approximately 70 percent of the production 
covered by the monthly statistical supplement for the same month, as 
compared with only about 50 percent of the number of mills. The 
significance of the monthly report as compared with the weekly 
barometer is commented upon by the secretary of the association as 
follows : 

* * * The monthly report is furnished by 250 or more mills, or about twice 
the number of mills reporting weekly, and contains information on stocks nut 
reported week}y, as well as inventory adjustments which are determined only 
at monthly intervals. It is more complete than the Barometer, and is used as 
the basis for industry estimates furnished the National Association, as well as 
for articles, briefs, reports, etc., prepared by us for publicity, etc. It gives us, 
in combination with the Barometer, the most thorough and most accuratti sta- 
tistical information available to any lumber group, and if it were discoutinupd 
our statistical coverage would not he adequate, and our statistical program as 
a whole would be greatly weakened. The weekly report is a quick, sensitive 
barometer of market conditions, while the monlhly report is a balance sheet of 
the Jndnstry. 

The monthly statistical report makes no use of per unit averages, 
3-year production, or normal production bases. Reported production, 
shipments, and orders data are given in M feet for the actual number 
of mills reporting each month; and various comparisons are made of 
the current period with past periods for fdentical mills, although the 
number of mills included in these comparisons may vary from one 
month's report to another. Contents of the statistical bulletin include 
the following types of analysis: 

(1) A summary comparison of the volume data for the current 
month with data for preceding months and with total industry esti- 
mates. Production, shipments, orders, unfilled orders, gross stocks, 



and unsold stocks in M feet are shown for each month in the year to 
date. The summHiy also includes for each month in the year to date 
the number and rated capacity ^^ of tl\e reporting mills and the per- 
cent of that capacity represented by production, by shipments, and 
by orders. Unfilled orders are shown as a percentage of stocks as 
of the end of the month. For each month in the current and the 
preceding year there is presented a ratio of supply to demand, with 
the percent change from one year to the next, and the number of 
days' demand represented by supplies on hand. The ratio of supply 
to demand is expressed in terms or the board feet of supply in a given 
month per 1,000 feet of demand for that month. The supply item 
consists of stocks at the beginning of the month plus the month's 
production ; demand is represented by unfilled orders at the beginning 
of the month plus orders booked during the month. Estimated indus- 
try totals are presented in board feet. They cover production, ship- 
ments, and orders during the current reporting period, and stocks, 
unfilled orders, and unsold stocks as of the beginning of the next 
reporting period. The difference between the actual figures for re- 
porting mills and the estimated industry totals indicates the relatively 
low coverage of the association's statistics. For the mon:h of October 
1939 this comparison shows: 






Unfilled orders 
Unsold stocks. . 

M feet report- 

Estimated M 

ed by 243 

feet for 



198. 538 

670, 000 

226, 970 


19S, 854 


596, 548 




480, 374 


Percent of 


The release does not indicate the basis of the industry estimates. 

(2) A past 3-month trend comparison showing the percent increase 
or decrease in gross stocks and in unfilled orders. Separate trend 
data are given for individual States and major producing districts. 

(3) An analysis of the current volume data by States, similar to 
the summary analysis described in (1) above. The supply-demand 
ratios for individual States are presented on the basis of reports of 
identical mills (222 in October 1939) for the current month, the pre- 
ceding month, and the corresponding month in the previous year. 
Division of the supply total by the demand total produces the ratio 
figure, which is listed for identical mills in each of 12 States. A 
footnote explains the meaning of the figures: 

Thu.s, Alabama's Supply in October, 1939, for the 29 mills reporting was 2.8 
times the demand for that month, or 2,800 feet of supply to each 1,000 feet of 
demand, against 2,500 feet in September, 1939, and 3,270 feet in October. 1938. 
All 222 mills had an October, 1939, supply of 2.4 times October, 1939, demand, or 
2,400 feet of supply to each 1,000 feet of demand, against 2,290 feet iu September, 
1939, and 2,920 feet in October, 1938. 

(1) An identical mill comparison by States (based on reports from 
222 mills in October 1939), showing the current month's volume data 
in thcnisands of feet as related to the preceding month and to the corre- 
sponding month of the preceding year, with bar charts indicating the 
relation of the totals in each period. ^.^._ . ,.;,-, __. 

♦"As determinea under the N. R. A. code by the Lumber Code Authority. 


(5) A 3-year comparative analysis of volume data for identical 
mills (200 in October 1939), by months, with various percentage rela- 
tionships between production and rated capacity, production and 
shipments, and production and orders, and the percent of change in 
stocks on hand. 

The monthly report on unsold stocks is the only regular statistical 
release of the Southern Pine Association that contains a break-down 
of data by types and grades of lumber and by individual reporting 
mills. Reports on unsold pine stocks (total stocks less orders on 
hand) in M feet are submitted by some 80 reporting mills. 1 e 
stock reports of all mills reporting in any given month are presente 
in detail for each type of product, size, and grade of material. Th 
mills are identified by code numbers, for which a key is provided. 
From this compilation it is possible to ascertain the quantity of every 
lumber item available at each of the reporting mills. Total stocks of 
the various sizes and grades of lumber are also given, and compara- 
tive totals for identical mills are shown for the previous 2 months 
and for the corresponding month of the preceding year. 

In February 1940 the Department of Justice brought charges against 
the Southern Pine Association for restraint of trade in connection 
with their grade marking and statistical services and obtained a con- 
sent decree against the association and 41 larj^e producers of southern 
pine, ordering them to cease certain discriminatory practices and to 
abandon alleged aj^reements and attempts to control prices, produc- 
tion, and distributive practices in the southern-pine industry. The 
trade statistics of the Southern Pine Association were cited as one 
means u^ed to effectuate the control of prices and production policies. 
Also cited was a private statistical service maintained by the Southern 
Pine Lumber Exchange, one of the defendants.*^ Although the ex- 
change was not officially connected Vv'ith the Southern Pine Associa- 
tion, most of the larger members were subscribers to this service. This 
service covered the collection, compilation, and release of detailed sta- 
tistical data relating to sales, shipments, prices, and destination of 
southern pine lumber sold by subscriber manufacturers, including 
"sales reports showing each order by name of mill receiving same and 
territory to which shipped, the items sold, and the prices thereof." 

The statistical reports of the Southern Pine Association and other 
lumber groups had been subjected to Federal Trade Commi^ion and 
Department of Justice investigation at various earlier dates. The 
Commission made an exhaustive investigation of lumber trade asso- 
ciations in 1919 and 1920, and in 1921 sent reports on the Southern 
Pine, West Coa,st Lumbermen, Western Pine, and California Wliite 
and Sugar Pine Associations to the Department of Justice, with the 
thought that the statistical and other activities therein described were 
of questionable legality. In its published report on these investiga- 
tions. Lumber Manufacturers' Trade Associations (1922), the Com- 
mission described the origin and significance at that time of the ti-ade 
barometer service of the Southern Pine Association : 

*' In addition to the Southern Pine Association, the Exchange, and the individuals, the 
National Association of Commission Lumber Salesmen was made a defendant in this 
action. Tlie complaint was filed and the consent decree was entered February 21, 1940, 
On this day also an indictment was returned against the two Associations and the Ex- 
change with respect to the same practices. The indictment was not contested. For the 
complaint and decree regarding the grade-marliing activities of the association see ch. VII, 
below, pp. 318-319. 


The operations of the Southern Pine Association center around the use of a 
device known as a trade barometer, by which, through concerted action, the 
association instructs its membership how to restrict production and thereby to 
increase the price of lumber, by an artificial control of supply as balanced against 
current demand. 

This barometer is issued to the members of the association weekly. It is por- 
trayed on the right-hand side of a sheet of paper and consists of a bulb out of 
which arise three perpendicular tubes. The first tube is designated by the word 
orders, the second by the word production, and the third by the word ship- 
metits. * * * 

This device for restricting production was inaugurated in 1915. At that time 
there was printed on the upper left-hand corner of the barometer and just out- 
side of the order tube the words market advancing. Directly opposite in the ui^er 
right-hand corner and just outside the shipment tube appeared the words inci-ease 
produGtiotu On the lower left-hand corner were the words market decfivjiing, and 
just opposite on the lower right-hand comer the w^ords decrease production. 

The theory of the device was described by Mr. Charles S. Keith, president of 
the association, in a letter of September 18, 1915, to J. H. Kirby, as follows : 

"The association will shortly get out a weekly barometer, which has been sub- 
mitted to our counsel and which meets with their approval. This barometer will 
automatically forecast market conditions, and it is based on orders received 
and shipments made. Where the shipments exceed the orders, it indicates an 
advancing market, and whenever the reverse is true it indicates a falling market. 
Then once a month we will get out another barometer Msed on the production, 
which will indicate an advancing market when shipments are in excess of pro- 
duction, and a falling market when the reverse is true, advising increase of 
production when the orders and shipments are in advance of production and a 
decrease in production when the production is in excess of orders and shipments. 
This will give the information graphically." 

Shortly after the barometer was circulated among the association members, 
Mr. W. H. Bissell, president of the Wausau-Southern Lumber Co., wrote to Mr. 
Charles S. Keith, president, and Mr. J. E. Rhodes, secretary and manager of the 
Southern Pine Association, advising that the words increase production be 
taken off, stating that "This is just the condition that we wish to avoid." Fol- 
lowing this he said, "Is it not possible that some of our members might construe 
your weekly letter, bearing this label, as advice from our association, to cut loose 
and resume night sawing with their mills?" and again, "Some cautionary advice 
should be inserted, bringing home to our members the truth of the old adage, 
'Do not kill the goose that lays the golden eggs.' " 

Mr. Bissell's advice was followed and the four phrases, market advancing, 
vnorease production, and market declining, decrease production, were removed. 
Mr. Keith informed Mr. Bissell in a letter of November 1, 1915, as follows : 

"In preparing the barometer, the attorneys thought that if we were going 
to show 'decrease production' thereon, 'increase production' ought to go on, too; 
so while we are not advising our people what to do, the barometer itself will tell 
the story." 

It should be stated that while these four phrases were removed, there still 
remained beneath the barometer the following language: 

"Whenever Shipments or Orders are below Production, exi)erience indicates 
an overproduction, with consequent lowering of values. 

"Experience indicates that whenever Shipments or Orders are above Produc- 
tion, values increase, provided Production does not increase at a greater ratio 
than Shipments and Orders." 

The foregoing quotation appeared beneath the barometer continuously until 
October, 1919. 

It should be noted in respect to the date October, 1919, that at this time the 
Commission was preparing to make an investigation of the lumber industry as 
requested by the Department of Justice but had not yet actually begun. How- 
ever, the fact of this request had been ascertained and had been spread through 
the Industry. Shortly after this, the language just quoted was removed. 

In order to inform the members what information the association had upon 
which It moved the red up or down in the tubes, there was set forth on the 
same page to the left of the barometer, a summary of figures reported from the 
association mills. These figures showed the total amount of orders on hand, 
the total orders received during the week, the total shipments for the we^'^ and 
then by subtracting the shipments from the orders, showed iLo ouiance of orders 
on hand. 


The statement further showed, in percentages, whether and how much ship- 
ments were exceeding production ; orders exceeding production ; orders exceed- 
ing shipments, and whether there was an increase in orders compared with the 
last report. There was also other pertinent information tending to inform the 
members how to read the barometer. 

In the early barometers, the association took as a base the actual production 
and compared the orders and shipments with it. Subsequently, the orders, ship- 
ments, and actual production were compared with an assumed normal produc- 
tion. This normal production was arrived at, by taking the production for a 
certain number of months. * * * 

In addition to the barometer there was a continual correspondence carried on 
between various members, stressing the idea of decreasing production and tht' 
beneficial results that would accrue to the members of the association by such 
action. The activities of the association were also supplemented by trade jour- 
nals which gave out information such as was portrayed by the barometers and 
through editorials urged the members to regulate their production according t«j 
the barometer. 

Finally, to enable the membership more efifegtually to secure the fruits of their 
system of curtailing the production, representatives of the leading concerns held 
frequent meetings at which market conditions, including the supply and demand 
as reflected in the barometers, were discussed, and harmonious action on prices 
arrived at. At one meeting in particular, as evidenced by correspondence here- 
to attached, "the consensus of opinion on prices" was "that conditions justified 
an advance * * *," and that new price lists would "be out the first of next 
week carrying these advances." 

As disclosed in the docximents sent to the committee, the plan is for each mill 
to regulate its current production in accordance with the current total demand, 
as shown by the orders and shipments of all mills, and to cut down production 
immediately and proportionately to any excess in the total production over 
total orders and shipments, regardless of the position of any individual mill. 
At one meeting the members took a rising vote unanimously to the effect that 
each would regulate his own individual production according to the common 
plan, and keep it within the limits of demand as shown by the association sta- 
tistics. This theory was explained and urged upon the membership at great 
length by association leaders during 1915 and 1916, during which time two pro- 
nounced curtailment movements were organized and carried out. The barom- 
eters were inaugurated and are now used for the purpose of securing the more 
effectual execution of the plan. 

For more than a year during the war, the Southern Pine Association re- 
stricted the circulation of its barometers to the membership. This was for the 
purpose of preventing the buyers of lumber securing market information which 
would lead them to reduce their purchases in the expectation of lower prices. 
At the time such action was taken, the production was exceeding the sales. 
This action was taken over the protests of association leaders, who had warned 
that such restriction would constitute an admission of manipulation. As late 
as March 1920, Mr. Chas. S. Keith, for four years president of the Southern Pine 
Association, referred to the restriction of the barometers' circulation as being 
evidence of manipulation under such circumstances. 

In its Open-Price Trade Associations, published in 1929, the Fed- 
eral Trade Commission again discussed the statistical activities of a 
number of lumber associations. It was pointed out in that report that 
price and sales reports were never an important feature of the serv- 
ices rendered by the Southern Pine Association to its subscribers. 
Even prior to March 1925, when they were discontinued, the sales 
reports were not prepared from reports made direct to the associa- 
tion but were compiled every 10 days from the daily sales reports of 
the several "lumber exchanges" operating in the territory. Associa- 
tion sales reports were merely averages of prices collected by these 
outside agencies and were more valuable as a historical summary 
than as current data, since almost every member subscribe^ directly 
to one of the private statistical services. The private agencies con- 
tinued to supply price and sales data to members of the association 
aft^jr 1925, while the association largely restricted its own statistical 


activities to the weekly barometer releases, a monthly statistical bul- 
letin on production, smpments, and sales, a monthly report on stocks, 
and various cost reports. Although the intensive statistical activities 
of the Southern Pine Association and other lumber associations were 
criticized in the Federal Trade Commission report as having in the 
past facilitated agreements on prices or curtailment of production, 
the only criticism of the lumber barometers, as such, was directed 
against their limited efficiency and serviceability in reflecting current 
trends. In concluding its appraisal, the Commission observed that : 

Barometer reports are undoubtedly as legitimately interesting and important 
to the lumber manufacturer aa crop reports to the farmer and supply and 
demand statisMcs to the businessman generally. All these, in fact, have the 
same purpose and function. * ♦ * The lack of comparability in month-to- 
month data is largely met by the use of relatives in the lumber barometers. 
But it should always be remembered that the only means of insuring unques- 
tionable comparability is the use of as nearly complete and comprehensive data 
as it is possible to obtain. 

Since no formal evidence was taken in the antitrust action in Febru- 
ary 1940, it is not possible to ascertain in what manner or to what 
extent the statistical activities of the Southern Pine Association were 
involved in the alleged agreements and restraints of trade. The trade 
barometer, monthly statistical bulletins, and stock reports were cited 
in the complaint and in the indictment as instruments facilitating 
the agreements for price and production control. Defendant corpora- 
tions named in the complaint were said to represent in 1938 more than 
65 percent of the production and shipments reported by all manu- 
facturers reporting their production and shipments to S. P. A., and 
more than 85 percent of the total production and shipments of manu- 
facturers reporting to the exchange. It was contended that the 
statistical information compiled and disseminated was not represen- 
tative of the southern pine lumber industry but solely of said lumber 
corporations. It was noted also that the detailed data furnished to 
subscribers were "thereafter by way of averages and totals given wide- 
spread trade publicity in trade journals." The use of statistics to 
effectuate the conspiracy was alleged in the following paragraphs of 
the complaint : 

From time to time the defendant lumber corporations, have sponsored, held, 
nnd caused to be held meetings and conferences attended -by their respective 
sales managers and other executive oflBcers. At such meetings and conferences 
expert statisticians of defendant SPA. have appeared and made informative 
talks using special statistical data compiled for that purpose, and use has been 
and is made of the aforesaid Trade Barometer, the statistical and price data 
set forth in tJie other reports compiled and furnished from time to time by 
defendant SPA and defendant Exchange, as aforesaid, and other data of 
similar character and import furnished and presented by those present, where- 
upon, after detailed discussion and consultation by, between, and among said 
sales managers and other executive officers, uniform, arbitrary, and noncom- 
l)etitive prices were and are airived at, decided, agreed upon by, for and be- 
tween those present and thereafter acted upon and followed by their respective 

Beginning sometime during the year 1936, and from time to time thereafter, 
at the aforesaid sales managers' meetings, at meetings held by defendant SPA, 
and elsewhere, the defendant lumber corporations have conducted like discus- 
sions as to inventories, production and production schedules of southern pine 
lumber, and reference to and use of the aforesaid statistical and price data and 
special statistics as to inventory and production having been made in connection 
with such discussions, those present have unlawfully combined and agreed to 
curtail and pnrsaant thereto their respective corporations thereafter in truth 
nnd in fact actu;illy did curtail their production of sontherr pine lumber with 


the intent of thereby arbitrarily and artificially enhancing and increasing the 
market value and sale price thereof. 

By the consent decree entered on February 21, 1940, the defendants 
are enjoined and restrained from entering into and carrying out any 
program for fixing, establishing, or maintaining prices, holding or 
participating in meetings or conferences for such a purpose, and : 

From in any manner disseminating information concerning or relating to 
current or future prices charged or to be charged for such products. pr()vide<l, 
however, that the reporting, collection, compilation, and dissemination of in- 
formation and statistics for the individual use of said defendants concerning 
bona fide prices actually charged in consummated sales, the extent of such sales, 
volume of production, production capacity, delivery, and consumption of prod- 
ucts and the distribution thereof, unfilled orders, stocks on hand or in transit, 
including totals, averages, and other computations thereof, is not hereby pro- 
hibited wherever and to the extent that such information and statistics are 
made, or are readily, fully, and fairly available to the purchasing and distribut- 
ing trade at the time of their initial dissemination, and provided, further, that 
the defendant SPA and defendant Southern Pine Lumber Exchange shall 
not in any manner criticize any price reported by any manufacturer as having 
been charged in an actually consummated sale, nor seek any explanation there- 
for from any such reporting manufacturer or disseminate in any manner any 
explanation thereof offered by such manufacturer in justification of any such 
price so reported. In reporting and disseminating the aforesaid information 
and statistics, said Associations and each of them shall not disseminate uv 
publish any forecast of future market trends or any recommendation as to 
current or future sales, price, or production policy applicable to said industry. 

That the said defendants herein and each of them and their respective repre- 
sentatives be and they are hereby perpetually enjoined and restrained from, 
directly or indirectly or by any means whatsoever, entering into or carrying 
out any program or aiding and abetting any program to limit, curtail, restrict, 
or otherwise control the amount of southern pine lumber to be produced or 
manufactured in any given time by members of the industry ; provided, huwevei'. 
that nothing contained in this paragrapli shall l)e understood to prohibit the 
reporting, collection, compilatibn, and dissemination of information and sta- 
tistics in the manner and form and to the extent provided in Paragraph IV 
(c) [quoted immediately above] of this decree ; and provided further, tliat 
nothing contained herein shall be understood to prohibit the reporting, collec- 
tion, compilation, and dissemination, in a lawful manner, of information and 
statistics covering the cost of production of southern-pine lumber or other lawful 
and proper information and statistics. 

Such restrictions seemingly would need have little or no effect on the 
content or on the form of the Trade Barometer and other regular 
statistical releases of the Southern Pine Association described above 



The National Container Association has until recently been managed 
by the firm of Stevenson, Jordan & Harrison, which in trade associa- 
tion circles has been one of the frankest advocates of the principle of 
mutual restraint in competition, characterized by it as the "Voluntary 
Sharing of Available Business." In attempting to implement this 
principle of business conduct the trade associations managed by this 
firm characteristically have engaged in the collection and dissemina- 
tion of trade and price statistics and in some instances have emphasized 
cost accounting as well. Each of these activities figured in the Na- 
tional Container Association's program of voluntary sharing of avail- 
able business. 

An indication of the basic principles behind the program of the 
association is given in a memorandum of the industry's N. R. A. code 


authority to an N. R. A. deputy administrator, prepared after the 
N. R. A. public hearing on the Code for the Corrugated and Solid 
Fiber Shipping Container Industry : 

By now you have learned enough about the industry to realize the intensity of 
the competitive situation that existed in this industry from 1926 and 1927 on 
through 1932. A chart has been given to you which shows the constantly descend- 
ing curve of prices over this entire period. By 1932 the industry was confronting 
a serious condition of losses, which if continued for a much longer period, would 
have undoubtedly caused the bankruptcy of many companies and very seriously 
eaten into the capital structure of the industry. 

In 1932 this industry made contact with Stevenson, Jordan & Harrison in view 
of the service which they had i-endered to other industries over a period of some 
seventeen years. After some preliminary discussions, Stevenson, Jordan & Harri- 
son was employed to work with the members of the industry in an attempt to 
mitigate the extremely destructive competitive practices which were in vogue in 
the industry and to try and build some sort of an orderly market procedure. 

In order to understand the plan presented to the industry, the basis of operation 
and the reason for it, it is necessary to go back and consider the steps by which 
in dealing with this problem over a period of years the Stevenson, Jordan & Har- 
rison organization had arrived at the conclusions upon which it was based. 

This work started originally seventeen years ago through the organization being 
called in to work out and install uniform cost systems in a number of industries. 
At that time it was thought that if the members of an industrial group could be 
brought to a point where they had an accurate knowledge of their costs and where 
these were developed according to a uniform plan, this would make for orderly 
and intelligent competition. Over a period of several years the Stevenson, Jordan 
& Harrison organization did help some five different industrial groups to develop 
uniform cost methods and handled the installations in the member plants to the 
point where a substantial majority of each industry was developing its costs 
according to the uniform plan. 

However, a few years of experience showed that the anticipated results did not 
materialize. The reason for this was that in each industrial group there were 
found a certain number of companies which were what we called Volume Minded. 
These companies were always looking at their overhead data and figuring that if 
they could only Increase their volume they could reduce their overhead per unit. 
Hence these companies were disposed to go out and undersell the market, particu- 
larly on large orders, to secure volume and thereby reduce their overhead. This 
started the vicious struggle for the division of the available volume, which con- 
stantly tended to lower markets down to costs and below, with not only losses in 
profit and the impairment of capital but the tendency to debase wages. 

The next step was based upon the thought that if in addition to a knowledge 
of costs the members of the industry had complete statistics on current orders, 
production, shipments, stocks in hand, etc., this tendency might be checked. 
Through these statistics each company would be fully informed as to the ebb and 
flow of the industry total volume and of its own experience in relation to that 
industry total, i. e., whether it was obtaining its fair share of the volume or not. 
It was the belief that the two sets of facts together — that is, the knowledge of 
costs and the knowledge of the industry picture — would result in policies of man- 
agement arrived at by the various individual managements, which would make 
for a stabilized market. 

The experience again was that the mere development of the facts as to costs 
and current statistics was not enough. Again the vicious struggle for volume 
continued — certain companies attempting to expand their operations by secur- 
ing a share of the volume over and above what was reasonable in relation to 
past experience. 

It was at this point that the Stevenson, Jordan & Harri.son organization 
became convinced that under our present conditions — where in nearly every 
industry there is excess producing capacity — unless this basic struggle for the 
division of the available business could be dealt with, there was little chance 
for an orderly and stabilized market. From this developed the principle of an 
Equitable Sharing of the available volume of business. 

Of course, it was recognized that this could only be applied in a limited way 
under the legal restrictions of the Sherman Anti-trust and the Clayton Acts. All 
that could be done for any industry would be to assemble the facts on capacity 
and on a record of past transactions over a period of years, from which a com- 



pany could Judge as to its relationship to the rest of the industry. Then to lay 
before the meial>ers of the industry — for purely voluntary action on their part 
as they might see fit — the economic fairness and soundness of this basic prin- 
ciple of an equitable sharing of available business. 

The National Container Association is an unincorporated associa- 
tion of manufacturers of corrugated and solid fiberboard and ship- 
ping containers. The association was organized in August 1933. In 
1938, according to the association, its 111 members represented 45 
percent of the manufacturers in the industry and about 65 ])ercent 
of total production. There are three types of producing units in 
the industry. The integrated companies produce their own paper- 
board, from which they fabricate containers. There were in 1938 
less than 30 such companies, but they accounted for about half tl)e 
industry's total volume. Converting mills buy paperboard, mariu- 
facture it into corrugated, and make containers. A last grou]) con- 
sists of converting plants, known as "sheet mills," which produce con- 
tainers from corrugated and solid fiberboard manufactured elsewliere 
and purchased by them in sheets. 

Federated with the National Container Association are 12 regional 
associations; the}^ also until recently Avere staffed and managed })y 
Stevenson, Jordan & Harrison. The regional division of the indus- 
try was originally made on the basis of 14 zones, defined according to 
natural marketing areas, but two of the member associatioiis dis- 
banded during the period from 1935 to 1937, leaving a situation in 
1938 of more zones than associations. Members of the regional 
groups may become members of the national association ; some hav- 
ing more than one ])lant are members of more than one regional 
association, although each is restricted to one membership in the Na- 
tional association. Without regard to the duplications caused by 
firms holding memberships in more than one regional association, the 
following presentation of the National Container Association shows 
the extent of organization in 1938 : 


Percent of iudustrv 

of mem- 














































National Container Association 

New York State Container Association 
Middle Atlantic Container Association- 

Alleglieny Container Association 

Ohio Container Association 

Indiana Container Association 

Micliigan Container Association . 

Chicago Container Association 

•Piedmont Container Association 

Southeastern Container Association 

Southwestern Container Association 

Northwestern Container Association 

Pacific Coast Container Association 

Most of the fii-ms in the container industry serve local markets. 
The distribution of firms in the industry, according to degree of 



localization, was reported in 1938 by the National Association as 
follows : 


of firms 

by vol- 

Companies, the bulk of whose business is delivered in 1 marketing area, 
i. e., local oj^erators , - 

Companies, the bulk of whose business is delivered in not to exceed 4 adja- 
cent marketing areas, i. e., sectional operators 

Companies whose deliveries fall in 3 or more of the large sectional areas, 
i. e., national operators -. 


It appears from the association's list of regional and national 
members that all. or nearly all, the multiple-plant companies in the 
industry in 1938 were members of the National Container Associa- 
tion. This would indicate that the approximately 120 firms outside 
the association, producing about one-third the total industry volume, 
were almost exclusively local, one-plant companies. 

The statistical program of the National Container Association had 
its origin in eAents preceding the formation of the regional bodies. 
In 1932 the industry retained Stevenson, Jordan & Harrison to make 
a national survey, as a preliminary to consideration of the practicality 
of the "Normal Volume Relationship" plan advocated by the manage- 
ment firm. The subsequent presentation of such a scheme for the 
entire industr}^ met with a poor reception and the program was 
shelved. Some box makers in the Southwest, however, were im- 
pressed by the plan and gave it a trial. Operation of the plan in 
that area was successful, with the result that other groups solicited 
its sponsors and installed it. Within a year, 14 such regional groups 
had been established and federated in a Nation-wide trade associa- 
tion. The original intent of applying the scheme directly to the 
whole industry was revived, but after further study it was decided 
that there were actually "14 different industries and 14 different 
markets." Later, as has been noted above, two regional associations 
dissolved, some of their members becoming direct members of the 
National Container Association. The following summary of the sta- 
tistical and accounting activities of the National Container Associa- 
tion and its regional affiliates applies to the period preceding August 
1939, ait which time the Department of Justice brought action agamst 
the industry on the ground that these activities were in restraint of 

At a meeting of December 9, 1936, at which progress in organiza- 
tion was reviewed, Mr. C. H. Ferris, secretary of the National Con- 
tainer Association and a partner in Stevenson, Jordan & Harrison, 
said : 

It seems to me that we should once and for all clear up on our fundamentals. 
I would say we had five fundamentals that are now proven to be sound : 

1. Our fundamental yardstick or the principle of recognition of Normal 
Volume Relationships. 

2. Those Normal Volume Relationships, due to the character of our Indus- 
try, Producers. Customers, and Market, must be expressed by, and recog- 
nized by geographical competitive areas; approximately wliat we havf 


3. We have back of us a great deal of experience in established market 
data to tell us where the market [price level] is, based upon invoice 
analysis. I think it is overwhelmingly conclusive that this is an indis- 
pensable thing for us to have. 

4. By taking the fundamental steps in invoice analysis and reversing 
them, we have a standard estimating method. 

5. You can take those same principles and apply them to our costing and 
cost determination and we have those three things tied together. Cost is 
developed and expressed with the same set of principles used in analyzing 
our invoices to give our market level and finally you reverse them for 

The first fundamental listed above, "Normal Volume Relationships," 
is the basic element of the Association's program. It is based on the 
belief that it is a f arsighted business policy, a matter of ultimate self- 
interest, for a company to restrain its competition for the available 
business of the industry. Each producer a6knowledges that, al- 
though his first object is to retain his relative position in the market, 
an absolute decline in his business is no warrant for dasperate efforts 
to regain the loss at the expense of other membere of the industry. 
By pointing out that individual efforts to achieve an advantage over 
competitors always tend to similar efforts on the part of those com- 
petitors, with the result that the intensified competition yields no 
profit to anyone, the Association has endeavored to impress members 
with the desirability of resting content with their customary portion 
of the total volume of shipr lents. In principle, such shares would 
remain stable, except as chan (es in capacities or number of producing 
units periodically required levision. The individual member's out- 
look is identified with the improvement of the industry's position 
vis-a-vis other industries. 

A survey of the past record of volume of shipments of each com- 
pany in each zone preceded the establishment of its "normal" rela- 
tionship. This survey was made by Stevenson, Jordan & Harrison in 
1932, covering the "historical experience" of each company in the 
three previous years. Considering the total volume of the companies 
participating in each zone as 100 percent, the percentage share for 
each company in each zone was computed. These percentages con- 
stituted the "normal relationship" of the individual companies. It 
appears that revised percentages were effective in 1938 on the basis 
of the industry's changing composition and experience after 1933, 
In the original computations ten firms on an industry-wide basis ac- 
counted for more than 55 percent of the total business of the partici- 
pating companies, while the majority of the producers were budgeted 
at less than 2 percent each. Evidently, the maintenance of normal 
volume relationships depended to a large extent upon adherence to 
the principle by a relatively small number of large producers. 

The observance by a company of its normal percentage requires 
that it currently be advised of its position in the market. The 
National Container Association reports that: 

Twice a month the members of each regional association send to its head- 
quarters office a report showing their deliveries into that marketing area for the 
half month period just passed. These records are in terms of square feet of 
surface area of the material entering into the boxes that have been shipped and 
delivered. This is shown separately for corrugated boxes and for solid fiber. 

These figures from each of the members are combined to develop the totals 
for all members of the group in question. A report then goes to each member 
* ♦ * showing the figures as a whole for the group in mimeogr-aphed record. 
The figures for the individual company are then typed in and go to the concern 
to whom the report is addressed. 


From this report each company can see what its participation has been in the 
total consumption [shipments] of the group membei-s for the current half month 
period and for the cumulative statistical period. This makes it possible for the 
individual member to see how its current participation compares with any his- 
torical background. 

Ill addition to shipments in M square feet, which the National Con- 
tainer Association also issues in consolidated form, the various regjional 
offices collect and disseminate statistics on shipments by types and sizes 
of product. The relation of the individual companies to the group 
total is always indicated, and trends are shown by comparisons with 
data for previous periods. 

The statistics on shipments which are collected, analyzed, and re- 
ported bj^ the regional associations and the National Container Associ- 
ation serve a dual purpose in carrying out the Stevenson Plan. Not 
only do they provide a check on tlie maintenance of each company's 
sales volume in conformity with that percentage of the total volume 
wliich it has recognized as its "normal" share of the industry's business 
on the basis of the "historical record," but they also associate data on 
value with that on quantities of shipments, and thus provide informa- 
tion on price levels. Since, however, the average value per M square 
feet all'ords only a crude approximation of the market level for the 
diversified industry products, the association supplements this with a 
more elaborate technique known as "invoice analysis." This technique 
has been described by the national association as follows : 

Each company sends in to the regional office each period copies of invoices 
covering deliveries made in that atca for the preceding period. These invoices 
are analyzed so that all sales can pe reduced to a common denominator. The 
totals for each company are comJ)ined,— separated, however, to show spot business 
in one category, and contract business in another. The figures for all members 
are then combined to show the averages for the group as a whole. In this way 
each company can .=ee very deiinitely how its own market level in terms of price 
realization compares with that of the group as a whole in the maiketing area 

It is because the products of the container industry are diverse and 
in large part made to specification that the identification of price levels 
is difficult. Tliis difficulty of providing a basis for price comparison 
also sugge.sls a difficulty that each member of the industry faces in 
estimating his costs on the particular combination of materials and 
operations involved in filling each order. The trade association enters 
the picture at this point with a standard cost-estimating system, which 
it has develoi)ed and recommended to the industry. Not all the mem- 
bers use this system, but whetlier they do or not their invoices, upon 
receipt at the regional association office, are analyzed on the basis of 
the standard estimates. It is in this way that the sales realization 
indicated on each invoice is reduced to a common denominator which 
permits the comparison of members' prices. Thus, a single system 
affords the individual member a basis for estimating costs and setting 
prices, and the Association a basis for comparing prices among mem- 
bers and individual member prices with estimated costs. The system 
adds to the "normal" volume relationships a knoAvn relationship be- 
tw'-en each member's prices and the prices of his market rivals and a 
costing method directed at the establishment of prices sufficient to 
assure profitable operation. 

The technique of estimating costs and identifying prices involves the 
use of the concept of a "basic unit" of production; This is the com- 

260752— 41— Xo. 18 17 


mon denominator in terms of which the constantly chanoi:ing combi- 
nations of materials and services required in manufacturing for partic- 
ular orders can be evaluated and compared. What the management 
firm did, it explains, was : 

* * * to establish formulas for the determination of box blank areas, and 
to express in the form of differentials above or below tlie cost of a 175-lb. 
test, plain, taped, regular slotted container, delivered locally, the rariation.s in 
cost of all other combinations of material, styles, sizes, quantities, and methods 
of delivery. 

These differentials are assigned fixed equivalents in dollars and cents 
and are used in conjunction with the cost of the basic unit. In 
applying the cost estimating system, the manufacturer selects from 
the listed differentials those applying to the order at hand and adds 
them to or subtracts them from his own basic-unit cost to determine, 
the total cost of filling the order. Through "invoice analysis" the 
staff of the regional association calculates the listed values of the 
differentials involved in the shipment reported, subtracts them from 
(or adds them to) the price charged, and thus arrives at the manu- 
facturers sales realization in terms of the hypothetical basic unit of 

The cost of the basic unit to the individual company comprises 
the following items: (a) the current market, or replacement, cost 
of materials per M square feet; (b) that part of the conversion cost 
that varies according to the area, or size, of the containers— composed 
of the M-square-feet cost of raw-stock storage and handling, corru- 
gating, bundling, shipping, and that portion of the box-making cost 
that varies with the size of the container and therefore is chargeable 
on a per ]\I-square-foot basis; (c) the charge for local delivery per 
M square feet; and 7(i) allowances for return of merchandise, dis- 
counts, credit losses, and other items which, if not allowed for, con- 
stitute deductions from profit." To this basic cost the association 
recommends that a profit be added. 

Two alternative methods are suggested to members for computing 
the basic-unit cost. One requires the development of product costs 
by types and sizes, described by the Association as "rather tedious 
and somewhat expensive," based on cost accounting principles, which 
are not fully developed by the Association ; the other, "a quick and 
easy method," recommended for adoption by every manufacturer 
in the industry. The latter method provides that monthly the man- 
ufacturer (a) determine his total actual operating expenditures for 
materials, conversion, delivery, and tape; (b) on the basis of a 
system of "production analysis" recommended by the Association, 
accumulate the differentials and factors applicable to these elements 
for the month's business; (<?) deduct (or add) the differentials and 
factors, so determined, from (or to) the total, actual costs. The 
remainder is the total basic cost, which is reduced to the basic unit 
by dividing by the M square feet of business transacted during 
the month. This method, it will readily be seen, does not require the 
application of cost accounting principles to particular types of prod- 
uct; the cost of the basis unit is determined simply by applying 
uniform differentials and factors worked out by the association to 
the firm's general accounting experience. Having established this 
cost, the manufacturer can determine whether the basic-unit cost 


which he used during the period for the purpose of pricing provided 
a loss or profit and can then make the appropriate price adjustments 
on future business. 

The uniform differentials and factors developed by the association 
to be applied to the basic-unit cost to arrive at the cost of any order 
include : 

(a) Bourd differentials. — To be applied in determining the material cost for 
grades of material other than the basic grade. According to the Assoc iation. these 
"were prepared by computing the differences in the market price per M square 
feet of the various materials, including majiufacturing waste, above or below 
the market price of the materials used in the production of 175-lb.-test board." 
These differentials are subject to revision to reflect changes in the current market 
price of materials. 

(ft) Conversion differentials. — To be applied in determining for the various 
styles of containers (1) the "set-up," or "make-ready" factor, incurred on every 
order, i-egardless of number of pieces or area of the container; (2) the "running" 
factor, wliich covers that portion of the total conversion cost that varies accord- 
ing to the number of pieces but not the area of the container (c. g., slotting and 
taping) ; and (3) the "area differential," the difference between the area costs 
of the various styles of products and the standard, or basic, container, "Area 
costs" are those costs that vary with the total area of the containers ordered and 
include raw-stock storage and hanr.ling, corrugating, bundling, shipping, and that 
portion of the box-making cost that varies with the area of the container. The 
basis for the various conversion factors and differentials was described by the 
association as follows : 

"Previously compiled product costs made it possible, through a careful survey 
of the costs of 10 companies over the first seven or eight months of 1933, to compile 
representative costs by departmental operations. The next step was to translate 
these into the costs of various styles of containers, and finally to reduce these costs 
to formulas wherein certain elements were fixed and equally applicable to all man- 
ufacturers, while other elements were variable and necessarily different for each- 

(C) Tape factors. — To be applied to cover the cost of tape consumed in manu- 
facture. These factors, according to the Association, were readily established 
from the market prices and are subject to revision to reflect changes in the 
market prices of tape. 

id) Delivery factors. — To be applied to other than local deliveries, that is, 
delivery charges in towns or cities other than those in wl)iclj a container manu- 
facturing plant is located. The delivery factors, the Association states, are 
governed primarily by the cost of the competing container manufacturer closest 
to the point of delivery ; they are flat amounts for carload delivery and for less- 
than-carlot delivery. 

Just as the individual manufacturers can determine their basic-unit 
costs by applying the differentials and factors to their ledger expe- 
rience, so can tlie regional associations, on receiving copies of invoices, 
determine the manufacturers' basic-unit-sales-realization. Being uni- 
form and expressed in dollar values for any product described in the 
invoice, the differentials and fact/^rs may be applied to the invoice 
value to establish the basic-sales-realization on any shipment. This 
procedure makes it possible to compare the prices received by the 
various manufacturers in transactions involving any type of container 
and is one which the associations have employed in lieu of a system of 
open price filing. 

The regional associations report, usuall}^ at semimonthly intervals, 
to members their basic-unit price levels, on the basis of sales realiza-- 
tion as determined by invoice analysis, on "spot," "contract," and total 
business. From tliese data the individual company can compare its- 
own with the group's experience. In addition, some, at least, of the 
regional associations have shown on their releases the basic sales 
realization of everj' company in the group, the companies being desig- 
nated by name or hy key letter. Froiu the data compiled by the 


regional associations, the National Container Association has devel- 
oped price trends for the entire industry and comparisons of price 
levels in the various zones. 

That the statistical and accounting activities described above were 
designed to encourage voluntary restraint in competition has been 
acknowledged by the management firm. Upon these activities, how- 
ever, two somewhat varying interpretations have been placed. The 
one proclainied by the association is that of providing information 
for the intelligent conduct of each company's business, with the deci- 
sion concerning the course indicated by the statistics and the cost 
estimating method left in the hands of the individual company's 
management. Action by the members in a common direction is at- 
tributed to their convictions that their welfare lies along that line. 
Sharing of business is voluntary, as is adoption of the uniform 
method of costing and pricing. 

The other interpretation is that of the Department of Justice as 
set forth in an indictment of August 9, 1939, naming the National 
Container Association and its member associations, the Stevenson 
Corporation, certain members of that firm, and a number of members 
of the industry. According to this indictment, the association mem- 
bers agreed to accept and adhere to assigned quotas, established on 
the basis of the relative volume of business transacted by each during 
the "normal," or "base," period. The association members further 
agreed to furnish periodically to the regional associations shipment 
and delivery reports, "for the purpose, among others, of enabling 
Stevenson. Jordan & Harrison to supervise the association-members 
to determine whether the association-members were in fact adhering 
to the said predetermined assigned quotas." In further pursuance of 
this conspiracy, it was alleged, the staff of the associations and the 
Stevenson firm prepared statistical releases and graphs that reflected 
any "substantial variations between a member's current deliveries and 
its predetermined assigned quota" ; held meetings at which the mem- 
bers were constantly impressed with "the necessity and desirability 
of adhering to their proportion of the total deliveries" and of cur- 
tailing deliveries when they exceeded "to any great extent" the as- 
signed quota; maintained traveling auditors, who made periodic, 
detailed audits of the members' books for the purpose, among others, 
of determining the accuracy of the reported statistics, of promoting 
generally the "Equitable Sharing of Available Business," and of call- 
ing "to the attention of any association-member any substantial varia- 
tion between its actual volume and its predetermined assigned quota." 
It was further alleged that the members from time to time filed with 
their respective regional association memoranda to the effect that they 
had obtained contracts or orders from certain customers, information 
that was disseminated "with the understanding that other association 
members would not compete for the business of those customers." 

It also was alleged in the indictment that the defendants had fixed 
and maintained "arbitrary and noncompetitive prices" for shipping 
containers through fixing and agreeing on cost factors and differen- 
tials, embodied in an estimating manual, which did not in fact "repre- 
sent actual costs of any member" ; and through invoice analysis, which 
was used for the purpose, among others, of "supervising the associa- 
tion-members to determine whether said association-members used the 
Industry Estimating Manual and its formulas, factors, and djfferen- 

coinoentration of economic power 247 

tials in estimating arid establishing selling prices of shipping con- 
tainers." As in the case of the alleged quota agreement, it was stated 
that the Stevenson firm and the staff of the respondent associations 
through meetings, field auditors,, and statistical releases engaged in 
continual efforts to promote and persuade members to abide by the 
established price levels. 

Whatever may be the facts with respect to the allegations summar- 
ized above, on April 23, 1940, the defendants accepted a consent de- 
cree,** which enjoined and restrained them from agreeing, combining, 
or conspiring — 

(a) To limit production of corrugated or solid fiber shipping containers to 
predetermined quotas ; 

(6) To formulate, promote, or take part in any plan for prorationing of busi- 
ness, or the equitable sharing of available business, the purpose or effect of which 
is to limit the production of such containers to such quotas ; 

(c) To determine the volume of business of manufacturers of such containers 
for any ijeriod or periods for the purpose of establishing such quotas ; 

(d) To collect, compile, or compare data respecting production, sales, orders, 
shipments, or deliveries of such containers for the purjwse of determining whether 
manufacturers of such containers have adhered to, or are adhering to, such 
quotas ; 

(e) To distribute production, shipment, or price data in such form/as to 
indicate that a manufacturer of such containers is or is not adhering to any 
such quota ; 

if) To present or discuss, at meetings of manufacturers of such containers, 
or elsewhere, or by correspondence orootherwise, production, shipment, or price 
data in such form or manner as to indicate that a manufacturer of such con- 
tainers has exceeded any such quota, or that it should limit present or future 
production so as to come within any such quota ; 

(g) To examine or audit the production, shipment, orprice records or accounts 
of manufacturers of such containers for the purpose of securing adherence to 
any such quota ; 

(h) To allocate, or to refrain from soliciting, customers of manufacturers of 
such containers, or to allocate markets or marketing territories among the sev- 
eral manufacturers of such containers ; 

(i) To fix or maintain prices for such containers; 

(;■) To use, or to promote the use of, an estimating manual, or any other 
handbook or device, for the purpose of fixing or maintaining the prices of such 
containers ; 

(fc) To use, or to promote the use of, predetermined prices for materials, 
manufacturing operations, or delivery in 

(1) Estimating or pricing such containers, or 

(2) Analyzing production, price, sales, order, shipment, or delivery data 
of manufacturers of such containers for the purpose of fixing or maintaining 
the prices thereof of two or more manufacturers ; 

(I) To examine or audit the production, shipment, or price records or ac- 
counts of manufacturers of such containers for the purpose of fixing or main- 
taining the prices of such containers ; 

(m) To compel a manufacturer of such containers 

(1) To submit copies of invoices to a trade association or like agency, or 

(2) To name or identify any customer account in connection with the 
submission of invoices to such trade association or agency ; 

(n) To authorize a trade association or like agency to disclose customer 
invoices (or data as to individual transactions with customers), which have been 
submitted by a manufacturer of such containers to such trade association or 
agency, to a competitor of such manufacturer. 

This decree is notable in that it specifies certain practices that are 
not affected by the above limitations. The reason for this is stated 
by the Department of Justice to be that of defining "a number of trade- 
association activities and in particular those relating to the gathering 
and dissemination of trade statistics which do not appear to be ques- 

** The indictment, however, was not dismissed as to the Stevenson Corporation and the 
individual defendants associated therewith. 


tionable under the Federal antitinist laws. Therefore, it should be 
of assistance in enabling trade associations to define the area for lawful 
action." ^^ The decree states; 

Nothing contained in this decree limits the right of said defendants, their 
successors, members, directors, officers, agents, and employees, and all persons 
acting under, through, or for them, or any of them, to do, or to cooperate in 
doing, any act, or to engage in any practice, not enjoined by this decree, including 
but not limited to the following: 

(a) gathering,, auditing, and disseminating information as to the cost of manu- 
facture of corrugated and solid fiber containers, the volume of production and 
shipment, the actual price (or base price derived from actual price) which the 
product has brought in past transactions, stocks of merchandise and materials on 
hand, approximate cost of transportation, and any other facts pertaining to the 
condition or operation of the industry, and meeting to discuss such information 
and statistics without, however, reaching or attempting to reach any agreement 
or any concerted action with respect to prices or production of such containers ; 

(6) promoting the application of unifarm cost accounting to the manufactur- 
ing, estimating, and sales policies and practices of manufacturers of such con- 

(c) compiling, publishing, and circulating, in the form of a currently revised 
loose-leaf industry manual, handbook, or -otherwise, recommended formulas, 
methods, systems, or procedures, and illustrations thereof, for the computation 
of selling prices of such containers without, however, in any such industry manual 
or handbook, specifying or recommending the selling price to be charged for 
any such containers, the price to be charged for freight or any manufacturing 
operation or material used in the manufacture of such containers, or rate 
of profit to be included by any manufacturer in the selling price of any such 
containers ; 

id) compiling, publishing, and circulating, in any form, current data as to 
the cost of the materials, operations, and other elements that go into the manu- 
facture, sale, and delivery of such containers, provided, however, that such cost 
data shall not consist exclusively of average (or weighted average) costs of 
two or more manufacturers and that the cost of any individual manufacturer 
shall not be so identified by name or otherwise in any trade association publica- 
tion as to be made known to its competitors ; 

(e) exchanging information as to — 

(1) credit, and 

(2) specific current contracts for the sale of such containers for the 
sole purpose of avoiding interference with such contracts. 

Nothing contained in this decree limits the right of a defendant to issue 
and circulate lists of current prices charged for its corrugated or solid fiber 
containers provided such lists are made available to the trade and competitors. 

Nothing contained in this decree shall apply to — 

(a) any agreement between — 

(1) a manufacturer of such containers and its subsidiaries, 

(2) a manufacturer , and companies associated through common owner- 
ship or operating; management, or 

(3) the subsidiaries of any such manufacturer; 

( 6 ) the conduct of the individual business of any defendant ; 

(c) manufacture other than the fabrication of shipping containers out of 
corrugated or solid fiber board ; 

(d) operations or activities of the defendants outside the United States, 
its Territories, and the District of Columbia, or to their operations or activities 
within the United States, its Territories, and the District of Columbia, which 
relate exclusively to foreign countries ; 

(e) agreements or arrangements permitted by Section 1 of the Sherman Act 
as amended by the Act of August 17, 1937^ commonly called the Miller-Tydings 
Act, or by the patent laws. 

Subsequent to the above decision the National Container Associa- 
tion has been reorganized and its program of activities revised.. The 
national association and regional affiliates state that since the entry 
of the consent decree the method of operation of the National Gon- 

*• Department of Justice release, "Decree Presented In Antitrust Case Against National 
Container Association," April 20, 1940. 


miller Association and the affiliated associations does not permit of 
equitable sharing of available business, prorationing of business, the 
maintenance of positions and quotas, or any other activities of which 
the ])epartment of Justice had disapproved. 


The use of statistics in the envelope industry has, at least since 
the N. li. A., centered around an effort to promote a recognition by 
the members of the principle of voluntary sharing of available busi- 
ness. Difficultiv?s arising out of diverse distribution methods exist- 
ing within the industry, however, have interfered witli the success- 
ful oi^eration of this program and, it is believed, led to the partial 
disintegration of the Envelope Manufacturers Association of America 
about tlie middle of 1938. The following summary of the statistical 
activities of the association since 1933 suggests that the statistical 
program itself may have helped to precipitate the break that took 
place in June 1938, when two of the largest members resigned from 
the association. 

The industry has approximately ITO members — in the maincom- 
prismg 2 groups, one of manufacturers selling through distributors 
and the other of manufacturers selling direct to large consum- 
ers. Further divisions of interest exist between the large and 
the small members of the industry and between those located in the 
various regions. The United States Envelope Co., of Springfield, 
Mass., is the dominant company and in the past has been the acknowl- 
edged price leader in the industry. It distributes largely through 
jobbers. The Western Envelope Co., of Kansas City, Mo., is the 
largest manufacturer selling direct to consumers. The constitution 
of the association, as revised in May 1936, provided that the execu- 
tive committee be composed of a representative from each of 8 
regional zones and 3 members at large but required that 3 of these 
members be representative of companies engaged in sales through 
wholesalers and o, representative of companies engaged primarily 
in direct sales to the consumer. The constitution provided for the 
voluntary submission of reports and statistics and guaranteed the 
confidential character of reports submitted. The association is 
managexl by the firm of Stevenson, Jordan & Harrison. 

Under the N. R. A. code, efforts to stabilize the industry centered 
around the use of open price filing and trade statistics to reconcile the 
differences in marketing methods of the two manufacturing groups, 
together with machine-hour limitation to care for the excess capacity 
in the industiy. Recent tendencies in the industry had been for con- 
sumer manufacturers to lower prices on direct sales to consumers, 
thereby cutting into the sale of jobbers and lowering prices at the 
consumer level. A compromise plan of stabilization, intended to insure 
the cooperation of both groups of manufacturers, was devised, by 
which standard trade differentials to the various classes of distributors 
and consumers would be maintained. 

The mandatory customer classification and zoning requirements 
asked for under the code were not approved but were successfully 
introduced under the price filing rules established by the code au- 
thority. This price filing plan facilitated a system of price leadership 


already prevalent in the industry, the observance of fixed differentials 
between customer classes, and a consequent stabilization of envelope 

The budget plan of operation set up in connection with the price 
filing plan was intended to disclose — and presumably to prevent — any 
shifting of volume that might result from the stabilized price relation- 
ships established under the price filing plan. The basis of this budget 
plan was a series of volume of production reports furnished by the 
members for the 3 years 1931, 1932, and 1933. From these reports 
there was established a distribution of industry volume in terms of 
volume of envelopes shipped, volume produced, and dollar value of 
sales. Beginning with January 1934 regular monthly reports were to 
be submitted to the association. The purpose of the volume statistics 
was set forth in Code Authority Bulletin, No. 28, issued July 19, 1934 : 

Members will receive real benefits from these statistit's. The figures sub- 
mitted will be compiled into ''imposite totals for the whole industry. Reports 
showing these totals for the whole in-lustry will be furnished to every member 
of the industry. Each member will then have before him a clear picture of the 
state of the industry, the general level of volume prevailing for the month just 
ended and as compared witli previous months and previous years. * * =;= 

Each member of the Envelope Industry quite rightly feels that he has a definite 
place in the Industry. From these statistics, as they will be transmitted to all 
membei*s, each individual manufacturer may determine what share of the total 
industry volume of business he has had in the past, and what share he is currently 

The relationship of these volume statistics to the open price filing 
scheme was made explicit : 

Your Code Authority has repeatedly endorsed the principle that the adminis- 
tration of the Code and of the Open Price Plan of selling shall not be alknAed to 
result in any major shift of volume from one section of the Industry to another, 
from one class of plants to another, or from one channel of trade to another. 
The statistics called for on Form E-11 and Form E-12 are quite necessary to 
enable the Secretary to report to the Code Authority whether at any time such 
a shift of volume of business is occurring. The Secretary will also be enabled to 
consult in confidence with individual members with respect to any apparent 
shift of the volume from which they may be suffering. 

Without such statistics as these volume reports will provide, an individual 
manufacturer can never be sure whether a falling off in volume in his own 
business is merel.v due to a general falling off of envelope business at large or 
whether it represents an actual slump in tlie relative volume of business enjoyed 
by his own company. 

These volume statistics will contribute materially to the success of our Open 
Price Plan and to the general stability of the Industry. They are likely to become 
the most valuable mechanism which we will have for intelligent planning and 
intelligent management of the industry along profitable lines. 

The first composite report based on tlie volume statistics was made 
at a meeting of the Envelope Code Authority on September 24, 
1934. This report covered 93 members of the industry, estimated to 
represent from 85 to 90 percent of the total volume of pro- 
duction; each member was supplied with percentage figures for his 
own individual company. The volume data for each of the first 8 
months of 1934 were expressed as a percentage of normal volume, 
that is, the average monthly total of production for the 3-year period, 
1931, 1932, and 1933. Individual company figures showed the com- 
pany's current volume in relation to its own normal or past average, 
so that it was possible to trace the relationship of the individual 
company's business trend to that of the industry as a whole and note 
whether the two ran parallel or diverged. 


Members of the code authority present at this meeting of Sep- 
tember 24, 1934, agreed to disclose the percentage relationships for 
their individual companies as a means for testing the results of the 
price filing plan to date. Comparisons were made, not only of indi- 
vidual company percentages, but also of the percentage trends for 
various regional groups and for groups representing various meth- 
ods of marketing. These comparisons revealed that jobber plants, 
as a group, had a volume position for the first 8 months of 1934 
lower in relation to normal than the volume for the industry at large, 
whereas consumer plants and local trade plants showed a volume 
higher in relation to normal than the average for the industry. 
At this meeting it was voted to prepare a further break-down of 
the composite reports for several groupings of manufacturers accord- 
ing to classes of trade. ^lembers of the industry were definitely 
classified in one of the following five marketing groups, as well as 
in one of eight geographical reporting areas : 

Jobber plants — firms which sell chiefly to wholesale merchants or wholesale 
envelope merchants ; 

Paper merchants plants — paper merchants who own and operate envelope 
plants ; 

Stationery and tablet plants — firms rt'hich are members of the Paper Sta- 
tionery and Tablet Manufacturing Industry ; 

Trade plants — firms which sell principally to distributors other than whole- 
sale distributors and not extensively to consumers ; and 

Consumer plants — firms which sell principally direct to consumers. 

Available records for subsequent months are not complete enough 
to trace in detail the experience of the individual members under the 
price filing plan in maintaining their normal volume position in the 
market. However, the minutes of code authority meetings contain 
numerous references to the percentage reports and to revisions of 
the classes of trade, revisions presumably necessitated by the shifts 
in volume disclosed by the statistical reports. Thus, in November 
1934, a new composite volume report showing the relative position 
of large, medium-sized, and small plants was considered by the code 
authority. The figures indicated that small and medium-sized plants 
had, since the effective date of the code, secured a larger proportion 
of the available business than they had received during the previous 
3 years and that large plants had suffered a corresponding decline in 

Whether or not these shifts in normal volume relationship were 
partially responsible, the code authority early began to experience 
difficulties with the enforcement of the open price plan established 
under the code. The plan itself, as elaborated by code-authority 
regulations, involved the maintenance of mandatory price differen- 
tials to the different customer classes and for different zones. Viola- 
tions of these requirements by some membeis evidently nullified 
any attempts at systematic adjustment of the prices filed by leading 
manufacturers to preserve the existing volume relationships. As a 
result of the violations, members complying with the plan were 
faced with the loss of some of their established business. To meet 
this situation, it was voted at a meeting in November 1934 to allow 
members "in defense of business from their established customers 
or from established customers of their distributors" to depart from 
their filed prices and meet bona fide known competitive prices, Tlie 


administrative agency was to be notified immediately of all such 

The difficulties encountered in the operation of the open price plan 
were due in part to the action of the N. R. A. forbidding the use of 
mandatory customer classifications under open price plans. This 
action was taken on July 30, 1934, with the issuance of office memo- 
randum No. 267. The code authority endeavored to maintain such 
classifications until April 1935, when an assistant deputy of the 
N. R. A. Paper Division disapproved the bulletin setting forth the 
defined classes of trade. Almost simultaneously with this action, the 
code authority voted to stay the open price plan in the industry. 

At the annual meeting of the Envelope Manufacturers Association 
in May 1935, immediately preceding the Supreme Court decision 
invalidating the N. R. A., the chairman of the executive connnittee 
(Mr. E. V. Johnson, president of the United States Envelope Co.) 
discussed the failure of the open price plan, indicating that it had 
offered a definite tangible return through stabilization of the market 
and suggesting that statistics might offer the same possibilities if 
manufacturers operate '^intelligently." Mr. Stevenson, of the Steven- 
son, Jordan & Harrison firm, and Mr. W. W. Pickard, former deputy 
administrator of the N. R. A. Paper Division, then coordinator of the 
various branches of the paper industry, also discussed the break- 
down ^of the industry's code-control provisions and its causes and sug- 
gested various alternatives faced by the association. These sugges- 
tions ranged from the complete termination of all activities to the 
maintenance of the then existing organization, including the national 
office, zone organization,, and field secretaries. The association voted 
at this time to continue the existing organization with all activities to 
be confined strictly within legal limits and with a free interchange of 
market information on closed transactions. There is nothing to 
suggest that the members of the association subsequently entered into 
any agreement concerning price or production policies. 

Continuance of the statistical program during the subsequent year 
was indicated by the presentation at the annual meeting in May 
1936, of volume statistics, graphic charts, and other data covering 
industry operations. A major conclusion drawn by tlie commentator 
interpreting the statistical exhibits was that the composite balance 
sheet and operating statements indicated that large members don't 
have a necessary advantage — that small operations with stabilized 
volume may be a better investment. At this meeting, Mr. Stevenson 
cited the diverse distribution methods and >the excess productive 
capacity as forces within the industry working against the mainte- 
nance of a stable market. He reviewed the available approaches to 
the problem, stressing particularly open price filing and thf^ inde- 
pendent and voluntary equitable sharing of available business. He 
indicated that for neither of these programs was it possible to obtain 
adequate support from association members, because losses in the 
industry had not been severe enough to impel the necessary degree of 
independent self-restraint. The volume reports maintained by the 
association, however, were stressed as being useful in discouraging 
ruthless expansion of volume. Adoption of an open price Sling plan 
was voted down by the association members at this meeting, and it 
was suggested that attempts be made to develop cost statistics and to 


develop the "exchange of more facts with respect to market conditions 
in local trading areas." 

At the next annual meeting, held in April 1937, the volume statis- 
tics and graphic charts were again discussed; they reflected a more 
favorable industry situation than had existed in the two preceding 
years. A sharp rise in the volume curve and a reversal upward of 
the price trend were noted, and it was reported that there had been 
less shifting of business in 1936 as between the marketing groups 
within the industry. Financial • composite statements for the year 
were discussed, members participating in the study being given spe- 
cial copies of the exhibits containing certain items, "such as actual 
amount or percentage of net profit, which were omitted from the 
regular reports in conformance with "the policy of not giving general 
circulation or publication of such facts in printed form." The min- 
utes of this meeting indicate that similar financial reports had been 
made over a period of several years. The 1936 report covered 39 
companies, representing one-third of the industry's total sales in 
1936. A special comparison was made of 1935 and 1936 data for 
identical plants, including a break-down between jobber and con- 
siuner plants. The minutes do not indicate the results of this par- 
ticular comparison nor of a further comparison mentioned between 
high- and low-profit companies in the consumer group.. There was 
a general comment, however, to the effect that — 

the deficiency in ttie net profit earned by certain groups could be traced almost 
wholly to inadequate selling prices rather than to any particular excess of 

A summary analysis of industry statistics, presented at this annual 
meeting, revealed that jobber plants had been losing volume since 
1931 to consumer plants. Production of "jobber" plants had declined 
over the 7-year period in volume from 47.01 to 41.64 percent of total 
industry production and in dollar value, from 40.02 jto 35.63 percent 
of the industry total. "Consumer" plants had, over the same period, 
increased their share of total volume from 38.63 to 41.58 percent and 
their share in total value from 45.82 to 49.07 percent. Sharing with 
the jobber plants the relative loss of volume over this period were 
the "paper merchant," "stationery," and "trade" plants, which in 1936 
accounted for approximately 17 percent of the total production vol- 
ume. Mr. Stevenson, in his annual review of recent marketing 
trends, made a guarded forecast of future conditions in the industry. 
He acknowledged once more that the members of the envelope indus- 
try were not ready to accept the principle of voluntary restraint in 
the market. He referred to the expressed policy of the association to 
the effect that envelopes should be sold in accordance with openly 
published price lists. It was announced that a considerable number 
had recently adopted such lists. 

The volume trends discussed at the next annual meeting, in April 
1938, showed declines in production and sales since the. summer 
months of 1937. Minutes of this meeting give the first clear indica- 
tion of association difficulties. The firm of Stevenson, Jordan & 
Harrison indicated its readiness to reduce the management fee and 
place it on a contingent basis. Mr. Stevenson, in addition to his reg- 
ular forecast, participated in a general review of the associatioirs 
functions and responsibilities. Referring once more to possible bases 


for coordinating the production and marketing practices of the 
industry he stated that : 

It had not been found possible to secure the formal support of as much as 80 
percent of the industry's capacity for any single plan, nor had any of the 
procedures followed by other industries been deemed applicable to the enveloi)e 

Mr. Stevenson expressed the belief that even if the association did 
not formally sponsor the "planned production" philosophy, he believed 
the principles could profitably be adopted individually. A memoran- 
dum distributed to the membership with General Letter No. 104 evi- 
dently set forth the basis for such an application of the principle. The 
purpose of this memorandum, entitled 'Tlanned Production for En- 
velope Manufacturers," was — 

to show how any member who receives the monthly Composite Volume Reports and 
the monthly forecasts of envelope production from the Association office can use 
the figures thus made available to forecast a month or two ahead volume of orders 
and volume of shipments for his own company. 

Use of two, simple working forms was advocated : a daily register 
and forecast of orders received and a daily register and forecast of 
shipments. In explaining the philosophy behind the procedure, it was 
pointed out that — 

the flow of incoming orders in a typical envelope sales department may be so 
irregular as to create a false impression in the minds of the management unless a 
constant check is maintained which will show whether the company is or is not 
actually maintaining its normal volume ratio to the total production of the indus- 
try on a cumulative basis for the month to date or for the year to date. Where 
such a daily check is maintained haphazard and inconsistent selling practices can 
be eliminated. 

Events subsequent to the 1938 annual meeting cannot be spelled out 
in detail from the available records, but the schedule returned by the 
association in the fall of that year records the fact that 2 of the 4 
largest members of the association resigned from membership as of 
June 1, 1938. One of these two was the United States Envelope Co., 
the dominant jobber manufacturer and the largest producer in the 
industry. As of July 1, 1938, total membership of the association num- 
bered 72, as compared with 90 during 1937 and approximately 120 
during the N. R. A. period. These 72 members represented only 42 
percent of the total number of firms in the industry and 41 percent of 
the volume. They did not include the 3 largest members and were 
not fully representative of the different geographic areas. The rep- 
resentation was reported to be low for New England, New York City, 
Chicago, and the Southeastern Seaboard. 

The decrease in industry representation led to various revisions of 
the association's statistical activities. The zone organization was 
altered to provide for only four geographic areas, with separate com- 
posite volume reports prepared for each. Members received figures 
only for those zones within which their own plants were located. 
Participation of nonmembers in reporting and receiving statistics on 
sales, production, and labor was discontinued, the service being limited 
to active association members. The composite volume report issued 
August 5, 1938, reflected the changed basis of reporting. Figures of 
nonmember companies previously reporting, as well as figures of non- 
member companies that had been estimated, were omitted. The release 
sought to assure members that the significance of the volume reports 


was unaffected by the changes made— that the new totals represented 
the more localized type of envelope manufacturers, such as consumer, 
trade, and merchant plants. Tlie percentages of individual companies 
were, it was pointed out, naturally larger in the revised reports, be- 
cause of the change in base from industry totals to association totals. 
Aside from these various limitations, the statistical reports appar- 
ently retained approximately the same detail as before and added a 
new" feature — the average value per thousand -envelopes for total ship- 
ments and for individual companies. With respect to this last item tiie 
following warning was given : 

No member should attach any significance to a comparison of his own com- 
pany's value per M with the value per M shown for the Association totals. Such a 
comparison would only have meaning if it could be shown that the individual com- 
pany's assortment of products were exactly the same as the general assortment 
of all products manufactured by the Association. The usefulness of the value per 
M index is to show the general trend of price levels from period to period. 

This warning also was relevant to the use of such association price 
data as a measure of price movements in the industry. Apparent 
changes in the price level may mean only changes in the proportions of 
products of various types covered by the composite data. 

The "Montlily Review and Forecast of Envelope Production," regu- 
larly issued by the association, likewise was adjusted after July 1, 
1938, to include only association totals. Data referred to identical 
companies and indicated the percentage of change in volume from 
month to month with forecast figures for the ensuing 3 months to serve 
as a guide for normal production for the association and for the indi- 
vidual member. These "forecasts," it was asserted, did not reflect the 
personal judgment or opinion of the trade association executive or stat- 
istician preparing the releases but were derived mathematically from 
the past statistical records of the association. The actual reported 
production for the preceding 3-month period was adjusted by applying 
the proper seasonal factor to obtain the forecasted production for the 
next 3 months. The seasonal factors were derived from the actual 
reported monthly production for past years. The release of August 
5, 1938, explained that ''members who were using the planned produc- 
tion procedure for forecasting their individual company's daily orders 
and shipments" should apply their revised normal volume ratio to the 
association totals given in the same way that they had previously 
applied their former ratios to the industry totals. 

Despite the difficulties encountered by the association in retaining 
the cooperation of certain members with respect to a comprehensive 
statistical program, the Envelope Manufacturers Association in 1938 
cited tlie compilation of statistical material as of first importance 
among its activities. Listed as the main contributions of the associa- 
tion were the following services, in the order given : 

Statistics on the volume and trend of production and sales covering both current 
and past periods and both national and regional areas of production, coupled with 
comparison (confidential to individual members only) of member's own sales 
volume trend to the industry trend. 

Detailed labor statistics. 

Standard methods of accounting, coupled with professional counsel in the- 
installation of such methods and the practical use of figures resulting. 

Composite financial statements — balance sheets, operating, profit and loss state- 
ments — representative of industry at large as well as of various types and kinds 
of establishments. 

Counsel on interpretation and application of Federal laws. 


Possible future contributions under existing law did not include 
specific references to statistical activities, but the suggestion was made 
that were it not for legal limitations it would be deemed desirable to 
require adherence of industry members to complete published price 
lists. Some doubt was expressed, however, whether voluntary, ma- 
jority support within tiie industry could be obtained for such price 




Uniform accounting, as here treated, relates primarily to uniform 
cost accounting, although it also refers to provisions for uniformity 
in general accounting, such as for assets, liabilities, and profit and 
loss. While most trade associations that direct attention to uniform 
accounting stress imiformity in cost accounting, many provide for 
some degree of uniformity in general accounting as well, frequently 
for the purpose of facilitating the collection of balance slieet and 
profit-and-loss statistics, usually described as financial statistics. The 
term, "cost studies," in large part is synonymous with "cost statistics," 
since in most cases the study consists of the collection of cost data 
and the compilation and dissemination of these data in statistical 
form. There are, however, cases in which cost studies do not result 
in the dissemination of cost statistics; and some associations regu- 
larly collect and disseminate cost statistics, whereas others make 
only occasional studies. 

One or more of the accounting activities above described constitute 
an important part of the programs of many trade associations. 
Forty-five percent of all national and regional trade associations that 
returned questionnaires ^ reported activity in these fields, and approxi- 
mately 22 percent indicated a major degree of such activity. Re- 
latively few of those that reported such activity confined themselves 
to uniform accounting, as is shown in the following tabulation: 

Percent of total number of associations reporting activity in the field 

of accountiny 
Type of accounting activity : 

Uniform accounting only 14 

Uniform accounting, statistics and studies 50 

Cost statistics and studies only 36 

Total 100 

Trade associations were early confronted with the }:>roblem of edu- 
cating their members in accounting practice, and some associations, 
particularly in the graphic arts, were considering uniform account- 
ing prior to 1900. Income-tax legislation and regulatory legislation 
affecting public utilities and banks contributed to the stimulation of 
interest in accounting, and governmental investigations of produc- 

1 Exclusive of associations in the field of insurance. See table 26. It is believed that 
the figure of 45 percent somewhat overstates the proportion of trade associations actively 
engaged in accounting work. In a sample check it was found that some trade association 
executives who reported had in mind work which previously undertaken had been 
abandoned. Conversrily, a few failed to report a limited activity. Several reported cost 
studies that related, not to the cost of producing the article, but to the cost to the con- 
sumer of operation, installation, etc. These studies usually Avere made in connection 
with sales promotion programs. 



tion costs during the period of the World War acoentuated the inter- 
est and brouglit an increased emphasis on accounting' practice. Cost 
accounting continued to receive increasing emphasis after 1920, and 
at the time of the enactment of the National Industrial Recovery 
Act many more trade associations had dev(^lo]:)ed important account- 
ing programs. Existing activities were stimulated by X. R. A., and 
many codes provided for uniform cost accounting systems where none 
had existed before. After the act was invalidated some associations 
discarded the systems developed during the code period, but a con- 
siderable number continued their use. It is probable that today trade 
associations are less active in the field of accounting than during the 
code period but more active than at any time preceding that period. 
Many trade associations that have not undertaken work in the field 
of accounting acknowledge its importance, and ])resent programs 
looking to the initiation of such activity, or to the intensification of 
existing programs, suggest that cost accounting will continue to com- 
mand an increasing share of trade association effort. Such recent 
legislation as the Robinson-Patman Act, the Fair Labor Standards 
Act, and State ''fair-trade'" and "unfair-practice"' acts will undoubt- 
edly accelerate the growth of uniform cost accounting. 


Although in the promotion of uniform accounting trade associa- 
tions usually begin by developing a manual of accounting practice, 
uniformity in accounting technique sometimes is partially attained 
by indirection. One association has installed accounting systems for 
some 300 firms without issuing a manual to the members.^ Several 
associations have achieved a large measure of uniform practice by 
the periodic collection and dissemination of cost statistics.^ It is 
probable that every sustained program of collecting and disseminat- 
ing cost or financial statistics has contributed materially to uni- 
formity. Cost-minded association executives have managed in- 
formally to spread uniform practice by encouraging discussions 
among their members or by making suggestions to individual mem- 
bers. Other activities also contribute to uniformity of practice. The 
collection of monthly statistics on inventories, for example, may 
lead to more uniform practice in keeping inventory accounts. Product 
standardization and simplification may make it practical to collect 
and disseminate cost statistics, which in turn lead to greater uni- 
formity in accounting. The collection of labor statistics on an occu- 
pational basis may lead to the crystallization of the definition of 
direct and indirect labor, thus bringing uniformity of definition to 
these terms. Cost accounting relates itself to many other trade as- 
sociation activities, affecting them and in turn being affected by them. 

General cJiaracterhtics of acconnfing manuals. 

Uniform accounting usually is a]5proached through the instrumen- 
tality of the accounting manual. These manuals differ greatly in 
purpose and scope, but it may be fairly said that all of them, no niat- 

= Tt'.e nceountants observod the sanis principles and methods in all installation?;, with 
the result that the system of each tirm is similar to that of the others. 

3 The forms upon wliieli statistics are collected suKSest to members the desirable man- 
ner of keeping certain accounts, and the discussion wMch accompanies the resultinj; cost 
study stimulates the general observance of certain accounting practices. 


ter how great their simplicity, are designed to assist in the determina- 
tion of cost, not merely to systematize accounting. Some manuals go 
no further than to provide for asset, profit and loss, and operating 
accounts. Operating accounts show the aggregates of each expense, 
such as labor and material, but in themselves do not provide the neces- 
sary detail for the accurate determination of cost as between sizes 
and grades of product, although in many cases they do provide a clue 
to the approximate costs of production where the manufacture is con- 
fined to one product in which variation in size or grade is not great. 
A number of manuals provide for both financial and cost accounting. 
Other manuals include only a cost accounting system. Most of the 
cost accounting systems confine their analysis to costs of production, 
treating the more difficult problems of distribution costs in a man- 
ner so general as to afford little guidance to the determination of 
distribution costs that vary between types of customers, markets, and 

It is not always a matter of obtaining unifonn practice that moti- 
vates the development of a manual. Often it is a recognition of the 
fact that many of the members have no accounting system at all or 
employ only the most rudimentary forms of accounting practice. 
Here the paramount desire is to educate the members to the use of 
any accounting device that will give them some concept of their cost 
in relation to the prices they cliarge and in some measure to stimu- 
late their consciousness of inefficient practice in the operation of their 
business. The trade association cannot speak in a "various language" 
to its several members and consequently adopts a uniform manual 
as the vehicle of the program. Such manuals are frequently of the 
simplest form and oft^n would not meet the minimum requirements of 
a professional cost accountant. As a substitute, however, for totally 
inadequate or no)iexistent practice they go far. They are designed to 
achieve the greatest ease of installation and operation and frequently 
are accompanied by the forms that will constitute the books o^ account. 

Where the desire for uniform practice is paramount, the trade asso- 
ciation may deA'elop a relatively elaborate manual for the larger firms 
in the industry and a simplified vereion for the smaller firms. This 
practice recognizes the varying capacity of the members to utilize an 
elaborate system and at the same time helps to educate the entire mem- 
bership in the broad principles of uniformity recognized by the asso- 
ciation as desirable. Sometimes the association brings to perfection 
a manual too intricate in the detail of its provisions and in the formal 
system of accounts to be widely employed. It may be adopted hy 
large firms that have adequate accounting staffs, but its formidable 
character confuses, dismays, and often antagonizes the small membei'. 
Where originally the possibility of meeting the small member's needs 
was not foreseen and provided for, this oversight in some cases has 
been rectified later* by the issuance of a simplified version of the 
original manual. In other instances the accounting program has 
languished for want of such an abridged edition. 

A number of associations have developed manuals that are very 
comprehensive in their definition of costs and accounting principles 
but sufficiently flexible in their provisions for recording the data to 
enable a ready adaptation of the manual to the existing system of a 
large or small firm. Other associations have developed manuals that 

260752— 41— No. IS 18 


merely describe the principles of accounting considered applicable to 
the industry and define the various constituents of cost. These man- 
uals are frequently no more than reference books for the membership, 
the use of which it is hoped will lead to a more intelligent observance 
of accounting practice and possibly to a greater uniformity of method 
as well. 

Some indication of the types of accounting systems in use is given by 
an analysis of the manuals of thirty associations,* which may be classi- 
fied as follows: 

Classification : Number 

Simple accounting system sacrificing much detail in the interest of 

obtaining wide adoption 5 

More or less elaborate system for large members and an abridged version 

for smaller members 9 

Elaborate, nonflexible sj'stem, of use to large members, which fails to 

meet the need of small members ^ 6 

Elaborate system with sufficient flexibility to be readily adapted to 

existing systems of large members and easily utilized in part at least 

by small members = 7 

Handbook outlining desirable practice and defining elements of cost but 

proposing no system as such (of use to all members) 4 

Inclusiveness of cost. 

Most manuals make some provision for all the costs tliat are custo- 
marily included in the delivered cost of the product. Of the 30 
manuals mentioned above none omitted provision for distribution and 
general administrative costs, although few of them provided for an 
adequate analysis of distribution costs. The failure of the manuals 
to treat distribution costs comprehensively may be largely attributed 
to the many difficulties that arise in formulating bases for the alloca- 
tion of distribution costs and to doubt concerning what may be legally 
acceptable criteria for the determination of such costs in connection 
with the application and administration of the Robinson-Patman Act. 
Most trade associations in the field of manufacturing evidently have 
been content to emphasize production costs and to make certain only 
that distribution costs are added in terms of a composite or average 
cost of distribution. In some instances the traditional pattern of 
trade discounts and other terms of sale reflects a recognition of the 
difference in cost of servicing various classes of customers and is 
depended on to provide the necessary differentials. A number of 
manuals, moreover, fail to make a precise disposition of general 
administrative expense. The entire general expense is, of course, 
included in the total cost, but the methods prescribed for its inclusion 
frequently are not based on a thorough analysis of the services rendered 
by the general management." 

A number of manuals suggest items for inclusion in costs about 
which some question may be r'^locd. Many associations unquestion- 

* For the most part this sample of associations was selected on the basis of known 
emphasis on cost work. Of the manuals selected, 25 cover manufacturing industries ; 
3, wholesale and retail trades ; 1, a construction trade ; and 1, a service trade. Thoss 
covering manufacturing industries are divided as follows : Iron and steel, 4 ; machinery, 
3 ; textiles, 4 ; wearing apparel, 2 ; chemicals, 2 ; paper, 2 ; rubber, 1 ; electrical apparatus, 
1 ; food processing, 3 ; and printing and publishing, 3. More than half of the manuals 
are revisions of earlier edition?. The latest edition was used in the studv. Of these 
editions, 4 were issued during the period 1925 to 1930 ; 13, 1931 to 1935 ; and 13, 1936 to 

' ^ It should not be inferred from what has been said that a number of trade associations 
^re not conscious of the need for more detailed treatment of general administrative and 
distribution costs. Among the manuals studied there were several that treated these 
. subjects at considerable length. 


ably are confronted with the problem of educating their members to 
the recognition of all the expense that must be recovered in the price 
before a profit mark-up can be added. Hence, they may include in 
the cost of the product items, such as interest paid, properly con- 
sidered as financial expense, or items of an extraordinary character 
which ordinarily are not .chargeable to costs of production or dis- 
tribution, realizing that unless the label "cost" is appended to the 
item the member may disregard its existence altogether. Items re- 
garding which the individual firm ordinarily would be expected to 
exercise its own judgment may be stipulated for inclusion in cost 
in order that the cost statistics emanating from the uniform system 
may be on a comparable basis. The following citation of debatable 
cost items is based on a study of 30 manuals. Although so limited 
a sample perhaps fails to cover every type of expense, real or hypo- 
thetical, that is sometimes included in cost, it probably does reveal 
the types most commonly encountered. 

Interest. — Interest on investment or interest actually paid on bor- 
rowings has long been considered as part of cost by some in the ac- 
counting profession. The question of the correctness of such a view 
cannot be resolved here, but it should be pointed out that interest 
and profit easily assume a synonymity and that many are reluctant 
to conclude that interest constitutes a part of cost. Although most 
of the manuals examined excluded interest in every form, somewhat 
more than a third of them included this item in cost. One manual 
provides that : 

Where a dealer owns the building which he occupies, there should be charged 
under Expense, as rent, taxes, insurance, maintenance, depreciation, etc., to which 
should be added an amount equal to interest on the value of the property. 

Such stipulations are found most often where many of the firms 
rent the buildings which they occupy. The desire to place rental 
expense on a comparable basis has been given as the reason for the 
inclusion of such interest. Interest on borrowings is more often 
stipulated as a part of cost than is interest in any other form. Ap- 
proximately half of the manuals providing for the inclusion of in- 
terest in cost stipulated interest paid on borrowed capital only. 
Only one manual provided that interest should be reduced by the 
amount of interest earned. 

The charging to cost of interest calculated on a large part of or 
the entire investment was noted in only two cases. In a machine 
tool industry, interest apparently is computed at a rate of 6 per- 
cent per annum on the land, buildings, equipment, and inventories 
at reproduction value, and on accounts receivable. The reason for 
charging interest to cost in this instance is stated as follows : 

Due to the wide variation in values of equipment and facilities, it is recog- 
nized that by charging interest on necessary investment into normal burden, 
the burden will measure better the cost of lying up capital in equipment and 
also measure better the eflBciency of the equipment used in different depart- 
ments for different operations. 

Respecting the computation of interest on the basis of reproduction 
(replacement) value, the manual states: 

* * * the management preserves a true picture of actual costs of product 
in an economic plant built and equipped at current values, whether these be 
greater or less than the actual cost of acquisition. 


A manual issued by an association in the textile industry provides 
that interest on the investment in buildings, machinery, and raw 
materials be included in costs at the rate of 6 percent per annum. 
It states its reasons as follows: 

Believing that the continued operation of a manufacturing enterprise wliich 
persistently fails to return normal current rate of interest on investment is 
economically unsound, that an industry generally so situated could not attract 
new capital, and that investors are not justified in incurring the risks incident 
to the conduct of a manufacturing enterprise unless its returns exceed current 
interest rates, we have included in the Overhead Budget a charge for interests 
at 6 percent on the amount of capital normally required in the conduct of the 

Tlie foregoing statements bring out reasons for the inclusion of 
interest in cost that have been accorded considerable support by the 
accounting profession. There is, however, by no means a wide accept- 
ance of the proposition that interest is properly chargeable to cost, 
due not only to the conviction that interest is more closely related tO' 
profit than to cost but also to uncertainty concerning what the actual 
level of the "current interest rate" may be. 

Depreciation on fully depreciated' assets. — A few manuals were en- 
countered in which provision was made for the continuation of the 
depreciation charge after the value of the asset in use was completely 
written off. One manual in the graphic arts industry provides that: 

Depreciation expense shall be charged as an element of cost even though the 
allowance for depreciation account indicates that an amount equal to the amount 
shown in the related fixed asset account has been pi-ovided. 

Another manual now in use, prepared in 1934: for the code authority 
of a knit goods industry, stipulates that: 

Plant and/or equipment which has become fully depreciated through the use 
of rates which were too high or in excess of the rates which may be established 
from time to time by the Code Authority, will not be free from further deprecia- 
tion. Such plant and/or equipment will continue to be depreciated at the proper 
rates, for the remainder of its useful life. 

The motive in the abov-e cases probably was to effect a revaluation 
of plant in order to secure a more current basis for computing depre- 
ciation and to obtain a greater uniformity in the depreciation charge. 
It is a practice, however, that many accountants would question, par- 
ticularly if it is not recognized that tlie existence of a depreciation 
rate so high that it has prematui'ely accounted for the full value of 
the asset indicates that rates on other plant and equipment may also 
be too high. The manuals in question are silent on this point. 

Discounts. — This item refers to cash and trade discounts. The usual 
practice in accounting for cash discounts is to treat them as nonoper- 
ating income or expense rather than to include them in the cost of 
production and distribution. This simplifies the problem of account- 
ing for them; it also recognizes their close relation to financial in- 
come and expense, for the ability of a firm to take cash discounts 
on its purchases is limited by its financial resources and these are in 
turn limited in part by the promptness with which its customers pay 
their bills. As to trade discounts on purchases, the usual practice is 

* The same manual goes on to say : "As interest on investment is not a deductible 
expense when computing Federal Income Tax, it is obvious that a final cost figure 
desi-'ned to include a return of a certain rate of interest, will- not actually do so unless 
it also provides for the Federal Tax so incurred. No such provision has been made herein, 
owing to the practical difflcultifs involved, hence in using figures developed in a similar 
manner the mill executive should keep thi.s contingency in mind." 


to exclude them from cost thus charging materials into cost at the net 
and not the gross pride. Trade discounts on sales usually are reflected 
in the sales account as a deduction from gross sales. 

Most of the manuals follow the above practices. The following 
exceptions were noted : Two manuals provide that cash discounts paid 
should be included in cost and that cash discounts received should be 
treated as nonoperating income, that is, not credited as a reduction 
of cost. One manual provides that the difference between cash dis- 
counts paid and cash discounts received be charged to cost, a practice 
that appears somewhat less debatable, because it has the effect of 
recognizing discounts earned as a credit to costs while charging dis- 
counts paid to costs. Respecting the inclusion of trade discounts in 
costs, one manual provides for inclusion of material at the gross price, 
which includes a trade discount, apparently of 10 percent, with the 
following explanation : 

We hear much discussion ahout the need of discounts for a cushion. If you 
expect your discount earnings to cover anp expense longer is a cushion. It 
remaiu.s a cushion when it reasonably takes care of a very unusual and vinfoi'e- 
seen condition. This plan makes it a potential profit to add to the five % al- 
ready calculated. Do not consider it a cushion and use it to cover any itern 
of regular expense. Be sure to use the gross (regular) price in your calculations." 

It will readily be recognized that such an inclusion of discount con- 
fuses profit with cost. The admonition appears to be motivated by 
the desire to attain a profit sufficiently great to provide a reserve that 
^'reasonably take^ care of a very unusual and unforeseen condition," to 
which, it may be said, probably few members of the association have 
directed any attention. 

Income taxes. — Income taxes constituting as they do a levy on the 
piutits of business are not ordinarily considered a part of cost. Only 
one of the manuals examined provides that such taxes be included in 
cost. Another association provides for the inclusion of income taxes in 
a price estimating formula. The estimated price includes the cost to 
which is added a mark-up adjusted to include the income tax on the 
desired rate of profit. Thus, for example, if the profit desired is 10 
percent, the mark-up will be, say, 11.3 percent. 

Although not often provided for in accounting manuals, the income 
tax is a subject that not infrequently is associated with cost. Thus, 
under the caption of "Increasing Costs" a release of one association 
asked : 

Have you considered, in figuring costs, the new taxes under the Federal and 
State social-security laws? Have you considered the increased corporation and 
profits taxes, both Federal and State? Have you considered labor and material 
costs? They are factors which all manufacturers should consider. 

What is probably meant by the above is that all the items mentioned 
should be considered in the calculation of price; but price and cost 
being used as interchangeable terms, it is inferred that "cost" includes 
not only all the elements of cost but also profit and tax on profit. C ar- 
ried into cost accounting this confusion obviously generalizes costs 
and the concept of cost to a degree that robs them of much of their 
value as measures of operating efficiency. 

General comment on mcJusiveness of costs. — A number of manuals 
fail to define completel}' what shall be included in those items of ex- 

'Thls is a rather simple accounting and cost estimating system addressed largely to • 
members who accounting-wise are relatively iininforjripd. 


pense that are widely accepted a,s components of cost. For example, 
most manuals stipulate legal expense as an inclusion in administrative 
expense. If extraordinary legal expense is incurred that is not inci- 
dent to the normal conduct of the business, it is que3tionable whether 
it should be included as a charge to cost. It is probable that in a num- 
ber of cases it was not the intention to include such extraordinary ex- 
pense, but the provision, found in some manuals, for "legal expense*' 
without stipulation of the proper exclusions may lead to the indis- 
criminate charging of all such expense to cost.^ With few exceptions, 
taxes charged to cost were defined as being exclusive of Federal in- 
come tax, but in a number of instances State income taxes were not 

It should also be noted that some manuals provide for the exclusion 
o*f items that generally are treated as a part of cost. One manual, for 
example, treats social-security taxes and property taxes as a deduc- 
tion from income; another excludes depreciation from operating 
costs. Research and development expense is excluded wholly or in 
part from costs in two manuals. There is some question concerning 
the manner in which this latter expense should be disposed of, but 
the problem which it raises lies more in its method of allocation than 
in its definition as an element of cost. One of the two manuals ex- 
cluding development expense from costs also provides that expenses 
for pensions and "local welfare activities and local public relations" 
be excluded. Presumably the expression, "local welfare activities and 
local public relations," is analogous to the terms "charity," "dona- 
tions," and "contributions" frequently encountered among the items 
included under general expense, but it may include employee welfare 
and relations. This manual was issued and approved by the N. R. A. 
code authority for the industry, and the exclusion of such items, in 
addition to reflecting N. R. A. policy, probably recognized the com- 
petitive disadvantage which large manufacturers would labor under 
were they required to reflect .such costs in their prices. 

Varied, motives and problems lie behind the inclusion of debatable 
items in cost, as well as in the exclusion of items generally unques- 
tioned as components of cost. The tendency in either case is to reflect 
unreal costs and, because the inclusion of questionable items is the 
more frequently encountered, more often to reflect unrealistically 
high costs. Such practices in some cases may result in a closer ap- 
proach to the average costs of the members of an industry, but the 
tendency toward cost uniformity to a much greater degree arises 
from methods for computing and combining elements of cost. 

Methods for computing and comhinmg elements of cost. 

The development of uniform methods and bases for calculating costs 
does not necessarily indicate a desire to attain uniformity in costs 
themselves. The lack of criteria for cost determination among mem- 
bers of an industry has often been recognized by those developing an 
accounting manual; and depreciation rates, normal rates of utiliza- 
tion of capacity, etc., have been suggested when it was beiieved 
that the accounting records of members were not sufficiently developed 

* Exceptions to this laclc of dpfinition wei-e noted in some rases : tlius, one manual pro- 
vided that. "Extraordinary costs not incurred iu connection with the manufacture and/or 
sale of products or services should bo excluded'' as, for example, expenses incident to 
"Income or other tax controversies." 


to provide them with bases of their own. No question can be raised 
about the worth of such measurements. It is where their use without 
modification is suggested, or where they are employed blindly, that 
the danger lies. To be factual, costs should reflect the individuality 
of a concern's operations rather than the average experience of the 

Depreciation rate^. — Any depreciation rate is based on elements of 
unc-ertainty, inasmuch as the useful life of buildings, plant, and equip- 
ment is conditioned, by many factors that can be evaluated only in 
inexact terms. Climate affects the rate at which some assets lose 
utility. The maintenance and repair program of a firm may add or 
subtract years from the useful life of an asset. Care and skill with 
wliich machinery is operated and many otlier factors affect the rate 
at which assets detp)-iorate. Any schedule of depreciation rates that 
is based on tlie average experience of an industry is at best a crude 
measure of the experience of the individual firm. 

Of the manuals examined, somewhat less than half provide sched- 
ules of depreciation rates, and some of these advise the individual 
members to study their own conditions to determine whether the 
rates are applicable Avithout change. Typical examples of comment 
accompanying schedules of depreciation rates follow: 

It is recoinnieucied that Avherever practical the "' * plant set up plaut 

records from which depreciation may be computed. * * * if f^jg jg imprac- 
tical, the following composite rates * * * ^^e recommended. 

All rates recommended are based on the tabulated experience as well as 
on the general judgment of many manufacturing engineers and superintendents 
over a cycle of years, and are the average of abnormally high as well as sub- 
normally low production. [This manual specifies certain conditions under which 
the rates may be altered, but these do not inchide all the possible conditions 
that might render it desirable to apply rates different fifom those recommended.] 

The rates shown in this table are the recommended normal annual rates. 
* * * 8iiecial depreciation is that which represents depreciation in excess 
of normal occasioned by extraordinary wear and tear due to multiple shift 
oijerations [and] extraordinary obsolescence of plant. * * * Rates for the 
recording of special depreciation as here defined must be developed for each 
particular case. [This reference to special rates applies to rates that should be 
greater than the normal rates. It should be added that the normal rates them- 
selves may not fit all the so-called "normal" conditions of the individual firm.] 

RatL'S of depreciation [for automobiles] will be at rate of at least SS-i^ per- 
cent annually of first cost. [Minimum rates are also stipulated for other equip- 
ment by the manual of this construction industry.] 

The rates that will lie used are those which may bo established from time to 
time by the Code Authority, or if no other rates are specified, the rates which 
may be allowed for tax purposes. [Evidently, the foregoing was a mandatory 
provision of a manual issued by the industi'y's N. R. A. code authority, which 
has not been revised since the N. R. A.] 

To the depreciable base shall be applied annual percentage rates no lower 
than those shown immediately hereafter. 

No serious objection can be offered to the inclusion in an accounting 
manual of normal or average rates of depreciation provided that in the 
installation of the uniform cost system those conditions are recognized 
that call for the modification of such rates for the individual firms, 
the rates being adjusted accordingly. It was probably because of the 


fact that depreciation rates are difficult to determine that, in some 
instances at least, the manuals cited above and several others as well 
have suggested rates to be used. In more than half of the manuals 
examined, however, the provisions for depreciation included no rates. 
Revaluation of assets. — Relatively few of the manuals examined 
provide for that revaluation of plant and equipment. Where it was 
provided, such revaluation for the most part was directed to the writ- 
ing-up 01 ^sets purchased at unusually low values. Thus, one manual 
prescribes tliat : 

In the case of plant and/or equipment acquired at an abnormally low price the 
basis [for calculating depreciation] will be the fair replacement value, new, of 
such assets. 

This does not stipulate outright revaluation but merely the setting 
up of values upon which to charge depreciation to cost ; it is much like 
the stipulation mentioned earlier for the continued charging of de- 
preciation on an asset already written off but still in use. Such a form 
of revaluation may not be reflected in the writing-up of values in the 
balance-sheet accounts, but it does provide an enlarged base for the 
determination of the depreciation charge to cost. 

The manual of an association in the textile industry provides that 
interest on investment and depreciation be computed on the replace- 
ment value of the property. It states the reason for using replacement 
value for computing depreciation as follows : 

The replacement base was used because of the fact that when the mill finds it 
necessary to replace worn-out or obsolete items of proi>erty it must do so at the 
prices then obtaining. It seems sound to assume that the mill's operations have 
not in the long run proved profitable unless provision has been made for these 
eventual expenditures. Accordingly, we believe it quite proper that costs de- 
veloped for selling purposes should provide for such contingencies. 

As to the replacement basis for computing interest on investment, it 
states : 

* ♦ * this interest charge is based on the replacenirni value of tlie property 
involved because of the belief tha