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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

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"^" Rook publishers 
Law BOOH '^" —qpeT 



76th Congressl SENATE COMMITTEE PRINT 
3d Session j 



INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



TEMPORARY NATIONAL ECONOMIC 
COMMITTEE 

A STUDY MADE FOR THE TEMPORARY NATIONAL 

ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS, 

THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION 

NO. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING 

AND DIRECTING A SELECT COMMITTEE TO MAKE A 

FULL AND COMPLETE STUDY AND INVESTIGATION 

WITH RESPECT TO THE CON0l!:NTRATION OF ECONOMIC 

POWER IN, AND FINANCIAL CONTROL OVER, 

PRODUCTION AND DISTRIBUTION 

OF GOODS AND SERVICES 



MONOGRAPH No. 40-43 
REGULATION OF ECONOMIC ACTIVITIES 
IN FOREIGN COUNTRIES 



Printed for the use of the 
Temporary National Economic Committee 




UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1941 



nihta^iDii^ ui' 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

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

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

HATTON W. STTMNERS, Repre.sentative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WALLACE H. WHITE, Jr., Senator from Maine 

CLYDE WILLIAM.'^, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BERGE, Special Assistant to the Attorney Gencrfll 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

•SUMNER T. PIKE, Commis-^ioner 

Representing the Securities and E.xchange Commission 

GARLAND S. FERGUSON, Commissioner 

•EWIN L. DAVIS, Chairman 
Representing the Federal Trade Commission 
ISADOR LUBIN, Commissioner of Labor Statistics " ||hw. 

•A. FORD HINRICnS, Chief Economist, Bureau of Labor* Stk.tistics ^_^ 

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 ..^ co 

Representing the Department of the Treasury 



CD 

Representing the Department of Commerce tD 



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



•Alternates. 



Monograph No. 40 
RKCULATION OF ECONOMIC ACTIVITIES IN FOREIGN COUNTRIES 



LOUIS DOMERATSKY 

RUD^OLF CALLMANN 

AGNES ROMAN 

JOHN H. COVER 

NELSON A. MILLER 



REPRINTED 
BY 

WILLIAM S HEIN &. CO INC 

BUFFALO. N. Y 



1968 



ACKNOWLEDGMENT 



This|^monograph was written by 

LOUIS DOMERATSKY 

Chief, Division qf Regional Information 
Bureau of Foreign and Domestic Commerce 

RUDOLF CALLMANN 

AGNES ROMAN 

Junior Economist 
Temporary National Economic Committee 

JOHN H. COVER 

Chief Economic Analyst 
Bureau of Foreign and Domestic Commerce 

NELSON A. MILLER 

Acting Chief, Marketing Research Division 
Bureau of Foreign and Domestic Commerce 

The Temporary National Economic Committee is greatly indebted 
to these authors for this contribution to the literature of the subject 
under review. 

The status of the materials in this volume is precisely the same as 
that of other carefully prepared testimony when given by individual 
vntnesses; 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, or approval of, any of 
the facts, opinions, or recommendations, nor acceptance thereof in 
whole or in part by the members of the Temporary National Economic 
Committee, individually or collectively. Sole and undivided respon- 
sibility for every statement in such testimony, reports, or monographs 
rests entirely upon the respective authots. 

(Signed) Joseph O. O'Mahoney,^ 
Chairman, Temporari/ National Economic Committee, 

m 



TABLE OF CONTENTS 



Page 

Letter of transmittal _■ ix 

PART I 

RECENT TRENDS IN BRITISH INDUSTRIAL REORGANIZATION 

Foreword 3 

Introduction 4 

British problems of economic reorganization 5 

Pre-war economic structure 7 

Post-war industrial problems 10 

Reorganization of British coal industry 12 

The Coal Mines Act of 1930 14 

Reorganization of the British cotton industry 17 

Cotton Spinning Industry Act of 1936 ^_ 19 

Cotton Enabling Bill 21 

Parliamentary discussion 23 

Provisions of the Cotton Industry Act 27 

Conclusions _, 3l 

PART II 

CHAPTER I 

HIS'-'ORY OF THE EXTENT AND CONTROL OF CONCENTRATION OF ECO- 
NOMIC POWER IN GERMANY 

Economic development of the concentration movement 35 

Before the World War 35 

The World War 37 

After the World War 37 

Rationalization 39 

Extent- - _ 39 

Special industries 41 

Railways . 41 

Shipping 41 

Mining industry — potash 41 

Coal industry 42 

Iron and steel industry 43 

Chemical industry - ^ 44 

Banks and industry 46 

Legal development of the concentration movement 47 

The German Temporary Economic Committee 50 

Combination movement in private industrj^ 51 

Goals and effects of concentration 52 

Economic classification of concerns 52 

Form of concentration . 52 

(a) The acquisition of stock 53 

(6) Concentration through contract 54 

{&i Interlocking directorates . 54 

((/) MeiKer ._ 54 

Charac Leristics of co jicentration . 54 

(a) Rationalization ■. 54 

(6) Bureaucratization u 56 

(c) Publicity 56 

Legal situation 56 

V 



VI TABLE OF CONTENTS 

The German Temporary Economic Committee — Continued. 

Combination movement in private industry — Continued. Page 

Cartels 57 

Problems of cartel policy 57 

Cartel commission ("Kartellamt") and cartel register 58 

Supplementary institutions to the cartel authorities 59 

The cartel law 59 

The international cartels 60 

Appraisal 60 

CHAPTER II 
REGUIiATORY EXPERIENCE IN GERMANY UNDER NATIONAL SOCIALISM 

Cartel legislation since 1933 . 63 

The structure of German economy under national socialism 67 

Regulations of the agricultural estate 67 

Corporate organization of industry and trade 69 

Control of retail trade 70 

Control of imports and foreign exchange 70 

Subsid^'^ schemes for exports 71 

Control of industrial prices 72 

Control of the capital market 73 

Limitation on the issue of securities.- 74 

Control of stock exchanges 74 

Bank control 75 

Regimentation of labor ----- 75 

Taxation 78 

Company lar ' . ^v 78 

Appraisal of the German control system 79 

■ The industrial situation 79 

The agricultural situation 80 

The labor situation 82 

Are prices stable? . 83 

PART m 

REGULATORY EXPERIENCE IN FRANCE 

History and character of the French cartel movement 87 

Attitude of go- srnrrent 87 

The coihptoirs 90 

Post-war changes 91 

Government price and production control in recent years 91 

War emergency measures . . 95 

Government monopolies 98 

Government organizations __ 99 

PART IV 

GOVERNMENT CONTROL OVER ECONOMIC ACTIVITIES IN ARGENTINA 

The nature of Argentine economy 103 

Oovernm mt policy toward business >, 104 

Antitrust law 104 

^Background of the antitrust law II. II.I 105 

Promotion of meat industry 106 

Aid to agriculture i 109 

Foreign exchange control II.IIIIII 112 

Origin of foreign exchange control in Latin America 112 

Exchange control in Argentina 113 

Regulation of public utilities I IIIII 114 

Insurance control I_.I .'" 115 

Economic wartinie measures II 116 

Regulation in the petroleum indui^try IIIIII.I.I..I.II 116 



TABLE OF CONTENTS VII 
PART V 

GOVERNMENT INTERVENTION IN BRAZIL 

Page 

Regulation of basic agricultural industries 123 

Brazil's coffee defense measures 123 

The Cocoa Institute - — 126 

The Sugar and Alcohol Institute 127 

Extension of Government intervention to other commodities 127 

Government credit to agriculture 127 

The National Economic Council 128 

Nationalization 129 

Antitrust legislation 130 

Economic vt'artimo legislation 131 

Industrialization i 132 

Foreign exchange control . 132 

PART VI 

STATE REGULATION IN CHILE 

Obfecti ves of state intervention 137 

Government in business 138 

Public utilities 138 

The nitrate industry 139 

International Nitrogen Cartel 139 

Other forms of governmental participation in industry 1^ 142 

Creation of fiscal corporations ■ 142 

The law fixing overproduction 143 

Supervision of foreign trade and exchange control 144 

Government and credit ': 145 

The commissariat general of subsistences and prices 145 

Proposed monopol ies 14fi 

PART VII 

REGCLATORY EXPERIENCE IN MEXICO 

The Mexican revolution 151 

Antimonopoly legislation 152 

The organic law relative to monopolies 152 

Benevolent monopolies ^ 154 

The 6-}'ear plan 155 

The agrarian program of the 6-year plan 155 

Agricultural credit 157 

Recent measures to control economic activities 158 

Price fixing _. _ 159 

Nationalization 161 

Railways 161 

Oil industry 161 

Expropriation of agricultural lands 163 

Mineral properties . 164 

PART VIII 

Conclusions resarding Latin America 167 



SCHEDULE OF TABLES AND CHARTS 

PART I 

TABLES 

Page 

1. The Output of the United Kingdom Taken as a Whole 9 

2. Position of Five Leading British Industries in Total Expoit Trade 9 

PART II, CHAPTER II 

CHARTS 

I, Gennan Wartime Control of Food and Feed faces p. 69 

vni 



LETTER OF TRANSMITTAL 

Hon. Joseph C. O'Mahoney, 

Chairman, Temporary National Economic Committee, 

Washington, D. G. 

My Dear Senator: It gives me pleasure to submit herewith 
Monograph No. 40, "Regulation of Economic Activities in Foreign 
Countries." 

The value of this material to the committee rests in its collection 
of data and appraisal of plans in effect in other countries, which have 
as their purpose the regulation of the national economies. 

^Vhile it is obvious that such plans are not immediately or entirely 
useful in the American economic scene, the problems of regulation 
are so difficult and involved that any light thrown on them through 
experience in different circmnstances is of great value. 

The present monograph is a collection of reports made hj econ- 
omists in various Government agencies, who are specialists m their 
field. Dr. Louis Domeratsky, Chief, Division of Regional Infor- 
miition, Bureau of Foreign and Domestic Commerce, has written 
part I, dealing with Recent Trends in British Industrial Reorganiza- 
tion. Dr. Rudolf Callmann is responsible for the first chapter of 
part II dealing with the History of the Extent and Control of Con- 
centration of Economic Power in Germany. Dr. Callmann is an 
internationally recognized authority on cartel problems. For the 
10-year period just prior to 1936, when he was attracted to the 
Umted States, he was Rechtsanwalt am Landgericht in Cologne, 
Germany, engaged in legal consulting practice for a variety of German 
cartels. He is at present attorney and consulting econoniist on cartel 
problems and resides in the United States. 

Dr. John Cover, Chief Economic Analyst, and Mr. Nelson A. Miller, 
Acting Chief, Marketing Research Division, Bureau of Foreign and 
Domestic Commerce, are responsible for the collection of basic ma- 
terials and reports upon wliich most of the rest of the monograph 
has been constructed. 

When the material came to the T. N. C C. it was in the form of 
memoranda and reports, quite unSuited for publication as a mono- 
graph. Dr. Agnes Roman was employed as an economist of the 
T. N. E. C. to assemble the data, fill in many gaps, and rewrite the 
material into a connected account. 'She has been very exacting and 
thorough in her work. She has brought to the task a long experience 
and trainmg in Europe, the Orient, and the United States. She is a 
former Brookings Institution Research Fellow and has had substantial 
training in the fields under review. To her must go most of the credit 
for having brought this volume to completion. 

The timeliness of the topic should commend Monograph 40 to all 
public officials and economists concerned with attempts to regulate 
our own economy. It should be of especial interest in shapuig Govern- 
ment policy with respect to hemispheric influence, as it brings together 
hitherto unassembled data concerning South American countries. 



X LETTER OF TRAiNSMITTAL 

Even though the greatest commendation is made Dr. Roman for 
her able work in assembling the material for this monograph, it could 
not have been done without the very fine cooperation furnished by- 
other Government agencies. In this connection special credit should 
go to Miss Ellen L. Love, Chief of the Export Trade Section, Federal 
Trade Commission; to members of the Bureau of Foreign and Domestic 
Commerce and Office of Foreign Agricultural Relations, Department 
of Agricultm-e; to the State Department, the Department of Commerce, 
and to the Pan American Union, which generously offered valuable 
information and material for study. The wholehearted cooperation 
of these agencies attested not only their interest in the topic under 
review but their recognition of the serious purposes and solid work of 
the T. N. E. C. 

Very respectfully, 

Theodore J. Kreps, 

Economic Adviser. 

December 23, 1940. 



PART I 

RECENT TRENDS IN BRITISH INDUSTRIAL 
REORGANIZATION 

by 

LOUIS DOMERATSKY 

Chief, Division of Regional Information 

Bureau of Foreign and Domestic Commerce 



FOREWORD 

The social and economic experience of Great IBritain has been ancf 
is of particular significance to the United States. It is specially 
relevant because the basic frameworks of law and social and political 
philosophy in the two countries have been so closely related. The 
British record has preceded that of the United States in the processes 
of economic evolution, approaching earher a state of so-called eco- 
nomic maturity, with its difficult problems of making adjustments^ 
without the aid of a strong underl3ring upward trend of expansion. 
In spite of the cautions which must accompany any comparison be- 
tween two different countries, this time-lag provides us with an oppor- 
tunity to gain some light on possible policies and programs for us in 
terms of their actuality in Great Britain. 

The British approach toward industrial combinations has always 
differed from our own. Her traditional policy was one of thorough 
laissez faire, of government disregard of the problem. However, this 
attitude and the general philosophy which underlay it, has been vir- 
tually abandoned under the impact of economic changes and problems- 
stemming back to (he World War. Not only lias economic concen- 
tration been openl} encouraged in recent 3'ears. but the necessity of 
positive governraent intervention in economic affairs has been 
generally accepted. 

This brief essay concerns itself primarily with the post-war problems 
of the coal and cotton industries, and the programs which hi,ve 
emerged from years of investigation and discussion. Not only are 
these two industries of immense importance to the British economy, 
but the normal individualistic processes seem to have failed com- 
pletely to accomplish the necessary adjustments to the changed 
post-war conditions. Even collective action on the part of the in- 
dustries themselves proved inadequate, and the British Government 
found it necessary to intervene and finally to exercise its authority 
in establishing a program. The record is presented not as a controlling 
precedent, but because such specific results of prolonged consideration 
of the processes of economic adjustment by British industrialists and 
statesmen cannot help but be of benefit to our own thinking. 

WiLLARD L. Thorp. 

Washington, D. C, March 1, 1940. 

8 



INTRODUCTION 

The problems of economic concentration and industrial stabilization 
have become very acute since the World War in most of the industrial 
countries of the world. The methods and policies applied by foreign 
countries to the solution of such problems have, therefore, received 
considerable attention, particularly those originating in the totali- 
tarian countries. In analyzing them it is found that while in some 
cases they may prove more or less effective in their particular economic 
and political environment, they involve a degree of political and 
economic regimentation and a subordination of the national economy 
4» the State that makes them of little value as an aid in the solution of 
•our own economic problems. We can hardly look for light from coun- 
tries whose economic resources are used primarily for building up the 
mihtary strength, where in some cases more than half of the national 
income is used for such purposes and where the consumption needs of 
the individual citizens are curtailed as much as possible so as to leave 
a greater share for the* carrying out of political objectives. Under 
such conditions, the unemployment problem is solved by military 
mobilization, the spreading of work, and the assignment of a part of the 
working population to more or less compulsory labor. Economic 
concentration is not only encouraged, but in many cases forced by the 
State to bring about a more efficient supply of the military needs. 
The problems of inflation are solved temporarily by a freezing of wages 
and prices, and the excessive military expenditures are met by more 
or less compulsory loans and the issue of paper currency. Whatever 
justification there may be for such measures in a national emergency, 
it is quite obvious that they do not offer a basis for a policy in a country 
that is trying to solve the economic problems within the framework of 
democratic institutions, and without an excessive impairment of its 
basic economic structure based primarily on private initiative. 

On the other hand, the policies and methods of a country like 
England may prove ©f considerable valued as they represent the efforts 
of a democratic country to solve more or less the same problems that 
are qonf renting us. While the British policy involves a recognition 
of the value of industrial combinations inconsistent with our own 
antitrust legislation, they are of considerable interest in view of our 
own experience with the N. R. A. and in the light of the problems 
presented to the Temporary National Economic Committee. In 
spite of the differences in scope and background, the economies of 
the United States and England present some basic similarities. This 
applies particularly to the attitude toward private initiative and the 
traditional relations between business and government. It is there- 
Jfore believed that a study of some of the methods applied by the 
British Government and business to the solution of some of the 
Genomic problems created or intensified by the World War should 
be included among the reports of the Temporary National Economic 
Committee. 

The present study deals only with the British methods used in 
yeoirganizing two of the British staple industries — coal and cotton — 



CONCENTRATION OF ECONOMIC POWER 5 

whose problems have been unusually difficult during the post-war 
period. The methods proposed for the reorganization of the cotton 
industry are of particular significance, as it was generally believed 
that they were to be used as a guide for the future policy in dealing 
with other industries in need of reorganization. In addition to a 
detailed account of the measures dealing with the coal and cotton 
industries, the study also includes an introductory chapter dealing 
with the British post-war economic problems in general with a view 
to furnishing a backgroimd for the policies applied to the specific 
industries. 

This study was completed in August 1939, after the enactment of 
the cotton industry (reorganization) bUl and, therefore, does not deal 
with the methods applied to British industry under war conditions. 
As was to be expected, the pressing demands of the war have made 
it necessary for the British Government to adopt some very drastic 
measures of control over the various phases of British economy in 
order to assure a full utilization of the economic resources of tht 
country in carrying out the military objectives. Under the circum- 
stances, the policies adopted to reorganize British industries so as to 
adjust them to the new normal conditions created by the World War 
had to be laid aside for the duration of the present war. 

It is obviously too early to appraise the ultimate effects of the 
present war on British economy or British economic policies. The 
first impact of the war indicates a decided trend toward Government 
control, which has culminated in the Emergency Powers Defense 
Acts of 1939-40, passed on May 22, 1940, enlarging to an extraordinary 
degree the powers conferred by the Emergency Powers Defense Act 
of 1939. The comprehensive character of the new powers is shoun 
by the wording of section 1 : 

Section 1. (1) Powers conferred upon the King by the 1939 Emergency 
Powers Defense Act (hereinafter called the principal act) shall notwithstanding 
anything in that act include power by order in council to make such defense 
regulations, making the provision requiring persons to place themselves, their 
services, and their property at the disposal of His Majesty as may appear to him 
necessary and expedient for securing the public safety, defense of the realm, 
maintenance of public order, or efficient prosecution of any war wherein His 
Majesty may be engaged, or for maintaining supplies essential to the life of the 
community. 

WhUe it may be assumed that some of the more drastic controls 
will not be retained after the war, it is hardly to be expected that the 
ultimate post-war trend will involve a curtailment of the degree of 
government intervention attjained prior to the outbreak of the present 
war. The whole international economic trend would seem to point 
in the opposite direction. 

BRITISH PEOBLEMS OF ECONOMIC REORGANIZATION 

The fundamental changes in British economy following- the World 
War, while not as dramatic as those which have taken place in the 
economies of Soviet Russia and Germany, have been sufficiently 
pronounced to require a complete overhauling of British economic 
policy, involving a process of painful adjustment to an international 
economic environment in which England has lost many of the ad- 
vantages responsible for her economic supremacy in the pre-wai 
world. This process is still goitig on, greatly influenced not only by 
the shifting economic trends and policies, in the other countries, but 



g CONCENTRATION OF ECONOMIC POWER 

also Ky political disturbances which impose the additional task of 
readjusting British industry to the needs of national defense as well 
as to those of supplying the protected domestic market and the more 
or less protected Empire market. 

In her efforts to make the tremendous economic adjustments, 
England has found it necessary to change her traditional economic 
policies. In addition to the abandonment of free trade, with all its 
implications as regards free movement of capital and open door in 
the Empire, there has developed a new attitude toward State inter- 
vention in economic affairs. This new attitude is reflected in the 
various forms of assistance to agriculture and industry as well as in 
the position of the BHtish Government on economic concentration, 
which has changed from laissez-faire to open enCourageinent and, 
in some cases, even to compulsion. 

Economic concentration is not an outgrowth of post-war British 
economiv- policy. In spite of the formidable obstacles presented by 
free trade, abundance of capital and national resources, and the strongly 
developed sense of economic individualism, strong amalgamations were 
found in some of the British industries long before the World War. 
In addition to the permanent amalgamations, we also find during the 
same period many trade associations with the openly avowed purpose 
of fixing prices or controlling production, toward which the Govern- 
ment assumed a laissezrfaire attitude. It is. true that the World 
War and the post-war economic and political developments have con- 
siderably accelerated this movement, but even before the war price 
fixing and production control through trade associations seemed to the 
British industrialist as a perfectly rational method for preventing cut- 
throat competitioK. The Government's solicitude for the consumer 
or the industrialist outside the trade association was restricted to 
withholding from the trade associations the privilege of recourse to 
law for the enforcement of its restrictions; the consumer was expected 
to rely for his protection on the foreign competition encouraged by 
the free trade policy. That this was not always the case, and that 
the progress of combinations and various other forms of restrictions 
on competition had become a matter of considerable concern to the 
Government, is evidenced by the following extracts from the well- 
known report of the committee on trusts, appointed in February 1918: 

British trade organization. — The last twenty years have accordingly seen a 
steady transition from competition to combination in aU the leading industrial 
nations. The movement has accommodated itself to national conditions and 
characteristics. In Germany and the United States it has culminated in the 
Kartell and the Trust, each in its way emblematic of the national character. 
In this country great consolidations have hitherto been less formidable than in 
America, and associations of independent manufacturers have in no single case 
been developed to anything like the same logical outcome as in Germany. Yet 
it should ndt be too readily assumed that British industries lag far behind those 
of other countries in effectiveness of internal organisation. Individuality has 
counted for more in British manufacture than in foreign, and if amalg. mation has 
proceeded cautiously there has been reason in the caution. British combines and 
consolidations may not rank as prodigies, but among them are some that can vie 
in efficiency with any in the world. British trade associations make little parade 
of their existence or achievements, but there are few corners of British industry 
in which some kind of 'trade association is not to be found, and some of them 
can show a thoroughness of organisation not eaoily surpassed. What is notable 
among British consolidations and associations is not their rarity or weakness so 
tQUcl^ as their unobtrusiveness. There is not much display in the window, but 
there is a good selection inside (p. 17 of report). 



CONCENTRATION OF ECONOMIC POWER 7 

The combine.— A. more advanced type of combination is that commonly known 
as the "combine." In the combine a number of previously financially separate 
firms engaged in one line of business, enter into an arrangement whereby they 
become financially and commercially interconnected under some form of central 
organisation. The component firms may continue to be separate registered com- 
panies; or they maj^, while carrying on business as separate concerns, be in fact 
financially merged in one holding company. In either case the former proprietors 
of the merged businesses hold shares in the combine, and may also have a bonus 
on the earnings of their former businesses which remain under their direction 
subject to financial and other control by the combine. In combines of the more 
loosely connected type the buying and selling may remain wholly or partly in the 
hands of the component firms, but in the more compact combines the whole of the 
business is done by the central organisation and the separate establishments work 
entirely to the orders of the central office. Combinations of the "combine" type 
in the United Kingdom are found mainly in the textile industries (bleaching, 
dyeing, and spinning) and in the wallpaper and cement industries (p. 18 of report) . 
Leqal stains of associations. — By Section 16 of the Trade Union Act, 1876, 
any combination for imposing restrictive conditions on the conduct of any trade 
or business is a trade union, and the courts will not entertain any legal proceeding 
instituted with the object of directly enforcing or recovering damages for the 
breach of any of the following agreements: (1) Any agreement between members 
as such, concerning the conditions on which any members for the time being 
shall or shall not sell their goods, transact business, employ or be employed; (2) 
any agreement for the payment by any person of aay subscription or penalty; 
(3) any agreement for the application of funds; (4) g«y agreement made between 
one trade union and another; or (5) any bond to^aiecure the performance of any 
of the above-mentioned agreements. The trade associations here under dis- 
cussion, bein^ wholly or partly concerned with the regulation of prices or output 
by the restriction of competition, come under the above definition, and are under 
the disabilities mentioned. Membership in the association is not unlawful, 
neither is the making of the above-named agreements, but such agreements 
cannot b|e enforced in a court of law. Associations are precluded from registering 
under the Companies Acts or the Partnership Acts, but they may, and the 
majorit\' do, register as trade unions. They thereby enjoy the immunities of 
trade unions, but tlieir position is precarious in that any member may break 
away and re-enter into competition whenever he chooses, or flagi'antly break 
the rules to which he has subscribed, and their activities are circumscribed by 
their being able to pursue onl}^ certain objects as prescribed by statute. One 
method of overcoming these disabilities has been found in the formation of "a 
properly constituted limited liability company for the investment of all moneys 
-received from the members," having as one of its articles of association a pro- 
vision that the company ma}' by a three-fourths majority vote of its members 
determine that the shares of any member may be sold by the company to the 
other members at a nominal price. Eegistration under the Companies Acts 
was obtained in 1912 for a limited liability company having such a provision as 
one of its articles, and in 1916 the company went through the test of the courts 
up to the Court of Appeal, and was there pronounced a legal association (p. 18 
of report) . 

PRE-WAK ECONOMIC STRUCTURE 

In order to present the post-war attempts at economic reorganiza- 
tion in theii proper relationship, it might be desirable to sketch 
briefly the main characteristics of British economic structure at the 
turn of the century. 

Agriculture had been losing steadily, and by 1911 the whole agricul- 
tural group made up only about 8 percent of the occupied population 
of the country.^ This percentage should be considered from the 
standpoint of comparison, with industry in the light of the fact that 
the proportion of employers is far greater in agriculture than in 
industry. 

> John Harold Olapham, An Economic History of Modern Britain, Macmillan, London, 1938, vol. Ill, 
p. 1. 

282&17— 41— No. 40 2 



g CONCENTRATION OF ECONOMIC POWER 

According to the First Census of Production of 1907, Great Britain 
shipped abroad about 30 percent of the total value of its national 
production — showing a dependence on foreign trade at least three 
times as great as that of the United States. 

Disturbing phenomena of foreign competition at home and in 
xoreign markets were beginning to appear in the eighties of the last 
century. In the early part of the present century the growing threat 
to the traditional British economic supremacy from the newer indus- 
trial countries was becoming quite obvious^ even before the develop- 
ment of Japan as a formidable factor in the cotton markets of the 
Far East — Britain's more or less exclusive domain — and the enormous 
development of American industrial productivity and competitive ca- 
pacity during the war. But the British international economic position 
was still not only paramount, but based solidly on the tremendous 
force of British capital, shipping, lending poUcy, and enormous 
demands for foodstuffs and raw materials. 

It was the period when British capital was still flowing freely into 
the undeveloped parts of the globe, when the exploitation of the world's 
natural resources was considered the most urgent task, and when the 
development of the dominions was not affected by the worry about 
possible competition of their products in the British market. World 
surpluses of commodities were unheard of and no country found it 
necessary to prohibit imports so as not to spend too much, or because 
it wanted to become self-sufficient, or to direct trade into channels 
where barter could replace exchange. It was also a period when the 
world, in spite of occasional agitation in agrarian countries, still thor- 
oughly believed in the gold standard and when the increasing flow of 
gold from the Transvaal mines, exploited with the aid of British cap- 
ital, was gradually allaying the monetary disturbances created by the 
downward trend of prices. An abundant supplj'^ of foodstuffs and raw 
materials was the basis of British industrial supremacy, and the flow 
of British capital was one of the strongest factors in maintaining that 
supply, as well as providing export markets for British capital goods. 
England's economic interests were so widespread that a distiu-bance 
in one part of the world was lilcely to be compensated by a more 
favorable factor in another. 

Wliile the proportion of reinvestment of yields from old markets was 
getting smaller during the last decade of the last century, the yields 
from old investments and services were sufficient to finance a very 
considerable excess of imports, although there were always some fears 
expressed that England was beginning to live on her capital — fears 
which became very strong during the post-war period. 

The rise of two of the three main industrial rivals of England was 
beginning to disturb seriously British public opinion. Wliile it was 
realized that for a time at least, the increase in American productivity 
was going mainly to supply the rapidly growing domestic demand, 
there were many disturbing phenomena, such as the increase in the 
proportion of manufactures in United States' exports, and the rise of 
the woolen, tin plate, and macliinery industries, which foreshadowed 
a decline of the British exports to the United States. American in- 
ventive genius in industrial equipment was also beginning to exert an 
accelerating influence on the industrial tempo of the world, including 
England, and the "American invasion" was receiving more than its 
deserved publicity. The rise of industrial and commercial Germany 
made a much stronger impression, probably because of the lower 



CONCENTRATION OF ECONOMIC POWER 



9 



capacity of the domestic market and consequently greater pressures 
in export markets in competition with England, especially since Ger- 
many and, to some extent, Japan, were beginning to specialize in sup- 
plying the colonial markets with cheap goods, far below the standard 
of quality, but better adapted to the colonial purchasing capacity, 
than the British goods. It was fully realized that Germany was 
making much more rapid progress thai) England, and the much ad- 
vertised efficiency and scientific achievements of the former were 
giving rise to the fear that England was getting too old to keep up 
with the procession. 

In its industrial structure, England at tbe beginning of the century 
manifested few deviations from the traditional pattern formed during 
the period of British imlustrial supremacy, as will be seen from the 
following tables: 



Tabi.e 1. — The output of the United Kingdom taken as a whole 

[The chief particulars furnished to the Census of Production Office respecting the industries of the United 
Kingdom are summarized in the following statement, in which the information is classified by groups of 
allied trades] 



Group of Trades 



Mines and quarries 

Iron and steel, engineering and 
shipbuilding trades 

Metal trades, other than iron 
and steel 

Textile trades 

Clothing trades 

Food, drink, and tobacco 
trades 

Chemical and allied trades 

Paper, printing, stationery, 
and allied trades. 

Leather, canvas, and india- 
rubber trades - 

Timber trades 

Clay, stone, building, and con- 
tracting trades 

Miscellaneous trades 

Public utility services 

Factory owners, power only 



Total. 



Gross out- 
put, selling 
value, or 
value of 
work done 



148, 026, 000 

375, 196, 000 

93, 465, 000 
333,561,000 
107, 983, 000 

287, 446, 000 
75, 032, 000 

61, 308, 000 

34, 928, 000 
46, 390, 000 

116,692,000 
8, 288, 000 
77, 051, 000 



1, 765, 366, 000 



Materials 
used, cost 



28, 495, 000 

212, 224, 000 

81,341,000 
235, 038, 000 
58, 185, 000 

197, 734, 000 
53, 466, 000 

26,611,000 

20, 229, 000 
24, 780, 000 

49, 679, 000 

3, 77S, 000 

30, 786, 000 



1,028,346,000 



Work 
given 
out, 
amount 
paid to 
other 
firms 



9, 890, 000 

231,000 
4, 189, 000 
2,125,000 

198,000 
9,000 

1, 047, 000 

81,000 
166, 000 

6, 557, 000 
67,000 
325,000 



24, 885, 000 



Net out- 
put, excess 
of column 

1 over 

columns 2 

and 3 



119.531,000 

153, 082, 000 

11,893,000 
94, 334, 000 
47, 673, 000 

89, 514, 000 
21, 557, 000 

33. 650, 000 

8, 618, 000 
21,444,000 

60, 456, 000 

4, 443, 000 

45, 940, 000 



712, 135, 000 



.\verage 
number 
of per- 
sons em- 
ployed 
(exclud- 
ing out- 
workers) 



965, 230 

1, 539, 415 

114,473 

1, 2.'i3, 044 

756, 466 

463, 701 
127, 842 

325, 475 

84,724 
239, 195 

725, 240 

46, 874 

342, 491 

806 



6, 984, 976 



Horse- 
power of 

engine? 

at mines, 

factories, 

etc. 



2, 495, 134 
2, 437, 481 

83, 974 

1. 987, 765 

84,806 

380, 171 
214, 770 

237, 573 

54,891 
173,813 

433, 279 
9,417 

2, 059, 737 
102, 198 



10,755,009 



Source: United Kingdom Census of Production, 1907 (final report), p. 21. 

Table 2.-^Pgsition of 5, leading British industries in total export trade 
[Compiled from British oCBcial export statistics] 



Percentage of exports composed of- 



Coal 

Iron and steel and manufactures tliereof 

Cotton manufactures _ 

Wool manufactiu-es 

Machinery 

Total of 5 trades 

other export trades. 

Total ; 



1913 


1928 


9.7 


5.4 


10.5 


9.2 


24.1 


20.1 


6.8 


7.9 


6.4 


7.4 


57. 5 


50.0 


42.0 


50.0 



100.0 



100.0 



^urce: The United Kingdom, an Industrial, Commercial, and Financial Handbook (T. P. S. 94, Bureau 
of Foreign and Domestic Commerce, U. S. Department of Commerce, 1930, page 512, table 8). 



IQ CONCENTRATION OF ECONOMIC POWER 

The coal industry, although declinmg in efficiency as evidenced by 
output per man,^ stOl furnished the big export item, and in 1913 
shipped more than a quarter of the output abroad and accounted for 
(exclusive of bunker coal) more than 10 percent of the value of all 
exports of British produce, besides furnishing outward cargo for the 
large tramp fleet, thereby reducing the freight rates on imports. The 
large shipments of machinery of aU kinds, and particularly textile 
machinery, were going not only to Empire markets, but also to 
build up tcxtUe industries in countries which were destined to become 
England's chief rivals. Their competition, however, was not as yet 
very formidable, and while the proportion of textile yarns and 
fabrics in the total exports had declined from 60 percent in 1850 to 
34 percent in 1909-13, the absolute quantities were lai"ge and increasing 
in some lines; there was also a growing domestic demand. This was 
particularly true of the cotton industry, in spite of the rapid spread 
of the industry over many parts of the world, partly assisted by the 
establishment of British branches in the Empire and foreign countries 
and by the migration of British textile experts, in addition to the all- 
important factor of British textile machinery. Shipbuilding was very 
active and gave employment to the numerous collateral engineering 
trades. 

But there was evident stagnation in a number of British industries. 
In iron and steel England was becoming technically backward. This 
industry presented the most striking evidence of the handicaps of a 
pioneer country that cannot keep up with technical progress, either 
on account of innate conservatism and tying up of too much capital 
in antiquated equipment, or because it is deprived of its traditional 
advantages by a .new technical process. The cotton intlustrv was 
more or less in the same position, and the growing use of automatic 
looms and the comparative ease with which the more staple manu- 
facturing parts of the cotton industry lend themselves to mechaniza- 
tion and establishment in countries relatively undeveloped industrially, 
was appearing on the horizon as a threat to one of the most important 
British export industries. On the other hand, the finishing parts of 
the cotton industry in England were among. the best organized and 
efficient. 

Clapham (vol. Ill, p. 71) describes the position of industrial 
England at the outbreak of the war as follows: 

Economists had not then completed their analysis, and few other people thought 
in economists' terms, terms of real not money prices, terms of efforts and sacrifices. 
Had many contemporaries been so thinking, and had they been masters of all 
the facts, they might have been confirmed in a common opinion that Britain, 
though as fully occupied with work in 1910-13 as any country can hope to be, 
was yet not so stirring industrially as America or Germany, nor so stirring as she 
had herself onte been; but that her conservatism had been shaken and that she 
was preparing, at her own pace, in those last years, to prove that she was not 
decadent, though both enemies and desponding friends often said that she was. 

POST-WAR INDUSTRIAL PROBLEMS 

The post-war period, with its tremendous problems of economic 
reconstruction, has naturally affected the industrial organization of 
the country. In addition to the great stimulus to collective action 
fm'nished by the various controls necessitated by the war, there were 

' Olapham, op. cit., p. 63. 



CONCENTRATION OF ECONOMIC POWER H 

the factors of excess equipment in the war industries, falling prices, 
shifts in markets on account of competition from the United States 
and Japan and rise of new industries like the chemical, and large 
scale industrial amalgamations necessitated by the tremendous 
demands of the war. The psychological reaction from the traditional 
(not as traditional as many Americans imagine) laissez-faire attitude 
was accelerated by the growing problems of unemployment and State 
intervention. The increasing pressure on British industry from the 
new industrial countries, which even before the war had begun to 
undermine the old reliance on the competitive system, became much 
greater during the post-war period and consequently still further 
weakened the traditional British economic psychology. The oppo- 
sition of British industry to intervention by the State may not have 
disappeared theoretically, but we cannot close our eyes to the influence 
of the war oxperirnce, and the apparent inability of some of the most 
hard-pressed industries to 'clean house and develop a unified policy 
without State compulsion or encouragement. In fact, the pressure 
became so gVeat that a number of industries, far from resenting Gov- 
ernment interference, took the initiative in pressing for Parliamentary 
action that would compel the industries to eliminate siu-plus facihties 
and regulate production and prices. In one particular case, notably 
in the steel industry, the Government used the tariff weapon to bring 
about necessary amalgamation and, what is more significant, also for 
the purpose of forcing the International Cartel to enter into a proper 
arrangement with the British steel industry. 

The British Government as well as some of the industrial leaders 
have come to the realization that the international economic environ- 
ment, not to speak of the political environment, has changed too 
basically to make it possible for British industry to recover its old 
position or to adjust itself to the new conditions by the traditional 
individual efforts, especially since in some of the countries whose 
competition is most directly influencing the British foreign trade 
position, Government intervention controls have assumed enormous 
proportions. While it is true that the latter is motivated very largely 
by political considerations and in the long run is likely to injure the 
foreign trade of the countries involved, the fact remains that the 
immediate impact of the new form of competition is very disturbing 
and very difficult, if not impossible, to cope with by mere private 
efforts. 

The inmniedjate problem of adjustment in British industry that calls 
most urgently for collective action is that involved in the reduction of 
production capacity necessitated by the shrinkage in foreign markets. 
In the two basic industries — cotton and coal — it was the outstanding 
problem, while in the case of iron and steel it was primarily a question 
of collective action and modernization of plant, and it is significant 
that in the three cases the measures adopted to bring about even a 
temporary solution involved a stiff dose of State intervention utterly 
out of line ^\'ith the traditions of British industry. 

An analysis of the post-war problems of the coal and cotton indus- 
tries and the measures adopted for the reorganization of the two 
industries will bring out the main characteristics of the new British 
industrial policy. 



12 CONCENTRATION OF ECONOMIC POWER 

REORGANIZATION OF BRITISH COAL INDUSTRY 

The World War was particularly hard on British staple industries. 
They found it more difficult to adjust themselves to the accelerated 
tempo of production and after the war discovered that many of their 
old foreign connections or markets had been destroyed or greatly 
changed. This is particularly true of the coal industry which had 
begun to show signs of relative decline before the war. It was also 
subject to distortion immediately after the war, like- the strike in the 
United States, occupation of the Ruhr, and the general strike in 
England — all these delayed the work of adjustment to post-war 
conditions. Its technical backwardness, naturally, became a much 
greater handicap under the new conditions. WTien, finally, the 
industry had to meet the new problems, it was found necessary to 
apply radical measures — hence the new poUcy of compulsory amal-. 
gamation, price fixing, wage fixing and, finally, nation ahzation of 
royalties. 

It is unnecessary for the purpose of this study to go into a detailed 
discussion of the economic and social difficulties of the British coal 
industry which, by the way, is probably one of the most investigated 
of the British staple industries. It might be useful, however, to caU 
attention to a few facts indicating the critical state of the industry 
which led to the adoption of the Coal Mines Act of 1930.^ 

According to the report of the Royal Commission on the Coal 
Industry of 1925, not less than one-twelfth of the population of the 
country was directly or indirectly dependent* on the British coal in- 
dustry, which was also of predominating importance as the foundation 
for the iron and steel, engineering, and shipbuilding industries, as well 
as of foreign trade in general in which it figured not only as an out- 
standing export product but also as an outward cargo, determining to 
a considerable extent the level of ocean freight rates. At the out- 
break of the World War coal exports contributed in value about one- 
tenth of the total British exports, and the annual coal output was 
valued at £136,000,000 with an aimual pay roll of £93,000,000. 

In spite of the great increase in the industrial output of the world 
as a whole during the postwar period, and the progress of the coal 
industry in a number of European countries, the British coal industry 
declined in production from 286,000,000 tons in 1913 to 258,000,000 
tons in 1929. This decline should be considered in the light of the fact 
that some of the other British staple industries, like cotton and iron 
and steel, also showed definite signs of stagnation or decline. 

During the World War the British coal industry suffered from a 
shortage of labor and was not in a position to meet fully the increased 
war demands. It also suffered from the physical neglect and lack of 
developments during the war, and the excessive exploitation of the 
more productive and accessible seams. The insistent demands of 
the miners for higher wages on the basis of the prosperous condition 
of the industry and the high cost of living, compelled the Government 
to appoint in 1919 a commission (the Sankey commission) to investi- 
gate the industry, which reported in favor of a T-hom- day and a wage 
increase of 2 shillings per ton. It also recommended a continuation 

• The following account is based largely on "The British Coal Dilemma," published by the Institute of 
Economies, July 1927; and "The United Kingdom, an Industrial, Commercial, and Financial Handbook," 
T. P. S. 94, B. F. & D. C, U. S. Department of Commerce, IMO, pp. 90-112. 



CONCENTRATION OF ECONOMIC POWER 13 

of the wartime Government control and a limitation of the profits 
of the mine owners, condemned the current system of ownership and 
working conditions in the industry, recommending in its stead com- 
plete Government ownership of the coal deposits and the mines, 
which was in agreement with the demands of the miners. 

The difficulties of the British coal industry dm'ing the post-war 
period were due in part to the accentuation of the inherent defects of 
the industry and partly to new factors, some of which affected many 
other British industries. The split-up of the industry into a large 
number of units, the thinness of some of the seams which prevented 
mechanization and consequently the increase in per capita output to 
support the relatively high wage level, and the traditional conserva- 
tism of the industry, were inherited jfrom the pre-war period. The 
increased coal production in Continental Europe and other traditional 
markets for British coal, the use of oil, the technical advances in the 
utilization of coal, and the financial difficulties connected with the 
devaluation policy, were largely new factors developed during the 
post-war pef'iod. The prosperity enjoyed by the British coal industry 
during 1922 to 1924 was based largely on temporary factors such as 
the occupation of the Ruhr, the strike in the United States, and the 
settlement of labor difficulties which left untouched the fundamental 
handicaps of the industry. With the falling off in the foreign and 
domestic demand toward the end of 1924, the high prices of British 
coal ascribed by the mine owners to the 7-hour day and the increased 
wages, became too burdensome and gave rise to an agitation for a 
revision of the Coal Mines Act of 1919. A strike was narrowly 
avoided in July 1925 by the granting of a Government subsidy, which 
guaranteed the mine owners a profit of 36 cents per ton in spite of the 
high production costs, and by the promise of a royal commission to 
investigate the whole industry. 

The failure of the Government subsidy policy is evidenced by the 
fact that it cost the Government $120,000,000 instead of the estimated 
40 millions during a period when over 70 percent of the coal output 
was produced at a loss. The mine owners with their emphasis on the 
immediate needs of the industry were pressing for a lengthening of the 
7-hour day to 8 hours and a reduction in the wages of the railway 
workers to lessen the freight rates. The miners, on the other hand, 
could not see anything short of a thorough reorganization of the 
industry on the basis of nationalization of the coal deposits and the 
mines, with corollary developments of the electrical and by-products 
industries. The report of the royal commission favored the national- 
ization of the coal resources but rejected the nationalization of the 
mines which in its opinion offered "no advantages which cannot be 
attained as rapidly or more readily in other ways," the other ways 
being "greater application of science to the workmg and using of coal 
through larger units for production and distribution, through fuller 
partnership between employers and employees." This was to involve 
voluntary amalgamation into larger production units, large Cooperative 
selling agencies to increase the efficiency of distribution, a closer 
connection between mining and allied industries — production of 
electricity and by-products — and an improvement in labor relations 
through new methods of fixing wages, establishment of joint commit- 
tees, introduction of family allowances, compulsory profit sharing, 
proper housing, etc. Since these recommendations were all of a long 



14 CONCENTRATION OF ECONOMIC POWER 

rana:e character, the royal commission was faced with the task of 
recommending immediate steps to prevent the collapse of the industry. 
This could be either the continuation of the subsidy, which was to 
expire on May 1, 1926, or a reduction in cost through an increase of 
hours or a reduction in wages. The continuation of the subsidy was 
rejected on the ground that it was "indefensible, that the people 
engaged in other industries should be taxed in order to provide profits 
for the employers or to maintain the wages of the workers in the 
particular industry affected." The recommendation of the com- 
mittee centered on the reduction of wages as a means of reducing costs, 
rejecting the lengthening of the hours as undesirable from the stand- 
point of international labor standards. The reduction in the minimum 
wages was to be made on the basis of a national rather than a district 
agreement, and was to be tied up with some agreement as to the 
reorganization of the industry as a whole. The report of the com- 
mission, which appeared in March 1926, was accepted by the Govern- 
ment and in a general way by the mine owners who, however, failed 
to indicate the character of the wage agreement after the expiration 
of the subsidy on May 1. The miners rejected the suggested wage cut 
or an increase in hours and insisted that the national wage agreement 
with the national minimum be adhered to, and refused to separate the 
reorganization of the industry from a discussion of wages. After 
fruitless negotiations, in spite of the intervention of the Government, 
and the rejection by the miners of a definite reduction in the minimum 
addition to standard rates and an increase in the working day to 8 
hours, proposed by the mine owners as a preliminarj'^ to the reorgani- 
zation of the industry, a call for a general strike was issued by the 
Trade Union Executive on May 3, calling also for a cessation of work 
in the transport, iron and steel, building, electricity and gas, and 
printing trades. 

As was to be expected, the disastrous strike did not solve the prob- 
lems of the British coal industry. The reduction in wages and the in- 
crease in working hours from 7 to 8 or more were insufficient to place 
the industry on a sound economic basis. The Mining Industry Act 
of 1926, which was designed to carry out some of the recommendations 
of the Royal Commission on the Coal Industry (1925), resulted in 
considerable amalgamations in the anthracite section of the industry 
and in the Welsh bituminous output. Some progress was also made 
in the reorganization of marketing and the fixing of minimum prices 
with penalties for overselling. A voluntary coal marketing scheme 
was inaugurated in 1929, assigning to each colliery a standard rate of 
production based on normal demand, with deviations from such 
normal demand determined every few months. This voluntary 
scheme finally was succeeded by the Coal Mines Act of 1930. 

THE COAL MINES ACT OF 1930 

The Coal Mines Act of 1930 was practically a measure of compulsory 
cartelization. It provided for limitation of output by assigning 
quarterly quotas and minimum prices for each coal district; standard 
tonnage for each mine on basis of previous output during a certain 
period to be determined by committees; allocation of output on a 
monthly basis, penalties for excessive production, ^nd compensation 
for shortage; the various schemes of regulation to be prepared by the 



CONCENTRATION OF F.CONO^IIC POWER J 5 

colliery owners in each district but subject to approval by the Board 
of Trade. The act aboliL=5be<] export subsidies. There were diffi- 
culties created by the lack of separation between productic»n for 
domestic and foreign markets and also by interdistrict competition. 
In May 1934 the domestic and export allocations were separated and 
the interdistrict minimum prices were coordinated, which was 
expected to eliminate interdistrict competition and to strengthen the 
monopoly position of the local collieries. Owner transfers were 
restricted to districts so that the Act has not been very helpful in 
eliminating the less profitable mines. 

Part II of the act was intended to promote amalgamation by em- 
powering the authorities to present amalgamation schemes if the 
owners themselves were unable to do so. This power of the Coal 
Keorganization Committee was subject to a number of reservations, 
including proof of national interest and of anticipated reduction in 
cost of production. This part of the act met with strong opposition 
from the owners. The owners of the profitable mines did not-like 
the idea of buying out the less profitable ones; the owners of the latter 
did not like the idea of being eliminated from the industry. 

The experience with the act was ably summarized by a British 
publication * as follows: 

The 1930 act was at once a success and a failure. * * * On the one hand, 
the community gave to the industry certain privileges with a view to improving 
its immediate economic position. On the other hand it demanded that the 
industry should employ the economic respite resulting from the use of such priv- 
ileges in reorganizing its production on a lower cost basis, and so making some 
return to consumers for their previous sacrifices. Five years of the 1930 act 
proved the industry willing to accept the privileges and to derive some benefit 
from them, but reluctant to itnplemeut the responsibilities that had simultaneously 
been placed upon it. 

The demand of the miners for a wage increase in 1935 served to 
accelerate the adoption of central selling schemes by a number of 
districts. ' The Government announced its intention to obtain legisla- 
tion for unification of royalties as well as to make more effective the 
provisions of the act regarding compulsory amalgamation. 

One of the results of centralized selling has been the increase in the 
price of coal to the utilities and other large industrial consumers, which 
has been justified by the claim that prioj- to the adoption of centralized 
selling the larger consumers were not bearing tlieir share of production 
costs, with the consequence that the small consumer had to bear more 
than his share. Another result, less justified, is reflected in the com- 
plaints about the difficulties experienced by consumers in changing the 
source of supply in order to obtain the grade of coal best adapted to 
their purpose. 

The efforts of the Government to strengthen the compulsory 
amalgamation provision of the act, as represented by the bill intro- 
duced in 1936, met with such strong opposition from the coal owners 
that the Government was compelled to postpone further action and 
it was not imtil the end of 1937 that a new bill was introduced dealing 
principally with the unification (nationalization) of ro3''alties but 
including also provisions for amalgamation. The difficulties con- 
nected with the determination of the amount of compensation for 
royalties were finally eliminated by the decision of the special tribunal 

* "Planning," a broadsheet issued by P. E. P. (Political and Economic Planning), June 28, 1938. 



IQ CONCIilNTRATION 01' ECONOMIC POWER 

which fixed the amomit at nearly £66,500,000, representing a capital- 
ization of the royalty income at 6% percent, as compared with the 
£150,000,000 originally claimed by the Mineral Owners' Joint Com- 
mittee. 

The act as finally passed on July 29, 1938, provides that the purchase 
of roj^alties is not to be completed until July 1942, in order to allow 
time for the allocation of the shares of each district and individual 
owners by special valuation boards. On the other hand, the Coal 
Commission, which is charged with the execution of the act, can begin 
at once to consolidate leases with a view to enabling the working 
lessee to concentrate his operations in the most economical manner. 
The functions connected with the compulsoiy amalgamation provisions 
of part II of the Coal Mines Act of 1930 are transferred to the new 
Coal Commission. Section 47 of the Coal Act of 1938 declares that — 

Where in the opinion of the C'ouiinission tlie number of separate undertakings 
* * * to which the coal in any area is leased is so great as to be detrimental 
to the economical and efficient working, treating, or disposing thereof, it shall be 
tlie duty of the Commission to endeavor to effect a reduction in the number of 
such undertakings. 

Under the new net the Coal Commission, when convinced that 
voluntary amalgamation is not proceeding fast enough, may recom- 
mend to the Board of Trade that the powers of compulsory amalgama- 
tion be exercised in a specific area, indicating in the report the ad- 
vantages that are expected to result from such amalgamation. The 
Board of Trade may lay such recommendations before Parliament 
and then make a provisional order directing that the compulsory 
amalgamation powers of the Commission become exercisable in the 
district involved.. Under the new act it is not necessary for the Com- 
mission to furnish proof of anticipated reduction in cost or that the 
amalgamation scheme will not cause injury to any interests. The 
provisional order becomes effective upon confirmation by Parliament, 
either on the date of the act confirming the order or on January 1, 
1940, whichever is the later date. 

On May 24, 1939, the Coal Commission issued a report embodjnng 
proposals for the amalgamation of colliery undertakings, which would 
reduce the number of imits from 959 to between 50 and 60. As a 
basis for its recommendations, the Commission calls attention to 
part II of the Coal Act of 1938, with the following comment: 

The reasons that may be presumed to have led Parliament to prescribe this 
policy are material to the manner of its execution. It seems reasonable to suppose 
that they are to be foimd in the companion legislation which gave the industry 
statutory machinery for the maintenance of prices and which unified royalties. 
By the grant of statutor}^ price control Parliament placed the industry under a 
special obligation, in the interests of the consumer, so to organize itself that costs 
of production might be reduced by every possible means. It is obvious that, in 
any industry which is working under a quota system on account of its excess pro- 
ductive capacity, the opportunity fof reducing costs may normally be expected to 
be increased by mergers of the interests of undertakings ^ at present competing 
with one another, at any rate up to the point where the size of the combined under- 
taking becomes such as to create its own countervailing disadvantages. More- 
over, if schemes of cooperative selling by competitive undertakings are to be 
administered smoothly for tlieir participants and satisfactorily for tlieir customers, 
it is necessary to reduce to a minimum the nuniber of confUcting vested interests 
among the producers, and to secure to the maximum extent consequent elasticity 
in sources of supply. 

3 Tlii-oughout this iiu-mor.indurn (he tovux ''iiii'lertnkiim" i('pr''sont;-; a concorn nr i;rou;> (if'-'duoorn-- iindt r 
iiniJl. tl control. 



CONCENTRATION OF ECONOMIC POWER 17 

Again, by iiiufying royalties, Parliament must have intended to provide means 
of removing, so far as is still possible, the handicaps to efficient layout and the 
temptations to wasteful production created by the piecemeal development of 
the industry owing to the accidents of multiple ownership. In developed coal 
fields this can now be attempted only by such mergers of the interests of neigh- 
bouring lessees as will lead to the creation of productive units of a size and type 
best calculated to secure the efficient working not of a particular individual's coal, 
but of the area as a whole, and the proper development of the country's fuel re- 
sources. 

While the Commission's recommendations are very comprehensive 
and far reaching, there, is clear evidence of extreme caution and 
emphasis on gradualness and the desirabilitj^ of cooperation on the 
part of the industry": 

The Commission's object in putting forward this plan is not to convey decisions 
but to furnish a basis of discussion — not discussion wliether some measure of 
reorganization by amalgamation is desirable, for we hold that to be settled policy, 
prescri!;od by .statute, but :is to the best way (/f carrying it out. It is meant as 
an invitation to the industry to cooperate in giving effect to that policy on agreed 
'lines. 

In some districts, the report points out, considerable progress has 
been made in the way of voluntary consolidation. In North Stafford- 
shire, for instance, three groups are responsible for 85 percent of the 
output, with a joint company for the purpose of acquiring and closing 
the small superfluous undertakings. In Northumberland over 70 
percent of the output is pioduced by four groups. The same is true 
of Lancashire and Cheshire, as w^ell as Durham, wliere the large coal 
amalgamations are a part of the large iron and steel combmations. 

In introducing the specific recommendations, the Commission makes 
the following reservation: 

It is not suggested that every one of these areas should be consolidated at once 
by the immediate merger of all the undertakings within them. In some places, 
no doubt, there will be no good reason whj- this should not be done. But in 
others it may be better to form in the first instance one or more nucleous amalga- 
mations of neighbouring collieries with sunilar interests and of similar charac- 
teristics, and to enlarge them gradually after they have run themseh"es in. Some 
undertakings may be difficult to amalgamate on fair terms because of their ex- 
ceptional financial positions; others may be so near exhaustion that it is not worth 
while ever to include them. Another reason for proceeding by stages is that it 
may be wise, especially in places where no big units have yet been created, to 
allow time for people to be trained in the technique of controlling them, and to 
arrive by experiment at the optimum size for local conditions. 

REORGANIZATION OF THE BRITISH COTTON INDUSTRY 

The problems of the British cotton industrj^ are in some respects 
more serious and more difficult of solution than those aflecting some 
of the other British basic industries. They typify, in a concentrated 
form, the post-war difficulties of a pioneer industry that has failed to 
adjust itself to the new conditions and that has, in addition,- been ex- 
posed to the unhealthy stimulus of a brief post-war boom which has 
left its imprint on the financial structure. 

Commenting on the industry in 1936, a writer in the Manchester 
Guardian Commercial (Marcir27, 1936, p. 6) aptly remarks that: 

It might perhaps i)e said that Lancashire spent the first 10 or 12 years after 
the war hoping for a return of the |)re-war normal trade; that the next 5 or 6 
years were marked Kiy despair of ever returning to that trade; and th"t the next 
5 or 6 years will sec hopes realized — Init more )nodcst hopes, based on a truer 
appreciation of wiiat world trade in cotton goods can reasonaJily be oxi)ected to 
viold to Lancashire. 



l^ CONCENTKATIOX OF ECONOMIC POWER 

One of the difficulties of the British cotton textile industry is its 
traditional decentralization, which was regarded during the upward 
trend of British economj'^ not only <;s essential on account of the highly 
specialized character of the industry, but also as a shining example of 
British economic individualism. C3n the other hand, in the countries 
most responsible for the decline of the British cotton export trade — 
Japan and British India— particularly in the former, the cotton in- 
dustry is highly integrated and controlled in all its branches, includ- 
ing financing and raw material handling by a very few large finns of 
predominating financial standing. When due consideration is given 
to the other handicaps under which the British industry is working, 
such as the higher cost of production, the obsolete character of the 
British equipment, the extreme sensitiveness of the industry to world 
economic trends, and the fact that in the raw material producing 
countries, particularly Latin America, cotton manufacturing has been 
regarded as best adapted for an initial step in industrialization, there 
is reason to doubt whether the British cotton industrj^ except for 
certain specialities, is likel}- to regain its traditional position in the 
world markets. 

. At a meeting of the Lancashire section of the Textile Institute on 
December 2, 1938,^ it was stated by one of the speakers that of tlie 
total loss in exports of approxinuitely 5,000.000,000 scpiare yards, 
roughly two-thirds hncl been lost to locjil industries, and one-tliii'd to 
foreign competition. The same speaker gave as his opinion that the 
possible volume of exports from Lancashu-e that may be expected in 
the future will fluctuate between 1,000.000,000 square yards as a 
pessimistic minimum, and 2,000,000,000 as an optimistic maximum. 

Under the circimistances, it was quite obvious that the industr^'^ 
needed not only a considerable cuitailment of capacity, but also a 
thorough reorganization of its structure, i)articularly the financial side, 
whir!.' lias been distortec) by the promotion boom of ] 919-20. In 
addition to the resultijig burden of ove]-capitalization, the industry is 
suffering from the fact that a good deal of the post-war financhig came 
from people in moderate circumstances who were not in a position to 
keep up their payments during the depression, with the result that the 
shares foimd their wa}^ into the local banks which in many cases are 
not yet prepared to accept the consequences of the necessary drastic 
reorganization. Since 1922 tliere has been a succession of committees 
with various schemes for restoring the industry, ranging from a 
recommenilation to revive the wartime control of production and 
prices, to the actual creation of organizations like the short-lived 
American Cotton Yarn Association, Ltd., which was to curtail pro- 
duction and fix minimum prices for the American section of the 
industry, and the proposed organization of the Egyptian spinners to 
perform the same task for the Egyptian section. The efforts of the 
Joint Committee of Cotton Trade Organizations to get the industry to 
deal with what it considered the two greatest evils — cutthroat compe- 
tition and redundnnt cnpacitr — came tu nothiiig. The same may be 
said of the widely publicized scheme of the Federation of ^Master 
Cotton Spumers' Association for a new association representing all 
spinners, to control the industry by means of quotas and uniform sales 
contracts, with direct price fixing through subsidiary organizations. 

8 "Manchester Ouardian Commercial," Dec. 9, 193S, p. 551. 



CONCENTRATION OF ECONOMIC POWER IQ 

The fail Lire of the various attemi^ts to do something foi- one of the 
most important British industries, admittedly in need of a drastic 
overhauling if it is to survive, has heeti attributed to the great varia- 
tion in the size of the constitutent units, which naturally affects their 
attitude toward tlie various plans for control and curtailment. It is 
the old difficulty which is responsible for, so much of the internal 
friction in cartels and trade associations. The large units, with their 
heavy overheads, are seeking to attain security through control, while 
the smaller and more mobile units are willing to take a chance. In 
the case of tlie British, cotton mills, the larger units are also old. There 
is also the fact that the British cotton inihistry is primarily an export 
industry and that the various proposed schemes were of little value in 
dealing with the most difficult problem of meeting the new competition 
in the markets traditionally dominated by the British industry and 
now rapidly disappearing under the onslaught of the Japanese compe- 
tition and local production.' 

The most serious attempt to meet the difficulties of the cotton 
industry is represented by the Lancashire Cotton Corporation, 
organized in January 1929 witli the influential assistance of the Bank 
of England. It's object was to take over 200 mills representing about 
10,000,000 sphidles. scrapping the inefficient mills, and building up the 
remaining capacity into a number of large and highly specialized units 
under a central polic}^ control. What was most important, the 
capitalization was to be cut in half. The actual achievements of the 
corporation have fallen short of the expectations, botli from the 
standpoint of the organization itself as well as of its oft'ect on the 
solution of the fundamental problems of the British cotton industry. 
According to the reports in 1937. the corporation had acquired only 145 
mills, instead of the anticipated 200. The amount expended m 
acquiring the mills evidently has been far above the value of the 
properties, judghig from the fact that in 1937 a capital reconstructiim 
scheme was carried through by which the debenture and share capital 
was reduced by nearly two-thirds and the fixed assets from £9,187,924 
to £3,347,632, the latter figure representing the "maximum values 
which independent valuers had considered it reasonably ])ossible to 
place on such assets as a going concern."^ The improved demand 
during 1937 enabled the corporation to start a depreciation reserve 
with an allotment of £155,000. 

Evidently the efforts of the Lancashire Corporation were not suffi- 
cient to bring about the necessary adjustment in tlie industry by 
cutting down the excess production facilities, and a more direct method 
had to be applied through the agency of the spindles board, created 
by the Cotton Spinning Industry Act of 1936. 

COTTON Sl'INNING INDUSTRY ACT OF 1936 

The act, which is officially designated "to provide for the elimina- 
tion of redundant spinnmg machinery in cotton mills in Great Britain 
by means of a board having power to acquire property and to borrow 
and levy money," is bateed on recommendations of a committee ap- 
pointed by the industry. It embodies the principle that the whole 
cotton industry should bear the cost of eliminating surplus spindle 
capacity. The spindles board, created hj the act, is appointed by the 

' "The Statist," Apr. 17, 1937, p. 618. 



20 CONCENTRATION OF ECONOMIC POWER 

board of trade and is authorized to borrow up to £2,000,000 for the 
purpose of acquirmg "such premises * * * and machmery 

* * * and other thmgs * * * with a view to the eHminatiOn 
of redundant spinning machinery in cotton mills m Great Britain." 
The board may exercise such powers during 2 years after its appoint- 
ment, subject to extension for an additional period of 1 year by the 
board of trade. The spindles board may dismantle, break up, sell or 
otherwise dispose of the property acquired, or may maintain and repair 
it for the purpose of selling, but cannot export it or sell for export. 
In order to repay the loans contracted by the spindles board, a levy 
based on the spindle capacity of every cotton mill in Great Britain 
is to be paid to the spindles board for a period of 15 years at the rate 
of 1)^ d. per mule spindle or its equivalent in rings (one ring spindle 
being equivalent to 1% mule spindles). The powers of the board be- 
came operative on September 14, 1936. 

According to the first annual report of the spindles board, the total 
mule equivalent spindle capacity of the cotton spinning industry on 
September 14, 1936, was 45,875,251, and the spindle levy for the year 
amounted to £223,005. During the year the board acquired or 
committed itself to acquire 3,265,000 mule equivalent spindles, in- 
volving the purchase of plant and machinery at a total cost of 
£842,776. On the basis of the 1,900,000" mule equivalent spindles 
already scrapped and the disposal of lands and buildings it was esti- 
mated that tlieVe would be a loss of £412,000 for the year's operations. 
It is interesting to note that in order to make up for the levy there was 
an extension of the price fixing agreement in the industry, so as to 
obtain a price sufficient to cover the increased cost of production. 

During the second year of its operation the board acquired or agreed 
to acquu'e only 1,304,000 mule equivalent spindles, the decline as 
compared with the first year being ascribed to "the improved trade 

* * * which gave rise to a spirit of optimism which, combined 
with hopes of a useful reorganization of the cotton industry as a whole, 
presumably caused a number of mill owners to continue to run their 
mills, which, otherwise, they would have offered to us. It is much 
to be regretted that this optimism has proved to be unfounded." 
The latter statement is borne out by the fact that in spite of the reduc- 
tion in the capacity of the industry by more than 4,500,000 spindles 
during the 2-year period ending September 14, 1936, the unused 
spindle capacity on this latter date was 14,000,000, as compared with 
an estimate of 3,900,000 in September 1937, and 10,000,000 when the 
board began to operate. 

• During the third year of its operation, the board acquired or agreed 
to acquire 1,605,000 mule equivalent spindles, making a total in the 
3 jesiTs of the existence of the board of 6,174,000 mule equivalent 
spindles. It is interesting to note that the spindles capacity of the 
British cotton spinning industry, which was slightly less than 
46,000,000 mule equivalent spindles at the beginning of the operation 
of the Cotton Spinning Act, September 14, 1936, was reduced only to 
about 41,000,000 mule equivalent spindles on March 14, 1939. 

It was quite evident that the operations of the spindles board were 
not reducing the idle spindle capacity of the industry and that the 
board was still far from reaching the mark of 10,000,000 spindles 
originally contemplated. The purchasing powers of the board were 
extended until September 13, 1939, which is the full extent of the 



OONCENTRA'HON OF ECONOMIC POWER 21 

period permissible under the Cotton Spinning Industry Act. As the 
Cotton Industry (Keorganization) Act, 1939 — see page 27 — did not 
come into operation owing to tlie outbreak of the war, the borrowing 
and purchasing power of the spindles board lapsed on September 
14, 1939. 

COTTON ENABLING BILL 

Additional evidence, if needed, of tlic fact that the Spinnuig Act 
has not yet solved the fundamental problems of the British cotton 
industry is to be found in the strong agitation caused by the Jouit 
Committee of Cotton Trade Organizations for the consideration by 
the Government of the cotton enabling bill. The main features of the 
measure as oiiginally proposed, and based on the pamphlet issued by 
the committee under the significant title "Lancashire's Remedy," are 
summarized * as follows: 

The main proposal is to set up a board representing the cotton industry in all 
its sections and also an independent advisory committee to examine schemes 
brought forward either on behalf of the industry as a whole or of individual sec- 
tions and to report to the board of trade. The promoters of such schemes would 
have to show that they were supported by a majority of the section or sections 
concerned, that they contained safeguards against abuse * * *; that they 
were in the general interest of the industr}'^; and, more particularly, that they 
would tend to assist export trade * * * -j^l^g cotton industry board referred 
to would consist of 12 persons, engaged in the industry — 2 spinners, 2 manufac- 
turers, 1 dyer, 1 bleacher, 1 printer, 2 merchants, and 3 representatives of the 
operators. The board of trade committee would have 3 membeis. 

In addition to laying down conditions for the reorganization of the 
industry, the enabling bill was also to confer power for enforcmg the 
adopted schemes, but it was proposed that Parliament should be 
restricted to approval or rejection of proposed schemes, but should 
not have the power to amend them. 

The plan received the approval of all sections of the cotton industry, 
but the support of the Manchester Chamber of Commerce was given 
subject to the reservation that the bill shall contain "adequate safe- 
guards for the protection of export trade interests and for defense 
against misuse of monopolistic powers." 

The draft was submitted on November 26, 1937, by the Joint Com- 
mittee of Cotton Trade Organizations to the Board of Trade. In his 
reply of December 20, 1937, the President of the Board of Trade 
pointed out several shortcomuigs, namely, lack of dcfiniteness as to 
the scope of the schemes and lack of indication of methods for pro- 
moting export trade ; he also suggested that each section of the indus- 
try should determine at least the main lines of the schemes for which 
it would desire to secure ultimately the approval of Parliament. 

Judging from the attitude of the Board of Trade and of some of the 
opponents in the industry, it was evidently felt that the proposals 
laid too much stress on the necessity foi' curtailment and more profit- 
able operation, and did not give sufficient attention to the competitive 
factor and the possibility of improving the efficiency of some sections 
of the industry. 

Asa result of this attitude, the committee revised the proposal and 
suggested that the schemes to be proposed by the various sections of 
the industry be confined to the following: 

(1) Schemes for the elimination or reduction of redundant 
plant. Provision is made for such schemes to include compensa- 

« '•The Manchester Guardian Commercial," Nov. 30, 1937. 



22 CONCENTRATION OP ECONOMIC POWER 

tion to operatives who lose their employment as a direct result of 
the scheme. vSchemes of this kind would be financed by a levy 
on the section concerned as in the case of the surplus spindles 
scheme embodied in the Cotton Spinning Industry Act, 1936. 

It was agreed, however, that provision should also be made for 
"scrap and build "schemes, similar to that of the shipping indus- 
try, wherever the section concerned prefers this method. 

(2) Schemes for the establishment of minimum prices or 
margins, based on the needs of the sections concerned and in- 
cluding regulations designed to make them effective and to 
prevent hardship. It is stipulated, however, that the legal mini- 
mum should not exceed a figure which an impartial investigation 
of costs shows to be sufficient to yield a reasonable profit to 
efficient concerns working full time on up-to-date machinery and 
with a reasonable capital valuation. 

(3) The legalization at the request of both parties, of wage or 
other agreements between employers' and operatives' organiza- 
tions. 

In February 1938 a more detailed plan was submitted to the 
Government which, the President of the Board of Trade announced 
on May 31, was to serve as a basis for the Government draft of the 
bill, subject to the joint committee's successful efforts to bring about 
"the greatest possible measure of agreement within the industry." 
In accordance with the suggestions from the President of the Board 
of Trade, the executive of the Joint Committee of Cotton Trade 
Organizations continued negotiations with the various branches of 
the whole textile industry, includmg the distributing interests in 
Manchester, London, and Glasgow. As a result of these negotintions 
a revised draft was submitted in December 1938 which, in addition 
to eliminating the controversial provisions for pool and quota schemes, 
"scrap and build" schemes, and equalization of wage agreements, 
provided additional safeguards for protecting the confidential charac- 
ter of the information received by the Cotton Industry Board, as well 
as the interests of the various branches of the industry. 

Strong opposition to the draft developed on the part of the exporting 
interests, and the draft was rejected by a vote of 281 to 237 at a 
special meeting of the Manchester Chamber of Commerce on January 
25, 1938. This opposition was based largely on the fear of the mer- 
chants that an effort might be made to eliminate them in favor of 
joint selfing organizations. The smaller producers feared the influence 
of the combines, while the exporters claimed that they were not 
suflBciently represented in the organization scheme. 

On the other hand, the draft of the joint committee received the 
approval of two-thirds of the spinning, weaving, and finishing sections 
of the industry, according to an announcement at a meeting of the 
joint committee with the Lancashire members of Parliament at 
Manchester on January 27, 1938. 

The Government draft made its appearance on February 7 and 
was sent out for balloting on the basis of the returns of the census of 
production taken by the Board of Trade in connection with the 
Import Duties Act of 1937. While the merchants were left out of 
the balloting, except in cases where they had also producing interests, 
the Chambers of Commerce of Manchester, London, and Glasgow 



CONCENTRATION OF ECONOMIC TOWER 23 

were requested by the Board of Trade to ascertain the views of their 
interested members. 

The Government ballot included the votes of about 75 percent of 
the eligible concerns, representing five-sixths of the employment in 
the industry. The results of the ballot indicated that the draft was 
favored by 65 percent of the number of voting firms, 72 percent on 
the basis of employment, and 70 percent of .the output. Smce the 
merchanting section was not covered by the bill, unless it definitely 
declares in favor of joining, the hostile attitude of the merchants to 
the measure did not influence the attitude of the Government. 

The Government measure was announced on March 16, 1938, 
almost exactly in the form in which it had been circulated for balloting, 
and came up for discussion in the House of Commons at the second 
reading on March 27. 

PARLIAMENTARY DISCUSSION 

In moving for a second reading, the President of the Board of Trade 
reviewed the famOiar history of the attempts of the cotton industry to 
reorganize by its own efforts and the reasons for the proposed measure. 
He laid particular stress on the fact that it was an enabling measure 
and that its chief importance "lies in the possibility it gives after its 
passage for the industry itself to take certain measures and get 
statutory sanction for them." In dealing with the results of the 
ballot he pointed out that there was a conflict between the producing 
and the merchanting sections, the former being in favor and the latter 
opposed, but in view of the fact that it was a bill primarily for the 
assistance of the producers, he did not regard the objection of the 
merchants as valid, and lie felt that the interests of the producers 
must have the fullest weight. 

In a very significant passage, the President of the Board of Trade 
dwelt upon the remarkable fact that the industry most typical of 
British economic individualism has now reached a stage where it is 
compelled to look for salvation in "collective technique." 

In a century which produced a good many individualistic industries there was 
no industry so fiercely individuahstic as the cotton industry was before the 
War. Part of that was due to the temperament of the county in which that 
industry had been so largely built up; part of it depended upon the economic 
structure of the industry itself. We talk in grand terms about mills, and we have 
before our eyes visions of great factories employing hundreds or thousands of 
people, but the term "mill" is a very elastic one, as hon. Members from Lan- 
cashire know, and may mean very little more than the installation of a few spindles 
or looms in a shed or even a private dwelling-house; and all through the last 
century the lesson of the cotton industry was that it was possible to start a new 
enterprise without any great initial capital. We had a constant stream, during 
the last century, of the type of man who had begun as a worker, as a man employed 
in a mill, gradually starting up for himself and sometimes attaining great success. 
There is an old saying in Lancashire, "Clogs to clogs in three generations." 
That saying may have been unduly pessimistic. But in those days there were a 
great many examples of "clogs to patent leather" in one generation. Indeed one 
of the most distinctive features of the cotton industry before the War was that 
you did not get what I always regard as the most hateful legacy of the industrial 
revolution, that is, the hard-and-fast line between employed and employer. In 
that industry it was possible to cross that line and ver}' often it was crossed. 

What has created the revolution, what has caused this fiercely individualistic 
industry of the last century to become almost a pioneer in this new collective 
technique? It is, I am afraid, the hard tragedy of fact. I am not going to trace 
the tragic history of the last 25 years. It has been not le.ss catastrophic because 
in some degree it was inevitable. In the ol ' days the industry grew into its 

282317— 41— No. 40 3 



24 pONCENTRATION OF ECONOMIC POWER 

prosperity as a supplier to certain primary producing countries — India, China, 
Egypt, and Brazil. As soon as the primary producing -countries first began to 
stir from their agricultural pursuits, as soon as they first seemed to see the rather 
meretricious attraction of an industrial life, the cotton industry was bound/ to be 
the first industry in this country to suffer, because the introduction of cotton 
goods is the first experiment in industry which an agricultural people make. 
When we had the War, with the interruption of supplies, the post-war period, 
with the growth of 'feconomic nationalism, spurring on this new desire of the 
agricultural community to become also industrial, it was clear that the old pre- 
dominance of Lancashire in these markets was bound to disappear; and, indeed, 
although we talk a great deal about what we have lost in the export market to 
competitors, the fact is that nearly 70 percent of the losses of British cotton 
exports since the' War has been, not to foreign competitors, but to national indus- 
tries growing up inside the countries that previously took our exports.' 

The organization set up by the bill and its functions were described 
by the President of the Board of Trade, as follows: 

Th« main purpose of the Advisory Committee is to advise the Board of Trade 
upon schemes that are put up. The Cotton Advisory Committee will consist of 
three independent members and is really a sort of court of appeal, not so much 
for the cotton industry as for all other interests that may be concerned. The 
export trade, consumers, the industry as a whole, the "fringe" industries that are 
afi'ected by the cotton scheme — all these will have a right to lodge their objections 
to this committee and on that the committee will advise me. Then there are two 
consultative councils, one a wider advisory committee- which will enable representa- 
tives, for instance on the basis of locality in the cotton trade, to be called into some 
kind of association with the machinery, and an export development committee 
which will consist partly of members of the board and partly of outsiders. Clause 
5 provides for registration. As far as the producing sections of the industry are 
concerned, regist^ation•<of course will be compulsory but, as far as merchanting is 
concerned, it will be voluntary, and only merchants who are registered will be 
able to take advantage of some of the privileges which are later accorded in the 
Bill. It is quite clear that, if we set out with the assumption that this is to try to 
organize the industry, the first essential is to know exactly of what the industry 
consists. 

Then we come to the major part of the Bill; that is, the provision that is made 
for the passing of sectional schemes, and there is one thing about which I ought to 
warn the House. We use in the Bill the words "sectional scheme," and that may 
be rather liable to cause confusion with what we know commonly as sections of 
the- industry — spinning, weaving, whatever it may be. It may give the impres- 
sion that a sectional scheme must be one which refers to the whole of a particular 
section, spinning or weaving. That is not so. A section is defined by reference 
to the Activities carried on or the products manufactured by a group of firms and 
inside what we commonlj^ call the section you may have a number of people who 
are able to join in a sectional scheme of their own. There are only two types of 
scheme which t]^e Bill permits. One is a redundancy scheme and the other is 
price fixing. Both are part of the same problem which faces the industry today, 
and that is the excess capacity which has been left in the industry as the result of 
serious contraction in the past 10 or 15 years. I will deal first with schemes deal- 
ing with redundancy. This, of course, is no new thing either to the cotton industry 
or to this House. In passing the "Spindles" Bill a few years ago the House gave 
autliority for exactly this kind of redundancy scheme for one section of the indus- 
try alone, that is the spinning section. The scheme set out in these Clauses 
follows very closely the lines of the "Spindles" Bill and extends the possibility 
of that same kind of scheme to other sections of the industry. i" 

The two main objects of the measure — to elimin-ate redundancy 
and to fix prices — were discussed in detail by the President of the Board 
of Trade, and particular stress was laid on the fact that it will be the 
duty of the Cotton Industry Board "to see that the price fixed is one 
which represents the proper price for an efficient, and only an eflficient, 
firm in that section." 

' Source: Parliamentary Debates, House of Commons Official Report, vol. 345, No. 73, Monday, Mar. 27, 
1939. pp. 1734, 1735, 1736. 
I6 1bid.,pp. 1739, 1740. 



CONCENTRATION OP ECONOMIC POWER 25 

One of the most difl&cult problems involved in the bill is its effect 
on the rayon industry, which manifested strong opposition to being 
tied up — in its spinning and weaving processes insofar as it is dis- 
tinguishable from simihir processes in the cotton industry — with the 
cotton industry. In a memorandum issued in April by the rayon 
producers' section of the Silk Association of Great Britain, and 
supported by eight firms responsible for 98 percent of the total 
British production of rayon and staple fiber, it was pointed out that 
under the provisions of the bill the use of rayon in the loom, and all 
subsequent processes, will be controlled by cotton interests vested with 
statutory powers. It was therefore argued that "rayon should be 
recognized as a separate industry of national importance, and that its 
power of expansion and development should not be made subservient 
to cotton or any other fiber." It was quite natural that an industry 
with the meteoric career of rayon should object to being subjected to 
controls and restrictions devised primarily to save the remnants of the 
once flourshing cotton industry. As a member of Parliament, speak- 
ing for the rayon industry, expressed it: "it places a young and 
expanding industry under the control of an old, and, it must be 
admitted, decaying cotton industry." The President of the Board 
of Trade maintained that the safeguards in the bill were sufficient to 
protect the rayon industry from domination by the cotton industry 
and that the desire of the former for a separate scheme for rayon 
producers was out of the question, as it would involve excessive 
organization. 

Finally, the President of the Board of Trade took up the question of 
the effect of the measure on the export trade. He called attention to 
the flexibility of the price fixing provision which will make it possible, 
with the cooperation of the various sections, to make special prices for 
special products or for a special market, which, in his opinion, is likely 
to be of greater assistance to export trade than the present indis- 
criminate price cutting. In concluding his discussion of the export 
trade phase of the bill, the President of the Board of Trade made the 
following significant statement which throws light on the present 
position of the merchant in the British cotton industry : 

The old system, to which the merchants refer with pride, is breaking down — the 
old system under which the merchants were the only people who had any connec- 
tion with or knew anything about the export trade, and under which the men who 
produced the goods had no connection with the consumers of the goods. That 
may have been all very well as long as the merchants were in a position, by the 
orders which they gave, to keep the producing section fully employed; but now 
that they cannot do that, of course the producing section itself is taking a greater 
and greater interest in the ultimate destination of its products." 

The spokesman for labor came out in support of the bill. In fact, 
there was no real opposition to the measure as a whole, although some 
of the speakers expressed fear of possible domination by the combines, 
and others referred to the inadequacy of the measure as a means of 
reviving the export trade. Still others referred to opportunity for 
amendment in the committee. The most important amendment to 
the bill came from the spokesmen for the rayon industry who expressed 
their fear of domination by the cotton industry. They advanced a 
plea for an additional safeguard in the form of a rayon industry 
committee to be set up under the bill as a recognized authority, to 

" Ibid., pp. 1747, 1748. 



26 CONCENTRATION OF ECONOMIC POWER 

safeguard and promote the interests of the rayon industry, without 
its being subservient to the cotton industry. The provision in section 
15 was regarded as inadequate because it makes the appointment of 
such a committee contingent upon the recomiliendation of the cotton 
industry advisory board, and the acceptance of such a recommenda- 
tion by the Board, of Trade. The bill was committed to a standing 
committee on March 27, 1938, where it underwent a number of 
changes and was ordered printed on June 15. 

The amendments proposed during the committee's consideration of 
the bill dealt largely with the question of rayon and merchanting. 
Various proposals were submitted for the separation of the rayon 
interests either in the production or the export stage. A vigorous 
fight was also made for an amendment making it obligatory for the 
Board of Trade to set up a separate rayon committee within three 
months of the passing of the act. The best the rayon interests could 
obtain from the committee was an amendment raising the member- 
ship of the rayon committee, if and when set up, from 8 to 10, by 
including 2 representatives of the business of spinning yarn from staple 
rayon fiber. There were also proposals to keep the benefit of re- 
dundancy payments from miUs with foreign branches or interests. 
Other amendments submitted were designed to speed up the opera- 
tion of the measure by cutting down the period during which redun- 
dancy schemes might be submitted. 

The measure designated as the Cotton Industry (Reorganization) 
Act, 1939, was passed by Parliament on August 4, 1939. Upon the 
outbreak of the war and the introduction of Government control 
over a number of British industries, including cotton, the operation 
of the act was postponed by the act of October 31, 1939, which 
contains the following provision: 

(2) The provisions of this act shall come into operation on such date as the 
Board of Trade may by order appoint, and orders made by the Board of Trade 
may appoint different dates for the coming into operation of different provisions 
of this act. 

The cotton industry has received somewhat different treatment 
from the other textile trades since the outbreak of the war, owing 
largely to its complex organization and the fact that though the 
Cotton Industry (Reorganization) Act passed in August 1939 was 
suspended at the outbreak of the hostilities, part of its machinery 
could be resuscitated for control purposes. 

At the beginning of the war it was not considered necessary to 
establish a controller as had been done in the case of other textile 
goods, for while the trade naturally contributed to the Government's 
war requirements, these demands do not . utOize a very large per- 
centage of the industry's productive capacity as is the case with wool, 
linen, jute or hemp. It was felt that the cotton trades could be 
of most use, both durmg the conflict and in the immediate post-war 
period, through the maintenance and gradual expansion of exports. 

A Cotton Board was, therefore, set up on September 16 by the 
Board of Trade and Ministry of Supply to promote exports, to super- 
vise the supply of Government requirements, and to smooth the way 
for an ultimate peacetime transition of the industry to the conditions 
contemplated by the Reorganization Act. This board consists of 
nine members with four committees to deal with: (a) Raw material 
supplies; (b) production and Government contracts; (c) exports; and 
(d) essential commodities and services. 



CONCENTRATION OF ECONOMIC POWER 27 

PROVISIONS OF THE COTTON INDUSTRY (REORGANIZATION) ACT 

As mentioned before, the bill was prepared to eliminate or mitigate 
the two outstanding evils of the industry — excess plant capacity 
(redundancy), and indiscriminate price cutting, and the measure is 
therefore divided into the provisions dealing with redundancy and 
price fixing. There are, in addition, provisions for assisting export 
trade and research, but they are of secondary importance. There 
are also provisions for financing the various lines of work as well as 
the purchasing of redundant plants. 

The organizations provided to administer the Cotton Industry 
(Reorganization) Act consist of a Cotton Industry Board, a Cotton 
Industry Advisory Committee, a Representative Advisory Council, 
an Export Development Committee, and, if and when appointed by 
the Board of Trade, a rayon committee. 

The Cotton Industry Board to be appointed by the Board of Trade 
is to consist of 15 members, of whom 3 (one of them to be designated 
by the Board of Trade as chairman) shall be independent people with 
a special knowledge of the cotton trade but with no financial or admin- 
istrative affiliations with it, and the remaining 12 members to be 
taken from the cotton trade. The latter shall represent the various 
sections of the cotton trade as follows: 2, spinning and doubling, and 1, 
the operatives employed in spinning and doubling; 2, weaving, and 1, 
the operatives employed in weaving; 1, bleaching; 1, dyeing; 1, print- 
ing; 1, the operatives employed in the various finishing processes; 1, 
the export trade; and 1, either the merchants generally or the mer- 
chants engaged in export trade. The appointment is to be for a 
pmod of 5 years, with eligibility for reappointment. No member of 
the House of Commons is eligible for appointment on the board, and 
no member of the board, during a period of 5 years after he ceases to 
hold office, shall "acquire any such financial or commercial interest as 
would, if acquired during his period of office, have been likely to have 
affected him in the discharge of his functions as a member of the 
board." One of the independent members of the board is to be 
present at all meetings, but when the board is to perform certain 
functions, such as in connection with price schemes involving the 
disclosures of the details of individual businesses, the independent 
members will sit alone. In case of a tie, the independent member 
acting as chairman shall have a second or casting vote. The salaries 
or fees of the members of the board are to be determined by the Board 
of Trade with the approval of the Treasury, According to the 
statement by the President of the Board of Trade, the Cotton Industry 
Board, in addition to the specific functions prescribed by the bill, is 
also to act as a mouthpiece and clearmg house for the industry and 
"to try to bring into the industry some degree of the unity wliich today 
is very badly lacking. ' ' 

The Cotton Industry Advisory Committee, to be appointed by the 
Board of Trade, is to consist of three independent persons without 
any financial or commercial interest in the industry that are likely to 
affect them in the discharge of their duties. This body is to advise 
the Board of Trade upon schemes submitted and has been char- 
acterized by the President of the Board of Trade as a sort of a court of 
appeals, not so much for the cotton industry as for all other interests 
that may be concerned. 



28 CONCENTRATION OF ECONOMIC POWER 

The Representative Advisory Council is to be constituted upon the 
submittal of proposals for such a body by the Joint Committee of 
Cotton Trade Organizations within 6 months after the commencement 
of the act. The functions of the Council are of a broad advisory 
nature, to advise "as to the expediency of the exercise by the Cotton 
Industry Board of any of their powers in any circumstances, or as to 
the manner in which any of these powers should be exercised." This 
is to be done at the request of the Cotton Industry Board. 

The Export Development -Committee, as the name implies, is to 
make recommendations to the Cotton Industry Board for the promo- 
tion and the development of export trade in the products of the 
industries covered by the act. This is partly a subcommittee of the 
Cotton Industry Board, since it is to be presided over by the chairman 
of that Board and to consist of five other members of the Board, of 
whom one is to be an independent person, and five additional members 
appointed by the Board. In selecting the five additional members, 
the Cotton Industry Board is to consult, in the case of three members, 
the representatives of the merchants engaged in export trade, and 
in the case of the other two members, the representatives of the rayon 
fiber producers. 

The appointment of the Rayon Committee is subject to a finding 
by the Cotton Industry Advisory Committee that the majority of 
the representatives of' the various branches of production and mer- 
chanting of rayon fiber and fabrics desire the establishment of a 
separate committee to represent that section of the textile industry. 
If approved by the Board of Trade, the committee is to consist of 
10 members to be appointed by the Board of Trade upon consultation 
with the various branches of the industry as follows: In the case of 

2 members, with producers of rayon fiber; 2 members, with the spinners 
of staple rayon; 2 members, wdth the weaving interests; 2 members, 
with the finishers of yarn spun f^om staple rayon fiber or of fabrics 
woven from rayon yarn; and 2 members with the merchants of rayon 
yams or fabrics. There is a provision for consulting the Rayon 
Committee in connection wdth any price scheme submitted to the 
Cotton Industry Board affecting the sale of yarn spun from rayon 
fiber, or mixed yarns containing rayon fiber, or fabrics woven from 
rayon yam or from mixed yam containing rayon fiber. 

The organi/.ation of the industry for the purpose of carrying out the 
provisions of the act is based on the requirement for registration. 
The Cotton Industry Board is to register upon application within 

3 months from the commencement of the act, "persons carrying on 
business in the industry and merchants." The registration for mer- 
chants is optional, but only registered merchants will be entitled to 
the privileges accorded by the act. After the expiration of the 
3 months' period, any person carrying on business in the industry, 
without being registered, is to be liable to a fine, for the first conviction 
not over £100, and also not over £20 for every day on whiLhi the 
contravention has continued; for the second conviction the fines are 
doubled. The register is to show the location and character of each 
business carried on by the registered person and such person is ^ 
furnish at the request of the Cotton Industry Board, at any time whue 
his name is on the register, such other information as may be required 
by the Board. 



CONCENTRATION OF ECONOMIC POWER 29 

The work of reorganizing the industry is to be carried ont by means 
of "sectional schemes" to be submitted to the Cotton Industry Board 
by any section of the industry. A scheme may deal with the elimina- 
tion of excess plant capacity, when it will be referred to as a "re- 
dundancy scheme"; or with the fixing of prices for the finished prod- 
ucts or charges for processing in the production stage, when it will be 
referred to as a "price scheme." 

The redundancy provisions of the act are essentially an extension 
of the functions performed by the Spindles Board under the Spinning 
Act for the spinning section of the industry. In order to provide 
for continuity in the redundancy elimination work in the spinning 
section, a clause was added to the Cotton Industry (Reorganization) 
Act enabling the Board of Trade to extend the powers under the 
Cotton Spinning Act for another 2 years. The redundancy schemes, 
which are to be administered by boards of independent persons 
appointed by the Board of Trade, may provide for the acquisition, 
by agreement, of such plant in a cotton mill, relating to the section 
of the industry involved, as may be considered expedient to acquire 
with a view to elimination of redundant plant in this section of the 
industry. It may also involve the acquisition of an entire cotton 
mill, including any estate or interest or right in land used in coiuiection 
with the mill. The board administering any redundancy schemes is 
empowered to dismantle and break up any plant or other property 
acquired, or to sell or otherwise dispose of it and even repair it, if 
considered necessary for purpose of disposal. The board must not, 
however, dispose of any plant unless it is reasonably satisfied that it 
will not be removed from the United Kingdom. The board may be 
empowered to borrow money, with the approval of the Board of 
Trade and the Treasury, for the purpose of exercising its authority in 
connection with the purchase of redundant plants; it may also make 
payments to employees who lose employment by reason of the acqui- 
sition of such a plant. 

The time limit for the submission of redundancy schemes to the 
Cotton Industry Board is 5 years, which, however, may be extended 
from time to time by the Board of Trade up to 15 years from the 
commencement of the act. 

The "price schemes" are to be administered by boards elected by 
the persons registered under the scheme as carrying on business in the 
section of the industry to which the particular scheme is to apply. 
The scheme is to authorize the board in charge to determine from time 
to time the minimum prices and terms and conditions for the sale of 
the products specified in the scheme or/and the minimum charges and 
terms and conditions for processing the products or raw materials 
specified in the scheme. The prices, charges, and terms and condi- 
tions, are to apply to all persons registered under the various schemes, 
and since it is provided that no person shall carry on business in any 
section of the industry to which the scheme applies unless registered, it 
means that they apply to the entire section involved. 

The Cotton Industry Board is authorized to permit, if deemed 
expedient for the purpose of maintaining or increasing consumption, a 
reduction in sales prices and processing charges below the minimum 
fixed by the price scheme. 

The schemes may also provide for contributions by the owners of 
the mills to finance redundancy schemes and by all registered persons 
in the case of price schemes. 



30 CONCENTRATION OF ECONOMIC POWER 

After a scheme is submitted to the Cotton Industry Board and found 
to satisfy the requirements of the act, it is pubUshed and submitted 
for a vote to all qualified persons, including organizations representing 
persons registered but not qualified to vote on schemes, as well as 
operations in the industry and manufacturers of rayon fiber in the 
United Kingdom. Upon approval of the scheme by a majority of the 
persons qualified to vote and voting, the Cotton Industry Board is to 
transmit the scheme to the Board of Trade and the Cotton Industry 
Advisory Committee, together with such changes as the Cotton 
Industry Board may recommend, and the report on the poll. 

The Cotton Industry Advisory Committee, after considering the 
report and giving an opportunity for a hearing to all persons and 
interests afi^ected, is to transmit to the Board of Trade a report con- 
taining an opinion on the following questions: 

(a) Wliether the scheme would be likely to involve undue hard- 
ship to the persons carrying on business in the industry otherwise 
than in the section thereof to which the scheme relates. 

(6) Whether the scheme is contrary to the interests of opera- 
tives employed in the industry otherwise than in the section 
thereof to which the scheme relates, or of operatives employed in 
that section. 

(c) Whether the scheme is likely to prejudice such expansion 
of the industry apart from the section thereof to which the scheme 
relates, or of that section, as may be expedient in view of increas- 
ing demand or technical improvements. 

(d) Whether the scheme is likely to prejudice the needs or 
development of export trade in the industry. 

(e) Whether the scheme is contrary to the interests of consum- 
ers or to the interests of any industry other than the cotton 
industry of the United Kingdom. 

In the case of a scheme affecting certain products of cotton or rayon 
yarn, the Cotton Industry Advisory Committee is also to consult the 
representative interests in the wool or linen textile industry in the 
United Kingdom. 

Upon approval of the scheme by the Board of Trade, subject to 
certain changes, notice of the proposed changes is to be sent to all 
qualified voters and a poll is to be taken if requested within 7 days 
by the requisite proportion of the qualified voters. If a majority of 
the vote is in the negative, no further ^ction is to be taken with regard 
to the scheme. 

In the case of a favorable vote, the Board of Trade may lay before 
Parliament a draft of the approved scheme, a report on the scheme 
by the Cotton Industry Advisory Committee, and a report of the 
Cotton Industry Board on the poll or polls on the scheme. 
• If either House of Parliament, within 28 days, resolves that the 
scheme shall not go into effect, no further proceedings shall be taken; 
in the absence of such a resolution, the Board of Trade may make an 
order confirming the scheme. The same parliamentary procedure 
apphes to any order of the Board of Trade for revoking or suspending 
any scheme or part of a scheme already in effect. The maximum 
duration of a redundancy scheme is 15 years and of a price scheme 
5 years. 



CONCENTEATION OF ECONOMIC POWER ^l 

The Cotton Industry Board is also given the power to perform the 
following services for the benefit of the industry : 

To conduct or encourage research and experiments in connec- 
tion with production or consumption. 

To adopt measures to promote consumption by advertising, 
demonstration, or any other appropriate means. 
To collect and publish statistics. 
The financial provisions of the act relate to registration fees, which 
are to cover the general expenses of the Cotton Industry Board, and 
to service fees, which are to cover the expenses connected with special 
services, like research, statistics, etc. The funds for carrying out 
redundancy schemes are to be raised by contributions from the owners 
of the mills to which the scheme applies ; in the case of price schemes, 
from contributions by persons registered under each particular scheme. 
The board in char^ of a redundancy scheme may be authorized to 
borrow money, with the approval of the Board of Trade and the 
Treasury, for the purpose of financing its pin-chasing operations. 

CONCLUSIONS 

The foregoing survey of the British economic scene at the outbreak 
of the present war would seem to justify the following conclusions: 

1. British industry had attained a considerable degree of collective 
organization for the purpose of regulating prices and output under 
conditions quite different from those prevailing in the United States 
under our antitrust legislation. Considering the traditional economic 
independence of the individual British industrialist, British industry 
as a whole has shown a remarkable readiness to resort to collective 
action. 

2. The British Government had found it necessary to intervene in 
the reorganization of a number of basic industries like coal, cotton, 
iron and steel, and shipping, in order to assist them in adjusting them- 
selves to the new conditions developed during the period following the 
World War. 

3. It is too early to appraise the effect of the present war on British 
industry. Considering the relations between British industry and the 
Government at the outbreak of the war, and the character of the con- 
trols already imposed by the Government on British economy in the 
present war, there is justification for the belief that the British Govern- 
ment will find it necessary to intervene in the adjustment of British 
industry after the present war to a greater degree than after the World 
War. 



PART II 

CHAPTER I 

HISTORY OF THE EXTENT AND CONTROL OF CONCEN- 
TRATION OF ECONOMIC POWER IN GERMANY 

by 
RUDOLF CALLMANN 

CHAJ»TER II 

Rl^ULATORY EXPERIENCE IN GERMANY UNDER 
NATIONAL SOCIALISM 

by 

AGNES ROMAN 

Junior Economist 

Temporary National Economic Committee 

JOHN H. COVER 

Chief Economic Analyst 
Bureau of Foreign and Domestic Commerce 

NELSON A. MILLER 
Acting Chief, Marketing Research Division 
Bureau of Foreign and Domestic Commerce 



CHAPTER I 

HISTORY OF THE EXTENT AND CONTROL OF CONCENTRA- 
TION OF ECONOMIC POWER IN GERMANY 

ECONOMIC DEVELOPMENT OF THE CONCENTRATION 

MOVEMENT ^ 

The history of economic concentration movement is the history of 
the markets. Whether the businessman cooperates with his com- 
petitors or fights them has always been dependent upon the current 
market conditions. Interest attaches not so much to the fact that 
certain forms of combinations existed, nor to the forms which com- 
binations assumed, as to their effects upon the economic character 
of their time. 

BEFORE THE WORLD WAR 

At the beginning of the Middle Ages ^ there existed freedom of 
trade. Proportionate to the limited amount of the slowly gi'owing 
craftmanship present in the economic life of the medieval town was a 
purchasing power that obtained increasing strength from agricultural 
progress. There was no disparity between supply and demand as 
long as agricultural technique multiplied productivity, and as long as 
conditions in trade remained stable. But gradually this situation 
changed; agrarian conditions within their limited technical capfi cities 
became static, while increase of population and migration to cities 
shook commercial stability. Supply exceeded demand, and the com- 
petitive struggle began, soon becoming intolerable. This state of 
affahs brought about the necessity to regulate business; freedom of 
trade disappeared, and the guUd movement came into being. 

With extraordinary success the guild? devoted themselves to the 
regulation of market conditions, and craft rose to its greatest glory. 
The narrow economic sphere combined town and country into eco- 
nomic unity, facilitating market regulation; since there were no con- 
trary economic interests, municipal economic policy became a prop 
to the guilds. Eventually, after hard struggles with the "bour- 
geoisie" the giiild developed from an association of self-seeking in- 
dividuals into an organization for public weal, expanded its activities, 
and became the expression of middle-class policy and of cultural life. 

Besides the guilds, which were the local organizations of town- 
economy, expansion of commerce and distribution of goods gave rise 
to new forms of organizations, and the first signs of international trade 
emerged. The crusades, establishment of fairs and markets, develop- 
ment of a money-economy, organization of traffic, reduction of inland 

' See Rudolf Callmann, Das deutsche Kartellrecht, Berlin, 1934, pp. 53ff 

' See particularly: Heiuricb Mannstaot, Ur'sachen and Ziele dcs Zussinmenschlusses in Qewerbe unter 
besonderer Berucksiphtigung dcr Kartelle und Trusts, Jena. 1916, ch. 1; 'Werner Sonibart. Der moderne 
Kapitalismus, Leipzig, 1928, I. book 1, ch. 6; 11, pp. 130, 141 ; Sombart, Die Deutsche Volkswirtsehaft im 19. 
•Tahrhundert, Berlin, 1913, 153 fl; Pohle, Der Unternehmerstand, 1910; PoTile, Die Entwicklung des deu- 
tsehen Wirtschaftslebens im letzten Jahrhundert. 3d ed. 1913. 

35 



36 CONCENTRATION OF ECONOMIC POWER 

duties, and particularly the discovery of America and organization of 
colonial trade, expanded the scope of commercial life, created "export 
craft," changed it to home industry, and ultimately to industrial 
manufacturing. As the foreign market expanded, and the town- 
economy evolved into a national economy, the strength of the guilds 
declined. The struggle with fluctuating market conditions became 
more and more difficult, and finally the guilds sank into stagnation, 
intensified by egoism, chicanery, and pettiness. 

Guilds, home industry, and industrial manufacturing were not, of 
course, the only existing form of economic organization. However, it 
is of interest that in this period, highly influenced by anti-capitalistic 
catholic ethics, forms of organization arose which showed a pronounced 
capitalistic spirit.^ Thus we notice that as early as the Middle Ages 
there have been genuine cartels, such as the salt-selling syndicate of 
1301;* the pure selling syndicate in the alum trade of 1470.^ There 
existed also a price and regional cartel in the copper mining industry 
between the Fugger and Manlich groups of 1548,^ an agreement be- 
tween Emperor Maximilian and the merchants of Augsburg, especially 
the Fuggers,with respect to silver and copper purchases,^ Further, 
there were bidding cartels,^ exclusive deaUng agreements,® and finan- 
cial integrations. ^° 

In the second half pf the 18th Century increase of demand over 
supply, coupled with unexpected enlargement of industrial pro- 
ductivity, gave the industrial world an unprecedented freedom of 
activity while the small trades and crafts encountered increasing 
distress. Believing that introduction of free trade was responsible 
for these troubles of the middle classes and not seeing that both were 
attributable to technical progress," a new guild movement was 
inaugurated, carrying the banner of the protective legislation of 1849. 
The cooperative marketing associations for the small and medium - 
sized enterprises in trade and industry (Schultze-Delitzsch) and in 
agriculture (Raiffeisen) were saluted as "guilds of the future." ^^ 

The overcapitalization of industry, and the burden of overhead 
cost, combined with the decline of the market and overproduction, 
led to the famous crisis of 1873. The desire to maintain a relatively 
stable price level prompted the German entrepreneurs, accustomed to 
discipline and subordination, and favored rather than hampered by 
law, to combine into cartels. The cartel idea spread rapidly and 
received added impetus when in 1879 the protective duties aided the 
cartels in regulating domestic competition. Before long Germany 
had become a typical cartel comitry. 

» See particularly: A. Menzel, Schriften des Vereins fiir Sozialpolitik, Leipzig, 1895, Vol. 61, p. 32; Emll 
Steinbach, Der Staat und die modernen Privatmonopole, Wien, 1903, p. 18; H. Levy Monopole, Kartelle und 
Trusts in ihren Beziehungen zur Organisation der kapitalistischen Industrie, dargestellt an der Entwicklung 
in Orossbritannien, Jena 1909. W. Stieda, Aeltere deutsche Kartelle in SchmoUers Jahrbuch 1913, p. 725; 
Walter MoUenberg, Die Eroberung des Weltmarktes durch das Mansfeldische Kupfer, Ootha 1911; W. 
Miick, Der Mansfelder Kupferschieferbergbau in seiner rechtsgeschichtlichen Entwicklung, Elsleben, 1910; 
Jakob Strieder, Studien zur Qeschiehte kaipitalistischer Organisationsformen; Monopole, Kartelle und 
Aktiengesellschaften im Mittelalter und zu Beginn der Neuzeit, Munchen-Leipzig 1925. 

• See Strieder, op. cit., p. 69. 

• Ibid., p. 70. 171 fl. 

• Ibid., p. 489 ff. 
'Ibid., p. 80. 

« Max Metzner. Kartelle und Kartellpolitik, Berlin, 1926, p. 3, refers to Ludwig Mitteis, Romisches 
Privatrecht bisauf die Zeit Diokletians, Vol. 1, who discusses a biddingcartelof the oil tenants in antiquity. 

• Strieder, op. cit., p. 144. 
10 Ibid., p. 166. 

"See Qustav Friedrich Schmoller, Zur Qeschiehte des deutschen Kleingewerbes im 19. Jahrhundert, 
MunTdnen.-tSTa 
'» See Deumer, Das deutsfh^-Oenossenschaftswesen, I, 24 ff., ; II, 101. 



CONCENTRATION OF ECONOMIC POWER 37 

Though cartels were the most popular form of industrial organiza- 
tion, they were by no means the only form. The mining industry, 
showing a strong tendency to concentration as early as the 16th 
century, had received strong impetus toward integration ^^ from 
the peculiar legal situation with respect to mining in Germany and 
from the development of syndicates in the coal, iron, and steel indus- 
try.^* The tendency toward technical and commercial rationalization 
of enterprises led to horizontal concentration.^* The fusion movement 
in various industries likewise occurred in this period, so that we may 
describe the period from the beginning of the World War as being 
characterized by a tendency toward concentration, combination, and 
integration. • Integration, however, is surpassed by horizontal com- 
bination and this in turn by horizontal concentration. Rationaliza- 
tion was sought through vertical and horizontal, especially horizontal, 
association. Market regulations, however, stood in the foreground 
of the industrialists' interest. 

THE WORLD WAR 

The World War brought a sudden change. ^^ With the end of com- 
petition, with the market dominated by government demand, and 
high prices caused by scarcity, cartels were deprived of their essential 
f unctions. ^^ The government took over their empty forms and made 
them war organizations. Capitalistic concentration on the other 
hand developed mainly for the purposes of increasing power and 
rationalizing production. It was then (1916) that Germany's most 
tremendous economic concentration, the foundation of the I. G. 
Farbenindustrie (Dye Trust), took place. 

AFTER THE WORLD WAB. 

The period following the War — until 1925 — showed concentration 
movements in three forms: formation of self-governing bodies of 
public interest ("Gemeinwirtschaft"), cartels, and inflation concerns. 
The " Gemeinwirtschaf t" in the form of those self-governing bodies, 
such as the Reich Potash Council, the Reich Coal Council, the Iron 
Economy Bund, and the Electricity Council, was a continuation of 
the compulsory economy of the War. Though originally designed to 
introduce a revolutionary change in the economic order, they were 

" It is essential to use these terms in a particular sense. We, therefore distinguish: concentration or asso- 
ciation in a broad sense, i. e. any kind of joining together; hence, we speak nuite generally of the 
concentration movement. Concentration in a narrow sense is the horizontal association of like or similar 
enterprises, no matter whether in a loose form (e. g., cartel or h close form (e. p.., fusion). Combination is 
the association of unlike enterprises and may be horizontal (e. g., a steel factory and a rolling-mill, the 
association of kindred enterprises of the same economic stage with the same raw product) or vertical (e. g., 
coal mine and sme'ting works, furnace and steel works). The vertical combination is called integration. 

A cartel is a contractual association of legally independent enterprises in the sflme or similar field of business 
formed with the intent, effect, or potentiality of influencing the market by means of regulation of com- 
petition. A syndicate is a cartel with a joint sales agency in which are centralized all sales in the protected 
market. A trust is a large combine.'i. e., a fusion, concern, or holding company with dominant position in 
the market. 

•< See Herbert von Beckerath, Krilfte, Ziele und Qestaltungen in der deutschen Industriewirtschaft; 
Jena, 1924, p. 60; A Heymann, Die gemischten Werke im deutschen Orosseisengewerbe, Stuttgart, 1904; 
K. Ooldschmidt, Ueber die Konzentration im deutschen Kohlenbergbau, Karlsruhe, 1912. 

's See Manual Saitzew, Horizontal und Vertical in Wandel der letzten Jahrzehnte, Jena, 1927, p. 24. 

'« Saitzew, op. cit., p. 25; von Beckerath, op. liI., pp. 9, 31; von Beckerath, Zwangskartellierung oder freie 
Organisation der Industrie, Stuttgart, 191S. pp. 32 f.. 35 ff.; Siegfried Tschierschkv, Zur Reform der Indus- 
triekartelle, Berlin, 1921, pp. 33 ff.; F. Bruck, Geschichte dos Kriegsausschusse der deutschen Baumwollin- 
dustrie, Berlin, 1920, pp. 97 ff.; Claren, Die Zusammenlegung in der deutschen Tuchindustrie, Berlin, 1919; 
R. Liefmann, Die Kartells in und nach dem Krie-je. Berlin, 1918; W. Troeltsch, Die deutschen Industrie- 
kartelle vor und seit dem Kriege, Essen, 1916; Karl Pribram, Cartel Problems, Brookings Institution, 1935, 
pp. 241 fl. 

" In his article, "Cartels and the T^usiness Crisis" (Foreign Affairs, October 1931. pp. 34-53), Louis I?V 
meratzky deals with the different fi :tions of cartels in Germany in different economic periods. 



3S CONCENTRATION OP ECONOMIC POWER 

no more than a kind of planning enacted for the protection of the 
German economy weakened by the war and the Treaty of Peace. 
Despite far-reaching plans covering all industries, the real power of the 
government went no fm"ther than the organization of coal and potash, 
whereas the legal fundamentals pertaining to iron and electricity 
never obtained practical significance.^^ 

Cartels regained a private capitalistic activity but did not control 
regulation of the markets. ^^ As a matter of fact, the economic situa- 
tion in that period defied any attempt at market regulation. Every 
owner of goods was a monopolist, as demand was still far larger than 
supply; and inflation made it impossible to control prices. In this 
period, cartels were committees for the aid of helpless businessmen; 
they advised selling terms to avoid inflation losses ; they helped their 
members to shift the risks of the catastrophic currency movement to 
weaker parts of the economy, which were naturally, at such a time the 
purchasers of wares. Though in the spring of 1920 cartels had the 
opportunity to exercise genuine cartel functions by keeping prices 
high during a market decline, it was especially the rigor of the selling 
terms which they proposed that excited dealers and consumers, and 
led to the special law against cartels.^" 

Although the cartels were vigorously attacked, they were, in fact, 
secondary in importance to the gianis of capitalistic concentration. 
This concentration may be divided into two groups: (1) vertical inte- 
gration for the purpose of rationalization, and (2) concentration for 
currency or speculative purposes. The former group sought to re- 
place the raw material sources or markets lost through the War. 
War and inflation profits and government subsidirs enabled industries 
to provide for installation and equipment maintenance of machinery 
without facing financial difficulties. The second group, which the writer 
prefers to call accumulation, rather than concentration, was an 
morganic, circumstantial collection of values for the sole purpose of 
escaping the currency destruction. These accumulations have been 
called "department store concerns" and the mentality from which 
they sprang "concernitis." Here we may use Andrew Carnegie's 
phrase: "they threw cats and dogs together and called them 
elephants." 

The^ character of the concentration movement of that time may be 
described as follows: there was no transition from cartel to trust 
tendencies; cartels, though increasing in number, were less important 
than the capitalistic concentrations, which were mostly integrations 
largely diverted to tasks foreign to their nature and used, not as a 
means against ruinous competition nor as market control, but as a 
defense against unpredictable economic events. The trend toward 
normality, especially stabilization of currency, credit restrictions, 

'8 Walther Rathenau, Neue Wirtschaft, Berlin, 1918. Aufbau der Qemeinwirtschaft, Denkschrift des 
Reichswirtschaftsministeiiums (Deutsche Qemeinwirtschaft, Heft 9, 10 Jena 1919). Q. Gothein, Plan- 
wirtschaft, Berlin, 1919; R. Oalwer, Oebundene Planwirtschaft, Berlin, 1919. Bericht der Sozialisierungs- 
kommission vom 31. Juli 1920, Berlin 1920. Wissel-Striemer, Ohne Planwirtschaft kein Aufbau, Stuttgart, 
1921; V. Beckerath, op. .■!/., pp. 18 ff.; F. Kestner and O. Lehnich, Der Organisationszwang, Berlin (1927), 
pp. 210 fl.; Fritz Naphtali, Wirtschaftsdemokratie, Berlin, 192S, 35 fif.: L. Mises, Die Oemeinwirtschaft, 
In grondsietzlichen Untersuchuniien unfer Ablehuung eiaer Qemeinwirtschaft, Jena 1932. 

" See Saitzew, op. cit., p. 26; v. Beckerath, op. cit., pp. 32 fT.; Tschierschky, op. cit., pp. 44 ff. 

'0 Carte) Decree against the Abuse of Economic Power, November 2, 1923, changed June 14, 1923, July 16, 
1933 (Reischsgesetzblatl 1923 I, 1067 ff., 1090; 1932, 289 f.; 1933 I, 487). 



CONCENTRATION OF ECONOMIC POWER 



39 



scarcity of liquid capital, led to the breakdown of these concentra- 
tions in 1924.2^ 

RATIONALIZATION 

The last period is that of rationalization.^^ The overexpansion of 
capacity through the immense military demand during the war, the 
shift from war to peace manufacturing, the necessity of large exports 
under the pressure of reparation payments, and competition in world 
markets, caused industry to realize that the war isolation of the Ger- 
man nation had prevented technical progress and had weakened the 
competitive strength of German economy. When demand declined 
and increasing supply produced competition, cartels once more began 
to exercise their function of market regulation, serving in the finishing 
industries as offensive and defensive devices against the all-too- 
powerful raw material cartels. Moreover, resumption of international 
relations led to international cartels such as the Incandescent Lamp, 
Crude Steel, and Rail Cartels. Finally, the big trusts entered the 
scene. After the Dye Trust, there came trusts in the photo, wagon, 
linoleum, and brass-rolling industries. Since the struggle for raw 
materials or markets is no longer of first importance, the concentration 
movement has been impelled toward a horizontal concentration or 
combination.^^ 

EXTENT 

Figures on the number of cartels and combines tell us little about 
the details of economic organization. An organization of such a 
combination of enterprises is a web of incorporeal values which 
cannot be portrayed by figures, even if figures were available. But in 
the field of cartels they are not available; we are dependent upon more 
or less correct estimations. But even the basis of estimation is 
vague. ■ To the reticence of most organizations in disclosing their 
real aims and activities, is added the legal difficulty of definition: 
What is a cartel, and what a harmless trade association or branch 
association ("Fachverband")? Nevertheless, attempts have been 
made and the following daca give' a not too accurate view of the 
industrial cartels in Germany: 



Year 


Number 


Estimated by— 


Year 


Number 


Estimated by— 


1865 

1875 

1887 

1888- 

1889 - 

1890 

1895 

1896 - 

1900 


4 

8 

70 

75 

106 

117 

143 

250 

300 


Sombart. 

Do. 
Philippovich. 

Do'. 
Sombart. 
Bricher. 
Sombart. 

Central Ass'n of German 
Industry. 


1905 

1911 

1922 --- 

1924 

1925 

1930 


385 

550-600 

1,000 

1,500 

2,500 
2,100 


Government Enquete. 

Tsehierschky. 

Liefmann. ' 

Reich Ass'n of German 

Industry. 
Government. 
Wagenfuhr. 



" The most notorious of these speculating economic condottieri were Castiglioni Stumm, Rheinhandel, 

Sichel, Kahn, and Stinnes. 
" The effects of the rationalization are discussed in connection with the "Enquetebeiicht." (See p. 54.) 
"It seems advisable to omit the development of the Labor Movement, although it is closely connected 

with the industrial organization. A compact description is in the writer's "Kartellrecht," pp. 65 ff. 



282317—41 — No. 40- 



40 



CONCENTRATION OF ECONOMIC POWER 



The comparison of the 1905 estimate of the Government Enquete and 
that of 1924 of the Reich Association of German Industry, with respect 
to particular industries, shows this picture: 



Industry 



Mining --- 

Iron. . 

Metal.. 

Chemical... 

Textile... 

Leather and rubber 
Wood.... 



1905 


1924 


19 


51 


62 


73 


11 


17 


46 


91 


31 


201 


6 


46 


5 


44 



Industry 



Paper 

Glass 

Brick --- 

Stone and earthen 

Food.-.- 

Electric 



1905 



6 

10 

132 

27 

17 

2 



1924 



107 
20 

108 
30 
49 
56 



This chart, even if it were unquestionably correct, would be incom- 
plete without a word about the so-called "Spitzenverbande" (Central- 
federations). When the German organizes, he does it thoroughly. 
The German industry has its formation like an army. Just as the 
obstinate non-member of a cartel was considered almost as a deserter, 
so a cartel on its part had to be a member of a larger organization. 
The following federations devoted to various economic purposes were 
engaged in cartel problems, and had particular cartel departments: 

Reich Association of German Industry. 
Reich Association of German Wholesale and Export Trade. 
Central Association of German Banks and Banking. 
Central Association of German Retail Trade. 
Association of Trade Mark Manufacturers. 

These and many others combined in the Central Association of the 
Associations of Enterprises. 

The Reich Association of German Industry was the most powerful 
and active organization, with a cartel department that exercised 
almost official influence. The efficiency of its experts, no less than the 
broad powers of the association, secured to it a dominant position in 
all cartel matters. The scope of its activities included: 

I. Research, consultation, and archives with valuable publica- 
tions, especially reports of the decisions and opinions of 
the Cartel Court. 
II. Cartel policy: Defense of cartels, in general and particular, 
against unjustified attacks; elaboration of cartel prin- 
ciples; law enforcement; representation of industrial in- 
terests. 
III. Cartel arbitration boards according to the different parties 
in interest: Controversies between industrial cartels, be- 
tween retail trade, and industry; between cartels and 
single firms; between industry and export trade; between 
cooperative marketing associations, wholesale and retail 
trade, and industry. 

The Reich Association of German Wholesale and Export Trade also 
had a cartel department especially for the purpose of compromising 
disputes within wholesale associations and between these and others, 
and worked together with the Reich Association of German Industry. 

The Central Association of German Banks and Banking was initi- 
ated by the so-called "Stamp Association" (an association of banks 
originally founded in 1883 in order to procure judicial decisions on 
doubtful questions of the Reich Stamp Act of 1881). The most im- 
portant cartel agreement was the "General Agreement of Association 



CONCENTRATION OF ECONOMIC POWER 41 

of Banks and''Bankers" with the purpose of "fixing reasonable terms 
for the chief banking transactions * * * i^: order to ehminate 
the disadvantageous consequences of a harsh and unhmited competi- 
tion * * *." 

The Central Association of German Retail Trade devoted itself to 
cooperating with industry and wholesale trade iu order to obtain a 
decrease in prices and it was particularly interested in the protection 
of a policy for the maintenance of resale prices of trade-marked articles. 

The Association of Trade Mark Manufacturers had no cartel func- 
tions; it was designed for the purpose of giving manufacturers of 
trade-marked articles aid and protection against the unfair competi- 
tion resulting from price-cutting. 

SPECIAL INDUSTRIES 

Railways.^* 

Since nationalization took them out of the competitive field at an 
early stage, we may disregard them. 

Not only was German shipping not nationalized but moreover it 
has never received subsidies from the German government. The 
two largest shipping corporations in the world, the HAPAG in Ham- 
burg and the North German Lloyd in Bremen, were private enter- 
prises. They were closely tied together by a 50-year community 
contract made in 1930 with one board of directors and two super- 
visory committees, with a profit pool and a loss compensation. In- 
ternationally, they and the other leading German shipping lines were 
in close contact with American shipping pools and the shipping con- 
ferences of lines on other maritime routes. In inland shipping there 
is not a single line which is not a member of one or the other cartel.^' 

Mining Industry — Potash.^'' 

Very early a close syndicate was established in central Germany 
imposing uniform sales terms on its members. When new potash 
discoveries made the potential output exceed any possible demand, 
and many new works rapidly arose, ^^ the syndicate was laced with 
destruction, since the management held prices high despite over- 
production and the old enterprises desired to withdraw. The Reich, 
however, intervened and created a compulsory syndicate in 1910. 
The following years witnessed a further increase in number of enter- 
prises, the price and investment policy became worse, and in 1919 
the socialization law regulated the potash industry with ' the result 
that the potash syndicate comprised of three powerful members 

" An extensive study of the German Railway system by MacMahon and Dittmar appears in the Political 
Science Quarterly, December 1939 and March and June 1940. 

'i See Die deutsche Rheinschiflahrt, Opinion of the Rhine commission on the situation in the Rhine "hip- 
ping and its employees, by B. Harms, B. Kuske, O. Most, Berlin, 1930; L. Wertheimer, Die wirtschaftlichen 
Qrundlagendei Donauschiffahrt, Wien, 1930; Horst Wagenfuehr, Verkehrskartelle in Deutschland, in 
Zeitschrift fur Verkehrswissenschaft, 1931. 

2« See details in Wagenfuehr, op. cit., p. 348. 

" See for the time prior to the World War H. R. Tosdal, The Kartell Movement in the German Potash 
Industry, Quarterly Journal of Economics, Vol. 28, pp. 140-190. For later developments see also T. J. 
Kreps "The American Potash Industry" Journal of Economy and Business History, 1931, Vol. 3, p. 630, 
pp. 653-8. In German: "Die deutsche Kaliindustrie"— Spezialarchiv der deutschen Wirtschaft, Berlin, 
1930; Enquetebericht III, Die deutsche Kaliindustrie, Berlin, 1929; Opinion of Socialization Conunission, 
1921; W. Hoechstetter, Kontingentwirtschaft in der Kaliindustrie, Halle, 1927; R. Liefmann., Kaliindustrie, 
Handworterbuch der Staatswissenschaften, 4th edition, 1923; W. Musold, Die Organisation der Kaliwirt- 
schaft, Berlin, 1926; H. Paxmann, Die deutsche Kaliwirtschaft in kritisch^r Beleuchtung, Berlin, 1929; 
Verhandlungen der Sozialisierungs Kommission iiber die Kaliwirtschaft, Berlin, 1921. 

" The Socialization Commission counted 4 potash enterprises in 1880; 8 in 1890; 15 in 1900; 32 in 1905; 65 in 
1909; 68 in 1910; 194 in 1914 (see Wagenfuehr, op. cit., p. 53). 



42 CONCENTRATION OF ECONOMIC POWER 

(1) the "Kaliblock" (potash group consistmg of the five members: 
Salzdetfurth, Aschersleben, Westerzeler, Burbach, KaH-Chemie A. G.) 

(2) the Wintershall group, both controlling more than 90 percent of 
the potential output, and (3) the "Preupag," the Prussian State 
mines, representing less than 6 percent of the total. The two formerly 
large groups finally adjusted their output to the demand, and the large 
majority of less productive works lay idle. 

Coal Industry}^ 

The organization of the coal industry shows the beginning of the 
cartel movement. In the first, as in the second period of the cartel 
booms, the coal-mining associations were foremost: In 1875 and the 
following years the Ruhr district saw various kinds of combinations, 
particularly among the heavy industries, forwarded by the protection- 
ist tariff ict of 1879. After 1895 the same movement appeared in the 
Rhineland and Westphalia. The following years brought about 
vigorous clashes between the strong opposing interests of the different 
syndicates. 

In the hard coal areas we find four different forms of organizations : 
Very closely organized coal syndicates in the lignite mines with inde- 
pendent wholesale trade in the Rhineland; rather closely organized 
syndicates with dependent wholesale trade in the Ruhr district, in 
close contact with the Aachen pits and the Saar mines, and in the 
Lower Silesia and Saxonia districts : Rather flexible price agreements 
in Upper Silesia; and finally in Central Germany a merely statistical 
and administrative office dominated by wholesale enterprises who were 
opposed to the formation of a selling agency. 

Keen competition between all these organizations, not only in the 
so-called " areas of competition" ("Bestrittene Gebiete"), but internal 
dissensions so grave as to be overcome only by means of Government 
interference, serious difficulties through outsiders, divergence of inter- 
ests between "pure" and "mixed" works (e. g. mines associated with 
smelting and steel works), etc., caused a development similar to that 
which occurred in the potash industry; e. g., in the Ruhr very few 
members produced less than 1,000,000 tons a year, whereas at the time 
of the founding of the syndicate (1893) some 90 percent of the members 
were producing less than that amount. 

At an early stage (1906) the Government had tried to gain a foot- 
hold in the industry. Its first endeavors took the form of acquiring 
shares in the mine, Hlbernia, and in the Rhenish- Westphalian district. 
In 1915, the Bunclesrat prevented the break-down of the Rhenish- 
Westphalian Coal-syndicate by threatening to impose a compulsory 
syndicate unless a syndicate with 97 percent was established "volun- 
tarily." This served as a regulation model for other districts. The 
socialization law (1919), originally designed to abolish private capital- 
istic economy in the mining industry, was a compromise between true 
socialization and public utility principles: This system has been called 

2»See Deutsches Bergbau-Jahrbuch; K. Borchardt, Die wirtschaftspolitische und organisationische 
Tatigkeit des Ceutralverbandes der Kohlenhandler Deutschlands, Berlin, 1920; Denkschrift des Finanz- 
ministeriunisiiber die Lage des wastfalischen Steinkohlenbergbaues, 1931; Enquetebericht III, Die deutsche- 
Kohlenvvirtschaft, Berlin, 1929; Finkensiep, Der rheinis h-westfalische Kohlenbergbau unt„r Beriick- 
sichtigung seiner Sozialisierung, Wuerzburg, 1920; W. liecht, Organisationsformen der deutschen Roh- 
stofflndustrien-Die Kohle, Miinchen, 1924. Holling-Pinkerneil, Die deutsche Bergvvirtschaft der 
Gegenwart, Berlin, 1928; H. Liithgen, Das rheinisch-westfalische Kohlensyndicat in der Vorkriegs-Kriegs 
und Naehkriegszeit und seine Hauptprobleme, Leipzig, 1926; O. Pcheer, Das Niederlausitzer Brikettsyndi- 
eat, Berlin, 1920; E. Schmalenbach, Qutachten iiber den rheinischwesttaiischen Steinkohlenbergbau 
(opinion delivered to Reich Economic Ministry), Berlin, 1928; Verhandlungen der Sozialisierungs Coni- 
• mission uber den Kohlenbergbau 1918-1919, 1920, Berlin , 1920 or 1921. 



CONCENTRATION OF ECONOMIC POWER 43 

an association of private enterprises with public rights and duties 
("System privatrechtHcher Unternehmerverbande mit often thch- 
rechtHchen Befugnissen und Pflichten").^° 

Iron and Steel Industry?^ 

Powerful capitalistic concentrations paved the way for a successful 
cartel organization. Four problems typify the sharp conflicts in this 
industry: (1) Contrast in the interests of ''pure" and "mixed" works, 
(2) regulation of quality products, (3) collaboration between the pro- 
ducing and the manufacturing industries, and (4) complicated trade 
problems. 

The contrast between "pure" and "mixed" works is manifested not 
only in the economic superiority of the latter but even more in the 
struggles for control within the cartels. The vertically organized con- 
cern seeks to exclude outsiders who undersell. Its competitors are the 
"pure" works, and it is interested as a purchaser of raw materials in 
being independent of market price fluctuations, while in its capacity 
as a producer of raw materials it is interested in being allied in a cartel 
with outside Suppliers, the "pure" works. That may result in making 
the concern a member of many cartels. Thus it is the tragic function 
of cartels to pave the way for the vertical combinations by securing 
for them favorable working conditions. Within the cartels, the com- 
petition between the "mixed" and "pure" works sometimes clothed 
itself in a form that led either to absorption of the "pure" works by 
the "mixed" works, or possibly to a permanent struggle for quotas, 
voting power, and influence upon the cartel management. It was par- 
ticularly the problem of "unrestricted use for self" which gave these 
cartels a character quite different from those which were designed to 
secure a peaceful cooperation of enterprises in the same industry .^^ In 
the crude iron industry, the Crude Iron Association had as one of its 
primary functions sustaining the pure works in business. The regu- 
lation of quality products has on the whole failed up to now, although 
in the post-war period the cartelization of certain quality products 
succeeded. The "Staldwerksverband" (Steel Works Union) as a close 
syndicate combined the larger enterprises of the heavy iron industry 
pertaining to mass products (so-called A products), whereas the 
Rheinish-Westphalian enterprises were combined with those of Upper 
Silesia and the coast, with respect to quality production (B products). 
The^Rohstahlgemeinschaft" (Crude Steel Association), created after 
the war, embraced in a loose association only works engaged in mass 
production. The "Arbeitsgemeinschaft der eisenverarbeitenden In- 
dustrie" (Association of the Iron Manufacturing Industry), including 
particularly the machinery and small iron industries, banded together 
members with different and conflicting interests. The trade problem 
is characterized by the unsuccessful campaign of dealers for their inde- 
pendence. The number of dependent dealer groups ("Werkshandel") 

»" For details of structure, see commentaries on the mining law. 

" See: F. Beckmann, Der Zusammenschluss in der westdeutschen Grossindustrie, Koln, 1921; P. Berg- 
mann, Die Kartelleim Eisenerzbergbau und in der Roheisenindustrieseit 1914, Jena, 1923; P. Barkendkopf, 
Die Neuorganisation der deutschen Grosseisenindustrie seit der Wahrungsstabilisierung, Essen, 1928; 
Die deutsche Risen— und Stahlindustrie, Spezialarchiv der deutschen Wirtschaft, Dusseldorf, 1930; En- 
quetebericht, see infra note * * *; F. Hubener, DiedeutscheEisenindustrie, Leipzig, 1923; W. Kriiger, Die 
moderne Kartellorganisation der deutschen Stahlindustrie, Berlin, 1927; K. Kuhl, Avivertrag in der Ma- 
schinenbauwirtschaft, Vol. 4, p. 18; K. Malcher, "Die Syndicatsfrage in der oberschlesischen Eisenhiitten- 
industriein der oberschlesische Wirtschaft, Vol. 1, p. 3; Mannser, Der Stahlwerksverband, Leipzig, 1911; 
Reichert, Die deutsche Rohstahlgemeinschaft, in 17 Montanindustrie Rundschau 1; P. Ufermann, Der 
deutsche Stahltrust; 0. Wiskott, Eisenscheffende und eisenverarbeitende Industrie, Bremen, 1929; E. 
Wolff, Die Unterhehmungsorganisation in der westdeutschen Eisenindustrie, Berlin, 1930. 

" The writer tried to show the significance of this problem for the cartel movement in the hfeavy Industries 
In his "Kartellrecht"; see index: "Werke, reine Oder Qemlschte." 



44 



CONCENTRATION OF ECONOMIC POWER 



has increased, making many formerly independent dealers mere agents 
of the industry. The discrimination between "legitimate" and "ille- 
gitimate" dealers has been a source of coercion and a bar to free access 
to the trade. Concerns of the steel industry, the largest of which is 
the "Vereinigte Stahlwerke A. G." (Combined Steel Works Corpora- 
tion) are practically independent of the market because they either 
possess sufficient resources of their own, especially in coal, or have 
secured their necessary materials through the medium of long-term 
delivery contracts with foreign mines. By increasing the number of 
their products they succeeded in balancing the market conditions. 
The monopoly situation — one may safely say that approximately six 
giant concerns dominated about 80 percent of the German iron pro- 
duction ^^ — may be shown by the following data.^* Around 1930 in the 
pig iron industry 3 of 28 enterprises produced 68 percent of the whole 
output, 3 others 15.2 percent; the small percentage of 3.6 was divided 
among 13 enterprises with an output of less than 100,000 tons. In 
blocked crude steel, out of 49 separate producers, 4 were responsible 
for 68.3 percent of the total output, each turning out over 1,000,000 
tons; 3 others, each producing between 500,000 and 1,000,000 tons, 
represented 12.2 percent; and 26, with less than 80,000 tons each, 
represented 2.7 percent. Out of 22 enterprises in the semifinished 
goods of the steel rolling industry, 3, each with over 150,000 tons pro- 
duction, produced 80 percent of the entire output. In rolling mill 
finished products, out of 59 manufacturers, 3-, each with over 700,000 
tons production, accounted for 55.8 percent of the whole; 4, each with 
between 450,000 and 700,000 tons, represented ♦19.4 percent; 33, each 
with less than 50,000 tons, accounted for 4.4 percent. But any sta- 
tistical picture is incomplete unless it shows whether the industrialists 
mentioned are really independent or are secretly combined with each 
other. For instance, the Vereinigte Stahlwerke A. G. owns a majority 
of the stock of the Mitteldeutsche Stahlwerke A. G., which in turn 
owns a majority of the stock of the steel works and rolling mills in 
Central Germany. Moreover, the Mitteldeutsche Stahlwerke A. G. 
owns a majority of the stock of the Vereinigte Oberschlesische Hiitten 
A. G., which comprises the main part of the enterprises of another 
large production area.^^ The interests of the Vereinigte Stahlwerke 
A. G. in different associations may be stated thus : ^^ 



Association Percent 

Pig Iron Association 48. 47 

Steel Ingot Syndicate _._ 46. 82 

A- Products Association. 48. 96 

Bar Iron Association 41. 94 

Flat Bar Association 48. 59 



Association Percent 

Rolled Wire Association 38. 75 

Heavy Plate Association 47. 13 

Tube Association 50. 2 

Coal Syndicate. 35. 84 



Chemical Industry.^'' 

The conditions of the chemical industry differ from others discussed 
here in that the chemical industry includes many different branches 

33 Wagenfuehr, op. cit., p. 63. 

•* See Committee for the Investigation into the Conditions of Production and Distribution in German 
Industry (Enqueteausschuss), E 20, pp. 37 fl. 

«» Ibid., p. 31. 

20 See Robert Liefmann, Cartels, Concerns, and Trusts, Methuen, London, 1932, p. 253. 

" See B. H. Barg, Die Explosivstoflindustrie, Hamburg, 1929; L. Bauer, Der Zusammenschluss In der 
deutschen Petroleumindustrie, in Wirtschaftskurve, 1925, Die chemische Industrie des Deutschen Reiches, 
Issued by Associations of the Chemical Industry, Berlin, 1930; Enquetebericht III: Die deutsche chemische 
Industrie Berlin, 1930; C. Hurth, Die deutsche Zuendholzindustrie in der Nachkriegszeit, Jena, 1929; T. 
Langen, Der Benzolverband. Halle, 1929; "Die deutsche Mineralolindustrie und verwandte Teerproduk- 
tenbetriebe, published by Zentralverband von Mineralol-Handel & Industrie E. V. und Herzenberg, 
Leipzig & Berlin, 1929. 



CONCENTRATION OF ECONOMIC POWER 45 

of industrial activity which utiHze chemical methods of production. 
All industrial production consists either in a change of formation or 
in a change of material. In the branches of mechanical production, 
original material is merely changed in form; e. g., machines are made 
from iron, textiles from animal or vegetable fibres. In chemical 
production, however, the very substance itself is changed. This, 
consequently, exists as the only common feature of many quite 
dissimilar branches of the chemical industry, e. g., pharmaceutics, 
cosmetics, explosives and powders, benzol, soaps, matches, artificial 
fertilizer, dyestuffs, synthetic silks, photographic supplies, 6tc., etc. 

In this very compact survey then we can touch only upon a few 
of the more important economic problems, and this in broad general- 
ization.^* The chemical industry, more than any other, is constantly 
affected by new discoveries and new methods, consequently there is 
constant need for new mechanical inventions to adapt equipment to 
technical progress.^® It is ipipossible to protect these processes and 
inventions adequately by patents. This led to the wave of rational- 
ization and combination of similar enterprises, since only a capitalistic 
community of interests permitted the interchange of experiences and 
discoveries, and further acted as a shield against breach of confidence. 

In the post-war period the chemical industry suffered from a loss 
of markets because of the increased productive capacity in many 
countries, high protective duties (especially in England) and foreign 
trade monopolies (e. g., in Russia); furthermore, overproduction was 
inevitable since the war demand for explosives had led to a large 
expansion of capacity. Hence, rationalization became an urgent 
necessity. For the chemical industry rationalization such as that 
occurring in the mining or machine industry, i. e., through an improve- 
ment of production methods or through labor cost saving, was an 
impossibility, since most of the chemical process requires little human 
labor. The most efficient way to reduce costs was to combine enter- 
prises with like production methods and to allot production to the 
best-equipped establishment. Thus in the I. G. Farbenindustrie 
A. G., products formerly made in scight separate factories now were 
produced in only one or two. For instance, "indanthren" dyestuffs 
were made exclusively in Ludwigshafen, wool and silk dyestuffs only 
in Hoibst. 

Concentration grew, however, for reasons inherent in the chemical 
industry. In mechanical industries the production of one branch is^ 
as a rule, clearly differentiated from other branches, a demarcation, 
which is sometimes, as in the mining and iron industries, diminished 
by concentration. In the chemical industry, however, a rigid special- 
ization of production, e. g., with respect to the last use, is impossible. 
The chemical industry involves multitudinous combinations of ele- 
ments or components, and various enterprises limit themselves to the 
production of certain articles only because no plant can engage in. 
the production of all possible produots. Choice is made difficult 
because there is a very close connection between different , branches 
and niethods of this industry. Then there is a lower range of problems 
peculiar to the chemical industry; for instance by-products and waste 

" To the following see Enquetebericht "Die chemische Industrie" which in almost every chapter empha- 
sizes the impossibility of detailed representation. 

'• As to the "Chemical revolution" or the "Chemical Phase of the Industrial Revolution" see T. J. Kreps, 
Chemical Industry, in Encyclopedia of the Social Sciences and Th6 Economics of the Sulfuric Acid Industry, 
Stanford University Press, 1938; also W. Haynes, Chemical Economics, 1933. 



46 CONCENTRATION OF ECONOMIC POWER 

products may become end-products like all the others; experience, 
discoveries, and inventions are mutually interchangeable; nearly all 
products are at once both marketable and susceptible to use in further 
production; etc. A diversity of production is the only protection 
against the risk of obsolescence. 

These circumstances explain why in all countries with a large chem- 
ical industry the enterprises are of tremendous size, both with respect 
to the number of factories and the variety of articles produced.*" 
Regarding the selling organization, it must be adapted to a number of 
markets since nearly every product has a different group of customers. 
There is a large wholesale and retail trade, but also a direct contact 
between industry and ultimate consumer. In view of the nature of 
the merchandise the producer must inform the ultimate consumer as to 
transportation. (gas and explosives), storage (change of temperature), 
use (poison), etc. The widespread use of trade-marked articles, par- 
ticularly in the pharmaceutical, cosmetic, and photographic industries 
is another reason for such immediate contact. 

The cartelization net is tight,*' the cartels — of which the Nitrogen 
Syndicate *^ and the Selling Association for Tar Production are the 
most important — are predominantly "syndicates." *^ Besides, the 
industry is organized in a general central federation, the "Verein zur 
Wahrung der Interessen der chemischen Industrie Deutschlands" 
with numerous local branches. Although there were some inde- 
pendent enterprises left, competition has been almost eliminated. 

Banks and Industry. 

It has been explained ^ that in Germany the banks, particularly the 
joint stock banks, were not only credit organizations but were also 
"politico-economic instruments," as typical of German mentality as 
the large scale enterprises, trade unions, or cartel syndicates, and 
that it was due to the power and credit policy of the great banks 
that German industry grew into powerful capitalistic concentrations 
and cartels. In the last half of the preceding century, the banks, 
through an accumulation of capital due especially to the import of 
precious metals and the use of tke banks as depositories, began to 
exercise power over industry which they aided in the stormy rush to 
concentration.*^ In their role as underwriters, creditors, holders of 

" The structure of the giant German Dye Trust, the I. Q. Farbenindustrie A. O. Is (according to Lief- 
mann, op. dt., pp. 316 ff.) as follows: 

I. At the time of its foundation: 13 key firms; 5 firms for artificial fertilizers and agricultural requisites; 
5 chemical factories; 9 electro-chemical and metallurgical factories; 18 coal, brown coal, and oil works; 3 works 
for compressed gases; 5 textiles; 10 foreign marketing companies; 5 various. 

II. Later: Relationship with the largest German artificial silk firms and. partly through these and partly 
direct, with the English Courtaulds Ltd. and the American E. I. du Pont de Nemours & Co., relation- 
ship through the newly acquired explosives concern with the English Nobel Dynamite Co., relationship 
with the Norwegian Norsk Hydro Elektrisk Kvaelstof A. G., relationship with the Standard Oil group 
and the Royal-Dutch Shell group, relationship with Ford Motor Co. Financing companies are: The 
SwLss Internationale Gesellschaft fiir chemische Untersuchungen and the American I. G. Chemical 
Corporation. 

III. The varied products of the trust are divided up into 5 different groups: (l) dyestuffs, (2) nitrates, 
(3) pharmaceutical and pest destruction products, (4) photographic products and artificial silk, (5) inorganic 
and intermediate products. 

•' According to the opinion of Dr. Bosch in the Enquete hearings, the Dye trust was a member of no less 
than 70 cartels. (See Enqueteausschuss, E 19, p. 133.) 

" This syndicate in 1925 embraced 75 percent of the industry; in 1926, 99 percent; in 1930. 98 percent; 
which meant 5 members: I. O. Farben, Bayerische StickstofTwerke, Deutsche Ammoniak-Verkaufsverein- 
igung, Kokswerke & Ghem. Fabriken A. G., Wirtschaftliche Vereinigung deutscher Gaswerke Gas Koks- 
syndicat A. G. 

<5 See supra note 13. 

" W. F. Bruck. Social and Economic History of Germany from William II to Hitler, 1888-1938, Oxford 
University Press, 1938, pp. 80 ff. 

" J. Riesser in The German Great Banks and their Concentration (Washington, JOll) remarks: "The 
German banks have used their resources and their organization in a one-sided and excessive manner in the 
Interests of trade and industry and too little in the interest of agriculture" (p. 223). 



CONCENTRATION OF ECONOMIC POWER 47 

large blocks of shares, proxies for their customers, and members of 
supervisory councils (in many cases as chairmen of a great number of 
those councils), their influence can hardly be exaggerated. But 
ignorance of correct principles, a certain megalomania in borrowing 
as well as in lending, were the reasons why banks were willing to 
extend to industry too much long-term credit — often at the wrong 
time and for wrong purposes. ^^ This effervescent enthusiasm, with 
a good portion of speculative spirit, led to the vicious circle in w^hich 
borrower and lender were dependent upon each other. It used to be 
said: "The more you borrow, the safer 3^ou are." Finally, the bank 
became the entrepreneur itself since it could not withdraw its credit 
without positive danger of loss, and the enterprise could never change 
its bank. As the collapse of their debtors was not to the interest of 
the banks, they used the whole of their influence to bring industry 
into the haven of peaceful understanding and stable prices. "So 
banks often succeeded in breaking the resistance of individual under- 
takings to a combination"^^ having "the power to coerce their cus- 
tomers into joining cartels or special combinations." *^ When indus- 
try grew, particularly in the turbulent post-war times, the joint-stock 
banks could no longer cope with this size. The powerful integrations 
and concentrations of that time created a new financial device, 
finance or joint stock capitalism, which consisted in mutual exchange 
of blocks of shares in the various enterprises. In these transactions, 
again, the banks played a role ^^ so. important as to justify the state- 
ment that to write the history of Germany's great banks, one would 
have to write the history of her big industrial trusts. 

LEGAL DEVELOPMENT OF THE CONCENTRATION 

MOVEMENT 

The cartel movement '" in Germany began to a major extent, as 
we have seen, after 1873.^^ At that time there was no statute specifi- 
cally directed against cartel agreements. The first and fundamental 
decisions of the German courts were based almost without exception 
on economic considerations favorable to those associations. In the 
first case ^^ where an association of Bavarian kiln owners, formed for 
the purpose of "checking the decline of their industry by regulation 
of production and prices," brought a suit against a member who had 
violated the agreement by producing and selling in excess of the 
quota, the Bavarian Supreme Court held that it would be "incum- 
bent upon prudent businessmen belonging to a branch of industry 
which is suffering from a depression to get together and enter into 
agreements regulating the ways and means of operating their industry 
with a view to promoting recovery." The defendant was so over- 
whelmed by this argument that he reduced his attack to the conten- 
tion that the purpose of the association, as stated in the bylaws, 

« Riesser, op. cit., p. 230. Felix Somary, Bankpolitik, Tuebingen, 1030 ('2nd ed.), refers to H. O. Moulton 
m saying thnt the American Banls: system has much in common with the German system despite some odds 
and epitomizes "The German and partly also the American banks are active, purposeful guides in the 
employment of capital, the English most neutral, indifferent moneygivers" (p. 272). 

" Bruck, op. cit., p. 86. 

« Ibid. 

«/M.,p.89. 

«" There is no law in Germany controlling forms of business organization other than cartels. 

" In German see Callmann. op. cit. Excellent discussions in American law journals written by J. Wolff, 
Tulane Law Review, April 1935, p. 325, R. Wolff. Iowa Law Review, January 1936. p. 355. 

"Bavarian Supreme Court of April 7, 1888, in Reports of this Court, Vol. 12, p. 67 (Kiln Owners Asso- 
ciation). 



48 CONCENTRATION OF ECONOMIC POWER 

was not the real one, and that there had been a substantial rise in 
prices as a result of the cartel. The court, however, dismissed the 
argument by saying that the inference was unwarranted. Although, 
as is the case in the economic literature of all countries, the views of 
German economists are, and always have been, extremely widely 
divided, we find a surprising boldness in economic theories like these: 

Overproduction is disastrous for an industry, especially when market price drops 
below production cost so that every effort to eliminate overproduction is directed 
at an economic evil and is, therefore, to be commended. Since the individual 
producers are powerless to restore the proper balance between supply and demand 
by limiting their own output, the only way to bring about such result is for them 
to combine and agree on such limitation. [Italics supplied.] 

In a subsequent suit brought by the same cartel against another 
member the same court argued : ^^ 

Experience teaches that the more the price of goods advances, "the more insistent 
will be the demands of labor for higher wages, and the more easily will manufac- 
turers be able to meet these demands; on the other hand, a depressed trade 
yielding little or no profit will immediately react adversely on the wage level 
and must eventually lead to the shutting down of plants or the curtailment of 
their operations, thus causing serious injury to the workers employed therein. 

Then, we come to the first cases in which the German Supreme 
Court held cartel agreements legal. It approved both the system of 
resale price fixing for trade-marked articles and the boycott ("Sperre," 
bar) against outsiders.^* The most important and decisive case for 
the entire period up to 1923 was that of 1897. It dealt with the cartel 
of Saxon woodpulp manufacturers formed by a "substantial" number 
of the manufacturers for the purpose of "stopping ruinous competition 
and of securing a reasonable price for their products." The court 
rested its decision upon the following economic reasoning: 

When the prices of the products of an industry fall to an unreasonably low level 
and the profitable operation of the industry is thereby endangered or made im- 
possible, the resulting crisis is detrimental not only to the individuals affected, 
but also to the national economy as a whole, and it is, therefore, to the interest 
of community that prices should not be constant at an unreasonably low level.*^ 

"The legal arguments of the courts were derived from two points of 
view; one was the problem of whether the German law was based 
upon the principle of free competition, in the sense that the law will 
endeavor to preserve competition; the other raised the question of 
whether the cartel agreement proper, in the light of the circumstances 
of the particular case, violated sections 138 and 826 of the German 
Civil Code of 1900, declaring contracts against public policy to be 
,void and allowing damages for intentional injuries. 

The former question was disposed of by the Court ^^ in distinguish- 
ing two aspects of the problem: first, whether a cartel contract 
violates the principle of freedom of trade as laid down in the statute 
of 1869/1871 regulating trade and commerce "insofar as the lawgiver 
sought to promote the interests of society in general through freedom 
of trade"; and, second, "whether the personal liberty of the individual 
is impaired by such contracts in a manner contrary to the law." 

" Dec. 27, 1888, lb:(l., p. 22. 

«< Decisions of the German Supreme Court of June 25, 1890 (volume 28 EQZ, p. 244), and of February 4, 
1897 (volume 38 RGZ, p. 155; Saxon woodpulp case). 

" In none of the decisions is any mention made of possible disadvantages of cartels, although today, as is 
the case with so many other economic problems, the discussion is in a highly controversial stage. 

w This problem was particularly discussed in the Saxon Woodpulp case (see 38 RQZ, pp. 156 ft.). For 
an elaborate examination of this case, see J. Wolff, op. cit., pp. 330 ff. 



CONCENTRATION OP ECONOMIC POWER 49 

Both questions were answqred in the negative, although it is expressly- 
mentioned that this view is not in harmony with others "especially 
held outside of Germany." 

As to the first question, the Court reasoned that freedom of trade 
was introduced not only in the interest of the individual, but also in 
the interest of society and that a combination of individuals "in the 
interest of society" is not contrary to this principle. The public in- 
terest, however, requires that businessmen combine when prices are 
so low as to threaten ruin ; thus, the combination has to be considered 
a legitimate means of self-preservation. In only one case could the 
contract not be enforced, i. e., "where the purpose of the combination 
is to create a monopoly and to exploit the consumers, or if monopoly 
and exploitation of consumers actually result from the operation of 
such combination." This was found not to be the case. 

As to the second question, the courts have held that Section 1 of 
the statute regulating trade and commerce " should not be so inter- 
preted as to deprive the individual of the right to enter into contracts 
which restrict his conduct of his business, provided such restriction is 
only temporary and not permanent. This is practically the same as 
the Anglo-American law of restraint of trade prior to the Sherman Act. 

It is not surprising that in these circumstances the courts also held 
in favor of the cartels under Sections 138 and 826 of the German Civil 
Code, concluding that neither the purpose of the combinations nor 
the methods employed by the cartels were contra bonos mores. This 
interpretation of these two sections to the effect that only intentional 
violation of ethical principles should be illegal, might account for the. 
lack of specific findings, e. g., as to the causes that led to the alleged 
depressions in the respective industries, as to whether the market price 
had actually dropped below production cost, as to whether the rise in 
price caused by the cartel was reasonable. For acting against public 
policy could not be assumed unless one had acted in bad faith; hence, 
evidence of the good intentions of the cartelists would have been suffi- 
cient to support the favorable decision of the courts; unfortunately, 
however, even such evidence is lacking.^^ 

For about 30 years the judiciary, fostered the industrial combina- 
tion movement in this manner, so that when eventually public opinion 
clamored for a special statute against the abuse of power by cartels 
it was too late to forbid them altogether. This statute ^® introduced 
two innovations: (1) It laid down substantive law as to the possi- 
bilities of misuse of economic power. This, however, applied only to 
cartels, so that the title of the act, holding out prospect for a compre- 
hensive statute regarding all monopolistic situations, was misleading. 
(2) The activities of the cartels were subjected to a new method of 
positive regulation and supervising, the weight of which was trans- 
ferred from the judiciary to the executive branch of the Government, 
to the Cartel Court, a special tribunal which really was an adminis- 
trative body, and to the Minister of Economics. 

New cartel decrees arose out of the economic crises in 1930 and 1933. 
The Emergency Price Control Ordinance of July 28, 1930, gave the 
Minister of Economics power to declare price-fixing agreements void 

" The section reads as follows: "Every person shall be free to engage in trade * • *." 
" For a discussion of the effect on the decision of the economic and social views of the judges, as repre- 
sentatives of the dominant class in Germany, and the different philosophies of many groups favoring 
cartels, see Hearings before the Temporary National Economic Committee, Part 2.1, pp. 13354-13355. 
« See supra note 20. 



gQ CONCENTRATION OF ECONOMIC POWER 

without resort to the Cartel Court. He could also lower or abolish 
import duties on cartel-controlled commodities.^" 

From that time on, cartels lost their natural functions and, almost 
as durinsj the World War, their form became subordinated to political 
purpose.'^^ As"Gleichgeschaltete," i. e., national socialized organiza- 
tions, and as compulsory cartels they became means of a new admin- 
istration, means of economic coercion for political purposes in the 
hands of a totalitarian state.^^ 

THE GERMAN TEMPOKARY ECONOMIC COMMITTEE ^a 

The year in which the German counterpart of the T. N. E. C. was 
born, 1926, fell in perhaps the most dangerous period of Gerrnany's 
post-war economy. An interim stabilization had been achieved. 
The Dawes committee was making an inventory of Germany's pohtical, 
financial, and economic situation in order to reduce the reparations 
problem to manageable proportions. Foreign loans, according to the 
plans of this committee, were designed to stimulate the German 
economy. State railways were removed from the control of the 
Government, as were also the currency banks. In the midst of the 
general economic distress between two short periods of pseudo- 
prosperity ®^ the "Enqueteausschuss" was estabhshed to inquire into 
the origin and the repercussions of the economic crisis. ^^ 

The German Government charged this committee with inquiring 
into the production and market conditions of the whole German 
economy, in order to furnish a basis for fixing the German reparation 
payments.^® The chief problems for consideration were to what 
extent was the economic depression caused by demand and supply 
conditions, respectively; was it possible that general conditions of 
production caused the economic stagnation; or could it be traced to a 
change in market conditions, i. e., shrinkage of domestic purchasing 
power, the immense changes in world markets, and especially by the 
disappearance of consumer areas which had turned to manufacturing? 

60 For the scanty use made of these measures by the Ministry of Economics see hearings before the Tempo- 
rary National Economic Committee, Part 25, pp. 13357-13358. 

6' For a detailed discussion of developments after 1933, see pp. 63-70. 

«2 See also F. Pitigliani, The Development of Italian Cartels Under Facism, Journal of Political Economy, 
1940, p. 375. 

63 "Enqu(>teausschuss" — "Ausschu.ss zur Untersuchung der Erzeugungs — and Absatzbedingungen der 
deutschen Wirtschaft." The reports and hearings are published by E. S. Mittler und Sohn, Berlin, from 
1928-1931, in about 100 volumes. The 20 volumes which are of special importance to this study are referred 
to as follows: 

E-1. Gesamtbericht (Summary & General Report) of the Chairman, Dr. Bernhard Dernburg. 

E-2. Allgemeiner Teil, Band I: Ziele & Organisation des Enqueteausschusses. 

E-3 and E-4. Allgemeiner Teil, Band II: Teil A and B: Britischer Enqueteausschuss fur Industrie und 
Handel. 

E-5. I Unterausschuss, 1. Arbeitsgruppe: Die Einwirkungen der Gebietsabtretungen auf die deutsche 
Wirtschaft. 

E-6. 2. Arbeitsgruppe: Die innere Verfleehtung der deutschen Wirtschaft. 

E-7. 3. Arbeitsgruppe: (I) Wandlungen in den Rechtsformen der Einzelunternehmungen und Konzerne. 

E-8. (II) Entwicklungslinien der industriellen und gewerblichen Kartellierung. 

E-9. a. Arbeitsplan und Maschinenbau. 

E-10 and E-11. b. Bau- und Baustoflfindustrie. c. Textilindustrie, Teil A and B. 

E-12. (Ill) Wandlungen in der aktienrechtlichen Gestaltung der Einzelunternehmen and Konzerne 
(Generalbericht). 

E-13. (IV) Kartellpolitik, 1. Generalbericht (General Report). 

E-14. 2. Vernehmungen ("JTearin-js). 

E-15. Ill Unterausschuss, 1. Die deutsche Rohstoffversorgung der deutschen eisenerzeugenden Industrie. 

E-16. 2. Die deutsche Kaliindustrie. 

E-17. 3. Die deutsche Kohlenwirtschaft. 

E-18. 4. Die deutsche Elektrizitatswirtschaft. 

E-19. 5. Die deutsche chemische Industrie. 

E-20. C. Die deutsche eisenerzeugende Industrie. 

6< The first pseudo-prosperity was in 1924 due to the stimulus given by the Dawes Loans, the second In 
1927, caused by the labor conflicts in British coal mining and rationalization movement in German industry, 
and the gradual reaccessibility of the world market for German products supported by a stream of foreign 
capital. 

«» Enqueteausschuss, E-1, p. 9. 

M Enqueteausschuss, E-2, p. 16, . 



CONCENTRATION OF ECONOMIC POWER ^l 

The Enqueteausschuss divided itself into five subcommittees: 
Subcommittee I inquired into the general economic structure; Sub- 
committee II, into special conditions in agriculture; Subcommittee 
III, into industry, trade, and handicrafts; Subcommittee IV, into labor 
problems; and Subcommittee V, into banking and finance. 

Subcommittee I was again divided into a number of groups to wliich 
it assigned investigations with respect to economic and legal problems 
of domestic economy, as weU as problems of the export trade, trade 
balance, and the consequences of territorial losses through the treaty 
of Versailles. The third of these groups devoted itself to "Trans- 
formations in the Comparative Formations of Enterprises" and to 
"Cartel Policy." In the foreground of its inquiries stood the joint 
stock company and the discrepancy between its statute and common 
law, the concentration movement in industry, and the problems of 
cartel state policy. The investigations of this group, both with 
respect to corporation law and cartel policy, were completed particu- 
larly by Subcommittee III concerning the iron and steel, potash, coal, 
electrical, and chemical industries. 

The method of the "Enqueteausschuss" was similar to that of the 
T. N. E. C. Written opinions by experts on economics and law, and 
testimony of these and other leading personalities in practical business 
life, formed the basis of reports, augmented by questionnaires and 
other miscellaneous information.^^ After general discussions concern- 
ing the dissimilarities existing between the provisions of the Com- 
mercial Code of 1897 and practical developments based on court 
decisions, the committee dealt specifically with horizontal and vertical 
concentration in industry. Like the T. N. E. C," it selected some 
representative concerns and investigated the following examples: the 
concerns of the iron industry, the electrical industry (A. E. G.-AU- 
gemeine Elektrizitatsgesellschaft; Siemens Konzern), the I. .G. 
Farbenindustrie (Interessengemeinschaft Farbenindustrie A. G.-F. G. 
Dyestuff industry. Joint Stock Company), the linoleum industry, and 
the department store concern Leonhard Tietz A. G. 

COMBINATION MOVEMENT IN PRIVATE INDUSTRY 

An extraordinary lessening of competition in food supply and raw 
materials spheres in the post-war period was not peculiar to German 
economy. Price regulatory methods changed, depending upon the 
product, the predominant forms of organization of enterprise, and the 
market situation. A goal common to all, to be achieved by regulation 
of production, was the elimination of the cause of over-supply, and the 
establishment of a stable price basis. Both associations of farmers 
and national and international trade associations, aided by state 
associations and finance-capitalistic methods, as well as by actions of 
domestic and foreign trade policies, attempted a total regulation of 
markets on a world-wide basis. All theee attempts to control markets 
led to a far-reaching inelasticity of prices. The pressure of supply 
and enormous price fluctuations increased price risks to the entre- 
preneurs. This was particularly true in the textile industry, building 
material industries, and flour mill industry. 

w E. g., see Enqueteausschuss, E-2. p. 18; E-7, p. 2; E-8, p. X; E-12, p. VII. 



■^ 



52 CONCENTRATION OF ECONOMIC POWER 

The details of this movement so far as it pertains to the combination 
movement of private industry itself (epitomized as self-government of 
business) may be discussed under the following headings: ^^ 

Goals and Effects oj Concentration. 

The goals and effects of concentration are, in the opinion of the 
committee, rationalization of enterprises with respect to their teclinical 
and commercial efficiency, in the interest of private capital a,nd public 
economy.®^ Technical progress and economic crises, especially such 
extraordinary blows as those suffered by Germany in consequence of 
the World War, inflation, and the increased burden upon industry 
from outside and inside, favor this movement. ^° Horizontal com- 
bination — i. e., in the same line of production — is usually effected by 
joining corporations into a single, legally -unified enterprise J' In cases 
of vertical combination — i. e., in different economic lines — the technical 
form of combination is, as a rule, either the so-called "association of 
interests" (Interessengemeinschaft),^^ or the contract for lease of the 
business ("Pacht-oder Betriebsueberlassungsvertrag"). The state- 
ment in the report " that "it is easier for a large combination of enter- 
prises than for single small corporations to obtain agreements with 
trade and authorities," implies that the convincing force in those 
conversations is the existence of economic power on'the part of con- 
centrated industry, rather than arguments as such. 

The Economic Classification oj Concerns. 

Concerns are classified economically from tv^^o points of view: (1) 
The distribution of power within the combination which is economi- 
cally a unit and* legally a combination of independent enterprises; 
(2) the position of these legally independent enterprises in the scale 
of economic processes. The relation as to power may be that of 
coordination or subordination, and according to this we choose terms 
like "parent" or "daughter" corporation, "roof," "key," "control," or 
"organ-" corporation. The position of the single enterprise within 
the scale of economic processes may be called horizontal or vertical. 
The committee, for example, compares the horizontal department 
store concern of Tietz, predominantly engaged in the distribution of 
goods, with the vertical steel concern, the activity of which covers the 
whole line of process from coal mining to the production of finished 
iron goods.^^ 

Form of Concentration. 

The form of concentration may be achieved by means of the acquisi- 
tion of shares, contracts, interlocMng directorates, or by a combina- 
tion of several of these. Considered first of all was the economic 

«8 The committee deals fundamentally only with those forms of concentration in which the companies 
remain legally independent. The genuine merger (see p. 54) is mentioned in some special considerations 
of particular industries where economic peculiarities draw attention to a specific case. The combinations 
consisting of legally indepen<lent but economically dependent corporations are discussed in connection with 
the problem of how far the concentration movement caused the discrepancy between written and common 
corporation law, as mentioned above, and how far transformations of this law arc the necessary consequence 
of the repercu.ssions of this part of the combination movement. This problem is not connected with the 
subject matter of the American investigation. 

«» Enqueteausschuss, E-13, p. 67: E-14, pp. 373 (Thyssen), 374 (Volger), 405 (Deutsch), 437 (Bosch), 
454 (Schaller). 

'o Enqueteausschuss, E-13, p. 67: E-14, p. 470 (Hazen). 

'■The most remarkable examples in German industry are: Vereinlgte Stahlwerko A. G., Siemens-Halske 
and .Schuckert, Deutsche Linoleumwerke A. O. 

" The famous Interessengermeinschaft "I. G. Farben," Germany's paramount chemical trust, is a hori- 
zontal combination which originated from a cartel-like organization. 

" E-13, p. 67. 

■< Enqueteaus.schuss, E-13, p. 66. 



CONCENTRATION OF ECONOMIC POWER 53 

purpose, e. g. whether it was the best way to the most complete 
rationahzatioii. Besides, there were legal problems such as voting 
rights, or the invalidity of contractual agreements with respect to 
the dissolution of a combination, or provisions of the corporation 
or taxation laws. And the report recognized that it was necessary 
to leave enterprises outwardly independent in order to enable them 
to act "independently" in the competitive struggle. If for example, 
A, the supplier, and B, the purchaser, are combined, purchaser C 
would not like to buy from A if he knew the relationship between A 
and his rival B." 

(a) The acquisition of stock can be for the purpose of investment 
or of domination; we deal only with the latter. The degree of this 
finance-capitalistic transaction varies; sometimes the dominant cor- 
poration owns all the stock of the other ("one-man corporation"); in 
the case of "parent" and "daughter" corporation the leading corpor- 
ation has obtained only a .preponderant influence upon the other. 
In addition, there are minority interests. Moreover, the acquisition 
of stock can be unilateral or mutual, according to whether it is with 
or against the will of the management of the dominated corporation. 

It has been discussed from the legal point of view whether it is 
possible to consider two economically combined enterprises as legallj^ 
separate and independent. The German Supreme Court first held 
that the two corporations are legally, as well as economically, a unit 
("theory of uniformity"), but in a later decision changed this opinion. 
This is the weight of authority. Practically, the theory of uniformity 
would lead to the result that the creditors of the dominant corporation 
are on equal footing with the creditoi's of the dependent corporation. 
Many problems with respect to different fields of legal consideration 
are open to question in this respect. ^^ 

The advantage of this kind of concentration for capitalistic interest 
lies first in the possibility of obtaining with small means a decisive 
influence upon a large corporation by means of hooking up one 
holding-daughter corporation with another, each of which has a 
smaller capital than the large corporation, but owns an interest in it. 
Moreover, it is easy to invade a competitor corporation surreptitiously 
through acquisition of a large minority or even majority of stock. 
For taxation reasons, these kinds of entanglements were not so usual 
in Germany as in the United States. ^^ 

In certain instances special corporations are formed for the sole 
purpose of managing the whole concern. Usually, it is the selling 
organization which is assigned to a legally independent daughter cor- 
poration. Those "organ corporations" do not strive for a profit of 
their own, but are established to serve the concern, the community, 
and its members; in this way the concentration movement has created 
a new type of corporation (joint stock corporation, or G. M. B. H.)^^ 
which has the form but not the function of the ordinary business 

'« See Enqueteausschuss, E-14, p. 432 (v. Siemens). See also E-13 p. 84, with respect to trade-marked 
articles. There is no hint either in the hearings or in the report to the effect that such a masquerade could 
be unfair competition. 

" Enqueteausschuss, E-13, p. 72; see esp. Joseph Flechtheim's opinion, E-14, p. 40 ff. 

" Compare the passage in the statement of August 23, 1941), by the President of the United States when 
he signed the Investment Company Act of 1940 with respect to the situation in this country: "During 
the 1930's, these corporate monstrosities had been permitted to pyramid stock holdings on top of stock 
holdings until a few men on the top, with only a microscopic investment of their own, could control the 
smallest action of those who ran the far-flung operating companies at the base of the pyramid." 

^9 The "Qesellschaft mit besehraenkter Haftung" is a corporation consisting usually of a few members 
who are liable only to the amount invested in the corporation. 



^4 CONCENTR.\TION OF ECONOMIC POWER 

corporation. These "organ corporations" are akin to the manage- 
ment or selHng agencies of the cartels (syndicates). 

(b) Concentration through contract is a contract providing for profit 
sharing or management, either with respect to the whole enterprise, 
to production, or to selling. The problems arising from those corpo- 
rations have been of a legal nature, peculiar to provisions of the Ger- 
man corporation law, of little interest to the American reader. ^^ Con- 
tracts for lease of the business have already been mentioned. ^° These 
are contracts usually made between a dominant and a completely 
subservient enterprise, where the relationship may be compared with 
that between employer and employee. They are used especially 
between a supplier of raw material and a manufacturer of finished or 
semifinished goods. 

(c) Interlocking directorates are formed as a means of obtaining 
miform administration, which is necessary wherever the legally inde- 
pendent enterprises form an economic entity. In most cases the par- 
ent corporation delegates members of its administration to the super- 
visory committee of the daughter corporation.^^ Here the choice of 
form depends upon the personalities both of the controlling delegates 
and the controlled managers. According to the power relationship 
between the companies we may find unilateral or mutual exchange of 
directors. Sometimes there are regular meetings of the managers or 
supervisors of the combined companies, and in such a case concen- 
tration may be the first step in the formation of a merger.*^ 

(d) Merger (fusion) is the amalgamation of enterprises which 
thereby lose their economic and legal independence. The committee 
discussed at length the advantage of the fusion, and came to the con- 
clusion that it alone made a radical rationalization possible, not only 
because such a revolutionary transformation is impossible under the 
menace of a potential dissolution, but also because only complete unity 
among persons working in the business can create a solidarity of 
interest and a common community spirit. ^^ 

Characteristics of Concentration}*^ 

Concentration favors the rise of monopolistic market positions and 
is a form of collective monopoly between a cartel and a trust.^^ 

(a) Rationalization. — Rationalization was one of the prevaleilt 
motives of concentration.*^ What were its repercussions afi'ecting the 
cost element of enterprises or industries, unemployment, and the 
structure of enterprises? The committee states with resignation that 
the experts testified "one-sidedly and mostly only according to nar- 
rowest interests, preponderantly employee or employer interests." ^^ 

78 Fr>r details, see Enqueteausschuss. E-13, p. 76 et seq. 

80 P. 8. 

81 Under the German law, the Joint Stock Corporation is provided with two ad'.iinistrative bodies, the 
board of directors ("Vorstand") and the supervisory committee ("Aufsichtsrat '). The btter is elected by 
the general meeting of shareholders, the former generally by the latter. Fund iuns arr divided so that the 
directors are engaged in the regular work of the daily business life, while the mombers of the supervisory 
committee are expected to control general commercial development, and lUe st itus of the enterprise. 

82 The committee discussed the interesting legal problem of how a moa^'i'^r of a company board has to 
decide when some transaction is in debate which is disadvantapeous t.^ i,;ie company, but advantageous 
for the concern. The problem is by no means clear: See Enquete ausschuss, E-13, p. 8l", Flechtheim opinion 
E-14, p. 32, and literature quoted therein. 

83 See Enqueteausschuss, E-13, p. 83; E-14, p. 405 (Deutsch), 434 (v. Siemens) 452 (Schoeller). 

8< The investigation into the advantages and disadvantages on the basis of the hearings pertaining to 
many industries can only be very superficial in the small scope of this chapter. A thorough examination 
would furnish material to fill a large volume. 

88 Enqueteausschuss, E-i, p'. 22. 

88 Ibid. p. 8. 

" Enqueteausschuss. E-1, p. 112. 



CONCENTJIATION OF ECONOMIC POWER 55 

The majority agreed that rationahzation was iiiiportant in order to 
free the German economy from cramped conditions of the post-war 
time and, we may add today, to make possible the tremendous re- 
armament afterwards. However, no agreement could be found on 
how far rationalization is possible and economical. It cannot be 
denied that improvements in technique and organization led to con- 
siderable cost saving in certain respects. ^^ On the other hand, the 
savings were more or less offset by a precipitous increase of other cost 
elements; e. g., wage savings were balanced by increasing . capital 
cost, investments for technical equipment, capital interests, etc.^^ — or 
were shifted to the public in form of doles as unemployment increased 
as the result of the machine power superseding man power, etc.'''* 
The replacement of labor cost by capital cost led to the well-known 
appearance of overcapacity.®^ The exaggerated application of a 
sound principle was due to two facts: the realization how far other 
countries, especially the United States, had emulated Germany in 
technical progress, and the supremacy of technicians over the econ- 
omists with the result that technical rationalization was carried out 
according to the wishes of the former, without regard to economic 
considerations. ®2 In many an enterprise the management was put 
into the hands of engineers or other technicians who were not familiar 
with the market.®^ 

Worse perhaps than the increase of cost was the change in mobility, 
the change of variable into fixed cost.®* Not only capital expenses 
belong to the latter category, which is independent from market 
movements, but even labor costs became more and more fixed under 
the influence of rationalization, and of the labor movement.®'' The 
elasticity of production apparatus, ho\y^ever, is more important in a 
country largely dependent upon importation of raw materials later 
to be exported in manufactured form to foreign markets, than in a 
country with an extensive and comparatively uniform domestic 
market. 

S8 The savings were conspicuously large In banking where the recompense for the service of banks is de- 
pendent upon overhead costs and public charges. The combination of the Deutsche Bank and DiFoonto 
Gesellschaft alone caused the saving of no less than 110 branches. 

8» Enqueteausschuss, E-20, p. 62. 

•o The majority of experts denied a casual connection between rationalization and unemployment. The 
Committee, however, did not follow them, distinguishing between unemployment as a consequence of 
the general economic crisis, and so-called structural unemployment caused by rationalization, Enquete- 
ausschuss, E-1, p. 113. 

»i Overcapacity is to be determined not by comparing the capacity of one country with that of another, 
or that of the present with that in some period of the past, but by deciding whether there is harmony be- 
tween supply and demand. 

In the discussions where the question of "guilt" for the overexpansion of German business plays a role, 
it is the banks which are said to be responsible for this overcapitalization, neglecting their pre-war principle 
of retarding expansion when they had no possibility of placing their own issues. (See Committee report 
on "The Bank Credit.") But how difficult must it have been for a capital-lacking economy to resist the 
temptation of the credit offers of American big business. • Besides, to the writer it seems to be easy to speak 
of guilt of economic or political groups looking at things retrospectively. Every policy is a play of actipns 
and reactions, and the question of responsibility is in most cases rather a question of causation. 

An example was the discussion of this problem in the Committee's report concerning the iron manufac- 
turing industry (E-20 pp. 21, 121) which caused a heated discussion, since in this industry the combination 
of an overwhelmingly monopolistic situation with the supply of highly indispensable goods Justified a 
strong public interest. The iron industry had to defend itself against the reproach that for the low prices 
on the world market it indemnified Itself with high inland prices, which meant a burden upon the whole 
German economy estimated by the committee at 150 million marks a year; that it abused its monopolistic 
situation in keeping those prices unjustly high instead of eliminating or depreciating its over-investment?, 
which the non-monopolistic industries were compelled to do and really did. 

'» Besides the technical point of view there was especially that of capital investment during the Inflation 
under the watchword of "Flucht in die Sachwerke" (flight from the vanishing mark to substantial values 
such as factories, land, houses, etc.). Enqueteausschuss, E-13, p. 12. 

M Enqueteausschuss, E-1, p. 138. 

M How the increase of the amount of fixed capital leads to cartelization has been shown lu Callmann 
op. cit , p. 24. 

»» Enqueteausschuss, E-1, p. 137. 

282317— 41— No. 40 5 



^Q CONCENTRATION OF ECONOMIC POWER 

The rapid improvement of factory equipment eliminated from the 
production process enterprises less progressively fitted out, which 
would have adapted themselves gradually had the pace of technical 
development been slower. How much a precipitate technical de- 
velopment endangers the existence of enterprises, and to what extent 
compulsory technical progress is risky to the capital invested, the 
committee has explained especially with respect to the chemical 
industry.*^ The rapidity of technical development, moreover, 
rendered the solid principles of depreciation obsolete and confronted 
industrialists with new difficulties. Of course, it was obvious to 
everyone that kn increase in capital invested in new technical equip- 
ment meant also ati increase in the amount of depreciation.^^ But 
less apparent to businessmen was the effect of technical progress on 
the life of factory machinery, which became obsolete sooner than 
before; and which, under high speed operation and the use of corrosive 
acids, wore out more quickly. Insufficient allowance for depreciation 
contributed to the bankruptcy of many an enterprise. 

(6) Bureaucratization. — ^With growing size of enterprises and in- 
creasing difficulty in mastering all factory details the individual 
manager gave way to collective management. There is sharp differ- 
ence in the position of d manager who sees the business grow and 
grows with it, and one who is suddenly confronted with an entity, with 
the parts of which he is only to a small extent familiar. No longer is 
the manager able to move among the workers and employees to discuss 
problems where they arise; modern methods of communication 
between employer and employee are meetings of directors with the 
higher employees, mostly experts, such as engineers and accountants, 
economists and lawyers. The direct approach of problems is lost. 

(c) Publicity. — In prosperity, publicity is often only another kind 
of propaganda, bragging of success. Since 1914, Germany had not 
seen prosperity, and the frequent complaints of inaccurate business 
reports and opaque balance sheets were only too justified. This 
practice reached its peak when combinations in all their variations 
obscured their balance sheets, especially since many corporations used 
to show their share in the capitalization of other enterprises under a 
collective stock item.®* A particular chapter is the problem of undis- 
closed reserves ("Stille Reserven") in connection with depreciation 
and the vagueness about business results with respect to daUg'htei 
corporations.^ 

Legal Situation. 

There is no provision in the German law which restricts any form 
of concentration unless the transaction violates the principle of public 
policy (Par. 138, B. G. B. — German Civil Code). Since the German 
Supreme Court held concentrations contrary to public policy only in 
sporadic cases, this form of business organization could develop prac- 
tically unopposed in Germany.* The committee devoted its atten- 

•« See p. 4^, supra. 

•' There was a split as to whether the new requirements for depreciation were to be satisfied out of profits 
or treated as ordinary cost elements. 

»' Enqueteausschuss, E-12, p. 32. 

' Enqueteausschuss, E-1 , p. 91 . These statements are especially instructive from the viewpoint of govern- 
mental supervision of monopolistic situations. 

The committee dlscassis at length the change In the relationship between supervisory committee and 
board of directors. Thishaslittleinterest for the American reader, whose corporation law is different in 
this respect. 

' Enqueteausschuss, E-12, p. 71, 



CONCENTRATION OP ECONOMIC POWER 57 

tion at length to the problem of voting shares. Just as under the 
American law, the voting shares can be used for reconstruction, reor- 
ganization, and financing purposes; for the purpose of protection 
against competing interests, possibly for the purpose of domination. 
Another protective device lies in the pooling of voting shares and in 
the establishment of voting trusts. Because of the use of these voting 
shares for reconstruction and financing purposes, their legality has 
not been attacked successfully. The committee emphasized that it 
is necessary to introduce into the corporation law a general provision 
against abuse of voting power.^ 

Cartels. 

By way of introduction the committee speaks of the form and the 
number of cai-tels. The former does little to describe the character 
of the cartel movement; and the latter does not throw much light on 
the extent of cartelization ; considering the difficulties of statistical 
inquiries because of lack of clear definition of the different forms of 
business combinations.* Then the committee mentions the well- 
known economic and psychological reasons responsible for the growing 
popularity of cartels, such as difficulties of inflation, increasing or- 
ganization of labor, and complications caused by adjusting the eco- 
nomic structure to the requirements of war-economy.^ After a short 
reference to the different functions of cartels in different phases of 
historical development,® the committee turns to the "Main Problems 
and Practice of Cartel Policy," the legal problems, and the problems 
of international cartels. 

In line with the general approach toward cartels in Germany, i, e., 
cartels are lawful and at worst a little dangerous, despite their clearly 
and incontestably monopolistic tendencies, the committee decided 
to adhere to the previous policy of restrictive control over cartel 
practices, and not to recommend positive intervention. It refused to 
distinguish between monopolistic and nonmonopolistic organizations, 
as such a distinction was infeasible in practice, since the monopoly 
concept is anything but clear. Hence the committee discusses 
exclusively problems of controlling the abuses of cartels, the extent 
to which government should be entitled to interfere with cartel 
problems, and what measures ar3 to be recommended with respect 
to expediency and the manifold interests involved. 

Problems of cartel policy. — Cartel policy, in the sense of government 
policy with respect to cartels, has been considered as a part of genjer^,! 
economic policy. There was a split in views as to the extent of 
state influence, in particular with respect to special legislation. The 
target of attack was the fundamental statute, the cartel dejcree of 
1923, which was an emergency ordinance. Some of the experts main- 
tained that the provisions of the general laws, such as the civil, penal, 
and administrative law were sufficient to strangle abuses by cartels. 
But even those who by principle were opposed to any cartel control 
admitted that it was impossible to drop cartel control after it had 
become a fait accompli and the public had become accustomed to it. 
The comijiittee reports four different reasons as justification for a 
state cartel policy: (1) the duty of the state to balance and coordinate 

' Eaqueteaussfihuss, E-12, p. 23. 

* See r. 39, Fupra 
»E-13,p. t ff. 

* See pp. 35-39, supra. 



5g CONCENTRATION OF ECONOMIC POWER 

the many opposed interests among economic groups, and individuals; 
(2) the necessity of adapting the present law, the outcome of an 
individualistic age, to modern market organizations and the ideas 
of an economic collectivism;^ (3) the duty of the state to favor by 
special means the rise of organizations like cartels since, compared 
with the former "primitive" forms of unorganized market, they 
represent a "higher form of economy" which deserve, with respect 
to their greater importance to the whole community, preferential 
treatment in comparison to the individual;® (4) it is admitted that 
state interference with business may be economically favorable; 
that theoretically restrictive as well as positive constructive economic 
policy, especially with respect to the cartel-like market organizations, 
is justified. '" 

From this conclusion emerges the practical problem: How far is it 
possible to obtain a particular, desirable result by legislative measures? 
Then, from the administrative point of view, is it possible to establish 
^ board of civil servants powerful and able enough to assume rthis 
extremely difficult task? 

Cartel commission {" Kartellamt'*) and cartel register. — The committee 
dealt at length with the problem' of making registration of all cartels 
cdmpulsory, and of establishing a commission for supervising and 
investigating all cartelization, and for preparing measures of state 
carfceLpolicy. For manifold reasons the majority of experts declared 
against such a commission and registration, and recommended that 
the Reich Economic Ministry should deal with government cartel 
policy. 

.The minority of the committee favored a cartel commission because 
they expected greater uniformity and continuity with respect to cartel 
policy from it than from the Economic Ministry, since the latter's per- 
sonnel changed according to changes in the government's general 
policy. For this very reason, the majority adhered to the opposite 
view. According to the majority, cartel policy, like every other eco- 
nomic policy, should be subject to general political tendencies, and 
the weight of economic facts was the best guarantee for a continuity* 
of control. It is interesting to note that the proponents of the cartel 
commission who, at least partly, considered the question from the 
viewpoint of a socialistic economic system, wished to use the new 
commission as a means of a positive cartel policy in order to favor 
the development of the organization movement. The representatives 
of industry, however, argued that the complexity of the modern econ- 
omy and the permanent change of-economic relations make such a 
constructive development impossible, even if the administrative au- 
thority were composed of specialized experts. Finally the latter 
warned that a new board, in order to justify its existence, would en- 
deavor to expand the scope of its activity. At the outset a commis- 
sion would be more than a cartel division within the Ministry of 
Economics. The idea of creating a cartel commission was refused. 

The suggestion regarding cartel registration was based upon an 
endeavor to inform the pubhc about the details ;of the cartel move- 
ment and to create a basis for constructive criticism of large enter- 

•Enqueteausschuss, B-14, p. 341 (Passow), 378 (Vogelstein) . 

• Enqueteausschuss, E-14, p. 532 (Nlpperdey) . The author wishes to note that he disagrees with this 
▼lew. Free competition and monopolies are complementary economic phenomena which stand neither in 
the relation of rules and exemptions nor of lower and higher forms of economy. 

i« Enqueteausschuss, E-14, p. 329 (Liiw), 349 (Schmalenbach), 358 (Schumpeter), 368 (Vershofen), 388 
(Weber), 421 (Feller). 



CONCENTRATION OF ECONOMIC POWER 59 

prises and business organizations "affected with a public interest." 
The same forces which defeated the suggestion of a cartel commission 
were successful against the cartel register. While voluntary publicity 
was considered desirable in order to inform the public about the be- 
havior of monopolistic corporations or organizations, it was held that 
registration would become an instrument for control by government 
authorities. While the publicity would lead to an increasing public 
understanding of economic phenomena and prevent destructive criti- 
cism, the register would be a guide for state interference with the 
business of these monopolies. The committee, following the lead of 
the opponents of expanded governmental control, relied particularly 
upon practical objections, saying that a register; no matter how volu- 
minous, could never give a really reliable picture; even a notation of 
all occurrences at meetings and elsewhere would not permit judgment 
about the market situation of a cartel and the effects of its activities. 
At best, registration could outline further detailed investigation which 
would have to inquire not only into the formalities of voting and 
decisions, but also into the much more important deviations from 
those resolutions in practice. Therefore, whatever the contents of 
such a register, there would be a disproportion between expenditure 
and use. Again we find the idea that the registration of a cartel says 
nothing about its economic importance, and that it is far from clear 
even to the lawyers what a cartel is. Moreover, the committee feared 
that compulsory registration would cause businessmen to replace for- 
mal organizations by informal gentlemen's agreements, and that it 
was just as impossible to get hold of those agreements as of the market 
activities of large enterprises, concerns, or trusts. J'inally, it was said 
that the present law furnished sufficient basis for any information the 
government needed. The latter remark referred to the 1917 decree 
concerning compulsory testimony and par. 4, No. 4, of the cartel 
decree under which the Reich Economic Ministry may order that all 
contracts and resolutions of cartels are not in force until they are 
filed with the Ministry. 

Supplementary institutions to the cartel authorities. — It had been 
suggested that a consulting board be coordinated with the cartel court; 
that compulsory cartels be used as a means of cartel control to a 
larger extent than in the past; that a means be found of settling 
cartel differences by way of arbitration; and that collaboration be- 
tween business and government, based on confidence be furthered. 
While confidence cannot be commanded and must be left to the 
development of a spirit of understanding and trust, the conmaittee 
held that compulsory cartels are undesirable, and special boards for 
consultation and arbitration are not necessary. Settling cartel suits 
by compromise has always been the endeavor of the cartel court, 
and a consultation board that would function usefully was hardly 
feasible for practical reasons. The cotnmittee emphasized that the 
representation of business and interested parties in the cartel court 
and an active contact between business and government, were much 
more useful than such a board. 

The cartel law. — The background of the committee's legal con- 
sideration is foreign to American thinking in so far as it pertains to 
the problem of drawing a line of demarcation between private and 
public law, but not quite so foreign when it deals with the demarca- 
tion between ordinary courts and the cartel court — which is not a 



QQ CONCENTRATION OF ECONOMIC POWER 

court but an administrative agency — and the demarcation between 
this administrative agency and the Ministry of Economics. In the 
latter point the German approach also is different. The purely 
legal criticism, of the committee, discussing the anomalies of the cartel 
decree under German law, may be neglected here. Considerations of 
economic policy, however, are of interest since they are concerned 
with the cartel decree as a useful instrument of cartel policy. The 
committee concludes that the present law should not be altered, that 
the possibilities of state intervention are adequate and need not be 
amended by broader measures. The committee particularly held 
that it is not advisable to introduce a law forbidding particular forms 
or measures ojf cartels. It had proved, said the committee, that 
**Sperren" (boycotts, blocks), exclusive dealing clauses, etc., were 
sometimes dangerous, sometimes tenable. Finally, the committee 
emphasized that it was not the purpose of the cartel law to prefer or 
protect one-sidedly the principle of free competition or the economic 
freedom of the individual against market organizations. 

The international cartels. — After some introductory remarks on the 
presuppositions of the foundation of international cartels and the 
statement that their difficulties are fundamentally the same as those 
of the national cartels, except that they assume larger proportions, 
the committee held th^t it is not necessary to create national laws in 
order to influence international organizations. Like the Geneva 
World Economic Conference in 1927, it rejected the suggestion of 
establishing an international control as having no prospects. Cartel 
committees and cartel registration were held even more impracticable 
than in the case of national cartels, as a special law against inter- 
national cartfels would have to consider the law and policy of all other 
countries. These difficulties seemed to the committee insurmountable. 

Appraisal, — The appraisal which forms the conclusion of the com- 
mittee ^^ is in short this: The privileged market position of cartels and 
cartel-like organizations are not necessarily harmful to the whole 
economy and therefore there is no reason for restriction. Monop- 
olistic position in itself does not require governmental interference. 
Theorists admit that the exercise of monopolistic power — e. g., by 
maintaining prices above the level of that of free competition — may 
have favorable economic repercussions. In general, however, it is 
disputed that the present expansion of cartels and trusts within the 
present economic organization has already shown such useful con- 
sequences that the immediate effect of monopolistic positions could be 
tolerated. The problem here involved is the connection between 
fluctuation and organization of the 'market. Rather generally, it is 
admitted that the expansion of the cartel movement does mitigate the 
fluctuation of market conditions, and in the long run — especially when 
it is in line, with other methods of economic policy— it could stabilize 
market movements. Two points are open to question: First, whether 
a merely partial cartelization of economy is already mitigating or, 
whether on the contrary, it is apt to aggravate fluctuation; and, 
secondly, whether an economy free of fluctuations is desirable at all. 

Among the cartel purposes held favorable to the economy as a whole 
is included rationalization, both technical and commercial. In the 
latter respect, cartels pertaining to a unification of contract terms 
especially with respect to a unified and uniform credit policy ("Kon- 

>■ Enqueteaussohuss, £-13, pp. 23 fl. 



CONCENTRATION OF ECONOMIC POWfeS Ql 

ditionenkartelle") found increasing importance as capital resources 
decreased in the German economy. Both in the cartels formed by the 
heavy industry and those of less strongly organized mdustries of 
finished goods, technical rationalization plays an important role. 
What has been said about rationalization, bureaucratization, and 
publicity, with respect to capitalistic concentrations, is no less true 
with cartels. 

A particularly serious chapter is that of the influence of industrial 
cartels upon market price. Although the committee held that this 
influence is, as a rule, overestimated, since most of the cartels strive 
merely to diminish market risks by means of setting terms of delivery 
or accelerating the turnover of capital, we read that the endeavor, 
common to all cartels, "to unify the supply basis impairs the elasticity 
of prices, and that comparative rigidity is characteristic of the Ger- 
man market price. The measures which bring about this rigidity 
are manifold, e. g., form and scope of labor contracts, social and tax 
legislation, credit policy of banks, policy of cartels, cooperative 
marketing associations, trade unions, government competition, trade 
associations, resale price maintenance, inelasticity of demand, rigidity 
of methods of calculation, etc. However, it is impossible to go 
further when one is limited to general observations, since it is im- 
possible to isolate such an investigation from the different conditions 
in different markets.'^ This effect depends not only upon the success 
of the cartelization tendencies (e. g., whether the presuppositions of 
cartelization are existent),'^ but also upon the general situation in 
the market.^* 

A cartel purpose which should be favored is information service 
with respect to events, facts, or observations of economic details, the 
knowledge of which is indispensable to successful business manage- 
ment. 

Generally, however, it is held that monopolistic market positions 
may lead to serious economic consequences. When this is true, 
governmental policy should not be confined to cartel control or 
control of other associations, but should be expanded to any monopo- 
listic market situation, whether based upon associations, capitalistic 
concentrations, or natural development of big business. But the 
difficulties are obvious: while it is comparatively easy to control 
those monopolies which owe their existence to an association, especially 
when they reveal their purpose of market regulation in their by-laws, 
it is extremely difficult, even impossible, to control monopolistic 
behavior of single enterprises. This, however, the committee held 
to be a requirement not only of an effective economic policy, but also 
of justice. Hence the conclusion suggests itself that we shoulfi 
either abstain from any interference with cartel activities if we are 
unable to master the undisclosed monopolies, or discover means of a 

'2 The valuable statistical material in the different reports about the different industries suggests treat, 
ment more detailed than can be given here. 

" Four sets of favorable circumstances are to be present: (1) The market must show some degree of 
elasticity of demand; (2) the product must be standardized and easily definable with respect to quality; 
(3) the industry most favorable to the formation of cartels is that with heavy fixed or overhead costs or 
large transport costs; one least capable of being rapidly adjusted to changing market conditions; (4) the 
members must have a certain degree of propensity for collective agreement and action. These conditions 
exist especially in the basic (mineral) and heavy industries. Where many small or medium -sized estab- 
lishments produce specialized commodities, cartels are only selling-terms or cost-accounting associations 
(e. g., clothing, foodstuff, and other finishing industries). (See Hearings before the Temporary National 
Economic Committee, part 26, p. 13350.) 

.'* E. g., international competition and cartelization. " 



Q2 CONCENTRATION OF ECONOMIC POWER 

general indirect economic policy with which to restrict these undis- 
closed monopohes. This difficulty was presented constantly during 
the hearings. 

Although it seems clear that the cartelization of German industry 
was a large factor in building up the economic structure of national 
socialism and totalitarianism, it seems equally clear that the dangers 
of monopoly control were not apparent, even to the liberal Enque- 
teausschuss. 

The activities of this commission are interesting because the arguments for 
the cartel system were identical with the arguments now being used to oppose 
enforcement of our antitrust laws. First, there was the theory that enforcement 
of the antitrust laws created uncertainty in business. Then the socialist planners 
of Germany argued that out of their enforcement no planned economy could 
result. The trade associations insisted on protection against the chiseler. The 
unions believed that higher wages would come from large and prosperous cartels. 
So the Ct)mmission ended on the note of letting business combinations alone.'* 

» Thurman Arnold. "Anti-Trust Law Enforcement, Past and Future," Law and Contemporary Prob- 
lems, Duke University Press, Durham, Winter, 1940, pp. 6, 7. 



CHAPTER II 

REGULATORY EXPERIENCE IN GERMANY UNDER NATIONAL 

SOCIALISM 

CARTEL LEGISLATION SINCE 1933 

The foregoing study has shown that cartels extended over a wide 
sector of Germany's economic system prior to the World War, and 
particularly during the post-war period, covering the most important 
branches of industry, trade, and banking. The Cartel Ordinance of 
1923, while it subjected cartels to government supervision, and regu- 
lated withdrawal from cartels as well as the application of group 
pressure, still adhered to the old view of making cartels binding upon 
the contracting parties, but not upon outsiders. This principle was 
changed basically under the National Socialist rule. 

Following Hitler's rise to power the cartelization movement in 
Germany entered a new stage of development. The primary objec- 
tives of carteHzation were very considerably modified under the Nazis. 
Wliereas in the pre-Hitler era the purpose of cartels was to fix sales 
conditions, prices, or territorial quotas, under the totalitarian rule they 
became effective instruments of planning in the hands of the govern- 
ment. The regulation of prices, quantities, and kinds of raw materials 
to be produced, etc., have become functions of the government, and 
control of industrial operations remained only nominally in private 
hands. Hence, the measures introduced for the regulation of produc- 
tion, prices, foreign trade, etc., are being framed in the interest of 
national policies, such as the fullest realization of the country's natural 
policies and not for the benefit of the cartels. 

A definite step in this direction was the enactment of the decree 
issued on July 15, 1933, which, besides strengthening the power of 
the Ministry of Economics, authorized the Minister of Economy to 
enforce compulsory syndicates, conventions, and similar arrangements 
upon any groups of concerns for the purpose of market regulation, to 
compel outsiders to join them, and to prohibit the establishment of 
new enterprises. 

The reasons for, and the purposes of,. the compulsory cartel decree 
were stated in a press release, issued by the German Government: 

The grave crisis which is now bearing down upon German economy has struck 
most severely those branches of industry whose productive capacity greatly 
exceeds the present marketing possibilities. In several branches the intense com- 
petition and the depressed price level resulting therefrom have reached the point 
where the ruin of enterprises which are of value to our national economy is 
threatened. Those of our people who are employed in these industries would be 
the fil-st to suffer. Therefore greater power must be given to the state to inter- 
vene in the public interest for the purpose of creating order. This Statute does 
not purport, however, to bring about a fundamental change in our existing eco- 
noinic sj'steni, \which latter is based on the initiative and responsibility of the 
individual enterpriser, nor does it purport to pave the way to a state-planned 
economy. The powers granted by this act sliall be invoked only with great 

63 



g4 CONCENTRATION OF ECONOMIC POWER 

caution and only provided that private enterprise cannot find its way out of the 
present difficulties on its own initiative. The provisions contained in the act 
correspond in many instances to wishes expressed by business itself. These pro- 
visions are transitory in character, and are to be abolished as soon as economic 
conditions improve, and sufficient trade is available for existing enterprises. 
* * * 

Whenever a compulsory combination is formed, care must, of course, be taken 
that the price policy, of, and the other terms and conditions imposed by, such 
combination do not unduly favor the interest of the parties thereto, but that they 
give proper consideration to those sections of the population affected by the 
regulation of the market, particularly to ultimate consumers and other pur- 
chasers * * *, [Article V] has been inserted into the act primarily because 
of the economic necessity to prevent unwise investment of capital, which is badly 
needed at this juncture for purposes of stimulating recovery and creating employ- 
rrfent, and to stop its influx where already existing plants are manifestly sufficient 
to meet the demand.' 

Compulsory cartels are not new in German law. The significance 
of the act of July 15, 1933, lies in the fact that the Reich Minister of 
Economics has thereby been empowered to establish compulsory 
cartels in any branch of industry by executive decree. The position 
of the Reich Minister of Economics has been greatly strengthened. 
The cartel contract between producers is subject to his approval. He 
has authority to compel the cartel's adoption of measures considered 
to be of urgent and vital importance to the public welfare. While 
prices are as a rule to be fixed by the cartel itself, the government 
may at any time change those prices by decree. The voting power of 
the individual cartel members must correspond to their respective 
production quotas, but in order to counteract or guard against abuse 
of power by a majority, the Reich Minister of Economics may issue 
regulations providing for a different distribution of voting power.^ 

The Cartel Decree of 1933 was the first of a long series of regulations 
establishing compulsory cartels. (In this connection, it has been 
pointed out that "a compulsory cartel is not a cartel. It is an effective 
means of economic planning in the hands of dictatorial governments." ^ 
From March 1933 until June 1934 the Minister of Economic Affairs 
applied the compulsory cartehzation law to a number of industries.^ 
The law prohibits these industries from (a) setting up new under- 
takings; (b) adapting plants engaged in other lines of production in 
order to produce goods on the list in footnote 4 ; and (c) extending the 
capacity of existing undertakings or reconditioning of shut-down 
plants.* Concerns which were prohibited from expanding in their 
principal line were also forbidden to expand in allied lines. Most of 
the industries to which these restrictions applied were producers of 
capital goods. 

The restrictions imposed on the capital goods industries at the 
beginning of the Nazi regime were dictated by the realization that in 
a capitalistic economy producers' goods are hit hardest when depres- 
sion sets in, and, conversely, recover most rapidly with an upswing of 
the business cycle. Thus, the government was anxious to be in a 
position to dictate the extent to which these industries should expand 

• H. W. Jervey and Francis DeSk, The Case of Monopoly versus Competition, Volume 1, Columbia 
University School of Law, 1934, pp. 106, 107. 

U bid., p. 109. 

' Hearings beforeHhe Temporary National Economic Committee, Part 11, p. 327. 

Mute; low-powered electric lamps; stockings and glove finishing and stocking dyeing; nitrogen; high 
tension and insulated cables; zinc products; metallic and red arsenic; salt production; cigarettes; paper, card- 
board, and pasteboard; radio sets; earthenware and pottery goods; peat dust and moss liter production; 
lyperphosphates; stone production. See Reichskreditgesellschaft, Germany's Economic Development 
During the First Half of the Year 1934, Berlin, p. 4 

» Idem. 



CONCENTliATION OF ECONOMIC POWER 65 

or contract, or the degree to which they would be allowed to use 
certain raw materials at the time when the government-generated 
boom was to set in. 

An amendment to the act passed on November 2, 1933,® empowered 
the government to dissolve all cartel agreements without resort to 
the Cartel Court and without judicial review.^ In 1933, the rayon, 
brass pipe, and cast chain cartels were conjpelled to dissolve; the 
brick cartel, in 1934; and the electrical wholesale trade, spinning 
materials, wrist watches, and the central heating and ventilation 
cartels in 1936.* 

By 1933-34, a large part of the finished goods industries and whole- 
sale trade had been cartelized, and cartelization had assumed a great 
variety of forms. The following are the most important: Agreements 
between producers and sellers; combining regional associations into 
national associations; extension of the associations by introduction of 
price conventions, uniform delivery conditions, or setting of quotas; 
extension of the cartels by voluntary or compulsory membership for 
outsiders; forced cartelization of economic branches not yet car- 
telized ; prohibitions against new investments, etc.'' 

By an ordinance of May 16, 1934, cartels were no longer allowed to 
fix or recommend minimum prices for articles of prime necessity 
without consent of the government. An ordinance of August 1934 
extended this provision to all articles.'*' In some instances, where 
cartelization was not forced upon an industry, outsiders were obliged 
to follow the prices set by the cartel, but were exempted from the 
quota restrictions." 

The fight against unemployment during the first years of the Nazi 
regime opened up additional avenues for the cartel policy. To 
create employment, limitations were placed on the introduction of 
labor saving machinery in certain industries. Works which had been 
closed down were reopened. 

In a word, the influences working toward the selective survival of the best- 
equipped plants were superseded by the tendencj^ to adapt regulation of prices 
and production to the needs of all those competing in the field of the cartelized 
trade, no regard being taken for economic efficiency. '^ 

In some industries, the shortage of raw materials was responsible for 
the restrictive measures. Thus in July 1934 the Textile Fibres Decree 
was passed, regulating in detail the price of textile materials and 
fabrics, restricting working hours (except for export) to 36 per week 
and prohibiting any expansion of textile plants. In December 1935 
the former decree was replaced by the Textile Materials Law, the 
purpose of which was to regulate the volume of manufacture by giving 
each firm a manufacturing quota. Due to the scarcity of wool and 
cotton, it has been decreed that all wool and cotton cloth manufactured 
in Germany for the domestic market must contain a certain percentage 
of staple fibre. Also, certain products may no longer be made of 

• Not to be confused with the decree concerning tlie Establishment of Compulsory Cartels issued on the 
same date. 

' Heinrich Friedlaender, "The Legal Position of Cartels and Concerns in Europe," quoted in Hearings 
before the TNEC, Part 11, p. 22. 

' Vaso Trivanovitch, Germany under National Socialism, National Industrial Conference Board, New 
York, 1937, p. 29. 

• Weekly reportsof the German Institute for Business Research, Berlin, December 16, 1936, p. 104. 
"> Hearings before the Temporary National Economic Committee, Part 11, p. 327. 

" Karl Pribram, Cartel Problems, Brookings Institution, Washington, 1935, p. 266. 
" "Kartellkonjunktur-Konjunkturkartelle,'' Frankfurter Zeitung, Dec. 17, 1933, quoted by Pribram, 
op. cit., p. 26.5. 



gg CONCENTRATION OF ECONOMIC POWER 

brass. In private residential building only a certain amount of 
construction iron may be used. All factories which use imported 
raw materials are allowed to purchase only a certain volume of raw 
materials abroad. The necessity of conserving foreign exchange was 
another source of restrictive legislation. 

The decree of March 1935 prohibited the so-called "agreement- 
cartels," forbidding all consultations in regard to prices, cost calcula- 
tions, and preliminary bids. This decree holds such proceedings sub- 
ject to fine unless they are reported to the authorities before the bid 
is submitted.*^ 

By the decree of November 12, 1936, the cartels were placed under 
the supervision of industrial and trade organizations.'^ This may 
mean that cartel policy in the future will be subordinated to con- 
siderations of foreign trade, with regard to wages, prices, etc., rather 
than to the interest of its members. 

Under a decree of September 5, 1939, the Minister of Economics 
could compel industrial enterprises to combine for the purpose of 
rationalizing production, pooling patents, erecting new yjlants, pro- 
moting exports, etc.*^ By January 1940, about twenty new cartels 
had been formed for such purposes.'^ 

With the improvement of business conditions in the years 1935 and 
1936 there was a decline in the number of new cartels formed . Accord- 
ing to the German Institute for Business Research, in connection with 
increased production certain efforts toward cartel reform began to 
make themselves felt: "These efforts seek to achieve renunciation by 
cartel members of differential profits in return for the benefits of 
increased business. The cartel form which best satisfies these re- 
quirements is the Kalkulationskartell. The important newly-formed 
cartels of this type include the compulsory cartel for the graphic 
industry, a compulsory cartel in the foundry industry, and a voluntary 
cartel in the central heating and ventilation industry. J'rom a legal 
standpoint it could be argued whether such organizations were really 
cartels at all. In all three of the above, the common point is that 
differential profits can be renounced. Certain prices are set by the 
graphic and foundry cartels, but these are not minimum prices, since 
they can, and are to be, underbid, if, as in the foundry cartel, an 
examination shows that cost calculations have been determined as 
agreed upon, or if, as in the graphic industry, the establishment can 
prove that it has fulfilled all its obligations, i. e., taxes, social fees, etc. 
Price restrictions in the central heating and ventilation cartel are even 
less binding. In this case, there is no restriction of prices. There is 
only a set and agreed way of calculating costs. It may be possible 
that in- the long run such a cartel wdll assume the form of a price cartel. 
However, even then the prices set would be only average prices and not 
marginal cost prices as in the usual cartels." '^ 

As to the extent of cartelization, it was estimated by the German In- 
stitute for Business Research even at the end of 1936 that all domes- 
tically produced industrial raw materials and semi-finished goods, and 
at least half of the industrial finished goods production were car- 
telized.'* 

" Weekly Reports of the German Institute for Business Research, June 2, 1937, p. 4. 

'* Ibid., December 16, 1936, p. 103. 

15 Keichsgesetzblatt, I, 1939, No. 164. 

'« Deutsohe Bergwerks-Zeitung, January 6, 1940. 

I' Weekly Reports of the German Institute for Business Research, December 1936. p. 104. 

" Idem. 



CONCENTR.\TIOX OF ECONOMIC POWER 67 

THE STRUCTURE OF GERMAN ECONOMY UNDER 
NATIONAL SOCIALISM 

The extent to which State regulation along all lines of economic 
activity has become the dominant element of the German economic 
system may be realized by examining the structure of the principal 
organizations that make up the National Corporations of the Third 
Reich: 

The Agricultural Estate (Reichsnaehrstand). 

The Estate of Industry and Trade (Organization der gewerblichen 

Wirtschaft). 
The Estate of Handicrafts (Reichsstand des deutschen Hand- 

werks). 
The Transport Organization (Aufbau des Verkehrs). 
The Labor Front (Deutsche Arbeitsfront). 

Of these organizations, the Agricultural Estate has reached the fullest 
degree of development. 

Through the cartels, which cover all raw materials produced in 
Germany, half-finished goods, the major part of the production of 
finished goods, and the organization of industry and trade, the Nazi 
government is in the position to exercise complete control over 
business. 

REGULATIONS OF THE AGRICULTURAL ESTATE (REICHSNAEHRSTAND) 

The Agricultural Estate was the first corporative organization to 
be instituted by the National Socialist Government. (See Chart I.) 
It has its legal origin in the law of September 13, 1933, issued by the 
Reich Minister of Food and Agriculture, "providing for the prelimi- 
nary organization of the Reich Food Estate and for measures to regu- 
late the markets and prices for agricultural commodities." '^ 

The Agricultural Estate is a compulsory cartel under public control. 
On the production side, it includes landowners, tenants, farmers, and 
agricultural workers, engaged in farming, forestry, horticulture, 
fisheries, and game resources. On the distribution side, it covers 
producers, processors, the entire retail and wholesale trade in agri- 
cultural commodities, as well as agricultural cooperative societies and 
the new associations created for marketing. Manufacturers, such as 
millers, brewers, confectioners, butchers, etc., belong not only to the 
Agricultural Estate, but also the Estate of Handicrafts or Industry 
and Trade. The task of the Agricultural Estate is to control produc- 
tion, prices, marketing and other matters pertaining to agriculture. 
It seeks to do away with price competition in the market. Com- 
petition is curtailed in the field of wholesale trade as well. Futures 
trading has been abolished as unethical speculation. The merchant 
is to be transformed into a distributor who does his duty according to 
quotas and who may not compete with his fellow-merchants for a 
share of their business.^" 

" Qesetze and Verordnungen der Milchwirtschaft, pp. 75, 7f., Qtioted by Karl Brandt. The German Fat 
Plan and its Economic Setting, Food Research Institute, Stanford University, Calif., 1938, p. 194. 
20 Karl Brandt, op. cit., p. 195. 



gg CONCENTRATION OF ECONOMIC POWER 

The law creating the Agricultural Estate — 

permits the Secretary of Agriculture to scrap any existent corporation or other 
association of men or enterprises, and to set up an entirely new structure of the 
whole market from top to bottom, according to his own design * * *. The 
law also empowers the Secretary of Agriculture to exert any control or to inter- 
fere with the business of individuals, cooperative associations, or other corpora- 
tions whenever he considers it necessary * * *.^^ 

In addition to the organizations in charge of market regulations, 
there were established government monopoly boards (Reichsstellen) 
for the main foodstuffs, grain, and fodder; animals and animal prod- 
ucts; oils, fats, and dairy products; eggs; garden products; and certain 
other foodstuffs. By controlling the prices at which foreign foodstuffs 
can be sold and also the rate of accumulation of stores within the 
country, these Boards play an important part in determining the 
domestic price level. The Boards do not, except in certain cases, 
import the required foreign supplies, but without their permission 
imported food cannot be sold in Germany, In case the price of 
foreign food, including the import duty, is less than the domestic 
price, the importer must pay the Boaid the difference between his 
import price, plus the duty, and the domestic price, and in addition 
pay a fee charged by the Board. ^^ 

In addition to controlling the supply of foreign foodstuffs, the Food 
Boards also control thJ? purchase, sale, and price of domestic produce 
within the country. It is their duty to see that shortages of food do 
not occur, to encourage the use of home grown products, and to dis- 
courage the use of imported products. 

Membership in the Reich Food Estate is in part through the coop- 
erative marketing associations. The Market Section of the Agricul- 
ture Estate consists of 10 Central Marketing Unions (Marktver- 
baende). These Central Marketing Unions are organized on a re- 
gional basis according to commodity groups, with a central organiza- 
tion for each group of regional (commodity) associations. Also, the 
marketing of each product is organized on horizontal and vertical 
lines. The vertical organizations (Hauptvereiningungen) of the Cen- 
tral Marketing Unions were created to control their respective com- 
modities from the farmer to the consumer, while the horizontal feder- 
ations (wirtschaftliche Vereiningungen) covered those engaged on each 
stage of the productive process. The horizontal federations are com- 
pulsory cartels with power to control prices; regulate standards of 
quality; prohibit, except under license, the establishment of new en- 
terprises or enlarging of existing ones; and establish production quotas. 
Other regulations have been put inta effect in order to assist domestic 
agriculture by encouraging the use of home grown products and dis- 
couraging the use of imports. 

The main feature of price control is the establishment of basic 
prices to producers for the different grades of a given agricultural 
produc.t, by regions. Deviations from the standard price often occur 
according to variations in locality, season, freight differentials, etc. 
Where adequate standards of quality are lacking, regulation has taken 
the form of minimum prices. Violations of the price control system 
are punishable by fines up to 100,000 reichsmarks (equivalent to 
$40,000) and/or imprisonment.^^ 

«i Ibid., p. 196. 

" C. W., Giiillebaud, The Economic Recovery of Oermany, MacMillan, New York 1938, p 156 
« Foreign Agriculture, "Wartime Agricultural and Food Control in Germany," April 1940, p 186, Office 
Of foreign Agriculture Relations. 



CONCENTRATION OF ECONOMIC POWER 69 

The agricultural set-up of the Food Estate was further enlarged 
through the decree issued on August 27, 1939, establishing formal 
rationing. Under this decree state, provincial, district, and local Food 
Control Offices (Ernaehrungsaemter) were organized under the juris- 
diction of the Reich Minister of Food and Agriculture. The func- 
tions of these offices are the supervision and control over the acquisi- 
tion and distribution of foodstuffs and the assurance that agricultural 
production in their respective territories is maintained at capacity.^* 

Under the August 27 decree different parts of the Reich Food Estate 
in the states and provinces are subjected to the control of the respec- 
tive state or (in Prussia) provincial Food Control Offices. Further- 
more, the Reich Food Estate in its entirety is placed under the juris- 
diction of the Reich Minister of Food and Agriculture. 

The formation of a General Council of War Economy was an- 
nounced on January 4, 1940, to coordinate and control every branch 
of the German national economy, 

CORPORATE ORGANIZATION OF INDUSTRY AND TRADE 

The Enabling Act of February 27, 1934, empowered the Minister of 
Economic Affairs to organize the Estate of Industry and Trade. He 
was authorized- - 

1. To recognize associations as the sole representative of their branch of trade 
and industry; 

2. To establish, dissolve, or amalgamate associations; 

3. To change and supplement the statutes and agreements of associations and 
in particular to introduce the principle of leadership; 

4. To appoint and dismiss leaders of assbciations; 

5. To compel employers and undertakings to join associations. ^^ 

The two outstanding principles of the Estate of Industry and Trade 
are (a) compulsory membership and (6) the leadership principle. 
Failure to register is an offense punishable by fine. 

The Estate is divided into six national groups of business (Reichs- 
gruppen): (1) industry; (2) handicrafts; (3) trade; (4) banking; (5) 
insurance; (6) public utilities. Transportation was added later as the 
seventh group. The most extensive group, industry, has seven sub- 
divisions (Hauptgruppen), which are further subdivided into trade 
groups (Wirtscliaftsgruppen). 

The Reichsgruppen are organized regionally by district groups 
(Bezirksgruppen) in each of fourteen districts into which the country 
is divided. There is an Industrial Board (Wirtschaftskammer) in 
each district, with the exception of Westphalia and Southw^cstem 
Germany, in each of which there are two Industrial Boards. ^^ These 
industrial boards represent all economic interests within the district, 
but they have no legal status. The legal representatives of industry 
and trade in each district are the Chainbers of Commerce, in which 
membership is compulsory. The supreme body of the Estate of/ In- 
dustry and Trade is the Reich Economic Chamber (Reichswirt- 
schaftskarnmer), the whole structure being subordinated to the Min- 
ister of Economics. 

"Ibid., p. 285. 

". E. C. Donaldson Rawlins, Economic Conditions in Germany to March 1936, Department of Overseas 
Trade, London. 1936, pp. 86, 87. 

29 Vaso Trivanovitch, Economic Development of Germany under National Socialism, National Industrial 
Conference Board, New York, 1937, p. 25. 



yQ CONCENTRATION OF ECONOMIC POWER 

In contrast to the Agricultural Estate, the Estates of Industry and 
Trade were not allowed to establish special market and price policies. 
These problems were put under the special province of the cartels. 
But such questions as general economic policy, trade policy, money, 
bank, and credit policy, foreign exchange control, laws, and taxes 
belong to the Eeichsgruppen.^^ 

Follomng the outbreak of the war, a Ministerial Council for Reich 
Defense was established to coordinate economic and administrative 
activity. The Estate of Industry was ordered to cooperate with this 
office as well as with the central authorities, thus being reduced to the 
position of an administrative agency of the government.^^ The 
Minister of Economics appointed special Reich Commissioners to the 
Chamber of Commerce and Industry.^^ 

CONTROL OF RETAIL TRADE 

The determination to maintain small establishments was declared 
to be an important objective of Nazi policy, and was responsible for 
directing the cartelization movement into new channels. Cartel 
policy became greatly concerned about middle class protection during 
the first few years of the Nazi regime. Smaller concerns received 
special concessions which were not granted to the larger ones.^° 

There are several racially discriminatory decrees concerned with 
commerce, including one forbidding Jews to work as commercial 
travelers. 

By a law passed May 12, 1933, a permit from the Minister of Eco- 
nomics was required to open a retail store. This was originally in- 
tended as a temporary provision to control the situation created by 
excess capacity in th^t field, but on December 22, 1934, it was made 
permanent and it became clear that a general licensing system for 
retailers was intended. The new regulation required the applicant for 
a retailer's license to satisfy the government as to his character, 
reliability, and professional knowledge. It was also provided that an 
existing store could not be expanded by more than 25 square meters 
without a license. A license is required to purchase an existing store. 

Mail order houses apparently were not affected, but in July 1934 
the Minister of Economics prohibited the opening of mail order houses 
for textiles, or the expansion of existing ones. A decree of May 24, 
1937, requires the approval of the Minister of Economics before any 
mail order house may be opened or expanded. New commodities 
may not be added to the list without approval, nor packing or mail 
rooms enlarged. The decree applies to factories and department or 
other retail stores doing a mail-order business. 

CONTROL OF IMPORTS AND FOREIGN EXCHANGE 

The control of imports functions under the jurisdiction of the 
Ministry of Economics. For this purpose 27 supervisory offices have 
been established, each in charge of a certain commodity or commodity 
group, and regional foreign exchange offices have been set up. Both 

«" Siipplcinont fo'the Weekly Report of the German Institute for Business Research, March 11, 1936 p 1 

s* Voelkischer Reobachter, Septembers, 1939, "Die Wirtschaftsvcrwaltung " 

2» Ibid., c'^eptoniber 22, 1939, "Zusammenarbeit zwischen Staat und Wirtschaft." 

so Owing to the lubor shortage in the ensuing years, this policy was abandoned, and the government urged 

retailers to abandon their trades and to become industrial workers, pointing to the excess capacity cf retail 

trade 



CONCENTRATION OF ECONOMIC POWER 71 

are under the authority of the Alinister of Economics, except that the 
five Reich Monopoly Offices mentioned above are under the 
Ministry of Food and Agriculture.^^ 

Under the German foreign exchange control which was in effect 
from September 1931 to July 1934, each importer was given a foreign 
exchange allotment in proportion to his pre-1931 business. The 
quota granted to importers had been progressively reduced from 50 
percent to 5 percent, until finally the whole system broke down in 
June 1934. Under Schacht's "New Plan," inaugurated in September 
1934, instead of foreign exchange allotments, foreign exchange cer- 
tificates had to be issued for each individual import transaction. At 
the same time, a comprehensive import control system was established 
and administered by the Government. 

Control of foreign exchange transactions is carried out by 27 central 
boards. They are charged with issuing exchange certificates and 
deciding where and for what goods the available supply of foreign 
exchange should be used. 

The Control Office for rubber restricts the quantity of natural 
rubber per bicycle tire. The Control Office for copper prohibits the 
use of copper for power transmission lines. The Control Office for 
non-ferrous metals prohibits their use for many industrial purposes. 
The Control Office for carbon black forbids the establishment of new 
plants or the expansion of old ones. 

The Central Foreign Exchange Office of the Ministry of Economics, 
local exchange offices, and control boards are responsible for the 
management of barter transactions and commercial exchanges under 
the clearing agreements. 

SUBSIDY SCHEMES FOR EXPORTS 

With high domestic prices, rising costs of production, and the 
nominal retention of the gold standard, the Reich could not compete 
in price with other nations, hence Germany had to give special assist- 
ance to her exporters to enable them to compete on the world market. 
This assistance has taken various ingenious forms. During the first 
years of the Nazi regime, foreign exchange regulations prohibited the 
repayment to foreigners of capital sums and later interest as well.^^ 
These measures depressed the prices of foreign-owned German securi- 
ties, while they retained their full domestic value; accordingly, prices 
quoted in Germany were niuch higher than abroad. German firms 
which wished to compete on the world market with foreign firms could, 
with the permission of the foreign exchange authorities, purchase 
German bonds or stocks with foreign exchange at the depreciated 
foreign rate, repatriate them, and sell them at a profit on the home 
market, using the profit to compensate themselves for losses on export 
transactions. Similar use was made of the bank accounts of foreigners 
blocked by the moratorium of 1931, and of other untransferable 
amounts paid into blocked accounts. These accounts could be 
bought up by German concerns at a heavy discount. The profit so 
made had to be devoted to the subsidy of exports. 

As such sources gradually dried up, new devices had to be found to 
assist exports. Through subordinate sections of the Estates of In- 

■' Space does not permit an adequate discussion of German foreign trade policy here. 
" E. C. Donaldson Rawlins, op. cit., p. 166. 

282.317— 41— No. 40 6 



72 CONCENTRATION OF ECONOMIC POWER 

dustry and Trade, a levy was made on all industrial enterprises in 
order to form a subsidy pool for exports, centralized in the Gold 
Discount Bank. Particulars of the scheme have not been published. 
Contributions to the fund may not be inserted in balance sheets, and 
no informatio'n regardhig the amount by which a given export trans- 
action is assisted may be communicated to the foreign customer.^^ 
The scheme is officially stated in Germany to be one of self-help on 
the part of German industry itself, under the corporate organization 
of industry and trade, and not the Government itself. Shortly after 
the promulgation of the scheme tlie following law was published 
(Reichsgesetzblatt, June 29, 1935): 

The Reich Chamber of Economy can promulgate orders for the levy and 
expenditure of proportioned imports by groups or associations (of entrepreneurs 
and enterprises of industry) in their capacity as organs of self-administration, 
and for the collection and exaction of such imports by Chambers of Industry and 
Commerce, Chambers of Handicrafts, and other public associatfons, recognized 
by law, of entrepreneurs and enterprises of industry. 

CONTROL OF INDUSTRIAL PRICES 

One of the most fundamental principles of National Socialist 
economic policy has been the maintenance of stable price relations. 
Whi^e at the beginning of the Nazi regime the aim of the price policy 
was to stop the downward movement of prices, after 1934 the major 
concern became to prevent domestic prices from rising. 

An emergency decree issued in December 1931 provided for the 
control of prices and for the appointment of a commissioner for the 
supervision of prices. These regulations were temporarily maintained 
and supplemented by the Hitler Government, though the duties of the 
Price Commissioner were transferred to the Minister of Economics and 
Food. In 1933 fixing of minimum prices and profits on the sale of 
foodstuffs was prohibited without the approval of the price control 
authorities. 

JThe decrees issued in November and December, 1934, further 
extended the functions of the Price Commissioner, empowering him to 
fix all prices and profit margins.^* 

The Price Commissioner was reappointed by law on November 5, 
1934, and functioned until July 1, 1935, when his duties were trans- 
ferred to the Ministry for Economic Affairs and the Ministry of 
Agriculture. By a series of decrees passed in 1934, all cartel price 
agreements entered into after June 1933 had to be reported to the 
Price Commissioner, and all plans regarding new and higher prices 
had to be submitted to him.^^ 

By the "Decree with respect to competition" of December 21, 1934, 
unfair competition by price cutting, at the expanse of the State, 
employees, creditors, or tax payments, was subject to heavy penalties. 

In various branches of production, i. e., textiles, where reduced 
imports of raw materials led to scarcity and higher prices, special 
legislation was passed fixing maximum prices. In other instances, the 
Price Commissioner laid down what were considered normal prices 
(Richtpreise) ; a firm charging more than the normal price had to 
submit his accounts for investigation. 

" Ibid., p. 157. 

3< World Economic Review, Bureau of Foreign and Domestic Commerce, iya4, p. 133. 

3« Quillebaud, op. cit., p. 167. 



CONCENTRATION OF ECONOMIC POWER 73 

In the course of 1936 it appeared that the existing machinery for 
price control was inadequate to check the rise of the domestic price 
level m the face of rising world prices and the demands of the second 
4-year plan for raw materials. Thus, toward the end of 1936, it was 
announced that the Price Commissioner would be replaced by a Com- 
missioner for Price Formation. He was to establish centralized price 
control with wider powers than his predecessors had. On November 
26, 1936, he issued the famous price stop decree which prohibited price 
increases, except with his consent, above the level prevailing on Octo- 
ber 17, 1936. The decree applied to all prices except wages. Heavy 
penalties were imposed for evasion, such as altering the quality of 
goods, etc. 

A decree passed in July 1937 set aside the price stop decree as 
regarded imported goods, and provided for a more flexible adjustment 
of prices to market conditions. In the case of imports bought and 
sold in organized exchanges, it has introduced the possibility of fixing 
prices in terms of repurchase costs. Fixed margins were substituted 
for the practice of calculating them on a percentage basis on costs and 
profits. ^^ 

On November 21, 1938, regulations were issued regarding the deter- 
mination of prices in public contracts. These regulations affected a 
whole range of construction and other works — particularly in the field 
of armaments— of which the State is the chief or only purchaser. 

At the outbreak of the war a number of new decrees were issued. ^^ 
Under the War Emergency Act (Kriegswirtschaftsverordnung) of 
September 3, 1939, manufacturers were compelled to reexamine their 
price calculations, and, if necessary, adjust them to war conditions. 
Excessive profits, as well as the inclusion of war risks in prices, were 
prohibited. Stop prices and monopoly prices are to be reexamined in 
order to fuid out whether they can be lowered. 

Price. decreases may be considered for goods required by the Govern- 
ment, in order to secure a reduction in the cost of war. 

To prevent a shifting of increased overhead expenses to the con- 
sumer, the decree provides maximum profit rates for the retail trade. 

To make the new price regulations effective, the control of wages 
was intensified. According to the wage-stop decree, wages cannot be 
lowered or mcreased without the consent of special authorities. 

CONTROL OF THE CAPITAL MARKET 

The principle laid down by the Nazi government with regard to the 
capital market was that public demands have precedence over private 
demands. In order to assure such precedence, measures were taken 
which resulted in the practical exclusion of private concerns from the 
capital market. 

Limitations upon the extension of production in certain industries 
were combined with prohibitions against new capital investments. 
The declared purpose of such prohibitions was to prevent such indus- 
tries as paper, glass, and parts of the textile industry, and chemical 
industries from using up the hmited capital by extending their plants. 

Second place was given to companies engaged in the production of 
goods in which the Government has some special interest, and whose 

" Reichskreditgesellschaft. Germany's Economic Situation at the turn of 1937-38, p. 48. 
" Weekly Report of the German Institute for Business Research, March 13, 1940, p. 23. 



74 CONCENTRATION OF ECONOMIC POWER 

profits and sales have been guaranteed by the Government. Indus- 
tries producing staple fibers, motor fuel, and sj^nthetic rubber fall into 
this classification. 

In some fields the State itself has gone into production and invested 
capital as in the case of the Hermann Goering Reichswerke A. G., 
which is engaged in mining the low grade ores which abound in 
Germany. 

The chief purpose of the Loan Stock Law (Anleihestockgesetz) of 
December 1937 was to make the stock market unattractive to investors 
and thus divert funds to the government bond market. This law limited 
the payment of cash dividends to 6 percent, or under certain conditions, 
8 percent. Excess dividends had to be turned over to the Gold Dis- 
count Bank for investment in government bonds for a term of 4 years. 
The Gold Discount Bank was to administer these investments as a 
trustee for the stockholders. A decree passed in December 1934, in 
addition to extending the original measure for 3 years, provided for 
the distribution of impounded dividends in the form of non-interest- 
bearing tax certificates accepted in payment of all taxes, with the 
exception of the wage income tax and the capital profits tax during 
the fiscal years 1941-45.^^ 

LIMITATION ON THE ISSUE OF SECURITIES 

The issue of industrial bonds and stocks has been permitted in recent 
years almost exclusively for conversion purposes or for financing the 
4-year plan. Furthermore, the issue of additional stock was made 
subject to the approval of the Minister of Economics by the law of 
administration and extension of the dividend limitation law (Anleihe- 
stockgesetz of February 27, 1935).^^ 

In addition to the embargoes on new security issues, various other 
methods were evolved by the Nazi government to direct the stream 
of credit, i. e., the floating of Government funding loans in rapid suc- 
ce^ssion, the absorption of liquid short-term capital by the issue of one- 
name bills, the enrollment of the whole banking system and of the 
insurance companies for the financing of public works, etc.^° 

Recently the Reich Government lilted its absolute monopoly on the 
capital market for Government issues, and permitted several indus- 
trial concerns to attract new capital for the financing of plant expan- 
sion for armament wprks. This, however, does not mean that the 
Government intends to relax its control of the capital market; on the 
contrary, its control remains absolute and enables it to regulate 
investment activity.*^ 

CONTROL OF STOCK EXCHANGES 

First of all, the supervision formerly exercised by the various states 
was transferred to the Minister of Economy. 

By a law passed in December 1934 the number of stock exchanges 
was reduced from 21 to 9, by closing some of the provincial exchanges 
and merging others. 

38 Economic Review of Foreign Countries, Bureau of Foreign and Domestic Commerce, 1937, p. 26. 
» Supplement to the Weekly Report of the German Institute of Business Research, April 21, 1937, p. 3. 
« Reichskreditgesellschaft, Germany's Economic Development during the First Half of the Year 1937, 
pp. 4-5. 
<i The Annalist, October 3, 1940,' p. 429. 



CONCENTRATION OF ECONOMIC POWER 75 

The decline in security trading on most provincial exchanges and 
the concentration of trading on the Berlin Bourse had made many 
of the smaller exchanges uneconomic. To improve the situation of 
the remaining provincial exchanges, it was provided that no security 
may be listed on the Berlin Bourse if the total issue is less than 1 ,500,000 
Rm. A minimum of 500,000 Rm. was set for the Frankfurt and 
Hamburg exchanges, and 250,000 Rm. for the others. 

During 1936 there was a great deal of speculative activity in such 
foreign securities as were admitted to the German exchanges. In 
order to prevent this the free sale of certain foreign securities was 
completely prohibited.*^ 

BANK CONTROL 

The Reichsbank Law of June 1939 confirmed the development of the 
past few years under which the Reichsbank was converted from an 
independent bank of issue to an instrument for carrying out Nazi 
economic and financial policy. 

The new li),w subordinates the Reichsbank to the Reich Chancellor, 
and provides that the Chancellor alone has authority to determine the 
amount of credit which the Reichsbank might extend to the Govern- 
ment. All existing formal restrictions and guaranties limiting Govern- 
ment borrowing from the bank were removed. 

REGIMENTATION OF LABOR 

Immediately following the dissolution of all GeiTnan trade unions 
on May 2d, 1933, the German Labor Front was established. The 
membership of the Labor Front now consists of all brain and manual 
workers, wliother employees or employers. Its main task is to insure 
industrial peace, to establish solidari^^v among its members, and to 
abolish class distinctions. 

The central office of the Labor Front has 14 sections. The voca- 
tional organization consists of the 18 Reich trades divisions. The 
territorial organization coincides with that of the National Socialist 
Party. There are 33 Labor Front regions (Gaue), one of which is the 
foreign region. These are subdivided into 821 districts (Kreise) and 
14,744 local groups (Ortswaltungen).*^ 

The law for the regulation of national labor was passed on January 
20, 1934, and was designed along the principle of leadership. One 
section of the law provides for the formation of mutual trust councils 
(Vertraunsrat) in all firms with more than 20 employees. The owner 
of the establishment, called the leader, is president of the council. 
The duty of these councils is to act as intermediary between the em- 
ployer and the employees. 

Section II deals with the labor trustees (Treuhaender der Arbeit) 
who are appointed by the Government. Since strikes and lock-outs 
are prohibited in Germany, the labo^ trustees were charged with 
maintaining industrial peace. They have the power to fix minimum 
wages and increase hours of work as much as 10 hours. 

In every firm employing as many as 20 salaried and wage-earning 
employees, work regulations must be issued in writing by the employer. 
The rules issued by the leader are legally binding on the followers. 

" Supplement to the Weekly Report of the German Institute for Business Research, April 21, U37, p4. 
" E. C. Donaldson Rawlins, op. cit., p. 211. 



76 CONCENTRATION OF ECONOMIC POWER 

The work regulations must be submitted for discussion by the mutual 
trust council. 

A court of social honor is established in each labor-trustee district. 
Its purpose is to prevent abuses of authority on the part of business 
management and to stop interference with business conduct on the 
part ojf employees. 

Protection against dismissal: If a person employed under contract 
is given notice of dismissal after worlcing in the same firm for 1 year 
(provided the firm employs at least 10 persons) he can apply to the 
labor court (Arbeitsgericht) for cancelation of the notice, if the latter 
is unduly harsh and is not caused by the position of the firm. 

Employment Book (Arbeitsbuch): The Minister of Labor in a law 
of February 26, 1935, decreed that no clerical employee or manual 
worker may be- hired who is not in possession of an employment book, 
which is intended to be a record of the working career of the owner. 
It is supposed to help the Reich Labor Exchange and Unemploymerit 
Insi/rance Office in proper placement of workers, in reducing the 
nunxber of candidates for overcrowded trades, in stopping the flight 
from the land, and in preventing workers from having two sources 
of earnings, or from earning morey when they are on the dole. 

Other labor legislation issued under the National Socialist regime 
includes: 

The decree of September 1, 1935, prohibiting, except under sanction 
of the Minister of Economic Affairs, the emigration of skilled work- 
men and technicians; 

The Law for the Regulation of the Supply of 'Labor (May 15, 1934) 
empowering the President of the Reich Labor Exchange and Unem- 
ployment Insurance Office to designate districts with high unemploy- 
ment as "closed zones" against migratory laDor (Berlin, Hamburg, 
and Bremen have been declared "closed zones") and to forbid the 
engagement of agricultural workers in other branches of industry; 

Decree concerning the Allotment of Labor (August 10, 1934) which 
provided that the Reich Labor Exchange and Unemployment Insur- 
ance Office is the only body entitled to regulate distribution of labor 
over the available employment; 

The Order of August 28, 1934, stipulating that all firms and public 
works (agriculture, forestry, and domestic service are excepted) must, 
if called upon by the Labor Office, exchange workers of either sex 
under 25 years of age for older unemployed, preference being given 
to married men with large families ; 

A law of December 1, 1935, conferring upon the Reich Labor 
Exchange and Unemployment Insurance Office the sole right to carry 
on employment agency work in Germany. 

To secure the labor forces necessary for the second Four Year Plan 
and to direct all employable persons to the work for which they are 
best fitted, five decrees were issued by President Goering on Novem- 
ber 9, 1936: ** 

(a) Industrial entrepreneurs who, for longer than two weeks, employ 
skilled metal and building workers on tasks which are predominantly 
other than those for which they have been trained, shall at once report 
particulars to the appropriate labor office. The labor offices are then 
to arrange the transfer of such workers to positions which are more 
suited to their special qualifications. 

" Reichskreditgesellschaft, Germany's Economic Situation at the Turn of 1936-37, pp. 33, 34. 



CONCENTRATION OF ECONOMIC POWER 77 

(6) To prevent undesirable competition for the services of skilled 
workers among employers, anonymous "box" advertisement of jobs 
for skilled workers in the metal and building trades was prohibited. 

(c) In order to secure an adequate supply of skilled workers in the 
heavy and metal industries for communal and Government work, it 
was ordained that all engagements of additional metal workers in 
private or public enterprises, wherever the increase amounts to more 
than 10 such workers in any one quarter, must be authorized by the 
appropriate labor office. 

(d) A further decree encourages the increased employment of salary 
earners of the higher age groups. 

(e) The last decree relates to the training of the younger generation. 
To provide for the recruiting of qualified labor in the heavy and 
metal industries, as well as in the building trades, it was laid down that 
concerns with 10 or more employees, and belonging to these industrial 
groups, shall undertake the, training of apprentices in proportion to 
the number of skilled workers they employ. School-leaving age in 
the secondary schools was lowered by 1 year to increase the number of 
qualified workers. 

For the furtherance of the second Four Year Plan several additional 
decrees were enacted, notably the decree of February 11, 1937, 
according to which the transfer of skilled laborers in the metal trades 
can be carried through only under license. ^^ Under previous regula- 
tions, transfer from one post to another within the same district did 
not require the authorization of the labor offices; this exception has 
now been removed. The new regulations give the labor offices for the 
first time a monopoly on employment exchange work for an important 
range of trades. 

The decree of June 30, 1937, deals with the reduction of part-time 
work. It provides that all relief for part-time laborers of less than 
30 years of age and with no dependents should be withdrawn. 

An ordinance issued on July 23, 1937, to the textile anH leather 
trades, provided that where part-time work is not merely temporary, 
enough workers can be dismissed to permit employment of the rest 
on a full time basis. ^® 

At the end of 1937 the Labor Office issued new regulations for main- 
taining the succession of skilled workers in the metal and building 
industries. The regulations provided for careful inquiries by local 
labor offices as to those firms in their districts taking on less than their 
percentage of apprentices, as judged by the average for their particular 
trade. The offices are to invite these firms to voluntprily increase 
the number of apprentices they take on. If this invitation meets with 
no response, then, with the consent of the relevant industrial board, an 
appropriate number of apprentices may be imposed upon the firm 
concerned. Whore it appears that for special reasons an increase in 
apprentices is impossible, the industry must pay the Board 50 Rm. 
for each vacant apprenticeship." 

In February 1938, a decree forbade employment of single women 
under 25 unless they had worked for 1 year either in a household or on 
a farm. Recently, however, this regulation was changed and the 
annual contingent of women has been assigned exclusively to agri- 
culture. 

*> Reichskreditgesellschaft, Germany's Economic Development for the First Half of the Year 1937, pp. 

" Reichskreditgesellschaft, Germany's Economic Development at the Turn of 1937-38, p. 37. 
" Reichskreditgesellschaft, op. cit., p. 32. 



7g CONCENTRATION OF ECONOMIC POWER 

The decree of June 1938 provided for labor conscription in cases oi 
need, in respect to any man or woman resident in Germany and not 
of foreign nationality, without regard to age or profession.*^ 

The Decree for securing the necessary labor for tasks of especial 
National importance issued on February 13, 1939, strengthened 
Government leadership in the field of labor, and invested the Labor 
Ministry with far-reaching powers, amounting to control over em- 
ployment. The termination of labor contracts was made dependent 
upon the consent of the labor exchanges. This restriction tied the 
workmen to the factories in which they happened to work at the time 
when the decree was issued. 

The decree of April 22, 1939, extended the range of persons required 
to hold employment books to almost all workers, whether dependent 
or independent, and includes family members acting as assistant 
workers. 

Decrees issued in September 1939 forbade all workers and employees 
to leave their jobs without the consent of the local labor office, and 
lifted all restrictions on hours of work for adult men. They also 
abolished prohibition on night work for women, and empowered the 
authorities to remove all limitations governing the employment of 
women and children under 18. A new decree of December 12, 1939, 
limited the working day to 10 hours or, with special permission, to 
12 hours. Night work for women and for young people was again 
prohibited. 

TAXATION 

In 1936 the corporate income tax was increased from 20 to 30 
percent. In 1938, it was increased to 40 percent for the years 1939 
and 1940. Public utilities owned by states or other government 
entities are subject to the corporate income tax. 

The outbreak of the war brought drastic changes in tax rates. 
The main increases were: (1) a 50-percent increase in personal income 
tax rates on incomes exceeding 2,400 marks per annum, on condition 
that the total tax be not more than 65 percent of income; (2) a "war 
surtax" amounting to 20 percent of the retail sales price on tobacco, 
beer, liquors, and champagne, but not wines; (3) a special levy on 
local and provincial governments equivalent to 15 percent of their 
present contributions under the income, corporation and turnover 
taxes collected by the Reich; (4) corporations besides paying an 
income levy of 40 percent, in addition to other taxes must contribute 
toward the cost of maintaining enterprises closed by the war. 

One of the reasons why the Nazi government has preferred taxation 
to borrowing as a means of financing the war, was its fear that severe 
rationing of the consumption goods, along with a shortage of non- 
rationed consumer goods, might cause inflation. It is hoped that 
taxes will help to absorb excess purchasing power. 

COMPANY LAW *» 

Management of a German corporation is in the hands of thi-ee 
groups — the managing board, whose duties are principally administra- 
tive; the board of directors, or supervisory board; the stockholders, 
whose influence is exercised at their annual general meeting. Two laws 

*' Refchskreditgesellschaft, Germany's Economic Development for the First Half of the Year 1938, p. 40. 
" Bureau of Foreign and Domestic Commerce, Comparative Law Series, MaV 1937. See also Reich- 
gestzblatt. Part 1, No. 15, February 4, 1937. 



CONCENTRATION OF ECONOMIC POWER 79 

enacted January 30, 1937, emphasize the responsibUity of the manag- 
ing board, greatly increasing its policy-making powers. This was 
apparently in line with the Nazi policy of personalizing business, 
bringing the responsibility home directly to the chairman of the 
managing board, who is given power to override the decision of the 
other members in any controversy. It is further provided in these 
laws that the managers may refuse requests from directors or stock- 
holders for information about developments within the company and 
may refuse dividends and build up reserves, regardless of the will of 
the shareholders as expressed in their general meeting. 

The Board of Directors has little control over the management, 
under the 1937 decrees, aside from the power of appointment and of 
fixing salaries. It must approve the annual balance sheets, but has 
little to say about them. The minimum number of directors is 3. 
The maximum ranges from 7 for a company with capital of not over 
Km. 3,000,000 up to 20 for a company with more than Rm. 20,000,000. 
(Exceptions may be made by the Minister of Justice.) No individual 
may be a director of more than 10 companies, a provision apparently 
intended not so much to prevent concentriation of power as to prevent 
a man's taking on more interests than he can handle intelligently. 

The 1937 laws contain strict regulations regarding the relationship 
of holding companies. They are technical, but in general define 
sharply the relationships between affiliated companies, and prevent 
abusfes through afliliates or holdings of voting stock by dummy cor- 
porations. The government's control over holding company opera- 
tions is made more flexible by the fact that the proportion of stock 
held in an operating company is not the sole criterion of a holding 
company. Influence in the affairs of the operating company is also 
taken into consideration. 

An amendment to the old company law, passed in July 1936, 
permits the Minister of Justice to lift the 10 percent limitation on a 
company's purchase of its own shares. It is believed that the purpose 
was to permit certain companies to buy back shares which the govern- 
ment was holding and wanted to get rid of. 

APPRAISAL OF THE GERMAN CONTROL SYSTEM 

The experience of a war-preparing, totalitarian country with a 
limited supply of raw materials, labor, and inadequate financial 
resources is, of necessity, different from that of a country not con- 
fronted with the same problem of scarcity. Nevertheless, it is of 
interest to evaluate the success of the major Nazi control policies to 
determine the extent to which state intervention has been effective in 
building up a war economy by means of supervising the volume of 
production and investments, distribution of raw materials, rationing 
of consumption, direction of foreign trade, prices, and wages, and in 
fitting the whole framework into actual war conditions. 

THE INDUSTRIAL SITUATION 

In spite of the most rigid planning and regulation, crucial difficulties 
are found in the industrial situation. The hurried remilitarization 
and complete shift toward a war economy resulted in "full employ- 
ment" by the middle of 1938. Even before that time the pace of 
expansion required by the rearmament program could be maintained 



gQ CONCENTRATION OF ECONOMIC POWER 

only through the utihzation of practically all existing reserves and by 
neglecting to undertake even urgent repair and maintenance work. 
In the most essential industries, production increases as early as 1938 
could be attained only by means of lengthened working hours and 
utihzation of plant capacity far exceeding normal. 

The difficulties in further expanding output have arisen from two 
main sources: lack of raw materials and shortage of trained labor. 
The most serious difficult}^ is probably connected with substitute raw 
materials. Particularly after the inauguration of the Four Year Plan, 
strains set in in virtually every field. When the large-scale production 
of substitute materials was initiated, to replace imports, there were 
reserves of labor and plant. The problem of substitution was one of 
production costs only, but since 1938 the shortage has extended to 
these basic materials, with the result that even the volume of sub- 
stitute materials had to be strictly regulated, and frequent changes in 
quality became necessary. This required frequent changes in ma- 
chinery and equipment for the use of substitutes. 

In an economy which is suffering from a shortage of labor, further 
increases in industrial output depend largely on the degree to which 
plant mechanization can be expanded. Thus, the machinery industry 
occupies a key position in the German economy. The load upon the 
macl^jnery industry has been further increased by intensive utilization 
of existing plant and equipment, which means increased maintenance 
and replacement, and by the changing quality of the raw material 
supply, which requires changes in machinery and equipment; Con- 
sidering also that the basis of trade relations with southeastern Europe 
has been the exchange of German machinery for raw materials, the 
government has done everything in its power to fight the weak points 
in the machinery industries. Nevertheless, the coordination of the 
various elements shows failures. If one raw material is made avail- 
able by the authorities, production is delayed because other necessary 
materials have not been allotted in. time or because transportation 
facilities are needed for other national tasks. For the last few years 
the establishment of iron quotas has rrieant a strict "indirect" regula- 
tion of machinery production. Lately the regulations have become 
more and more rigid. There has been an attempt to improve con- 
ditions by curtailing the number of types of machinery. The result 
does not seem to be satisfactory, as the delivery difficulties for all 
types of machinery continue to increase. In view of the particularly 
grave shortage of locomotives and rolling stock, the necessity of 
'meeting this shortage is certain to make the situation in the other 
branches of the machinery industry worse. 

Other branches of the producers' goods industries— tin, iron, power, 
construction, transportation — ;have experienced sin^Iar difficulties. 

THE AGRICULTURAL SITUATION 

At the tirne when the construction of the western fortification' and 
the preparation and execution of the Austrian and Sudetenland policy 
required tremendous additional resources of material and men, the 
entire agricultural program was thrown out of gear. Owing to the 
excessive demands on available labor and material emanating from 



CONCENTRATION OF ECONOMIC POWER gl 

other sectors of the economy, hardly any support could be given to 
the agricultural program in the form of machinery construction or 
adequate transportation. Thus as war preparations increased, the 
program was limited to the more modest goal of pushing output in 
those products whose availability from foreign sources was likely to 
be jeopardized by war. 

In appraising the various measures undertaken between 1934 and 
1939 it is important to consider the shortage of trained farm labor, 
which defeated all attempts to increase acreage of typical "battle of 
production" crops after 1937. When the "battle of production" 
started in 1934, higher labor requirements incidental to more intensive 
cultivation could be met without much difficulty, and the planned shift 
from certain imported products to domestic foodstuffs was accomplished 
by increased manual efforts. The efficient organization of the Reich 
Food Estate succeeded within a short time to induce farmers and farm 
l^bor by education, as well as by intimidation, to work longer hours 
and more strenously. Nevertheless, city-ward migration continued 
once the rearmament program opened better opportunities in factories. 

The official explanation of the failure to prohibit migration to the 
cities shows that the "blood and soil" Concept does not always work 
out as expected. Explaining why Goering's labor decrees issued in 
connection with the Four Year Plan do not contain regulations for 
farm labor, it was stated, "The omission of farm labor has a sound 
reason. The farm labor problem cannot be solved by wage and other 
regulations, but only through the mental attitude and willingness of 
the German compatriots who work together on their soil. Once this 
attitude becomes indoctrinated through the educational campaign of 
the Reich Food Estate, there will be enough Germans who will gladly 
devote themselves to agricultural pursuits. Then the chronic short- 
age of farm labor will be solved." ^° 

Owing to the shortage of labor, every sort of labor-saving device 
has been considered desirable from the standpoint of national economic 
policy. The mechanization of German agriculture, however, has very 
definite limits. The first obstacle is that the machinery industry is 
not. in a position to supply the needed farm machinery.' Besides, the 
shortage is particularly acute on small farms where mechanization is 
possible only to a very limited degree, and 95 percent of the farms and 
about 80 percent of the agricultural acreage in Germany are accoimted 
for by peasant holdings. ^^ For the present the idea of combining 
small farms into large units has been rejected for reasons of state and 
social policy. 

The original "battle of production" in agriculture had to be sacri- 
ficed on account of the necessary extension of the industrial economy, 
and the pressing work connected with the rearmament program. 
There can be no doubt that since 1938 it was not possible even to 
maintain acreage in general, and production of animal products in 
particular, on account of severe strain caused by labor shortage. 
According to reports issued by the Reich Food Minister, there was a 
reduction during 1937 and 1938 alone of an area capable of supporting 
more than 360,000 human beings, by reason of the construction of 

»» "Die Versorgung der deutschen Landwirtschaft mit Arbeitskraeften," ("Farm labor supply in German 
agriculture"), Der VierjahTesplan. February 1937. 

" Harry L. Franklin, Wartime Agricultural and Food Control in Germany, Foreign Agriculture, Foreign 
Agricultural Relations, April 1940, p. 216. 



©2 CONCENTRATION OF ECONOMIC POWER 

automobile roads, the building of new industrial plants, the provision 
of areas for military exercises, and the construction of fortifications on 
the western frontier." 

Despite the immense amount of effort expended, the percentage of 
food self-sufficiency in 1938 was officially estimated at only 82 percent, 
or but little above the level prior to World War I. The fact that the 
1938 diet was about 15 percent below that level indicates that part of 
the apparent increase in self-sufficiency is due to a decline in con- 
sumption." 

The volume of Germany's total agricultural production has risen 
steadily since 1932-33, when it was slightly higher than the 1928-29 
level. This increase in total production has been achieved largely- 
through progressive increases in yield for most of Germany's principal 
farm crops. This development has been facilitated by the heavy 
reduction in fertilizer prices, increased mechanization, tax assessments, 
reduction in the hitherto high electric-current costs in many rural 
areas, a fairly favorable price policy for farm products, and other 
farm aids of various kinds to stimulate production.^* 

German agriculture seems to be less favorably situated financially, 
however, than the production situation would imply. According to 
a profit-and-loss balance sheet for German agriculture during the 
farm year 1937-38, there was an income deficit of about 4.5 billion 
Rm.56 

In spite of all official German claims, it is safe to say that this ulti- 
mate goal of food freedom has not been attained, and only initial 
steps could be undertaken in the direction of food autarchy. But the 
failure to win the battle for food freedom in itself is by no means a 
reflection on the efficiency of the Reich Food Estate. There can be 
no doubt that its rigid organization itself represents an accomplish- 
ment in times of emergency. Likewise, it is important to note the 
tremendous efforts that have been undertaken under its guidance and 
orders, particularly in view of the difficulties arising from the rearma- 
ment and self-sufficiency program in other areas of the economy. 

In view of the extent of the labor sltortage during the last few years 
it is not surprising that the farm production program could not be 
extended ; rather, it is remarkable that the output of crops and animal 
products requiring much labor could be maintained as well as it was. 
This result was possible only by intensification of efforts at labor- 
saving. 

THE LABOR SITUATION 

It may be of interest to indicate the net effects of the economic 
policy on the labor situation in industry and agriculture. The official 
mouthpiece of the National Socialist Party, Die deutsche Volkswirt- 
schaft, characterized labor conditions as follows: "Lately a number of 
symptoms of overexertion of workers and employees have become 
apparent. Firstly, the grippe epidemic has reached such an extent 

82 Reichskreditsesellschaft, Economic Conditions in Germany in the Middle of the Year 1939, p. 12. 
w Wartime Agricultural and Food Control in Germany, Foreign Agriculture, OflBce of Foreign Agricul- 
tural Relations, April 1940, p. 199. 
M Ibid., p. 216. 
" Reichskreditgesellschaft, op. cit., p. 17. 



CONCENTRATION OF ECONOMIC POWER g3 

that it can only be explained by increased susceptibility owing to 
physical and psychological weariness. Secondly, extreme irri- 
tability on account of nervous strains resulting from overexertion is a 
common observation. Thirdly, the unexcused leaves and attempts to 
stay away from work for flimsy reasons increa-sed sharply. This also 
can only be attributed to the need for relaxation and recreation from 
overstrains. The overexertion of the workers is, in the last analysis, 
only another symptom for the general overutilization of all resources 
which, simultaneously, lead to scarcity of goods, slowing down of 
deliveries and labor shortage." ^^ 

In agriculture, the stringent regimentation of labor has failed to 
solve the problem of farm labor. Due to the diflFerence in wages 
between urban and rural workers and between working and living 
conditions in the city and on the farm there has been a marked 
"flight from the land" in recent years. It has been estimated that 
between 700,000 and 800,000 agricultural workers have left the farm 
for urban centers, or at least given up farm employment, since 1933." 

The problem of an adequate farm-labor supply has become more 
acute sinc»5 the outbreak of the present war, with hundreds of thou- 
sands of farmers called to military service. To take care of the 
situation, from 800,000 to 1,000,000 foreign agricultural workers, 
mostly Polish, are employed, in addition to some 300,000 Polish 
prisoners' of war.^^ Whether they will prove to be satisfactory 
substitutes for the German peasant-cultivators and experienced farm 
laborers now in military service is questionable. 

ARE PRICES STABLE? 

In appraising the effect of German price control it should be re- 
membered that in a totalitarian economy where the principle of free 
adjustment of prices has been abandoned, prices lose their function as 
automatic regiilators of production. Furthermore, it must be noted 
the mechanism of price control "operates within the framework of an 
omnipotent and omnipresent state with absolute authority, which has 
suspended all kinds of freedom of expression by citizens and habeas 
corpus rights also." ^^ Furthermore, it is not possible to obtain reliable 
data with regard to prices; official statistics are incorrect inasmuch as 
they often quote prices of goods which are not available on the market, 
and do not take into account the deterioration in quality. While 
official statistics claim that "it has to a large extent been possible to 
maintain price stability with respect both to wholesale prices and the 
cost of living";*" and "prices in Germany since the beginning of the 
war have scarcely changed," ®^ outside observers give an entirely 
different picture: 

The situation In Berlin's wholesale markets has been getting worse ever since the 
beginning of the war. Heavier taxes, underhand trading, illegal pricing, and 
"linked selling" are become the rule rather than the exception. Strict regulations 
have been unable, so far, to cure abuses that stem directly from the acute shortage 
of numerous commodities and from the rationing system itself. * * * There 

M March 2, 1939. 

»' Harry L. Franklin, op. clt., p. 213. 

s« Ibid., p. 213. 

" Karl Brandt, The German Fat Plan and its Economic Setting, Stanford University, 1938, p. 312. 

'ii Reichskreditgesellschaft, op. cit p. 27. 

"' Weekly Beport of the Ocrman Institute for Business Research, March 13, 1940, p. 41. 



g4 CONCENTRATION OF ECONOMIC POWER 

is a legal price for each type of food but there are also unofficial prices, which are 
paid for special quality goods.^^ 

Another dispatch states: 

German housewives complain that despite drastic police regulations forbidding 
increases in prices, only those who can afford to pay higher prices can obtain better 
grade vegetables and fruits. Dealers complain that they must buy staples they 
do not need in order to obtain smaller quantities of goods they know they can sell. 
Police watch markets and try to prevent such deals. Now the dealers are trying 
to arrange secret meeting places to negotiate deals among themselves outsidd 
market quarters." 

«» Dispatch 0/ the Berlin correspondent of the New York Herald Tribune, November 6, 1939, quoted in 
German Food Consumption and Requirements, January 1940, p. 35. Office of Foreign Agricultural 
Relations. 

" Dispatch of Sigrid Schultz, Washington Times-Herald, November 5, 1939, quoted in same publication. 



PART III 

REGULATORY EXPERIENCE IN FRANCE 

by 

AGNES ROMAN 

Junior Economist 
Temporary National Economic Committee 

JOHN H, COVER 

Chief Economic Analyst 
Bureau of Foreign and Domestic Commerce 

NELSON A. MILLER 
Acting Chief, Marketing Research Division 
Bureau of Foreign and Domestic Commerce 



REGULATORY EXPERIENCE IN FRANCE 

HISTORY AND CHARACTER OF THE FRENCH CARTEL 

MOVEMENT 

ATTITUDE OF GOVERNMENT 

As early as 1776 there arose in France a strong sentiment against 
combination control, which found expression in Turgot's edict abol- 
ishing the merchants' and manufacturers' guilds.' Attempts to rees- 
tablish the guilds resulted in the act of March 2, 1791, shortly after 
the outbreak of the Revolution, which provided that: 

Every person shall be free to engage in such business or to exercise such profes- 
sion, art, or trade as he shall see fit.^ 

This was supplemented by Chapelier's Act of June 14-17, 1791.' 
This Act prohibited all agreements and even any meetings for the 
discussion of common interests either by masters or by men, stating 
that such meetings were "unconstitutional and contrary to liberty 
and to the Declaration of the Rights of Men." * 

Regarding the significance of this statute, which underlies all subse- 
quent legislation on competition, and is characteristic of the socio- 
economic background of that period, the following remark is relevant: 
"It should first bo remembered that the purpose was not to lay the 
foundations of a new economic order with boundaries preconceived 
and outlined by legislature. Like most legislation, * * * j|. ^g^g 
designed rather to cure certain recognized ills of the past. The par- 
ticular evils, in this case, were the complete guild domination and 
governmental interference with production by minute regulation of 
industry. The oppressive grip of the guilds, manifested chiefly in 
their exclusionary rules depriving outsiders of a livelihood and tlieir 
antagonistic attitude toward invention and innovation, dela3ang the 
devitalization of production, had already been felt during the ancient 
regime."'^ 

A number of provisions are embodied in the French Penal Code for 
the regulation of industrial combinations and prevention of unfair 
trade practices. Of these the most iniportant is Article 419, passed 
in 1810, which, as amended in 1926,' reads: 

' Ordinance of February 1776, concerning' the abolition of merchants' and manufacturers' guilds (gener- 
ally known as Turgot's edict), Isambert, Recueil general des anciennes lois francaises. vol. 23, 182ti, pp. 
370 ff. , 

English translation of the Turgot edict, in "The Case of Monopoly versus Competition— Source Mate- 
rialsin Comparative Law", Huger W. Jervey and Francis Deak, Columbia University School of Law, 
New York City, 1934, vol. 1, pp. 1-5. 

Description of the historical and economic background of Turgot's edict, see Sanzet, "Essai historique 
sur la legislation industrielle de la iTance 1 (L'ancienne regime)," in 6 Revue d'economie politique (1S92),. 
353-402. 

» Statute concerning the freedom of industry and commerce, March 2-17. 1791, Lois et Actes du Gouverne- 
ment, vol. 3, 2 ff. Quoted by Huger W. Jervey and Francis Dedk, The Case of Monopoly versus Compe- 
tition, Columbia UnivTsity Press, New York, 1934 (mimeo.). p. 5. 

3 Jervey and Deak. op. cit., p, 11. 

* Review of the Legal A.'^pects of Industrial Agreements, League of Nations, Economic and Financial 
Section, QcnevH. 1030, p. 41. 

' Francis Deak, Contracts and Combinations in Restraint of Trade in French Law, a comparative 
study, Iowa Law Review, January 193G,,p. 398. 

87 

282317— 41— No. 40 



gg CONCENTRATION OF ECONOMIC POWER 

Article 419 

All persons: . . , ,., ^ , j- • x j 

(1) Who, bj' wrongful or calumnious reports deliberately disseminated among 
the public, by market bids made for the purpose of upsetting quotations, by 
offering better prices than those asked by the sellers, or by any fraudulent means 
or devices whatsoever; . ,.,.., 

(2) Or who bv exercising or attempting to exercise, either by individual or 
collective action,' anv influence on the market for the purpose of acquiring profit 
other than that deri^^ed from the natural operation of the law of supply and 
demand; 

Directly or through a third person promote or attempt to promote an artificial 
rise or fall in the prices of foodstuffs and other commodities or negotiable securi- 
ties, either public or private: 

Shall be punished with a term of imprisonment varying from two months to 
two years and a fine varying from 2,000 to 100,000 francs. 

The Court may also forbid the offender to reside in a certain place for not less 
than two and not more than five years. ^ 

Article 420 of the Penal Code, also passed in 1810, provided heavier 
penalties if the commodities are breadstuffs, bread, or wine or other 
eatables. In 1852, an Executive Decree prohibited mergers of mining 
concessions without authorization of the Government, declaring this 
to be a criminal offense under Articles 414 and 419 of the Penal Code; 
this was directed chiefly against the coal industry.^ 

The general character of the period during which Article 419 of the 
French Penal Code was passed has been described as follows: 

* * * Article 419 of the French Criminal Code, is, in substance, a cornering 
statute. It reflects, of course, the then dominant, extreme laissez-faire philoso- 
phy, based on the assumption that price should be determined solely by the 
"natural course of competition", free from external interference. But the code 
provision was * * * directed against combinations in the modern sense of 
the word. The economic structure of the early nineteenth century France did 
not generate any combination or concentration movement. The country was 
predominantly rural and agricultural. What industry France possessed was 
diversified, individualistic handicraft. * * * There were, as yet, no railroads, 
which .later broke down the localization of trade and enabled producers to pene- 
trate distant markets. To this might be added the sobriety, traditional thrift, 
and individualism of the French people, which, despite the profound change in 
economic life introduced by the industrial revolution, did not encourage a com- 
bination movement. Consequently, combination in France on the scale and in 
the variety of forms and practices known to American business has been rather 
exceptional.* 

After about the middle of the century the negative attitude toward 
concerted action was relaxed, as reflected in the enactment in 1884 
of the law regarding the establishment of professional syndicates 
which repealed Chapelier's Act and provided that : 

Art. 2. Professional syndicates or associations, even if comprising more than 
twenty persoris, exercising the same profession, or engaged in similar callings or 
in connected occupations which cooperate in the production of certain goods, can 
hereafter be freely created without authorization of the Government. 

Art. 3. The exclusive purpose of professional syndicates is the study and 
protection of economic, industrial, commercial, or agricultural interests.^ 

Although the powers of these syndicates were narrowly limited, 
the fact that Criminal Code penalties against concerted action were 
suspended and the right of association among producers, sellers, and 
laborers received some recognition, represented a revolutionary change, 

• statute of December 3, 192fi, 4 D. P. (1927) 145. Translation in English, in Report on Review of the 
Legal Aspects of Industrial Agreements, prepared for the Economic Committee of the League of Nations 
(Economic and Financial Section) 1930, p. 42. 

' Decree of October 23, 1852, No. 4567, art. 1. Quoted in U. S. Department of Commerce, Bureau of Cor- 
porations (now merged with Federal Trade Commission), Trust Laws and Unfair Competition, Washing- 
ton, 1915, p. 273. 

' Francis De4k, op. cit., p. 415. 

• Jervey and De4k, op. cit., p. 11. 



CONCENTRATION OF ECONOMIC POWER g9 

reflecting the evolution of French economic institutions. Industrial- 
ization was progressing, and the development of railroad communi- 
cation altered market conditions. Also, after the middle of the 
nineteenth century the well regulated and expanding German industry- 
was an important factor to cope with. 

The change in attitude toward concerted action is reflected in the 
fact that after the 1890's criminal prosecutions became rather excep- 
tional, while civil actions have increased.'" "-The new judicial tend- 
ency in civil actions manifested itself chiefly in: (1) A consideration of 
the purpose of the combination in the light of conditions in the indus- 
try; (2) a more realistic approach to the market position of the com- 
bination, as aft'ected by potential or outside competition, and the 
nature of the commodity involved; in other words the courts hence- 
forth attempted to delimit the 'monopolizable area;' and finally^ 
(3) in a reappraisal of the price problem. The ultimate result of the 
process of reintcrpretation which, incidentally, began more or less, 
contemporaneously with the enactment of the Sherman law, was 
what might be called a 'rule of reason,' seeking to distinguish between 
'good' and 'bad' combinations." '^ 

The Civil Code of France has a number of provisions which might 
be applied to industrial combines,'^ the most important of which arei — 

Art. 6. Laws which concern public order and good morals 
may not be set aside by particular agreements. 

Art. 1131. An obligation that is without ground or is based on a 
false ground or an unlawful ground can have no effect. 

Art. 1133. The ground is unlawful when it is prohibited by 
law or when it is contrary to good morals or public order. 

Art. 1172. Every condition of an impossible thing, or contrary 
to good morals, or prohibited by law, is null and void. . 

Art. 1382. Every act committed by an individual resulting 
in injury to another involves an obligation on the party 
responsible for its occurrence to make reparation therefor. 

It is clear that the French law was not intended to prohibit all com- 
binations, and the Act of 1926, which amended Article 419 of the Penal 
Code, seemed to encourage a distinction between "good" and "bad" 
trusts, punishing only those whose object is to "acquire profit other 
than that derived from the natural operation of supply and demand." ^^ 

1" Ueav.op. cit., p. 434. 

" Deak, np. cit., 435. 

" Cases discussed in Trust Laws and Unfair Competition, op. cit., pp. 269-273. Cases also discussed by 
Jervey and Deak, op. cit. 

'3 See Report on Review of the Legal Aspects of Industrial Agreements, prepared for the Economic Com- 
mittee of the League of Nations (Economic and Financial Section) 1930, pp. 43-46, which states in part: 

"As we have just seen, cartels or agreemants formed by manufacturers and traders to regulate production 
and prevent unfair competition are not subject to any .special regulations in France. They are governed by 
the provisions of the common law now in force. 

"AgreeTients of this kind are accordinsly allowed, provided they do not pursue any unlawful aim. If, 
however, they are detrimental to the public interest, they may be cancelled by the Courts at the request of 
an inj'rei party, in virtue of Articles 6 and 1131 of the CivifCode which prohibit any agreements contrary 
to public policy or having an unlawful object. 

"Morover, as we have seen, the parties to such agreements may be subject to criminal prosecution, under 
Articl" iW) of the Penal Code, if they promote or attempt to promote an artificial rise or fall in the prices of 
foodstuffs and other commodities or of transferable securities. 

"When the Act of December 3rd, 1926, amending the text of Article 419 of the Penal Code w is under 
discu^sion, the 'Rapporteur' of the Committee of the Bill in the Chamber of Deputies accurately summed 
up^the present doctrine in the following words: 

" 'Where there is no criminal intent there is no criminal offence. 

******* 

"AsreT:ards trading agreements, the Rapporteur of the Committee of the Chamlnr of Deputies . stated: 
" 'To punish all combinations without distinction would be contrary tc the most obvious ccononiic necessi- 
ties.' 

• » »»».»• 

Footnote '^ continued on following page. 



QQ CONCENTRATION OF ECONOMIC POWER 

It is also important to note that where there is no criminal intent, 
there is no criminal offense, under the French doctrine. 

THE COMPTOIRS 

Owing to the liberal interpretation of Article 419 of the Penal Code, 
cartel-like combinations were allowed to develop in France. The 
specific cartel-form, the "Comptoir" has assumed the following forms 
in France: "It is an incorporated company established for the purpose 
of regulating production and prices in the industry'- concerned. This 
may be done by the creation of a common selling agency; by regional 
distribution of the market over the members; by price-fixing; by 
restricting the total output of the trade through a quota system; by 
providing for outlets on external markets. Combinations following 
these lines of action had developed before the war, especially in the 
pig-iron and the iron and steel industry, in some line of the chemical 
industry, in the plate-glass industry, in the salt industry, and in a few 
others. As a rule the influence of the central body on common policy 
was much weaker than with German cartels." ^^ 

The oldest and best-known cartel-like organization in France is the 
Comptoir de Longwy, organized in 1876 as a joint-selling organization 
for the pig-iron producers of Lorraine, who found it difficult by in- 
dividual effort to overcome the prejudice against Lorraine pig iron. 
Its field of operation was not very great, as compared with modern 
cartels, as it handled only the surplus production of its members and 
sold to smaller plants which did not possess or control their sources of 
raw material.^* 

Some French authorities writing on the subject of French cartels 
pointed out that the French "comptoir" might be looked upon as a 
loose version of the German cartel, adapted to French psychology and 
industrial scope, and lacking, as a rule, the disciplinary features char- 
acteristic of the German cartels. The French comptoir reached 
the highest degree of development when the exclusive selling rights 
of the output of its members was obtamed. 

During the war the comptoirs disappeared or were used by the Gov- 
ernment to control industry. After the armistice some of the comp- 
toirs were revived, among others the Comptoir de Longwy in 1919, but 
it disappeared again at the end of 1921 owing to the disorganization 
of the industry. The most important comptoir in the iron and steel 
trade organized since the war is the Comptoir Siderurgique which 
went out of existence in 1922, but was revived in 1925 and has been in 

Footnote " continued. 

"It is inte-estins to give here some extracts Df the comments made on the Act of 3rd December 1926 by the 
Dallo7, Law Rci)orts: 

" 'Certain combines a.rc. therefore legitimate. According to a formula which has now become classical, 
in spite of its triviality, there are "good and bad trusts," or, we should say, good and bad ccmbines, since 
not all combines are trusts. 

" 'Acordingly, instead of punishing all combines which manipulate the prices of commodities or nego- 
tiable securities, either public or private, the Act of December 3rd, 1926, only punishes those whose object 
it is to "acquire profit other than that derived from the natural operation of suppiv and demand." It is 
this profit as thus defined which constitutes the criterion by which a distinction is made between lawful and 
unlawful combines.' 

<.» * • a very large number of industrial and commercial agreements exist in France. These are of 
various kinds. In some ea.=es, they take the form of regulations issued bv emplovers' fedi^rations or cf 
jomt purchasing and sales organisations whose business is conducted in the light of dav. There are also 
private and secret a'.^rcenients regulating production and selling zones or home or foreign "prices, etc. Their 
exact number is unknown, as they are generally kept strictly confidential by the parties concerned." 

1* Louis Domeratzky, The International Cartel Movement, Bureau of Foreign and Domestic Com- 
merce, Trade Information Hiilletin no. 566, p. 28, 
" Domeratzky, op. cit., p. 27. 



CONCENTRATION OF ECONOMIC POWER 91 

recent times the most important association in the French steel 
industry.^'' 

POST-WAR CHANGES 

The impact of the annexation of Alsace-Lorraine and the occupation 
of the Saar district caused thorough-going changes in the French econ- 
omy. The additional capacity acquired by the iron and steel indus- 
try strengthened the combination movement, particularly due to the 
limited domestic demand, and the difficulties to cartelization experi- 
enced by the export trade. Inflation was an additional factor making 
for concentration and rationalization, the essential object of which 
was directed toward export interests rather than the home market. 
The best example of vertical combinations including a large range of 
production processes is that of the Schneider concern in the iron, steel, 
and armament industries, with the old firm of Le Creusot as its base.^^ 
Other vertical organizations of a regional or local character, handling 
a wide range of iron and steel products, are the "Longovica," handling 
not only the export trade of iron and steel, but also tube, screws, 
bolts, etc.; the "Nortrilor," the "Columeta," and the Societe Metal- 
lurgique des Terres-Rouges.^^ 

GOVERNMENT PRICE AND PRODUCTION CONTROL IN RECENT YEARS 

In order to facilitate enforcement of Article 419 of the Penal Code, 
a comprehensive bill was introduced in the Senate by the Government, 
in 1932, which would have required registration with the Government 
by "any industrial or commercial combination," the measure to apply 
to- 
all combinations, agreements, associations, or collective resolutions, made or 
entered into under whatever form, among manufacturers or merchants, for the 
purpose of imposing common regulations upon their industrial or commercial 
activity, in whole or in part.'' 

The bill, which failed to pass, was directed especially toward cartels 
for regulation of production, distribution of orders, allocation of 
territory, fixing of prices and terms of sale, cross licensing of patents 
and technical processes, and toward import and export cartels.^'' 

The change in the official French policy in accepting cartels as 
important devices in the struggle for the international markets was 
carried further early in 1935, with the introduction of a bill which 
would have provided for compulsory cartel agreements under Gov- 
ernment regulation. This bill provided that "if a group of employers 
representing, as a rule, two-thirds of all concerns and three-quarters 
of the total sales of the industry, during the preceding year has adopted 
an agreement for the purpose of regulating trade conditions for a 
limited period, such an agreement can be made binding upon all 
members of the industry by governmental decree. The agreement 
rnay include a wide variety of measures for adapting production to the 
situation of the market, at homo and abroad (including reduction of 
output, hours of work, and inventories); restriction of production to 

" Doinrratzky, op. d'., pp. 28, 29. 

" Karl Pribram, Cartel Problems, Brookines Institution, Washington, 1935, p. 279. 

'» Domeratzky, op. cit., p. 29 

" Bill Relating to Commercial and Industrial Combinations, introduced in the Senate by the Govern- 
ment, March ,'?, 1932, Journal Official, 1932, Annexe No. 182; 53 Journal des sccietfe civiles et commerciales, 
1932, 378 ff. 

'" Report of the Minister of Justice and of Commerce, submitting the Bill, 53 Journal des societes civiles 
et commerciales, 1932, pp. 371 ff. 



92 CONCENTRATION OF ECONOMIC POWER 

existing plants; conclusion of collective labor agreements; fixing of 
minimum standards of quality; assessment of contributions; and 
flotation of loans." ^^ To avoid undue governmental interference 
with economic life, the duty of examining the merits of the proposed 
agreement was to be entrusted to an "Arbitration Committee" com- 
posed of the heads of independent industrial, commercial, and financial 
organizations. This bill failed to pass, after being adopted by the 
lower chamber. 

The lack of coordination between productive capacity and demand 
led to the adoption of a number of measures regulating specific 
industries and agriculture, including wheat control legislation, pro- 
v'sions for confiscation of wheat surplus in an effort to reduce produc- 
tion, and the prohibition of new flour mills or increase in grinding 
capacity. 

A decree law on October 30, 1935, authorized a compulsory indus- 
trial agreement for the silk manufacturing industry if subscribed to 
b:; two-thirds of the manufacturers, representing three-fourths of the 
means of production; but a vote in the industry in December 1935 
failed to obtain the required support. A bill for compulsory carteliza- 
tion of the spinning industry was introduced in December 1935. A 
decree for control of production of naval stores was published on 
March 29, 1936. A law dated March 22, 1936, prohibited the open- 
ing of new shoe stores or factories, or change in size, increase, or dis- 
placement of plants for 2 years, without authority of the Minister of 
Commerce and Industry. A law on March 22, 1936, prohibited the 
establishment of new one-price stores during the period of 1 year; 
stores already established are prohibited from creating new depart- 
ments for the sale of one-price merchandise or from establishing new 
branches. ^^ 

On June 6, 1936, the Blum government announced its initial pro- 
gram in which labor legislation occupied an important part. Legis- 
lation sponsored for the benefit of the worker included: limitation of 
labor hours to a maximum of 40 hours per week for manual and office 
workers, without regard to sex or age; annual paid vacations of not 
less than 15 days, including at least 12 working days, to which the 
worker is entitled after a year's continuous service in the same estab- 
lishment; and collective agreements to be made at the request of an 
interested trade or labor organization under the auspices of the 
Minister of Labor.'^ 

A National Wheat Board was created by the law of August 15, 
1936, for the control of prices, production, marketing, and disposal 
of surplus wheat. Provisions were made in the law for increasing the 
importance of wheat cooperatives as weii as curbing the activities of 
private grain dealers. The new scheme was considered the most 
complete and strongest jxovernment intervention so far attempted in 
French agriculture.^* The Wheat Board was given a monopoly of 
the import and export trade in wheat, flour, and cereals. ^^ 

The Coal Act, passed on August 18, 1936, empowered the Minister 
of ISlinos to fix the prices of coal and to grant subsidies to mines that 
are inadequately exploited. 

" Karl Pribnun. op. cU., p. IfiS. 
» Journal Official, March 23-24, 1938. 

M Commerce Reports, August 24, 1936, p. 686, Bureau of Foreign and Domestic Commerce. 
«• Foreign Crops and Markets, November 2, 1936, p. 513, Bureau of Agricultural Economics. 
» Trust Laws a-nd Unfair Competition in Foreign Countries. Annual Report of the Federal Trade 
Commission, 1937, pp. 114-115. 



CONCENTRATION OF ECONOMIC POWER 93 

The proposal to assume State control over coal-mining is doubtless partly due 
to depression in that industry. Some 65 percent of its costs of production are 
labor costs, and it has been particularly hard hit by their steep rise as a result 
of the recent social legislation. The main objective of the Government is to keep 
the price of coal low; * * * compulsory amalgamation of coal-mining 
companies has now been enacted, and the State has a determining voice in the 
fixing of prices. This assumption of power has already exercised a practical 
effect. As a result of the increase of labor costs following the new social legisla- 
tion, the coal companies demanded a rise of 20 francs per ton in prices; but the 
Government only sanctioned an increase of 9 francs. In compensation for the 
consequent contraction of profits on coal output, the Government agreed to a 
considerable reduction in import quotas; and the new Coal Mines Bill envisages 
State subsidies to the central coal selling organization. In the new Bill the State 
attempts to realize the rate of profit in the different mines; thus, in future, it will 
have increasingly to intervene in the financial affairs of the mining companies.^^ 

The following interpretation of "The Economist" placed upon the 
multitude of decrees passed by the French Government furnishes an 
interesting background to the economic legislation of the period under 
review and its place in France's economic history: 

The sweeping democratic victory in the French General Election last spring 
hag speedily led to an apotheosis of the State, in the economic as in the social 
sphere. When the French Chamber rose for the summer recess the Prime Minister, 
M. Leon Blum, was able to point to an extraordinary harvest of legislation in a 
short first session. In particular, the economic measures passed by the Chamber 
have been designed to extend very widel}' the grip of the State on French industry, 
and at the same time to place upon the State and industry joint responsibility 
for the well-being of broad sections of the community. 

This intervention hy the State in important industries, however, is by no means 
an innovation in post-war French economic policy. It was largely owing to 
M. Poincare's initiative that the State assumed for itself a certain control over 
such important branches of French industry as the potash, fertilizer, and petroleum 
industries, in which it directly controls a large proportion of the output. But M. 
Poincare's reasons for State intervention in industry differed fundamentally from 
those of the Popular Front regime. He and his successors were dominated pri- 
marily by military considerations, particularly by the desire to assure to France 
adequate supplies of vital raw materials — -potash, nitrates, and petroleum — -through 
State control of those industries. This period of "active" participation was 
followed, during the depression, b}- a more "passive" one, mainly associated with 
the name of M. Tardieu. During that period credits were placed at the disposal 
of the depressed industries from an apparently inexhaustible reservoir of Budget 
deficits, in order to prevent the collapse of certain big industrial concerns. * * * 
To safeguard its interests, the State had gradually to take part in the running of 
these great concerns, but its participation was nevertheless involuntary. Its aim 
was to hand back control to private enterprise as soon as possible. 

The economic legislation of the Popular Front Government, by contrast, is 
based on the contention that the State is in a better position than private in- 
dividuals to run industrial concerns of nation-wide extent and to safeguard the 
interests of the majority of the community. For the leaders of the French 
Government the new economiclaws are not emergency measures but the begin- 
nings of a complete reform of the country's economic organization." 

In line with the program of the Blum Cabinet to nationalize war 
industries, the Journal Officiel announced on March 13, 1937, that 
the Creusot works of the Schneider armament works had been ex- 
propriated by the government. ^^ On March 22, the government 
took over two of the largest airplane factories and ordered expropria- 
tion of a third. 2^ The Popular Front coalition decreed on August 31 
the nationalization of the country's railroads. The reorganization 
agreement between the French Minister of Public Works and repre- 
sentatives of the five privately owned main line railways, the two 
State-owned railways, and the two Paris belt line companies provided 

2« London Economist, August 29, 1936, p. 383. 
" London Economist, August 29, 1936, p. 382. 
" New York Times, March 14, 1937. 
M Washington Post, March 23, 1937.. 



94 CONCENTRATION OF ECONOMIC POWER 

that the new State-controlled Societe Nationale des Chemins de Fer 
Frangais will take over all main line railways, acquire all their assets, 
assume all their obligations, and will operate them as a unit until 
January 1, 1983, at which time they revert to the State.^" 

A law passed on February 15, 1937, declared illegal all price in- 
creases on foodstuffs, merchandise, and services of prime necessity, 
above the level of August 1, 1936, unless justified by a rise in the 
price of raw materials or an increase in service charges. A national 
price surveillance committee was set up to fix prices, in agreement 
with wholesalers and retailers. A decree on July 1, 1937, forbade an 
increase in prices or service charges above those in effect on June 28, 

1937. Coal price fixing has already been mentioned (see p. ). A 

National Wlieat Board was created by a law on August 15, 1936, to 
control production, fix prices, apportion sales to millers, provide credit, 
and grant export subsidies when necessary, and to have a monopoly 
of the import and export trade in wheat, flour, and cereals.^^ 

Acts dated June 30, 1937, and April 13, 1938, authorized the Gov- 
ernment to take by decree any steps required to insure repression of 
attacks on the credit of the State, the combating of speculation; and 
to promote economic recovery, the control of prices, the balancing of 
the budget, and the defense of the reserve of the Bank of France, 
without control of excha^ige. Under this authority a number of de- 
crees have been issued. One dated June 30, 1937, modified the 
Monetary Law of October 1, 1936. Another decree, also dated June 
30, 1937, prescribed duties of the Departmental Commission of Price 
Control and prohibited any increase in the wholesale, semiwholesale, 
or retail prices of goods and foodstuffs, or in the price lists applied in 
industrial and commercial enterprises which were in force on June 28, 
1937. The new provisions superseded those of the Price Control Act 
of August 19, 1936. 

Numerous protests against the prohibition of increase in price 
resulted in some exemptions ; and the decree was further relaxed by a 
decree on November 7, 1937, which authorized retail price increases 
resulting directly from higher wholesale prices, transportation charges, 
and taxes. A decree on April 4, 1938, provided for establishment of 
a commission to study ways and means to effect control of production 
in French industry .^^ 

A law dated October 5, 1938, authorized the Government to issue 
decrees having the force of law, and to take measures intended to 
bring about the immediate economic and financial rehabilitation of 
the country. A number of decrees havA been issued. The system 
of price control instituted in 1937 has been modified. Any increase 
above existing levels in the retail price of goods or in the charges for 
services' rendered to individuals was prohibited unless authorized by 
price supervisory committees (certain food and perishable goods ex- 
cepted). Increases in the wholesale or semiwholesale price of indus- 
trial products may be prohibited by decree, especially if sales are 
made through cartel organizations or under agreements between 
producers, including international agreements; or if the goods are im- 
ported and subject to quota regulations. Decrees also included regu- 
lations as to the marking of prices and goods offered for retail sale. 

»" Bureau of Foreifin and Domestic Commerce, Commerce Reports, November 27, 1937. 
• ' Federal Trade Commission, Annual Report, 1937, pp. 114-115. 
"Federal Trade Commission, Annual Report, 1938, p. 132. 



CONCENTRATION OF ECONOMIC POWER 95 

The Government was authorized to raise the selhng prices of monopoly 
products and to increase direct and indirect taxes in order to adjust 
them to present prices of goods and services. 

WAR EMERGENCY MEASURES 

Mobihzation of France's man power and resources for war was 
accompHshed by a few general measures, th(? first undertaken on July 
11, 1938, prior to the signing of the Munich Pact. These laws included 
measures for provisioning the population, for the requisition of rail- 
roads for military purposes, for speeding up industrial production to 
potential war needs, and a general prohibition of export of agricul- 
tural products. ^^ A law of March 19, 1939, authorized the Govern- 
ment to issue decrees approved by the Council of Ministers, which 
may be necessary for the defense of the country. A series of decrees 
issued thereafter provided among other tilings for raising weekly work- 
ing hours in defense enterprises to 60 hours, increased taxes to set up 
a bureau of miHtary production to coordinate munitions work, etc. A 
decree on April 21, 1939 limited profits which may be made by suppliers 
of materials to be used for the national defense; the Government was 
empowered to collect certain percentages of profits, varying with the 
amounts of the transactions.^* While these measures helped to mobi- 
lize the country's industrial equipment the fact that control over pro- 
duction was not centralized caused a great deal of administrative 
confusion. 

In each of France's 90 provinces, a committee for agricultural pro- 
duction was established by the regulation of September 3, 1939. The 
function of the committee was to advise farmers to adjust farm output 
in line with national food requirements, and to facilitate measures 
providing for the requisite agricultural labor, draft animals, fertilizers, 
seed, and fodder.^^ 

A decree of September 1, 1939, prohibited the importation of any 
foreign commodities, except gold, into France or Algeria. Foreign 
merchandise not subject to a quota arrangement or import prohibition 
prior to September 1, and shipped before that date, could obtain exemp- 
tion if declared for consumption and not for merchandising. Exports 
of a number of agricultural products was prohibited by a decree of 
August 29, 1939. The prohibition applied to all goods on French 
territory, even if an export or reexport declaration had been made.^^ 

The decree of September 9, 1939, prohibited imports except when a 
certificate was obtained proving either that the delivery of foreign 
exchange for such imports had been authorized by the Office of Foreign 
Exchange or that no settlement in foreign exchange was required. 

Under a decree of September 1, any increase in production or in 
wholesale or retail prices of commodities was prohibited. This decree 
did not apply to agricultural prices which were decisions made or 
approved by the Ministry of Agriculture, nor to agricultural products 
sold directly by farmers themselves. A decree of September 9 
created National and Provincial Committees for Price Control. It 
was stated that increases in prices would be allowed after consultation 

^^.Tournal Official de la Republique Franraise, Lois et Decrets, .Tuly i:^, 1938, pp. 8.330-37. 

^Federal Trade Commission, Annual Ueport, 19.30, pp l.'ie-l.iT. 

^' Harry L. Franklin, Wartime Control of Agricultu.al Trade and I'roduction in Bel- 
ligerent Countries, Foreign Agriculture, Office of Foreign Agricultural Relations, November 
1939, p. r>o-. 

™ <:)ffice of Foreign Agricultural Relations, For ign Crops and Marl<ets, Def'emt>er '^0, 
1939, ppx 732, 733, ' " ' . 



gg CONCENTRATION OF ECONOMIC POWER 

with the Inter-Ministerial Price Committee, which was created by the 
decree of September 30, 1939.^^ Despite these regulations wholesale 
prices of foodstuffs and raw materials in April 1940 stood 39 percent 
above those in August 1939. 

The general mobilization order of September 2, 1939, called to 
arms 5,500,000 Frenchmen out of a population of 38,500,000.^^ The 
withdrawal of such'a large number of men dealt a heavy blow to the 
country's productive capacity; the index of industrial production 
dropped from 100 to 50 in September 1939,^^ and in agriculture the 
autumn sowings suffered so much from the absence of men that it was 
estimated at the beginning of the spring of 1940 that only 30 percent 
had been successful.^" To speed up production and to save the harvest 
from disaster over a million men had to be called back from the fronts. 
To meet the demand for labor the 60-hour week, was legalized and 
under emergency conditions the 72-hour week and the 12-hour day 
were permitted. In February 1930 the government prohibited the 
migration of farmers and rural workers to cities. Efforts were also 
made to train and employ women, and by the end of March 1940 
women constituted 29 percent of the personnel of state-owned 
establishments.'*^ 

The sj^stem of calling up recruits not by age groups but according 
to previous military training aggravated the difficulties of the indus- 
tries trying to speed up their production schedules. Since the military 
specialists who were called first represented the older age groups^ 
the result was that men in responsible positions, as well as skilled 
workers, had to discontinue their work, while the inexperienced young 
men were left behind. Unfortunately, the armaments industries were 
particularly affected, and had to try to operate with unskilled labor. 

A maze of decrees were issued by the French Government on 
February 29, 1940, providing for the stimulation of production and the 
restriction of consumption. Nevertheless, 6 months after the out- 
break of the war production was still below pre-war levels and con- 
sumption did not decline substantially. The measures adopted for the 
limitation of foodstuffs were indirect. The sales of bakers, expendi- 
tures in restaurants were regulated, and economy in the consumption 
of petroleum and alcohol were encouraged. A general census was to 
take place preparatory to the issue of ration cards, the use of which 
was not scheduled until May 1940. To stimulate agricultural pro- 
duction, seed corn and fertilizers were to be cheapened; also the scope 
of employment for women in industry was to be widened. To replen- 
ish the reserves behind the currency, plans were made to revalue the 
gold stock of the Bank of France in closer accordance with the actual 
price of gold.^^ 

A French Ministry of Supplies was established on March 21, 1940, 
in line with the growing importance of problems relating to supplies 
for the army and the civilian population. From the beginning of the 
present war until the new ministry was established, matters of sup- 
plies and provisioning were handled by the Ministry of Agriculture. 
The Ministry of Supplies was charged with assuring supphes of agri- 
cultural products and foodstuffs for the army and civilian population, 

" omco of Foroipn ARricultural Relations. Foreign Crops and Markets, December 29, 1939, p. 733. 
'« Th(^ Knmid 'I'ablp, London, Macmillan, June 1940, p. 550. 

'» D. n. Popper and J. C. de Wilde, Wartime Economy of Britain and France, Foreign Policy Reports. 
Ju!v 15. 1910. p. 119. . B J F , 

*" The Round Table, op. cit. 
*' Popper and de Wilde, op. cit. 
« London Economist, March 9, 1940, p. 415. 



CONCENTRATION OF ECONOMIC POWER 97 

funds for the work to be provided either tlirough direct appropriations 
or by the transfer from Government agencies of funds to be used for 
purposes falhng within the scope of work of the Ministry of Supphes. 
Provisioning services, agencies, and personnel attached to the Ministry 
of Agriculture prior to the passing of the decree were transferred to 
the Ministry of Supplies.^^ 

The ineffectiveness of Government control over industry in France 
is evident from the extent to which private industry was allowed to 
pursue its own interests, even when these ran counter to the welfare 
of the entire nation. This may be illustrated by the iron-ore agree- 
ments betw^een French ore industrialists and German coal interests.^* 
The exchange of these raw materials have served as a basis for profit- 
able business transactions between France and Germany, dating back 
before the World War. These business relations, in the course of 
which German concerns were able to acquire control over important 
mines in the Saar region and in French Lorraine, continued undisturbed 
regardless of whether the Saar region was under French or German 
domination. In 1932 a commercial treaty based upon the exchange 
of ore from French Lorraine for German coal was concluded. The 
ore deliveries were first limited to 100,000 tons per month, but in 
1934 they rose to 400,000 tons to help Germany's rearmament. A 
German concern joined the Societe Lorraine Minaire and Metallur- 
gique, the chief supplier of material for building the Alaginot Line. 
As the processing of the French ore was done by the German concern, 
the finished product that went into the Maginot Line was furnished 
by German manufacture, while French ore industries contributed their 
share to building up the German defense system. 

Following the occupation of the Rhineland in 1936, ore shipments 
stopped for awhile, and efforts were made by Leon Blum to cancel or 
modify the agreements, but sharp protests came from the Comite des 
Forges, whose presidents w^ere supporters of the Fascist Croix de Feu 
organization. They pointed out the advantages of trading with 
Germany and the number of workers who would have become unem- 
ployed by the shutting down of the mines, thereby quieting the oppo- 
sition. Following the outbreak of the present war, Franco-German 
holding companies were organized in Luxembourg and Belgium, for 
the reexportation of ere to Germany. Thus ore shipments continued 
throughout the war to Germany and to Spain where similar companies 
were organized. Trading with Germany ofi'ered definite advantages 
over cooperatinsr with the industrial mobilization scheme of the home 
country. Mobilization, if adequately conducted was bound to in- 
volve heavy taxes, and plant expansion would soon have meant 
heavier overhead expenses. 

The shortsightedness of industrial interests had disastrous conse- 
quences. Realizing the necessity of decentralizing industry, the 
Minister of National Defense was empowered to prohibit the building 
or expansion of plants. Nevertheless, nothinc: was done to imple- 
ment this power, when, for example, industrial interests protested 
against extending fortification in northern France because it involved 
moving factories to other parts of the country. 

The aircraft industry, it is said, did its best to prevent the purchase 
of American planes because they feared that it would endanger the 
continuation of their profitable operations. To prevent such pur- 

" Office of Foreien AericTiltural Relations, Foreien Agriculture, Mav 1940, p. 329. 
** Heinz Pol, Suicide of a Dcmocracv, Revnal & Hitchcock, 1940, pp. 70-76. See also The Nation, July 6, 
1940, pp. 7, 8. 



98 CONCENTRATION OF ECONOMIC POWER 

chases representatives of the aircraft industry did not hesitate to 
present an entirely false picture of the capacity and quality of the 
French aircraft industry. 

If France's experience teaches anything, it is that defeat came not 
through too much, but rather through too little democratic control 
over the industrial system. 

On July 10, 1940, the Chamber and Senate of the French Parha- 
ment voted the Third Republic and the constitution of 1875 out of 
existence.^^ France is apparently in the process of becoming a 
corporative state. 

On July 31, 1940, the first step was taken toward a reorganization of 
all food industries along the same lines. A decree published on July 
31 in the Journal Officiel provided for reorganization of the dairy 
industry on a vertical pattern enabling the Government to control 
prices, production, and distribution, and prevent profiteering. The 
dairy industry decree applied to milk, butter, and cheese production, 
with emphasis on the coordination of production and distribution.*^ 

GOVERNMENT MONOPOLIEvS 

State monopolies in France have been continued, despite sporadic 
agitation for their abolition. It has been contended by critics that 
the Government would obtain more revenue from taxes on tobacco 
and matches than from the monopolies, and that the people would get 
cheaper and much better products. The quality of the tobacco 
products put out by the French monopoly has been very harshly 
criticized. In 1922 the Senate favored dropping the tobacco monop- 
oly, but pressure from planters and monopoly employees prevented 
any action. In 1925 the sale of the tobacco monopoly to private 
interests was considered, biit the idea was dropped. 

The match monopoly was actually abolished for a few months in 
1924. The Chamber of Deputies passed a bill abolishing it at the 
beginning of the year. The Senate Finance Committee opposed the 
measure, but it was forced to a vote and passed on March 17. On 
July 30 the Chamber reversed its stand and voted to reestablish the 
monopoly. This also appears to have gone through the Senate, as 
the monopoly was active at the end of the year. In February 1927 
the Minister of Finance was working on a proposal to farm out the 
match monopoly, but the idea appears to have been dropped. The 
match monopoly was started in 1872, as a result of widespread evasion 
of the tax on matches. 

The tobacco monopoly is even older, going back to 1730. It was 
abohshed in 1792 but reestabhshed by Napoleon I in 1810, and has 
been one of the state's chief sources of revenue ever since. The Regie 
(monopoly) is bound by law to purchase all the tobacco produced in 
France, but this is not an unlimited obligation, as planters must 
obtain annual permission from the Regie, specifying the area author- 
ized, the number of plants per acre, the date for delivery of the leaf 
to Regie warehouses, etc. Cultivation is limited to certain depart- 
ments. No one is allowed to cultivate, import, or manufacture 
tobacco without permission. The price paid for leaf is fixed by a 
committee of 13, made up of 6 Regie representatives, 6 planters' 
representatives, and a chairman chosen by the Minister of Finance. 
Tobacco p roducts are sold through licensed retail agents, at prices 

«» WashiHgton Post, July 12, 1940. 

« The Journal of Commerce, New York, August 1, 1940. 



CONCENTRATION OF ECONOMIC POWER 9^ 

fixed by the R6gie, the agent getting a commission of 6 to 9 percent 
on his sales. 

The National Alcohol Office was established in 1922, to take over 
the monopoly for the sale of beet sugar alcohol set up during the war. 
Originally intended to assure the Government a supply of alcohol 
during the war, the monopoly was continued after the war to avoid 
disruption of the market. In 1922 the producers signed an agreement 
for its/ continuance, provided the State would agree to purchase beet 
sugar 'alcohol on the basis of sugar quotations. In 1937 it was reor- 
ganized as the Regie Commercial and placed under the authority of 
the Ministry of Finance. It does not oroduce any alcohol, but pur- 
chases all industrial alcohol (beet and grain) manufactured in France 
and has a monopoly of its sale. Production quotas are established in 
case of overproduction. A law of December 1934 provides that in 
case of overproduction, the vintners must distill and sell for alcohol 
to the Regie, wine under 5}^ percent. Industrial alcohol is sold by 
the Regie mainly to gasoline importers and distributors, and to chem- 
ists, perfumers, etc. Gasoline distributors must purchase alcohol 
equal to 10 percent of the amount of gasoline declared for consump- 
tion. 

A coffee monopoly was proposed in 1916 and again in 1918, but 
was not adopted. A bill for a fertilizer monopoly was introduced in 
1927 but was not passed. 

Potash is not precisely a Government monopoly, but a law oi 
February 1937 reserves all unalienated potash deposits to the State. 
It further provides that all potash mines shall belong to one sale*? 
comptoir, which will have a monopoly of snles, at prices controlled 
by the Government. The comptoir also has a monopoly of exports 
and imports. 

Allied to the match monopoly is a law passed in October 1933, 
imposing a heavy tax on ferro-cerium. requiring a license for its manu- 
facture and permitting its sa'e only through licensed tobacco dealers, 
at prices fixed by the Government. This is to check competition of 
lighters with matches. 

In 1934 the Government considered several proposals for a petro- 
leum monopoly, covering importation and refining. One proposal 
was for a Government monopoly. Another was for two national 
companies, for importing and refining, in which all importers and 
refiners would be obliged to participate and in which the Government 
would participate to the extent of 33}^ percent of the control, without 
putting up any capital. It was decided that none of the proposals 
were satisfactory. Licenses are required, however, for the importa- 
tion of petroleum and its products. 

A decree dated July 10, 1936, provides for a tax on imported petro- 
leum, the receipts from which will be used to further the production of 
synthetic petroleum. Another decree issued in December 1936 
provides that all importers of gasoline must belong to the S^^nthetic 
Gasoline Comptoir, and must take the production of the two synthetic 
gasoline plants at cost, which is higher than the sales price of natural 
gasoline. 

GOVERNMENT ORGANIZATIONS 

The National Economic Council was established in 1925, to study 
and make recommendations to the Council of Ministers regarding 
improvements in bushiess organization. In 1933. proposals were 



JOO CONCENTRATION OF ECONOMIC POWER 

made to increase its scope, and a committee was appointed to study 
the question. At that time it was stated, "Today, one takes pains 
to facihtate the development of groups which formerly were forbidden. 
The N. E. C. should act as a medium through which producers could 
come together voluntarily." Labor organizations favored increasing 
the powers of the N. E. C, saying, "Economic problems can no 
longer be regulated by chance or the play of individual or group 
interests, and it is the N. E. C. which must reconcile conflicting 
interests in the common good." Some groups even wanted to 
develop the N. E. C. into a sort of corporative state. The Confedera- 
tion of French Employers, on the other hand, preferring an enlightened 
capitalism, was opposed to State mtervention. 

A bill drafted by the committee was finally adopted, with some 
changes, on April 29, 1936. It charged the N. E. C. with the study 
of problems affecting the national economy, formulation of opinions 
on prop<.sed legislation, following up their application, studying the 
effects of laws actually passed, proposing measures for regulation and 
organization of production and trade and, on the request of interested 
parties, for arbitration of economic disputes. The N. E. C. was 
divided into 20 occupational sections, representing various industries, 
trades, transportation^ public services, banking, agriculture, and the 
professions. Industrial sections were made up of representatives of 
management s ud labor. 

The original bill contained an article dealing with agreements for 
the regulation of production, trade, and prices, and authorizing the 
General Assembly of the N. E. C. to make all or part of such agree- 
ments obligatory. It also provided that cartel agreements, designed 
to replace free competition by collective organization for regulating 
production, distribution, or prices, should be invalid unless filed with 
the N. E. C, fixing a schedule of fines for violation. This article was 
eliminated before the bill was finally passed, apparently at the instance 
of the conservative elements, including the Confederation of French 
Employers. 

The National Center for Scientific Organization of Work was 
established by a decree of November 25, 1936, to study means of 
reducing production costs, improving operations, and increasing out- 
put; to study the creation and functioning of new organizations 
required as a result of economic evolution and professional organiza- 
tion; to coordinate activities of bodies engaged in the promotion of 
scientific organization of work; to undertake technical investigations 
■of questions of organization, at the request of ministries. The 
Minister of National Economy is chairman of the committee. 

The National Center for the Scientific Organization of Labor to 
Reduce Production Costs was established in November 1936 by the 
Minister of National Economy, to bring about a more favorable 
relationship between wages and prices and a rationalization of pro- 
duction and distribution; to study technical organization of work to 
prevent waste of time; and to coordinate the activities of public and 
private groups. 

The Service for Control of Production was established in April 
1938, charged with studies relative to the organization and control of 
production. 



PART IV 

GOVERNMENT CONTROL OVER ECONOMIC ACTIVITIES 

IN ARGENTINA 

by 

AGNES ROMAN 

Junior Economist 

Temporary National Economic Committee 

JOHN H. COVER 

Chief Economic Analyst 
Bureau of Foreign and Domestic Commerce 

NELSON A. MILLER 

Acting Chief, Marketing Research Division 
Bureau of Foreign and Domestic Commerce 



GOVERNMENT CONTROL OVER ECONOMIC ACTIVITIES 

IN ARGENTINA 

THE NATURE OF ARGENTINE ECONOMY 

Government intervention in the economic life of Argentina has. 
been less prominent than in most other Latin American countries, in 
which control over "key" industries has long been an established 
practice.^ During the last decade, however, the Argentine Govern- 
ment has taken various steps to extend relief to agriculture, moving 
the country in the direction of greater official participation in eco- 
nomic activity. 

The national economy of Argentina is based almost entirely upon 
its vast agricultural and livestock resources. As the requirements 
of the population are relatively small in proportion to production, the 
bulk of the output finds its way to foreign markets, and therefore 
Argentina's prosperity is determined by the size of her livestock and 
crops and her ability to dispose of the products at satisfactory prices. 

The rapid expansion of Argentine foreign trade during the last 
quarter of the nineteenth century raised the covmtry to the premier 
position among the South American nations by the first years of the 
present century. This rise in foreign commerce coincided with the 
expansion of its grain exports. B}'^ 1904 grain exports surpassed in 
value the exports of pastoral products which had previously con- 
stituted the bulk of the country's overseas shipments. 

From the point of view of the position of the grazing industry in 
Argentine foreign commerce the year 1900 is significant as the year 
wTien artificial refrigeration began to be applied in some volume to 
ocean shipments of beef, thus opening up the European, market for 
Argentine beef; from this time on the quantity and quality of live- 
stock were influenced by European market requirements. 

In recent years agriculture and livestock products together have 
comprised about 95 percent of Argentine total exports. Normally 
approximately 75 percent of Argentine total exports go to European 
countries, 23 percent to other American countries, and somewhat less 
than 2 percent to Asiatic countries. Great Britain has long been 
Argentina's leading export market. Since 1930 the United Kingdom 
has taken on the average roughly 35 percent of Argentina's total 
exports. Practically all of its chilled beef, all but a small fraction of its 
frozen mutton, and about half of its preserved meats go to Great 
Britain, along with about one-quarter of its exports of agrarian 
products, chiefly corn. In recent years Great Britain has purchased 
the bulk of the bran shipments and a substantial part of the raw 
cotton. In 1935, 1936, and 1937 the United States was the second 
principal export market for Argentina, taking about 12 percent of the 
total value of exports. In 1938 there was a sharp drop in shipments 

' Bureau of Foreign and Domestic Commerce, World Economic Review, 1938, p. 220. 

103 

282317— 41— No. -10 8 



1Q4 CONCENTRATION OF ECONOMIC POWER 

to the United States, as abundant American harvests reduced the 
need for imported grain, meats, and fats.^ 

The dechne in world prices and the reduced demand resulting from 
the world depression caused a great deal of hardship to the Argentine 
farmer and livestock producer. In order to aid the producers of the 
chief agricultural export crops, the Argentine Government has 
adopted definite measures since the early 1930's. 

GOVERNMENT POLICY TOWARD BUSINESS 

ANTITRUST LAW 

The Argentine Republic was the first South American country to 
pass a law against trusts (No. 11210, August 23, 1923).^ In Argen- 
tina, under this law, it is a criminal offense for any person to make an 
agreement, pact, combination, amalgamation, or fusion of capital 
which tends to establish or sustain a monopoly for the sake of profit 
in one or more branches of production, in terrestrial, fluvial or mari- 
time traffic, or in domestic or foreign trade, in one place or in several, 
or throughout the national territory. 

According to Argentine law, actsof monopolyor tending to monopoly 
are considered to be those which, without representing technif al or 
economic progress, arbitrarily increase the personal profit of persons 
practicing them out of proportion to the capital actually involved, 
and those acts which make it difficult for other persons, natural or 
corporate, to compete freely in production and in domestic or foreign 
trade. 

The law severely punishes the intentional destruction of produce, 
in whatever form or stage of preparation, whether by producers, 
contractors, or merchants, with the object of causing price inflation, 
provided such destruction is not authorized by the Government. 

Other acts of monopoly, punishable by law, include the abandon- 
ment of crops and plantations; suspension of work in factories, power- 
houses, quarries, mines, or any other producing establishment, if 
such suspension is brought about by the payment of indemnities to 
the proprietors. 

In the same way, the law restricts agreements to allocate territory — 
whether a region, province, or locality — as exclusive markets for sale 
or purchase for certaift products for the benefit of persons or societies, 
with the object of suppressing competition, or raising, lowering, or 
fixing prices. 

Cornering, withdrawal from consumption, or agreeing not to sell, 
with the object of raising the prices of articles of prime necessity, are 
especially considered to be acts of monopoly. 

In addition, the deliberate and maintained sale of goods or services 
below cost, except for deteriorated articles or those being sold out, 
is also })unishable, if the object of such action is to impede free 
competition. 

Other acts specified and punishable by law are the following: 
Agreements that require the purchaser not to buy from another 
seller; those which impose upon retailers a fixed resale price; inter- 
locking directorates or managerships, which might lead to a monopoly 

- U. S. Dopartment of Commercp, Commerce Reports, March 4, 1939, p. 212. 

' J. \V. lU'ichort. luternational Survey of Cartel legislation, Paris Congress, 1935, Doc. No. 51, p. 6. 



CONCENTRATION OF ECONOMIC POWER 1Q5 

or the restriction of competition ; and finally, every guarantj^, direct 
or indirect, made by industrialists or superintendents to merchants, 
for g::oods supplied to persons in their employ. 

Violators of these legal provisions and bankers who take part in 
the violations, are punished with fines of 2,000 to 100,000 pesos, or 
imprisonment of from 1 to 3 years. Second offenders are liable to 
both punishments.* 

On September 27, 1923, the Ministry of Agriculture issued a dei-ree 
for the enforcement of this antitrust law. In accordance with the 
provisions of article 2, subdivision (d), of the law, articles declared to 
be of prime necessity are listed, including practically the entire range 
of edibles, meat, vegetables, dried fruit, etc.; clothing and clothing 
materials; and articles for house and household use, and also for 
construction, lighting, and heating. 

Background oj the Antitrust Laio. 

The antitrust law was preceded by a great deal of agitation for 
Government control of the meat industry. . Grave charges of manipu- 
lation were leveled against the meat-packmg establishments of 
Argentina, looking to the suppression of competition and monopoliza- 
tion of the meat market. 

The following quotation from the "Buenos Aires Herald" of 
November 28, 1922, discusses (from a consular report) "The Meat 
Combine": 

An official "Red Book" issued by the Ministry of Agriculture today * * * 
traces the history of the meat industry from the time of the establishment of the 
American interests in this country some 10 years ago. It is stated that the 
increased competition which followed the entry of the American frigorificos 
[plants for chilling or freezing meatl in the market at the end of 1911 brought 
about a combination or convention between the seven companies then in existence 
for dealing with the shipment of meat to the United Kingdom. The convention 
laid it down that representatives of the companies were to meet periodically to 
determine the weekly quantity to be shipped by each concern. In 1914, it is 
stated, the American companies left the combination, because one of them pro- 
posed to increase its shipments by 70 percent without offering compensation to 
the others. Unrestricted competition was renewed, with the result that prices 
of livestock at once advanced 50 percent. In 1914 a "pool" was constituted in 
London, which it is etated still rules the prices of livestock and of meat. Under 
this agreement each frigorifico undertook to purchase a certain quantity of live- 
stock in each of the principal markets, the percentage allotted being equivalent to 
its customary purchases. This percentage in the local markets, combined with 
certain concession for purchases in the country, gave each frigorifico a certain 
percentage of the country's livestock in general. 

It is added that if any of the companies endeavored to "corner" the market or 
to buy more than its proportion the others were permitted to advance their buy- 
ing prices if stock were scarce. Complete details of purchases and shipments 
were up daily, and these figures served to show whether any company had bought 
more than its proper proportion. The effect of the combination is stated to 
have been that there was no competition in buying. Each frigorifico knew the 
requirements of the others, and all in accord fixed the prices of livestock. In this 
way, it is declared, it is assured that no frigorifico will inundate the market at any 
given moment to the disadvantage of the others. 

The "Red Book" quotes conclusions reached bv the Federal Trade Com- 
mission of the United States, to the effect that Swift & Co., Armour & Co., Wilson 
& Co., and the Cudahy Packing Co., by means of branches and combines with 
other companies in South America, restrict and monopolize South American 
shipments of meat for the United States and other countries; that the four com- 
panies named work in collusion for the sale of fresh meat, their collusive activities 
coqiprisi ng interchange of information respecting the "margine" realized in the 

< Brifeh Board of Trade Journal, London, November 15, 1923, p. 530. 



IQQ CONCENTRATION OF ECONOMIC POWER 

sale of meat, inspection of each other's stocks, and common action to sell at prices 
lower than their competitors by means of a system of rotation, each member of 
the combine assuming in turn the obligation to reduce price? to the clients of com- 
petitors; that the members contribute to a secret fund for the purpose of influenc- 
ing public opinion and Government action; that convention, agreements and 
combination mentioned are guaranteed by a community of interests between the 
four companies cited, by means of property held in common in various enterprises. 
In this way two or more of the five frigorificos are joint owners or have holdings 
in 108 businesses, as was proved up to the month of July, 1918. 

PROMOTION OF MEAT INDUSTRY 

The objective of Government intervention in the meat industry, 
the products of which are of tremendous importance to Argentina, 
has been to obtain a larger share of the British market for meat 
products; to develop markets in other countries; to promote the 
domestic sale of high-grade products at the lowest possible price, at 
consumption centers distant from packing establishments; and to 
insure favorable returns to the cattle raisers. A number of measures 
have been adopted to this end. 

The first of these measures was the National Meat Law, which 
became effective October 7, 1933, and is the basic law for the entire 
meat program. The principal objectives of the law are: ^ 

(1) The formation of the Junta Nacional de Carnes, or JNa- 
tional Meat Board, as an independent body; 

(2) Enactment of rules for the organization and functioning 
of new meat plants or frigorificos, and of trading institutions to 
be established by the National Meat Board wherever it is neces- 
sary for the protection of national stock breeding and for lowering 
the prices of meats intended for home consumption ; 

(3) Establishment of the national frigorifico. 

The National Meat Board ^ is an autonomous body consisting of 
nine full members and nine proxy members appointed by the Govern- 
ment. Restrictions are placed on board members' affiliations with 
other interests. 

Activities of the board include — 

(a) Establishment, with the consent of the Government, of 
rules for the grading and classifying of livestock and of meat 
intended for consumption at home and abroad; 

(6) Fixing, with 'Government consent, of standards to which 
the exports of anmial products must conform as to grade, quality, 
preparation for, and conditions of, transport; 

(c) Establishment, with Government consent, of frigorificos or 
trading organizations as required in the home or foreign markets 
for the protection of the stock farming industry; 

(d) Establishment of a permanent commercial organization, 
with a view to securing the largest possible consumption of meat 
and reductions in prices in the home market, retention of existing 
markets abroad and the estal)lishment of new ones. 

The following rules govern the operations of frigorificos and meat 
trading institutions: ^ 

Whenever it is found necessary for the protection of the livestock 
wealth of Argentina or to obtain reductions in the prices of meats 

5 C. Kecch Ludewig, Argentina's Meat Industry and Trade, Commercial Pan America, Pan American 
Union, Washmgton, p. 2. • 

«Ibid. 
' Ibid, p. 3. 



CONCENTRATION OF ECONOMIC POWER 107 

intended for home consumption, the board may estabhsh the frig- 
orificos and commercial and industrial organizations considered 
appropriate. These organizations will be designed to carry on the 
slaughter of stock, preparation of meat and other products, sale, 
wholesale or retail, of the same, and to engage in tile export of meats. 

These organizations are stock companies, membership in which as 
shareholders is open to all sellers of livestock. The intention is to 
make the producer a dealer in his own products and to bring the 
producer in touch with the consumer of meat, and to eliminate as far 
as possible the number of intermediaries that separate one from the 
other. The reduction of the number of middlemen is accomplished 
partly by the fact that the new companies shall all be composed of 
stock farmers who will give their personal services and their capital 
to the business of the company. The National Meat Board limits 
itself to the initiation and promotion of these organizations of stock 
farmers without any direct intervention in their activities and admini- 
stration. Thus, it is the members who will secure the profits or sustain 
the losses. The companies 'will be private organizations in which the 
state and the board will merely exercise control in the interest of the 
public. 

The frigorificos were opposed to the creation of the National Meat 
Board. They maintained that it was unconstitutional to force 
cattle raisers to become partners in the enterprise.^ 

The law provides for the establishment of a national meat packing 
plant, or Frigorifico Nacional, in the Federal Capital, to be a mixed 
company, formed by the municipality of the capital and the National 
Meat Board, which will represent the stock farmers. In short, the 
Frigorifico Nacional is intended to fulfill all functions relating to the 
preparation of meat for the market, and its sale in Argentina or 
abroad, on i^^s own account or for that of third parties. 

The law established a tax on all cattle sales, to be paid by the seUer, 
the amount of which is fixed periodically by the National Meat Board. 
Part of the proceeds are earmarked to cover the expenses of tlio board 
itself, and the remainder is to be paid to organizations created for 
the benefit of the cattle industry, such as the Corpor^<^ioii tie Pro- 
ductores de Carnes. 

The meat packers disapproved of the establishment of a national 
meat packing plant, claiming that it would involve a bureaucratic 
set-up into which politics was certain to creep. They also pointed 
out that there was already excess capacity, owing to Britain's plan 
of restricting imports.^ 

An important clause in the Roca-Runciman agreement provided 
that if the Argentine Government or Argentine producers should 
undertake to own or operate a meat enterprise, not primarily for profit, 
but for the better regulation of the trade to assure reasonable returns 
to the producers, the British Government would be prepared to allow 
such exporters a proportion up to 15 percent of the chilled beef taken 
from Argentina, on condition that the meat be shipped through normal 
channels.^'' The Argentine Government refused to allow the share to 
be dissipated among a number of small inefficient operators that 

' Simon G. Hanson, Argentine Meat and the British Market, Stanford University Press, 1937, p. 266 
• Hanson, on. cit., p. 266. The Ottawa aareenients limited oliilled-beef imports to the quantities taken in 
the year ending June 30, 1932; frozen-meat imports were scaled down proKressively to 65 percent. Argentina 
was determined to prevent a decrease of exports to her only important market, and in May 1933 the Roca- 
Runciman commerciril treatv was siened. Britian aereed to impose no further restrictions on the import 
of Argentine chilled beef as long as quarterly arrivals did not exceed those for the corresponding quarters 
of the vear ending June 30, 1932. 
i» Ibid,, p. 267. 



;j^Qg CONCENTRATION OF ECONOMIC POWER 

could not compete effectively with the privately owned packers, and 
encouraged the establishment of the Argentine Meat Producers' 
Corporation, thereby creating an effective competitor of the privately 
owned packers. 

In October 1934 a law was enacted providing for the "Corporacion 
Argentina de Productores de Carnes," or Argentine Meat Producers' 
Corporation. The principal objective of the organization was to 
promote manufacture and trade in cattle products and byproducts in 
domestic and foreign markets, and assure reasonable returns to cattle 
raisers. 

The corporation was established in Buenos Aires for a term of 50 
years, pursuant to the provisions of the National Meat Law of 1933.^^ 
Under Article V of the law creating the corporation, it is allowed to 
slaughter and prepare meat for consumption on its own account or 
for third parties, to sell at wholesale or retail, and to export cattle, 
cattle products, and byproducts on its own account or for third parties. 
The scope of activities of the corporation as outlined in the law permits 
it to establish plants, set up offices at home and abroad, and to contract 
loans to carry on its business. 

The regulations establishing the corporation closely follow those 
outlined in the National Meat Law of 1933. All cattle, sheep, and 
hog raisers are eligible to become shareholders in the corporation, and 
under no condition may their interests be transferred to nonraisers 
of such products. 

There exist certain differences between the National Meat Board 
and the Argentine Meat Producers' Corporation, The former is a 
state enterprise, with membership largely dra^Vn from the livestock 
interests; the latter is a commercial organization in which the stock- 
men are shareholders. "The Junta supervises compliance with laws 
regulating the meat trade and industry; the corporation intervenes 
directly in the market to aid the stockmen by influencing prices. The 
Junta establishes procedure for selling, classification, and transport 
of livestock and meat, while the corporation actually purchases and 
slaughters cattle and processes the meat." ^^ 

On May 31, 1937, a third step looking toward a general improve- 
ment and expansion of the meat industry was undertaken, with the 
approval of the regulations and statutes for the establishment of 
"Mercados de Haciendas y Carnes," or meat-marketing agencies.^' 
They are established in accordance with the provisions of the Meat 
Law of 1933 for a period of 50 years. The general purposes of the 
organization are to construct, acquire, and establish cattle and meat 
marketing agencies, frigorificos, and meat ' depositories throughout 
the country, for which purposes loans may be contracted from govern- 
mental financial institutions or through local or foreign private banks. 
The services of the organization are subject to various rates and rulings 
approved by the Meat Board, and no preferences are granted which 
are not allowed to all interested parties. 

Membership and structure of the administrative organization follow 
closely those of the Meat Board and the Meat Corporation, and capitf 
is limited to 30,000,000 pesos. The first working year of the Mercad- 
ended September 30, 1938, and subsequent fiscal years begin on 
October 1. 

" Commercial Pan America, op. cit., p. 4. 

>2 Hanson, op. cit., p. -270. 

'3 Commercial Pan America, op. cit., p. 9. 



CONCENTRATION OF ECONOMIC POWER J 09 

An Argentine decree, No. 96453, dated December 19, 1936, pro- 
vides for an export premium to exporters of beef to the United 
Kingdom to be paid out of profits derived from exchange control. 
Tlie Argentine National Meat Board is to be paid from exchange 
profits. The National Meat Board, in turn, prorates these funds 
among the meat exporting companies in proportion to their shipments 
of the various kinds of beef to the United Kingdom. This measure 
was taken to counteract the British policy of subsidizing domestic 
cattle producers.^* Since 1934, the United Kingdom has been paying 
a subsidy to domestic beef-cattle producers. Although beef was on 
the free list, the subsidy was a charge on the general revenues. The 
desire to make the beef-cattle subsidy at least partially self-supporting 
dominated the plan to levy duties on imported non-Empire beef.^° 
Prior to the expiration in November 1936 of the 1933 trade agreement 
with Argentina, no beef duties were possible. The new Anglo- 
Argentine agreement, dated December 16, 1936, provides for British 
duties on chilled and frozen beef and also for import quotas. To 
offset the import duty established on beef by the United Kingdom 
under the 1^36 trade agreement, the Argentine system of beef sub- 
sidy was adopted. 

in its efforts toward stabilization of the meat industry, the Argentine 
Government is determined not to allow one of her most important 
exports to be centered in a single foreign market. The establishment 
of the Corporation of Meat Producers, the Meat Board, mid the 
Meat Marketing Agency is an indication that the tendency is definitely 
toward increased State control over the operations of private packers 
and participation in the preparation of meat for export.'^ 

AID TO AGRICULTURE 

The cultivation of cereals had been the chief source of wealth, in 
Argentina for more than 50 years, and still provides a high percentage 
of her exports. The Argentine Government in recent A^ears has been 
increasingly active in efforts to alleviate the plight of the farmer. 

The guaranty of minimum prices has been one form of Government 
assistance and was applied, among the major crops, to wheat, corn, 
and flaxseed, in an effort to make the prices received by their pro- 
ducers cover the cost of production. 

To administer the minimum-price planj the Grain Regidating Board 
was created in November 1933, and reorganized in November 1938. 
The main function of the board was the purchase of wheat, flaxseed, 
and corn whenever the market prices fell below the guaranteed mini- 
mums established by the Government. The subsidy and the expenses 
of operating the board are covered by profits made by the Govern- 
ment in its foreign exchange operations. If necessary, the Bank of 
the Nation was authorized to advance additional funds. ^^ 

" Paul O. Nyhus, Argentine Beef Subsidy— Partial Compensation for British TarifT, Foreign Agriculture, 
Bureau of Acrieultural Economics, November 1936, p. 149. 

15 Bureau of Foreign and Domestic Commerce, Commerce TJcports, March 13, 1937, p. 219. 

" "Subsidizing exports, spreading propaganda for the use of Argentine meat, making commercial treaties 
to facilitate the export of national products, all were methods of aiding the producers distinctly different 
from that calling for the State's entry into the packing of meat." (Hanson, op. cit., p. 268.) Up to 1934 • 
no investigation of the packing industry was undertaken, but in that year investigations were made by the 
Senate, the Meat Board, ami the Meat Producers' Corporation, and plans were made to carry out a joint 
Anglo-Argentine inquiry. Owing to the reluctance of the packers to cooperate with the investigation, 
however, no comprehensive study of industry has yet been puhlished. 

" Bureau of Agricultural Economics, Foreign Agriculture, February 1939, p. 62. 



110 CONCENTRATION OF ECONOMIC POWER 

A decree passed on December 8, 1938, extended the minimum price 
guaranty program to include cattle under administration of the 
National Meat Board. 

An Argentine decree of September 6, 1939, abolished the basic 
minimum prices for wheat and linseed guaranteed by the Government 
in its decree of November 14, 1938. The explanation given was that 
linseed has consistently sold in the world market at more than the 
guaranteed minimum price. With regard to wheat, the Government 
pointed out that advancing wheat quotation? in the Grain Exchange, 
following the declaration of war. did not reflect the real value of 
grain but were merely a consequence of speculation. 

The situation prevailing in the corn market follo'^'ing the German 
occupationof Norway, Denmark, Belgium, and Holland, an important 
market for Argentine corn, prompted the Government to examine 
other possibili-ties for utilizing this grain and to establish price guaran- 
ties. A decree passed hj the Argentine Congress on Aueust 14, 1940, 
authorized the executive power to purchase the 1940 corn crop at a 
price fixed by the Government. The decree also authorizes the 
Government to dispose of the corn in any manner. Funds for these 
operations are to be taken from exchange profits, and if these prove 
to be insufficient, funds may be borrowed from the Bank of the 
Nation.^* 

Government control of agriculture has not been limited to price 
control measures, but has been supplemented by limitation of produc- 
tion, improvement of quality, etc., under the'authority of a number of 
boards. 

The National Cotton Board (April 27, 1935) devotes itself to 
fostering cotton cultivation on approved lines by direct intervention 
in all phases of production, processing, and marketing, and is devoting 
particular attention to the improvement of seed, the extermination of 
insect pests, and the promotion of colonization in cotton-growing 
districts. 

The too rapid expansion of the yerba mate industry (yerba mate is 
a vegetable decoction resembling tea) and competition from other 
countries has in recent yeais led to overproduction. In order to aid 
the producer, legislative action was taken in 1935 and the Yerba 
Mate Commission, created to enforce the law, virtually terminated 
the extension of cultivation by imposing a tax of 4 pesos on every new 
plant. '^ The industry is subsidized b}' means of a tax of 6 cents per 
kilo on domestic sales of milled yerba, and growers are guaranteed a 
minimum price. The Regulating Board entrusted with enforcing 
the law has created an official selling organization, the "Mercado 
Consignatorio de Yerba Mate Nacional Canchada." ^ 

The Wine Regulating Board was created in 1934 to deal with the 
problem of excess production and price depression. The measures 
applied by the board include the purchase of grapes, the purchase of 
wine for maturing purposes, the granting of loans to producers, and 
the buying up of vine-producing land and its diversion to other uses. 
The Wine Board is authorized to borrow up to a specified amount 
from the exchange profits fund. A surtax of 1 centavo per liter 
(1.25 cents per gallon) was imposed for a period of 6 years. To 

" Office of Foreign Agricultural Relation.'!, Foreign Crops and Markets. September 3, 1940. p. 265. 
'• Report on Economic and Commercial Conditions in the Argentine Republic, Department of Overseas 
Trade, London. June 1939, p. IOC. 
" Ibid., p. 107. 



CONCENTRATION OF ECONOMIC POWER m 

discourage the establishment of new vineyards a tax must be paid on 
new plantings. 

A quebracho control committee has been operating since 1935, with 
the purpose of limiting production and exports. It is a voluntary 
association, made up of practically all the producers. The task of the 
Government in aiding this committee is to discourage the exportation 
of logs. Only first quality, expensive logs may be exported. 

The purpose of the Grain and Elevators Commission (Oct. 6, 
1935) is to control elevators, fix standards of grain for each of the 
different zones of production, and control shipments and all other 
transactions of grain trade. The Government has undertaken to 
build a chain of elevators which should enable the farmer to store 
crops and obtain credit against it b}^ means of warrants. 

To assist producers and exporters of casein, a Government decree 
(August 5, 1939) established a National Committee for the Dairy 
Industry. It provided that exporters of casein could obtain a form 
of subsidy, subject to certain qualifications, by selling their export 
bills at the higher "free" instead of "official" exchange rate. This 
plan has not yet become effective. 

Other analogous bodies are the National Oil Committee, the Na- 
tional Committee of Food Products, and the National Committee of 
Quebracho Extract, aimed at organizing production in accordance 
with the agricultural characteristics of each zone of the country. 

The Argentine Government submitted projects for the regulation 
of the fruit, cotton, and sugar industries. In connection with the 
sugar industry it is planned to restrict sugar production, allot quotas, 
and establish wide powers of control over the various branches of 
industrv, including cane planting, milling, and marketing of the finish- 
ed product. 

Three decrees were issued by the President in 1938 to regulate the 
flour milling industry. These measures are the result of a rise in 
bread prices and a determination to improve the technique of the flour 
industry, to safeguard. the future of the industry, and to protect the 
interest of consumers. A request by the Chamber of Millers for 
Government regulation of flour production by means of quotas, how- 
ever, was declined by the Government. 

The first decree fixes official standards for the different grades- of 
flour produced in Argentina. The second authorizes the Argentine 
Ministry of Agriculture to regulate and control the activities of the 
Chambers of Millers;!, e., the transactions in flour and mill bvprod- 
ucts in Argentina are conducted through the Chambers of Millers in 
Buenos Aires and Rosario. The decree points out that the influence 
of the Chambers on prices and on development of the flour industry 
makes it advisable that their operation be subject to official control. 
The third decree establishes an Advisory Board composed of repre- 
sentatives of the millers, pastry makers, and bakers, whose chief duty 
will be to settle controversies arising between flour millers and related 
industries. The Board is to collaborate with the Ministry in drafting 
legislation in the interests of both the consuming public and the 
industries concerned. ^^ 

The mortsrage moratorium law effective in October 1933 was de- 
signed to alleviate the financial burden of the landholders. At first 

" Bureau of Agricultural Economics, Foreign Agriculture, April 1938, pp. 107, 208. 



212 CONCENTRATION OF ECONOMIC POWER 

challenged on constitutional grounds but subsequently upheld by the 
Argentine Supreme Court, this law declared a moratorium of 3 years 
on all amortization and interest payments under certain conditions, 
and provided for a maximum interest rate of 6 percent. Other legis- 
lation provided for a reduction from 6 to 5 percent in the interest rate 
on bonds of the National Mortgage Bank, and the subsequent re- 
financing, at a lower rate of interest, of all farm mortgages held by the 
National Mortgage Bank, more than one-third of the total outstand- 
mg farm mortgages of the country. ^^ 

FOREIGN EXCHANGE CONTROL 

Practically all the measures inaugurated by the Government to 
help agriculture through the establishment of control boards are based 
on the operation of the foreign exchange control system, smce the 
spread between the official buying rate for export bills and the selling 
rate assures a profit to the Government. 

Origin of Foreign Exchange Control in Latin America. 

State intervention in the exchange market through foreign exchange 
control has become a powerful instrument for controlling national 
policies, and particularly foreign trade. The primary reason for the 
introTduction of exchange control was an inadequate supply of exchange 
due to the fall in payments for exports, and the disinclination to ship 
the available supply of gold out of the country. In effect, however, 
the control of foreign exchange transactions has come to amount to 
actually shaping the volume, composition, and direction of trade rela- 
tions between various countries. Rate changes tend to stimulate or 
to control the volume of merchandise movements and act as import 
embargoes or as a protective tariff.-^ Restrictions placed on imports 
in many countries had the effect of stimulating local production of 
certain articles. 

Exchange control in its present form was first adopted after the 
financial crisis of 1931. It was initiated by certain coim tries in 
Europe, but the Latin American countries were soon forced to follow 
suit. The control measures taken by the Latin American states were 
dictated by the drastic fall of raw material prices wliich severely 
upset their economy, the prosperity of which depends upon the export 
of one or two commodities. The drop in raw material prices, coupled 
with the efforts of European countries to attain agrarian self- 
sufficiency, caused a shortage of foreign exchange. With falling 
prices and vanishing export markets, the burden of foreign debt was 
tremendously increased, and was followed by default and currency 
depreciation, import quotas and exchange control. Exchange control 
in Latin America only reflects the dangerous dependence of these 
countries upon foreign trade, and the narrow basis upon which foreign 
trade operates. 

The systems of exchange control adopted by the Latin American 
countries are varied and subject to sudden changes. The regular 
practice in the countries adopting these measures consists in requiring 
all importers to deliver all, or a certain percentage of, the foreign 
exchange proceeds from their commodity exports to the exchange 

»- Bureau of Agricultural Economics, Foreien Crops and Markets, Junp 1, 193S, pp. 67fi, 677. 
" Herbert M. Bratter, Foreign Exchange Control in Latin America, Foreign Policy Reports, Feb. 15, 
1939, p. 274. 



CONCENTRATION OF ECONOMIC POWER 113 

control authorities at arbitrary rates. Portions of this foreign 
exchange are allotted to importers of essential commodities. The 
remaining portion of foreign exchange may be sold by exporters out- 
side the official market and, in most instances, importers of nonessential 
goods are entitled to buy such foreign exchange. 

Exchange control in Argentina. 

Argentine exchange control was first adopted in October 1931, and 
was frequently altered smce. Owing to the complexity of the Ar- 
gentine foreign exchange system, the following account will be con- 
fined to those features of the control measures which indicate the 
extent to which they have become an integral part of Argentine 
economic policy. 

The rigid type of exchange control first introduced was changed 
in November 1933 when the "prior permit" system was adopted 
whereunder importers before placing their order had to apply for a 
permit to obtain exchange at the official rate. In lack of a permit, 
importers could obtain exchange only in the "free market" which, 
according to the law, had to be at least 10 percent higher than the 
"official rate." On November 7, 1938, a decree was issued, extending 
the system of prior-exchange permits to imports liquidated in the 
"free" market. The effects of this decree were folt most severely by 
importers of American lines for which permits were withheld, whereas 
no restriction was placed upon similar products from countries with 
which Argentina had special trade agreements or with which it 
enjoyed an export balance. ^^ 

The official rate was determined by the Government, while the free 
rate fluctuated with supply and demand. The official rate has 
played a decisive part m determining the level of commodity prices 
and the cost of living. The 10 percent differential between the 
"official" and "free" rates had been effected by means of a tax imposed 
whenever the difference between the two rates is less than 10 percent. 
Since August 22, 1939, the "official" and "free" rates were substituted 
by "A" and "B" rates; the spread between these two is usually less 
than that which prevailed between the "official" and "free" rates. 
Under the present system, holders of prior-exchange permits may buy 
official exchange, either at the preferential rates of 15 pesos to the 
pound sterling, or the rate of 17 pesos to the pound. ^^ All imports 
are subject to prior exchange permits. 

Foreign exchange derived from the shipment of Argentina's main 
export commodities must be delivered at fixed rates to the authorities, 
who sell it to Argentine importers and others at rates determined by 
the Central Bank, subject to preferred clauns in connection with the 
Government's debt. Through its resulting monopoly of three- 
quarters of the foreign exchange produced by the country, the Govern- 
ment maintains a strong influence over the volume as well as the 
nature of imports. 

The system of exchange control adopted enables the Government 
to direct trade along bilateral lines, by favoring imports from those 
countries which buy most from Argentina. ^^ The amount of "prior 

" Bureau of Foreign and Domestic Commerce, Economic Re^■iew of Foreign Countries, 1938, p. 139. 

" The Foreign Trade of Latin America, pt. II, sec. 1. Argentina, U. S. Tariff Commission, 1940. p. Ifi. 

-6 According to the annual report of the Central Bank of the Argentine Republic for 1937, published in 
the Federal Reserve Bulletin, August 1938, three-fourths of the exchange transactions were controlled by 
the government in 1937. 



^14 CONCENTRATION OF ECONOMIC POWER 

exchange permits" tq cover merchandise imported from abroad is 
based on the quantity of exchange provided by that country through 
its purchases of Argentine products, after deduction of a reasonable 
sum for service of the Argentine foreign debt. 

Although war emergencies have made it necessary to modify the 
previous strict adherence to this principle, the policy of issuing prior 
exchange permits continues to be the basis of allocation of exchange 
for foreign merchandise. In fact, the course of events has accentu- 
ated the bilateral aspect of the system. ^^ Owing to the loss of 
European markets and the blockage of the proceeds of exports to the 
United Kingdom, Argentina became concerned over an excess of 
imports from certain countries still supplying the Argentina market, 
particularly the United States. So great was this concern that shortly 
after the middle of September 1940 action by the exchange control 
authorities was suspended on all applications for exchange permits 
covering the importation of United States merchandise. At the end 
of October the Ministry of Finance announced that the suspension 
would be lifted, pending applications for permits in accord with 
normal trade developments would be approved, and consideration 
would be given thereafter to requests for new permits. 

Under the Argentine system a special exchange profits fund has been 
set up' to cover potential losses on grain purchases. It also con- 
tributes to financing the activities of some of the other control boards. 
The exchange profits fund has derived large profits from the purchase 
and sale of foreign exchange at the official rates. Since, in addition, 
foreign exchange operations have been carried on in the free market, 
this produced a net profit which was absorbed directly into Govern- 
ment revenues, a development highly desirable from the point of 
view of the Government, since it obviates some of the necessity for 
increased taxes. Thus it is possible that foreign exchange control 
will come to be looked upon as a source of revenue for the Government 
rather than as a means of maintaining monetary stability. 

REGULATION OF PUBLIC UTILITIES 

In the field of public utilities there has been a tendency for private 
companies to pass into the hands of municipal governments. A step 
toward the official control of public services is indicated by the passage 
of an ordinance on October 26, 1938, by the Buenos Aires Municipal 
Council, providing for the supply of gas in the city on the expiration 
of the franchise held by a private company at the end of 1939 by the 
municipality. A mixed association will be formed in which the State 
Oilfields Department would participate. The power of expropriation 
is also available in the case of public services. 

There have been instances in Argentina where municipalities have 
taken over the distribution of electric power on the expiration of the 
franchise held by a private power company without adequate provi- 
sion for reimbursement to the company or for supplying power to 
people in the less profitable areas.'^ A law approved by the Legisla- 
ture of the Province of Buenos Aires in March 1939 is expected to 
prevent the more flagrant abuses of this nature by requiring munici- 
palities or concessionaires to supply powe^r to everyone desiring it, 

» Bureau of Foreign and Domestic Commerce. Foreign Commerce Weekly, October 19, 1940. p. 95. 
S8 Bureau of Foreign and Domestic Commerce, Comparative Law Series, March 1939, p. 127. 



CONCENTRATION OF ECONOMIC POWER 115 

within the territory of the concession, and if a concessionaire is sup- 
planted by a municipahty or a new concessionaire, the latter must 
pay "actual industrial value" for installations taken over. 

The City of Buenos Aires Transportation Co. was formed in 1936, 
with a monopoly of all forms of transportation in Buenos Aires. 
Operators of busses, subways, street railways, and all other means of 
public transportation, excepting taxicabs, transferred their assets to 
the new company for stock or cash. In February 1939, the City of 
Buenos Aires Transportation Co. formally took over the property and 
services of the entities merged in the new authority, the most im- 
portant of which was the Anglo-Argentine Tramways Co. The 
expropriation of the omnibus and micro-omnibus lines which did not 
join the corporations has, however, up to the present been postponed 
because of lack of funds.^® 

Transportation rates, excepting those for railroad lines, must be 
approved by the National Commission for the Coordination of 
Transportation. 

A bill authorizing the President to expropriate the physical assets 
of foreign o;vvned public service companies operating under concessions 
granted by the Government was introduced in June 1940. Passage 
of the measure would affect all telephone companies throughout 
Argentina, the country's chief railroads, street-car systems, sub- 
ways, and other transportation facilities, most of which are British 
owned. There are also American, German, French, Italian public 
services companies in Argentina. The two principal American utility 
systems are those of the International Telephone & Telegraph Co., 
which controls 90 percent of all telephones in Argentina, and the 
American & Foreign Power Co., Inc. The bill provides that indem- 
nification of properties expropriated will be arranged by the President.'^'' 

INSURANCE CONTROL 

A decree of June 21,1 93S. establishes an Insurance Superintendence, 
with a supervising committee of five chosen by the Government from 
a panel submitted by the insurance companies. It has the right to 
inspect books, vouchers, and correspondence of the companies, check 
cash position and the general economic condition of each company. 
It receives all applications for the organization of new companies, 
and may force companies to liquidate if irregularities are found A 
new company must submit copies of its policies, tariffs, mortality 
tables, etc. (Maximum commissions to life insurance agents are 80 
percent of the first year's premium, to be amortized over a 5-year 
period. Technical reserves are calculated at an interest rate at least 
one-half of 1 percent under the average for the previous 3 years, with 
a maximum of 4 percent.) 

According to decree No. 67185 of July 19, 1940, new branches or 
agencies of foreign insurance companies desiring to operate in the 
country are suspended for 1 year. The decree establishes other rules 
governing the registration of branches or agencies of foreign, insurance 
companies; it provides that the deposit of National Government 
bonds, required by internal taxation laws, be considered as the in- 
vestment of part of the minimum capital required. The investments 

" Report of Economic and Commercial Conditions in the Argentine Republic, Department of Overseas 
Trade, London. June 1939, p. 9. 
30 Journal of Commerce, New York, June 20, 1940. 



116 CONCENTRATION OF ECONOMIC POWER 

of foreign insurance companies must be made in accordance with 
regulations established by the Superintendent of Insurance, and such 
investments must be permanently maintained in Argentina. No 
transfers of premiums or of the other accounts can be made to the 
home office of the company.^^ 

ECONOMIC WARTIME MEASURES 

An Argentine congressional law of September 7, 1939, authorizes 
the President to restrict or prohibit the exportation of specified prod- 
ucts considered to be prime necessities, as one of the means of con- 
serving domestic supplies and of checking undue price rises. ^^^ 

The President is also authorized to suspend the application of the 
additional 10 percent ad valorem duty on articles of prime necessity, 
maintained since 1931, and to fix maximum retail prices thereon. 
Supplies of these articles may also be expropriated by the Government, 
upon payment to the owner of the cost price plus an indemnification 
of not more than 10 percent, in the case of raw materials; in the case of 
expropriation of manufactured products, the prices paid will be the 
fixed maximum retail price. Maximum prices are also to be set for 
manufacturers, middlemen, importers, and wholesalers, based upon 
the prices prevailing during the first 2 weeks of August 1931. 

The classes of articles specified in the law as prime necessities are 
articles of food, clothing, light, fuel, medicine, and construction ma- 
terials. The various specific products included within these classes 
are to be established shortly. 

An advisory council with far-reaching powers is to be made a 
permanent part of the Department of Foreign Aff'airs, according to a 
decree issued by the Argentine Government on November 6, 1940. 
The world crisis and the increasing number of political and economic 
problems faced by the Foreign Office are the reasons given for the 
creation of the council.^^ 

REGULATION IN THE PETROLEUM INDUSTRY 

Of all South American countries, Argentina offers the most interest- 
ing and comprehensive field for the study of Government regulation 
and direct competition in the petroleum industry.^' Argentina is one 
of the few countries in the world where the National Government has 
since the inception of the industry directly operated a substantial part 
of the petroleum industry. Unlike Chile, Brazil, and Uruguay, 
Argentina is a producer of petroleum and, therefore, finds the regula- 
tion problem more complex. Furthermore, owing to the presence in 
the country of foreign-owned companies with petroleum wells and 
distribution and refining facilities, various problems have arisen with 
respect to the supply of the home m<arkets, and imports and exports 
of crude and refined petroleum. 

The private companies always competed with a Government-owned 
organization. State Oilfields Department, known as the Y. P. F. 
(Yacimientos Petroliferos Fiscales). Since early 1936 the position of 
the private oil companies in relation to the Y. P. F. has undergone 

3' Bureau of Foreign and Domestic Commerce, Foreign Commerce Weekly, October 26, 1940, p. 148. 
■" Bureau of Foreign and Domestic Commerce, Commerce Reports, October 7, 1939, p. 890. 
" Journal of Commerce, New York, November 7, 1340. 

3< The followins account is based on D. M. Phelps, Petroleum Regulation in South America, American 
Economic Review, March 1939. 



CONCENTRATION OF ECONOMIC POWER 217 

many changes. The new regulations are in some respects sufficiently 
unique to deserve a brief description. 

Petroleum deposits were first discovered in Argentina in 1907 by 
the Federal Bureau of Mines. From that time until 1916, the indus- 
try was entirely in the hands of the Federal Government, but in 1916 
private companies started production, and by 1924 their share of the 
total output amounted to 25 percent. As the output of the private 
companies, which were of foreign origin, has gone upward steadily, the 
Argentine Government issued on January 10, 1924, the so-called re- 
serve decree, which reserved the most promising territories for explora- 
tion for the Government. The action of the Federal Government 
was followed by the various provinces; since 1924, and even as late 
as 1936, new reserve decrees, both national and provincial, have ap- 
peared at intervals clarifying earlier decrees and reserving additional 
areas to the Government. 

The reserve decree, however, did not bring about the exclusion of 
the foreign oil companies. 'They had been active long enough to 
secure title to at least part of the holdings upon which work had been 
started. Alsb, the provincial governments were less strict than the 
Federal Government. When reservations were made by the National 
Government in the territories, they were made for the Government 
entity, the Y. P. F. But when the provinces made reservations, later 
concession could be granted either to the Y. P. F. or to the private 
companies. The most important of these was the concession given 
by the Province of Salta to the Standard Oil Co. Through these 
concessions the private companies were able to continue operations, 
and have attained a position approximately equal to that of the Y. P. F. 
in the Argentine market. 

l^urther regulations of the petroleum industry were started in 1936. 
A committee of investigation was appointed on May 9, 1936, to obtain 
information and to suggest decrees or laws which were considered 
necessar}?^ to regulate the importation, transport, and distribution of 
petroleum products. As a result of the committee's investigation, 
executive decree number 86,639 was issued in July 1936. The decree 
provided that the volume of importations to be allowed was to be 
determined quarterly by the executive power, on the basis of pro- 
posals by the Y. P. F.^^ Furthermore, the Y. P. F. was to effect these 
importations and, after deducting the quantity considered necessary 
for its own needs, was to apportion the balance among the importing 
companies. The basis for the apportionment was "the producing 
or consuming capacitj^^, as the case may be, of such private companies 
as are inscribed on the special register which will be opened for this 
purpose." ^^ Thus the private companies were compelled to register 
if they wished to continue in operation, and then were very largely 
under the direct control of the competitor, the Y. P. F., acting through 
the Ministry of Agriculture. The two large companies, Standard 
Oil Co. and Shell-Mex, refused to comply with the demands of the 
Government, stating that the agreement would not permit commer- 
cial operations. They also declared that in their opinion the enabling 
decree was unconstitutional. 

While prolonged negotiations were being carried on between the 
Y. P. F. and the two large companies, further complications came from 

" Boletin Oflcial, July 24, 1936 . 
'' Idem. 



228 CONCENTRATION OF ECONOMIC POWER 

another direction. On October 6 the municipal council of the city of 
Buenos Aires passed an ordinance which granted to the Y. P. F. the right 
for exclusive sale of gasoline after July 1937. This action was a great 
blow to the private companies, for sales in the federal capital are ill- 
most one-third of the national total and, because of the uniform price 
situation, the most profitable one-third. Later the ordinance was 
rescinded, after bitter attacks from a number of sources, but only after 
an agreement was signed by the companies. 

Since some marketing arrangement was necessary for Shell-Mex and 
the Standard Oil Co., a temporary, or "standstill" agreement was 
finally signed by the companies and the Y. P. F., on December 19, 1936. 
It was continued until June 28, 1937, when it was replaced by a cartel 
agreement which was to run for 3% years and be automatically ex- 
tended annually after December 31, 1940, the termination date, unless 
a terminatioit notice was served by one of the parties 6 months in 
advance of expiration. 

Through this agreement, the Argentine market is apportioned among 
the various companies. Control is largely in the hands of the Y. P. F. 
Increases in consumxption, if there be such, are allotted to the Y. P. F. up 
to certain specified amounts. Increases above those amounts are to 
be shared by the other companies producing locally, if local produc- 
tion can take care of the quantities demanded, again up to certain 
specified amounts. The remainder is allotted to the Y. P. F., if it has 
supplies, and if not, to the other producing companies, if they have 
supplies. If importations have to be made 'to meet the increased de- 
mand, then all companies, whether producingjocally or not, share in 
proportion to their respective quotas. These provisions effectively 
(?urb the private companies in their competition with the Y. P. F. 

While the foreign companies considered the agreement as favoring 
the Y. P. F., particularly in connection with any increase in consumption 
above the base figure, it did insure stable conditions for several years, 
and the projected monopoly of the Y. P. F. was out of the picture. 

Other important provisions of the agreement provided for a uniform 
price of gasoline, the establishment of a special tribunal to administer 
the agreement, and a system of surcharges to replace the heavy 
fines for exceeded quotas assessable under the preceding 6-month 
agreement. 

In December 1937 further control measures were introduced. The 
special committee which was responsible for the 1936 decree brought 
forward a project of the law for consideration by the Government. 
In it the national supply of petroleum and all properties connected 
with the suppl}'- are declared to be of public utility and subject to 
expropriation. If this law were passed, a National Council of Petro- 
leiun would be created to have charge of everything relating to the 
policy of the state in matters concerning petroleum, insofar as a 
recognition of the rights vested in the provinces would allow. 

Existing legislation to which new control measures may be added 
obviously renders the position of the private companies precarious. 
The reserve decrees forbid exploration in the most hkely areas for 
discovery. Prices to the consumer are dictated by the Government 
and are made uniform throughout the country. The quotas for im- 
portation and for sale are determined by the Government. The 
private companies have little independence regarding the distribution 
methods to be used, and, in addition, control over their actions is 



CONCENTRATION OF ECONOMIC POWER J JQ 

immediately vested in their direct competitor, the YPF, although 
final authority is in the Ministry of Agriculture.- 

The Government, by virtue of the reserve decrees, controls those 
areas which are most likely to yield new supplies. If such supplies 
are forthcoming through the efforts of the YPF, the power further to 
limit importations can be invoked, and if national supplies can be made 
sufficient to cover national demand, those foreign companies which 
now depend entirely on importations will be out of the picture. The 
other foreign companies, which depend partly upon Argentine crude 
and partly upon importations, will find themselves serving a smaller 
portion of total national demand than formerly, unless they likewise 
can increase their production of Argentine crude. 

The crux of the whole situation is the ability of the YPF to discover 
new deposits. If the YPF is successful in increasing national output, 
the foreign oil companies which depend upon imported supplies will, 
in all probability, gradually be excluded from the market. Standard 
Oil and Shell-Mex, which depend more upon local supplies, may be 
allowed to continue operations, but expansion of operations within 
a growing market will largely be denied by the reserve decrees and 
the terms of the agreement now in force. 



PART V 

GOVERNMENT INTERVENTION IN BRAZIL 

by 

AGNES ROMAN 

Junior Economist 

Temporary National Economic Committee 



GOVERNMENT INTERVENTION IN BRAZIL 

REGULATION OF BASIC AGRICULTURAL INDUSTRIES 

The economic life of Brazil is based primarily on agriculture. 
While rapid progress has been made along industrial lines in recent 
years, manufacturing is largely confined to the needs of the domestic 
market. As a result, agricultural and semiagricultural products 
make up around 90 percent of the value of the country's total exports. 
Over the past 50 years, coffee alone lias accounted for an average of, 
roughly, 60 percent of the total value of the Brazilian export trade. 

The difficulties that have beset Brazil's major export commodities 
since 1929 owing to the collapse of commodity prices and the world- 
wide drive for self-sufficiency, have resulted in a marked trend toward 
Government intervention in the basic agricultural industries, with 
agricultural diversification as one of the major objectives. More 
recently the Government supplemented its aid, extended in the form 
of a high protective tariff on agricultural and semiagiicultural prod- 
ucts, by the establishment of so-called "institutes" under Federal or 
State auspices to aid the financing *and marketing of various agricul- 
tural products. These organizations usually receive direct or indirect 
financial assistance from the Federal or State Governments, and in 
turn may have delegated to them certain executive powers, such as 
the enforcement of trade practices and standards and the operation 
of inspection services.' The earliest of these were the various coffee 
institutes. 

brazil's coffee defense measures 

Cofi'ee has experienced serious difficulties for a great many years. 
Total world production over the past decade has averaged about 
32 million bags (of 132 pounds each), while total consumption 
averaged onlv about 24)^ million bags, thus leaving the market with 
substantial surpluses each year.^ 

The importance of coffee in the economic life of Brazil explains the 
high degree of control exercised by the Government in the coffee 
industry. Since about 1000 Brazil accounted for approximately 72 
percent of the world production and for about 60 percent of the total 
value of the Brazilian export trade. Besides being important as a 
source of employment of labor and providing an important source of 
Government revenue, the returns from the coffee exports are also 
significant in determining the exchange value of Brazilian currency 
and in financing Brazilian purchases and obligations abroad.^ 

Brazil's first cofi'ee control scheme was adopted in 1906 by the 
government of the State of Sao Paulo, assisted by foreign bankers and 

1 Foreign .Agriculture, Bureau of Agricultural Economics, February 1938, p. 82. 

' Pan American News, Foreign Policy Association, Inc., New York City, September 26, 1940, pp. 8, 9. 
Edwin P. Keeler, The Brazilian Coffee-Defense Experiment, Foreign Agriculture, Bureau of Agricul- 
tural Economics, December 1937, p. 619. 

123 



124 CONCENTRATION OF ECONOMIC POWER 

the Federal Government of Brazil. Its aim was to limit overpro- 
duction resulting from heavy plantings during the 1890's. It was 
practically liquidated by the beginning of the World War. 

The second valorization scheme was undertaken by the Sao Paulo 
government in 1917, when another large coffee crop was anticipated 
following declining consumption that accompanied the World War 
period. This plan included the purchase and withholding in Brazil 
an amount of coffee equivalent to that which under pre-war condi- 
tions had usually been bought by Germany. After about 3,000,000 
bags of coffee were reported to have been purchased, the scheme was 
brought to an end by a heavy frost which reduced coffee production, 
and by the end of the war which made it possible for the government 
to successfully liquidate its stocks. 

The post-war slump in commodity prices and a large coffee crop in 
1920-21 gave impetus to a third valorization scheme in 1921, which 
was carried out by the Federal Government. The smaller crops in 
the immediately following years enabled the Government to dispose 
of the stocks of coffee purchased by February 1924. In the same 
year, the State of Sao Paulo was given the task of establishing a 
permanent coffee defense system, to be administered by a semi- 
official organization, known as the Coffee Institute. The main 
features of the plan were: The regulation of the amount of coffee that 
might move to the port of Santos for export, and the storing of reserve 
stocks in specially constructed up-country warehouses. In 1926 the 
scope of the system was enlarged by the established of a State bank 
authorized to make loans to coffee planters against stocks in the regu- 
latory warehouses, aild against mortgages on their plantations. 

The purpose of these credit facilities was to insure the necessary 
credit to growers. Unfortunately, however, this led to an overliberal 
credit policy which became a significant factor in the overexpansion 
of the coffee industry. The rapid increase in planting of coffee trees 
was overlooked, as well as any future possibility of production 
regularly exceeding anticipated consumption requirements. With 
the exception of a few years since 1927-28, Brazilian production has 
considerably exceeded world consumption of Brazilian coffee. 

The menace of the large crop harvested in the 1927-28 crop year, 
of about 10,000,000 bags more than world consumption of Brazilian 
coffee, prompted the other Brazilian States to join in the defense 
plan by following an essentially similar type of marketing control-. 
The additional financial support required was obtained from abroad. 

Another large crop for 1929-30 aggravated the situation to the 
extent that coffoe prices collapsed as well as the financial structure 
built up in connection with the defense program. But the govern- 
ment of Sao Paulo succeeded in obtaining a loan amounting to about 
$100,000,000 in 1930 in the United States ?nd Europe, secured by 
warehoused coffee, to be serviced by the proceeds of a special tax of 
3 shillings per bag on coffee exports. 

In 1931, owing to the continued decline in prices and prospects for 
a further exceptionally large crop for 1931-32, which would have to 
be added to the excessive stocks in the interior, the Federal Govern- 
ment took over the coffee control program. An export tax was 
adopted, amounting first to 10 shillings per bag, and later increased 
to 15 shillings. The proceeds of the new tax were to provide for the 
purchase and destruction of the large surplus stocks of coffee. A 



CONCENTRATION OF ECONOMIC POWER 125 

prohibitive tax was also placed on new plantings of coffee trees. 
This export tax system and the "sacrifice" quota plan according to 
which planters were required to deliver to the Government certain 
portions of their crops at prices below the market, remained the 
outstanding features of the coffee defense system from 1931 to Decenl- 
ber 1937. 

Despite the restrictive measures taken, coffee production continued 
to be excessive. Prices failed to show signs of notable improvement 
and the quantity exported remained stationary. Despite the destruc- 
tion of 47,961,000 bags of coffee in Brazil between 1931 and June 1937, 
the world carry-over as of July 1, 1937, was estimated at 30,461,000 
bags, of which 28,069,000 bags was Brazilian coffee and 2,383,000 
bags were of other origin. 

To remedy the situation, the coffee-producing countries held con- 
ferences in Bogota and Habana in 1936 and 1937 in an effort to come 
to an agreement regarding production control, division of markets, 
and price maintenance. In view of the fact that these efforts remained 
unsuccessful, so far as Brazil was concerned, the Brazilian Government 
decided in November 1937 to introduce radical changes in its coffee 
policy by reducing its export tax on coffee from 45 to 12 milreis 
(about 66 cents) per bag, and abolishing the former requirement that 
35 percent of the proceeds of export bills be sold to the Bank of 
Brazil at official rates of exchange. Entries into port, however, were 
still regulated to give the National Coffee Department an opportunity 
to dispose of some of its large stocks of coffee. As a result of the 
relaxation of coffee control at the end of 1937, coffee prices declined 
in 1938 and 1939, but the quantity exported has risen in the following 
years. Destruction has continued, and for the 8 years from 1931, 
when this practice was established, to 1938, inclusive, the total 
destroyed has amounted to 64,732,914 bags, equivalent to exports for 
4 years. Sacrifice quotas were fixed at 30 percent for regular or 
common coffee and 15 percent for preferential or high grade coffee, and 
growers were compensated at the rate of 2 milreis (approximately 11 
cents) per bag.'* 

Plans regarding the stabilization of the 1939-40 and 1940-41 coffee 
crops are about the same as regards sacrifice quotas and compensation 
paid to growers as were adopted in the immediately preceding years. 
Coffee acquired under these schemes is destroyed. Funds to finance 
its purchase are derived partly from the tax on coffee exported and 
partly from a part of the assessment imposed by decree law in Novem- 
ber 1937.^ The planting of new coffee trees is prohibited until June 
30, 1941. 

In appraising the success of Government assistance to coffee growers, 
authorities of the Department of Agriculture state that — 

Generally speaking, it would appear that Brazilian coffee-valorization measures 
operated fairly well in mitigating the effects of cylical overproduction prior to 
about 1927. Over the long term, production and consumption were fairly well in 
line during the period covered by the earlier valorization measures. The diffi- 
culties that developed after the adoption of coffee defense as a permanent policy 
appear to have resulted from a number of factors, which include (1) attempts to 
stabilize coffee prices at unduly high level; (2) overliberal credit policies; (3) 
failure to limit new plantings in the 1920's, which instead were encouraged by 

* Data regarding the coffee defense system were derived from an unpublished manuscript, prepared in 
Latin America Section, Bureau of Foreign and Domestic Commerce, based on reports of the U. S. Depart- 
ment of Agriculture. 

» The Foreign Trade of Latin America, Part II, Section 3: Brazil, U. S. Tarifl Commission, 1940, p. 24. 



J 26 CONCENTRATION OF ECONOMIC POWER 

(I) and (2) and which have accounted in considerable degree for the large crops 
of the past few years; (4) administrative deficiencies in the operation of the control 
machiner)-; and (5) encouragement of plantings in other countries, which had 
come to believe that Brazil would engage indefinitely in direct or indirect 
price-supporting measures. ^ 

The European blockade aggravated the plight of the Latin American 
coffee-producing countries, which supply about 85 percent of the coffee 
sold on the international markets. Brazil is the most important 
coffee producer, with an annual output of about 22 million bags, followed 
by Colombia, producing about 4,000,000 bags annually; El Salvador, 
Guatemala, and Venezuela, with an annual crop of about 1,000,000 
bags each, are next on the list, which includes Mexico, virtually all of 
Central America, and the West Indies.^ 

The European market normally absorbs 46 percent of the world 
coffee consumption.^ The United States is the most important single 
market factor, while the small requirements of the home market do 
not provide much outlet for the surplus. 

Lately, the Inter-American Financial and Economic Advisory 
Committee ^ has made attempts to find markets for Latin American 
coffee outside the United States. In the middle of 1940, the Third 
Pan American Coffee Conference was held in New York City, attended 
by representatives of 'the Latin American coffee-producing countries. 
The main purpose of the Conference was to draw up a quota schedule 
to determine the share of each country represented in the North 
American markets, and to make arrangements for handling coffee 
surpluses. Owing to the necessity for adjusting certain quotas, final 
adoption of the plan drawn up by the Financial Committee has had 
to be postponed.^" 

THE COCOA INSTITUTE 

Established by a decree of the Federal Government, the Cocoa 
Institute was converted into a planters' cooperative society in 1931.^^ 
The purpose of the Institute is to guarantee long-term and short-term 
credits to growers, finance purchases of farm equipment, and improve 
methods of marketing the crop. In addition, the Institute operates 
an experiment station, aids in highway and bridge construction 
maintains a modern warehouse in Bahia, and is active in the cocoa 
export trade. 

Aside from the income from its banking and commercial transactions, 
the Institute is financed from the proceeds of a State export tax on 
cocoa. '^ 



• Foreign Agriculture, Bureau of Agricultural Economics, February 1938, pp 81 82 

' Pan American News, op. cit., pp. 8, 9. 

' Idem. 

' The Inter-American Financial and Economic Advisory Committee was created by the resolution of the 
1 anama Conference on Economic Cooperation which met from September 23 to October 3, 1939. At the 
second meeting of ministers oj Foreign afTairs, where the discussion of a plan for economic cooperation and 
the means of implementing it formed a part of the agenda, the Inter-American Financial and Advisory 
Conimitteo was instructed: ''* ♦ • To create istruments of inter-American cooperation for the temporary 
storing, hnanciug, and handhng of any such (surplus) commodities and for their orderly and systematic 
niarketinp lo develop commodity arrangements with a view to assuring equitable terms of 

trade for both jiroducers and consumers of the commodities concerned." Howard J. Trueblood. The 
Havana Conference of HMO, Foreign Policy Reports, Sept. 15, 1940, p 163 

1" Pan .\meriean Xews, op, cit., pp. 8, 9. 

" Brazil Yearbook and Manual, New York, 1940, p. 76. 

12 Hureai^of Agricultural Economics, Farm Aid in Foreign Countries, Foreign Crops and Markets 
June 1, 1938,-p. fii9. 



CONCENTRATION OF ECONOMIC POWER 127 

THE SUGAR AND ALCOHOL INSTITUTE 

The Sugar and Alcohol Institute was created by a decree of June 
1933. It operates a quota system imposed on sugar refineries to assure 
equilibrium between the annual crops of sugarcane and the consump- 
tion of sugar, in order to prevent excessive production and price 
disruption. 

EXTENSION OF GOVERNMENT INTERVENTION -TO OTHER COMMODITIES 

In addition to the aid extended to coffee, cocoa, and sugar, a, number 
of other institutes have been set up recently, such as the Lard and 
Tobacco Institutes, to mention only two. The procedure of the 
institutes is to tax exports or production in order to achieve the 
objects of the institute. In the case of cocoa, lard, jerked beef, skins 
and liides, tobacco, etc., these objects are mainly technical and 
administrative; their particular aims are to improve quality, to 
provide proper classification, to combat plant disease etc. 

A stimulus to the planting of cereals has been given b;) a presidential 
decree of December 15, 1938, according to which flour mills in Brazil 
are obliged to purchase domestic wheat at a fixed price, the minimum 
being 600 reis per kilo. In addition, Brazilian flour mills will be re- 
quired to purchase home-grown wheat on the basis of quota alloca- 
tions, to be fixed at a level not less than the equivalent of 10 percent 
of their average annual utilization during the past 5 years. No mill 
will be permitted to import wheat without first submitting proof of 
the extent to which it has taken its quota of Brazilian wheat.'' The 
purpose of these measures is to facilitate governmental plans to reduce 
the heavy imports of tliis commodity. 

Some form of centralized control, not involving production or export 
limitation, market intervention, or other valorization features exist in 
many agricultural fields, notably cotton, which is subject to Govern- 
ment control for classification and seed selection. 

GOVERNMENT CREDIT TO AGRICULTURE 

Probably the most far-reaching governmental measure of the de- 
pression period, for the relief of the farm class and of the banks, was 
the decree of the Federal Government promulgated on December 1, 
1933, which reduced by 50 percent all debts secured by mortgage or 
lien on agricultural property. Debts of farmers to banking houses, 
regardless of the nature of the debt, providing the debtor was insolvent, 
were also reduced by 50 percent. Provision was made for reimburse- 
ment of the creditors for their loss, through an issue of 30-year, tax- 
exempt, 6-percent Federal bonds.'* 

To render financial assistance to agriculture in addition to the in- 
direct help through the various agricultural institutes, a decree was 
promulgated in July 1934 providing for the creation of National Rural 
Credit Bank, mth capital supplied by the Federal Government.'^ 

In July 1937 an agricm aral credit law was promulgated authorizing 
the Government to acquire 100,000 contos of shares of the Bank of 

" Bureau o( Agricultural Economics, Foreign Crops and Markets, February IS, 1939, d. 107. 
'* Bureau of Agricultural Economics, Farm Aid in Foreign Countries. Foreign Crops and Markets, 
June 1, 1936, p. 579. 
'Udem. 



228 CONCENTRATION OF ECONOMIC POWER 

Brazil, the capital to be used for extending long-time credits to agri- 
culturists, cattle and sheep breeders, and industrial processors of agri- 
cultural and livestock products. In this connection there was formed 
an Agricultural Credit Department of the Bank of Brazil, which began 
operations on January 24, 1938, to provide credit for agricultural (and 
industrial) concerns, and to finance the purchase of seeds, fertihzer, 
machinery, etc., and a new law governing agricultural mortgages.*' 
Furthermore, throughout 1938 the foreclosing of such mortgages by 
creditors was prohibited. 

The general trend in Brazil, accelerated by the 1937 Constitution, 
is toward increased government intervention. The serniofficial "insti- 
tutes" represent a logical medium for the administration of farm aid 
and of such additional intervention in the agricultural organization of 
the country as may develop mider the present governmental set-up. 

THE NATIONAL ECONOMIC COUNCIL 

The effect of the Constitution of 1937 was to centralize greater 
power in the Federal Government. The new legislative power is to 
be exercised "by the National Parliament, with collaboration of the 
Council of National Economy and the President of the Republic,'^ 
but in practice the legislative branch is subordinated to the Executive, 
since Parliament is permitted to legislate only on general principles, 
leaving the detailed regulations to be issued by the Executive. The 
following articles of the Constitution relating to the National Eco- 
nomic Council are indicative of its role in Brazil's present economic 
set-up. 

Article 57. The National Economic Council is to be composed of representa- 
tives of the various branches of national production, chosen from persons quali- 
fied by their special ability, by professional associations or syndicates recognized 
by law, and insuring an equal representation of emploj^ers and employees alil^e. 

The National Economic Council will be divided into five sections: 

(a) The section of industry and trade. 

(b) The section of agriculture. 

(c) The section of commerce. 

(d) The section of transportation. 

(e) The section .of credit. 

Article 61. The following are attributes of the National Economic Council: 
(o) To promote the cooperative organization of national economy; 

(b) To establish rules for the assistance given by associations, syndicates or 
institutions; 

(c) To draw up rules for collective contracts of labor between syndicates of the 
same category of production, or between associations representing two or more 
categories ■ 

(d) To n ^ort on all projects, whether initiated by the Government or by either 
of the ChaniVers, which directly interest national production; 

(e) To organize, either by its own initiative or at the request of the Govern- 
ment, investigations concerning the conditions of labor, agriculture, industry, 
commerce, transportation, and credit, with a view to increasing, coordinating, 
and perfecting national production; 

(/) To prepare the basis for the foundation of research institutes which, con- 
sidering the diversity of the economic, geogrcphio, and social conditions of the 
Country, shall have for their object — 

I. To rationalize the organization and administration of agriculture and 
industry. ; 

II. To study the problems of credit, distribution, and sale and those relating 
to the organization of labor. 

(g) To report on all questions relative to the organization and recognition of 
syndicates and professional associations; 

,n!>l®"'??I* °' Foreign and Domestic Commerce, Economic Review of Foreign Countries, Washington, 
1937, p. 166. 



CONCENTRATION OF ECONOMIC POWER 129 

(h) To propose io the Government the creation of corporative institutions of 
professional activities. 

Article 63. At any time powers may be vested in the National Economic 
Council, through a plebiscite to be regulated by law, to legislate on certain or all 
matters pertaining to their special province. 

The initiative in calling the plebiscite will be within the power of the President 
of the Republic, who will specify in the respective decrees the conditions upder 
which, and the matter upon which, the National Economic Council may legislafte." 

As the above quoted articles indicate, the new Constitution has 
strengthened the powers of the central Government, and some o - its 
provisions are designed to encourage the eventual organization of.the 
national economy along corporative lines. 

NATIONALIZATION 

The nationalization of Brazil's petroleum industry in all its ramifica- 
tions was effected by decree No. 395 of April 29, 1938.^^ The supply- 
ing of petroleum to the nation was declared to be a matter of public 
utility.^* This was in line with article 144 of the 1937 Constitution 
which declares that — 

The law will regulate the progressive nationalization of mines, mineral deposits 
and waterfalls or other sources of power, as well as those industries considered 
basic or essential to the economic or military defense of the Nation. 

The Federal Government of Brazil was given exclusive jurisdiction 
to authorize, regulate, and control the importation, exportation, 
transportation (including the construction of pipe lines), distribution, 
and commerce in petroleum and its derivatives throughout national 
territory. It may authorize the installation of refineries or deposits, 
and decide as to the sites of such installations, as well as the produc- 
tion capacit}^, nature, and quality of the products refined. 

The Government may fix maximum and riiinimum selling price 
limits for imported or domestic refined products, with a view to secur- 
ing as nearly uniform a price throughout the country as possible. 

The various companies permitted to enter this field must be organ- 
ized on the followmg basis: the capital must be held by native-bom 
Brazilians when ordinary common shares are issued, the direction 
and management of the company must be entrusted exclusively to 
native-born Brazilians, and Brazilian employees must havei^ an 
"obligatory participation in the proportion established by the legisla- 
tion of the country." Those companies which were operating in 
Brazil in the refining industry at the time the decree was issued Were 
given 6 months in which to reorganize. 

The National Petroleum Council was created to act as a governing 
institution. It is composed of native-born Brazilians appointed by 
the President of the Republic, representing the Ministries of War, 
Marine, Finance, Agriculture, Commerce, and Labor, as well as 
industrial and commercial organizations. The Council was charged 
with the execution of the measures contained in the decree, as well as 
the authorization and supervision of the financial and commercial 
operations of the particular companies involved. 

In general, this legislation follows closely the legislative trends of 
other countries placing all natural resources under the direct control ot 

" New Constitution of the United States of Brazil. Imprensa Nacional, Rio de Janeiro. 

'8 Bureau of Foreign and Domestic Commerce, Commerce Reports, Washington, May 7, 1938, pr4U. 

" The term -'supplying" includes production, importation, transportation, and distribution of, as weill 
as commerce in, crude petroleum and its derivatives. The term also embraced imported petroleum and 
petroleum of national production, irrespective of the sources of extraction. I 



l^Q CON'CENTRATION OF ECONOMIC POWER 

the central government. Since American interests have practically no 
investments in refineries in Brazil, and no commercially valuable 
petroleum deposits have yet been discovered in Brazil, the new law 
has not occasioned financial disturbances in the oil refining industry. 

The most important provision of the legislation frorn the point of 
view of refiners was the requirement that they maintain in the country 
a permanent minimum stock of 25 percent of the quantity they have 
been authorized to import annually. 

Since the beginning of 1936 the Brazilian press has emphasized the 
question of the nationalization of the foreign insurance companies 
working in Brazil, and various suggestions have been put forward. 
These proposals were based on Article 117 of the Constitution, which 
stipulates that legislation should be introduced for the progressive 
nationalization of concerns engaged in insurance in all its aspects. 
In May 1936 the President stated that although the Legislative As- 
sembly had issued no regulation to give effect to Article 117 of the 
Constitution, no foreign company had been granted a fresh authoriza- 
tion to operate in the country, and those already established in Brazil 
had been refused permission to engage in new classes of insurance. 
On June 22 the Minister of Labor, Industry, and Commerce submitted 
to the President a draft of a law for the nationalization of insurance 
companies. 

ANTI-TRUST LEGISLATION 

The Monopoly Act. The Monopoly Act, No. 869 of November 18, 
1938, defines crimes against the public economy, and is, in effect, an 
anti-trust law. The decree proscribes and defines crimes resulting 
from abuses of social economy, price agreements, monopolies, and 
similar business practices, punishable by fine and imprisonment. All 
such crimes will be tried before the Tribunal of National Safety. 

The President of the Republic decreed that crimes comrnitted against 
the public are^° — 

(1) Destruction or illegal use of raw material or products necessary for con- 
sumption of the people; 

(2) Abandonment of tilled land or the closing of factories in return for payment 
to restrain competition; 

(3) Promotion or participation in combinations or agreements to restrain com- 
petitors in material used in production, transportation, or commerce, for the pur- 
pose of increasing profits; 

(4) Retaining or monopolizing raw material, means of production, or products 
necessary for the consumption of the people, for the purpose of dominating the 
market and causing increase in prices; 

(5) Selling merchandise below cost price for the purpose of restraining com- 
petitors ; 

(6) Using false news, fictitious operations, or other fraudulent means to increase 
or decrease prices, the value of public bonds, articles of value, or salaries; 

(7) The use of false indications or statements in the sale of bonds or shares; 

(8) Interlocking directorates or officers of companies in the same line of business 
for the purpose of restraining competitors; 

(9) Operating fraudulently banks, banking and capitalization societies, insur- 
ance companies, savings banks, mutual benefit societies, aid and ension societies, 
or cooperative societies, by causing their bankruptcy or insolver ^y, or by breach 
of contract resulting in loss to interested parties; 

(10) Fraudulent entries, registration, or reports for the purpose of concealing 
profits, dividends, or percentages, or the fraudulent use of reserve funds. 

M Bureau of Foreign and Domestic Commerce, Comparative Law Series, February 1939, pp. 98, 99. 



COXCENTRu\TIOX OF ECONOMIC POWER 131 

The following are also considered crimes against the people — 

entering into agreements to impose a resale price or demand that the buyer shall 
not purchase from another; departure from official prices of merchandise; attempt- 
ing to obtain illicit gain by fraudulent processes such as "chains," etc.; violation 
of contracts of sale or installments, cheating in the drawing of lots, failing to deliver 
without return of the installments paid, in case of a contract rescinded by the 
buyer; fraudulently tampering with weights or measures standardized by law; and 
usurious practices such as charging interest in excess of that permitted by law, or 
obtaining a profit exceeding one-fifth of the current or fair value of the installment 
made or promised. ^i 

ECONOMIC WARTIME LEGISLATION " 

In the first 2 months of the [present European] war the President, through a 
series of legislative decrees, created several boards or commissions with broad 
powers over the economic life of the country. Decree-law 1,607 of September 16, 
1939, having the stated purpose of assuring to the people an adequate supply of 
prime necessities at reasonable prices, established under the Ministry of Agricul- 
ture a Commission of Supply * * * composed of nine members appointed 
by the President, to regulate production and trade in foodstuffs, raw materials, 
drugs and medicines, construction materials, fuels, lubricants, and other prime 
necessities. To attain these ends, the Commission is empowered to (a) ascertain, 
when necessary, the level of stocks of the commodities mentioned; (b) fix maximum 
wholesale and retail prices for merchandise throughout the country; (c) purchase 
commodities in the domestic or foreign market with credits provided, subject to 
the approval of the President; (d) distribute such commodities at cost; (e) requisi- 
tion commodities declared by the Government to be of public necessity. 

By decree-law 1,641 of September 29, 1939, the President also created the 
National Economic Defense Commission, * * * a three-man advisorj' and 
coordinating board designed primarily to promote and protect foreign trade. The 
Commission may deliberate with respect to (a) the determination of stocks of 
national and imported merchandise; (b) the promotion of export commodities easily 
saleable abroad; (c) the desirability of entering into direct agreements with foreign 
governments for exchange of merchandise; (a) the export and import trade, with 
the aim of assuring the country a regular supply of commodities necessary for inter- 
nal consumption and the functioning of basic industries; (e) the revision of restric- 
tions now existing on production and export of raw materials and foodstuffs; and 
(/) maritime and land transportation and freight rates. Later, Brazil dispatched 
an economic mission to tour several American countries for the purpose of deter- 
mining whether additional markets for Brazilian goods might be secured. * * * 
To coordinate domestic and foreign trade, a third commission entitled * * * 
Production and Supply Control Commission was established under the Ministry 
of Agriculture. This body is composed of one representative from each of the 
Federal Ministries and the Prefecture of the Federal District and is empowered 
to (a) follow fluctuations in stocks of foodstuffs, fuels, lubricants, and raw mate- 
rials existing in warehouses, mills, depots, and other storage places, in order to 
ascertain their quantity, quality, and origin; (6) suggest and promote the appli- 
cation of regulatory measures over internal consumption, restraining all specula- 
tion; (c) suggest and promote,: after considering laws already in effect, measures 
looking to the development of production and its permanent protection on the 
market; (d) study production and sales costs from data and information to be 
requested from producers and merchants; (e) take whatever measures necessary 
to maintain a just equilibrium between export demands and distribution for 
internal consumption. The Commission may also, with the President's authoriza- 
tion, (a) regulate the distribution of consumption goods and raw materials in 
accordance with public necessity; (6) suspend traffic in any merchandise within 
the national territory in order to make fuller use of the transportation system; 
(c) suspend the import or export of any merchandise. * * * 

I' Trust Laws and Unfair Competition in Foreign Countries, Annual Report of the Federal Trade Com* 
mission, Washington, 1939, pp. 1.53-154. 

^' The following quotation is from Commercial Pan America, Pan American Union, Washington. 
September, 1940, pp. 269, 270. 



132 CONCENTRATION OF ECONOMIC POWER 

INDUSTRIALIZATION 

As was to be expected, efforts toward industrial development were intensified 
after the outbreak of the war. Dependence upon foreign markets for essential 
supplies was further emphasized by the dislocation in import sources and maritime 
coxntnunications. This, together with the long-standing desire for industrial ex- 
pansion as a form of economic diversification, led to promotional moves on the 
part of both Federal and local governments. Most important of these was the 
creation, by decree-law 2,054 of March 4, 1940, of the * * * Executive Board of 
the National Metallurgical Plan. The Board, composed of five members named 
by yhe President and directly under him, is empowered to (o) undertake technical 
sKadies looking to the construction of mills to produce raUs, structures, and plate; 
(6) organize a national company with the participation of government and private 
capital to operate the enterprise, which is to employ as large a percentage as 
possible of domestic coal. 

Similar encouragement to the metal industries was evidenced by the offer of 
the government of Sao Paulo State to advance 1,100 contos (about $55,000) for 
the installation of a lead smelter with a daily capacity of 10 tons. 

By decree-law 1,834 of December 4, 1939, the Federal Government was au- 
thorized to extend credit to lumber operators and fiber plantations for the con- 
struction of mills to produce cellulose and wood-pulp for the paper industry, such 
credits to take the form of 15-year 7 percent first mortgage loans. Another 
stimulus to fiber plantations was provided by decree-law 1,950 of December 30, 
1939, exempting from the consumption tax textiles made with domestic carod. and 
coconut fibers. 

Experiments with domestic coal in locomotives on the government railroads 
were intensified, with a view to further replacing coal imported from Germany 
and Great Britain. It was reported in February that construction of three ovens 
for the manufacture of metallurgical coke had been begun in southern Brazil. 

FOREIGN EXCHANGE CONTROL 

Regulation of foreign exchange transactions by the Government is 
not new in Brazil's monetary history. At times, when the world 
prices of coffee have been too low, the milreis was allowed to depre- 
ciate to maintain the income of coffee growers in terms of Brazilian 
currency. Currency depreciation in Brazil further served as an instru- 
ment for the encouragement of agricultural export trade and con- 
tributed to the protection of domestic industry and agriculture. 

Brazil's exchange control system was first inaugurated in August 
1931 when it was provided that all foreign exchange transactions be 
carried out through the Bank of Brazil." The system of foreign ex- 
change control has been frequently amended, its main characteristics, 
liOwt'Yer. remained the same, i. e., in addition to the official foreign 
e^chstagT; market, there have been one or more free markets in exist- 
e.Tic*"^^ III vvhit h the value of the milreis- has been lower than in the official 

E';r'Orfi:»>; have Deen obliged to sell a certain percentage of their 
expoit bills to the Bank of Brazil at the official rate, while the balance 
;3ould be sold in the free market. For a short period in 1937 the com- 
pulsory sale of export bills was suspended; on December 24, 1937, 
however, a decree was signed giving the Bank of Brazil a monopoly 
of the purchase of export bills, establishing a priority list for the allo- 
cation of exchange, and unposing a 3 percent tax on exchange pur- 
cha5es.2< The tax was changed to 5 percent in IVIarch 1939. 

'^FoT a general outline of the exchange control system in Latin .'Vmerica =:ep p 112. 
'♦Bureau of Foreign and Domestic Commerce, Commerce Reports. January 193S. p. 97. 



CONCENTRATION OF ECONOMIC POWER 133 

The present exchange control system m Brazil, which became effec- 
tive on April 8, 1939, recognizes three types of exchange: official, free, 
and special free.^^ 

Only the Bank of Brazil is authorized to operate in the official ex- 
change market. 30 percent of the value of export bills must be sold 
to the Bank, and the exchange resulting from these transactions is 
used by the Government to meet its commitments. As regards the 
free exchange market, all banks may participate in it, as well as in the 
special free exchange market. Exchange sold in the latter is bought 
from foreign tourists in the form of letters of credit, traveler's checks, 
or foreign paper currency. Exchange obtained from this source has 
to be used toward the sale of letters of credit, the sale of drafts or 
foreign paper currency to persons authorized by the Bank of Brazil. 

Foreign exchange regulations in Brazil have been changed fre- 
quently, but the system is expected to remain in force unless an in- 
creased demand for Brazilian exports materially increases the country's 
foreign exchange resources. Meanwhile, foreign exchange control, 
supplemented by clearing or compensative agreements, will continue 
to be used for influencing commercial policy by furnishing the available 
foreign exchange for the importation of certain commodities and 
withholding it for others. 

» The Foreign Trade of Latin America, Part II, Section 3. Brazil, p. 19. U. S. Tariff Commission, 1940. 
Recent quotations for the different Brazilian exchange rates (averages for March 1940) are as follows: Official 
$0.060fi; free market, $0.0504; special free market, $0.0483. Commerce Reports, Bureau of Foreign and 
Domestic Commerce, June 8, 1940. 



PART VI 

STATE REGULATION IN CHILE 

by 

AGNES ROMAN 

Junior Economist 

Temporary National Economic Committee 



282317— 41— No. 40 10 



STATE REGULATION IN CHILE 

OBJECTIVES OF STATE INTERVENTION 

State intervention in Chile is a comparatively recent innovation 
In the original structure of the country there were only two classes — 
landowners and peasants. The development of the mining industry, 
and the arrival of European immigrants, however, brought new social 
classes into being, and the new conditions gave rise to many social 
problems. But not until the post-war period, when the world-wide 
economic depression intensified social problems, did State interven- 
tion become an active force. The year 1924 witnessed a great ex- 
pansion in social legislation, followed a few years later by State par- 
ticipation in industrial and financial activities. 

Intervention on the part of the Government in Chile has, in some 
instances, been prompted by a desire to reduce the country's de- 
pendence on foreign interests. Considering the large foreign interests 
in the nitrate industry; American ownership of the copper mines, 
electrical supply services, and telephone services; and the fact that 
commerce and navigation are largely in foreign hands, it is but natural 
that a nationalistic feeling should manifest itself. 

The foreign ownership of the nitrate industry and copper mmes has 
meant that even when there is a substantial demand for these two 
main export articles, the income derived from their sale does not 
remain in Chilean hands. In 1929, for example, nitrate and copper 
exports from Chile amounted to $240,000,000, but of this amount 
only $60,000,000 remained in Chile. ^ 

The measures adopted by Chile to reduce the role played by foreign 
capital have been less severe than those adopted by manj^ countries 
of the world. Nevertheless, the Labor Code reserves 85 percent of 
employment ana wages to Chilean citizens. Moreover, income taxes 
on domestic companies are some 75 percent lower than for foreign 
companies; national banks are exempt from a minimum tax on deposits 
which foreign banks are required to pay. Further, coastwise shipping 
(except passengers) is reserved to the national marine, and air trans- 
port within the country is restricted to the National Air Line.^ 

The general tendency is thus toward more and more nationaliza- 
tion. Chile, however, suffers greatly from lack of national capital, 
and foreign capital is considered essential to future development. 
The tendency, therefore, is to reconcile national ambitions with the 
protection of those foreign undertakings, which are considered 
beneficial for the country. 

In directing and regulating Chile's economic life, the major objective 
of the Government has been to develop a better balanced economy. 
Chile is primarily an agricultural and mining country, mainly de- 
pendent upon foreign trade. For half a century nitrates (including 

' Economic Relation with Latin America, Michigan Business Papers, No. 6, University of Michigan, 
Ann Arbor, January 1940, p. 38. 
' Economic Conditions in Chile, Department of Overseas Trade, London, November 1934, p. 56. 

137 



l^g CONCENTRATION OF ECONOMIC POWER 

iodine) and copper have accounted for upward of 80 percent of the 
total value of all exports. The development of synthetic nitrates and 
the onslaught of the depression brought home the danger of this 
dependence upon only two commodities. Since that time, the Govern- 
ment has endeavored to diversify Chile's economic structure, foster 
industriahzation through customs duties and exchange restriction, 
create demand for the country's agricultural products, and generally 
to reshape the economic set-up. 

GOVERNMENT IN BUSINESS 

PUBLIC UTILITIES 

In the field of public services, Chile long ago adopted State owner- 
ship of railways and port work, subsidies to the merchant marine, and 
national aviation services. In 1936 the Government acquired partial 
control of and a financial interest in the principal electric light and 
power concern, the Cia. Chilena de Electricidad, a subsidiary of the 
American and Foreign Power Corporation, New York. This is the 
largest public utility company in Chile next to the Chilean State Rail- 
ways. Government ownership of railways has been extended by 
acqi>isition of the Chilean section of the Transandean railway.^ 

The Bulletin of the Chilean Chamber of Deputies reported as of 
August 9, 1938, that a bill was introduced for the nationalization of 
electric light and power companies throughout the country. The 
deputy introducing the bills declared that — 

there are powerful reasons * * * which justify a project of law which may carry 
on to the effective nationalization of all enterprises of electric energy in the 
countr}^ 

The deputy continued with the statement that Chilean capital has 
always been opposed to this type of investment because, in the large 
cities, the electric industry has been- controlled by international capi- 
tdism, which has never earned an incojne for national capital. More- 
over, the deputy remarked — 

Foreign capital, whether English, German, or North American, which has under- 
taken the sale of electric power in Chile, has converted itself into irritating monop- 
olies characterized by a ferocious spirit of profit, an excessive political control, 
shameful subordination of the press. Already we have demonstrated how all 
the electric contracts ha\e been laughed at by the companies, whether they be 
those effectuated with the Municipalities or with the Government. 

Although the bill has not yet oeen passed, it is of interest to review its 
provisions, as it is indicative of the prevailing attitude toward private 
ownership of public utilities. 

Under the provisions of article 1* of the bill, all corporations devoted 
to the supply of electric energy within Chilean territory would be 
declared public utilities, whether such energy were sold for light, power, 
heat, or locomotion. Article 2 would authorize the President of the 
Republic to expropriate the total amount of shares of all corporations 
m the industry. Compensation for each share of stock would be the 
average market price from August 1, 1936, to July 31, 1938, plus 20 
percent of this average. A commission composed 'of the President of 

^,^ ^^VPl^ °" Economic and Commercial Conditions in Chile, Department of Overseas Trade, London, 
May 19,37. pp. 36, 37. 

* Bureau of Foreign and Domestic Commerce, Comparative Law Series, Washington, October 1938, 
p. 459. 



CONCENTRATION OF ECONOMIC POWER 139 

the Stock Exchange, the Director of Internal Revenue, and the Direc- 
tor of Electric Service would fix the value of the stock on the basis of 
the preceding article. The present Chilean Electric Co. would be 
administered by a provisional board of directors. Other corporations 
which might be expropriated would be administered by delegates 
appointed by the President of Chile. Under the provision of Article 
9 of the draft, the President of Chile would be authorized to issue the 
necessary internal bonds for payment of the expropriated shares of 
stock. 

THE NITRATE INDUSTRY 

In recent years the nitrate industry has been the siibject of far- 
reaching legislation. The whole nitrate industry, in spite of its com- 
mercial appearance, can be said to be a government-controlled concern, 
since it is regulated officially as to finance, production, sales, and profits. 
In 1930, when the Government decided to reorganize the nitrate in- 
dustry by concentrating th^ resources of all companies into one con- 
cern, usually referred to as Cosach (Companie Salitrera de Chile), it 
became a 50-percent shareholder of the corporation. On the failure 
of the Cosa:ch, the interest of the Government was transferred to a 
newly formed sales corporation, known as the Nitrate and Iodine 
Sales Corporation, to which all the nitrate producers were required to 
deliver their nitrate at a price fixed by the corporation to cover costs 
exclusive of capital charges. Of the profits obtained by the Sales 
Corporation, 25 percent is to be allocated to the Government in lieu 
of taxes, and the remaining 75 percent to be distributed to the pro- 
ducers in amounts corresponding to their deliveries. 

The enabling act of the Nitrate Sales Corporation may be described 
as the first step of an attempt to put the Chilean industry on a basis 
permitting of more effective competition with the synthetic nitrogen 
producers. The following articles of the act are indicative of .the 
nature and activities of the corporation:^ 

Article 1. Because the national interest so demands it, there is established 
in favor of the State, and on the conditions determined by this law, a monopoly 
of the exportation of and trade in nitrate and iodine in Chile. Nevertheless, the 
President of the Republic, in accordance with the provisions of the law, may 
transfer or lease the right to the monopoly for a period not exceeding 35 years, 
to the legal entity with the name "Chilean Nitrate and Iodine Sales Corporation" 
(Corporacibn de Ventas de Salitre y Yodo de Chile) which is created by this law. 
Consequently, the exportation of and trade in these products may be undertaken 
only by the State or by the corporation to which reference has been made. 

The monopoly established by the present law shall terminate in case of the 
dissolution of the corporation or upon the termination of the contract of transfer 
or lease referred to. 

3^ :!: :tc :f; :}: :(c :^ 

Art. 2. The objects of the corporation are to acquire nitrate and iodine from 
the producing enterprises, to sell, export, transport, and distribute nitrate and 
iodine, to effect propaganda and to effect, in general, the commercial and other 
operations and transfers expressed in this law and which constitute the purposes 
of the corporation. 

INTERNATIONAL NITRT)GEN CARTEL ^ 

A series of cartels have been in existence in the world nitrogen 
industry since 1929. Prominent individuals connected with the large 
European producing interests had for many years been meeting 

• Bureau of Foreign and Domestic Commerce, Chemical Division, Special Circular No. 378. 
•Chemical Nitrogen, Report No. 114, Second Series, U. S. Tariff Commission, Washington, 1937, pp. 
B2-86. 



240 CONCENTRATION OF ECONOMIC POWER 

informally, but the actual formation of the cartels was largely the 
outcome of the two international nitrogen conferences held in 1926 
and 1927. 

First cartel. On June 26, 1929, announcement was made of the 
first International Nitrogen Cartel, consisting of three separate 
agreements between the German Nitrogen Syndicate, Imperial 
Chemical Industries, Ltd. (British), and Chilean nitrate producers. 
The pact was said to embrace about 80 percent of the world nitrogen 
production. Agreements provided for cooperation as to propaganda 
for price uniformity and for some allocation of production and export 
quotas. The duration of the agreement was for 1 year. 

Tlie second International Nitrogen Cartel was established August 
1930 in Berlin, after several months of negotiation. It included (a) 
domestic markets of producing countries; (6) colonial markets for 
producing countries; (c) other markets, except the United States; 
(d) the United States market. Allotment of nitrogen exports to the 
principal nonproducing markets was to be based on the pure nitrogen 
content of the materials. Special export contingents were to be 
granted to special products to meet the demand for each type in those 
markets in which they were not produced. The market of the United 
States and its dependencies was to be open to all signatories without 
quota. 

The division of markets indicated was implemented by assigning 
production quotas to each signatory except Chile, and fixing a quota 
for Chilean exports to Europe. Prices were' not to be increased over 
those prevailing during the preceding year. 

An indemnity fund of £3,000,000 was established, out of which 
compensation was to be paid to convention members who reduced 
their production to less than 70 percent of capacity, and who suffered 
losses through this curtailment. The Chileaxi producers were to con- 
tribute 25 percent of this fund, in return for no restriction on pro- 
duction and no hmitation on sales outside those set forth in the pact, 
and for an agreement that the pact would not apply to the United 
States. An administrative organization was to be established to 
handle the compensation fund and other matters, including buying up 
surpluses and holding them in anticipation of more favorable market 
conditions. 

The second international nitrogen cartel was terminated in July 
1931, and there was a complete break-down of negotiations for renewal 
of the pact. The break was attributed to the efforts of Germany to 
impose a tariff on Chilean sodium nitrate. Unlike other national 
groups, the Chileans were reported to be unprotected by a previous 
agreement with the German Nitrogen Syndicate, and hence with- 
drew. A private agreement was reached by the German, British, and 
Norwegian producers. A price war came on the heels of the break, 
and France, Poland, and Czechoslovakia, following Germany's lead, 
imposed embargoes on many nitrogenous products. 

The formation of the third cartel became known in the fall of 1932, 
following the signing of an agreement in London on July 21 of that 
year, by representatives of Great Britain, France, Germany, Italy, 
the Netherlands, Belgium, Switzerland, Poland, Czechoslovakia, 
Norway, and Chile. A master agreement was effected through a 
series of contracts entered into by Germany, England, and Norway, 
as a unit, and each of the other European countries mentioned above 



CONCENTRATION OF ECONOMIC POWER 141 

except Switzerland, providing for cooperation on prices and the 
limitation of production. These agreements were to run until June 
30, 1934. The central group (Germany, England, and Norway) 
then successfully negotiated an agreement with the Chilean producers. 
The regulation of certain export markets, and the compensation to 
certain producers for restricting production, contmued under these 
agreements. 

The European Nitrogen Syndicate continued to function through 
1933-34 under the terms of its agreements of the preceding year. 
Efforts in the late spring and summer of 1933 to renew agreements 
with Chile, however, failed and that country was not a member of 
the cartel. The breakdown of negotiations was attributed to failure 
to agree on price structure, and the objection of the Chileans to the 
numerous import restrictions previously imposed by most member 
countries. 

Beginning in November 1932, Chile entered a series of clearing 
agreements with various countries which helped to alleviate its posi- 
tion outside the cartel and strengthen the cartel of the Chilean 
industry, ^n the spring of 1934 an agreement was reported to have 
been reached between the European Nitrogen Syndicate and the 
Japanese producers. 

A renewal of the European Nitrogen Syndicate for another year, 
or until June 30, 1935, was signed in Paris in April 1934. A penalty 
clause for member countries exceeding their export quotas was 
introduced at this time. Apparently receipts for exports in excess 
of quotas were to be paid into the compensation account, upon which 
European producers not realizing their export quota allowances were 
to have first claim. 

In July or August 1934 an agreement was reached between the 
European Nitrogen Syndicate and Chile, likewise terminating in 
June 1935. The following important provisions were reported among 
its terms: 

(1) Chile was to receive a quota of 500,000 metric tons of 
nitrogen for export into syndicate member countries. 

(2) In uncontrolled markets (Sweden, Denmark, Spain, 
Egypt, and eastern countries) Chilean sales might equal sales 
in 1933. 

(3) The United States market was excepted from the agree- 
ment and was to be open to all producers without restriction. 

(4) Price ratios were established between the different grades 
of fertilizers. 

In September 1935 the Imperial Chemical Industries, Ltd., issued 
a communique relating to the International Nitrogen Cartel stating 
that the agreements were concluded by groups representing the 
nitrogen industries of Belgium, Czechoslovakia, Germany, Great 
Britain, Netherlands, Italy, Norway, Poland, and Switzerland, on 
the one hand, and the ChileaA nitrate.industry on the other. These 
agreements provide for the regulation and sharing, on approximately 
the same lines as before, of sales between the parties in the world 
markets, but do not cover the United States. They also contain 
provision for the regulation of prices with due regard to the legitimate 
interest of agriculture. At the close of the year an agreement was 
reached between the Japan Sulphate of Ammonia Manufacturers' 



J42 CONCENTRATION OF ECONOMIC POWER 

Association and the local representative of European nitrogen pro- 
ducers covering the trade for 1936 and 1937. The agreements 
were effective from July 1, 1935, for a period of 3 years.'' 

Following long negotiations extending over many weeks, thp 
International Nitrogen Cartel, expiring July 1, 1938, was prolonged 
by the signatory members at a meeting in Paris on July 13, 1938, for 
a further period of 3 years. Although the exact terms of the new 
agreement were not published, it is understood that in general they 
are similar to those of the old agreement. The pact embraces Euro- 
pean synthetic producers, organized as one group, on the one side, 
and the Chilean natural sodium nitrate industry, as one unit, on the 
other.^ 

OTHER FORMS OF GOVERNMENTAL PARTICIPATION IN INDUSTRY 

On a smaller scale than in the nitrogen industry, the Government 
has participated in the business of the Army Workshops in Santiago 
which manufactiu-es a variety of iron and steel products. Also, it 
subscribed a part of the capital of the Valdivia Iron and Steel Works.^ 
In other instajices Government participation was brought about 
through requests to State insurance pension bureaus to subscribe 
capital to industries considered essential to the national interests, 
i. e., the establislmient of the National Bag Factory in Santiago, 
formed for the purpose of reducing the dependence of Chile on im- 
ported jute sacks. The social bureaus of the ^tate have large reserves, 
raised by compulsory contributions decreed by law, and are in the 
position to compete with private capital. Since they are in close con- 
nection with the Central Administration, they can be used as instru- 
ments of economic policy. ^^ 

The United Breweries in Cliile (Compania de Cervecerias Unidas) 
have a complete monopoly in the manufacture and sale of beer. 
Among the products produced by the company are beer of different 
grades, soft drinks, carbonic acid, ice, and malt barley. 

CREATION OF FISCAL CORPORATIONS 

The Popular Front Government which assumed office in Chile on 
December 24, 1938, was elected on a platform embracing the improve- 
ment of social and economic conditions, to be achieved through 
planned industrial and economic development of the country. The 
disastrous earthquake in southern Chile a few weeks after the inau- 
guration of the Government caused such heavy damage in life and 
property that new plans had to be drawn up. 

As a consequence, a bill was submitted to Congress in January 
1939, covering the reconstruction of the devastated areas and a plan 
for national economic development. The law (No. 6334) as enacted 
in April 1939 created: (1) a Reconstruction and Relief Corporation 
(Corporacion de Reconstruccion y Auxilio) to rebuild devastated 
areas, and (2) a Corporation for the Development of Production 
(Corporacion de Fomento de la Produccion), both having a life of 6 
years. The first organization was granted widespread powers in all 

' Bureau of Foreign and Domestic Commerce, World Chemical Developments in 1935, Washington, 
1936. pp. 3, 4. H . 6 . 

» Bureau of Foreign and Domestic Commerce, World Chemical Developments in 1938, 1939, pp. 3, 4. 
' Economic Conditions in Chile, Department of Overseas Trade, London, November 1934, p. 52. 
m Ihid. p. 53. 



CONCENTRATION OF ECONOMIC POWER 143 

matters of relief and reconstruction and the second was granted 
similar powers to promote industrial development and low-cost 
housing. 

For financing the project external and internal loans were author- 
ized, and sharp increases in practically all taxable income categories 
were imposed, particularly those covering corporate earnrngs, with the 
heaviest burden on the large mining companies." From the point of 
view of American trade and investments in Chile, the most significant 
provision of the new legislation is the additional taxes levied on copper 
companies employing more than 200 workers. The copper companies 
now pay 18 percent income tax, which goes toward the service of 
foreign debt. An additional income tax of 10 percent raises this tax 
to 28 perceiit, and other provisions will raise it to 33 percent. Thus 
the copper companies will contribute a very considerable share to 
Chile's program of reconstruction and industrial development. 

THE LAW FIXING OVERPRODUCTION 

The Chilean Government acquired far-reaching powers over indus- 
trial production through Decree No. 1649, enacted for the application 
and execution of Decree Law No. 281, of July 25, 1932, the latter 
commonly referred to as the Law Fixing Norms Relative to Over- 
production.'^ 

Under law 281, the President of Chile has authority of his own 
accord or at the request of producers, to declare a "state of overpro- 
duction" in the country of any article of manufacture, after a 
prior report from technical organizations of the Government (art. 1). 

Following the declaration of a state of overproduction, new 
factories of the respective article may be opened only by express 
authorization of the President (art. 2). Thereafter the President 
will establish the "qualities, * * *^ ^;^f\ price of sale," in 
harmony with the cost of production and distribution; he may 
also prevent profiteering and speculation in the article for pur- 
poses of unfair competition * * * qj. excess profits (art. 3) 
* * * [according to art. 4]. "The President of the Republic 
is authorized to regulate the customs duties which similar foreign 
articles pay to those declared in state of overproduction and the 
materials necessary for the elaboration of the latter which may 
not be produced in the country." A "complementary tax" of 
not less than 10 percent nor more than 20 percent is Ifevied upon 
the sale of the articles declared in a state of overproduction 
(art. 5).'^ 

Decree No. 1649 contains the regulations regarding the application 
of the above described law, divided into five titles. Under title I the 
President may declare, ex officio, or at the request of the interested 
party, the overproduction of an article if it is proved that it is pro- 
duced domestically in satisfactory quality and price, and that effective 
productive capacity is larger than is necessary for an efficient supply. 

This declaration may be total or partial, including the whole 
country or a part of it (art. 5). Total overproduction may be 

" Bureau of Foreign and Domestic Commerce, Economic Situation in Chile in 1939, Washington, June 
1940, p. 1. 

" Henry P. Crawford. Laws Affecting Foreign Commerce, Bureau of Foreign and Domestic Commerce, 
Commerce Reports, December 9, 1939, p. 1139. 

'3 Idem. 



J 44 CONCENTRATION OF ECONOMIC POWER 

declared if the internal market is saturated and it is commercially 
impossible to export the excess, and partial, when the market of 
a determined zone is satisfied and it is impossible to sell the 
excess in other reo:ions of the country or abroad (art. 6). Never- 
theless, new factories may be opened and old ones enlarjied by 
express authorization when their exclusive purpose is the exporta- 
tion of the total. production of the article affected in the first case, 
or its increase in the second (art. 15). 

The decree placed certain restrictions upon transfers to for- 
eigners. Those factories which may obtain raw materials or 
basic products in their elaboration, either directly, as byproducts, 
or as secondary products, may not be transferred to foreign 
natural or juridical persons without express authorization of the 
President (art. 17). 

Title II establishes heavy money fines for infringements, and 
in certain cases, the merchandise may be confiscated and the 
establishment found violating the law may be permanently 
closed. 

^ An Industrial Register is created ; before purchasing new equip- 
ment, the management of industrial establishments must first 
obtain permission from the Government, as well as supplying 
any data requested of them.^* 

SUPERVISION OF FOREIGN TRADE AND EXCHANGE CONTROL 

The Chilean Government maintains a strict control over exports as 
well as imports, regulating both foreign exchange and quality. 

All banking, insurance, and commercial operations, both import 
and export, involving foreign exchange transactions, are subject to 
thg control of the Chilean Government. This control is adminis- 
tered by the Commission of International Exchange. No imports 
may be landed, no exports shipped, without approval. On the one 
hand, the Commission supervises the transfer of funds from Chile to 
foreign countries, because goods can neither be imported nor paid for 
without prior sanction. On the other hand, it will not allow goods 
to be exported without receiving adequate guaranties that the pro- 
ceeds of their sale in foreign currencies shall be repatriated and 
placed within the orbit of its control.'^ 

The Agricultural Export Board possesses -^vide powers over the pro- 
duction and export of agricultural products. The permanent objec- 
tives of this organization are as follows: 

(1) To stimulate by all the means within its power the development of agri- 
cultural exports; 

(2) To organize agricultural commerce, following a policy of remunerative 
prices for the producers which will ensure their obtaining iheir production costs 
and a fair profit; 

(3) To create and expand in the country new industries and agricultural culti- 
vation, the products of which have export possibilities, and which could replace 
similar products from t^broad; 

(4) To determine what portion of agricultural prducts shall be exported, after 
deducting the quantities necessary for internal consumption, sowing, and carry 
over." 



i* Idem. 

'» Report on Economic and Commercial Conditions in Chile, May 1936, Depdrtment of Overseas Trade 
Jjondon, p. 29. 
i» Kconomic Conditions in Chile, Department of Overseas Trade, London, November 1934, pp. 54, 55. 



CONCENTRATION OP ECONOMIC POWER 145 

The activities of the Board in stimulating industries include grants 
to educational institutions, organization of exhibitions, financing of 
experimental work with new agricultural industries. The principal 
activity, however, is in the stimulation and control of the agricultural 
export trade, which involves payments of export premiums, the estab- 
lishment of export standards of quality, etc. 

The funds of the Agricultural Export Board are derived from taxes 
levied on milling, malting, distilling, brewing, and wine making. 

The functions of the Board involve a high degree of Government 
direction of production and export in one of the country's principal 
industries. ^^ 

GOVERNMENT AND CREDIT 

Financial planning has generally taken the form of providing cheap 
borrowing facilities for the small agriculturalist and industrialist. 
This has been achieved through the creation of credit institutions 
financed by Government capital, or by discount facilities with the 
Central Bank which are decreed by law. 

The following are the credit institutions financed by Government 
capital : 

Agricultural Credit Bureau. This institution was formed in 1926; 
90 percent of its capital is owned by the State. Its purposes are to 
grant loans to farmers to purchase agricultural implements, etc. It 
has also acted as importer, buyer, and distributor of seeds, fertilizer, 
etc., which it resells to farmers on credit. 

The Mining Credit Bureau was established in 1937 to extend 
credit for the development of the mining industry. It is empowered 
to participate generally in all phases of activity connected with the 
development of the mining industry. Its capital has been subscribed 
by the State. The Bureau has established a number of plants on its 
own account for the exploitation of minerals. 

The Agricultural Colonization Bureau is the administrative agency 
of areas selected for agricultural colonization. It advances credit to 
farmers for the purchase of small holdings, for improvement work, 
etc. 

The Coal Development Bureau may grant loans for the purchase of 
all kinds of industrial equipment using coal for power purposes. It 
can also advance money for the development of coal mines and the 
purchase of the necessary machinery. 

The Industrial Credit Institution was created in February 1928 to 
grant credits to domestic manufacturing industries and to foreign 
undertakings with more than 5 years' residence in the country. Loans 
are secured by liens upon industrial property. The institute is em- 
powered to take an active part in the development of new products in 
existing industries, in the establishment of new factories to manufac- 
ture articles riot produced in Chile, and to take over the control over 
industries, if circumstances should warrant it.^^ 

THE COMMISSARIAT GENERAL OF SUBSISTENCES AND PRICES 

Decree Law No. 520, the "Law Creating the Commissariat General 
of Subsistences and Prices," was promulgated on August 30, 1932; 
during 1934-38 it became practically inoperative, but since July 1939 

" Ibid., p. 55. 

'8 Ibid., pp. 48, 49. 



146 CONCENTRATION OF ECONOMIC POWER 

and particularly since the outbreak of war in Europe on September 3, 
it has become effective. 

Decree Law No. 520 is composed of 10 titles and a final enabling 
paragraph. ^° In article 3 the Commissariat is empowered to deal with 
all articles of "prime necessity and of habitual use or consumption," 
and article 4 declares that all agricultural lands or industrial or com- 
mercial establishments producing or distributing such articles are to 
be considered as a public utility. Article 5 allows expropriation of any 
enterprise which is not being worked, and article 6 gives authority to 
force producers to produce goods in the quantities, qualities and con- 
ditions determined by the Government, with a penalty of expropria- 
tion for any "rebellious" producer. Article 7 states that when expro- 
priation has been decreed, the Commissariat will take immediate 
possession of the properties. Article 9 permits the declaration and 
establishment of government monopolies and article 11 gives the 
Commissariat a preference demand on foreign exchange availabilities. 
Article 22 of title III gives wide powers for the control of imports and 
exports. Under paragraph i, the Commission may request the Presi- 
dent of the Republic to limit or prohibit the exportation of articles 
declared to be of prime necessity when they are indispensable for the 
use of the people. 

Since the outbreak of war in Europe the law has been applied with 
increasing vigor. The Commission of Subsistences and Prices has 
issued decrees and rulings fixing prices, closed and fmed dealers in 
numerous articles of common consumption; regulated the sale of a 
wide range of important industrial and construction goods; granted 
a pratctical monopoly for the importation and distribution of tea, 
and has imposed a rigid control as regards the wholesale and retail 
distribution of sugar. A number of business houses attempting to 
profiteer were closed. 

The Diario Oficiai of October 31, 1939, contains Decree No. 282-a, 
issued by the Commissariat General of Subsistences and Prices, order- 
ing that all articles of prime necessity or of common use or habitual 
consumption shall be sold throughout the Republic at the prices which 
were in effect on August 25, 1939. Any increases in such prices must 
receive the prior approval of the Commissariat. 

A recent decree which appeared in the Diario Oficiai on May 6, 
1940 (Decree No. 339), is indicative of the spirit that governs the 
Commissariat at the present time. It declares that dwellings and 
business properties the rental of which is not more than 700 pesos 
per month shall be considered as of "primary necessity and habitual 
consumption" and, as such, subject to the control of the Commissariat 
General. The decree defines in detail the rights of the owner and 
rights of the tenant, and prohibits any increase in rent except for 
causes expressly approved by the Commissariat. 

PROPOSED MONOPOLIES 

There is a possibility that the Chilean Government will put into 
effect Law No. 5124 of May 17, 1932. Under the provisions of the 
latter the State has the exclusive right to import, distribute, and sell 
all petroleu m and its byproducts and substitutes. Article II provides 

i» Special Report No. 6, Office of the United States Commercial Attache, Santiago, Chile, October 7, 1939. 



CONCENTRATION OF ECONOMIC POWER 147 

that the organization operating this monopoly concession shall be 
national and states that it must be— 

(1) Legally constituted and established in Chile; 

(2) with at least 75 percent of the partners or shareholders 
of Chilean nationality, and with a directorate entirely Chilean; 

(3) with capital at least 75 percent Chilean, by reason of the 
Chilean nationality of the shareholders or partners constituting 
the company. 

According to article 5 of Law 5124, the tangible assets of the com- 
pany are declared to be public property and the President of Chile 
is authorized to expropriate storage tanks, etc., for which indemnifi- 
cation must be paid. This law has never been used, but under 
article 1, the State monopoly proposed can be established at any time, 
merely by executive decree. 

The Government considers itself entitled to receive the profits from 
petroleum sales in Chile, and hence felt that it must either put into 
effect the monopoly law as it stands, or work out an arrangement 
with the coi^ipanies to accomplish the same result. 

Although the monopoly provisions of this law have not yet been 
put into effect, the Government has sponsored and indirectly par- 
ticipated in the financuig of a stock company, the Cia de Petroleo de 
Chile (Copec), which was organized in 1934 to import and distribute 
petroleum products in direct competition with the two leading foreign 
concerns, Shell-Mex Chile Ltd. (British), and West India Oil Com- 
pany, a Standard Oil affiliate. Legally Copec is not a government 
entity ; but assistance has been given by the Government through the 
granting of exchange at favorable rates. As the Chilean Govern- 
ment considers it undesirable for the country to be entirely dependent 
upon foreign distributing organizations, oil prospecting continues in 
Chile. One million pesos were appropriated for this work during the 
first part of 1937.=* 

A news item dated January 10, 1940, indicated that a project was 
drawn up to establish a tobacco monopoly. Another of January 31, 
1940, contains Decree No. 83 issued by the Commissariat General of 
Subsistences and Prices, providing regulations governing the opera- 
tion of article No. 6 of Decree No. 72-a, estabhshing a monopoly of 
the tea trade. This decree, dated August 28, 1939, explains the 
necessity of regulation on grounds of social and economic necessity. 
It gives one firm a practical monopoly of the supply of all the orcli- 
nary grade tea for consumption in Chile. 

It was reported in May 1940 that the Government contemplates 
establishing control over the metallurgical and ship-building indus- 
tries, under a "National Council of Shipyards and Metallurgical In- 
dustries." The Council would have a monopoly on the trade in 
scrap iron. 

According to press reports, the Chamber of Deputies' committee 
on constitutionality, legislation and justice have reported favorably 
a bill giving the Government absolute supervisory control over those 
industries which may be declared monopolies. The bill contemplates 
the creation of a control committee to be known as "The Government 

" Report on Economic and Commercial Conditions in Chile, Department of Overseas Trade, London. 
May 1937, p. 37. 



148 CONCENTRATION OF ECONOMIC POWER 

Commission for the Protection of Constitution"; and the suggested, 
powers are sweeping and inclusive. It appears to be a duphcation 
of the ah-eady overlapping laws "Creating the Commissariat General 
of Subsistences and Prices" and "Governing Over-production" and 
is in conflict with them. It would further extend the Government's 
power to impose a system of rigid control. This bill would, if enacted 
by Congress, permit close control over several American enterprises, 
including perhaps the electric power and telegraph companies. 



- PART VII 

REGULATORY EkPERIENCE IN MEXICO 

by 

AGNES ROMAN 

Junior Economist 
Temporary National Economic Committee 

JOHN H. COVER 

Chief Economic Analyst 

Bureau of Foreign and Domestic Commerce 

NELSON A. MILLER 

Acting Chief, Marketing Research Division 
Bureau of Foreign and Domestic Commerce 



REGULATORY EXPERIENCE IN MEXICO 

THE MEXICAN REVOLUTION 

Mexico has undergone a slow process of socialization since the revo- 
lution of 1910. Although the direct cause of the revolution was a 
pohtical issue (the presidential succession), in reality it was brought 
about by the economic discontent of the impoverished masses. iGid 
while the revolution marked a step toward the betterment of social 
and economic conditions and toward democracy, it failed to equip the 
masses with legal tools by which to maintain control over their leaders. 
The Mexican revolution entered a new stage with the inauguration of 
President Cardenas (November 30, 1934), under whose administration 
the drive toward the promotion of nationahsn, land reform, organiza- 
tion of labor, and a better distribution of wealth was markedly 
intensified. 

The most important element in Mexico's economy is agriculture, 
which absorbs about 70 percent of the population. Agriculture, how- 
ever, has never been an important source of income in Mexico. Owing 
to the poor quality of land, the agricultural products consumed by the 
entire population of Mexico must be produced on only 7.5 percent of 
its total area, of which 80 percen^t depends on seasonal rains. ^ In 
1910, the year in which the revolutionary movement began, 95 per- 
cent of the Mexican farming population consisted of landless peasants, 
and not until very recent years did an improvement in the distribution 
of land take place. ^ 

Foreign investments form an important chapter m Mexico's eco- 
nomic history. Mining and smelting, public utilities, and wholesale 
and retail merchandising are controlled by foreign capital. Of the 
total investment in mining and smelting, less than 5 percent is Mexi- 
can. The Mexican participation in public utilities and merchandising 
is greater than 5 percent but much less than half.^ 

The reaction of the leaders of the Mexican revolution to the uneven 
distribution of wealth is epitomized in article 27 of the 1917 Constitu- 
tion,^ according to which the state has the right to intervene constantly 
in the distribution of land. Discussing the provisions of the 1917 
Constitution, which is looked upon by Latin Americans as a sort of 
Magna Charta, it should be remembered that political realities in 
Mexico have never q.uite corresponded to the legal forms. The inter- 
pretation of the Mexican Constitution depends upon the leader in 
power at the time. With these reservations in mind, we may discuss 
the pertinent provisions of the Mexican antimonopoly legislation. 

' Frederico Bach, The Distribution of Wealth in Mexico. The Annals of the American Academy of 
Political and Social Science, Philadelphia, 1940. p. 73. 
' See pp. 155-157. 

' Edgar Turlington, Foreign Investments, The Annals of the American Academy, op. cit., p 106. 
* See p. 155. 

151 
282317 — 41— No. 40 11 



J 52 CONCENTRATION OF ECONOMIC POWER 

ANTIMONOPOLY LEGISLATION 

Mexican antimonopoly legislation is embodied in article 28 of the- 
Constitution of 1917: 

Art. 28. There shall be no private nor governmental monopolies of any kind 
whatsoever in the United States of Mexico; nor exemption from taxation; nor 
any prohibition even under cover of protection to industry, excepting only those 
relating to the coinage of money; to the postal, telegraphic, and radio-telegraphic 
services; to the issuance of bills by a single banking institution to be controlled 
by the Federal Government; and to the privileges which for a limited period the 
law may concede to authors and artists for the reproduction of their work; and 
lastly those granted as inventors or improvers of inventions for the exclusive use 
of their inventions. 

This law will accordingly severely punish and the authorities diligently prose- 
cute any accumulating or cornering by one or more persons of articles of prime 
necessity for the purpose of bringing about a rise in price; any act or measure- 
which shall stif3e or endeavor to stifle free competition in any production, indus- 
try, trade, or public service; any agreement or combination of any kind entered 
into by producers, manufacturers, merchants, common carriers, or other public- 
or quasi-public service, to stifle competition among themselves and to compel the 
consumer to pay exorbitant prices; and, in general, whatever constitutes an unfair 
and exclusive advantage in favor of one or more specified person or persons to the 
detriment of public in general or of any special class of society. 

Associations of workers organized to protect their own interests shall not be 
deemed as cpnstituting a monopoly. Nor shall cooperative associations or 
unions of producers be deemed monopolies, when, in defense of their own interests 
or of the general public, they sell directly in foreign markets national or industrial 
products which are the principal source of wealth of the region in which they 
are produced, provided they are not articles of prime necessity and provided 
further that such associations be under the supervision or protection of the 
Federal Government or of the States, and provided furthermore that authoriza- 
tion be obtained in each case from the respective legislative bodies. These legis- 
ative bodies may, either on their own initiative or on the recommendation of the 
Executive, revoke, whenever the public interest shall so demand, the authoriza- 
tion granted for the establishment of the associations in question. 

The Mexican antitrust law was promulgated in the Diario Oficial 
of June 28, 1926. The regulative laws based on article 28 of the 1917 
Constitution defined monopoly as the concentration of necessities 
in the hands of a few persons, that may have as an object the raising 
of prices; acts tending to restrict free competition in production, 
distribution, or services; agreements on the part of producers, manu- 
facturers, merchants, or companies offering services, to do away with 
competition for the purpose of raising prices; anything that may 
constitute an undue, exclusive advantage to one or various persons, 
to the disadvantage of the general public or any social class. Any 
such acts were forbidden. 

THE ORGAJVIC LAW RELATIVE TO MONOPOLIES 

The organic law relative to monopohes, signed on August 22, 1931,^ 
rendered null and void the antitrust law of 1926. It provided that — 

or the effects of this law, a punishable monopoly is understood to be any indus- 
trial or mercantile condition in which free competition is suppressed with injury 
to the general public or to any class of society; and by state monopoly (estanco) 
a monopoly constituted in favor of the state in order to secure profit to the 
treasury. 

The Mexican Monopoly Act of August 24, 1931, prohibited the 
establishment of private or governmental monopohes or any act 

» Diario Oiitial, August 2i, 1931, referred to in Bulletin 288 of the Division of Commercial Laws, Bureau, 
of Foreign and Domestic_Commerce, Oct. 12, 1931. 



CONCENTRATION OP ECONOMIC POWER 153 

which injures the pubUc by preventing free competition in produc- 
tion, industry, commerce, or services. Exccptiohs include the State's 
operation of radio, telegraph, banks of issue, coinage of money, the 
postal services, and patent and copyright privileges. Remission of 
taxes by the State or Federal Government to private interests is 
prohibited. 

Certain acts are cited as tending to create monopoly, including (1) 
combination or agreement to charge exaggerated prices, (2) a regular 
or permanent practice of selling goods or rendering services at less 
than cost, (3) the use of coupons or other devices at less than cost, 
(4) discrimination in prices as between purchasers in different localities 
unless justified by costs of production or transportation or other 
marketing circumstances, and (5) exclusive sales injurious to the 
public. The law specifically prohibits concentration or control in the 
marketing of articles of "prime necessity" for the purpose or with the 
effect of increasing prices, and provides that such articles may be 
unported free or their exportation prohibited when necessary. In 
case of shortage the Government may force the sale of such articles 
at fixed prices. 

The Federal Government may authorize the combination of 
producers or merchants for developing production, preventing 
ruinous or unfair competition, eliminating middlemen in order to 
lower prices, obtaining better distribution, exporting surplus pro- 
duction, or obtaining technical improvement to benefit national 
production. But such combines may not unduly raise prices, and 
they must agree to permit the Government to fix their prices and 
direct their activities. 

The law lists certahi articles as "articles of prime necessity" and 
prohibits their use for purposes different from those for which they are 
normally destined, unless there is a surplus (i. e., cereals may not be 
used for making alcohol). 

When the Minister of Industry; Commerce, and Labor decides 
that there is a scarcity of these articles of necessity, he may force 
everyone having stock on hand to place it on sale without restriction, 
at retail, at a price not exceeding the average for the previous 6 
months. Warehouses must report monthly the stocks of necessities 
they hold, as must producers and merchants. 

A decree issued on December 19, 1931, gives regulations in con- 
nection with the organic law. It provides for price-fixing boards to 
function in case of shortages of prime necessities. Representatives 
of the Federal Government, the municipality, chambers of commerce, 
and the leading labor organization will serve on these boards. They 
will determine maximum prices, insure that vendors adhere to those 
prices, discover concealed stocks, and impose penalties, which may 
be reviewed by the Department of Industry, Commerce, and Labor. 

Prices are considered exorbitant ,when they advance with no 
corresponding increase in costs or taxes, or when they fail to decline 
in proportion to a decline in costs or taxes. It is presumed that a 
combination exists when there is concerted limitation of production 
or sale. Such concerted action is not unlawful if it is due to excessive 
stocks, which render production unprofitable; to plans for improve- 
ment of production, service, etc., without prejudice to the consumer; 
or to partial or total lack of any element of production (presumably 
including labor). 



154 CONCENTRATION OF ECONOMIC POWER 

Giving of vouchers, coupons, etc., is hedged about with several 
restrictions. There may be no discrimination; they may be issued 
only in the name of the person (or company) who gives them away: 
and they may not consist of collections in series. 

Other prohibitions include dissemination of false information 
regarding production to influence prices; willful destruction of prod- 
ucts without consent of the Government; abandonment of farms or 
suspension of operations in factories without Government consent or 
without justifiable cause; restriction or suspension of sales to retailers. 

The Federal Marketing Act, 1932, placed the production and 
transportation of winter vegetable crops on the west coast of Mexico 
under Government control. Farm products on the coast were classified 
as "public utilities/' ^ 

The Mexican Penal Code of 1931, title 14, chapter 1, provides 
penalties for offenses against commerce and industry similar to those 
outlined above. 

A new organic law relative to monopolies, dated August 24, 1934, 
supplants the organic law of August 22, 1931. The Government 
participates or intervenes to fix prices, on the assumption that such 
monopolies are for the public good. Public utilities are in the latter 
category. Monopolies and "acts tending toward monopoly" are 
defined approximately as in the old law.''' 

A law dated July 17, 1934 (Diario Oficial, July 23, 1934), modified 
articles 12 and 16 of the Monopolies Act of 1931, by placing petroleum 
oil products in the classification of "articles of prime necessity." ^ 

BENEVOLENT MONOPOI^IES 

In general, the 1931 and 1934 monopoly laws recognized the exist- 
ence of "benevolent monopolies," where maximum prices are estab- 
lished by the Government and the public does not suffer. 

Azucar, S. A., a corporation, controls the production, distribution, 
and exportation of sugar. It was organized in 1932, under Govern- 
ment supervision, taking in three producers' associations representing 
78 producers. It is the sole distributing and marketing agency for the 
industry, regulates production, and disposes of surpluses on world 
markets. It extends credit to its producer-shareholders and buys 
their production. Since it controls prices, it can make liberal ad- 
vances. Exports are subsidized with a fund made up from the differ- 
ence between domestic buying and selling prices. In 1934 it exported 
somewhat too freely and had to import 10,000 tons to prevent a spec- 
tacular price increase. 

It is a "good monopoly" because it is an organization of producers, 
the Government participates in its price fixing, and its operations result 
in increased wages, greater stability of the industry, and maintenance 
of prices at fair levels. It is granted a rebate of 5 centavos from the 
6 centavo per kilo sugar tax, despite the constitutional prohibition of 
discriminatory tax rebates. The exception is apparently justified by 
article 13 of the organic law of 1934, stating that subsidies granted to 
associations or cooperative organizations are not considered as tax 
rebates. 



« Bureau of Foreign and Domestic Commerce, Commerce Reports, December 24, 1932, p. 201. 

7 World Economic Review, 1934, U. S. Department of Commerce, p. 263. 

• Bureau of Foreign and Domestic Commerce, Commerce Reports, September 8, 1934. 



CONCENTRATION OF ECONOMIC POWER 155 

THE SIX YEAR PLAN 

The Mexican Revolutionary Party at its convention in Queretaro 
on December 3-6, 1933, adopted a plan of social and econotnic develop- 
ment to be carried out during a 6-year period, starting in 1034. The 
plan is divided into the following topics: (1) The agrarian problem, 
(2) labor legislation, (3) national economy, (4) communications and 
public works, (5) public health and education, (6) government, (7) 
finance and public credit, (8) foreign relations, (9) Federal District, 
(10) public works in the communities.^ 

The Six Year Plan created a National Economic Council, made up 
of representatives of employers, employees, consumers, and Govern- 
ment economists, to formulate plans for controlling operations of com- 
merce, industry, and export trade, and for promoting and aiding those 
activities. The National Economic Council is made up of representa- 
tives of local economic councils, the National Agricultural Council, 
industries, public utilities, merchants, banks, labor, consumers, and 
professions, with 10 economists appointed by various ministries. It 
has a permanent organization composed of the permanent secretaries 
elected by each group within the council, and the 10 Government 
economists. 

THE AGRARIAN PROGRAM OF THE SIX YEAR PLAN 

Although the major part (about 85 percent) of Mexico's income in 
recent years has been derived from mines, oil fields, and factories, the 
1930 census indicated that 70.2 percent of the economically active 
population was still engaged in agriculture.^*' 

The economic and social conditions of the rural population, brought 
about by the land tenure system, w^ere a basic cause of the revolution 
of 1910. The major aims of the revolutionary governments were to 
improve the economic and social conditions of the rural population 
and to increase the total national production of agricultural products.*^ 

Article 27 of the 1917 Constitution is the legal foundation of all 
land legislation. It includes the following principles : ^^ The state 
has the right to intervene constantly in the distribution of public 
wealth, especially in the distribution of land. The villages always 
have the right to be given land which they need fo^ their subsistence. 
Those lands will be taken from the large neighboring properties. 
The small holding, which is considered a useful institution of the 
country, will be respected in every case. The latifundia (large estate) 
must be broken up, with the object of creating and strengthening the 
small holding. The only forms of property which have legal recog- 
nition within article 27 of the Constitution are, consequently, the 
small holding and the ejido." 

'Bureau of Foreign and Domestic Commerce General Legal Bulletin No. 81, Division of Commercial 
Laws, 

" Charles H. Barber, The Land Troblera in Mexico, Foreign Agriculture, Foreign Agricultural Service. 
March 1939, p. 99. 

" Idem. 

'J Lucio Mendieta y Nunez. The Balance of Agrarian Reform, The Annals of the American Academy of 
Political and .Social Science, 1040. p. 120. 

'3 The ejido is held by the village and not by the individual, and the land is inalienable.- The fertile 
portion is divided into small holdings of approximately equal size, which are assigned by lot to the heads of 
families. These are called e.iidatarios. The e.iidatario can hold his plot for life and bequeath it to his heirs 
u * u ^^^^ ^^^ "^'^* '^ ^^ f^'^s ^° f^''"^ t*^® '^°^ 2 years in succession. Nor can he mortgage, rent^ or transfer 
the holding in any way (Foreign Policy Reports, August 16, 1937). 



J 56 CONCENTIL^TION OF ECONOMIC POWER 

President Cardenas found upon takino; ojffice that his predecessors 
had made only a start in carrying out the agrarian reform, and was 
determined to' speed up the process. From 1915 to November 1934, 
10,391.273 hectares were assigned to 942,335 heads of peasant famihes; 
under the Cardenas regime, from December 1934 to August 1939, 
18,511,237 hectares were assigned to 1,097,579 heads of famihes." 
The figures in themselves, however, do not tell the whole story. Due 
to differences in opinion and political influence, many irregularities 
occurred in the course of carrying out the agrarian reform. Many 
ejidos were of such poor quality and so small that they offered no 
solution. To correct such defects, the Agrarian Code now in force 
stipulates that in no case is the ejido parcel to be less than 4 hectares 
in irrigated lands, and every settlement of ejidos is to be carried out 
with the best lands of the haciendas. Unfortunately, however, the 
code does not affect the ejidos established under former laws. 

From the beginning of the agrarian reform large agricultural units, 
like those in the Laguna district, were spared from partitioning, as it 
was believed that expensive irrigation works required by such areas 
made large scale exploitation inevitable. But in August 1936 the 
farmers on 104 plantations went on strike demanding higher wages, 
better living conditions, recognition of their unions, and other bene- 
fits.** Their action prompted President Cardenas to distribute land 
in the area, and in a decree of October 6, 1936, applicable to the 
Laguna region alone, he undertook to carry out his promise. In the 
Laguna district the cotton-growing haciendas were put in the hands 
of the peasants A\ithout destroying the unity of the development. 
These haciendas continue as a single unit, but for the benefit of the 
peasants, who are orcranized into cooperative societies. The same 
procedure has been followed in the hennequin region of the State of 
Yucatan. Observers of the Laguna experiment are of the opinion that 
it is too early to judge the results 'achieved since 1936. Those ejidos 
which received good land are flourishing, while ejidos on poor quality 
land are precarious. 

In sunmiing up the balance of the agrarian reform the follo\%'ing 
conclusion is reached by a student of the Mexican agrarian problem:*® 

The agrarian reform in Mexico is more than 20 years old in its development, 
but it has not yet reached its complete realization either in the aspect of the 
redistribution of the land or in that of the organization of the ejido, and still less 
in that of the organization of agrarian credit. * * * One could not expect 
the ejido, in so short a period of time, to accomplish what the large holding did 
not accomplish in the Mexican Republic during several centuries of existence. In 
fact, the large holding in Mexico was never able to satisfy the population's 
demand for articles of prime necessity, since it wa^; always necessary to import 
cereals from other coimtries. From "the social point of view, the large holding 
was a real scourge of the peasant population, which it iniquitously exploited 
to the point of reducing it to an indefensible condition of misery. 

On the other hand, the ejido, which is the basis of the new agrarian organization 
of Mexico, rests upon indubitable principles of justice and corresponds to inevitable 
social needs. By means of the ejido, the attempt is made to bring to each of 
the peasant families of Mexico, dispossessed of all propertv, a small parcel of 
land (4 hectares in irrigated land, or a larger area of equivalent productivity in 
lands of another quality) in order that such families may be able to take "care 
of the most urgent needs of their material life. 

"« Menilieta y N'unez. op. cit.. p. 127. 

Vo^'^*'"'*'-' -^- TliompsoD. Mexico's Challenge to Foreign Capital, Foreign Polioy Reports, August 15, 1637, 

'« ^rendieta y Nunz, op. cit., pp. 130, 131. 



CONCENTRATION OF ECONOMIC POWER 157 

* * * At the present time it i,s known that the flovolopment of the redis- 
tributed lands, characteristic of the ejido, is not satisfactory from either the 
economic or the social i)oint of view. From the economic point of view, the 
results are poor because neither the methods nor the mechanized means of modern 
agriculture can be employed in each parcel, considered singly. The tenant ol 
the ejido confines him.self to obtaining the agricultural products indispensable foi 
his own consumption, employing for the purpose a rudimentary agricultural 
technique. From the social point of view, the development isolates the tenant 
of the ejido, inclo.ses him within an egoistic individualism which removes him 
from every common interest * * * 

The solution which is neces.sary is the collective development of the ejido, the 
restitution of the old latifundium; but with the difference that it would now be 
in the hands of and for the advantage of the workers themselves, and would have 
the benefit of modern direction and technique. Economically, the advantage of 
collective cultivation is not open to question, for it would furnish the tenant of 
the ejido the possibility of using machinery and tools, which would introduce 
great savings in the development. Socially, collective development is a solid 
bond of union which creates the class consciousness and the political strength 
so necessary to the destitute masses of the Mexican countryside, who consist for 
the most part of Indians of different race and different culture. 

According to a study of the United States Department of Agricul- 
ture,'^ early efi'ects of the land reform show a reduction in total agri- 
cultural production in Mexico, at least for the time being. This may 
be attributed to the state of uncertainty on the part of land-owners, 
brought about by continuous expropriation. Land-owners are not 
willing to make improvements or new investments in land and equip- 
ment so long as they are still subject to expropriation. Other facts 
cited by authorities as explaining failure of production to meet 
domestic requirements for the basic food crops are (1) further impov- 
erishment of the soil by lack of soil-conserving practices; (2) increased 
consumption on the part of the working classes; and (3) migration of 
farm labor to other occupations. 

Reduced production on the part of the communal farms may be 
attributed to two principal factors, which eventually may be over- 
come — (1) lack of sufficient Government credit for the necessary 
equipment and supplies, and (2) inefficiency on the part of a large 
number of laborers due to lack of the close supervision and technical 
planning to which they were formerly accustomed.'® 

AGRICULTURAL CREDIT 

An important provision of the 6-year plan was the granting of 
agricidtural credit for the ejidos (village communal lands) and the 
small farmers. The National Bank of Agricultural Credit, set up 
originally in 1926, catering mostly to large landholders, and was 
reorganized in 1931 and again in 1934, providing loans for the ejida- 
tarios and small farmers. These loans were to be granted by the local 
cooperative societies, as credit operations with individuals were pro- 
hibited. '« 

At the end of 1935 a separate bank was established for the ejida- 
tarios, the National Bank of Ejido Credit. Since its establishment 
the bank granted loans to the ejidos societies for living expenses, seeds, 
animals, implements, lands, buildings, etc. Ultimately, through the 
purchase of stock in the National Bank of Ejido Credit by the local 



'^ Foreign Agriculture, op. cit., pp. 119, 120. 

P. 

1937^ p. ^ 



•■ rviKi^u .figncuiiure, op. cit., pp. iiy, IM. 

" Foreign Agriculture, op. cit., March 1939, pp. 119, 120. 

'• Foreign Policy Reports, op. cit., August 16, li 



158 CONCENTRATION OF ECONOMIC POWER 

credit societies, it is expected that the ejidatarios will own the bank 
in 25 years.^° 

RECENT MEASURES TO CONTROL ECONOMIC 
ACTIVITIES 

A presidential decree effective June 25, 1937, established govern- 
mental control over production, distribution, and prices of both 
agricultural and industrial products. All producers of agricultural 
and industrial goods declared by the Ministry of National Economy 
to be of fundamental importance to the national economy, were re- 
quired to form State producers' associations, to which they must turn 
over their entire production for sale. The State producers' associa- 
tions are affiliated into national producers' unions, which will be in 
charge of distribution in accordance with domestic demand and export 
requirements. The national producers' unions will have representa- 
tives of Government banks on their boards of directors and will be in a 
position to borrow from those banks to make advances to producers. 

The task of these associations is to stimulate production, to fix 
prices, assure orderly marketing of all those articles which affect in a 
fundamental manner tlie economy of the country. Members must 
limit their production to annual quotas fixed by the State associations, 
which must send monthly reports to the national union of stocks on 
hand and probable consumption. The national unions may authorize 
State associations to effect direct sales .^^ The application of this 
measure is expected to be gradual. 

The decree of June 8, 1937, published in the Diario Oficial of June 
21, 1937, provides for the Government's control over the silk and ar- 
tificial silk knitting and weaving industries. Owing to the heavy 
over-production in the artificial silk industries conditions in these 
industries became so acute that many small operators were unable to 
meet their pay roll. To place the industry on a more sound plane and 
to protect labor the Government decided to regulate the imports of 
silk and artificial silk yarn as well as the installation of productive 
machinery.22 The decree required all knitting and weaving mills 
making any product containing as much as 25 percent silk or artificial 
silk, to report to the Secretary of National Economy the number of 
looms and knitting machines in their plants, the amount of yarn used, 
amount of production, stocks, sales, salaries and wages paid, number of 
shifts, and hours per shift. This report is required monthly. Plants 
may not be operated without authorization by the Secretary of Na- 
tional Economy, which will indicate the number of looms and knitting 
machines which may be operated. The decree also prohibited imports 
into Mexico, except under license, of silk rayon, yarn, or thread, and 
machinery for weaving and knitting silk and rayon. 

On June 28, 1937, a concession was granted for the establishment 
of a National Foreign Trade Bank, the Federal Government furnish- 
ing most of the paid-in capital. In July 1937 the National Labor 
Bank for Industrial Promotion was established to finance cooperative 
workers in the operation of industrial enterprises. In January 1938, 
when the Government expropriated the Atlas Fiber Manufacturing 

«» Ibid, p. 126. 

» Bureau of Foreign and Domestic Commerce, Comparative Law Series, Julv 1937, p. 24. 

^•^ureau of Foreign and Domestic Commerce, Commerce Reports, July 10, 1937, pp. 544, 545. 



CONCENTRATION OF ECONOMIC POWER 159 

plant in San Luis Potosi, it was announced that the National Labor 
Workers' Bank would finance the workers in the operation of the 
place. ^^ 

Plans were made for closer control of exports through the National 
Foreign Trade Commission and the Export Bank. It was proposed 
to form associations of exporters in each branch of export trade, with 
representatives of each association in a central institute, and sales 
agencies abroad. 

During the latter part of 1937 intensive efforts were made under 
the personal direction of General Cardenas to break up the hennequin 
plantations and the National Ejido Bank was charged with financing 
production on a collective basis. As this arrangement proved expen- 
sive for the Federal Treasury, a new State-controlled Hennequin 
Producers' Associa-tion was established in April 1938 and early in 
1939 several large hennequin plantations, including buildings and 
equipment, were expropriated.^* 

A decree of August 14, 1937, reorganized the Federal Electric Com- 
mission so as to make it a strictly Federal dependency. The com- 
mittee was given authority to organize and administer a national 
system of electric generation, transmission, and distribution, and was 
granted preferential rights to water power over private interests.^* 

The Federal Government has created a National Commission for 
Foreign Trade. The Commission has the duty of assisting in the 
organization of Mexican export, the preparation of trade agreements, 
the control of export goods quality. Further aims of this national 
organization are clearly shown by the creation of the Importers and 
Exporters of Rayon. This company will be the only one to receive 
a subsidy of 2.90 pesos per kilo of imported material. Every textile 
enterprise will receive the same subsidy when it becomes a member. 
Importers must commit themselves to sell this rayon only to firms 
which the central organization will indicate. In the same way there 
are formed production groups, the members of which will receive 
instructions from the Secretary of National Economy with respect 
to their maximum production. The members of these production 
groups may not sell these products individually, but must leave the 
sales to the central organization. Manufacturers will only get sub- 
sidies or other Government support when they trade through the 
national organization of which they are a member.^® 

PRICE FIXING 

A decree which appeared in the Diario Oficial of February 1, 1936, 
gives the conditions under which organizations desiring to fix prices 
may be authorized by the Secretary of National Economy as follows: 

1. To obtain a technical improvement in production or distribution 
of goods (or services), or lower prices. 

2. Unification of an industry, which may result in reduced prices. 

3. Elimination of intermediaries, to obtain lower costs of produc- 
tion and distribution and lower prices. 

4. To regulate production, distribution, and consumption, without 
unjustified price increases, 

" Bureau of Foreign and Domestic Commerce, Economic Review of Foreign Countries, 1938, p. 201. 
Bureau of Foreign and Domestic Commerce, Economic Review of Foreign Countries, 1938, p. 201. 
» Ibid., p. 175. 

" Bulletin "Panamecs," Weekly Bulletin of the Pan-American Economic News, Inc., February 21, 1939, 
p. 6. \ 



IQQ CONCENTRATION OF ECONOMIC POWER 

5. Elimination of ruinous or unjust competition without unjustified 
advance in prices. 

6. Establishment of a new industry. 

7. Preservation of commercial and industrial activities or services 
which are beneficial and necessary for the general good and which 
have a tendency to disappear because of economic conditions. 

8. Establishment of rules of classification or quality, or a code of 
commercial ethics. 

9. Exportation of products without injury to domestic consumers. 

10. Other activities which, because of their nature, may show that 
the possibility of fixing prices will not be exercised against the best 
interest of the public. 

Regardless of the purpose of the organization, the Secretary of 
National Economy may issue an authorization if he retains the power 
to determine maximum prices. He also has the right to approve or 
disapprove the compensations of directors and administrators of such 
associations and to make recommendations regarding administrative 
expenses. If he believes an organization is beneficial to the economic 
structure, he may grant subsidies and privileges. The organization 
must report semi-annually to the Secretary of National Economy, 
setting forth accomplishments, prices, production costs, average 
expenditures, etc. 

Relying on the authority granted by article 28 of the constitution 
and the various regulatory laws and decrees, notably article 7 of the 
organic law of 1934," the Government has extended its price-fixing 
activities. Various foodstuffs, medicines, gasoline, charcoal, elec- 
tricity, etc., listed as prime necessities, have been covered by decrees 
fixing maximum prices. The retail price of gasoline was reduced 2 
centavos a liter by a decree dated September 16, 1935, for example. 
Sale of vegetable charcoal was decreed to be "clothed with public 
interest" by an executive decree of July 21, 1937, and wholesale and 
retail prices were fixed. It is provided in the decree that where 
dealers fail to supply charcoal at the price fixed, the Department of the 
Federal District shall enter the trade and supply it at a lawful price. 
(The decree is limited to the Federal District.) 

A decree published August 12, 1938, provided for a Regulatory 
Committee for the Control of Commodities, and further regulation of 
the supply, distribution, and prices of the necessities of life. Depart- 
ments will be formed to regulate customs tariffs, taxes, subsidies, 
transportation, crop credits, clearing houses, produce exchanges, and 
other factors bearing on the price of food. When necessary, the 
committee may buy, sell, and store commodities in order to regulate 
the price. ^^ 

Under a decree of October 4, 1938, the Government may fix the 
maximum price at which sales shall be made to consumers in the 
country. There are also production groups formed under the Min- 
istry of National Economy, which are subject to instruction as to their 
production plans and must sell through a central organization. The 

" Art. 7 provides that when a monopoly exists, or any situation which may permit one or more persons to 
fix prices or fiuotas, to the detriment of the public or any social class, the Federal executive may fix maximum 
prices, force those having stocks to place them on the market at fixed maxinjum prices, or promote th6 estab- 
lishment of new competitive industries, through subsidies, or in any other way. These actions will be taken 
after consultation with the National Economic Council. Article 8 permits the executive to take the actions 
ment loned without consulting the National Economic Council, if articles of necessity are involved 

" Trust Laws and Unfair Competition in Foreign Countries, Annual Report of the Federal Trade Com- 
mission, 1939, p. 158. 



CONCENTRATION OF ECONOMIC POWER 161 

National Commission for Foreign Trade has been directed to assist 
in the organization of exports, preparation of trade agreements, and 
control of the quality of goods exported.^'' 

NATIONALIZATION 

RAILWAYS 

On November 23, 1936, President Cardenas signed the expropria- 
tion law,^" which authorized seizure of private property not merely 
for reasons of "public utility" but also on the broader ground of the 
"public and social welfare." Acting under this law the President 
announced on June 23, 1937, expropriation of the National Railways 
of Mexico, Two important lines remained under private ownership 
and control. For some time the Government has held 99 percent of 
the common stock of the National Railway's, 35 percent of the first 
preferred stock and 25 percent of the second preferred stock. Of the 
bonded debt, whose principal totaled some $240,000,000, about 50 
percent was owned by British interests and about 16 percent by United 
States holders. Compensation was promised to the security holders, 
after an evaluation of the properties had been made.^^ The Labor 
Administration created by the law of April 1938 is in full control of 
the National Railways, with the exception of certain supervisory 
powers granted to the Ministries of Communications^ ^d .TJfcasury. 
In the case of the Ministry of the Treasury, that department has the 
authority to inspect the income and expenditures of the National 
Railways in order to determine whether expenditures have been made 
in accordance with the law, and that the income is sufficient to meet 
expenditures. 

OIL INDUSTRY 

The Government has also moved toward nationalization of the oil 
industry. The struggle for the oil industry owned and controlled by 
the foreign companies, dates back to article 27 of the 1917 constitution, 
which declares petroleum resources to be the property of the nation.^^ 
The statement of article 27 that "Private property shall not be ex- 
propriated except for reasons of public utility and by means of in- 
demnification," led to a long controversy with the United States 
which ended in 1927, when a compromise was reached between 
President Calles and Ambassador Dwight Morrow. As the outcome 
of this agreement the Mexican Government recognized oil rights 
acquired before the 1917 constitution went into effect, and issued to 
the owners "confirmatory concessions" of a permanent character. 
The aim of the Government, however, remained the expropriation of 
the oil properties. A Presidential decree of January 30, 1937, estab- 
lished a Government agency entitled the General Administration of 
National Petroleum to exploit lands of the petroleum reserve, to 
promote the development of the petroleum industry, to regulate th© 
internal market, etc. 

" Ibid., p. 10. 

" Diario Ofleial, Nov. 2.5, 1936. 
'■ Foreien Policy Reports, Aug. 15, 1937, p. 130. 

"This account of the petroleum controversy between Mexico and the United States is based on Foreign 
Policy Reports, Charles A. Thompson. The Mexican Oil Disputes, Aug. 15, 1938. 



162 CONCENTRATION OF ECONOMIC POWER 

The direct cause leading to expropriation was the labor controversy 
between the Syndicate of Petroleum Workers and the foreign com- 
panies. On November 3 the syndicate submitted a collective contract 
to all the companies in the industry. According to the representa- 
tives of labor, the increase they asked for meant an increase of 133 
percent over the amount paid in November 1936, while according to 
the companies it amounted to 500 percent. A joint conference was 
held at Mexico City in early December 1936 to find a satisfactory 
solution. When the period allowed for the conference ended without 
an agreement, the syndicate called a strike on May 27, 1937, which 
brought the oil industry to a standstill. The companies then offered 
concessions, which the union first refused; at the suggestion of 
Cardenas, however, they finally agreed to call off the strike and moved 
on June 7 to present the issue to the Labor Board. 

A commission of experts was organized which presented its report 
to the Labor Board on August 3, 1937. Following the presentation 
of the experts' report, special group 7 of the Labor Board held hear- 
ings, and on December 18 it handed down its award,^^ against which 
the companies filed a petition for amparo or injunction with the 
Mexican Supreme Court, against the findings of the Labor Board. 
When the supreme court in its decision of March 1 denied the injunc- 
tion requested by the oil companies and supported the findings 
of the Labor Board, the companies declared their inability to comply. 
They argued that the policy of the Government was biased and that 
the change effected early in the Cardenas administration fixing 
the terms of the justices at 6 years instead of life was a factor in 
securing cooperation from the court. On March 14 the Labor 
Board warned the companies to ac*6ept the findings by the following 
day, but the companies advised the Board that they were unable 
to comply. On March 18 the Board granted the unions' demand 
to end the labor contract between the companies and the union, 
in consequence of which union leaders ordered work in the oil fields 
suspended at midnight of the same day. That evening President 
Cardenas issued his decree expropriating the properties of 17 British 
and American companies, representing chiefly the Royal Dutch- 
Shell, Standard Oil, and Sinclair groups. In the oil decree the prop- 
erties of the 17 companies were declared expropriated for public 
utility. 

Mexico acknowledged its responsibility for adequate compensation, 
but maintained that the amount and manner of payment should be 
determined in connection with its capacity to pay and in accordance 
with its o wn laws. It also pointed out that far-reaching social 

33 Following presentation of the experts' report, special group 7 of the Labor Board held hearings, and 
on December 18 handed down an award which followed substantially the findings of the experts. Increases 
in wages and welfare benefits totaling 26,329,393 pesos were recommended. The award provided for a 40- 
hour week with pay for 56 hours; vacations of 21-30 working days, in addition to 16 other holidays on full pay; 
double pay for all overtime, and triple pay for work on holidays and rest days; retirement pensions available 
at the age of 55; indemnification for accidents and illness, both vocational and nonvocational. The com- 



equivalent to one-tenth of their annual wage bill toward a savines fund for the workers; and in addition 
were to pay one-half the premium on life insurance policies of 4,000 pesos for each permanent employee. 

1 ne award also placed limitations on the companies' control of personnel! Promotions were to be based 
«D seniority. No reduction in personnel or no discharge could be eflected without consulting the union; 
put tne companies were^ obliged by the so-called "exclusion clause" to discharge any worker expelled by 
tne union, if workers had to be laid ofi, nonunion individuals were to be let out first. But what most 
aroused company opposition was the provision affecting so-called "confidential employees" (executives and 
persons in other positions of trust and responsibility), which markedly limited their number. Positions 
such as managers of refineries and of production, traflJc, credit and transportation departments, cashiers, 
and paymasters were to be filled by union members, who were also to be entitled to occupy half the Dosi- 
tions in the legal departments. Foreign Policy Eeports, op. cit.. Aug. 15, 1938, p. 124. 



CONCENTRATION OF ECONOMIC POWER 163 

changes can hardly be accomplished without confiscatory measures, 
and denied that foreigners could be given a "privileged situation" as 
opposed to nationals. 

In summing up Mexico's experience with expropriation it may be 
said that the Cardenas regime succeeded in establishing a reasonably 
efficient administration of the oil industry. A Council for Petroleum 
Administration has run the industry; three posts were allotted to 
union representatives. But labor in the oil industry had been com- 
pelled, at least temporarily, to forego the benefits granted in the 
Labor Board — 

the country's economy was dealt a heavy blow; business confidence received a 
disquieting shock; the value of the peso dropped from 20 to 25 percent; * * * 
the Government incurred a serious cut in revenue, resulting specifically from the- 
decline in oil taxes, and generally from the deepened depression. Moreover, the 
expropriation move promised to have significant long-term consequences. Of 
Mexico's four major petroleum districts — Panuco (north of Tampico), "The- 
Golden Lane" (south of Tampico), Poza Rica (south of Tuxpam), and the Isthmus 
of Tehuantepec, three show declining production. Only Poza Rica, to which 
may be added the "El Plan" field on the Isthmus, is in full development. For 
about 10 years the Government has generally refused new concessions for explora- 
tion to foreign companies. Unless Mexico can insure provision of the sums 
necessary for the drilling and development of existing fields or the eventual 
exploitation of new ones, it faces an early curtailment in production.** 

EXPROPRIATION OF AGRICULTURAL LANDS 

The agrarian reform led to considerable difficulties on an inter- 
national scale. 

Agrarian expropriation began in Mexico in 1915. Before that time, 
foreigners owned about one-fifth of the private lands of Mexico; of 
these, Americans held about 50 percent.^* Up to August 30, 1927, 
161 moderate sized properties of American citizens had been taken. 
The claims arising therefrom were referred, after much discussion, to 
the General Claims Commission established by agreement between 
the Mexican and United States Governments in 1924. ^® 

Land expropriation during the Cardenas administration has 
affected properties of United States citizens in the Territory of Lower 
California, the Laguna, the State of Puebla, and other areas. The 
legal basis for land expropriation, like oil expropriation, is article 27 
of the 1917 constitution, which stipulates that "the ownership of 
lands and waters comprised within the limits of the national territory 
is vested originally in the Nation." Also, the State was declared to 
"have at all times the right to impose on private property such 
limitations as the public interest may demand. * * * Yot this 
purpose necessary measures shall be taken to divide large landed 
estates; to develop small landed holdings; to establish new centers of 
rural population with such lands and waters as may be indispensable 
to thern." The same article also provided that compensation for 
expropriated property was to be given on the basis of the declared 
value of the property for taxation, plus 10 percent. Landowners were 
offered payment in 20-year 5-percent bonds. 

After a lengthy exchange of notes, the agrarian controversy was 
largely settled when, on November 9-12, 1938, the Mexican and 
United Sta tes Governments exchanged communications agreeing 

!1 ^oi'^'Kn Policy Reports, Ang. IS, 1938, pp. 131, 132. 

" Frank Tannenbaum, The Mexican Agrarian Revolution, Macmillan, 1929, eh. XV. 

« Compensation for American-owned lands. Department of State, Publication 1288, pp. 3, 4. 



154 CONCENTRATION OF ECONOMIC POWER 

upon a satisfactory procedure for the determination of the fair com- 
pensation to be given American citizens whose lands have been taken 
subsequent to August 30, 1927, and in consequence of which agree- 
ment the Mexican Government will provide compensation in cash for 
such properties.^^ 

MINERAL PROPERTIES 

A further step in nationalization has been accomplished by reserving 
petroleum and mineral properties throughout the country, where not 
already alienated. Two states have been declared national reserves 
for coal and iron, and salt reserves have been legalized in many 
states. All deposits of potassium salts and phosphate rock not covered 
by concessions were incorporated into the national reserves in August 
1938, looking toward an eventual government monopoly of production 
and distribution of fertilizer.^* 

Mexico finds itself in a dijfficult situation. Without the cooperation 
of foreign capital the immediate funds needed to carry out the social 
program on which the country has embarked cannot be secured. On 
the other hand, if foreign capital is to be attracted it must be given 
more assurance of stability and security than it has received in the 
past; such assurances, however, are incompatible with the tenets of 
the revolutionary program. A way out of this dilemma may be found 
by giving better treatment to foreign investments that are already 
in Mexico, and finding a new formula for future investments acceptable 
to Mexicans as well as to foreign investors — such as granting Mexicans 
participation in operating companies which would have as their ulti- 
mate objective the final acquisition by Latin Americans of the property 
being developed by foreigners. 

2' [-"ress Release, Department of State, No. 1327, Aug. 14, 1939. 

3* Trust Laws and Unfair Competition in Foreign Countries, Annual Report of the Federal Trade 
Commission, 1939, p. 159. 



PART VIII 

CONCLUSIONS REGARDING LATIN AMERICA 

by 

AGNES ROMAN 

Junior Economist 
Temporary National Economic Committee 



CONCLUSIONS REGARDING LATIN AMERICA 

Exports from most Latin American republics consist chiefly of 
one or two outstanding products, foodstuffs and raw materials, the 
prices of which are subject to wide fluctuations. The rise and fall 
of these prices has severely dislocated the economic structure of the 
Latin American countries at various times, as during the past decade, 
when the economic crisis was followed by social unrest, revolutions, 
and continuous political unstability. Thus Latin Americans could not 
help realizing that "to have the whole fabric of civijization and the 
alternative between peace or war depend upon the price of coffee or 
nitrates or beefsteak or linseed oil or wool or petroleum is indeed a 
terrible situation to contemplate." ^ To alter this situation most 
countries have endeavored to diversify their economy by developing 
a larger range of export products and by trying to speed up the process 
of industrialization. 

The upshot was the most recent shift in the South American position. Having 
been mined for three centuries and milked for one, the republics, particularly the 
more advanced republics of Brazil, Argentina, and Chile, determined to do a bit 
of the mining and milking themselves. Beginning early in the thirties with 
currencies generally devalued, economic nationalism became orthodox south of 
Panama. Tariffs went up. Subsidies went in, and the principal South American 
republics began to change with disconcerting rapidity from countries everybody 
used and nobody thought about to countries everybody thought about and fewer 
and fewer could use. 2 

In addition to the desire of placing their foreign trade on a broader 
basis, other factors have been responsible for the emphasis on indus- 
trialization in recent years. There has been a general realization that 
industrialization will end class stratification and will help to build up 
a middle class, politically articulate and capable of sharing political 
responsibility. The effort to increase the purchasing power of the 
population has been another reason for the acceleration of the drive 
toward industrialization. The protective tariff policies and govern- 
ment subsidies adopted by most Latin American countries from the 
earliest periods of their independence is an indication that the idea of 
government aid for manufacturing is not new in these countries. In 
recent years, however, protection has been reinforced by exchange 
controls and other methods. 

Industrialization and diversification, however, provide only one 
reason for the increasing interest of Latin American leaders m the 
economic activities of their countries. Nationalistic sentiment, ex- 
pressing itself in resentment toward foreign enterprises, hSs been 
another factor. To what extent this resentment has actuall}^ reflected 
th average Latin American attitude toward foreign capital, and to 
what extent it has been whipped up for the purpose of fomenting what 
has been called socio-economic-nationalistic revolutions is impossible 

1 Economic Relations with Latin America, Michigan Business Papers, No. 6, University of Michigan, 
January 1910, p. 35. 
> Fortune Magazine, December 1937, pp. 104-5. 

167 

282317— 41— No. 40 12 



IQg CONCENTRATION OF ECONOMIC POWER 

to ascertain. But it is probably true that msLnf Latin Americans 
feel that most foreign enterprises, and particularly the extractive 
industries, have never quite become a part of the country. They 
resent foreign companies leaving only wages and taxes in the country; 
they feel that profits derived from the exploitation of natural resources 
are but seldom reinvested in the country from which they were derived, 
and that foreign companies form a state within the state, and are apt 
to influence national and international affairs. Even if some of the 
accusations are no longer true, their former truth still influences the 
mental reactions of Latin Americans. This aversion toward foreign 
enterprise has led certain leaders to contemplate the possibility of 
adopting the role of the foreign or native entrepreneur. They feel 
capable of tapping the unused productive capacity of their country 
and feel sure that a strong government could induce the native capi- 
talists to invest their surplus funds in domestic industrial enterprises. 
They feel that they need only a strong central government which 
would command the confidence of the community at large or, if 
necessary, could impose its will on the people. Most of them recog- 
nize the great difficulties which would confront them in the absence of 
foreign capital. The general trend is nonetheless in the direction of 
atrthojitarian governments experimenting with various ways to build 
up a better-balanced economy. As far as the future position of 
foreign enterprises is concerned, in face of the continued threat of 
nationalization, their further expansion probably will be possible only 
if they are satisfied with limited returns and are willing to accept 
citizens of Latin American countries in enterprises they wish to 
develop. 

What can the United States do to help the Latin American republics 
to build up a better-balanced economic system? The greatest need 
of the Latin American countries is financial assistance, provided its 
objective is the carrying out of a sound investment program. The 
objectives of financial assistance should include the production of raw 
materials needed in the Western Hemisphere, e. g., rubber. Also, 
consideration should be given to the encouragement of the manufac- 
ture of industrial goods needed in Latin America, and in which Latin 
American raw material can be used, but which are ordinarily imported. 
The development of light manufacturing, while it would give impetus 
to growing trade between the Latin American countries, would have 
to be accompanied by developing better communication services than 
are in existence at the present time; capital for building railroads and 
roads will also have to come from abroad. Much has been made of 
the possibilitv of developing in Latin America the manufacture of 
products which United States department store buyers formerly 
imported from Europe and Asia. Handicraft goods specialities fall 
into this category. In the past limited quantity, lack of sales organi- 
zations, etc., have generally prevented the realization of such a pro- 
gram, but, given financial and technical assistance, the difficulties 
could be overcome. 



INDEX 



AGRICULTURE, GOVERNMENT REGULATION OF: r^s" 

Argentina 104-112 

Brazil 123-128 

Chile 144-146 

France 92.95-96,98 

Germany 67-69,80-82 

Mexico 151, 155-157, 159-160, 163-164 

ALCOHOL MONOPOLY (France) 99 

ANTITRUST LEGISLATION: 

Argentina 104-106 

Brazil 130-131 

France 87-91 

Mexico 152-154 

APPRENTICESHIP SYSTEM (Germany) 77 

ARGENTINA: 

Antitrust law 104-106 

Dependence on agricultural exports- -_ 103-104 

Foreign-exchange control 109, 113-114 

Insurance control 115-116 

Meat industry, promotion and regulation of 105-109 

Necessities, control of 104, 116 

Petroleum-industry regulation 116-119 

Public-utility regulation in 114-115 

Wartime measures 116 

ARMAMENTS INDUSTRIES (see also iron and steel industry): 

Chile, control in _142 

France, control and nationalization 93, 95-98 

BANKING: Concentration in Germany 40-41, 46-47 

BILATERALISM: In foreign exchange 112-114 

BOARD OF TRADE (Great Britain) and cotton industry control 21-31 

BRAZIL: 

Agriculture, dependence on 123 

Antitrust legislation 1 30- 131 

Cocoa Institute . 126 

Coffee regulation '- 123-126 

Control over cereals, lard, tobacco, cotton, etc 127 

Exchange control 1 32-133 

Government credit to agriculture — 127-128 

Industrialization attenapts 132 

Insurance control . 130 

National Economic Council 128-129 

Nationalization of industries 129-130 

Necessities, control of 130-131 

Petroleum industry , 129-130 

Sugar and Alcohol Institute 127 

Wartime legislation 131-133 

BUENOS AIRES: 

Municipal ownership of utilities- 115 

Petroleum regulation 118 

BUREAUCRATIZATION IN CENTRALIZED INDUSTRIES 56 

CAPACITY. (See Productive capacity.) 

CAPITALIZATION (see also Productive capacity; Overcapitalization; 
Banking) : 

British cotton industry, attempt to decrease , 19 

British steel industry, influence in technical progress 10 

V 169 



IJQ INDEX 

CAPITAL, LACK OF: ^ase 

Chile ,-- 137 

Latin America 168 

Mexico 164 

CAPITAL MARKET, CONTROL OF: 

Germany 73-75 

CARTELS (see also Syndicates; Trade associations; Trusts; Monopoly): 

Commission for regulating (Germany) 58-59 

Compulsory: 

France 91,99 

Germany 63-66 

Great Britain 14-15 

Mexico 158 

Court on, Germany 59-60 

Dissolution of (Germany) 65 

Extent and activities of, in Germany 39-47, 52-56, 66 

Forms of, definitions 37n 

France : 90-91,99,100 

Germany 36-62 

Great Britain, compulsory cartelization of coal industry 14-17 

Internal difficulties in 19, 42 

International 51, 60, 139-142 

Investigation of, German 50-62 

Legal status in Germany 47-50, 56, 59-60 

Methods of controlling 58-60 

Mexico: 

"Benevolent monopolies" 154,159-160 

Textiles industries 159 

Sugar industry , 154 

Nazi modifications of 63-70 

Nitrogen 139-142 

Price influence of 61 

Public policy toward : Germany 47-50, 57-62 

Purposes of (Germany)..., .. 47-49, 51-52, 63 

Registration of, German proposal for 58-59 

Vertical integration, aid to 43 

CHEMICAL INDUSTRY (Germany) 44-45 

CHILE: 

Bag factory 1 ^._ 142 

Credit policies 145 

Foreign-exchange control 144-145 

Iron and steel 142 

Monopolies proposed ; 146-148 

"Necessities" control 145-146 

Nitrate controls 137-142 

Objectives of State intervention 137-138 

Overproduction measures 143-144 

Petroleum industry 146-147 

Public utilities ^ 138-139 

Recent development of social legislation 1 37- 1 38 

Reconstruction measures after earthquake 142-143 

Taxes 143 

United Breweries __ __ _ _ 142 

COAL INDUSTRY: 

Brazilian _ 132 

British '___ glio, 12-17 

Chilean 145 

French '..'.. 88, 92-93 

German 42-43, 97 

COCOA INSTITUTE (Brazil) 126 

COFFEE: Brazilian control of _ .... ... 123-126 

COMBINATIONS (see also Cartels; Concentration; Monopoly; Trusts) : 

British 7^ 17 

Forms of: definitions 37n 



INDEX 171 

COMBINATIONS— Continued. 

Compulsory : Page 

France 91-93 

Germany 63-66 

Great Britain. 14-15 

Mexico 158 

French attitude: evolution of 87-93 

COMPETITION: 

• Preservation of. (See Antitrust legislation.) 
Restriction of. (See Cartels; Monopoly; Prices; Productive capac- 

iy.) 

COMPTOIRS (France) 90-91,99 

CONCENTRATION, ECONOMIC (see also Cartels; Combinations; 
Monopoly; Trusts): 

Argentina: opposition to 103-106 

Characteristics of, in Germany ^ 54-56 

Encouragement of: Great Britain , 6, 14-17, 23, 31 

Forms of 37n, 52-54 

French attitude on: evolution of 87-93 

German banks' aid to 46-47 

German law and ^ 47-50 

Inflation in Germany and 37-38 

Legislation against. (See Anti-trust legislation.) 

Market conditions and 35, 60 

Legal staWs in Germany 47-50, 56 

Methods of controlling , 58-60 

Public policy toward: Germany 47-50, 57-62 

Purposes of 47-49, 51-52 

Technical conditions in chemical industry and 45 

CONTRACTS: As a method of concentration 54 

COPPER INDUSTRY: Chile 137-138, 143 

CORNERING THE MARKET 88, 104-105, 152 

CORPORATIONS : German system of organization of 78-79 

COSTS, DECREASE OF: 

British coal industry 16-17 

France 100 

COTTON INDUSTRY: British 8-10,17-31 

COURTS, ON COMBINATIONS: 

France ' 89 

Germany 47-50 

CREDIT: 

Argentina : Government credit for naeat packing 108 

Brazil: Government credit to: 

Agriculture 124-128 

Industry - 132 

Chile: Government credit for — 

Earthquake reconstruction 143 

Industry and agriculture 145 

France: Government extension of 93 

Germany : 

Banks and 46-47, 75 

Government control of 73-75 

Mexico: Government credit to agriculture and industrv 156-159 

DIVIDENDS, LIMITATION OF: Germany --I 74 

ECONOMIC COUNCILS, NATIONAL: 

Brazil 128-129 

France ....^ 99-100 

Germany (Enqueteausschus) 50-62 

EMPLOYMENT. (See Labor.) 

ENQUETEAUSSCHUS (German economic committee) - 50-62 

EXCHANGE CONTROL, FOREIGN: 

Argentina 109 

Brazil 132-133 

France 95 

Germany 71-72 



272 INDEX 

EXPORTS: 

Argentina: Pagfl- 

Dependence on 103 

Subsidy and control of 109-110, 112, 114 

Brazil : 

Difficulties with - 123-126 

Control of 124-126, 129, 131-132 

Tax on 124-126 

Chile: Control of 139, 144, 146 

French prohibitions on 95 

German subsidy to 71-72- 

Mexican aid to 159, 161 

Nitrogen cartel control of 140-142 

EXPROPRIATION. {See Nationalization.) 

FLOUR-MILLING INDUSTRY (Argentina) 111 

FOREIGN INTERESTS, CONTROL OF: 

Argentina J 105, 115-119 

Brazil 129-130 

Chile 137, 147-148 

Latin AmeMca 167- 1 68. 

Mexico 161-164 

FRANCE: 

Comptoirs 90-91,99 

Evolution of attitude toward concentration movements 87-93 

Government monopolies 98-99 

Ineffectiveness of Government control 97 

National Economic Council 99-100 

Recent economic controls 91-98 

War measures 93-98 

FOOD. {See Agriculture.) 

Foreign exchange control. {See Exchange control.) 

GERMANY: 

Agricultural regulation 67-69, 80-82 

Appraisal of: 

Cartels 60-62 

Present economic controls 79-84 

Banks in 46-47,75 

Capital market control , 73-75 

Cartels. {See Cartels.) 

Corporation organization 78-79 

Development of economic control movements: 

Before World War 35-37 

In the 1920's 37-62 

Under the Nazis 63-84 

Enqueteausschuss 50-63 

Foreign-exchange control 70-7 1 

History and extent of economic control movements 35-84 

Industries cartelized 40-46, 65-66, 67-73 

Industry regulation 69-70, 79-80 

Labor, regimentation of 75-78, 82-83 

Legal status of private combinations 47-50, 56,' 63-66 

Nazi controls in 63-84 

Nitrogen Syndicate 140 

Price controls {see also Cartels) 72-73, 83-84 

Rationalization. {See Rationalization.) 

Taxation 7g 

Temporary Economic Committee (Enqueteausschuss).. _. . 50-62 

GRAIN REGULATION (Argentma).... 109-111 

GREAT BRITAIN: 

Argentine meat-import agreement- 107 

Census of Production (1907) III"I"III 8, 9 

Coal industry ^ 9-10 12-17 

Cotton industry '""I.I.I!^" 8-10,' 17-31 

Exports of 8-10, 12, 21,25 

i^oreign competition and , 8-11 

Iron and steel industry " II. I. "II" 9-11 

Merchants and cotton industry control 2 1-26, 28 



INDEX X73 

GREAT BRITAIN— Continued. Page 

Nitrogen cartel 140 

Postwar industrial problems, general nature of 5-6, 10-12 

Production of various industries 7-10 

Rayon industry, attitude on cotton producers' control scheme 25-28 

Recent trends in industrial reorganization 3-31 

Traditional policies and read j ustment of 3-6,11,31 

GUILDS: 

France: Sentiment against 87-89 

IMPORTS, CONTROL OF: 

Argentina 117-119 

Brazil.. 129-131 

Chile 144 

France 95 

Germany 67-68, 70-71 

Great Britain 109 

Latin America , i 112-114 

Mexico ._ 159 

INDIVIDUALISM: 

British cotton industry and .... 18, 23 

British social philosophy and 4, 11 

INDUSTRIALIZATION, PROMOTION OF: 

Brazil 132 

Chile 138 

Latin Apierica 167 

INDUSTRY, CONTROL OF. {See Names of various industries and 
countries.) 

INFLATION: Stimulus to concentration: 

France, post-war 91 

Germany, post-war 37-38 

INSURANCE REGULATION: 

Argentina 115-116 

Brazil 130 

INTEGRATION, VERTICAL: 

Defined 37n 

German industries and 37-38, 43-44, 68-69 

Iron and steel industry: 

French 91 

German 42-43 

INTER-AMERICAN FINANCIAL AND ADVISORY COMMITTEE. 126 

INTERLOCKING DIRECTORATES: As a method of concentration.. 54 

INVESTMENTS {see also Capital, Capitalization): 

Argentine insurance conapanies' 115-116 

IRON AND STEEL INDUSTRY: 

British 9-11 

Chilean 142, 147 

French 90-91,97 

German 43-44 

Regulation of economic activity 35-36, 87-88 

LABOR- 

and oil industry (Mexico) 162 

and price agreements (German court stand) 48 

LABOR POLICIES: 

Chile 137 

France 92, 95 

Germany 75-78,81-83 

Great Britain 12-15, 22, 27, 30 

LARGE AGRICULTURAL UNITS (Mexico) 155-156 

LATIN AMERICA (see aiso Argentina; Brazil; Chile; Mexico): 

Coffee controls 126 

Government economic controls in 103, 112, 167-168 

LEGAL STATUS OF COMBINATION MOVEMENTS (see aZso Anti- 
trust legislation; Monopoly): 

Franae 87-92, 1 00 

Germany 47-50, 56, 59-60 

MACHINERY: Limitation on use of 65 



174 INDEX 

MARKET CONDITIONS: f»g« 

Concentration and 35, 60 

Depression and 50 

MARKETING: 

Germany : agriculture 67-69 

Great Britain: coal 15 

MATCH MONOPOLY (France) . 98-99 

MEAT-PACKING: Combinations and regulations of 105-109 

MERGERS. (See Combinations.) 

METAL WORKERS: German regulation of 76-77 

MEXICO: 

Agrarian program 155-158, 163-164 

Agriculture: importance of 151 

Expropriation 155-156, 158, 161-164 

Foreign investments , 151 

Hennequin industry •- 156, 159 

Large vs. small holdings of land 155-157 

Monopoly policies 152-154, 158-160 

National Economic Council 155 

Nationalization 155-157, 161-164 

Necessities, control of . -- 152-153, 160 

Price-fixing 153-154, 158-160 

Railways 161 

Recent control measures 158-164 

Revolution of 1910 151 

Silk and rayon industry 158-159 

Six- Year Plan 155-158 

Wealth distribution 151, 155 

MIDDLE AGES: Economic organization in 35-36 

MIGRATION, PROHIBITION OF: 

France ^ 96 

Germany 76 

MINING. (See Coal industry; Potash industry; Nitrate industry; 
Copper industry.) 

MONOPOLY. (See also Antitrust legislation: Cartels; Combinations; 
Concentration) : 

German steel industry 55n 

Governmental: 

Chile 146-148 

France .. 98-99 

Mexico 152-153 

Public policy and: 

Argentina 104-106 

Brazil .__. 130 

Germany 57-62 

Mexico 152—154 

moratorium' on' mortgages "(Argentina) llllllllllllllll" 11 1-1 12 

MUNICIPAL OWNERSHIP OF UTILITIES (Argentina) 114-115 

NATIONALIZATION: 

Brazilian petroleum industry 129 

British mines 13, 15-17 

Chilean industries and utilities 138-139, 142, 146-147 

French: 

Arms and railroads industries 93 

Chemical industry 45 

German railways 41 

Mexican rails, oil, and land 155-157, 161-164 

"NECESSITIES" CONTROL: 

Argentina 104, 116 

Brazil 130-131 

Chile 145-146 

Mexico 152-153, 160 

NITRATE INDUSTRY: 

Cartel in 139-142 

Chile 137-142 

France 93 



INDEX 175 

OUTPUT (see also Productive capacity) : 

Laws against limitation of: .Pag« 

Argentina 104 

Brazil 130 

Mexico 152-153 

Limitation of: 

Argentina 105, 110 

Brazil 123-127 

France 95 

Germany 67-68 

Mexico ^ 159 

Nitrogen Cartel 139 

Regulation of (Fraiice) 91-100 

OVERCAPITALIZATION (see also Capitalization; Productive capacity): 

German industry J 36, 55 

PETROLEUM INDUSTRY: 

Argentina 1 16-1 19 

Brazil 129-130 

Chile 146-147 

France 93,99 

Mexico 160-163 

POOLS: 

Argentine meat packers 105 

German shipping 41 

POTASH INDUSTRY: 

French 93,99 

German 4 1-42 

PRICE AGREEMENTS (see also Syndicates; Cartels; Prices) : 
Germany : 

Banks and 47 

Coal industry and 42 

Post-war attempts 51 

Potash industry and 41 

Mexico 152-154 

PRICES (see also Concentration; Monopoly; Output, limitation of): 

Cartel influence on__ 61, 63 

Fixing of: 

■Brazil 125 

Chile 139, 143 

France..- 93-96 

Germany . 63-70, 72-73 

Great Britain 20, 24, 27, 29-31 

Mexico . 153, 154, 158-160 

Freezing of . 4, 73, 94-96, 146 

German law and cartel jfixing of... 47-50, 63-70, 72 

Maximum: 

Argentina 116 

Brazil 129, 131 

France 94-96 

Germany 72-73 

Mexico 153, 160 

Minimum; 

Argentina 109 

Brazil 129-130 

Germany 65, 72 

Great Britain 14-16, 20, 22, 24, 27, 29-31 

Stability of (Germany) 83-84 

PRODUCTIVE. CAPACITY (see also Output): 
Control of : ' 

Chilean 143-144 

German 63-70, 79-83 

Mexican 158 

Overexpansion of, German 39, 45, 55 

Rationalization and, in Germany.. 55 



176 



INDEX 



PRODUCTIVE CAPACITY— Continued. 

Reduction of: ^^^^ 

Germanj'- ' . 63-64 

Great Britain 11, 18-19, 21-24, 29-31 

Large units' attitude on 19 

PROFITS, LIMITATION OF: 

Germany 72-73 

PUBLIC UTILITIES: Government ownership of: 

Argentina -• 114-115 

Chile . 138-139 

PUBLIC UTILITY PRINCIPLE: 

Argentine petroleum industry 118 

Brazilian petroleum industry 129 

Chilean production of necessities 146 

German coal industry 42-43 

Mexican petroleum industry 160 

QUEBRACHO CONTROL (Argentina) 111 

RAILROADS: 

France 93-94 

Mexico 161 

RATIONALIZATION: 

In France . 100 

In German industry 37-39,45, 52, 54-55, 60-61,66 

RATIONING (see also Productive capacity; Prices) Germany 83 

RAYON INDUSTRY: 

Great Britain: attitude on production control 25-28 

Mexico: control of 158 

REGISTRATION: 

British cotton industry control 28-31 

German cartels : proposal for , 58 

RETAILING (see also Cartels; Monopoly): 

French regulation of 92 

German control of 70 

RETAIL TRADED, CENTRAL ASSOCIATION OF GERMAN 41 

RIGIDITY, ECONOMIC: Causes of: Germany 51,61 

SAO PAULO: Coffee regulation 123-124 

SECURITIES MARKET, limits on: Germany 73-75 

SHIPPING: 

Chilean -._ 137 

German 41 

SlViALL AGRICULTURAL UNITS: Mexican favor for 155-157,163 

SMALL INDUSTRIAL UNITS: Attitude toward production control 19, 22 

SMALL RETAIL UNITS: Nazi favors to 70 

SPINDLES BOARD (Great Britain) 19-21 

STOCK, ACQUISITION OF: Means to concentration in German industrv. 53, 57 

SUBSIDIES: 

Argentina : grains and beef 109-1 10 

Export: ' 

Argentina : beef and casein 109, 111 

British coal: abolition of subsidies 15 

Great Britain: 

Beef-cattle producers 109 

Coal industry 13-14 

Latin America _ _ 167 

SUGAR INDUSTRY: 

Argentina 111 

Mexico 154 

SURPLUSES. {See Output, limitation of; Productive capacity.) 

SYNDICATES (see also Cartels) : 

Brazilian 128-129 

French 88 

German 36-37, 41-43, 46, 54, 63 

Nitrogen 140-141 

TARIFFS: 

Argentina: reduction on necessities 116 

Combination, aid to 11, 36, 42 

Latin America 167 



INDEX 177 

TAXATION: ^as« 

Chilean income 143 

German combinations and 53 

Nazi system of 78 

TECHNICAL PROGRESS (.see aho Rationalization): 

Agricultural, and market conditions in Middle Ages 35 

British industry and 8-12 

Chemical industry: source of combination movement 45-46 

Combinations and (see also Rationalization) ; 52 

Depreciation and 56 

Expansion of trade in eighteenth century and 36 

German, in war 39 

TEXTILES. (See Cotton industry; Rayon industry.) 

TOBACCO MONOPOLY (France) - 98-99 

TRADE ASSOCIATIONS (see also Cartels; Syndicates): 

British - 6-7 

German (see also Cartels) 66 

Legal status: Great Britain 6-7 

TRADE-MARKS: Basis of combination movement 41, 46 

TRANSPORTATION. (-See Railroads; Public utilities.) 

TRUSTS (see also Cartels): German 37-38,47 

UNIONS. (See Labor.) 

UNITED STATES: 

Argentine control of imports from 114 

Nitrate cartel and 140-141 

VALORIZATION: 

Brazilian coffee 123-126 

WAGES. (See Labor policies.) 

WAR: 

Effect of, on economic organization: 

Germany 37, 50-51, 73, 78-84 

Great Britain 4-6, 11, 31 

Taxes : Germany 78 

WARTIME CONTROL OF INDUSTRY: 

Argentina 116 

France 93-98 

Germany 50, facing 67, 69-70, 79-84 

Great Britain 4-6, 28 

WINE REGULATION (Argentina) 110-111 

YERBA MATfi CONTROL (Argentina) 110 



liiiliiijiii 

3 9999 0635 1 ^^^